2024 First-Half Financial Report

2024 FIRST-HALF

FINANCIAL REPORT

MERSEN

2024 fi rst-half fi nancial report

page

This document is a free translation of the original prepared in French. All possible care has been taken to ensure that the translation is an accurate representation of the original. However, in all matters of interpretation of information, views or opinions expressed therein, the original language version in French takes precedence over this translation.

SALES

SALES

In the fi rst half of 2024, Mersen’s sales totaled €624 million, the highest level ever achieved by the Group. Organic growth was 4.9% year on year,  of which around 2.5% was attributable to price increases.

By segment

 Advanced Materials sales totaled €347 million, up 7.0% on an organic basis over the year. Growth remained strong in the SiC semiconductor market, while business is set to recover in the silicon semiconductor market by the end of the year. The renewable energy market reported a moderate decline compared with the very strong performance in fi rst-half 2023. In particular, the solar market contracted as a result of the overstocking of solar cells in China. The segment saw growth in transportation markets, especially aeronautics, and the chemicals market also expanded year on year.

Electrical Power sales totaled €277 million in the fi rst half, up by 2.3% on an organic basis. As in the Advanced Materials segment, transportation markets including aeronautics, rail and electric vehicles were buoyant. The process industries market was up, driven in particular by electrical distribution in the United States. The solar market was in decline, particularly in Europe.

By geographic area

 In Europe, organic growth was 3.9%, led by the transportation and chemicals markets. However, sales were down in energy markets (both conventional and renewable).

In Asia, Group sales rose by 8.8% year on year. The chemicals and SiC semiconductor markets performed very well, while business in solar was down over the period.

Lastly, in North America, sales grew by 3.5%. The region was driven by growth in the aeronautics and electrical distribution markets, while the chemicals market contracted.

 EBITDA before non-recurring items grew by nearly 5% year on year to €105.5 million, representing 16.9% of sales, up on fi rst-half 2023 (16.5%).

Depreciation and amortization came in at €35.5 million, an increase on the previous year as expected, attributable to higher capital expenditure.

Operating income before non-recurring items came to

€70.1 million in the fi rst half of 2024, yielding an operating margin before non-recurring items of 11.2% of sales, in line with fi rst-half 2023 (11.3%) and with guidance for full-year 2024 (around 11%).

Price increases, optimization measures and productivity gains during the period largely offset higher raw material and labor costs. This result also takes into account additional costs related to the Group’s growth projects including the Soitec partnership and the electric vehicle teams. In addition, it includes a signifi cant increase in depreciation and amortization linked to the Group’s capital expenditure plan.

Advanced Materials segment

 EBITDA before non-recurring items for the Advanced Materials segment was €77.1 million, representing 22.2% of sales versus 21.6% in fi rst-half 2023.

Operating income before non-recurring items for the segment amounted to €52.8 million, resulting in an operating margin before non-recurring items of 15.2% of sales, compared with 15.1% for fi rst-half 2023.  Price increases, optimization measures and productivity gains during the period helped offset the higher cost of raw materials  and labor, as well as costs related to growth projects and the project with Soitec. The increase in depreciation and amortization represented a 0.5-pt change in the margin. The segment also benefi ted from improved productivity at the Columbia plant.

Electrical Power segment

 EBITDA before non-recurring items for the Electrical Power segment was €39.1 million, representing 14.1% of sales, in line with fi rst-half 2023.

Segment operating income before non-recurring items amounted to €29.6 million, compared with €29.4 million in fi rsthalf 2023.  The operating margin before non-recurring items came in at 10.7% of sales, in line with June 30, 2023, as price increases and productivity measures offset higher raw material and labor costs and costs linked to the electric vehicle teams.

Net fi nancial expense was €10.3 million, an increase from fi rst-half 2023, due primarily to the rise in interest rates and in average debt.

 The income tax expense was €13.0 million, corresponding to an effective tax rate of 24%, slightly higher than in fi rsthalf 2023 (23%).

Income from non-controlling interests (€2.4 million) essentially included Mersen Yantai (China) and Mersen Galaxy (China), in which Mersen holds a 60% stake.

CASH FLOWS

CASH FLOWS

Condensed statement of cash fl ows

 The Group generated net cash from operating activities of €54.5 million, an increase of nearly 40% on the €39.2 million reported in fi rst-half 2023. The WCR ratio stood at 21.8% of sales, lower than at June 30, 2023 (23%) thanks in particular to an increase in prepayments on long-term SiC semiconductor contracts.

Income tax paid represented an outlay of €6.3 million, down sharply from the June 30, 2023 fi gure which included oneoff effects.

Capital expenditure

 In the first half of 2024, capital expenditure amounted to €83.1 million. Around 75% of this amount will be used for capacity increases as part of the Group’s medium-term plan, of which two thirds to serve the SiC semiconductor market. The remaining capital expenditure relates to safety and environment initiatives at Group sites, maintenance, upkeep and modernization of plants and equipment and other growth projects.

Investments in intangible assets related to the plan to digitize and modernize information systems, as well as to capitalized costs in electric vehicles and on the Soitec project, for a total of €5.7 million.

Net debt at June 30, 2024 stood at €258.5 million, up on December 31, 2023 (€212.5 million), primarily refl ecting the signifi cant increase in capital expenditure as part of the Group’s growth plan. Pension obligations stood at €37 million (€40 million at December 31, 2023). Lease liabilities amounted to €52 million (€54 million at December 31, 2023).

The Group has a solid fi nancial structure, with €320 million in undrawn credit facilities (including NEU CP hedging) and around €100 million in available cash at end-June 2024.

The average maturity of the Group’s fi nancing is 4.3 years, with no major drawn debt maturities to be met before 2026.

ROCE

The Group’s return on capital employed (ROCE) stood at 12.4% in fi rst-half 2024, compared with 13.0% for full-year 2023 and 13.3% for fi rst-half 2023. This decrease is due to the rollout of the Group’s investment program as part of its growth plan.

2024 OBJECTIVES

2024 OBJECTIVES

 On the strength of its fi rst-half 2024 results, the Group confi rms its objectives for full-year 2024:

■ organic growth of around 5%;

■ operating margin before non-recurring items of around 11%; ■ capital expenditure of between €200 million and €240 million.

GLOSSARY

GLOSSARY

Average capital employed: Average capital employed for the last three half-year periods.

Capital expenditure: Investments in property, plant and equipment.

EBITDA before non-recurring items: Operating income before non-recurring items, depreciation and amortization.

Gearing: Covenant net debt divided by equity.

Leverage: Covenant net debt divided by covenant EBITDA.

Net debt: Sum of long- and medium-term borrowings, current fi nancial liabilities and current bank loans, less current fi nancial assets, cash and cash equivalents.

Organic growth: Determined by comparing sales for the year with sales for the previous year, restated at the current year’s exchange rate, excluding acquisitions and/or disposals.

Recurring EBITDA margin: EBITDA before non-recurring items divided by sales.

ROCE: Return on capital employed: operating income before non-recurring items for the last 12 months divided by average capital employed.

Scope effect: Contribution from companies acquired in the year in relation to sales for the year.

WCR: Working capital requirement: sum of trade receivables, inventories, contract assets and other operating receivables, less trade payables, contract liabilities and other operating payables.

WCR ratio: Working capital requirement divided by sales for the last quarter, multiplied by four.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

Assets

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

Equity and liabilities

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Attributable to Mersen shareholders

Additional

                                                                                                                paid-in capital,          Net

           AT DECEMBER 31, 2023                                                 48.8                 673.5          81.6          (15.8)      788.2             29.5       817.7

CONSOLIDATED STATEMENT OF CASH FLOWS

CONSOLIDATED STATEMENT OF CASH FLOWS

In accordance with Regulation (EC) No. 1606/2002 of July 19, 2002, the consolidated fi nancial statements of Mersen and its subsidiaries (the “Group”) have been prepared in accordance with IFRS (International Financial Reporting Standards).

The standards and interpretations effective for annual reporting periods beginning on or after January 1, 2024 are described in Note 3.

The accounting options selected by the Group are described in Note 3 to the consolidated fi nancial statements in chapter 6 of the 2023 Universal Registration Document.

The interim consolidated fi nancial statements for the six months ended June 30, 2024 have been prepared in accordance with IAS 34 “Interim Financial Reporting”. They do not include all the information required for a complete set of annual fi nancial statements, and should be read in conjunction with the Group’s consolidated fi nancial statements for the year ended December 31, 2023, available at www.mersen.com. They do include a selection of explanatory notes describing the major events and transactions for a better understanding of the changes that have occurred in the fi nancial position and performance of the Group since the latest annual fi nancial statements for the year ended December 31, 2023.

These condensed interim consolidated fi nancial statements were approved for issue by the Board of Directors on July 29, 2024.

The accounting methods used to prepare these interim fi nancial statements are the same as those used for the Group’s consolidated fi nancial statements for the year ended December 31, 2023.

New standards and interpretations effective in 2024

New standards and interpretations came into effect as from January 1, 2024 but did not have a material impact on the Group’s interim fi nancial statements:

■ Amendment to IAS 1 – Classifi cation of Liabilities as Current or Non-current

■ Amendment to IFRS 16 – Lease Liability in a Sale and Leaseback

■ Amendments to IAS 7 and IFRS 7 – Supplier Finance Arrangements

The OECD’s Pillar Two model rules – aimed at ensuring that multinationals pay a minimum level of tax on their profi ts – came into force in the European Union on January 1, 2024. As with the preparation of the fi nancial statements for the year ended December 31, 2023, the Group has applied the temporary relief from accounting for deferred tax assets and liabilities arising from the implementation of the Pillar Two model rules, as provided for in the amendment to IAS 12 – International Tax Reform – Pillar Two Model Rules.

Use of judgments and estimates

In preparing these interim fi nancial statements, Management was required to exercise judgments, use estimates and make assumptions that affected the application of the Group’s accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual amounts may differ from the estimated values.

The critical judgments exercised by Management in applying the Group’s accounting policies in the interim consolidated fi nancial statements as well as the main sources of uncertainty are the same as those described in the annual consolidated fi nancial statements for the year ended December 31, 2023.

Mersen’s ownership structure at June 30, 2024 was as follows:

Stock options and free shares

For several years now, the Group has implemented a policy of granting free shares. Vesting of these shares is contingent on the benefi ciaries still forming part of the Group at the end of the vesting period. The shares granted under both executive and nonexecutive programs are also subject to performance conditions.

However, Management decided not to set performance conditions in the program for high-potential employees (managers and experts) as these employees have little impact on the Group’s major fi nancial and CSR indicators.

At June 30, 2024, the number of free shares that could potentially vest corresponded to 671,220 new shares (versus 602,340 new shares at December 31, 2023, including 265,680 new ordinary shares allocated as part of the 2024 free share plans), representing 2.7% of the Company’s capital at that date. This total included 629,820 free shares granted subject to performance conditions, of which 42,520 to the Chief Executive Offi cer, Luc Themelin.

A net expense of €2.5 million in respect of share-based payments was recognized in the first half of 2024 (a net expense of

€1.7 million fi rst-half 2023).

 Significant developments in ongoing litigation and proceedings

 There were no signifi cant developments in ongoing litigation and proceedings in the fi rst half of 2024.

Miscellaneous liabilities (€48.8 million at June 30, 2024) mainly included dividends of €30.5 million to be paid following the Annual General Meeting of May 16, 2024, and amounts payable on property, plant and equipment.

The decrease in the provision is mainly due to the fall in the gross defi ned benefi t obligation following interest rate rises in the period across the Group’s main regions. The expense recognized in relation to employee benefi t plans amounted to €2.8 million in the six months ended June 30, 2024, compared with €2.9 million in the fi rst half of 2023.

Mersen has committed credit lines and borrowing facilities totaling €696.5 million, of which 53% had been drawn down at June 30, 2024. Based on the amounts drawn down, the average maturity of these committed facilities is 4.3 years.

To meet the Group’s general cash fl ow requirements, Mersen has entered into the following main committed fi nancing agreements:

■ a €32 0 million multi-currency syndicated bank loan, set up in October 2022 and repayable in full in October 2028, following the exercise in 2023 of an initial one-year option to extend the maturity. This loan includes (i) a second option to extend the maturity to 2029, subject to the banks’ approval and (ii) margins indexed to ESG indicators. The interest payable is at a variable rate plus a credit margin that varies mainly according to the leverage covenant and, to a lesser extent, ESG indicators;

■ two fi ve-year bilateral loans granted by Bpifrance for a total amount of €30 million, set up in October 2022 and January 2024 respectively, and repayable in equal installments. The interest payable is at a variable Euribor rate, plus a credit margin;

■ a bilateral bank loan arranged at the end of 2019 amounting to RMB 50 million, which matures in 2026 following the exercise of an extension option in 2023. This loan is intended to fi nance the Mersen group’s operations in China;

■ a US private placement (USPP) entered into in May 2021 with a pool of North American investors, comprising one tranche of USD 60 million, maturing in 2031, and one tranche of €30 million, maturing in 2028, both of which are redeemable at maturity. The funds became available in October 2021. The holders of the notes issued under the USPP receive interest at a fi xed rate;

■ two Germa n private placements (Schuldschein), of which the fi rst was initially arranged in April 2019 for €130 million and later reduced to €115 million in 2022 following an early partial redemption with a pool of Eu ropean and Asian investors. This loan is repayable in full at maturity after seven years. Investors receive fi xed-rate interest on a nominal amount of €68 million and variable-rate interest at Euribor plus a credit margin on a nominal amount of €47 million. The second German private placement(Schuldschein) for an amount of €100 million was arranged in March 2024 with a pool of European and Asian investors, repayable in full in January 2030. Investors receive fi xed-rate interest on a nominal amount of €23 million and variable-rate interest at Euribor plus a credit margin on a nominal amount of €77 million.

In addition, as part of its policy to diversify its sources of fi nancing, in March 2016 and May 2020, respectively, Mersen launched an NEU CP program and an NEU MTN program, whose maximum amounts were each increased to €300 million in 2023. None of the NEU CP program had been used at June 30, 2024. Any commercial paper issued under this program has a maturity of less than one year and at its maturity date may be replaced by drawdowns on the Group syndicated loan. At the same date, the Group had used €45 million of the NEU MTN program, with maturities in 2025, 2027 and 2028.

Maturity schedule of committed credit lines and borrowings

(1) Maturity calculated on the basis of authorized amounts.

(2) Maturity calculated on the basis of drawdown amounts.

Analysis of net debt

* Including €22.9 million in good quality Chinese bank drafts. Poor quality bank drafts are classified under Other operating receivables.

Net debt at June 30, 2024 amounted to €258.5 million compared with €212.5 million at December 31, 2023.

The €111.0 million increase in borrowings and debt for the period recorded in the cash fl ow statement mainly corresponds to the issue of a second German private placement (Schuldschein) for €100 million and the subscription of a €10 million loan from Bpifrance (refl ecting the increase in gross debt to €385.6 million, compared with €277 million at December 31, 2023). The decrease in borrowings and debt during the period, recognized in the statement of cash fl ows for €3.1 million, primarily refl ects the repayment on the Bpifrance loan for €2 million.

Of the €385.6 million in gross debt, €370 million stemmed from the use of committed loans and borrowings and the remainder chiefl y from the use of uncommitted loans (bank overdrafts and other credit lines).

Financial covenants at June 30, 2024

In connection with its various committed borrowings at Group level and in China, Mersen is required to comply with a number of obligations, which are customary for this type of lending arrangement, as presented below. Should it fail to comply with some of these obligations, the banks or investors (for the US private placement) may require Mersen to repay the relevant borrowings ahead of schedule. Under the cross-default clauses, early repayment of one signifi cant loan may trigger an obligation for the Group to repay other loans and borrowings.

Mersen must comply with the following fi nancial covenants at June 30 and December 31 each year:

of IFRS 16 for the last six-month period, multiplied by two.

The interest rate on the German private placement notes (Schuldschein) is indexed to the leverage ratio (<3.5). Exceeding this cap does not correspond to an event of default but the applicable margin would be increased. The Group complies with all of its fi nancial covenants. At June 30, 2024, there were no material credit lines or borrowings secured by assets or guaranteed by third parties.

The following tables show the fair value of the Group’s fi nancial assets and liabilities and their carrying amount in the statement of fi nancial position, as well as their ranking in the fair value hierarchy for instruments measured at fair value. They do not provide information about the fair value of fi nancial assets and liabilities, measured at their carrying amount, insofar as their carrying amount corresponds to a reasonable approximation of the fair value.

Financial risk management

Credit risk

The Group has set up a Coface commercial credit insurance program that covers its main Chinese, Korean, US and Western European companies against the risk of non-payment for fi nancial or political reasons. Coverage under this program corresponds to 95% of the amount of eligible and covered receivables invoiced.

Currency, interest rate and commodity risks

There were no material changes in currency risk management between December 31, 2023 and June 30, 2024.

In terms of interest rate risk, the German private placement set up in March 2024 includes a €23 million fi xed-interest tranche with an annual coupon of 4.394%. At June 30, 2024, gross debt broke down as 58% at fi xed rates and 42% at variable rates.

 Regarding commodity risk, at end-2023, a portion of the copper and silver tonnage provided for in the 2024 budget had been hedged. Higher commodity prices were offset overall by selling price increases.

Right-of-use assets totaled €48.3 million at June 30, 2024, down €2.3 million compared with the December 31, 2023 fi gure. This fall was mainly due to a depreciation expense of €6.1 million, partly offset by an increase in right-of-use assets linked to the signing of new contracts for €4.2 million.

Lease liabilities totaled €51.8 million, down €2.1 million compared with the December 31, 2023 fi gure.

In first-half 2024, other non-recurring income and expenses represented a net expense of €5.4 million, primarily breaking down as:

■ €3.5 million in expenses for optimization measures;

■ €1.4 million in due diligence costs incurred on acquisition projects, in particular the Graphite Machining, Inc. group, in which Mersen acquired a controlling interest in early July 2024 (see Note 19);

■ a €0.4 million loss on the disposal of Mersen Hatan Electrical Carbon (Harbin) Co. Ltd in early April 2024.

In fi rst-half 2023, non-recurring income and expenses represented a net expense of €0.1 million, primarily breaking down as:

■ net reversals of impairment of assets for €0.3 million, including a €1.1 million expense on assets held for sale, and a €1.4 million reversal of impairment of industrial equipment;

■ net expenses of €0.4 million for litigation and other costs relating to asset disposals and site relocations.

* EBITDA before non-recurring items is equal to operating income before non-recurring items, deprecia tion and amortization.

The Group’s activities are not subject to any signifi cant seasonal variation.

Group payroll costs (including social security contributions, At constant scope and exchange rates, payroll costs (including provisions for pension obligations and retirement benefits) those related to temporary staff) rose by 10.8%.

came to €209.2 million in the fi rst half of 2024 compared with €190.6 million in the same period of 2023.

Headcount of consolidated companies at end of period by geographical area

The Mersen group has consolidated tax groups in France, 22.8% at end-June 2023), including an estimated top-up tax of Germany, Italy, the United Kingdom (group relief) and the €0.4 million payable under the Pillar Two model rules. United States. The effective tax rate was 24.0% (compared with

Basic and diluted earnings per share are presented below:

* Excluding treasury shares.

The Annual General Meeting of May 16, 2024 approved a dividend The dividend was paid in cash in July 2024 and represented a payment of €1.25 per share in respect of 2023. total payout of €30.5 million.

Off-balance sheet commitments increased by €1.1 million between by clients under business contracts, particularly new contracts December 31, 2023 and June 30, 2024, mainly due to the issue related to SiC semiconductors.

of new advanced payment guarantees for prepayments made

In early July 2024, Mersen fi nalized the acquisition of Graphite Machining, Inc. (GMI), a family-owned group employing approximately 200 people located on four different sites in the United States (Pennsylvania and Michigan), specializing in the purifi cation and machining of graphite and carbon composites.

The acquisition price was USD 50 million (excluding real estate). GMI is expected to contribute around USD 40 million to annual consolidated sales. GMI group will be consolidated as from July 1, 2024.

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