le 05/05/2017 à 09:43 2016 REFERENCE DOCUMENT WorldReginfo - 84d15492-b904-41e2-9856-49774ee56cc6 WorldReginfo - 84d15492-b904-41e2-9856-49774ee56cc6 MERSEN 2016 Reference Document page 1 General Overview of the Group 3 2 Corporate social responsibility and sustainable development 17 3 Corporate governance 53 4 General legal and financial information 103 5 Management report 123 6 2016 Consolidated Financial Statements 141 7 Parent company financial statements 197 8 Additional information 223 This document is a free translation into English for convenience purposes only of the French reference document fi led with the Autorité des Marchés Financiers on March 7 , 2017 . MERSEN | 2016 REFERENCE DOCUMENT 1 WorldReginfo - 84d15492-b904-41e2-9856-49774ee56cc6 2 MERSEN | 2016 REFERENCE DOCUMENT WorldReginfo - 84d15492-b904-41e2-9856-49774ee56cc6 GENERAL OVERVIEW OF THE GROUP M essage from the Chairman 4 Message from the Chief Executive Offi cer 5 Key fi gures 6 The group’s profi le 7 The Group in 2016 8 Business activities at a glance 13 1 MERSEN | 2016 REFERENCE DOCUMENT 3 WorldReginfo - 84d15492-b904-41e2-9856-49774ee56cc6 GENERAL OVERVIEW OF THE GROUP 1 Message from the Chairman MESSAGE FROM THE CHAIRMAN For Mersen, 2016 was a year of action and transformation to prepare the Group for the future, against a global backdrop that remains challenging for the traditional manufacturing sector. Performance and operating margins in 2016 were in line with 2015. These results may compare favorably with most of our competitors, but they fall short of our targets. In terms of sales, which were slightly below our medium-term projections, some promising segments nonetheless performed positively (aeronautics, new energy sources, transportation , etc.). The operating margin is up signifi cantly on the second half of 2015. This result, which should be seen merely as a step, constitutes the initial impact of the cost cutting measures introduced over a year ago, bearing in mind that the effects of the restructuring carried out during the fi nancial year will take time to materialize. I would, however, like to underline the successful implementation of the Operational Excellence plan. Much work has been conducted internally, and is expected to bear fruit in the medium term. I would also point to the ongoing renewal of our management, the key to building the Group’s future, on the basis of a more effective organization. The 2016 results are merely the fi rst step on this path. In 2017 Mersen will continue to strive to increase its profi tability. But it will also be focusing its endeavors on the return to growth. We are aware that with a few specifi c exceptions, the global manufacturing environment is set to remain subdued, so we must rely entirely on our own strengths. The strategy consists, in particular, in developing our sales in the few sectors that are bucking the general trend and in niche markets that are enjoying strong tailwinds (wind power, solar power, aeronautics, electric vehicles, aerospace, etc.) Innovation and technological developments will be intensifi ed so that we can seek out new customers. The share price has risen sharply from its all-time low, evidence that the fi nancial markets have understood the transformations that are underway within the Group. I am pleased for our shareholders and hope that the markets will continue to recognize our fundamental strengths. The Board of Directors has decided to propose to the General Meeting of Shareholders to maintain the dividend at € 0.50 per share. As you are aware, in 2016 we opted to simplify our governance structure in to order improve our responsiveness. In May this year we thus replaced the dual structure with a Board of Directors. We expect to see closer collaboration between the Board and general management. On behalf of the Board of Directors I would like to thank all of our shareholders for their confi dence in us. I would also like to thank the Management and all employees of the Group for the efforts they have made, and reiterate our unwavering support for their management of the Group in this environment, which is set to remain challenging and complex for the foreseeable future. Hervé Couffi n 4 MERSEN | 2016 REFERENCE DOCUMENT WorldReginfo - 84d15492-b904-41e2-9856-49774ee56cc6 GENERAL OVERVIEW OF THE GROUP Message from the Chief Executive Offi cer 1 MESSAGE FROM THE CHIEF EXECUTIVE OFFICER 2016 was a year of signifi cant changes for Mersen, with the introduction of a new organizational structure that resulted in changes to the management team and the announcement of a competitiveness plan. These choices helped the Group to improve its effi ciency and fl exibility. Sales for the year were €764 million, in line with 2015, in spite of the sharp downturn in the chemicals market during the fi rst half of the year. The strength of our most promising markets, renewable energy, electronics and transportation was confi rmed this year, with growth in excess of 5% in Asia. The Group is now more commercially effective than ever, helped by its new organizational structure in the electrical segment. In this context, the Group generated a current operating margin of 7.8%, in line with the previous year, thanks to the positive effects of the competitiveness plan launched last year. These effects were clearly seen during the second half of the year, with the margin growing strongly in comparison to the same period last year. The year was also marked by particularly strong cash fl ow, the result of better management of inventory and investments. This enabled us to reduce our debt signifi cantly, thereby strengthening our fi nancial situation. We also diversifi ed our funding sources throughout the year and extended the maturity of our credit lines, which will enable the Group to fi nance its strategy. In 2017 Mersen will continue to strive in the areas of manufacturing effi ciency and continuous improvement. We must optimize the use of our manufacturing facilities, while increasing effi ciency with respect to our customers. In addition, we hope to gain from our new R&D strategy by accelerating time to market for new products in the coming years. 2017 looks set to bring geopolitical uncertainties and regulatory restrictions that could weigh on the economic environment. However, the Group is confi dent about its prospects for the coming year as it can draw on its expertise in its dynamic markets, its ability to bring innovations to market rapidly and the deployment of its competitiveness plan. I would like to express my thanks again to all our staff for their commitment and hard work until now. Thanks to them, Mersen is fully equipped to carry out its strategy and to grow in the current economic climate. Luc Themelin MERSEN | 2016 REFERENCE DOCUMENT 5 WorldReginfo - 84d15492-b904-41e2-9856-49774ee56cc6 GENERAL OVERVIEW OF THE GROUP 1 Key fi gures KEY FIGURES €764m 6, 110 35 Sales Employees Countries 2016 SALES BY GEOGRAPHIC AREA BY MARKET 34% 36% 35% 19% Europe North Process Energy America Industries and Others 19% Electronics 30% 10% 17% Asia and Rest Chemicals Transportation of the world SALES (€ m) NET INCOME(€m ) EBITDA (€m ) 97 768 764 2.6 3.2 100 2015 restated 2016 2015 restated 2016 2015 restated 2016 RETURN ON CAPITAL DEBT RATIO* DIVIDEND PER SHARE (€) EMPLOYED* (IN %) 2.4 2.1 7.3% 7.6% 0.50 0.50* 2015 restated** 2016** 2015 2016 2015 2016 * Operating income before non-recurring items/ * Ratio calculated using the covenant * Subject to shareholders’ approval. average capital employed (net non-current method for Mersen’s confirmed assets including goodwill + WCR). borrowings. ** Before one-off charges. 6 MERSEN | 2016 REFERENCE DOCUMENT WorldReginfo - 84d15492-b904-41e2-9856-49774ee56cc6 GENERAL OVERVIEW OF THE GROUP The group’s profi le 1 THE GROUP’S PROFILE 1. Expertise 2. Ambition and Strategy Mersen is a global expert in electrical specialties and advanced Mersen’s ambition is to help advance technological progress materials, and offers manufacturers worldwide innovative solutions across the globe . that enhance the performance of their offer. The Group also relies on its international sales network to The Group’s business activities are currently built around two strengthen its leadership positions on each of its markets areas of in which it holds leadership positions or is the joint world and, in particular, on its growth markets – renewable energy, leader. electronics and transportation . To do this, we deploy a strategy The Advanced Materials (AM) segment brings together three of local relationships with the major industry players around the businesses related to carbon materials – graphite specialties for world, for which we develop tailored products. These relationships high-temperature applications, anti-corrosion equipment designed provide in-depth knowledge of the challenges facing those players primarily for chemicals, and power transmission technologies. and enable us to offer bespoke, innovative solutions that rely on advanced technology. The Electrical Power (EP) segment brings together two businesses related to the electrical market – power management In addition, the Group continues to pursue its policy of targeted solutions and electrical protection and control. acquisitions to consolidate its expertise or develop in certain geographic areas. Both segments offer key solutions and products for our customers’ manufacturing processes, as well as a range of associated To deploy this strategy and reinforce its effectiveness, Mersen services and maintenance. relies on the new organizational structure put in place at the beginning of 2016, which makes for closer collaboration within These two areas of expertise are geared to serving markets that the Group, greater commercial effectiveness and stronger address the challenges of energy effi ciency and demographic innovation and cost synergies. It also implements a process growth: of operational excellence throughout the world.