REFERENCE DOCUMENT 2011 MERSEN Reference Document 2011 page 1 General overview of the Group 3 2 Corporate social responsibility and sustainable development 15 3 Corporate governance 31 4 Legal and financial information 67 5 Management report 85 6 Consolidated financial statements 99 7 Parent company financial statements 151 8 Additional information 175 Chapters 2 to 8 include all the disclosures constituting the report of the Management Board pursuant to Article L. 225-102 of the French Commercial Code, as well as the report by the Chairman of the Supervisory Board in accordance with Article L. 225-68 of the French Commercial Code. This document is a free translation into English for convenience purposes only of the French reference document fi led with the Autorité des marchés fi nanciers on March 14, 2012. MERSEN | REFERENCE DOCUMENT 2011 1 2 MERSEN | REFERENCE DOCUMENT 2011 Y GENERAL OVERVIEW OF THE GROUP Message from the Chairman of the Supervisory Board 4 Message from the Chairman of the Management Board 5 Key fi gures 6 Group’s business profi le and strategic priorities 7 Presentation of the Group’s businesses in 2011 8 Business activities at a glance 12 1 MERSEN | REFERENCE DOCUMENT 2011 3 GENERAL OVERVIEW OF THE GROUP 1 Message from the Chairman of the Supervisory Board MESSAGE FROM THE CHAIRMAN OF THE SUPERVISORY BOARD Mersen delivered an excellent performance in 2011, which Marc Vinet. The composition of the new Management Board enabled our Group to reach new heights. The growth of activity refl ects the desire for senior operational managers to play a went hand in hand with a strong increase in our earnings and an greater role on the Group’s executive bodies. The Management improvement in our fi nancial structure. Board is supported by an Executive Committee. Behind these accomplishments lay the unstinting efforts by our The Supervisory Board is confi dent in the ability of the new teams who develop, manufacture and sell our products and Management Board to pursue an expansion strategy, while services. Our success also fl owed from our strategy over the making the requisite adjustments to adapt to macroeconomic past few years of resolutely extending our geographical positions trends. around the world, with a particular emphasis on Asia, and of During 2011, our shareholders again showed their support for us, establishing a presence in clearly identifi ed new technologies, with the vast majority (71%) electing to receive payment of the such as renewable energies and power electronics. dividend in stock. And our three core shareholders all increased The initiatives we implemented during 2011 will further consolidate their interest in our share capital, refl ecting their confi dence in our our strategic direction. The assumption of full control of Mingrong future outlook. In particular, Fonds Stratégique d’Investissement Electrical Protection has boosted our potential in the electrical raised its shareholding in Mersen to above the 15% mark. protection segment in Asia, while the partnership with Corning has Unfortunately, Mersen’s share price performance did not mirror the opened up some very promising new areas for us in an expanding Group’s business performance amid the considerable turbulence market and the Eldre acquisition has given us new opportunities in the fi nancial markets. And so I wish to express special gratitude in power electronics. to all our shareholders for their loyalty. During the past year, the Supervisory Board made some changes Last, but by no means least, I would like to thank the Management to the composition of the Management Board to improve the team, who should take the credit for our very strong operating organization of the Group’s operational leadership and its interface performance in 2011, and all our employees, who contributed with the Supervisory Board. This change took place very smoothly through their hard work each and every day. indeed and did not cause any disruption. The Management Board is now chaired by Luc Themelin and includes four other members: Hervé Couffi n Thomas Baumgartner, Christophe Bommier, Didier Muller and 4 MERSEN | REFERENCE DOCUMENT 2011 GENERAL OVERVIEW OF THE GROUP Message from the Chairman of the Management Board 1 MESSAGE FROM THE CHAIRMAN OF THE MANAGEMENT BOARD Highly positive momentum maintained in 2011. continued to build up our manufacturing base there. In particular, With sales totaling €830 million during the past year, we achieved we bought out minority interests in Mingrong Electrical Protection organic growth of close to 11% following on from a growth rate of and extended the graphite production capacity of our Chongqing around 13% in 2010. This momentum was clearly evident in both plant. We also secured HAF 604 certifi cation, clearing the way our business segments, with growth of over 15% in Advanced for us to supply equipment to the Chinese nuclear power industry Materials and Technologies and over 7% in Electrical Components and integrated Yantaï, a specialist of graphite machining for solar and Technologies. industry successfully. All these developments have signifi cantly strengthened our positions in Asia, enabling us to fully capitalize Our profi tability also improved during the year, with operating on the region’s growth. income before non-recurring items moving up signifi cantly to reach €103.5 million i.e 12.5% of sales, two points better than in In addition to these strong operational achievements, we also 2010. At the same time, our EBITDA margin came to 17.0%. Net continued to pursue our strategy of acquisition-led growth, with income attributable to Mersen’s shareholders totaled €57 million, two major deals. In June, we signed an exclusive long-term an increase of close to 50% on 2010. agreement with Corning SAS to manufacture ceramic continuous fl ow reactors for the specialty chemicals and pharmaceuticals Lastly, in terms of cash fl ow, 2011 level is lower than the previous sectors, as well as for the oil and gas industry. Lastly, in November, two years which had been excellent on this point; it came to we announced the acquisition of Eldre, a company specializing in €62.5 million from operating activities before capital expenditures . laminated bus bars that will strengthen our position as a leading Our teams are keenly aware of the importance of cash fl ow and partner for the power electronics industry. These two deals have are working hard to make sure our 2012 performance is back boosted our positions in expanding markets. on track. Of course, we are starting 2012 with caution, as considerable Moving on, our balance sheet also made progress, with the uncertainty surrounds the direction of the global economy. Even net debt/EBITDA ratio sinking to 1.6x. Mersen demonstrated so, I know that Mersen can draw strength from its business model crucial fi nancial strength during these testing times. In early and ride out complicated periods , emerging all the stronger, just December, we completed a USD100 million private placement as it did following the 2009 crisis. with an average maturity of nine years, which gave us close to €500 million in available credit lines at December 31, 2011. We Our entire senior management team is closely monitoring market also extended the average maturity of our debt to over four years. developments and we will seize any development opportunities which may arise for our Group over the coming months. We took further steps to shore up our positions in Asia. In addition to the very high level of our sales in the region (€214 million), we Luc Themelin MERSEN | REFERENCE DOCUMENT 2011 5 GENERAL OVERVIEW OF THE GROUP 1 Key fi gures K EY FIGURES 2011 SALES Geographic breakdown 37% 32% Europe North America 5% 26% Rest of the world Asia SALES EBITDA MARGIN RETURN ON CAPITAL (In millions of euros) (In %) EMPLOYED* (In %) 9.9% 12.8% 741 830 15.4% 17.0% 2010 2011 2010 2011 2010 2011 * IFRS operating income/average capital employed (net non-current assets including goodwill + working capital requirement) - including payment of the fine to the European Union in 2010 EARNING PER SHARE CASH FLOW* DEBT-TO-EBITDA RATIO* (In euros) (In millions of euros) (In %) 1.9 2.8 97.5 62.5 1.86 1.61 2010 2011 2010 2011 2010 2011 * After tax and working capital requirement * Calculated using the method specified and before capital expenditure. for the USD350 million syndicated loan. 6 MERSEN | REFERENCE DOCUMENT 2011 GENERAL OVERVIEW OF THE GROUP Group’s business profi le and strategic priorities 1 GROUP’S BUSINESS PROFILE AND STRATEGIC PRIORITIES Mersen develops innovative solutions geared to the needs of ■ chemicals and pharmaceuticals helping to meet demand for its customers in order to optimize their industrial performance. food and health triggered by global demographic growth and The Group’s business activities are currently built around two higher living standards in emerging markets; areas of expertise in which it holds leadership positions or is ■ rail transportation, helping to meet the growing mobility needs the joint world leader. of the global population The Advanced Materials and Technologies segment markets a ■ electronics delivering solutions that help to curb energy range of graphite and metal equipment catering to highly exacting consumption. industrial environments, i.e. high-temperature applications and They also help the process industries, facilitating their transition anticorrosion equipment. towards greater energy effi ciency. The Electrical Components and Technologies segment Mersen now boasts an effi cient manufacturing base with plants markets components and innovative solutions underpinning harnessing the very latest technologies. At the same time, the the performance and safety of electrical installations, including Group’s policy of selective acquisitions over recent years has brushes and brushholders for power supplies, slip-ring assemblies strengthened its positions in each of its business segments, and signal transmission systems for wind turbines, industrial while expanding its product range and geographical positions, fuses, coolers for power semiconductors and current collectors especially in Asia, which represents a major growth engine.