2010 FINANCIAL REPORT MERSEN 2010 Financial Report page 1 General overview of the Group 3 2 Management report 17 3 Sustainable development 27 4 Consolidated financial statements 41 5 Parent company financial statements 95 6 Legal and financial information 117 7 General information about Mersen 161 8 Officer responsible for the reference document and auditors 165 9 Cross-referencing table 169 Chapters 2 to 9 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. Detailed summaries are provided at the beginning of each chapter. MERSEN | 2010 FINANCIAL REPORT 1 2 MERSEN | 2010 FINANCIAL REPORT Y GENERAL OVERVIEW OF THE GROUP Message from the Chairman of the Supervisory Board 4 Message from the Chairman of the Management Board 5 Group’s business profi le and strategic priorities 6 Presentation and Group businesses in 2010 8 Key fi gures 12 Mersen and the stock market 13 Documents available to the public 16 1 MERSEN | 2010 FINANCIAL REPORT 3 GENERAL OVERVIEW OF THE GROUP 1 Message from the Chairman of the Supervisory Board MESSAGE FROM THE CHAIRMAN OF THE SUPERVISORY BOARD During 2009, the global economy experienced an extremely severe base in France, but the name change refl ects our forward-looking crisis, which did not leave our Group unscathed. Nonetheless, last approach. Our goal was to fi nd a name that mirrors our world year I emphasized Mersen’s encouraging resilience as a result leadership in 21st century technologies and our now global of the structural measures taken in previous years and the bold positions. We also wanted to stay in tune with our customers, action plan implemented by Management as soon as the crisis nearly 90 % of which are now located outside France. Lastly, our set in. intention was to stay true to our objectives, which may ultimate One year on, I am pleased to report that growth has returned mean that our business is split evenly between Europe, the and the Group performed very well during 2010. The Group took Americas and Asia. full advantage of what was a more favorable macroeconomic Our approach to the management of our Group is also resolutely environment and its positioning in buoyant markets, such as contemporary, with a continuing emphasis on operational solar energy, electronics and rail transportation, and in very fast- excellence and our Management’s keen desire to value the men expanding regions of the world, such as Asia, enabled it to post and women who work for it, while protecting the environment and growth of close to 13% on a like-for-like basis. striving for sustainable development. This growth went hand in hand with a very good earnings Lastly, our corporate governance is fully compliant with the latest performance, with EBITDA rising by 39% compared with 2009 to standards, and we intend to be exemplary in this fi eld. The smooth reach 15.5% of sales. These achievements have already been operation of our dual system of corporate governance featuring a warmly greeted by investors, since Mersen’s share price gained Supervisory Board and a Management Board, and, as I myself can 32% during the year, compared with a slight decrease in the testify, the very active participation of their members at meetings benchmark SBF 120 index. What’s more, we have been able to of these Boards and their committees are evidence of this. propose a signifi cant increase in the dividend as a result of this Last, but by no means least, I would like to thank our shareholders performance. for their loyalty, the Management team, who should take the credit The change in the Group’s name and broader revamp of its for our very strong operating performance, and all the Group’s corporate image were a key event of the year. The switchover employees, who contributed through their hard work each and from Carbone Lorraine to Mersen was the Group’s way of marking every day. a new century in its development. That said, our Group has not lost sight of its historical roots, which date back to the 1890s and Hervé Couffi n are preserved to the present day through its large manufacturing 4 MERSEN | 2010 FINANCIAL REPORT GENERAL OVERVIEW OF THE GROUP Message from the Chairman of the Management Board 1 MESSAGE FROM THE CHAIRMAN OF THE MANAGEMENT BOARD 2010 will be seen as a watershed year for the Group. We also continued to pursue our policy of selective acquisitions First and foremost, it marked a change in the Group’s name, which during 2010. In particular, we purchased a 60% interest in Yantai was approved by shareholders at the Annual General Meeting Zhifu Graphite, one of the leading Chinese players in the tooling in May 2010. of graphite components for the photovoltaic industry, and an 85% stake in Boostec, which possesses unique expertise in the Carbone Lorraine has now changed its name to Mersen to stay design and manufacture of components based on massive silicon in tune with its new business profi le. This new profi le is linked carbide, an ultra-effi cient material that can withstand the most to the acceleration in the Group’s transformation to focus on aggressive processes. These acquisitions will enable the Group expanding markets and those linked to sustainable development to extend its range of solutions dedicated to extreme environments (alternative energies, rail transportation, energy effi ciency), which and to offer equipment for new developments in strategic markets, now account for over 40% of our sales. such as solar energy and chemicals/ pharmaceuticals. This new corporate identity has been widely accepted, with At the same time, the acquisition of M.Schneider, number four Mersen’s employees and its customers leading the way. I am worldwide in DIN fuses and fuseholders, has enabled the Group certain that it will inject fresh impetus into the Group, which will be to consolidate its positioning in Germany and Eastern Europe, as recognized as a leading industry player across all of its markets. well as in what is a fast-developing standard establishing itself as It was also a remarkable year in terms of the Group’s business the benchmark in emerging markets, especially in China. trends and the quality of its performance, after a year in 2009 that From an operational standpoint, we continued to enhance our was very badly affected by the crisis. business processes right across the Group through a supply ■ The Group achieved growth of close to 13% and derived from chain optimization program in order to respond to trends more all geographical regions and all of our markets. Its positioning rapidly and more effectively, as well as to control our working enabled Mersen to post sales totaling €741 million. capital requirement and manage our cash tightly. In late 2010, one hundred or so managers out of the Group’s total of 700 were given ■ Mersen’s EBITDA stood at 15.4%. EBITDA has increased by training in this area. And we will strive to make further progress 39% compared with 2009. in this fi eld. ■ Operating income before non-recurring items amounted to Lastly, we have strengthened our fi nances. Our debt burden €78 million, with the operating margin reaching 10.5% of sales. increased only modestly in 2010 in spite of our acquisitions, our ■ Net income rose by 166% to over €40 million. investments and the payment of the fi ne to the European for anti-trust practices over 10 years ago. Our net debt/EBITDA ratio These results refl ect our strategic positioning. During 2010, it improved to 1.85x and our gearing stood at 44% at year-end. notably enabled us to benefi t from the more rapid growth in the Concurrently, we refi nanced our syndicated loan in China this solar energy market across all geographical regions. Capitalizing year to give us the fi nancial resources to continue pursuing our on this momentum, our sales in the energy market grew by nearly rapid development there. 40% on a reported basis compared with 2009. The electronics sector also enjoyed very strong momentum, while our traditional We should continue to benefi t from this momentum in 2011, process industries market, which was badly affected during 2009, even though we remain cautious about international conditions also made signifi cant headway. amid the ongoing uncertainty. Our aim is to continue building the Group’s future, and I fi rmly believe that our strategy and our From a geographical standpoint, while all our regions were responsiveness will give us the strength we need to adapt and boosted by the recovery, growth in Asia was again the strongest at rise to the challenges that await us. 19% on a like-for-like basis, particularly in China and South Korea, with sales there now contributing one-quarter of the Group’s sales. Ernest Totino MERSEN | 2010 FINANCIAL REPORT 5 GENERAL OVERVIEW OF THE GROUP 1 Group’s business profi le and strategic priorities GROUP’S BUSINESS PROFILE AND STRATEGIC PRIORITIES In May 2010, Carbone Lorraine changed its name to Mersen ■ chemicals and pharmaceuticals to help meet demand for to encapsulate its new business profi le as shaped by the food and health triggered by global demographic growth and acceleration in its transformation to focus on expanding higher living standards in emerging markets; markets and the major challenges posed by sustainable ■ rail transportation and electronics by providing solutions that development. help to curb energy consumption and/or to meet the growing Mersen develops innovative solutions geared to the needs of demand for mobility.