Mersen Says Terms for Solar Clients in China Hurt Cash Flow

Mersen, a French maker of graphite and electrical goods for steelmakers and other manufacturers, is delaying investments as economic growth slows and cash flow is hurt by longer payment terms for Chinese solar-panel makers.

“Toward the end of the year, Chinese players asked for longer payment conditions,” Chief Financial Officer Thomas Baumgartner said in an interview in Paris. “They used to pay almost on delivery or within 30 days, they can now pay within three to six months with bank guarantees.”

Mersen has put some investment on hold to prepare for a slowdown in economic growth, Baumgartner said. Last year, it invested 50 million euros ($66 million) to 60 million euros, including almost 30 million euros for maintenance, and boosted its graphite production capacity to 12,000 tons per year from 9,000 tons.

“We’re putting ourselves in a position to invest just about 30 million euros this year if the environment were to worsen,” Baumgartner said. “Analysts expect us on average to invest 45 million euros in 2012 amid a moderate economic environment. That figure doesn’t seem absurd.”

Mersen, based in Paris, said last month that sales will drop at the beginning of this year after reaching a record in 2011 as Chinese makers of solar cells and European steelmakers scale back orders for graphite used in furnaces and electrical components such as fuses. It reiterated that its 2011 operating margin before one-time items exceeded 12 percent of sales.

China Demand

“We’ve generated exceptional cash flows before investments of around 100 million euros in 2009 and 2010,” the CFO said. “It will probably be not as good in 2011, but once the market of Chinese solar cell producers picks up, there’s no reason for payment conditions not to shorten.”

Mersen had revenue of 830 million euros in 2011, including 110 million euros from the solar industry. A third of Mersen’s solar revenue came from graphite used in furnaces of Chinese makers of solar cells, which are paring orders to reduce inventories, and the rest came from equipment sold to makers of polysilicon and solar farms, where Mersen sees no slowdown, according to Baumgartner.

China is the manufacturing hub for seven of the eight biggest solar panel makers, and falling prices have hurt companies throughout the industry. Trina Solar Ltd. cut its forecast for shipments last year along with First Solar Inc., SunPower Corp., Yingli Green Energy Holding Co. and JinkoSolar Holding Co.


Mersen’s net debt, which amounted to 2.7 times earnings before interest, taxes, depreciation and amortization in 2008, fell to 1.5 times at end of June, and that ratio was “not very different” at the end of 2011, Baumgartner said. Mersen is using about 50 percent of its credit lines, and its average debt maturity exceeds 4 years, he said.

Mersen will release its full-year earnings report on March 15, according to its website.

“We currently have a very decent financial structure,” the CFO said. “We always have acquisitions under consideration, not necessarily planned for the very short term. The environment isn’t a total deterrent” for purchases.

For revenue “we’re seeing a moderate environment in Europe, while we’re seeing a backdrop which remains good in North America and Asia, except for solar,” Baumgartner said “Germany, which accounts for about 11 percent of our revenue, is doing better than other European countries.”

Fourth-quarter sales excluding acquisitions and exchange rate fluctuations rose 1.3 percent to 202.4 million euros. The company gets 28 percent of its revenue in the U.S., and more than 10 percent in China, Baumgartner said.

After a 32 percent decline in 2011, Mersen shares have climbed 10 percent in Paris this year, giving the company a market value of 522 million euros.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE