Imerys Sa Ord

Good day and thank you for standing by. Welcome to the MRIS third quarter nine months 2023 results conference call and webcast. At this time, all participants are in the listen only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you will need to press star one and one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one and one again. please be advised that today's conference has been recorded. I would now like to hand the conference over to your speaker today, Alessandro Daza, Chief Executive Officer. Please go ahead.

Thank you and good evening to all of you. Thank you for joining us today to review Imerys 2023 third quarter results. With me, as usual, next to me, Sébastien Rouge, our CFO. As always, Let me start first with a few key messages, few key highlights of the last quarter. Let's start by sales. CIMRI posted revenue in Q3 of €918 million down compared to last year, 14%, reflecting a high comparison basis, but also, as we will see later on, soft end markets, especially around construction and residential construction. and some increased competition from Asian players benefiting from lower energy and logistics costs. Current EBITDA, strong performance, resilience, 16.5% margin in line with the performance of the first half of the year, thanks to a very good contribution margin. We could benefit from lower input costs, variable costs, and I will entering more details on this, but also from an excellent work done by the teams to deliver cost savings, especially around fixed costs and overheads. As you see on the chart bottom right on the slide, not only variable costs were lower than last year in this quarter, but also our fixed costs and overheads were lower than last year, despite persistent inflation everywhere. Consequently, our Q3 price-cost balance remained largely positive, even with the price effect that now is leveling off at zero, as we announced in the past. As a reminder, Q1 price effect, 11%. Q2 price effect, 4%. Q3 price effect, basically zero. In average, on the year to date, nine months, Once again, I believe Imerys demonstrated its agility in an uncertain and challenging environment. Last for the quarter, on the M&A front, we closed the acquisition of the ground calcium carbonates assets of our business of commerce in the U.S. in Georgia, North Georgia, in September. This should add approximately $50 million annual sales for Good bolt-on acquisition in an area where we have a strong presence, and for sure we will be able to achieve good level of synergies. The intended sale of our assets serving the paper markets, as we commented at the beginning of the month, highly unlikely to materialize, though negotiations are ongoing. And should this be the case, we will explore alternative options for the divestment of this business, which clearly remains our strategic priority. If we now look a bit more in detail at the different underlying markets for the group, let's start by construction. Overall, on this slide, Q3 shows a positive number, low but positive. The market overall is holding, but mostly thanks to a strong infrastructure sector, up more than 5% versus last year, as well as a non-residential, where Imerys is significantly less present. Our exposure, as you know, is largely to the residential market, which is severely impacted by the rise in interest rates and tougher access to bank credits. Residential construction In Europe was luggage and in the U.S. posted a 6% decline. I'm talking about housing starts in Q3 and the forecast for the full year is around minus 10%. Consumption will be well, well in the U.S. on the back of what is still a robust job market. Europe slowing, but still positive, although inflation starts to hits consumer confidence and therefore spending. If we move on to automotive, positive numbers on the table, lower than the previous quarter. But again, we are comparing to last year, which was a very low level. Order backlog, what we read in the newspaper, seems to be caught up and delivered. So question on the future, considering weakening consumer confidence and credit tightening around the world. We're still far away from pre-COVID levels, so the potential for improvement is still ahead of us. The world on energy and electronics, still good momentum, remains. You can see numbers are less positive than in the past. Most of it's relating to EV, so electric vehicle sales slowed down significantly in China, and this caused a bit of destocking throughout the entire value chain. The next slide, industry and equipment, so general economic activity, I would say industrial production, both in the US and Europe. after a flattish first semester, now clearly turning into negative territory. This, together with what I just mentioned on construction, have an impact not only on industry, but also on iron and steel, bottom right of this slide. Steel production, which is clearly negative in our main markets, normal consequence of the slowdown in the economy. As far as paper is concerned, another bad quarter with very negative growth. Here, on the contrary, I see rather a positive trend. Inventories of paper around the world have decreased significantly in the last quarters, so probably the worst is behind us, and this market should stabilize and recover some of these losses. I now hand over to Sébastien to give you more details on our financial.

thank you alessandro good evening everyone let's walk through some of the key aspects of our financial performance and we start with revenue sales reached 2.9 billion in the first nine months of 2023 an 11 percent decrease versus prior year mostly driven by a drop of in volumes of 13 percent it was partially compensated by the price effect of plus five percent the consequence of the carryover of the price increase that we implemented last year. As planned, there was no more price increase in Q3. Perimeter effect was limited, reflecting the 2022 divestiture. And the currency negative effect is increasing this quarter Main impact is USD versus Euro exchange rate. We remember that the US dollar was very strong in Q3 and Q4 last year. If we look now into more detail at our two business segments and their respective markets, starting with performance minerals, this segment generates 68% of the group's turnover. with sales close to 2 billion euros in the first nine months of 2023. All geographies were impacted by continued destocking, with like-for-like revenue down 6.4% versus 2022 overall. On one end, the mobile energy market was weaker due to softer demands in lithium-ion batteries, construction industry continues to suffer from rising interest rates and the paper and board activity was very low across the board. On the positive side, the filtration sector hold well. We can also underline that we kept a sustainable price effect, especially in Europe and in the US. On a quarterly basis, Q3 last year was still very good for performance minerals in volume, price, and even in effects. We suffer from high comparables that will ease going forward. Looking now at our refractory, abrasive, and construction business. Our second segment recorded sales of 945 million euros in the first nine months of the year, representing 32% of Imerys consolidated revenue. Revenue like for like in the first nine months was down 12.7%, reflected continued destocking and low iron and steel end markets, in particular in Europe. We faced increased competition from Asian players as compared to European abrasive and refractory products. China in particular with lower energy cost and soft domestic demand is pushing its export activity. The building and infrastructure business continued to perform better than the rest thanks to increased market penetration of specialty products, helping to decarbonize the industry. As we can see from the comparison, quarterly variation is well in line with the year-to-date figure, and we do not anticipate a further deterioration of the growth rate of this segment. If we look now at the group profitability as a whole, Current EBITDA for nine months reached $481 million, down 15% year-on-year. This evolution reflects a decrease in volume contribution for $206 million, a continuing positive contribution of the price of $151 million, which compensated for the $41 million net increase in variable costs. of 10 million of fixed costs and overhead in spite of labor inflation is reflecting the cost reduction efforts made by the group. Also supported in H1 by the contribution of dividend from joint venture, the group achieved a 16.6% EBITDA margin, a proof of the group's resilience at this level of industrial activity. When we look at the quarter alone, it's important to see the neutral price effect and the inflation of variable costs, 28% lower than last year, so contributing positively, as well as the positive effect of fixed costs and overhead. If we look now at the other elements of our income statement, starting with the decrease of current EBITDA in absolute value by 87 million as compared to last year. Thanks to the growing contribution of share in net income from JV, the decrease in absolute value of current operating income is limited to 46 million. Important to remind that even with low volumes, Imerys' current operating income at 300 million represents 10% of our sales. The amounts booked in other expense line correspond to costs related to disposal and industrial reorganization, in particular, adaptation of our refractory and abrasive industrial footprint. Other expenses are lower than last year, which enables net income from continuing operation to increase by 12.4%, to 140 million. We still have a positive contribution of discontinued operation of 44 million in 23 related to our HCS disposed business that we booked in H1. All in all, net income was at 184 million, just short by 5% as compared to last year, 193 million. Back of this note of resilience, I give the word to Alessandro for the conclusion.