Imerys Sa Ord

Good morning to all of you, and thank you for joining us today to review Imerys Q4 and full year 2023 results. With me, as usual, our CFO, Sébastien Rouche. Let me start by giving you some highlights of the year we just closed. Once again, I think in 2023, Imerys continued to demonstrate resilience and agility in what we can call a complex market environment. Revenues were close to 3.8 billion euro, with sales volumes impacted by weak demand in certain or maybe in several end markets, notably residential construction, industrial and paper markets, as well as significant destocking throughout the year. Despite last year's high comparables, prices were up this year, again 2.6% on a full year basis, though slowing in Q4 with a negative 4%, clearly to reflect the end of certain surcharges. Sébastien will deep dive on this in a few minutes. Thanks to price discipline and really strong actions on costs, Imerys posted a current EBITDA for the full year at 633 million euro, in line with guidance. Even for Q4 2023, EBITDA at 152 in line or even slightly above Q4 2022. Good news on the cash side. E-merge generated substantial free operating cash flow for the year, 288 million before strategic capex, 192 million after strategic capex, compared to 20 million last year, which means 10 times. This was possible thanks to really a great work of my teams, but also structural actions we put in place on working capital management, leading especially to a significant inventory decrease. Of course, also helped by lower inflationary pressure in 2023. To conclude, the Board of Directors will propose to the shareholders meeting In May, a cash dividend of 1.35 euro per share for the year, in line or above historical payout ratios. If we now look a bit over the last three years' development of the group, Imerys confirms its business model, its resiliency, even in challenging times. We had record inflation in the past, lower volumes this year. Current EBITDA margin remains resilient, around 17%, confirming the group agility and adaptability to the situation. On the right side, that's a good example. We were capable of adjusting our prices to the evolution of variable costs, especially in 2022. but also adjusting to the inflationary pressure on fixed costs and overheads. And we maintained such price even when input costs dropped, like you can clearly see in 2023. This was necessary to maintain our profitability and all the actions we put in place to reduce the cost base as described in the next slide. What I want to underline here is really the tremendous effort done by the team on costs. Net of all the external events like foreign exchange or perimeter and things that are not directly under our control. Savings of 126 million euro in 2023. 3.3% of the overall cost base. More than compensating still persistent inflation. And really, the action encompassed all aspects of Imerys, from purchasing, operational efficiency plans, capacity adjustments, overheads reductions, discretionary spending limitations. These savings, I think, is very important, are structural. Therefore, they will durably and positively impact our cost base in the future. If we now look a bit at our end market, as a reminder, the construction market remains today our largest end market with around 37%, followed by consumer goods in general and healthcare with around 20%, followed by automotive, energy and industrial activities. Under others, we register here still our paper activities. If we deep dive on these markets, let's start with construction. As you can see here, overall, construction is showing a positive impact or a positive trend, mostly thanks to the dynamic infrastructure sector. Unfortunately, Imerys products are not used or very present in infrastructure. Our exposure is largely on the residential market, which is severely impacted by high interest rates and credit tightening both in Europe and in America, which are our main markets. Some figures, U.S. housing starts decreased 3% in Q3 and Q4 and 9% for the year. Similar picture in Europe, drop of 1% in Q4. The roll in 12 months, that is available until September, shows a 9% drop in residential building permits. The good news, there are good news. The good news is that there is a lack of housing, certainly in the U.S. and probably in large parts of Europe. So we are convinced that as soon as the markets will stabilize, there should be a start or a restart or even a jump start of construction supported, I hope, by an inversion in interest rate trends. Private consumption is holding well in the U.S. Robust job market that helps consumption. A bit more flattish in Europe following high or higher inflation. Good rebound in China post-COVID that continues. If we move on to automotive, quite a good 2023 and a robust Q4 in general. Of course, 2022 comparable basis was very low. There was a backlog. We believe it's coming to an end, and that's why we are prudent on the development of the automotive market for 2024. What is to be noted, Europe remains still way below pre-crisis level, minus 15% approximately. China, more solid, leveraging especially exports. Energy... Negative, very much related to industrial production, so especially in Europe and partly North America. Electronics coming back, big spike during COVID, a big drop afterwards. Now I think we are coming back to more normal levels. Electric vehicles and mixed pictures below expectation in Europe and in the U.S., what we hear also right now. Buoyant in China, thanks especially to a rise in exports. The next slide is industry and equipment. Weak, weak in Europe, weak in the U.S. We do expect a bit of recovery this year, 2024, especially if we will enjoy an easing of monetary policy. Not yet the case, but we remain confident for the second part of the year. A bit less affected the U.S., China did come back, but I would say in a disappointing way in terms of especially expectations. On the bottom, two sectors that are still suffering significantly, I would say, still subdue both in the U.S. and in Europe. of course, as a consequence of its main uses, which is construction and partly industrial automotive. Paper still recovering from very historically very high inventories at the end of 22 that affected significantly production in 20, sorry, 22, affected 23. Inventories that are coming to an end. So even for this sector, we see 24 under a better light. Let's look a little bit at our lithium projects. I think a lot has been done, but 24 will be a milestone year. Let's start with France, with the Emily projects. Just as a reminder, target is to produce 34,000 tons per year of lithium hydroxide. Some steps were achieved. I think the attractiveness of the deposit is confirmed. The technology works. We are producing today in a laboratory scale hundreds of kilos of battery-grade lithium, which is a great achievement. We have selected the locations, of course, for the mine, but also for the lorry station and the conversion plant in Montluçon, recently announced. Key in 24, Commission nationale de débat public, so the public debate that will be launched at the beginning of March, should take around three months and be concluded at the beginning of Q3. This should really give credibility to the quality of this fantastic opportunity. In parallel, we will complete the pre-feasibility study, therefore eliminate all the variables in these projects and create a document that will be the basis for our future estimation of CAPEX, OPEX, potential partners, and of course become, I would say, a marketable document. Last, we count on launching the construction of the pilot plants after obtaining the necessary permitting. As far as British lithium, our joint venture in the UK is concerned. Again, target 21,000 tons of lithium carbonate. The drilling campaign is continuing. The target is to assess the size and potential of this deposit, improve our pilot lab plant that we have on site to confirm the technology, and then move on to complete the pre-feasibility study. As you can see, the project is behind. The French one is started later, but we count on the synergies of the two projects to catch up and use the learning in France to increase speed in the UK. A few words on innovation. Again, we launched a number of new products, 50 in 2023, three focus areas, sustainable energy, sustainable construction, and natural solutions for many applications, especially consumer goods. I will not enter in all the details, but I would say two key messages. Constant effort to satisfy market needs, market demands, especially towards new trends. And second, each innovation is screened. It has to be sustainable for the long term. It is audited by an external independent body. And 78% of our innovation solutions are sustainable or what we call sustainability solutions in 2023. Moving on, focus on ESG, our roadmap, our objectives, many of them or some of them represented here. And of course, I will not go in detail. We set a program, a three-year program, 23-25. We are in the middle of the journey. Here is a snapshot where we stand today. What is important is we are well on track. We are well on track to achieve our goals. And I want to focus if one particular importance is CO2 emissions and then move straight to the next page. In 2023, we have committed to reduce our CO2 or greenhouse gases emissions in absolute terms, in absolute value by 42%, scope one and two, and 25% scope 3 by 2030 to align with the 1.5 degrees trajectory. These targets have been submitted and validated by SBTI. We have reduced 24% in two years, so we are well ahead of schedule. We're not there yet. We know we'll get there. We will leverage... few elements and you see some here on the left side. We have launched a specific energy efficiency program called Energized. multi-year program to increase really the efficiency of our processes in terms of energy. We are working to convert our fuel usage away from fossil to other kind of fuel, so typically biomass or electrification of certain processes. And of course, when you electrify, you want to buy low-carbon electricity. We have launched a big project across the entire group, what is called power purchasing agreements, to purchase low-carbon electricity rapidly throughout the world with reliable partners. A set of ambitious targets, confident we will achieve it. And on this, I hand over to Sébastien for more details on our financial accounts.

Thank you, Alessandro. Good morning, everyone. Let's walk through some of the key aspects of our financial performance, starting with revenue. Sales reached 3.8 billion in 23 with soft volumes. This represents a 9% organic decrease versus 22, which was at record levels in terms of revenues. It includes a negative 31 million perimetre effect following the small divestiture that we did in 2022 and a negative currency effect of 83 million, mainly due to the depreciation of US dollar compared to euro. Price remained steady during the year after the exceptional 2022 inflation. You can note that in Q4, the drop in volume reduced as compared to the same period in 2022. I would say only to 6% while it was running at 13 or 14% if we are looking at Q3 only or year-to-date September. Let's now look into more details at our business segments, which have been slightly modified in their perimeter for this publication, as required by accounting norms following the updated organization of the group. You can find the quarterly historical data at the end of the press release in full detail. Performance minerals generate 62% of the group's turnover, with sales of 2.3 billion in 2023. All geographies saw headwinds, with like-for-like revenues down 7.2% versus 2022. If we look at the market, paper producers massively destocked in 23, and it has driven a decrease of around 80 million of our sales. Construction industry was impacted in Europe and in the US because of higher interest rates. Demand for consumer goods was solid in the US, but softer both in Europe and in Asia. Current EBITDA for performance minerals landed at 374 million euros, which is a 16% EBITDA margin. Price and cost actions partly compensating the sales reduction. Now, our solutions for refractory, abrasive and construction business. This segment recorded sales of 1.2 billion, representing 32% of Imerys' consolidated revenue. Looking at the end markets, volumes were impacted by low iron and steel production and weak industrial end markets in Europe, Asia, and to a lesser extent in the U.S. Some of our European facilities of highly energy-intensive products suffered from Asian competition, which enjoyed better energy and logistic costs. Despite adverse market conditions, specialty binders for construction kept a good momentum thanks to market share gains at key customers. Current EBITDA landed at 141 million, hit by revenue decrease versus last year. Saving actions are in place and footprint adjustment measures have been launched to mitigate the volume impact. Now, how does it look like for the group profitability as a whole? Current EBITDA for 2023 met the guidance announced last July at 633 million, down 12% versus last year. This evolution reflects a decrease in volume contribution for 240 million, a continuing positive price contribution, 106 million, associated with a decrease in costs thanks to saving actions and lower inflationary pressure. You even see that looking at Q4, we had as anticipated an acceleration of the variable cost decrease, 51 million positive versus 28 for Q3 only. You remember it was negative in H1, so a real shift in trend. It has enabled Imerys to push price downwards and maintain a positive price-cost balance in every quarter. 2023 EBITDA development was also driven by a good control of fixed costs and overhead, lower than last year in spite of embarked inflation. Also driven by an increased dividend contribution from our joint ventures and associates, the Quartz Corporation in particular. You remember that our EBITDA definition takes into account the dividends received but not the full net profit that we recognize in the P&L. As a result, current EBITDA margin stabilized at 16.7% in line with the profitability of last year. If we look now at the other elements of our income statement. Current operating income landed at $365 million, which represents 9.6% of sales. Net financial expenses, negative at $38 million, decreased by $12 million versus previous year, and this is in particular driven by the reduction of our net debt. Income tax expense, 81 million, corresponds to an effective current tax rate decreasing at almost 25%. Also, the bigger contribution of net profit from JVs, not taxed at our level, supported this rate decrease. Current net income from continuing operation at the end ended up at 242 million, down 30% versus last year, which is very close to our sales decrease. Another important element, the net operating expenses, are impacted by a large 175 million impairment of the assets serving the paper market, plus some transaction and restructuring expenses. Unchanged since H1 is the contribution of the discontinued operation, and all in all, the net income landed at 51 million last year. If we look now at the cash flow generation, this time a great improvement as compared to last year. We report a large reduction in working capital due to the combined effect of lower sales, lower inflationary pressure and management actions. We will continue to drive further improvement in 2024. I wanted to highlight this characteristic of our business model. When volumes are soft, we are able to adapt our working capital and secure extra cash generation. As far as capital expenditures are concerned, we have not compromised the strategic capexes and invested 97 million that will fuel incremental growth. Overall, with capex paid at 390 million, we deliver a free operating cash flow of 191 million euros. How do these different elements translate into Emery's balance sheet? Thanks to the diverse teacher of HCS business activity, and our substantial cash generation. Even after the exceptional dividend payments of last year, we have deleveraged the company and reinforced the balance sheet. Just a small technical note, as far as HTS is concerned, you see flows directly in the net disposal column and also the plus 119 million that corresponds to the net debt that has disappeared with the assets that have been disposed of, so two positive contributions. At the end of 2023, the ratio of net financial debt to current EBITDA decreased as compared to December 2022, reaching 1.8. In absolute terms, the net financial debt decreased to 1.1 billion, down 33%, or almost 550 million versus last year. It now represents 35% of shareholders' equity. On this good note about Imery's financial structure, I now hand over to Alessandro for the outlook.

Thank you, Sébastien. So let's wrap up this presentation. A few takeaways. We've experienced in 2023, throughout the year, an unprecedented destocking, which further impacted already some weak demand in certain markets. But we believe markets have stabilized and probably the worst is behind us. Construction, notably residential construction, maybe to a lesser extent automotive, will remain low for some time, I believe. Other businesses, especially consumers, life sizes, energy, electronics, should progress well throughout the year. In this, let's say, still uncertain economic and, let's not forget, geopolitical environment, Imerys will maintain a strict cost discipline. We have showed it in 23. We will prioritize growth. And we know we have good commercial actions ongoing. We have new industrial capacities coming on stream. We have innovative products, as you have seen. And we are exposed to some very attractive markets, growing markets like mobile ore and sustainable energy. This will all be done within the back of our mind, ESG, and especially sustainability and greenhouse gases reductions. This will drive all our decisions going forward. Thank you for your attention. And we now open the floor to your questions.