Imerys Sa Ord

Good day and thank you for standing by. Welcome to the eMARIS first quarter 2024 results conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be the question and answer session. To ask a question during the session, you will need to press star 11 on your telephone keypad. You will then hear an automatic message advising your hand is raised. To withdraw a question, please press star 11 again. Please be advised that this conference is being recorded. I would now like to hand the conference over to our first speaker today, Alessandro Dazza, Chief Executive Officer. Please go ahead.

Thank you, and good evening to all of you. Thank you for joining us today to review Imerys Q1 2024 results. Next to me, as usual, Sébastien Rouge, our CFO. And as usual, let me start by giving you some highlights for the quarter we have just closed. I'd say first, very important topic, I believe we have turned the corner, and overall, business is growing again. Revenues close to 930 million euro, higher than Q4, but also higher than Q3 of last year. On the back, fundamentally, of stronger, higher volumes. Some end markets still remain weak, and we will go in detail. Typically or notably, I would say industrial in Europe and residential construction both in Europe and the U.S. But all geographies, all markets pointing in the right direction. Versus last year, 3%. Last year, high comparable. March was the best month of the year. Also, prices slightly down, about 1.9%, again, against high comparables. Last year, Q1, we raised prices by 11% versus the previous year. So, this is partly the effect of the end of surcharges compared to last year. On the profitability side, I would say excellent work, good commercial actions, strong saving measures, and I will come back on this. strong performance of our JVs. All of these contributed to a good profitability and an increase compared to last year. We posted adjusted EBITDA of $188 million, up 9% versus last year, representing a solid margin of above 20%. We continue to execute on our strategic roadmap with three important actions in the quarter. We reorganized to create a new business area around energy transition, and I will come back on this one specifically on the next slide. Second, we entered into an agreement to potentially divest our assets serving the paper market, a deal with the American group FLEX. We moved again on the M&A side. We entered exclusive negotiation with Canviron, a subsidiary of Calgon Carbon, to buy their perlite and diatomite businesses in Europe, specifically in France and in Italy, representing approximately 50 million in yearly revenue. Typical bolt-on acquisition for Imerys. It will deliver important synergies. It will broaden our portfolio in growing markets, like natural solution for consumer goods. So all in all, I think we demonstrated to be agile in this economic environment, our resilience, and fundamentally the validity of our business model. If we look at this new business area, we announced earlier on in April, it's called Solutions for Energy Transition. Why? These businesses, the critical minerals represents more and more an important pillar in our business, and they deliver a fast-growing contribution to the group performance. It includes two businesses, Emery Graphite and Carbon. and our 50% share in the joint venture, the Quartz Corporation, producing high-purity silica for solar and semiconductor industries. Both these activities do represent a key driver of our future growth, and they highlight the major role that Imerys will play, or maybe is playing, in the energy transition. On these slides, I wanted to point out again the rebound, finally, that we see in markets. As I mentioned at the very beginning, growing again compared to Q4, 4%, but also Q3, 1%. As I said before, all geographies, all businesses are posting an increase, and it's really a volume growth. I remind you, prices are slightly down. A fix of foreign exchange rates did not help, and there are slightly negative perimeter effects. So the growth is entirely volume-based. If we look now what is coming from all the specifically on the end markets, let's start with construction. I'll show you a mixed picture. Infrastructure and non-residential remain solid on the back of different governmental investment plans. Residential remains largely subdued, and email is mostly exposed to this part or this sector of the industry. Europe weak. Residential is down 2.5%. North America weak. and especially we see finally a rebound. New housing permits have grown in Q1. So business typically you get a permit and then you build. So business should improve as we move on and we count on this. China, Asia benefiting from infrastructure and I would say overall recovery. Consumption all in all remains healthy, good in the U.S., on the back of robust job market, a bit more flattish in Europe, persistent inflation, Asia and China in particular, coming back and solid. On the next slide, automotive, I would say today probably the most worrying sector. You see Europe, 7% decline, difficult markets, U.S. more stable. Asia, China going well, maybe partly upset by a weak Japan. But China doing very well, fueled by exports. And that is partly the reason why Europe is suffering, as we read every day in the newspapers. Energy. Again, depending on the region, Europe down on the back of slow economic activity, better in the U.S., strong in Asia. Electronics coming back strongly after a poor 23. And if we do look specifically at electrovehicles, overall the trend remains positive worldwide, 20% growth. It will continue. Although we do see different geographies with China really running fast on the back of exports, 40% growth, Europe, the U.S. slower in the adoption and in the production of electric vehicles. The last slide on the markets, industrial, again, is a consequence of what I just said. Weaker in Europe, the U.S. more resilient, more dynamic, and probably coming out more rapidly from the recent slow quarters and Asia finally picking up which China especially ramping up in general. Capra, strong beginning of the year. I remind you last year on the back of very heavy de-stocking was a bad year for this industry. And it's good to see that everywhere is showing stabilization or even a good recovery. Narrow steel again, depends largely on construction and equipment. and therefore weak in Austria, okay in the US and preparing for a rebound and remain strong or solid in the rest of Asia. And last slide to show the work we've been doing, especially on costs. When volumes were down, you might remember last year we announced the 3.3% cost savings program that delivered over 120 million. Well, it is continuing to deliver, which shows that it is a structural improvement. We have 3.9% savings in Q1 on costs. Really, all area, it's overheads, it's fixed costs, it's discretionary spending, it's capacity adjustments, it's efficiencies, it's around energy. Yes, we have been helped by a, let's say, improvement in freight, in logistics, and in energy, but a lot of it is self-made, and it does deliver. Sébastien, I hand over to you to go in more details on figures.

Thank you, Alessandro. Good afternoon, everyone. Let's go through some of the key aspects of our financial performance, and we'll start with revenue. Sales reached 926 million in the first quarter of 2024 with soft volumes that represents a 7% decrease year on year. It includes a negative currency effect of 15 million mainly due to the level of USD and Japanese Yen versus the Euro. Prices impact is negative 2%. You remember that in Q1 of 23, prices were still high, at high levels, and they were just recovering from the 2022 inflation spike. If volumes are lower than those of Q1 21, it was mentioned earlier, both sales and volume are above Q3 and Q4 of last year. which is a good sign of the beginning of our end-market recovery. If we look now into more details at our three business segments, Performance Minerals generates 63% of the group's turnover, with sales at 579 million in Q1 of this year. Revenue generated by performance minerals was down 5.6% like for like in the first quarter of 2024. Sales in the Americas were impacted by a slowdown in demand of the construction industry and of filtration markets. Revenue in EMEA and Asia-Pacific decreased by 7.5% as compared to a still strong first quarter in 2023. Dynamic sales of plastics have partly compensated for weak ceramics demand. Compared to Q3 and Q4 of 2023, both performance mineral segments have increased their activity. If we look now at our solutions for refractory, abrasive, and construction business, the segment recorded sales of 300 million in the first quarter, representing 32% of Imerys' consolidated revenue. The volumes in construction and industrial end markets in Europe were soft, but the refractory business, particularly in the U.S., showed some signs of volume recovery. The business as a whole posted growth as compared to Q3 and Q4 of 2023. Now let's talk about our new business area, Solutions for Energy Transition. Please remember it includes graphite and carbon activity and the contribution of our joint venture, the Quartz Corporation. We will deep dive on this one in July when H1 figures are disclosed. In Q1 of 2024, graphite and carbon recorded sales of 49 million, representing 5% of Imerys' consolidated revenue. This business posted a 10% decrease in revenue as compared to Q1 2023, reflecting persistent destocking in the entire electric vehicle value chain, while conductive polymer applications have started to rebound. If we look now at the group profitability, adjusted EBITDA for the first quarter of 24 reached 188 million, up 9.2% versus last year. In spite of soft volume and a decrease of volume contribution of 17 million, this evolution reflects a base business which took advantage of positive price-cost balance fueled by a decrease in costs of 31 million euros. This includes fixed costs and overhead well contained below 2023 levels. It also reflects an increased contribution from our joint ventures and associates. As a result, profitability levels increased versus last year. If we look now at the other elements of our income statement, current operating income landed at 123 million euros. That represents 13.3% of sales. Income tax expenses of 24 million correspond to an effective current tax rate of 22%. The bigger contribution of net profit from joint ventures, not taxed at our level, supported this rate decrease. Net operating expenses represented 14 million euros impacted by non-recurring costs related to restructuring and asset disposals. As far as the paper asset disposal is concerned, I invite you to refer to the press release for the planned recycling of translation reserves that will occur at the closing of this transaction in the P&L. This entry will be non-cash and will not impact shareholder equity, but as the amount is material, it's better to have this in mind. All in all, net income from continuing operation landed at 69 million, up 10% versus last year, and that's in line with the adjusted EBITDA increase. We have this year no contribution from discontinued operation, as they were linked to the divestiture of HDS that happened in January 23. Now back to Alessandro for the outlook.

Thank you, Sébastien. To close, what do we see ahead of us? First behind, we lived some serious destocking at the end of 2023 and several months of low activity. As I said at the beginning, I think we have turned the corner and we expect volumes to grow progressively in all sectors and in all geographies. The electric vehicle's value chain is the last one that needs some stock adjustments. That's why we will see our graphene and carbon business pick up as we move on. But overall, we're very confident on the trajectory and, therefore, on the positive impact on volumes going forward. The U.S. is more dynamic, so we expect a rapid rebound or rebound. good development europe as usual a bit behind a bit slower but will accelerate in the second half to be observed is the residential construction market and automotive still partly impacted by high interest rates but also in this case moving in the right direction what is important is for us to keep focus on our costs and cost disciplines When volumes come back, we will see this leveraging significantly in our profitability. We have new capacities ready to fulfill demand and a number of products in the pipeline, new products that will also foster our growth. Thank you for your attention, and I open to questions.

Thank you, dear participants. As a reminder, if you wish to ask a question over the phone, please press star 11 on your telephone keypad and wait for your name to be announced. To withdraw a question, please press star 11 again. Please stand by, we'll compile the Q&A roster. This will take a few moments. And now we're going to take our first question, and it comes through line of Sven Edelfelt from Oddo. Your line is open, please ask your question.

Yes, good afternoon. Thank you very much for this presentation and congratulations for the nice improvement, especially at the Quartz Corp. I would have a couple of questions from my side. You mentioned an improvement in volume, and if I look at volume, we are still down in Q1. Can you perhaps share with us what was the volume in March? And if possible, April would be good. If I look at the Quartz Corp, the net income contribution should be around 50 million euros in Q1, if I'm not mistaken, because there are other GVs that are contributing as well. Can you maybe clarify this element? And as well, on this contribution, to what extent we can extrapolate and multiply this contribution by at least four on a full year basis? The third question will be a bit of a clarification. I think there has been some bad noise about Pacific Quartz, which revenue were down 67% in Q1. Can you basically tell us that maybe the Redacross compared to Pacific Quartz is limited when compared to your quartz court? And then the final question would be on paper. Can you give us an idea of what the amount that we could deconsolidate this year in case you're successful on the disposal? When I say amount, I mean revenue on EBITDA would be good. Thank you.

Okay, Sven. Sebastian will then join me in answering some of your questions. First of all, on volumes. Quarter on quarter, Q1, Q1, yes, volumes are down 3%. And fundamental is a bit of construction and a bit of industrial activity in Europe. Volumes are up compared to Q4 and Q3. That's the message we were giving. March of last year was the best month of the year. So we start from a higher comparison. But what we see in Q1 is clearly a rebound compared to the last six months. If I look at April, as you know, we don't specifically mention numbers. And by the way, April is not even closed since it is the 30th. But the direction is absolutely confirmed. So we do expect a good April. And that's why we are confident that progressively it's going up. What is also positive is it's not a single business or a single geography. Every single business unit or business area in the group in every geography has a better Q1 than a better Q4, and even better than Q3, which is typically a strong quarter, except carbon because Q3 was the beginning of the destocking, so it was still, and you have the numbers in the appendix, it was still a before the destocking. It's the only one that is late, basically, in the value chain. On TQC, I don't know if we, Sebastian, we have the numbers specifically on each of the JVs. Largely TQC is by far, far, far the biggest. The others are really minor contributions. Can we multiply by four? No, because every quarter is a fight. We have competition. We have markets. We have unpredicted events. What I said, if you recall in April when we presented this business, there are no special effects. There are no one-offs. It's a business that is solid on good markets with its own competition, with its own market drivers. Probably today there is a bit of overproduction in China of solar, which is partly the reason you mentioned on a drop in activity at one of the competitors. But the underlying demand in semiconductor, in fibers, and in solar is up and is up for many years to come. Then, like every market, you will have up and downs. You will have slowdown, overcapacity, a bit of competition. So to say multiplying by four is the right thing, I think it would be wrong. Every quarter, we will monitor. We will report. We remain confident that we have a great business. But every quarter is a fight. Don't compare entirely to Pacific Quartz because this company is very minor in raw materials. For the industry, they are much stronger in the downstream business. So it's more on finished products and downstream. So it's not really entirely comparable to us, just for your information. They have a very small part of... of minerals for the industry. And last, in terms of paper, our business into the paper markets, Sébastien, Q1?

Q1, around 90 million euros of sales. And I would say when we normalize the margin, you know, it's the traditional margin, 14, 15, 16% of EBDA margin, depending on the... on the period that you can use to normalize that. So we'll obviously know a little bit more precisely in the next week when the closing can take place, but I think that you can use that to do prorata.

Okay, thank you. So if I sum up, April is up to some extent. And the quarts, we cannot multiply by four, but close to four, because there is no one of, so slightly below four, right?

You take your assumption, then. It's a market, like every market. We wish we could do simple math. It's difficult to predict the future. Thank you very much.

Thank you.

Thank you.

Now we're going to take our next question. And the next question comes to the line of Ebrahim Homani from CIC. Your line is open. Please ask your question.

Hello, Alessandro. Hello, Sebastian. Thank you for taking my question. I have three. If I may, the first one, if you can, maybe... give you more flavor on your cost structure. Are there more cost-saving actions that will be led in the next quarters, or we can consider that the actual cost structure will remain the same over the next month? My second question is about the M&A. Now you plan the consolidation of the paper assets in the current year. Should we consider H1 or H2? I've understood that we have to consider a 15% margin. on these assets. And maybe my last question is about the hearing in the U.S., which was planned yesterday, if I'm not wrong. It has been reported. Is there any explanation on that?

Thank you, Ibrahim. I'll start with the last one, and then let Sebastian comment on the costs. There is, of course, an explanation. The hearing has been delayed, as far as we know today, by one month to May 29. The main reason is simply there are a lot of new cases that have been added, and our the mediator as well as the tour committee, basically the representative of the plaintiffs, just want to be sure that everybody has properly interpreted and understood the agreement and are willing to sustain it. They want to be sure that once we launch this voting, there is proper knowledge and support for this plan to avoid exactly what happened last time. So we remain very confident that we are on the right track I think a month of delay, if it helps build the support, is well invested. So we remain confident we have started the downhill process. On cost, but we will keep updated, of course, as soon as the hearing is confirmed for the end of May.

On cost, what we can say, on the variable cost, we have now a good visibility of the lower cost level of energy and freight, which, as you know, are our biggest input costs. And that will be able to edge or to contract for most of 2024. And I would say that that comforts the cost reduction that we have seen and will carry on. On fixed cost and overhead, we continue our homework as well. We continue to do a small footprint adaptation here and there, and in particular in our European footprint. It will not be, you know, tens of millions of euros that we take out of the cost base, but we continue to make sure we put that under pressure so there is no – very big movements that we can expect, but at least not upwards, that's for sure.

Thank you.

Thank you. The last question, maybe on the schedule of the divestment, the paper assets.

We hope we could give a date.

Yes, it's difficult to give a date, but in terms of the vestige of the paper assets, I think Realistically, it should be by the summer, and I expose myself in an optimistic way, but we are very well advanced in the finalization. Documents are signed. We are waiting for a last approval from a competent authority. Normally, there is a deadline, so I remain optimistic that it will be done by summer. And on the acquisition side, probably a bit longer because we just launched the consultation with the unions. That is compulsory. And after that, there will be some carve-outs of these companies from a larger asset base of the Calgon Carbon Group in Europe. So it might be rather, I would say, towards probably rather a Q4 closing.

Thank you very much for your answer.

Thank you. Thank you. Now we're going to take our next question. And the question comes to the line of Aaron Cesarelli from Berenberg. The line is open. Please ask your question.

Hello. Hi. Good evening. Thanks for taking my question. I have one on price mix. It was quite a strong price mix, down only 1.9% against very tough comps. Just wondering if you can provide a little bit more color around what was price versus mix. And since comps are getting easier here for the remainder of the year, should we be thinking about possibility of positive pricing going into the second half? The second question is around cash flow. I understand you don't provide cash flow now, but it would be useful to have an idea of how cash flow performance was in terms of also working capital management. And the final one, if I exclude the contribution from the joint ventures, the ABDA was down 12% year-over-year. It would be possible to have a little bit of color around what was the key segments that drove this decline.

Thank you. Price 1.9, as you say, I think it's quite a good performance because last year we were still going up or still having some surcharges. So I think it is good news. Some businesses are even slightly positive. As you say, comparison will ease as we come towards, let's say, second half. So all in all, in the year... I do not exclude we might be positive. Too early to say, but let's say all surcharges have been removed. There is nothing left in the group because of obvious cost comparisons or price comparison towards last year. And here and there, we have to compensate and to offset some fixed cost increases, which we have passed through. So it could turn positive when we look forward and even for the full year. Cashflow, we don't publish three months. I think we publish a lot more information than many other companies on a quarterly basis. So allow us not to talk about it. if you remind what we said on a full year basis not only we deliver a great cash at the end of 23 a lot of it was structural coming from a project we have launched internally to better plan our production forecasting inventory management so fundamentally the job has been done and we will see him we'll see it in june we will see it in december then if activity picks up, as we believe strongly, as you always know, it needs cash flow, it needs working capital to grow. But structurally, I think we are doing what needs to be done. Your last comment, I'm not sure it's suitable, meaning it's our business. If you want to remove some bits and pieces of the business, then pick whatever you want. I think our joint venture belongs to us. Largely, we co-manage them. They are doing well, and we are very happy and proud. Some construction is slightly down, and others are slightly up. So I don't see much to be discussed. If you start separating a single business, go ahead. I think it's not the way to see it. This is Emery's. And I think it's growing and it's going in the right direction after a few economic-driven difficult quarters.

Thank you. May I ask just a couple of follow-ups? One would be on the synthetic graphite and carbon black. It would be great if you can give us a little bit of color around the feasibility you have in the stocking, what you guys have seen at this moment. And the other one would be you mentioned automotive, if I recall correctly, in your presentation to be one of the weekend markets in Europe. Is that just related to EVs or also auto ex-EV? Thank you.

Graphite and carbon, I think it's a good point. It is the one with the biggest drop compared to last year, which is clearly – A destocking effect, the entire industry is going through a destocking, and I think you have seen it in, you have read it when you read Umicore, when you read automotive, when you read metals, nickel, lithium, manganese, cobalt, every product relating to the EV value chain as seen from H2 last year, a significant decline. Overcapacity, overproduction. slower adoption of electric vehicles have led to these high stocks, high inventories. We slowly see the end. March was a reasonable month, and Q1 was better than Q4. So even in graphite and carbon, I think we have turned the corner. It's the only business that Q1 is not better than Q3, but is better than Q4, and I'm convinced Q2 will be better than Q1. It has turned the corner. It is very customer-specific. You have some customers that are booming. We have customers up 20%. We have others down, which is partly is really which models are winning the EV race and which one are losing or which company is losing. But fundamentally, I think, again, it has turned and is going up, especially carbon black. Synthetic graphite is a more specific product. It is a bit slower. You know, you might remember we have built a third line and commissioned last year. We are building the fourth. We are running at two and a half, two and three quarters. So we are filling slowly the third line. And we are happy because the fourth one will be coming on stream this year. So we want this market to continue growing or restart growing and growing fast. No doubt. More generally on automotive markets, EVs worldwide are growing. So that's not the issue. It is rather Europe and it is rather, I would say, normal cars. If you look at European production of vehicles, it's the one that is down. EVs are still pointing up. So it's more an automotive issue, interest rates, uncertainties of laws. So it is more... more the traditional car market in Europe that needs help.

Thank you very much.

Thank you. Thank you. Dear participants, as a reminder, if you wish to ask a question, please press star 11 on your telephone keypad. And now we're going to take our next question. And the question comes to the line of Matthias Kubli from Tiger Asset Management. Your line is open. Please ask a question.

Good evening. Thank you for taking my question. Congratulations on the great JV income result. I mean, it's astonishing to see that you do more than 50 million JV income now per quarter. Last year, TQC did 80 million in one year. So my question would be on TQC following up from Sven. question. When I look at the contribution from the JV income last year, it was pretty much stable around 20 million per quarter for TQC. So why should this year be very different and where we have much more volatility in net income? And then I have a follow-up on some financials.

I'm Not sure I completely understand the question, but I will try to answer it as best as I can. When we presented this business, we said that the business is enjoying solid growth because of the underlying markets, plus the company has been investing the last two years and is completing its investments. So, Growing business last year. Good performance this year is partly volume and price is both factors. What I was saying is it is difficult to promise that nothing is going to change for the next three quarters. That was more my message. At the moment, we believe the underlying markets are solid, but If you had posed the same question a year ago on graphite and carbon, I would have told you there is only one direction, which is up. And then suddenly we realized there was a bit too much optimism, a slowdown, and a couple of quarters of less demand on a curve that in the long term I think nobody challenges. That's simply why we prefer not to commit on the remaining quarters of a single activity.

Okay. Thank you, Ron. On the net financials expenses, they were at $16 million in the quarter. Do we have to think about this, that they could be meaningfully higher for the full year, or could this also come down again in the next few quarters?

No, there was a bit of exchange expenses during the quarter, so we will not have four times what we have. On the other end, you know that Structurally we'll consume a little bit of cash down the road with dividends that will come with a little bit of capex that will come as well. So we'll only know that we'll balance it out a little bit, but it is difficult to predict the forex evolution, obviously. But on the base interest, I think we are structurally have a little bit more growth debt than we had last year, but nothing particular.

Okay, thank you very much.

Thank you.

Thank you.

Dear speakers, there are no further questions. I would now like to hand the conference over to the management team for any closing remarks.

Okay, then thank you very much for listening to us and with a positive message that finally the business is going in the right direction and with the expected announcement on interest rates should give a further boost, especially to the construction sector. Therefore, we do look much more positively to 2024 than we did three months ago. Thank you very much and good evening.

Good evening.

That does conclude the conference for today. Thank you for participating. You may now all disconnect. Have a nice day.