Imerys Sa Ord

Good morning to all of you. Thank you for joining us today to review Imerys H1 2024 results. With me this morning, Sébastien Rouge, our CFO. As usual, let me start by giving you some highlights for the semester we have just closed and in particular on the second quarter. And I have to say it was a good one, very solid performance. Demand was strong for Emery's specialty minerals, resulting in volume and revenue growth compared to last year. It's now the third quarter in a row of continuous growth. The good performance is mainly coming from the U.S. market, holding up well. And also, finally, our European activities recovering gradually, particularly in consumer goods and, which is good news, industrial and markets as well. Asia performing also okay. H1 prices were slightly down, approximately 1.2% on the first six months with a high comparable basis, I'd like to remember from last year, but stabilizing in Q2 with just a minus 0.6% difference to last year. Second important highlights, Imerys posted an adjusted EBITDA for the first semester, 2024, of 384 million, up 11% versus last year, representing a solid 20% margin in line with Q1 24 performance. positive price-cost balance, significant cost savings, and a positive contribution of our JVs, all of these contributed to this solid performance and increased H1 profitability. Looking specifically at Q2 EBITDA, this was up almost 14% versus last year, thanks in particular to an increased contribution of our more traditional historical performance minerals and refractory minerals businesses. From the cash point of view, the group generated 120 million euro of operational cash flow before strategic capex. Net debt remained stable at approximately 1.2 billion euro, representing a net financial debt to adjusted EBITDA ratio of approximately 1.7 times. Finally, on a more strategic side, the group continued to execute on its roadmap. On the M&A side, we announced on July 5th the completion of the disposal of the assets serving the paper market. On the sustainability side, we disclosed our climate transition plan, demonstrating our engagement to address climate change. Furthermore, Imerys renewed the scientific partnership with the National Museum of Natural History, reaffirming Imerys' commitment to biodiversity protection. So all in all, A strong performance in Q2 and in H1 in an economic environment which still remains overall uncertain. So as I just mentioned, Q2, IMA is confirmed in sales recovery. This slide shows the rebound in revenue. Sales were up compared to the last three quarters and sequentially 7% plus versus Q1 and 1% plus versus Q2 of last year. This rebound is entirely driven by volumes, as prices have been slightly declining. Exchange rates has had a negative impact, and perimetra as well, a negative impact, even if minor. On the next slide, this graph shows, highlights the significant improvement of Imerys EBITDA margin in H1-24, reaching 20%. What are the main drivers of this improvement? For sure, volume recovery, a positive price-cost balance, cost savings, and an increase in contribution of joint ventures. If Q1 benefited from an exceptional contribution of our JVs, as we reviewed three months ago, mainly thanks to our high purity quartz business, Q2 showed a strong contribution of our traditional activities. Confirming that the wide range of solutions Imerys can offer is a key element of the group success. Let's look now a bit more in detail to Imerys and markets and their recent trends. Construction, the biggest, the most important exposure for the group. I would say a mixed picture. In general, infrastructure and no residential remains solid. where a residential, which represents Emery's largest exposure by far, remains a bit subdued, even if, finally, showing signs of improvement. From a geographical perspective, the situation could be summarized as follows. Europe, finally, first signs of recovery as interest rates start to decrease. Residential sector still low level, but I think the worst behind us. North America, good momentum, for sure non-residential. Residential still weak, but also clearly improving. China, I would say in general, positive trend confirmed, benefiting from public programs in all sectors. Consumer goods, holding well in the U.S., always helped by a robust job market. flat or flattish in Europe as a consequence of steel persistent inflation and growth in China hampered by increased household savings, low stock exchange, low inflation. Automotive, I would say a bit the worry at the moment. If we exclude China, markets remain fundamentally soft, as already mentioned during our Q1 results call, and this is expected to continue for the rest of the year. In Europe, we observe an even stronger decrease than expected and a negative outlook for the rest of the year. Recent publication by carmakers confirmed this trend. North America should be a bit more resilient, and China doing well. Increased production by 8% in Q2 versus last year, fueled by government incentives and really booming exports. H2 is expected to be a bit slower, but still on a positive trend. For the energy sector, slight rebound thanks to industrial recovery, and we expect farther improvements in H2. Chinese industry is about to post another year of robust growth, and industrial production picking up, including solar activity, and we'll be back to this. Electronics pursuing its catch-up after a slow 23, and electric vehicles overall good up 18% versus Q2-23, but with a very contrasted performance in terms of geography. China production still booming, 25% up in Q2. U.S., to a lesser extent, still up 15% in Q2, but from a very low base. While Europe is definitely struggling, minus 3% in Q2-23, versus 23, sorry. notably due to Chinese imports and cuts in subsidies in certain European countries. Moving to the last slide on our end markets, industry and equipment. Finally, I would say industrial production in Europe is starting to show some recovery, driven by rising consumer incomes and energy prices falling from past record highs. Activity in North America is expected to increase in H2, mainly driven by overall construction. In China, it tells up reasonably well, considering the overall weak economic fundamentals, but strong export activity. Steel production also contrasted by geography. still persistent difficulties, high energy prices still impacting the competitive landscape, and weak construction markets also impacting production. North America benefiting from this infrastructure overall good activity. Asia, China, I would say kind of stable. I now hand over to Sebastian for more details on Imerys H1 financial performance.

Thank you, Alessandro. Good morning, everyone. Let's go through some of the key aspects of our financial performance, and we start with revenue. Sales reached $1.9 billion in the first semester with progressive recovery of volumes. Prices are normalizing after two years of high inflation and include some market-driven adjustments when needed. Looking at Q2, you see a positive volume effect compared to Q2-23, driving a year-on-year improvement in revenues. This reflects an improvement of European and markets, especially consumer goods and industrial applications, while maintaining a good momentum and market share gains in the U.S. If we look now into more details at our three segments. First semester 24 revenue generated by Performance Minerals reached 1.2 billion in line with last year. Revenue in Americas was up 3% at constant scope and exchange rate, reaching 543 million in H124. Sales were supported by volumes, up 1.4%, mainly driven by consumer goods and U.S. construction, with solid pricing. In the second quarter of 2024, revenue reached $284 million, plus 7.1% like for like, confirming the good business momentum and benefiting from some market share gains. Revenue in Europe, Middle East, Africa, and Asia Pacific decreased by 1.7% at constant scope and exchange rates in H124 as compared to last year. After a weak first quarter, this business area improved in Q2, driven by dynamic sales into plastics, paint, and filtration activities, with volumes up and prices stable, driving like-for-like variation of plus 4.5% versus Q2 of 23. Adjusted EBDA of performance minerals activity increased by 19% in H124 compared to prior year, supported by the recovery of the activity and significant cost savings. Looking now at our solutions for refractory, abrasives, and construction business. This segment recorded sales of 620 million in H1, of which 320 million in the second quarter of 24, in line with last year levels. It benefited from a rebound in refractory business worldwide and an overall good level of activity in the U.S. Prices have decreased by 2% as energy surcharges were discontinued at the beginning of 24. Adjusted EBDA in absolute value and in percentage of sales has improved significantly, supported by a positive price-cost balance and cost savings actions. Now we complete this segment review with the newly created solutions for energy transition. The graphite and carbon business posted a 13% revenue decrease in H1. Nevertheless, carbon black revenue is progressively recovering as demand rebounds in Asia after a long destocking period. Adjusted EBITDA for the first semester reached 20 million, a decrease of 29% versus last year, impacted by declining volumes and some price concessions, partially offset by cost savings. The Quartz Corporation posted an increase in revenue of 64% compared to the first semester of 23. Very robust H1 performance was supported by well-oriented underlying end markets. However, Photovoltaic overproduction and consequent high inventory in the value chain is currently heavily affecting TQC sales. Now, if we look at the group profitability as a whole, adjusted EBDA for the first half of 2024 reached €384 million, up 11% versus last year. This evolution reflects volumes impact almost neutral, reflecting the progressive demand recovery. Base business, which took advantage of positive price-cost balance, fueled by a decrease in cost of 57 million euros. The evolution also includes fixed cost and overhead increase of 21 million in line with the increase of the activity. In H1, Emeris enjoyed an increased contribution from our joint ventures and associates. As a result, first semester 24 adjusted EBDA margin increased significantly. If we look at Q2 only, you notice 197 million of adjusted EBDA, better than Q1, with positive volume contribution and acceleration of cost reductions. Looking now at the other elements of our income statement for the first semester of 24. Driven by the increase of EBITDA, current operating income improves at 253 million or 13.3 percent of sales. Income tax expenses of 50 million correspond to an effective current tax rate of 22%, the bigger contribution of net profit from JVs, not taxed at our level, supported this rate decrease. Current net income from continuing operation thus landed at 173 million, up 25% versus last year. Net other operating expenses represented 31 million euro, impacted by non-recurring costs, mostly related to asset disposals, and also some restructuring, all in all, in line with last year. Net income group share at 142 million is at the same level of last year, which still had a 44 million contribution from discontinued operation related to the HTS solutions, which we disposed of in January 2020. If we look now at the cash flow generation, Imerys reported a current free operating cash flow of 88 million in line with last year. The free operating cash flow figure includes 171 million in paid capital expenditures, out of which 32 million are strategic capex. I remind you the strategic capexes correspond to graphite and carbon expansion capacities. They will come to an end by the end of the year. And the lithium projects. A positive element is the good development of the operating working capital, inventory in particular, which only slightly higher figures than in December in spite of the recovery of activity. The line other adjustments correspond mainly to the difference between John Venture's share in net income and the dividends we effectively received in H1. This dividend received amounted to 49 million euros in H1-24. How do these different elements translate into eMERI's balance sheet? Thanks to the generation of 88 million net current free operating cash flow in the first semester and small proceeds from disposal, we maintain the debt close to June and December 23 levels. At the end of June 24, the ratio of net financial debt to current EBITDA was stable at 1.7 times adjusted EBITDA, reflecting the solid financial structure of the group. On this good note, I now hand over back to Alessandro for the outlook.

Thank you, Sébastien. Before we discuss the outlook for the second part of the year, let's have a look at the end markets we serve and the impact of the disposal of the assets serving the paper markets, which impact it will have on our exposures. the sale of these assets have completely eliminated Imerys exposure to graphic paper, leaving within the group only a small packaging and board business, which serves consumers, applications, and it has been added to our consumers business. Other activities will proportionally grow in importance mechanically, such as construction that moves from 37 to 39. So now on the right, this slide you have image exposure to end markets which as we said in the past should be our long-term reference we believe we are now positions on growing and markets with solutions that help the ecological transition and therefore we grow above underlying markets in the long term to conclude let me wrap up with the outlook for the coming months The group expects to continue benefiting from positive business momentum in H224, supported by our well-diversified geographical footprint, broad application portfolio, and overall improved economic conditions. Assuming that there will be no material change in the current macroeconomic environment, and we have assumed a significantly lower contribution of joint ventures in the second half, And I will answer your questions later on. We target a full year 2024 adjusted EBITDA in the range of 670 to 690 million. This compares to 668 of last year. But I remind you, the last year included the 100% of our paper business, which has been divested now in July 24. So with a streamlined portfolio, Imerys continues to progress on a strategic roadmap, serving end markets with significant potential for growth. Thank you very much. We can now open to questions.

Thank you, dear participants. As a reminder, if you wish to ask a question, please press star 1-1 on your telephone keyboard and wait for a name to be announced. To withdraw a question, please press star 1-1 again. We'll take a few moments. And now we'll take our first question, and it comes from the line of Sven Adelsfeld from Oddo. Your line is open. Please ask your question.

Yes. Good morning, gentlemen, and thank you for taking my question. So I would have three questions. The first one would be on TQC. Can we have more detail? To what extent the slowdown expected in H2 is coming from volume rather than pricing? I understood previously that you had some long-term contract. Are those contracts still being honored by the Chinese customer or did they simply cancel the shipment? That might explain your cautiousness. Second question on the asbestos. I think Johnson & Johnson has accepted to contribute to higher cash payment to the trust, and the 15th of August hearing has been confirmed. Can we hope for the vote being launched earlier than the 26th of October? That is scheduled as of now. That's the second one. And then the third one is related to guidance. I understand TQC is lower than expected but on the contrary the underlying business is better and when I look to Imerys historic figure usually when volume recover they are very quickly in the high single digit if not double digit so to what extent I mean your guidance could be completely rigged and in the end in Q3 we could have an increase in guidance on the back of higher growth from the underlying business.

Thank you, Sven, for the questions. Let me address them one by one. What can we say on the slowdown, especially of high-purity quartz? Fundamentally, it is market-driven, and we believe temporary slowdown. You know, the main markets served by our high-purity quartz joint venture are photovoltaic, semiconductor, optical fiber, and others. I would say semiconductor, optical fiber continue to perform well on the back of all this Internet and artificial intelligence trends. What has clearly had a significant slowdown at the end of Q2, and we expect to continue for certainly for a few months, maybe quarters, is rather in the photovoltaic sector. What is good? Demand remains very strong. We have said we believe it will grow 10% for the next 10 years. It's growing faster than 10% at the moment. Simply, on the back of the euphoria of last year, there has been a strong overproduction that has caused high inventories. You correctly said most of the production is in China, therefore the visibility is limited. How long will it take to come back to a more normal inventory level? Very difficult to guess. We want to be prudent. We have experienced a similar trend about a year ago for batteries in the entire value chain. We know when there is a lot of euphoria, some producers tend to keep producing above demand. We are exactly, if we see on one side graphite and carbon coming back, again, some customers may be here and they are slow, but most of the demand is coming back and is growing fast. And it's coming back to our expectations. We see exactly the same happening in the photovoltaic world. Inventories, slowdown of current production, once again, temporary. I'm convinced demand remains strong. Imerich is investing a lot in photovoltaic products. plans or making agreements with energy producers to install photovoltaic farms. It is the cheapest, easiest, best way to produce renewables. Therefore, really underlying demand will remain strong for many years to come. We have to get through this high inventory level, and we'll be back to solid growth. So I'm not worried in the long term. Let's see how long this softness will last. It's difficult to predict. It's really a volume play, Sven, rather than a price. Yes, there have been announcements that prices dropped, but it's rather for the low end of the silica world. We are only limited exposed. Our, let's say, very high purity business has value in the application. Therefore, prices have remained relatively stable. Time will tell. That's not, it's really a volume-driven slowdown. And in terms of contracts, as we said in the past, we don't comment on contracts. We have short, medium, and long-term contracts as a normal business. I don't think people are not honoring contracts. I think if a business slows down, we have to adjust to a slowdown. Forcing, imposing, we've seen it in graphene and carbon is the same. if there is a slower demand for sometimes we adjust, we wait until it picks up, and then we accompany our customers in future growth. So really, for me, very solid end markets. Temporary slowdown due to high inventories, a return is a matter of when rather than if, and on the long-term perspective of this business, absolutely no doubt. So second question was around Chapter 11. I think you have pointed out a very important step in the process. A settlement agreement has been signed between the North American talk entities, previous Imerys, North America, and Johnson & Johnson. It settles all open discussions between the two stakeholders. Why is it important? Because it puts an end to all the oppositions Johnson & Johnson has exercised in the past and pressure on our Chapter 11. Therefore, I believe it's another brick in this wall to close the Chapter 11 case. The settlement will add 505 million U.S. dollars to the trust, to the Imerys Trust. So also in monetary terms is an important step. Being so important, it needs to be approved by the court, and the hearing is scheduled for August 15. Since it's a signed agreement, we do expect the court to approve it. Once approved, this will become part of the overall reorganization plan, which means what Emery said filed in January, this will be included. We do not expect any other changes, so law firms are including these new events in the existing reorganization plan. Once approved, we can ask the court for final approval of the reorganization plan, and this approval will launch the voting process. I'm not aware of the October that you mentioned, Sven, frankly. We do believe the hearing will come after August 15. We will request for a hearing. It's summertime, but I honestly hope and count that it will be definitely before that date. And we believe September is a good idea or a good reference for a potential new hearing to launch this vote. That's where we stand today. The last topic is around guidance. I don't know what we would say in Q3. Otherwise, I would adjust my guidance today. I think what we have indicated is a proper reference for the way we see the business today. Overall, the traditional underlying markets for our traditional businesses are recovering, especially construction on both sides of the ocean. We see industrial production moving. Is it a big rebound, strong rebound? No, but it clearly is signs of recovery, as we said in Q1, and we have confirmed the numbers in Q2. So we target to have a second half for traditional businesses in line with the first part. Normally, Q2, H2 is 10% lower because of August and December, but we believe it's going to be a solid H2. Graphene and carbon will continue its recovery. We were penalized partly in June because we had to shut down our biggest operation in Carbon Black to connect to the energy recovery unit. You may remember we have signed an agreement with E.ON of Germany to build a large waste gas recovery, energy recovery unit on site, and we had to stop our entire operation two weeks to connect to the neighboring operations so that this has cost us sales because volumes are really picking up and therefore it has cost us some sales. So we do expect the graphite and carbon doing well in H2. The big question remains on how fast will the high purity quartz recover? Really impossible to say. No visibility on the level of inventories in China. We have taken a prudent approach. In Q3, we'll give you an update, and we will know more for sure three months down the road. Don't forget that H2, we will not have the contribution of our assets serving the paper market, around 190 million in sales, and I would say probably something between 25 and 30 million in EBITDA. They will not be there, so the guidance reflects all these events to the best of our knowledge today.

If I understood correctly, the guidance includes continued growth of the underlying business like the one we saw in Q3, meaning no acceleration. Is that correct?

I don't know growth and acceleration. We cannot say there is a very strong rebound. There is a recovery. There is a positive trend. We saw it in Q1, even stronger in Q2. I think we still need a bit of help on interest rates in Europe, a bit more confidence. So I would say between growth and acceleration is a difficult choice. I think a solid H2 ahead of us, improvement versus last year, and continuous recovery. Big rebound, not yet.

Okay, so continued like 3% volume growth in H2.

I let you make your guess, but I think we have turned the corner. The world economy is improving, and we see that clearly. Maybe the only market that is And the pressure today is automotive. Automotive in Europe, in particular, you have seen the announcement of big car makers. They are a bit worried. We see it in our polymers application for cars. We see very solid growth in China, much less in Europe. But all other markets are going in the right direction.

Thank you very much, Alessandro.

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

Hello, Alessandro. Hello, Sebastian. Good morning. Thanks for taking my question. So my first one is on performance minerals. I mean, very strong performance in terms of top line and earnings. Maybe can you unpack a little bit the volume rebound? You mentioned market share gains. I would like to understand what's the contribution from market share gains compared to market growth. And I would like also to understand if there was any kind of one-off benefit in your Q2 performance. Also, looking at H2, you mentioned consumer goods to be one of the positive drivers of the performance. I would like to understand maybe what kind of degree of confidence you have going into the second half, as we see most of the consumer goods companies reporting lighter than expected numbers. The second question is on TQC. Can you confirm if the 200 million euro capex has been confirmed? And also can you provide some quantitative or at least qualitative comments around the exit rate of the quarter? Because I understand that April and May things slowed down a little bit, but probably in June things got a little bit softer than in the previous two months. especially in the solar part of the business. And finally, on cost, I mean, very good performance on the cost side. If I remember correctly, you should reprice your transportation and logistic contracts in the first half of the year. So I would like to understand maybe if you can talk a little bit about what increase in terms of cost here you expect and how much the cost savings that you expect basically reported in H1, we should expect into H2. Thank you.

We'll address one after the other. In terms of markets, yes, Performance Minerals is definitely doing well, as you said, and we enjoy both volume growth and market share gains, especially in the U.S. I think our commercial actions are starting to deliver. We have a good innovation pipeline that is starting to deliver. It takes time, but it is delivering. It is basically in all sectors, from polymers to paints. It is in consumer goods. It is in board and packaging, the part that stays with us. It's not so easy to say how much is volume and how much is market share. Again, I would guess two-thirds on volume growth and one-third on share growth. I think it's an adequate figure to give you. On consumer goods, we hear what you say on other companies. Maybe in China, we don't see this growth. But in Europe, and especially in the U.S., for us, it remains quite solid. We are a bit upstream. We normally see it maybe a bit earlier, like in the negative times, in the good times, than others, but we do see a sustained business. Don't forget that we lived last year high inventories. Consumers are typically some small businesses. Therefore, there is a part relating to distribution. And distribution takes time to destock, so we probably lived downturn at the end of last year with some destocking. We saw distributors selling more than they were buying from us, which is clear sign of destocking. Today, this is gone. On the contrary, we see confidence and even a slight maybe restocking. not excessive, everybody's prudent, but for sure consumers will remain confident also for the second part. TQC, you had two questions, one on CAPEX. Our CAPEX program is ongoing. First part in the U.S., which was launched 18 months ago, is basically coming to commission between now and the end of the year. The second step was rather on the European operations is ongoing. We come on stream fully by the end of next year. There is no slowdown, no second thoughts. The markets we are serving will grow rapidly and fast in the long term. So we are continuing and pushing hard to implement these capital expenditures. They are important to support and accompany our customers so no no second thought at all in terms of trading we don't give month by month but i would say you have seen the results of our high purity quartz in h in a q1 you have seen q2 so the trend is clearly is clear we don't need to comment it and if i look specifically at i think we see now these high inventories so I think we will see a few more months, maybe quarters, difficult to say, of slow business in photovoltaic until inventories come back to a more normal level. The question is really how long. It is new. We don't have the visibility to comment. But the remaining businesses will remain strong, and the long-term... direction of the curve is really not in discussion. It's just a matter of understanding how long it will take to bring inventories down. In terms of costs, Sébastien, do you want to give some figures?

Oh, that's a very good memory. Yes, our biggest contract for transportation are June to June. We are very confident about the cost development. You have in mind the freight and energy are the two main factors for variable costs on both fronts. We are happy about the contracting which is taking place, and we do not expect a big increase at all on the transportation side. So, again, with volumes that are stable, I think the logistic costs are well under control, even though you see some spikes sometime on the spot market, but mostly we buy on our contracts, and I think it's well orientated. Same thing for energy. You see in particular in Europe, energy costs have really gone down, not back to pre-crisis levels, but really at affordable prices. And we've been able to edge ourselves. We are therefore very confident of the absolute level of electricity, gas, that we will have up until the end of the year. So that should facilitate for us our goal, which is always to have a positive price-cost balance. And that's our goal for H2, clearly. Thank you, Aaron. Thank you.

Thank you. Now we're going to take our next question. Just a moment. And the question comes from the line of Abraham Homani from CIC. Your line is open. Please ask your question.

Hello, Alessandro and Sebastian. Thank you for taking my question. I have two, if I may. The first one is about your guidance. You said it's a recall room at a big ribbon. Is it possible to have more details on the price you expect in H2? Will it be possible to face a positive price impact? And the second question is on TQC. What's your implicit TQC contribution expectation given this guidance, this EBDA guidance you gave? And in Q3, should we consider a $20 million contribution of TQC as it was in Q2,

On price, I want to be optimistic, and yes, I believe we are going to move into positive territory. If you look at Q1 and Q2, you see we were about 2% below. In Q1, we were 0.6, about 0.5% in Q2. The surcharges we still had at the beginning of last year are clearly gone or were gone in the second half of last year. Therefore, I believe we will be positive. We will have a positive price impact in H2, I expect. Time will tell, but we are going in the right direction. In terms of TQC and guidance, we don't give guidance for single businesses. Therefore, allow me to pass on this one. We're being prudent because we have lived these high inventories a year ago in graphite and carbon. We were disappointed. It happens when you live in a market that is such a strong growth. People produce and produce and produce, and then one day you have to readjust. So we are in the middle of this readjustment before a few months will be difficult ahead of us. What remains important is the long-term view of this business. Its underlying markets are extremely well-oriented. So don't look at the quarter. Let's look at really the long-term. It's a great business, and it will deliver good performance. We will see in the coming months.

Thank you, Alessandro.

We want to be prudent.

Okay, so for the Q3 and Q4, we have to keep cautious and take Q3 for the next quarter, even if it's fundamentally a good business.

Correct. We have taken a prudent approach because we have experienced that in the past. So we definitely want to be prudent until we have more visibility on the inventory levels. And we will give, of course, an update in Q3, but we want to be very, very prudent.

Okay, thank you very much.

Thank you.

Thank you. Now we're going to take the next question. And the next question comes from Laurent Runacher from LRESG Advisory. Your line is open. Please ask your question.

Good morning, everyone. I just wanted to, I'm afraid, the big topic of the day on TQC. and to know to what extent you can use the growth in the semiconductor area to fill volumes that were supposed to be directed in the PV area so that it could smooth the, I would say, temporary problem as far as overstocking is concerned in the PV place.

Thank you, Laurent. As we said when we presented this business, the larger part of our activities address the PV market and to a smaller extent semiconductor optical fiber and other industrial applications. So we do address semiconductors. The market is going the right direction. It's positive. It's growing. We have never given up on this market. So it's not a choice to serve one or the other. We serve both. Products are slightly different. We're glad to have both markets. And there's nothing to switch, in my opinion, from one to the other. Everybody, each market has its own trends, its own products. We are present in both, and we will continue to be present in both. Simply one of the two legs of this business today are suffering a bit overstocking. It's a matter of time.

Thank you. I had another question regarding the carbon and graphite business. You had to shut down your operations to adapt to the new energy feeding from your German energy company. At the end of the day, what kind of a rough number has it cost you I guess it's, what, 10 million sales around? Is it a good estimate?

Could be. I mean, it could be in this level of sales, Laurent. What is important is especially the carbon black side of the business is recovering very strongly. We are glad that soon we will commission our fourth line because we are filling line number three, which we commissioned last year very rapidly. And therefore, shutting down for half a month has had an impact. We will recover these volumes because there is a pipeline of inventories at our customers and so on. So I think these sales are not lost. We'll come back on H2. That's why we expect a strong H2 for this business. Then, as I said in Q1, not all customers are back to full activity. Depending on the success of a specific car or brand, we have some customers really running full, others that are a bit behind because their models are less successful or the geography they serve, look at Europe, are at the moment a bit under pressure. Once again, here I believe The growth in the mid-long term is guaranteed. Probably we were all a bit too optimistic on the rapidity of adoption on EVs, especially in Europe and in the US. But on the contrary, it's going still very strongly in China, which is the biggest market in the world. It continues to grow solidly. So once the very last spots of customers with high inventories will be consumed, all business graphite and carbon black we'll be back to solid growth. We will recover what was lost.

Can you share with us, just the last question, can you share with us, when you look at the automotive sales, what is the share of China to understand to to what extent the recovery in China is not real good news and at the end is far, is more than making the balance for the European disappointment.

I don't have all the statistics for automotive. I'm sure they are available. So you can find them. But today. But as far as you are concerned. So I would say in the world of electric vehicles, today China accounts for about 70% of sales in EVs. That's my last number. So it is by far the single largest market. And in terms of production, probably even more because they export a lot. comparably they export more than any other country. Then the question is where are batteries made? And there I would say that probably the share of China is even higher, followed by Korea and Japan, and now slowly I hope Europe one day. We serve all battery makers, so at the end if a car, if a battery is produced in Korea, Japan, in China, or tomorrow in Europe, As long as we are serving all the big battery makers, I think the location of production will probably be relevant in the future. So for me, it's more a question of overall demand of EVs going forward, because we are in every car, to make it simple. We are in every car. So no matter where they make it.

Okay, thank you. Thank you a lot. Thank you.

Thank you. Now we're going to take our next question. And the next question comes from . Your line is open. Please ask your question.

Hi, yes. Good morning, everyone. So I have one question on quartz. Are you losing market shares? And if yes, is this in the benefit of lower quality quartz, such as the one made by Pacific Quartz, or in the benefit of Sibelco? And my second question is on carbon and graphite. Are you confident in your ability to reach a top line of about 300 million next year?

Thank you for the question. On our high purity quartz, I think the answers are rather no to both, meaning I don't think the very high purity quartz is losing shear to a lower purity quartz. Both products are needed. Both products were and are present. They're used in different ways. And the value in use of the high purity quartz is there. is there today it was there before that's why this business exists if you want to be efficient in the production of your silicone ingot you need a high purity quartz that's why i don't think there is a movement of shear between different qualities secondly on competition there are no statistics so i cannot really comment if you are winning or losing i believe really the The issue now is on overall volume drop led by inventories. As I said, we need to sit through this small cycle. It's temporary, and then we'll go back to the growth that really the underlying markets are still showing. So that's my comment on the shares and on the graphene and carbon. Our midterm ambitions have not changed at all. Is the 300 is not even 300 is enough. If you look at our capital market day, we want to reach higher level than 300. As for high purity quartz, we had to set back with high inventories last year into the beginning of this year. We're coming out. We are growing again. The lines, the production lines are installed. Will we already be at 300 next year? I will tell you next year, but it's going really fast. So this business will deliver 300 and more on a run rate base when we get there. A bit too early to tell you. Thank you. Okay.

Thank you. Now we're going to take one last question for today. And the question comes from Murad Lahmidi from BNP Paribas. Your line is open. Please ask your question.

Yes, good morning, gentlemen. Thanks for taking my questions. So three for me. The first one is on the paper business. Coming back on that disposal, how much it will reduce the capital employed of the company? Another way to ask the question is, was there any debt associated to the paper-based activities? My second question is on TQC. So in your guidance, you say a significantly lower contribution from TQC. Is it compared to H1 2024 or is it compared to H2 2023? And my last question is more a general question. If you take a step back on your business and look at it in terms of return on capital employed, can you help us understand what are the areas where you make the most returns and the area where you are not satisfied with the returns? Essentially, have you seen most recent projects delivering higher returns? And is it a KPI where management is incentivized in terms of lifting up those returns? Thank you.

Thank you, Murat. I will let Sébastien comment on the paper sorry, on the assets serving the paper market in terms of capital employed and debt, and maybe also on the ROCI, which is, of course, an important KPI that we follow, we track, we report to the board, and we are incentivized on. Looking at TQC, once again, we don't give specific guidance of each single business, even more so in a moment like this one where we are facing a big question mark on inventory levels. So to tell you that if it is like the Q2, H2 last year or what we say and I think the words are clear in our outlook is a significantly lower contribution. We had an incredible Q1 this year. We said there were some shifting from last year, so some exceptional profitability. I think we had at the end still a reasonable Q2. Overall, a strong H1. We doubled our results compared to last year. But we enter a phase of low activity. We want to be prudent. So, as we said, we will have a significant lower contribution compared to past expectations, for sure, and also past results. Then, as I said, no specific comment on the guidance of a single business. In terms of paper, or assets, email asset serving paper. Do we have this number by hand?

Actually, they are on our balance sheet because they are reported as assets and liabilities for sales. You have to remind, actually, we have done two sets of impairments of these assets in 2022 and 2023, so now what is remaining is pretty small. You see on our balance sheet at the end of June, we have just over $200 million of assets, a bit over $130 million of liabilities related to that. There is no significant debt attached to it, just a few leasing contracts, but nothing material at your level. dispose of the business with a little bit of cash so that the spin-off company can operate. But basically, the big swings in terms of capital employed has been done last year when we did the large impairments.

Murat, any further questions?

Yes, I had the question on return on capital employed that's still pending.

Yeah, we don't publish return on capital employed by business. I think the one we are, as Alison Rose says, that's our goal to increase the return of capital employed. There is no doubt. Our relatively large reshuffle of portfolio is actually changing that a little bit. You have in mind that Actually, our HTS business was relatively low and capital employed, so it has, I would say, pushed the average down. Let us go back to, I would say, a stable portfolio so that we are actually on the positive trend going forward. Also, the strategic CAPEXs we have done in the last two years have a mechanical impact on the short term. Alessandro was mentioning that we have put hundreds of millions on graphite and carbon. It will be probably next year and the year after where they bring full speed return on capital employed. We have so far not identified any of the latest large capex that are not meeting our threshold. So for everything that we do, whether it's big capex or M&A, we are aiming at 15% IRR, so pushing our We have not set any guidelines yet, but it's clearly part of our transformation to structurally improve the return on capital employed going further. One thing that you have to take into account is the lithium capex when they speed up. Obviously, that will be a long-term investment, so that we'll have also mechanically, and we have accepted that, I would say, for the time being, a little bit of weight of this specific indicator. But that, I think, we will speak again when we enter into the capex when we speak about the partnership that might come along in the next year.

Okay, thank you.

Thank you. Now we're going to take our next question. Just give us a moment. And the question comes to the line of Aaron Cesarelli from Berenberg. Your line is open. Please ask your question.

Hello. Thanks for taking my follow-up. I have a clarification. Page 11 of your press release, you showed us a 19.2 million negative contribution from the other segment on adjusted BDA compared to a positive one of 12.9 in the first half last year. I was wondering if you can shed some light on these figures, please.

By construction, this other segment is negative. So it's made out of two things. First of all, that's the corporate costs. And the normal way of doing is actually to spread equally year after year so that it does not impact the way you see the operational performance to spread the corporate costs towards all businesses. And the second part are the lithium costs. that we expense. Some of that, you know that we capitalize a fair amount of them. But we have a growing level of expense, and they are also impacting that. So the fact there is a bit of negative is the normal course of business. What you saw as a positive last year was actually the result of our very strong cash reduction impact. which were mostly on the corporate and global group expenditures, and this, I would say, were benefits that we enjoyed last year. We did not distribute that to the businesses, so it stayed as a positive last year, and we have, I would say, normalized this year. That's mostly the result of these two impacts.

Thank you very much.

Thank you. There are no further questions. I would now like to hand the conference over to your speaker, Alessandro D'Asta, for any closing remarks.

Thank you. And just the closing remarks. And thank you for listening today. And we wish you a good summer. And we'll give you more updates at the end of Q3. Thank you very much. Goodbye. Bye-bye.