Imerys S.A.

Gilles Michel - Chairman and CEO Olivier Pirotte - CFO

Thank you ladies and gentlemen. Good day.

Thank you for being with us today for this presentation of the annual statement of 2016. Mrs.

Pirotte will be speaking with us as well and we will then respond in to questions. As to the highlights for 2016 a very good progress in our results with an FDA up almost 10%, 9.9% with occurred operating income up 8.2% and then an improvement in the operating margin standing at 14% and the very solid cash flow of almost €400 million available.

The achievements of the group are derived from the robustness of their business model. Their operational results, this is based on internal developments drawn forward by innovation and research and development and externally with acquisitions and the benefit of synergies this years are from the former company.

We also derive benefit from the assets, improvement in the economic atmosphere in the fourth quarter our organic growth was positive 1.4% and this needs to be still confirmed for 2017. Net current of rent [ph] is 6.6% and we have reached the growth objective that we have set and our current net per share was up 6.8%.

The dividend that will be proposed through the general assembly is €1.87 per share which as such is a measure of the trust that the board has in the fundamentals and the group prospects. This is and the acquisition of Kerneos, major step in the growth strategy for Imerys and I will be talking about Kerneos in a moment.

A few figures and those of you we will get more into detail about the details of the figures. Sales stand at 4.165 billion up 1.9%, EBITDA has gone higher than 800 million standing at €819 million, current operating result €528 million.

Improvement of 80 basis points of the operating margin net current income €362 million for income per share of €4.6. Now what about the market environment?

It was a pretty unfavorable market in 2016 but ultimately as you can see in the chart we have an organic growth that is negative 1.4%. However I think the environment has improved in the last part of the year and in fact there are some markets that were atonic or even negative and the paper market is obviously on a decline but renovation market in France and so far as we're concerned was declining as well.

The province [ph] which depends on the non-conventional oil market in the U.S. is quite down.

There is a little bit of some indications of a recovery, but in certain catchment areas there was down significantly. All the markets, now some markets did remain dynamic for the automobile industry.

The construction industry and in particular in the U.S., consumer goods, mobile energy and the various geographical areas, the U.S., India and South East Asia and there are some markets which had an improved trend towards the end of the year. First of all, I think this can be said globally about the European Economic Area and specifically and in few specific sectors for example in steel industry in Europe and the U.S.

and the markets that go along with that and the demand for refractories. So as you can see in this chart our organic growth stood at 1.4% over the quarter.

So we're in positive territory for quite a number of quarters. So the basis of comparison was favorable because the last quarter in 2015 was the lowest point with minus 5.1% in organic growth but the change is obviously a positive one and -- now let's review the main areas of activity.

We'll start with the Energy Solutions and specialties, still standing at 1.200 billion [ph] last year. This is a like for like decline throughout the year.

Now this is mainly due to the decline in the steel industry and monolithic refractories. In this particular area we are highly involved in monolithic refractories which are subjected to these declines in markets however that has a attenuated, that decline to attenuate in Europe at the end of the year.

The margin rate stands at 10.4% in this branch. It is impacted materially by the negative contribution of ceramic province to the operating income, the market is low.

We wish to maintain our presence in this area and a sales presence or commercial presence in these logistics circuits to be able to serve the small amount of customers that are left and to be ready to take off as soon as the recovery occurs. This does have a cost it has a negative impact on our operating result.

We had said that it would be less than last year's and it was 23 million compared to 27 million. So if you discount the proppant issue the operating margin of the variance stood at 12.5%.

Now this mainly due to the positive effect of the price mix and it's also reflects a very good cost control in certain branches specifically in monolithic refractories which were affected by the decrease in the market, a decline in the market which was reorganized, restructured for some activities especially in China but not only in China. In other divisions at the end of the year we've made an acquisition, the first time in the U.S.

for the company that was called SPAR and has a €30 million sales figure. Now in the other divisions in this branch of activity the carbonates activity benefited from a broadening on a specialties offering, very dynamic in the U.S., in Southeast Asia and they also benefited from the integration specialties derived from [indiscernible] precipitates in terms of graphites in carbons.

This market was improved thanks to a very dynamic activity in lithium ion batteries underpinning mobile energy and electric vehicles and we also committed in 2016 we committed to a multiple year action plan and the first feedback, and the first fruits are being born and this will be carried out over several years. Now in terms of filtration and performance out of this, 27% of sales standing from 1.85 billion [ph] we integrated the S&B activities three years synergy, but like for like this is also a very positive growth of 1.4% thanks to the good dynamics of the market and the businesses we are in.

S&B was integrated as I said. This induction is now over and it was a success.

We are very happy and satisfied of the acquisition in the way in which everything went so well and the promise has borne out and there are very good prospectives for the future. We admitted to a synergy program over a three year period, so by the end of 2017 that was finished at the end of 2016.

So the objective for synergy with S&B was held one year ahead of time which is a remarkable performance from the point of S&B we are not in a crew speed but we are integrated and developing. So this contributes to operating margin in the branch and performance which is improved as you can see in this chart.

It's created by 200 basis points, 18.8% thanks to synergies, thanks to innovation and thanks to the price mix and thanks to the very active cost control process, more specifically without getting into too many details in terms of performance outages and filtration divisions. There are a new products, new innovation which are supported by the automobile industry, infiltration solutions, purity, health industries, many activities in fact participate in that dynamic business line and there is satisfactory performance in the metallurgical division derived from S&B is fairly good development in both markets in casting and steel industry and it is in that segment where we fact had a transaction in the first of January this year to broaden out via the [indiscernible] company sort of related activity with a specialty offering at Absorbance based on a mineral source similar to the [indiscernible].

In Denmark, so the sales figures on the order of $45 million of revenue, now ceramic materials which produces a 30% of our sales. This was up like for like 4.2% and minus 1.4 in constant exchange rates.

Nothing particular to indicate at the end of the year neither improvement nor a decline. This is a business where the margin is very robust as you can see it stands at 18.3% and this is in fact an improvement compared to 2016, this is a reflection of a very tight management, very effective piloting of cost and control of cost in the companies in the branch.

We have our entire roofing activity, now this particular market was declined in 2016 minus 3.9% and this is really the result of two effects. Obviously the housing started to recover significantly in 2016 but with effects they are basically weren't perceptible over the year because there's a delay effect.

So there are new housing starts are only a quarter of our sales and tiling. Three quarters of the rest are from renovation which was actually negative throughout the whole year.

In terms of Kaolin it was quite dynamic period and so far as the essential part of that market i.e. our presence in the paper market for printing.

We benefited from the contribution of the acquisition at the end of the preceding year. Kaolin hydrates so we're broadening our scope which was beneficial in the dynamics of the business and we also benefited from a very active development in the paper areas other than printing and packaging and so forth and ceramics on a very good trajectory, very robust, the last branch that I will be commenting on are high resistance or high tensile of minerals.

There is a change like for like negative minus 3.1%. This is mainly due to market as I spoke about earlier that was difficult throughout the year.

The steel industry and process industries refractories now the market, most of the market is in decline in the fourth quarter is quite perceptible. The operating margin was maintained at a very good level given the circumstances thanks to significant work done on cost control especially in refractories and restructuring in China.

Now the other division i.e. fuse [ph] minerals and abrasive manufacturing very clearly improvement in the fourth quarter.

We also benefited from ramping up of sales from a new production unit in Bahrain and we started selling ultra-fine alumina products for high performance and there's a pilot production line very dynamic and in this sector we made an acquisition of LTO Group for roughly, we are expecting €50 million in sales additional in the next year and we have enlarged our scope for things we didn't have in our portfolio so much for the various business lines in the group, a few bits of international information. We talk about innovation, this is fundamental obviously and the approach that we have adopted in 2016.

We enjoyed this a sustained level of new products, 12.5%. Now this is in line with what we did over the last three years.

I think you need to consider that we announced solidly ensconced and a very fast level of offer renewal and new products. Most of the products have less than five years or 12.5%.

Our sales are generated by this type of product. So this is an order of magnitude that is above 10% and we are there to stay and we are pursuing the renewal of our offering with very many new products in very many sectors and plastics and polymers as I spoken about in energy, infiltration and paint and [indiscernible] in cosmetics and beauty and Refractories and casting.

Now from this point onward this particular flow of new products or in-flow of new products and the strategy of innovation is part and parcel of what we do and it will be recurring and contribute to the robustness and the improvement of our operating margin. In parallel with these developments we have continued to invest very significantly to support the growth of the future.

New products, new markets, new geographies. Here you have a map of the increase in capacity in various parts of the world without getting into detail.

This goes to show that in all areas of the world we are present and we're very diversified in our various sectors we've invested a €100 million this year in development projects. This is more than the two preceding years.

Now this happened in the framework of an investment program, a global investment program that was under close control and we will see the figures in a minute, as I indicated this includes the launching of the first phase of a multi-year investment program in the field of carbon and graphite. What is our engine for development?

Well it is growth and external growth. This has been area active in 2016 with several acquisitions, due in large in-force our group for a contribution of a little more than €100 million for a full year figures.

Now these are companies that are not all in the same area. They don't have the same configuration, they are different market positions.

There are varying levels of prosperity but in terms of their integration in 2017 this was both the margin will be integrated, solvency is there's a slight dilutive impact on the margin in HY ‘17 but thanks to synergy as is always the case they will be very quickly contributing another factor and this is a major step for us is the acquisition of Kerneos into Imerys. China [ph] is a world leader in performance and the order of magnitude in 2016 at the end of the third quarter 415 million in sales and EBITDA of 99 million for us.

This provides access through Kerneos to a market segment that is either very strong growth period. Performance [indiscernible] for construction, performance binders, there was a rapid growth in modern technology in the construction industries for coatings and so forth.

Now this will be contributing to the overall performance of the group through growth in sales through its profitability, generation of cash flow which is greater than the average in the group. This is a company that is built and run and has been developed over history and the project is based on a business model that is very comparable and very close to the Imerys model.

This operation and the price basis of €880 million of the value of the company will create value right after the third year of consolidation notably thanks to synergy that is estimated at 23 million full year in the third year of integration. This is a project, it's currently outgoing.

We believe that the closing could be possible halfway through 2017, this is obviously the subject to consultation of the authorities and personnel representatives that consultation is ongoing and subject to the authorization of regulatory authorities and there are several of them. So there are quite a few things we have to do in that respect and this is moving forward quite favorably.

So much for what I wanted to say to you today I'm going to hand over Olivier Pirotteto who will be going more into details concerning the figures before we open up to the floor for questions.

Thank you, Mr. Gill.

Thank you ladies and gentlemen. Good morning.

I would like now to review and comment upon the detailed numbers and financial aggregates for fiscal 2016. I would like to start with revenues which reached in fact which went above €4 billion that is a growth of some 2%, these revenue as you know Imerys has being serving its clients and customers across many geographies and the first geography which we’re serving is U.S.

25% of revenues is located in this part of the world then you have the emerging countries accounting for a bit more than one fourth and then you have European countries accounting for 43% of revenues, France and Germany respectively 10% and 12%. As you may see on the charts in 2016, the increase of revenues was driven by external growth transactions completed in 2015 and 2016 for an amount of €140 million.

As Gill mentioned it S&B considering for the first two years of the year as well as salt based carbonates operations, hydra scaling operation by BSF and roofing accessories operations by Matisco which were considering related as of November of 2015 which contributed to a change in Matisco [ph], it also includes this increased that is to lesser extent the acquisitions completed in early September that is SPAR and [indiscernible] in early October in monolithic refractories. Now if you make projections over a 2017 building upon the external gross transactions, you're talking about an amount of a bit more than $100 million which will be contributing to increased sales in fiscal 2017 now going over the organic change and developments to pick up on what GME [indiscernible].

I want to mention that the group Imerys but if it's from a positive price mix effect over 0.7% and from revived growth in volumes slightly less than 1% point 9% for Q4 to be compared with less minus 1% for the year before. The second aggregate I wanted to comment upon was current operating income.

You know the words EBIT for the group it reached €582 million that is up 8.2% much higher than the rise in revenue so very clear increase which mechanically translated into an improvement in our operating margin by some 80 basis points to 14% operating margin. This current operating income includes changers in scoping back to €16 million.

It also includes positive €39 million Forex impact originating in the favorable impact from the devaluation of the Brazilian real for about half of the amounts I just mentioned and especially to be noted is that the current operating income has benefited from the positive price mix impact by €21 million as you can see in the chart which is due to the beefing up of the product offerings in the segment of specialties which will be continuing year after year as well as building upon the net improvement of our fixed cost an overheads reduced by some €30 million and if I net them with a change on all costs we have a net improvements of costs some €18 million which is a key driver in the growth of Imerys and showing good discipline for the group. In addition to this lets me talk about this 80 basis points improvements in operating margin across all business groups irrespective of the situations which Gilles Michel described.

Going on with the breakdown of the income statement this brings us to the net income from current operations up 6% to €362 million. This is after consideration for financial expense of some €64 million which is higher than 2015 which was €55.5 billion, this is due to lesser gains on Forex and financial instruments or almost zero in 2016 versus gains of €8.5 million in 2015.

Now the interest expense has slightly increased due to average cost of debt for the year which went through 1.116 million versus 1.4 million in 2015 but the gross cost of debts went down to 2.4% on an average annualized basis. Now second item for the net income from current operations is the tax charge of €154 million for fiscal 2016 to be compared with €140 million year-on-year which reflects an effective tax rate of a slightly less than 30% that is 29.7%.

Net income from current operations per share is up 6.8% to €4.6 per share which is a result of the accredited impact of our share buyback program conducted in the course of 2016. Now net income group share reached €292 million which includes all the operating common expenses net of tax on the amount of €69 million.

These other operating income and expenses include a number restructuring items especially in all operations connected with refractory materials with impairments of €25 million in China which we announced in Q3 and they also include the costs connected with transactions and with external development movements of the group. Now moving on through generation of cash flow for 2016, Imerys generated robust free current free operating cash flow on the amount of €395 million to be compared with €340 million a year before.

There are two major items which need to be commented upon, the first is the increase of EBITDA current EBITDA by slightly less than 10%, 9.9% to €880 million and the next driver is a positive change in working capital requirements by €14 million versus €22 million in 2015 and this is the result of optimizing inventory management with a gain or five days as a percentage of revenues which is a significant improvement which reflects and demonstrates the disciplined management we have implemented year-after-year. Now with respect to capital expenditure and we are talking about paid capital expenditure, these amount to €278 million in 2016 and they reflect the launch of a multi-annual investment plan as Gilles Michel mentioned to serve the record growth in the lithium-ion battery mark to serve mobile energy market.

This plan was launched in 2016, we will amplify in 2016 and especially with respect to some carry over effects. This robust generation of cash flow benefited our financial debt situation.

If we look at the year financial structure of the group as at the December 31, 2016 you can see that financial debt net is €1.366 billion which is significantly down versus 2015 and it includes the payouts of dividends as well as the buyback of shares which amounted to €66 billion for fiscal 2016 and it also includes the payment for acquisitions completed in 2016 that is SPAR, Alteo, [indiscernible] all the acquisitions which we had mentioned. So the financial ratios for Imerys as of the December 31, 2016 which do not include the future upcoming acquisition and integration of [indiscernible] have improved significantly.

As you can see the net debt to EBITDA ratio is 1.7 times and net debt to equity for the group stood at 47% these basically shows respectively reductions of a 0.3 times and eight percentage points respectively. So significant reductions now with respect to the rating of the credit rating of interest.

We are monitored by two rating agencies as you know these very well and the two rating agencies following the announced acquisition of Kerneos, they maintain and confirm the credit quality of Imerys Moody's which has been monitoring us from 2011, has confirmed our BAA2 rating with a stable outlook and that Standard & Poor's initiated this outlook rating with a BBB rating and stable outlook as well. Before I close these financial section I want to dwell on the high degree of financial flexibility and financial resources.

Growth debt as you can see reached €2174 billion is mainly made up of bonds. We have abandoned cash but we'll have a number of bonds maturities as well as the payment of acquisitions that we finance.

So cash position as of December 31, 2016 was €808 billion since then we showed up our position with a view to anticipating the integration of Kerneos in financing this acquisitions which will be financed using our available resources. So less than a year ago on the 10th of January last we benefited from favorable market conditions to complete a bond issue and you’ve here on the chart on the amount of €600 million with a 10 year maturity which will have a 1.5% coupon, this went very well as the issue was oversubscribed three times over which gave us long term conditions which we consider very favorable.

These bond issues will contribute to the extends the average bond maturity and you’ve the schedule here with the coupon as well on the right hand side on this chart. So in such a satisfactory context the Board of Directors of the Company decided to recommend to the AGM which will be held on the May 3, 2017 to payouts dividend per share of €1.87 up 6.9% year-on-year which corresponds to a payout rate on the order of 40% that is very close to the payout level since the past years.

Gilles over to you for the outlook.

Now what we can talk about is Imerys and what we have at hand and what we have at hand is a very robust, this is stubble a strategy which has been delivering results and in 2017 we will be continuing operating excellence programs. In 2017 we will be continuing with having a great share of our revenue originating in new products in 2017 we will be building upon our recent acquisitions and in 2017 I hope from the second part of the year we'll be benefiting from an integrated [indiscernible] for these reasons and for 2017 I'm very confident that we'll be able to deliver the long term value we have committed as part of our strategy and as part of our ambitions.

Ladies and gentleman I'm now along with Olivier Pirotte will be able to take any questions you may have.

If you look at growth by geography you can note that North America, the U.S. have grown more than 3% for the year versus almost no growth for the first month, what happened?

Was it due to the external growth acquisitions or was it due to internal improvements and if this is the case can you expand on these and tell us which business groups have contributed to this positive change growth in the North America zone for the refractories we noted major restructuring efforts, was it only located in China or did it cover all the areas where some plants closed and in the cement field were some kills [ph] shut down. Can you tell us more about it?

Now with respect to the refractories operations. The restructuring efforts and costs cutting measures covered all of our presence and system not only restricted to China of course they are two major business groups, business lines, they [indiscernible] of course but two main business lines we have monolithic refractories operations and we have in operation the minerals for refractories, so both business groups were impacted.

Now in the two business groups we very quickly adjusted system, we cut costs, we shut down the plant in China. Yes that's true and as far as the rest this was more a question of bullying and restructuring operations, enabling us to restart operations as and when we want to do it.

We also made great efforts in cutting overheads, purchasing procurement costs much more than just manufacturing an industrial optimization. And this is how Imerys always strived to manage and steer its way forward in these business operations and business groups by being very agile and fixable now.

In the refractory segment just to mention they were events in the past which has made us able to maintain profitability and value creation despite downswing markets which happen in 2016. I do not have any special comment to make on the momentum.

I have to look at numbers that's is momentum in the U.S., Q4 versus the first nine months, my feeling is that there was no special discontinuation, no special discontinuity in September which would have changed the game. There's no special fact or events except if my neighbor here Olivier can add to this.

Let me just add to answer your question since Olivier Pirotte, the share the co-chair of the U.S. grew by one percentage point.

So this is about 40 million to 50 million compared with the total Imerys revenues which shows that this region is quite dynamic. Now very specifically with respect to Q4 versus the other quarters in 2016 the filtration and performance entity [ph] segment grew it's volumes in Q4 quite finally especially more in the U.S.

which could provide some explanation of this trend. We also have events due to acquisitions which had an impact on scope.

We mentioned SPAR being acquired which is fully located and based in the U.S. which has contributed some millions in Q4 and which was a fully consolidated starting in September.

This is surprising phase, the participant in the room as the latest they have materials show a slowdown in the market for Q4 with negative marketing in Q4 and this is surprising.

I would like to have clarification on your year-end performance for fiscal 2017. We see that growth is slowing down.

Sorry for 2016, the price mix impact has been slowing down in the late part of the year, is it both due to mix versus price now still with respect to year-end of 2016 there has been accelerated decline in the ceramics business group. How can you explain this and last question on the Q4 in the filtration business group you've mentioned the launch of new products driving good performance can we anticipate that this strength will go on in 2017?

Thank you.

With respect to the price mix impact, 2016 especially Q4 of 2016 was mainly operated in non-inflation environment. No major discontinuity in the economy situation, oil prices of course increased, it may have implied effects in the future but explained in the past -- in our own environment we do not have the feeling that there was a significant change in Q4 in this respect.

This is my first answer. My second answer is that we operate in a generally low inflation environment and the price mix impact for the full year is not so important, it is in fact an important part of the price mix impact is due to the mix that is a launch of new product.

At the end of the day what's important for us and I emphasize this point at every meeting what we've been managing very closely is the balance, the balance between what's change in the price mix has contributed to the topline and the variable costs and the difference between the two is the balance that's we've been managing closely making sure that it's always positive and one of the tables we have shown in the handbook illustrates this very well. This balance has always been positive across periods which can be higher inflation periods with more impact on the cost this year in 2016, our costs improved and the price impact was lower because of the slow inflation environment.

This was my second comment. For 2017 the answer is I do not know.

It is possible that the inflation may rise. We'll see this in all the areas, in oil, now we don't know yet, what I know though is for Imerys as we've always being will be very watchful and very responsive in this respect so that we can make sure that at the end of the day the balance I mentioned remains a positive balance for Imerys.

This is how we be managing our business operations and this balance basically demonstrates the positions of our value added specialty business operations. This because we very proactively position ourselves you know this multi-post [ph] on us, this is very proactive.

We position ourselves on product segments, on market segments where we can provide value and have it recognized and we operate in specialty markets and this one we can operate in such a manner. I hope I answered your question Now with respect to the decline in the ceramics material segments I told you they are three very different situations in the ceramics business groups, you have a clay roof tiles which in Q4 did not operate in the market which was very different.

You know the markets for minerals for ceramics which has been quite buoyant and show a good growth. You have the Kaolin for papers market which over the fourth quarter possibly had the phased out deliveries but in an environment which was quite buoyant, quite dynamic for reasons I have already mentioned in my presentation.

So nothing else really than contingents so constants based aspects to explain this. No major lessons to be drawn on any trend which would be different from what I mentioned.

Now with respect to filtration your question was, I'm not certain that -- can you repeat your question? The question was that performance was very good in Q4 driven by the launch of new products.

Was it a one-off aspect or will we you be continuing the good momentum in 2017?

We have a business which is really dynamic and that's going to pursue in 2017. How else could I answer?

The Q4f if I draw a horizontal line but no it's a solid robust and it's growing. Thanks especially to new developments.

I have three questions. The first is about proppants.

Could you have a little more granularity, carbonate [ph] ceramic is your competition, they came out with a fairly positive figures in the last quarter. They have increased their stock listing.

So how is it going on for you? You know it's not exactly what you said.

The second question is about nonrecurring items. In 2016 there are quite a few even if it's in February now do you’ve in 2017 non-recurring items that were delinked to restructuring other transactional costs or have those been taken into account or restructuring costs that would be necessary for Imerys to get that €23 million in synergy and the last question more globally is just to wonder why you're so prudent about 2017 despite the movement in the fourth quarter.

Is there something in January that requires that you be more prudent?

Yes about proppants to start with. The topic was -- the question was asked.

I would say that first of all there's nothing different than what [indiscernible] ceramic sees. We didn’t position the same way but the view of the market is same, the oil exploration and gas, nonconventional gas, exploration is directly linked to the cost of oil and NWECE [ph] we've always said and this is confirmed that the market will recover or start to move with price of the barrel over a €50 and this will and if you reach $60 not euros, $60, 52, 53 were above 50 the market is trembling.

They are giving a few signs of life, but it hasn't recovered but nonetheless there are some activities have picked up. Customers are rearming as they were.

So the price has to be a bit higher for those to take off. So roughly $60 a barrel in order to justify real investments moving towards recovery for the market.

Now when the market is trembling means there is a little activity starting to pick up and it starts in the catchment areas that are less costly and those -- and when I say it's less costly because it's easier to run and proppants [indiscernible]. So over the last three months there is a movement using sand.

So this is just a bit of a shift but it is real, no proppants yet but we’re positioned, we’re poised for ceramic proppants which are the highest performance products and also the most costly because they are better performance but they are adapted to areas for exploration that are the most solicited and so north west to the U.S., north east perhaps and on South West or South East. So that’s where we stand.

If you ask me you know when is it going to come back? I don't, if you ask me do I believe that in some point in time it will come back that what we’re betting on, we’re convinced to that.

We have stayed there not for nothing. We’ve made the choice of basically I'm not getting out because we do believe that the [indiscernible] activity, gas will pick up again in the U.S.

I'm convinced to that and I believe that when it does recover we know they will need a ceramic proppants and that’s what we want is to be the major player in the ceramic proppants who already validated, qualified, recognized, certified by the market in a certain way and that's the reason why we have kept our staff ready up and running and that costs money in 2016 and 2015, but this will enable us to jump into the fray upon request. It won't take long to pick up again.

So when the market does pick up there will be not much notice and it could be quite unexpected. As the opposite was very similar to that as well.

So I can't make any predictions about when that will occur because it depends on things that don't depend on us. I am going to have ask Olivier speak to nonrecurring items.

You are asking the question about January, as I said in January I have nothing. We are -- this is a perception.

We are not publishing figures but I have no factors that say that things are different from what we've seen in the fourth quarter. So that's not why I'm prudent.

I'm prudent because we know from experience to what extent our markets in markets and industry even heavy industry can have a quick turnaround. We know that it really depends on factors that are external and I think in 2017 and not only from the U.S.

but also from the U.S. there are uncertainties that are purely geopolitical and a very strong nature.

So we need to be prudent, cautious and look at what our assets are. I think those assets are solid.

We should be able to get into play if the environment is favorable that would be great. If it's not the case we have already demonstrated that we're able to adjust and adapt quickly and to hold out and to create value despite of it all.

The non-recurring items, what we can see is that by their very nature they're nonrecurring so there's no question of being able to forecast them. It's kind of a difficult adventure.

If they're predictable the accounting standards would have to recognize them as recurring. So in terms of restructuring closing nothing in particular in view or acquisitions or restructuring costs that we've recognized this year here again complements to reach our synergies.

So what will 2017 look like from that point of view I think we worked a lot on their assets portfolio and a certain industries can have headwinds or volatility and paradigms in geographical areas that are different and for management rule is to adapt. This is what we do with refractories this year.

We talked about that. We do not consider that today we have tangible indications so that we will know where we stand exactly next year.

We don't have any hidden markets as it were that will kick in with any sort of uncertainty.

I have two questions. The first is about proppants, as a point of detail but have you generated any sales and profits in 2016?

Or not? Areceramic proppants or not?

If that’s the case do you still have inventory? And how long can you hold out with that inventory that you have?

How long can you last without taking off the machine and starting your plants up again. Second question about margins, your margins are very high operationally especially if you consider the environment which is difficult and the volumes under pressure.

How far can the margins go up? How high can they go?

It's still about margins, how are you going to handle the increase in energy costs in 2017. The last question about margins, you benefited from the change in the real in 2016 and what happens if it stabilizes or goes up?

What will be the impact on your margin? Another thing about the margin, you indicated if I understood you well that the contribution of acquisitions, the acquisition of companies will have an impact of a €100 billion in sales in 2017 in sales?

Could you indicate what the impact might be on margin other than synergy or with synergy?

Thank you, Eric. About proppants, two questions.

Have you sold? Do you have inventory?

The answer is yes to both of those questions. We haven't sold a lot but we sold.

There's a bit of activity in the gas market and gas exploration is continuing because the cost of gas is quite constant. It's a small market compared to the oil market and we also obviously we entered into the crisis with inventory, we have sold some but we still have some left.

Perhaps I should add that we have produced in 2016 a small production campaign but it's important that we said we did have a production run. Why did we do it?

Well because there are always varieties and different granularities in different products we don't necessarily have in stock so we have to produce them when there is an order. In addition to that this made it possible for us to validate the quality of the production tool to sustainability which is very important in just thinking about starting up again.

We have the tool that's up and running industrial as well. I'm not going to get into the detail but our plants, our teams are ready, willing and able to start up and they've demonstrated that and what about profits in terms of the prices, how do those figure?

Well they are lower because of the oil prices. This has brought about a decline in pricing on the order of some products for the cost was divided by two or by three.

Ours was mostly by two. It's the way the industry works here again, the day when things take off again the idea is that the concentration will be on products availability and how fast they can get on the market rather than on the actual price.

These are prices that are very poor right now, these are not long term prices at least I don't think so. How much can we bump our margins?

I think we need to say that operating margin is good. It's much better this year.

I indicated that it reflects I believe the strategy. The group is positioned in a determined fashion, we are open that works in specialties that's why you have good margins because of our product that has a lot of value and that can be compensated in consequence.

Our objective, well that's the first comment. The second comment the margin is the same well our objective is 14 and 14.5.

I don't know the margin depends a lot on the product mix, in the business mix and we can see that it fluctuates considerably over two or three years. This is not necessarily the businesses that have the biggest margin that are going to recover in 2017.

So the average margin rate is not an objective in and of itself. What operational criteria is the value obviously but in a monolithic refractories it's a business that doesn't consume much capital.

The operating margin is lower really than the group average, but the [indiscernible] are very contributive. So that's the criteria and the last one is that margins still climb up to the sky.

It depends on the duration actually that you’re running an industrial strategy over time and so it is necessary to mix commercial policy fit to not exploit the position but to a sustainable position is what you're looking for. So we consider and I often say this that for a group such as ours which has a portfolio and a vision of the portfolio in the future of the operating margin between 12 and 13 corresponds to simple sustainable, viable in terms of creating value.

Now with respect to the margin on acquisitions right, this was your question. And the impact of the costs -- the energy costs for 2017, yes Gilles Michel again answering this question now.

It's hard for me to quantify the impact of the energy cost, the number of parts of this cost are hedged because we have a hedging policy which smoothens out the ups and downs in the prices now. So no major problem in this respect, but it is possible that the costs of inputs and materials and commodities increase in 2017 then we will be adapting our sales and marketing policy, our purchasing procurement policies and our operating excellence programs and costs cutting programs, all these in general programs.

So that we make sure that we come up to the net equation position that we want that the costs contributes, that our cost management positively contributes to the bottom line. So historically we have demonstrated these over and over and we've delivered good margin rates, good net balance between costs and price of four, five years ago in higher inflation environments and we are operating in an almost zero inflation environment.

Now how will the acquisitions contributes with respect to your question. It's hard for me to give my take, in first year any acquisition has a dilutive impact, this is how you create value.

You have to integrate the company inside the rest of the group in order to optimize costs which is not necessarily a question of restructuring things in the sense of shutting down or closing plants and side synergy can take very different forms, ways and means, R&D synergy, geographical synergy, sharing of overheads. So there is a larger gamut of measures and options and this is what we're talking about the size, the magnitude, and the type of a company in Imerys has demonstrated.

Its ability to integrate acquisitions. So we'll be able to deliver value in the year of integration this year as I mentioned will be a year of CapEx, a year of investment.

We're talking about a bit more than 100 million revenues that is a 2.5% of the size of the group. So with all due respect to these acquisitions and these business operations it will not have a major impact.

With the situation of the Brazilian real, Olivier Pirotte answering we are a highly exposed international group. So we have a Forex impact for sure which are difficult to control given the high degree of volatility.

Yes we have a cost base in Brazil which is material as this is where a large part of our Kaolin for paper volumes are produced and the situation has been especially favorable. Don't forget that if currency devalues it is the reflection of its local economic position and situation.

So for us this can have an effect of transaction and transfer but in Brazil there is high cost inflation and if you refer to the slide I showed on the Forex impact on the current operating income cross over there is, don’t forget there is share of high cost inflation from Brazil. So but there is a compensation between our manufacturing asset, our exports and our exposure.

You’re talking about the reality of other currencies offsetting these trends.

I've few questions, the first is on Kerneos. In your slides you displayed substitution and penetration rates of 4% to 5% in the building and construction market.

Are they projections or are they historical trends? In the same slide you say there is a potential penetration of the U.S.

market, can you expand on this? I know that the acquisition is not finalized but tell us more about it.

Second question on proppants, can you tell us more about what it will take to breakeven in these segments and can you also give us a CapEx guidance for 2017?

If I can comment upon Kerneos, not much because it has not being fully acquired yet so my feeling and my perspective is and perception is very much an external one. So once we will have a fully acquired the company and integrated it, it will be more informed but the answer to your two questions substance is that the penetration rate basically the growth rate of the binders for the construction market is in line with the historical trends of the last four to five years, very buoyant, very robust trends and they are good signs that these trends will continue.

So this is what we have based our investment upon. What has been driving our investment is these very prospects and the prospect of expanding these trends and building upon that.

So we are based on historical trends and very well documented data in the U.S. we are in a geography where Kerneos is very present and active but it's a context and the situation where the segments, the segment you're talking about is showing rapid growth.

Now we respect to -- what was your question again? You asked us about proppant and what it takes for us to breakeven.

Now we need to have volumes and prices or both, so this is the only thing I can say. In the current situation of the markets which is very sluggish.

We have very weak sales, the cost or irrepressible overheads and fixed costs in 2014 we had a bit more than €100 million in sales. We had just broken even slightly positive.

This just gives you a baseline. This is basically all we can say.

With respect to capital expenditure, I think that what can be said is that all our CapEx program has increased its level from €250 million three or four years ago to a bit more at €278 billion of CapEx this year. We embarked on a multi-annual phased, well controlled and multi-annual CapEx program for the graphites and carbon segments to serve the lithium-ion battery market and we believe we can be an important player in this market.

We believe there is a big opportunity, you know it's not news. We have gotten into a phase where we start to invest which has an impact on our CapEx program.

The numbers will be in excess of €300 million, €300 million, €330 million possibly but not much more, not really more in the current state of things you know in the scope of the Imerys today because our desire is to absorb, to execute capital and to have a progressive step up in our choice but this is good news. Our momentum, our CapEx momentum has been a bit more sustained which is good news as we bank on new growth and market development potential.

Additional question from the floor. Okay.

To pick up on what you said the guidance, the CapEx guidance, the €280 million CapEx, the delta, the various in between both will be explained by the battery segment.

The difference is because we want to amplify the pace, it is also explained by some carryover effect that is the start of the graphite and carbon project and the impact of the graphite and carbon project.

I would like to understand better the way your business groups operate, they are very complex and multiple. I can see two types of business group, for one you are a producer of raw materials and in this respect and with respect to selling prices you are very dependent on the general market conditions as any producer or raw material.

If you mines for example you won't have to buy talc outside and you are dependent on price fluctuations of talc and you can monitor price fluctuations or value in all the commodities I guess it is the same in your industry. To which extent are you dependent on the price of commodities and you know they have showed considerable fluctuations in the last few years.

Second question you have been a transformer, a converter as you are in a business of converting, you buy diverse materials in the markets which you convert. What is the ratio or the relationship between your cost of procurement and your cost of selling?

Do you pass on the price of commodities you buy depending on the market? Do you buy bulk size or alumina or do you have a pricing policy and you cash in the fluctuations in procurement costs?

To try and give you a simple answer to a very interesting question. Number one, we are not at all a producer of raw materials.

We are a producer of a specialty products which are not materials, they are inputs, they are constituents products, additive products which are constituents and components of our clients products. We manufacture.

So these are synthetic products , we manufacture them from raw material some of which we extract or mine ourself we do not buy them when they are specific materials, when they are rare materials or when these are pure commodities like bauxite we buy. In the general case 2/3rds of our business operation covered first category including talc products.

It is true that we have some one-off purchases, this was mentioned in the early part of this week it can that we have time specific or one off purchases of products like talc but we’re talking about 1% of our volumes. It is very one-off, very based on circumstances and we do not base it in a market of Kaolin materials or talc materials.

We don't buy on these markets because our products are not raw materials. There is some extractive and mining operations on our part but we're not part of the extractive industries, we are not in the alumina business model and I'm not making any judgments here.

I'm just saying that we are in another type of industry. So we have no whatsoever in our numbers, in our results, in our business models.

We have no impact of fluctuations, of raw material prices. Fluctuations of raw material prices do not impact us as a producer, as a manufacturer, as a supplier, as a converter, as well.

We're not impacted fluctuations in the price of iron ore or manganese has have had no impact on our cost nor on our prices. Now we construct all prices not by passing on all transferring costs but by at least we try and do so by adding value, and this is a principle of a specialty business and this is a purpose and the goal of our company that we've been proactively pursuing in the last few years.

We want to position ourselves in this respect and having said that for about 1/3rd of our business operations we buy raw materials that we convert alumina and bauxite, a good examples of that but we also buy oil to transits, shipments or to run kilns [ph] and ovens. To your question what do you do when these prices the prices of both, price that will go up.

Well especially because we are in a business of specialty products and added value products. We believe we are capable of protecting ourselves against fluctuations in prices by managing our sales and marketing policy and by managing our innovation policy.

This is basically the aggregates of Imerys.

The conversion that you do more of a chemical side or are the physical side?

Mainly is the answer, they are mainly physical thermal, mechanical conversions. In a number of business operations they are very little of a chemical nature but the chemical conversion, chemicals transformation is not the majority of our business.

We have a precipitated the calcium carbonate business which has some chemical inputs.

Are you high consumer of energy because you are in a very favorable situation, the cost of energy is extremely low.

We’re a consumer of energy is the answer but we’re not an intensive consumer of energy.