Imerys S.A.

Thank you, and good evening to everyone and thank you all for attending our conference call. Olivier Pirotte, Chief Financial Officer and I will be commenting on Imerys’ results for the first nine months and third quarter of 2019, as well as the outlook for the year as we published them in advance last week.

Before going into the economic and financial topics, just a few words on the evolution of our governance. Gilles Michel had asked for personal reasons to terminate his mandate as Chairman of the Board, and the Board appointed me at the end of July 2019 to replace him as non-executive Chairman.

And then, on 21st of October, Mr. Conrad Keijzer resigned and I replaced him as CEO for an interim period, while a process was undertaken to appoint a new CEO.

Mr. Keijzer had, as you know, launched a transformation plan focused in particular on customer proximity and improving cost competitiveness, greater agility through more streamlined organization, and also optimize support functions.

The need for such a plan is clear and the objectives are being confirmed. However, there were differences between Conrad Keijzer and the Board on how those objectives should be implemented and more gently on the group management, and noting this disagreement, Mr.

Kaiser submitted his resignation, which was accepted. I don't wish to go into detail on this subject, but I can confirm that under the ages of [indiscernible] and myself, we are making progress in the implementation of the plan with the aim of moving forward as quickly and as well as possible, while limiting de-risk as a conclusion and this allows us to confirm the medium and long-term objectives we have set.

Let’s now get back to the quarter, as you can see, the group suffered from difficult macro-economic conditions during the first nine months of the year. Current operating income fell by a little more than 15% from 358 million to – due essentially to the 96 million decline of sales volume, but also to the negative impact of the closure by wollastonite plant and the top disputes in the United States.

These two items alone had a negative impact of 25 million on our current operating income, partially offset, but I will comment on these figures in the moment, by a solid price mix effect of 2.4% and some savings of around 30 million on fixed costs and overheads. Priority, since the beginning of the year, has indeed been given to cost reduction and cash generation and this will continue.

Let me now focus on the highlights of the third quarter, a quarter in which we faced tighter market conditions, which resulted in larger income in our volumes than we had anticipated when our first half results were released at the end of July. The sharp deterioration in manufacturing activity weighed on the steel, automotive, industrial equipment in markets in Europe, and also many paper markets, and this resulted in a decline of close to 7% in our sales volumes after a second quarter that had already seen a decline of just under 5%.

Over the same period, the deconsolidation of this was impacted by two factors. On the one hand, we had the price – positive price mix of 1.7% more than offset inflation in our variable cost and on the other hand additional savings of 11 million on fixed costs and overheads.

The 23% decline in current operating income in the third quarter and the likely persistence of unfavorable macro-economic conditions in the fourth quarter, have led us to update our target as announced at the beginning of last week. We are now targeting a net income from recurring operations about 20% lower than in 2018.

If we look at the next slide, what has been happening in the quarter – what we note is a positive price mix effect and I will be commenting on this in a moment. While indeed slightly lower than in the previous quarter, but it did offset variable cost inflation, which in turn has slowed down.

As far as volumes are concerned, which you see here, we had a negative effect which should translate to the market duration in market conditions stronger-than-expected with a decrease in volumes of close to 7%, 6.9% to be exact, and compared to the beginning of the year. I said, this is the consequence of the significant decline of the market activities we’ve seen in steel in Europe which has been automotive production too, which itself is down and more generally an industrial slowdown in the euro zone and also effects of reducing inventories and weakening of demand in the paper market.

So, these are significant headwinds that we have had to face, which nevertheless, do not call into question the relevance of the Group strategy, which is focused on profitable growth over the long-term combined also with the possibility of undertaking some acquisitions that can create value. Now, if we look at the price mix effect on the next slide, you’ll see here that our pricing policy has given a positive contribution of 21 million, which has more than offset the effect of the inflation of variable costs and giving a pricing power, which is positive, which is continuing to contribute partially to the – to offset the inflation in variable costs over the third quarter.

Now, if we look at the next slide, well, the cost savings undertaken, we look at the – due to the transformation, which is one of the objectives as is to improve cost, we've been able to achieve 31 million cost reductions on operating expenses, on the corresponding fixed costs and labor costs and maintenance costs with the elimination of sub-contracting and reduced use of over time, also the restructuring of some of our mining sites and also simplification of overheads with significant reduction of our discretionary expenses, and to this is our day to the positive effect, as we said, of the implementation of the transformation prank for the long-term, and within the organization, which is gradually put in place and will be fully operational at the end of the first quarter, which should make it possible in 2020, the first quarter to have some additional further cost saving. So much then for the general overhead of the overview, I now hand over to Olivier.

Thank you, Mr. Chair.

I would indeed like to take a closer look at our performance and our results for the third quarter and the nine months of – to the end of September. Let's start with sales.

What does a graph tell us about the evolution of sales during the third quarter? As indeed, as mentioned in the introduction, the tightening of the economic environment weighed heavily on our sales levels, leading to a stronger than expected decline in sales, volumes were down by 6.9% over the quarter, or €79 million, which explains all by itself the drop of 6.3% in revenue for the period of some €1.081 billion.

In addition to this effect, there are two other internal elements of Imerys that you know. The first is the impact of the deconsolidation of talcum powder sales from our North American subsidiaries, which weighed for 3% on the quarter's revenues.

The good news comes from the fact that the group has maintained a price mix – a positive price mix for 1.7% in the third quarter, which contributed to the tune of 20 million to revenues during the period and which was a positive foreign exchange impact, is mainly due to the appreciation of the U.S. dollar against the euro, partially offset the effects of the above mentioned situation.

The same analyses and observations also largely prevail for the globalized sales data for the first nine months of the year. The group sales at the end of September totaled 3.345 billion, down by 3.5% since the beginning of the year, including a 2.7% organic decline of which 2.3 million IFRS impact.

Now, let's have a look at the price mix and cost reduction. In the third quarter, it was 113 million and – which is a reduction of almost 20%, compared to the third quarter of the previous year.

This decline should be compared with the impact I've just described on sales and could be contained by the operational leavers implemented to partially offset the effects produced. Thus, you will read for the graphic that the impact of the decrease in sales was – totaled €41 million – a level of euro, sorry, in the third quarter for some minus €96 million by the end of September.

The loss of contribution from North American activities and from the Willsborough – the Willsborough activities totaled for an amount of €6 million in the quarter and minus €25 million by the end of September. You also observed that the levers have made it possible to preserve performance as follows.

On the one hand, we had a positive price mix that continued to cover the increase in variable costs with a delta in the third quarter of 7 million and 17 million by the end of September. On the other hand, the deployment of fixed and general cost reduction actions that resulted in improvement of some €11 million in operating income in the third quarter bringing the total effect since the beginning of the year to €31 million.

In this context, the new organization is being deployed is undergoing deployment and the contribution to profitability should be reflected starting from 2020. Under these conditions, the operating margin was 10.5% in the third quarter, a level, which compares – is slightly under the 10.8% for the first time.

Now, let's have a look at the way things are working under two main segments of activities in the different segments. So, let's start with the performance in Mineral segment, which represents 54% of the group's turnover, which amounted to €1,840 million in the first nine months of 2019.

First observation is the overall decline of 4.3% in the segment’s revenues. And consequently, in the activity segment was due to a minus 9.7% in the Americas, which is entirely attributable to the scope effect, which is negative minus 9.7% related to the deconsolidation of the North American talc subsidiaries, as you have already been informed about just earlier.

At a comparable exchange rates and scope of consolidation sales for the minerals amounted to – the sales for the minerals was activity amounted to performance down by minus 2.8% over the first nine months with a slight increase in the third quarter, as you can see. The slighter contribution from Willsborough, the main reason for this is a contrasting evolution of demand in the various markets served.

Among the markets affected by the economic environment are the following: Paper, especially in the U.S. and Europe, the filtration for food and beverages in the U.S., lithium ion batteries in China with inventory adjustments due to the decrease in subsidiaries to electrical vehicles and the weakness of trends in electronics.

However, a certain number of our markets continued to hold up well, with some variants debating regions, we're talking about construction, paint, coatings, plastics, rubber, cardboard and packaging are doing well. In the second segment of activity, we grouped together high temperature materials and solutions.

The market environment has degraded over the third quarter similar to other competitors in the segment. Over the next nine months in 2019, sales in the segment were down by 2.5% and down 3.2% from an organic point of view, but – which amounts to €1.5 billion.

The third quarter like-for-like, the decrease was 5.8%. And more precisely, due to the weakness of the automotive market and the production, which obviously impacted Abrasives and Refractories and there's a decline in the steel – and further decline in steel markets.

On the contrary, a fairly good performance in the thermal markets for industrials and the building construction industry chemicals, which was made it possible to compensate somewhat in the third quarter and there are other contributing factors. At the end of September 2019, the net group share results that we're using to establish stood at €220 million, which was down by 14.4%, compared to the first nine months in 2018.

So, there's a decline only in the third quarter was minus 23%. So, the result is after the financial effect, was a total of €33 million in September 2019 with a profit of €16 million linked to a liability management operation that we have already described above.

This is after tax expenditures standing at €94 million, which translates the current position of some 28.8% with a slight net gain down 8.9%. The other €0.68 million over the first three months in 2019, which include €51 million in terms of restructuring costs linked to the transformation program, or roughly half of the estimation and €6 million linked to the temporary close down of a unit in the U.S., whose global impact – negative impact over the year-over-year results is confirmed at about €25 million.

As a consequence, the net result group share was €66 million, down by 34% since the beginning of the year. I’d now hand over to Mr.

Patrick Kron for his conclusions.

Well, thank you, Olivier. Now, what we can say is that from a macroeconomic point of view, the coming quarters are likely to be difficult.

And this has shown also by recent indicators of markets and business confidence. And in this context, the group will continue to get priority to reducing its cost structure and generating cash, with the aim of maintaining a sound financial structure through strict management of its investments and working capital requirements.

And although Imerys now expects its net income from recurring operations to decline by approximately 20%, compared to 2018, as Olivier said, 7% of this is due to the deconsolidation of the North American talc subsidiaries and the temporary closure of the Willsboro plant, and the Group nevertheless, let me insist, remains confident in the resilience of its business model and its ability to achieve its medium-term objectives as announced at the Investors Day on June 13th last. So much for you can say by introduction, now ladies and gentlemen, we’re available to answer any questions you may have.

Yes, I have three questions if I may. The first concerns the outlook; in your comments you were saying that you are expecting to achieve your long-term objectives.

What is the standardized margin that you would consider to be the right one for the long-term? And how much time do you think will be necessary to reach it?

And do you reckon that you just have to continue to count on cost reduction between now and June? Or do prices need to continue to be higher than any increased cost increases?

Sorry, that was the first question, but I think you can see what I'm trying to get at. My second question and maybe I'll just restrict myself to two questions.

The second question concerns talc and the Chapter 11 process. How do you consider the [indiscernible] has been found in Johnson & Johnson products, this is something that can change the negotiations on the Chapter 11?

Do you think that the plaintiffs are going to toughen their stance? Thank you.

Well, you’re asking me some very interesting and complex questions I have to say. But with my seniority of just one week and of course I’ll try to do my best to give an answer.

But you’re basically asking when we will get our margin and when we will have reached that expected standard margin for us. Well, you know our company.

You’ve known it for long time and you know that we’re in markets which all cyclical, and, you know, we have to position ourselves in respect to market conditions, which can – have seen pretty brutal shifts and upswings and downturns. So, what I can say – I will neither give you a duration nor an actual figure for the margin as seeing is an acceptable standard margin.

What we can say is that our feeling, over the medium and the long term will make it possible first to recover a higher growth rate than the organic growth that we have experienced in recent years. We can improve this growth level because one of the objectives of our plan was precisely that.

What we're saying is that, when it is all said and done and some markets are growing and with their ups and downs and what we would like to see is to obviously grow at least with the market. I mean, we don't have – it’s not up to us to manage the geographies and some of the markets, but what we do want to have is markets of that level and how we’re organizing the company is precisely to make this possible counting on our innovations that we want to leverage and also see what we can do to be more effective in our commercial approach, and so that’s the first step.

And as we’ve said, the volume effective, of course, has very significant and negative impact on our quarterly accounts. And so, obviously, I mean, you know, we can't go against the structural trends of a given market.

So, that’s the first element. But volume will play in both directions because from historical point of view, it has gone in both directions.

Now, secondly, it appears that considering our position and the type of products we sell, we are selling value pricing and we are indeed capable of leveraging what we’re selling and to be able to have products that are useful to our customers, and both in terms of production and product performance, and we can really build on that. So, we have a very positive pricing power and we hope that that will continue.

And the third aspect is to keep working on the cost. Now costs imply two different types of actions.

There are typical costs related to our transformation plan. We have – had to increase a bit of our SG&A for over a certain period and we see whether we could not maybe lighten that and that was the purpose of the detailed presentation we gave on the Capital Market Day and we intend to continue with that.

So much then for the structural side of things. So, we’re optimizing our support functions, streamlining the organization, gaining in efficiency and cost efficiency and so on, and then there are actions that convince they can, based on the current economic conditions.

And, you know, when there is a weak demand in certain markets, we do not want to just twiddle our thumbs and wait and expect for it to come back. No, we don't want to preclude the possibility of lowering – backing down the hatches and then being ready to pick up the market if necessary when it comes back, and we do want to be more competitive over the period.

As we mentioned, our intention to reduce our general overheads, but roughly two percentage points in our revenues, and of course, obviously on a like-for-like basis in terms of the economic conditions of our market. Now, concerning your second question, regarding talc and this is very important.

You know that talc activity in North America, which over the period concerned, developed and sold talc, which was intended for consumer use, has come under Chapter 11, which is creating a barrier between the talc activities and the rest of the Group in order to protect the Group from any disputes undertaken and potential disputes. And in such a situation, we have undertaken to do, as one would normally do, with our North American talc subsidiaries.

In the Chapter 11 procedure, we must find a sustainable solution that will make it possible to deal with the liabilities relating to talc in North America. So, discussions have been undertaken with the plaintiffs, and of course, I can’t give a clear idea of how things will necessarily go, but we do believe that believe that this will make it possible for us to reorganize the company in a way that will make it acceptable to the plaintiffs, and also with the support of the competent legal authorities, which is the General Court of Delaware, to deal with these issues once and for all.

Now, I don't have any specific information other than the various appointments that we’ve had and any public declarations that have been made. And therefore, I cannot give now the impact of any possible solutions as they will be produced, but our objective is to come to a satisfactory conclusion of all of these disputes.

Thank you.

I have three questions. At CMD, you were – underperformance was affected by the underlying market?

So, in Q3, did you underperform, or do you think you overperformed? And in terms of the reorganization, is that partially responsible for that underperformance?

Now, you're talking about the roadmap, if – does that mean the next CEO will come from internal – from outside the company? And I know it's too early to talk about a dividend in the third quarter, but I wanted to get back to the policy – the payout policy.

Last year, you had to payout of 48%. It was 40% in the preceding years and the sale of roofing, I think, accounted for that, but should we look at something or more than 60% next year?

Thank you.

The first question. It's true that over a long period, Imerys over the last few years has overperformed the market.

And one of the objectives in our transformation program is to, I would say, improve the organic profile – growth profile, which has always been one of the strengths of Imerys over a long period to combine organic growth with acquisitions, which reinforce our portfolios. So that, one plus one is more than two.

So, that's the first point. Now, about Q3.

It's all – it's very difficult to appreciate whether overperforming or underperforming with respect to the market, because market statistics are what they are, it's difficult to say. But if your question is to say, will the impact of this transformation – did it have no impact on the commercial performance?

Very sincerely I couldn't be credible if I said it didn't make a difference. If certainly must have had something to do with it, it's hard to say how much, but we are making fundamental changes in the way we – our approach to customers.

So, is the transition period being online? Those are the objectives that I have is to continue how can I say this, the transformation quickly to get out as quickly as possible out of this transition period, which is good for nobody.

So, doubtless, there may be a bit of a negative effects and one of those effects I'm not going to over – I can't say how much it would be. But it certainly be a negative effect linked to the fact that we are work – working on the project and sales are continuing.

So, the second question has to do with the roadmap for the choice of a future CEO. You can understand clearly, but I cannot make any comments at this point on that person.

All I can say very simply is that, the group is working. I met with the executive committee Tuesday morning and the governance people met Monday evening.

I also participated and have a meeting with 100 top executives in the group, and we worked on assessing the situation, perspectives and short-term, middle-term plans. I have had maintained the idea that these are very good, teams with great quality, and I wasn't disappointed, and I do confirm that one of the things that I've learned at all levels of the organization was exactly that.

So, I'm insisting saying about that particular question that you raised, having to do with a change in governance. Once again, nobody has disagreed with the necessity for change.

Nobody – out of the hundreds of people I met, nobody disagrees with the need to change. And the objectives that we've given, I confirmed.

What has appeared is a certain inadequacy between the methods – the overall management methods and the need for change of my predecessor and the group corporate culture, and this did not make it possible to obtain the degree of onboarding that you need to successfully complete this type of full featured transformation. So, the conditions didn't – weren't as perfect as one might have wished, but this does not call into question the skills of Mr.

Keijzer is always surprised that we maintain the transformation plan and the objectives of that plan as to the profile of his successor. I hope that, that person will be able to carry this company forward with my full support as a Non-Executive Chairman, as far and as high as possible.

In terms of the dividend policy, we're not going to talk about dividends today. But I – all I can say really is that, there's no real reason to worry about that.

The group has demonstrated the stability of its dividend program over very long period. And when the results were amplified by exceptional capital gains, we sold off the roofing division.

The dividends didn't go to heaven and there's no reason that next year they should go to the cellar. Thank you.

Yes, I have two questions. The first is linked to dividends, but the generation of free cash flow in the first quarter held up well.

Can you give us some indications about the way it’s been going on in the first and the third quarter? The second question has to do with the reserves of €250 million for talc.

Should – could we know if a part of that has been used in 2019? Thank you.

With respect to free cash flow, I don't give quarterly guidance. There was a happy period where we wouldn't even give the results every quarter, but we made progress.

About cash flow, we’ll wait for the end of the year. But I just want you to know to be a bit more serious that we are perfectly mobilized throughout the company in order to take care of this issue, which is an important one, it’s a very strong point and Imerys historically speaking, when EBITDA goes down, it doesn't contribute to cash flow, but there are some areas that we can work on, such as the CapEx management and another – which are still very high cost and also inventory.

So, these are issues that we are very active about. About provisioning of 250 million, I have no information about what was done in the first-half year, because you gave the opportunity to comment on this.

We have no factor that would lead us to believe that the figures should be called into question. So, we do confirm that we maintain that figure in our – in the provisions and use thereof will comment on that in a detailed manner as we possibly can at the end of the year.

Thank you.

Yes, good evening. I had two questions, if I may.

The first is on the objectives of the Capital Market Day plan. You were very clear, you said you were confirming the medium and long-term strategic objectives, but should we understand that the objective of improving by 200 basis points, the margin, the EBIT – further EBITDA, as you said for 2020, do you confirm that, or you're going to say that it's not necessary important to give objectives with a specific date?

And the other question is, on the restructuring of the activities with the barriers between talc and the other activities. Now, do you consider this to be completely weatherproof, in particular, when you see what's happened with the presence of asbestos in talc?

Well, thank you. Concerning your second question, the answer is, yes.

We consider that this barrier is totally waterproof, is totally impermeable, and that's why we did the Chapter 11. And concerning for the – I’ll let Olivier answer about the Chapter 11, and then I'll tell you if I agree with him or not.

Now, seriously, this is Olivier, the objective of the Capital Market Day, which said was an improvement of 200 basis points to our EBITDA margin with a reference benchmark being 2018 is basically confirmed. We have no reason to believe that we won't be able to reach it.

Obviously, this will reduce cost savings, both in general overheads and also in fixed costs and also in terms of our procurement of some €100 million, and this should improve the margin by 200 basis points, but let me remind you too, as Patrick Kron mentioned too, that objectively, you know, in a classic cycle, which can positively contribute to our organic growth, these objectives seen today are indeed confirmed.

Thank you. Thank you, very good.

I agree, says Patrick Kron.

Thank you. Now, I’ll take an English language question.

I'll try and answer, but I’ll answer in French.

In French or in English? Hello?

In French [indiscernible] or in English?

Do you – [indiscernible] do you hear me?

[Foreign Language]

Increase of the variable costs, energy in particular. Well, I’ll fill to the question.

I’ll – on your second question, yes, when you are in an environment where a number all raw material prices are declining, this trend on the path of the customers who are asking for this decline to be also felt in our sales price, and I think what's important is to look this in relative terms. If we have a drop of 50 million in costs and do, we have a decline of 30 million of our pricing, well, we still have a positive effect of 20 million.

But rather than considering the evolution of prices for one quarter over another quarter, we need to look at it in a relatively – in terms of inflation of our variable costs, and I see it as a positive aspect to be able to maintain such a satisfactory mix. Now, for your first question, Olivier?

Yes. Regarding the reduction of inventory on the lithium iron, yes, we’ve had opportunities to consider the subsidy policies in particular in China, and indeed based on the speed at which these subsidies are increased or reduced, obviously, this has an impact on the inventories, and also in the delivery of products from Europe, of course, there is a slight discrepancy.

However, it's very difficult to say, you know, exactly from quarter-to-quarter. You know, we believe that the market should nevertheless be coming back to a more normal rate.

Let me remind you two things that in carbon and graphite markets, the performance impact is relatively weak or diminished. All-in-all, it represents may be 2% or 3% of our overall sales for the year, and in particular, the long-term outlook has not at all been impacted by this reduction of inventory.

Now, on the filtration aspect, well, it’s difficult to get an idea, but for 2019, there was a high rate of inventory with our customers and this is being absorbed as the months go by, and – but I won’t stick my neck more than that, but maybe [indiscernible] come back with his – with [indiscernible].

Well, on my side, there don’t seem to be any other questions. I want to thank you for your contribution and your questions.

And of course, with all my team, we are available to look at these issues in greater depth either within – through our individual contacts or Investor Days and with the analysts. And so, anyway, thank you for your interest and we remain available to continue the dialogue and I see with the pleasure that your questions do indeed reveal the very good level of knowledge of those who are showing an interest in our business, and I’m extremely sensitive to this, which does make it possible to have a very meaningful dialogue.

Thank you once again to you all.