Imerys S.A.

Thank you and good evening to all of you. Thank you for joining us today to review Imerys' Q3 and Nine Months 2020 Financial Performance.

With me here this morning Sebastien Rouge, our CFO; and Vincent Gouley, our Investors Relations VP with his team. I'd like to start today by sharing with you few key messages which characterize the third quarter of the year.

After the peak of the crisis in May, we have seen as low but certainly continuous recovery in demand for our products. The month of September was clearly the strongest one since the beginning of the pandemic with some sectors such as construction and consumer goods, and now we go in more detail later on, almost entirely back to last year's levels.

In this context, we've managed to keep, again, a positive price mix. And most important, we effectively delivered on our cost savings targets, thanks to the Connect & Shape Transformation Program, as well as to the specific COVID-19 action plan we put in place starting in April.

This allowed us to significantly improve our margins in the third quarter of the year. You see the figures on the right of the slide, showing an EBITDA margin moving from 14% to 18% on sales for Q3.

Sebastien Rouge will give you more insights on this performance. While the transformation efforts and the deployment of the new customer centric organization are largely behind us and we look positively to the future, strict cost management and cash generation will remain key focus also in the quarters to come as the COVID-19 pandemic, unfortunately, as we all can see is still with us and continues to affect the global economy, especially in Europe.

Therefore, we remain committed to maintain a solid financial structure and a strong liquidity position. If we now move on to Slide 5, we can take a closer look to our end markets.

We have observed a clear improvement compared to the second quarter of the year. While sales volume decreasing slightly less than 12% in the third quarter compared to approximately minus 25% in the second quarter or of course compared to last year.

All underline markets show the recovering the third quarter though it's an uneven pace. Some markets did recover quite significantly.

Automotive production is down 10% in Europe flat in the U.S., compared to minus 70% in Q2, if you remember well. Construction was down 10% in Europe and only 3% in the U.S.

after a double digit drop for both regions in Q2. Industrials markets in general improve gradually, but remained overall still relatively weak.

As you can see at the bottom of the slide, steel production is down 20% in Europe and 26% in the U.S. in the third quarter, still quite significant drops, but much less than the sharp ones we've seen 30% or more in both regions, in Q2.

Finally paper markets remain heavily depressed unfortunately with production down 23% and 22% respectively, in Europe and in the U.S. In this difficult market environment, we have once again managed to maintain a positive price mix effect of 0.3% on revenue.

This pricing effort resulted in a contribution of €9 million to our EBITDA. I think this is even more remarkable considering that the group managed to benefit from a reduction in variable costs after inflation, €4 million as you can see, obtained, mostly thanks to the excellent work of our purchasing team.

Please bear in mind that is also part of the goals we have set ourselves with the Connect & Shape program, which continue to deliver in line or above expectations. And I will show you more on the next slide.

Last comment on current trends, the generalized downward trends in many of raw materials and energy seen in Q2 has stopped and even reversed on the back of the market recovery. It is now to be understood how this will develop following the recent flaring up of the pandemic and the lockdowns in all parts of Europe.

If we now move to Page number 7 and we take a look at fixed costs and overheads. I'm very proud to confirm that such costs are clearly decreasing and the drop is in line with our ambitious targets.

The Connect & Shape transformation program, which continues to deliver as per plan, generated further savings of €10 million in this quarter and €35 million for the first nine months of the year. We will deliver on our promise to achieve €100 million gross savings by 2022 or earlier.

As you might remember, when the COVID-19 started hitting the economy in April, Imerys launched specific action plan to face the crisis. These actions help to reduce fixed costs and overheads by a father €28 million in the third quarter to €65 million for the first nine months of 2020.

As you know the group has utilized mostly temporary measures to decrease staff costs by choice in order to be ready to serve the market upon its recovery. If the economy continues towards this progressive recovery, as I said last time, we should be in the lower end of the range of savings for the full year, which were assessed to be between €70 and €130 million.

I now hand over to Sebastian, who will comment in more detail our financial performance.

Good morning, everyone, and Alessandro. Let me walk through our financial performance for the third quarter and the first nine months of the year, starting with revenues.

The sales reached 2.8 billion at the end of September of 20th. They are reported down 15.9%.

This was mainly driven by a 504 million volume drop following the COVID-19 crisis. In this context, Imerys maintained positive price mix that contributed to 21 million additional revenues for the period.

You will know that the majority of the perimeter effect remains linked to the deconsolidation of the North American talc activities. That's minus 17 million and one point I wanted to note is that the revenue also include a negative currency effect of €35 million, while this FX positive in H1.

This reflects the continuous depreciation of important operating currencies for Imerys in particular U.S. dollar and Brazilian real against the euro that are accelerated in the short quarter.

Below these range, you can see the sequential improvement in revenue in Q3 versus Q2 that restrict the poverty recovering volumes that's what's commented by Alessandro before. If we look now into more detail at our two business segments and their respective markets, we start with performance Minerals segment whose activities generate 57% of the group's turnover with global sales reaching 1.6 billion in the first nine months.

All regions saw an improvement of the trend in Q3 with like-for-like revenues down 8.6% while this decrease was 11.6 in the first nine months. If we look with our main applications, consumer markets that combines filtrations, life science, agriculture, food and pharma, we mean quite resilient, even in American and in Europe.

In particular, our recently acquired company Cornerstone in the U.S., the Company presents in high quality perlite for horticulture, developed very well in this context. Ceramics construction related material and automotive related markets recovered progressively after being severely impacted by the COVID crisis in Q2.

On the other side, paper markets remained weak everywhere with further closure of paper mills. Also, we saw a strong rebound of our Graphite & Carbon activities that are mostly reported under APAC, which comes from the growth of mobile energy.

Alessandro will come back in a few minutes about the announced capacity expansion in this market that we have recently spoken about. If we look at our second segment, High Temperature Market & Solution.

This segment totaled 1.2 billion for the first nine months down 16.8% like-for-like in the third quarter as compared to last year. Revenue from High Temperature Solution decreased by 19.5% at constant scope and exchange rates in the first nine months, it benefited also from an improved trend in Q3 due to the gradual recovery of the thermal and foundry market, in particular, in Europe driven by an improvement in automotive sector.

In the Refractory, Abrasives & Construction, revenue was down 17.5% like-for-like in the first nine months of 2020. During the third quarter, the Refractory and Abrasive markets continue to be weak in line with iron and steel.

On the other hand, the building and infrastructure application and cement in particular recovered strongly in the third quarter. If we look now at our profitability, a slide above the current EBITDA analysis, current EBITDA for the first nine months reached 454 million, down 22% year-on-year.

This evolution reflects lower volumes contribution 248 million with an average ratio on sales over around 40%. It was partially offset as Alessandro pointed out by a continued positive price mix plus 25 million and more favorable valuable cost plus 10 million contributions, and an important improvement of 75 million of fixed cost and overhead, net of inflation resulting from a strong contribution from our COVID-19 contingency plan 75 million growth in the first nine months.

This came in addition to the savings of our threshold Connect & Shape transformation plan. Those savings totaled 35 million in the first nine months that add up to 61 million gross accumulated savings since 2019 well in line with our 100 million targets that we want to reach by 2022.

The perimeter effect was also positive to some bolt-on acquisition. And here as well, the currency impact even though new on nine months reflects a negative effect in the third quarter for minus 9 million that will actually probably continue in the fourth quarter.

Going down to the rest of the income statements, the valuation in absolute term of the EBITDA translates into a decrease of the current operating income. The net financial result at 44 million in the first nine months, our Q3 financial result was well in line with last year expenses and you remember from our prior releases that H1 2019 benefitted from a one-off impact of 17 million for the repayment of Japanese yen private placements.

The income tax expense of 48 million corresponds to a net effective tax rate of 28% in line with 2019. As you can read, net income from current operation ended up at 117 million, down 49% in the first nine months.

Finally, net operating income and expenses booked in other were limited to 5 million in Q3 totaling 21 million this year and significantly below level where we had lost expenses for Connect & Shape implementation costs. Consequently, net income group share totaled 95 million in the first nine months of 2020.

I’ll now hand over back to you Alessandro for the outlook.

Thank you, Sebastien. So despite the difficult context that we have heard, Imerys continues to invest for its future growth by developing its footprint geographically and by expanding its production capacity to follow market growth.

In August, the group announced the signing of an agreement with the acquisition of a majority stake of 60% with an option to purchase the remainder of Haznedar, a Turkish-based, high-grade refractory monolithics and bricks manufacturer and the leader in its country. This acquisition will compliment Imerys offering and develop its position in the growing Turkish market, the largest producer in Europe for cement, and the second largest in iron and steel.

Furthermore, this acquisition will give Imerys a cost competitive production base strategically located between Europe, Middle East and Africa. This business generated $64 million in revenue and $17 million in EBITDA in 2019.

The closure of this transaction, which is subject to antitrust approvals, is expected in the fourth quarter of 2020. In October, Imerys also closed the acquisition of Sunbury factories with expected revenues of about $15 million in 2021, a Taiwanese producer of high temperature refectory solution, which extends our market reach and presence in the growing Asian markets.

Last, but just as important, the group has recently announced an investment of €35 million in his planting volume, Switzerland, to expand its production capacity of high purity synthetic graphite for lithium ion batteries, mostly used in the booming industry of electric cars. This investment is the first of a series of capacity expansion projects the group envisages to support and accompany the expected growth of the electric vehicle market.

Now, if you find a comment on my side on how we see the next few months. Although, the group expects each end markets to continue to gradually recover such recovering still remains subject to the potential impact of the sanitary situation on the economy, especially in Europe and notably, in light of the most recent unfortunate developments.

Therefore, we confirm that we are not in a position to give guidance for the full year 2020. Significant step was achieved in the sales process of the North American talc assets, a binding agreement was signed with one of the bidders on October 13, which sets a minimum purchase price of $223 million for these assets.

This removes any risk of further financial impact on Imerys’ balance sheet. All parties continue to work towards the completion of the related chapter 11 process, which is expected to happen around the end of the first quarter of 2021, as a result of successive delays in the hearing by the court of the proposed plan.

Strict control on costs and cash generation will remain a focus for the group also in the fourth quarter, nd maybe in the quarters to come as the pandemic continues to affect the global economy. But with the new customers focus organizations largely in place, Imerys is now ready to take advantage of the recovery in underlying markets.

The recent acquisitions and the capacity expansion show that we are investing for future growth. Last, but just as important, Imerys balance sheet and liquidity position remain solid.

Thank you for your attention and we now open for questions.

I have three questions. The first one is on pricing.

When I looked at the pricing effect, it seems a little bit below previous quarter in terms of revenue. It did start at 1.7% in Q3, now it's 0.3%.

I thought pricing was negotiated once a year. And therefore, is it part of your strategy to catch up market?

Or basically, is it my bad feeling here? Second question, when I look at consensus number for operating profit, it stands at €281 million, and it applies minus 6% decline in operating profit in Q4, are you comfortable with this level?

On the third question. When I look at what's going on and what's you said about end market, why are you not a little bit more opportunistic in terms of upcoming organic growth?

We see improvements in automotive, cement, steel. So, basically shouldn't this company do maintenance sooner rather than later?

And therefore, shouldn't we expect a rebound in your volume afterwards in Q1?

Thank you, Sven. On pricing, your comments are, of course, correct because these are numbers in fact.

I see two reasons for the decrease in contributions, still contributing, but at the lower level than in the past. One is clearly that, Q2 we saw low variable costs, especially in energy and fuel.

Some contracts have some indexes, especially in transportation, vessels and similar things, very transparent towards us and the customer. Therefore, there is a certain automatic pass-through to customers.

Steel, as you correctly said, most of our contracts are on a yearly basis and therefore these light adjustments are limited compared to the overall contractual situation and overall values. The second item, in any case is also correct, which you mentioned.

We are fighting to gain market shares. As we said over the last 12 months, Imerys wants to grow organically, wants to take back what we might have lost in the past, and before we are more aggressive in certain areas, in certain markets with certain products.

I still cannot prove it because of the, decline. The overall decline market is difficult to assess our market share, but we do track it internally, and I see very interesting figures coming up.

So I'm convinced that, in a more stable environments, we can show improved that we will be beating underline markets with our growth. I answered your third question, which is also relating to markets before going to the consensus.

I am not pessimistic. So, I don't need to be more optimistic, I am.

And to be Frank, when I look at our Q3, and the development July, August, September, at the end of September was enthusiastic, markets were really picking up; automotive, in many countries, was coming back to good levels. Finally, iron, steel was speaking up, and we had a really strong September, frankly.

The last two weeks, put a big question mark on everything. What we see happening in Europe, maybe less in Asia and less in the U.S., but what we see happening in Europe forces us to be cautious.

We don't know how long the lockdowns will last. We don't know how deep they will impact.

For sure in my opinion less than before because they are less severe, but still, there will be consequences. Therefore I prefer to remain cautious although optimistic in the overall trend.

And you know the volumes come back after the cost savings and the cost cuts we have taken. I do expect our marginality to rapidly improve like we saw in Q2 -- sorry in Q3 compared to Q2.

Last question, your consensus, you know that we do not comment on consensus in general and even more complicated to do forecast today, as I said, following the recent, very recent events. In any case, if we were far away, it will be our duty to officially comment and you have seen we have not made any statement in this regard.

And maybe just a follow-up, you said you are happy with the September numbers. Can you comment on October?

It is not close yet. We see an October in line with September, so positive.

When, this -- let's say, when the flaring up and the related measures heat or heating now, I think they will have limited if any impact on October. So, we do expect in October at least in line with September as we said not close, but it should be absolutely a good month, again compared to what we are used to see lately.

So, absolutely, yes, there was a trend was confirmed for the month of October.

There's a slider number 12. This is magic number €75 million in fixed cost improvement.

Could we have, please more flavor? Is that due to the good the maintenance cost cutting?

Or do we have further elements we don't know? Did you maybe close some facilities or shutdown?

Many thanks.

The 75 is largely coming from Page 7, which are basically all the -- to a large extent originating from Page 7 was like seven, which are the measures put in place a net of inflation. Of course, in this year, some of them are Connect & Shape.

So, our transformation program, most of these costs are there or cost cuts are there to stay. These are permanent savings is the change in organization is the reduction in certain overheads and fixed costs.

Part of it on the right of this graph in green, the 65 million are, what we always call temporary measures put in place rapidly adjust our production to the drop in demand caused by COVID. As I always said, temporary using often furloughs so much partial short working and similar tools made available by different governments.

Did we do this year any major restructuring or closing? No, there is always here and their small assets which are closed, especially during the downturn, but so small that I think don't need to mention at inventories level.

If the economy picks up, we do believe we will need to ramp up especially our fixed cost before maintenance before our shifts in production our people. We are discussing the budget for next year.

I do believe that some of these fixed costs might be preserved. And therefore, even if we did not have any major restructuring, we have optimized the way of working.

So, I am confident in some of these cost reductions might still remain with us even at demand levels similar to last year or to previous years. Last, in terms of, if the demand does not really pick up to the level we expect, we will transform some of these cost cuttings into definitive measures and then there will be unfortunately closures, and then we will communicate properly because then might be more significant.

But at the moment, I want to remain confident the demand will come back to a level where we will need all or almost all of our assets.

Alessandro, follow-up question, in the very several heat division of abrasives, did you implement specific measures?

Not specific, not different than what we did critical.

Okay.

Abrasive is a market that is strongly related to the automotive sector and general industrials, so it did suffer and therefore went through partial shutdowns in similar, but really in line with the group, nothing specific.

And maybe in terms of final clients' inventories, do we see still biggest accumulation as we had 10 years ago or is that no longer the case?

I would definitely say no longer the case as we saw from the country. In September with demand really ramping up in most markets, we even had to do some air freight shipments to some customers because inventories were so low that they could not wait for containers to move across the oceans.

So my personal feeling is that, stocks over the period are at, I'd say, normal or low levels. So if the economy and if the markets continue recovering, we should see too rapidly in our demand, and for me September is a good example.

No, I don't see really accumulation. Maybe steel, iron and steel was the last market that because of the drop was late, but we saw September picking up October's demand picking up, so also the iron and steel market I think is finally using up inventories and therefore starting to produce for demand, which is a good.

I have a few questions. The first one is on the free cash flow generation.

If you could maybe comment on that on Q3 after the very good levers you had on each one? And also could you maybe give us an approximation of your sales growth or sales variation in the month of September?

Sebastien, do you want to comment on cash or maybe not?

Yes, actually as we do not report on cash, we'll not comment on the cash generation of Q3. Obviously, we pay attention to cash that what we can comfort with -- you with, but no specific comment on the figures themselves.

I would say, same thing, we do not comment very precisely monthly figures, as being said, Alessandro as pointed out to September being good month both as compared to the beginning of the year and also in relative terms as compared to last year.

And maybe just another question on the -- you said you all cautious on the Q4 given the sanitary context. And could you maybe give us the impact of what could be the -- what is behind that?

And if you see any tangible impact from the new lockdown in France because I've seen that the construction activities can still operate for example?

Yes. Benjamin, you're right.

That's why I mentioned during the presentation, I don't think the total partial lockdowns in all or parts of Europe will have the same effect as it did in Q2. Because it is in most countries, not a total lockdown, because in Asia at the moment is not the case and very important because in the U.S.

at the moment it is not the case. Cases are raising in the U.S., as well, but the government has not changed any attitude, and we really see the medical markets coming back very strongly.

So if I had to comment on Q4, I would say, October, so one out of three months is behind us and it went quite well. We have two months ahead of us, one region out of three, Europe only at risk and the risk which is less for sure then in Q2.

So, do I see something yet? No, but really it's very, very early to say, but there is a risk.

It is in Europe and we really cannot assess how much. You might remember in Q2 in certain months, the Q2 was 25% minus in volumes.

You remember well and with the average of three months, the month of May was the worst. So you can, well imagine it was less than this.

So a lockdown might have dramatic impacts. Fortunately, total is not a total one, and fortunately, it's not everyone in the world.

So, I definitely do not see these dark times coming back. But we have to be cautious, we have to keep monitoring, we have to see if our respective governments in different countries, as they all say in two weeks, we will get an update in four weeks.

The Christmas, the December is an important month for consumers, for many industries. How will it be?

I have no idea and that's why our caution remains, we remain vigilant.

I guess our presentation was clear enough. Then we're always here available with Vincent, Sebastien and our team.

In case you have further questions, don't hesitate. Then we would like to thank you once again and stay safe and I hope this pandemic will not impact us too much in the coming months.

Thank you very much.