Imerys S.A. (NK) Earnings Call Transcript

Good day, and thank you for standing by. Welcome to the Imerys 2026 First 9 Months and Third Quarter Results Conference Call and Webcast. [Operator Instructions] Today with us, Alessandro Dazza, CEO; and Pierre Lebreuil, CFO. Please be advised that today's conference is being recorded. I would now like to hand the conference over to our first speaker today, Alessandro Dazza. Please go ahead.

Thank you, and good evening to all of you. Thank you for joining us today to review Imerys first 9 months 2026 results. With me here, Pierre Lebreuil, our CFO. Let me start by giving you some highlights on the first 9 months of the year. Imerys posted another strong quarter in Q3 '26, the third consecutive quarter of growth for all key indicators. This led to a solid first 9 months performance with higher sales, higher volumes, firm pricing, costs under control and the first benefits of the newly acquired businesses. The result is another material expansion of EBITDA and margin. In detail, revenue was above EUR 2.6 billion, so up 2% versus last year at constant FX and perimeter with a positive volume and pricing effect. In detail, sales volume rose 0.4%, thanks to a strong performance of our sales teams and the ramp-up of our new industrial capacities, fully offsetting soft overall demand, particularly in construction. Pricing was firm, plus 1.6% year-on-year. The integration of Great Lakes Minerals and SB Mineracao added about 1% to total revenue, whereas exchange rates had a negative impact of 1.4% year-to-date, mainly attributable to Q1 '26, but even positive in Q3 finally. Adjusted EBITDA for the period amounted to EUR 450 million, up 10% at constant FX and perimeter. As a consequence of this overall good performance, solid performance, Imerys is raising its EBITDA guidance for the year 2026 to EUR 570 million to EUR 590 million. I will come back on this at the end of my presentation. Let's take a look at our main underlying markets as usual and the trends during the third quarter. Construction activity remains, I would say, flattish overall with a positive trend in infrastructure and AI-related data center construction. On the contrary, demand for residential construction remains weak, and that's our main exposure as Imerys, even declining in the U.S. impacted by high interest rates. Recovery in Europe, which we saw at the beginning of the year, is honestly losing a bit of momentum on the back of high inflation and potentially interest rate increases coming. Consumer goods remain very solid across all geographies. Automotive production is still down, decreasing fundamentally in all geographies, including China for the first time after many positive quarters. The only exception, the good news is around electric vehicles, which continues to grow on a strong path in Europe as well as China. And finally, general industrial activity, we typically follows the overall economy, soft in Europe, strong, very strong in the U.S. as recently published and solid for us also in China. On this page, on the slides, Imerys' sales performance by geography for the first 9 months of '26. I would start with the top right. Sales in Asia were strong and confirmed the trend of H1, growth in all businesses, but of course, especially for conductive polymers, conductive additives for polymers. China is performing particularly well. I think thanks to a very solid local team. And in the meantime, China has become Imerys' second largest market, surpassing Germany for the first time, of course, after the U.S. Finally, we can also report a significant growth in India, although in absolute terms, it remains still small for the group. Europe, as in H1, still negative, impacted by low activity in several end markets, partly really driven by high energy costs. Performance remains solid in consumer goods and prices are holding well. Sales in North America were strong in Q3 at plus 9.3% after an already very solid Q2, reinforcing the ongoing positive trend. The housing market is the main issue, remains soft, but we had very strong sales in consumer goods and industrial applications. Prices holding well. South America, okay, in line with H1, solid sales in consumers, a bit weaker construction market, and I believe this quarter, a bit of slowdown due to the recent election. If we deep dive with more detail on our 3 business segments, starting with Performance Minerals, the most important, representing more than 60% of Imerys Group sales. Revenue of EUR 1.556 billion in the first 9 months of '26 with positive organic growth, strong activity in the U.S. from Q2 onwards. And focusing on Performance Minerals America, volumes year-to-date are up 1.6% versus last year, most of applications doing well, except for construction. Q3 volume growth accelerated to 4.6%, driven also by market share gains. Pricing remains solid. EMEA and APAC region, revenue is largely in line with last year. Volumes dropped slightly year-on-year, especially because of -- due to sales to the ceramics industry, which were severely impacted by high energy costs and an overall soft construction demand. This effect was partially offset by very good activity in polymers and in consumer goods. Prices rose more than 2% in the period. It was necessary because of high energy costs. Let's look at our solutions for Refractory, Abrasives & Construction business. Revenue reached EUR 865 million for the first 9 months of the year, in line with last year at constant FX and perimeter. Sales volume were flat over the period. You see a decline in Q3 in revenue, basically attributable to our refractory business. And we were expecting that tighter EU imports on Chinese steel implemented from July 1. July 1 would have brought some benefits, but for the time being, it proved insufficient to offset an overall soft demand for steel in Europe. There might be supply chain effects, we will see as we move along. We know that steel mills are slowly ramping up capacity. So I believe we should see a positive development going forward. On a good note, sales to the construction sector improved from their H1 level and Abrasive and Advanced Ceramics segments continued on the solid positive momentum. Here, in this business, the integration of Great Lakes Minerals in the U.S. is progressing well. If we now complete the segment review with solutions for energy transition business. The very good news come from our graphite and carbon activity, another quarter of strong growth, posting a 16% increase year-on-year at constant exchange rates. If I look at Q3 alone, organic growth even accelerated to 21%, exceeding the pace recorded in the first part of the year. Top line performance is supported also by favorable market conditions, of course, electric vehicles, but also a booming energy storage system business. Good development also for conductive polymers in general. I have to also to underline that we have gained market share, and we have launched new products that already -- are already contributing. For the TQC, our Quartz, high-purity quartz business, joint venture, I think the business overall is stabilizing with good growth in semiconductor, normalization in solar, which is welcome. I hand over now to Pierre for a detailed analysis of our financial results.

Thank you, Alessandro. Good evening, everyone, and thank you for joining us tonight. Let me recap some of the key aspects of our financial performance, starting as usual with revenue. Group sales amounted to EUR 2.62 billion for the first 9 months of 2026. This represents a 2% organic growth year-over-year, driven by a 0.4% growth in volume. Prices rose by 1.6%, accelerating in Q3 -- in Q2 and in Q3 driven by the pass-through of higher energy and logistic cost to customers. Organic growth accelerated throughout the year, rising from 0.7% in Q1 to 2.3% in Q2, and then reaching 2.9% in Q3. Currencies had a negative effect of EUR 37 million, mainly in Q1. As a reminder, the U.S. dollar stood at a strong USD 1.05 per euro in the first quarter of 2025 before weakening later in that year. The EUR 28 million perimeter effect, mostly in Q3, is related to Great Lakes Minerals and SB Mineracao acquisitions. In Q3, sales are up by 7% year-on-year, driven by volume and price increases, scope changes, and favorable USD-euro exchange rate in the quarter. Organic growth accelerated to 2.9% in the quarter, driven by higher prices. Now, let's have a look at the group profitability. For the first 9 months of 2026, adjusted EBITDA reached EUR 450 million, corresponding to a 7.1% margin. Looking at Imerys' direct operational performance, highlighted as usual in the box in white color, you can see that adjusted EBITDA has significantly improved with a 10% year-on-year growth, driven by positive sales volumes, disciplined pricing, strict cost management, and higher contribution from joint ventures. On a reported basis, EBITDA increased by 7% in comparison to the first 9 months of 2025. So 7% are below the 10% organic growth as a consequence of unfavorable exchange rate effect of EUR 15 million. Just one comment about the strong Q3 2026 performance. Adjusted EBITDA amounted EUR 116 million, showing a solid 10.8% year-on-year increase at constant exchange rate and perimeter on the same trend than H1 2026 results. Now, let's deep dive a little bit on the way we manage our cost in an inflationary environment for the first 9 months of 2026. Keep in mind that energy and transportation costs surged on March 1, impacting costs at September end, around EUR 30 million net of hedges. So how was this offset? First, by maintaining a firm pricing, notably starting April 1, 2026, as we passed energy and freight cost increases to our customer, mainly European ones. Second, by tightly managing our cost bases. Multiple initiatives within Project Horizon are now underway to optimize fixed costs and overheads, notably through production capacity adjustments in Europe. This plan has already delivered EUR 30 million in savings as of end of September and is ahead of schedule. In parallel, we have pursued our I-Cube excellence program, delivering additional savings at September end. As a consequence of all those actions, the net effect of our price increases and of increases in variable fixed costs and overheads is positive by EUR 23 million, contributing to EBITDA growth. Let's now move to the bottom of the P&L. The current financial result was negative at EUR 66 million in the first 9 months of 2026. This include an EUR 11 million increase due to interest rates and a EUR 6 million non-cash mark-to-market revaluation of our 2 virtual power purchase agreements. Other operating expenses are negative by EUR 24 million. Those EUR 24 million include a EUR 34 million charge for restructuring costs related to Project Horizon. This is partly offset by a non-cash revaluation gain on the EMILI lithium project. As a consequence, net income group share is positive at EUR 92 million. I would like to highlight as well, the fact that Imerys investment grade ratings have been confirmed by Moody's and by S&P in the last weeks, respectively Baa3 and BBB-, both with a stable outlook. On this positive note, I am now handing over to Alessandro for the outlook. Thank you.

Thank you, Pierre. And let me conclude with a few words on what to expect until the end of this year. Our performance for the first 9 months of 2026 gives us confidence in delivering a solid full year result, showing a significant progress compared to last year. Accordingly, as I said at the very beginning, Imerys is raising its full year 2026 adjusted EBITDA guidance to a range of EUR 570 million to EUR 590 million, of course, assuming the world doesn't collapse and no material deterioration in the current operating environment. We remain focused on protecting margins through disciplined pricing and ongoing cost optimization as we do expect inflationary pressures and challenging market conditions to prevail in the nearby future as we read every day in the news. Strong cash generation, rigorous financial discipline, and the continued execution of our strategic growth initiatives will continue to remain our key priorities. Thank you very much for your attention, and I hand over to you for the Q&A session.

And now we are going to take our first question and it comes from the line of Sven Edelfelt from ODDO BHF.

Congratulations for the results. I would have 3 questions, if I may. The first one is on the guidance. If I calculate it correctly, the guidance midpoint implied a 4% increase in EBITDA for the group in Q4. You delivered 14.5% in Q3. So why not being a little bit more pushy? That would be the first question. Second one would be on the asbestos. Can we have an update on that? I believe the judge was willing to go ahead, and nothing is moving. So maybe if you could give us an update. And the last one would be on the TQC. The EUR 29 million, is it just TQC or is it including all the JVs? If I remember correctly, last year, it was like EUR 3 million EBITDA. Can you remember, is there a seasonality in the quartz business? And is there hopes for a better Q4 in the quartz? That would be my question. Thank you.

Thank you for the compliments. Let me start on guidance. I don't think we are particularly prudent. I think the prudency is mostly related to the current situation with energy. This morning, gas reached EUR 100 per megawatt hour. At the beginning of this year, it was around EUR 25, EUR 27. I'm talking about Europe. In Q3, it was high, but reasonable in the EUR 50s. So we do see certain industries, especially in Europe, reducing production or even stopping typically ceramics, where gas firing for tableware for tiles, gas is the main input cost. They prefer to stop and wait, use inventories, push production outside of Europe, where maybe Imerys is less represented. Similarly, paper, very subject to energy prices. So I think prudence is a must in these difficult times. We're confident to deliver, of course, on the guidance. We'll see the dollar plays a role. We -- at the moment, as you have seen in Q3, the trend has turned. It turns positive rather than negative. So it might help if it stays around this level. We have an election coming in the U.S., which consequences will it have? Difficult to guess. So I think we still live in a geopolitical macroeconomic environment that dictates prudence, and that's how we have built our lending until the end of the year. I'll be happy to be positively surprised, but I want to deliver on our promises as we have been doing quarter-on-quarter this year. On the Talc, also on the Chapter 11 process, you're right, we are still, since February, waiting for the judge to issue the ruling. There are fundamentally no news. There was a status conference in September on a motion proposed by the insurers. The motion was rejected by the court. The motion was to delay issuing the verdict, the judge rejected the motion. So she is working on finalizing the verdict and she honestly excused herself for the very high delay, and she said she will publish as soon as she can. Every day, when the court opens at 9:00 in the U.S. or 2:00 in Europe, we wait. We hope that the judgment is issued. I want to be optimistic, and I hope it's a matter of days, but I was optimistic also last month and the month before. It will come. We remain very confident on a very positive outcome, but we can only read the judgments when it is published. And we don't know more than this today. On TQC, I would say, fundamentally, there is no seasonality. The 2 big businesses, which is solar and semicon or chips have no seasonality. So production is like market-driven. So semicon today is very strong on the back of AI, on the back of EVs. So semicon is really driving good momentum. Still, I would say, to make it simpler, about 1/3 or a bit less. So it's still the smaller part. Solar, we see production and consumption realigning. Installation of solar or photovoltaic might not be the best year this year because China, which is the biggest -- is over 50% of demand has canceled subsidies. So there has been a bit of reduction in installations in China. On the contrary, the rest of the world is still growing. Every indicator is that from next year onwards, solid growth for the following years. But what for us is important is it seems that inventories are starting to realign to production. That's why I think we are doing better than last year. If you look at -- if you compare quarter-on-quarter, we are constantly above last year. And to complete in your -- in the share of net income of joint ventures, we have all joint ventures. Let's say, a couple of them are very small, so not relevant. TQC remains the largest, more than half of this or 2/3, of course. But we do have another joint venture of 50-50 producing drilling products based on bentonite, which is doing very well and is growing in size and is growing in profitability, which is largely driven by installation of optical fibers around the world, tunneling. So that's starting to be a significant contribution. Maybe at the end of the year, when we will have full year TQC final numbers, we can give you more details on this other business, which is a joint venture with Halliburton of the U.S., which is really developing very nicely. It's a European business developing very nicely.

Now we are going to take our next question. And the question comes from the line of Ebrahim Homani from CIC CIB.

Congrats on the strong results. I have 2, if I may. The first one is about graphite and carbon at 21% organic growth. If we look at the Q4 2025, if I'm not wrong, the organic growth was at 1%. So the comparison basis is easy. So what to expect in Q4? And my second question is about your Horizon saving plan. What should we expect at the end of 2026? Could the EUR 50 million, EUR 60 million target be raised at this moment?

I will let Pierre comment on our Horizon program. On GMC, I would say, last year, a 1% growth year-on-year, the reference is '24 to '25, as today, we compare '26 to '25. The business had a significant drop in '23. But when, let's say, the initial boom of electric vehicles deflated and we realized we are not going to drive electric vehicle, everybody is going to drive electric vehicles immediately. The business started really recovering, I would say, from the middle of '24 and continued just on a growth path since then. Therefore, I would say Q4 '24 was already a good quarter. And therefore, the comparison Q '25, '24 maybe is a bit less than the pace we are seeing today. On top, I would say the growth this year is also supported by energy storage, which was not relevant a year or 2 years ago and is starting to become a significant business. The installation of batteries for grids, for data centers, for around photovoltaic parks or wind turbines is becoming a significant business. So I think there is clearly an acceleration going forward for this business. And on Horizon?

As regard to Horizon, as you rightly said, our target remains in the around EUR 50 million to EUR 60 million. What we have communicated so far was at least half of it to be booked, to be recognized this year. Indeed, half of it means EUR 30 million. We are already at EUR 30 million year-to-date end of Q3. So this means if you just do a proportional calculation, this means at least EUR 40 million for the full year, probably slightly more than this. What we are sharing tonight is that we are indeed ahead of the plan, but we are reconfirming the full year target in the EUR 50 million to EUR 60 million range.

Correct. We have been, I think, more proactive in implementation. We have done it fast, properly, meaning with all the necessary compliance, social interactions. The fact that it was distributed over several countries, it has helped because a lot of actions could have been done in parallel. So we are effectively probably ahead and over delivering on the plan, definitely.

Maybe a last question, more technical. What the inventories and other which contributed, and which contributed at EUR 8 million to Q3 EBITDA, please?

Well, inventory and other, so this means mostly inventory. So you know this is a comparator. It's a variance of variance, so that's indeed a bit technical. But basically, this means that we have increased our inventory in Q3 as we usually do in summer months. So you know we are a mining business, tough to operate in certain mines at wintertime. So we are always building inventory, basically in Q3. Here in the EBITDA waterfall, this is a variance of variance. So what this indicates is that we have increased inventory a bit more than what we did in the same period 1 year ago.

This effect should normally reduce.

Normally.

And even disappear going to year-end.

Okay.

When we have the more normal inventory levels, when the winter comes.