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Edited Transcript of ELM.L earnings conference call or presentation 30-Jul-19 8:30am GMT

Half Year 2019 Elementis PLC Earnings Call

Staines Aug 1, 2019 (Thomson StreetEvents) -- Edited Transcript of Elementis PLC earnings conference call or presentation Tuesday, July 30, 2019 at 8:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* James Curran

Elementis plc - Director of IR, Strategy, M&A

* Paul Waterman

Elementis plc - Group CEO & Executive Director

* Ralph Hewins

Elementis plc - Group CFO & Executive Director

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Conference Call Participants

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* Ben Gorman

UBS Investment Bank, Research Division - Associate Analyst

* Kevin Christopher Fogarty

Numis Securities Limited, Research Division - Analyst

* Martin John Evans

HSBC, Research Division - Analyst of Global Chemicals

* Sebastian Christian Bray

Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst

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Presentation

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James Curran, Elementis plc - Director of IR, Strategy, M&A [1]

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Hi, everyone. Welcome to Elementis 2019 Interim Results. As usual, please make note of the cautionary statement.

And with that, I'll hand over to Elementis CEO, Paul Waterman.

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Paul Waterman, Elementis plc - Group CEO & Executive Director [2]

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Good morning, and welcome to the Elementis 2019 interim results presentation. Thank you to those of you who are in the room with us here in London and to those of you who are listening online. In terms of the agenda for this morning, I'll start with key messages. Ralph will review the group financial performance, and then I'll take you through the business performance and the outlook. And following that, we'll take your questions.

I'll start with safety. At Elementis, there is nothing more important than everyone going home safely to their families at the end of each day. In the first half, we had 4 recordable injuries, 0 lost time accidents, and there were no reportable spills. While the recordable injuries were minor, for example, strained back, they're painful. And anything more than 0 is too many. In the first half, we made investments to improve the safety of our plants. At our St. Louis plant, we installed an automated packaging system that will eliminate ergonomic risks associated with manual handling. At our Livingston plant, we installed elevated walkways and platforms to provide safer access to equipment during maintenance and to eliminate the risk of falling while working at heights. And finally, at our Anji plant in China, we executed an equipment insulation program to reduce environmental noise levels. Going forward, we'll continue to invest in our people and our assets so we can continue to improve our safety performance.

In terms of our interim results, there are essentially 4 key messages today. First, we've seen a weaker demand environment in the first half of the year as industrial production decelerated across all regions, particularly in China. Many of our competitors and customers have also experienced weak demand. Second, significant destocking that we experienced in the first quarter, particularly in Coatings, is now complete. In the second quarter, we witnessed an improved demand and thus, performance improvement. In the second half of the year, we expect market conditions to be broadly consistent with the second quarter so we're not assuming any incremental demand improvement. Third, our full year performance is underpinned by self-help and strong cash generation. We cannot control the economic environment, but there are actions we can take to underpin our performance in 2019 and beyond. First, we reduce cost by $10 million this year, and are developing additional cost efficiency programs for 2020 and beyond. Second, we're on track to further reduce working capital by $11 million this year and another $7 million in 2020, increasing our total program delivery to $30 million by the end of 2020. Our operating cash flow was strong, with close to 100% cash conversion in the first half, and we are absolutely focused on rapid deleveraging. Although short-term trading conditions are challenging, [LNS] fundamentals remain strong, and we're excited about the future. We now have a high-quality advantage portfolio with compelling medium-term growth opportunities. We're on track to win $22 million of new business this year. And over the next 18 months, we'll launch 20 new products across Coatings and Personal Care. So we see lots of opportunity for growth going forward.

Now I'd like to turn it over to Ralph to cover our first half financial performance.

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Ralph Hewins, Elementis plc - Group CFO & Executive Director [3]

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Thanks, Paul, and good morning, everyone. Turning to the headline financials, while sales rose 7% to $450 million as a result of the recently acquired Talc business, earnings and margins declined due to volume weaknesses across all of our business, particularly in the first quarter. Crucially, we saw much improved performance as the first half progressed. In the second quarter, we made $40 million of operating profit compared to $24 million in the first quarter as destocking receded and demand improved, albeit still down on the prior year. Adjusted earnings per share declined to $0.0605 as a result of increased net finance costs related to the debt raised as a result of the Talc acquisition. And this transaction also increased the weighted average share count following the rights issue. In addition, our effective tax rate was slightly higher.

The interim dividend rose by 4%, reflecting our progressive dividend policy and the Board's confidence in the medium-term growth potential of the business. Whilst our underlying cash flow in the period was strong, debt increased in the prior period as a result of the acquisition of the Talc business. And it should be noted that at the end of the first half, net debt was in line with the end 2018 level. As Paul will discuss, we have continued to make good strategic progress in the first half. Improved portfolio quality, continued transformation of our Coatings business and good progress on the implementation of Talc synergies are all key examples.

Looking at group revenue. Whilst this rose 7% on a reported basis, excluding the impact of acquisitions and Forex, like-for-like revenue declined by 7%. Pricing improved across all of our businesses, which is an encouraging sign in a weak demand environment and testament to our underlying product quality. Revenue was, however, impacted by lower volumes, primarily in our Coatings business, which accounted for nearly 3/4 of the revenue decline.

Looking at group adjusted operating profit, this declined by 21% on an underlying basis, with the reduction principally split between Coatings and Personal Care.

Now with challenging demand conditions, we've implemented a range of cost responses. These include reducing headcount and reducing plant operating costs. For example, in our plant in Brazil, we've taken out a shift to reduce our fixed manufacturing costs. These measures will absorb all our cost inflation and reduce our fixed costs in 2019 by $10 million below prior year on a like-for-like basis. And looking ahead, we have a number of additional efficiency initiatives that are in progress, and we'll be providing more color on these in November.

Turning to working capital. We generated a $1 million inflow in the first half. Now normally, in the first 6 months of the year, we see an increase in working capital due to timing effects. For example in 2018, there was a $28 million outflow. In 2019, our first half working capital was managed very tightly as we drew down on raw material inventory levels in response to weaker demand. And we remain well on track for an improvement in our full year position. Now as a reminder, we set a target in February 2018 to reduce our sustainable working capital by $18 million by the end of 2020, and we raised this target to $25 million in March of this year. We're making very good progress as we benefit from a simpler product portfolio, standardized customer service levels and the implementation of advanced demand planning tools. $12 million of improvement was delivered in 2018. We expect to deliver $11 million more in 2019 and $7 million more in 2020, thus increasing our overall expected delivery from $25 million to $30 million by the end of 2020.

Now hallmark of Elementis is our strong cash flow generating capabilities. In the first half of 2019, our operating cash conversion was close to 100%. And I've already touched on working capital, just touch on CapEx. We remain very disciplined on CapEx. Our 2018 spend included only 2 months of Mondo, almost 4$50 million. This year, our total expected spend is also $50 million with a full year of Talc. We are spending more efficiently. We're targeting growth and productivity opportunities in particular. Total cash flow for the period was an outflow of $11 million, with the impact of 2 one-off items. We had a commercial settlement of $10 million related to our former Surfactants business that was recorded in the P&L in 2018. And we released a $19 million amount related to a historic case between Mondo and the Finish tax authorities that was resolved. This was fully reflected in the Mondo acquisition terms. These movements saw net debt increase by about $11 million from the end 2018 level to $509 million.

Now to illustrate the net debt profile going forward. This shows the impact in the first half of the one-off cash outs and dividends more than offsetting the strong underlying $51 million of net cash generation. By the year-end, we see stronger business performance and a continued focus on working capital, leading us to a net debt-to-EBITDA of below 2.4x. Looking beyond this year, we are extremely confident about our ability to delever rapidly. Elementis has a strong cash conversion track record, and our cash-focused improvement initiatives around working capital and CapEx give us confidence we'll be able to delever at around 0.4 turns per annum.

And with that, I'll hand back to Paul.

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Paul Waterman, Elementis plc - Group CEO & Executive Director [4]

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Thanks, Ralph. Starting with Coatings performance. Sales declined 11% to $164 million due to weak market demand, destocking and our portfolio rationalization. China in Q1, in particular, was quite weak. This destocking was a first quarter impact, by the middle of the second quarter it was largely completed. In the face of this material revenue decline, margins remain robust at around 15%. This is reflective of our Coatings transformation program, where we've been repositioning the business to a value over volume strategy. The focus is on high-quality, high-value differentiated products. I'm convinced this focus will set us up to perform very well in the future.

Looking at performance details. Excluding the portfolio rationalization, our sales were down 7%. This was driven by weak industrial coatings demand, particularly in Asia, but also in the Americas. We stepped away from low-value, low-margin undifferentiated products. For instance, resins in China was a low-margin business and was dilutive to our returns. Now exiting much of this business has had a really beneficial impact on margins. They're now 17% versus 13% a year ago. This has occurred in a very, very weak first half demand environment.

At our global key accounts, we maintained our sales in Europe and the Americas, a very good result in the face of challenging trading conditions.

And finally, and most importantly, the Coatings business is seeing improved momentum. We saw a significant volume improvement in the second quarter across all regions as more normalized demand patterns returned.

Whilst Coatings demand will fluctuate driven by macro conditions, we are focused on what we can control. Our global Coatings transformation programme is going very well. First, we have the right team and the right organization in place: one integrated global management team. Second, we're taking self-help measures that will underpin improved second half performance. We reduced annual fixed cost by $5 million. Now this is a reduction of warehouse, logistics and operational costs triggered by product simplification. In 2020, we expect to deliver additional cost savings. We're also on track to deliver $8 million of new business in 2019. Third, we're launching 10 new products over the next 18 months that are distinctive. They are greener, they perform better or they lower our customers' operational costs. For example, in autumn, we're launching 3 new waterborne coatings additives, 2 of which are polymeric dispersants. These products will deliver against the performance requirements of solvents but with the reduced environmental impact of a water-based product. The trend of water-based coatings is gaining momentum and at Elementis, we have the technology expertise to capitalize on it. So our expectation is for an improved second half performance driven by self-help and new business. And we expect market conditions will remain similar to the second quarter.

Turning to Personal Care. As I've said in the past, Cosmetics and AP Actives represent 90% of Personal Care profits. In the first half, our Cosmetics business grew, while AP Active suffered short-term challenges due to a $2 million cost impact from U.S. tariffs on zirconium, lower volumes as a result of our 2017-2018 price increases and a more negative product mix. Taken together, this resulted in a 20% profit decline versus prior year in the first half.

Cosmetics achieved 5% organic sales growth, a good performance in challenging market conditions, with growth due to continued focus on investment in emerging markets. Sales in Asia and Latin America increased 7% and 25%, respectively. We expect this growth to continue as even with these increases, we still have a small base of business so lots of growth runway to come.

As we previously discussed, the traditional focus for our hectorite-based ingredients has been oil-based applications. For instance, color cosmetics, lipsticks, mascaras. Skin care represents a material and attractive new markets for our hectorite-based rheological modifiers. The market size is approximately $60 million annually. In April, we successfully launched 2 new products to materially grow our position in this market segment. The Bentone Luxe series of emulsifying gels facilitates the creation of exceptional personal care formulas with the ability to create a variety of textures with a single emulsifying ingredient. The formulating flexibility, exceptional emulsification properties and rheology control make Bentone Luxe ideal for both innovative skin care and color cosmetics formulations.

The second product is Bentone Hydroclay. It's a series of natural clay-based rheology modifiers that enable the creation of formulations that deliver innovative and elegant sensory experiences. And these clays are the highest quality and purity, and their uniqueness lies in their ability not only to thicken water but in the silky texture that it import, both during and after application. Now both of these products launched in April, and the customer response has been absolutely fantastic.

Turning to AP Actives. Our volumes have strengthened throughout the half, but in aggregate, they were down versus first half of 2018. So we've absorbed U.S. tariffs driven by the importation of zirconium from China to the USA, and this cost is about $4 million annually. Short term, this is a negative, but we're taking 2 key actions that are going to make a big positive impact on the future growth of our AP Actives business. First, we're going to produce almost 70% of AP Active volume at our new India plant by early 2021. Now this site, in combination with an optimized U.S. manufacturing footprint, will ensure we have an extremely low-cost global supply chain. It will materially reduce our exposure to U.S. tariffs, and it'll support our growth ambitions in Asia, a region of the world where the antiperspirant category is growing 4% to 5% per year. Second, we have a pipeline of innovative new products on the way. I don't want to say too much today because we're going to meet again in November at our Capital Markets Day, but I do want to say that they're focused on improving antiperspirant performance, on lowering our customers' operational costs and/or materially improving sustainability performance. So as the global leader in AP Actives, we have a 40% global market share. We want to be the global leader in innovation in this category, and we're going to be. So in the second half of 2019, we expect continued growth in cosmetics and further volume recovery in AP Actives.

Turning to Talc. Sales fell 8% to $75 million, with sales growth in core industrial Talc business, offset by a faster decline in paper volumes and the phasing of nickel sales. The operating profit declined from $14 million to $10 million was due primarily to the phasing of nickel sales and adverse foreign exchange.

Looking at our performance in more detail. Constant currency sales of industrial talc rose 1%. This is a good result in a difficult demand environment. As expected, given the weak global automotive market, sales of talc additives for use in long-life plastics declined 6%. This decline however was offset by a 5% sales growth in Coatings driven by share gains and 4% growth in other diversified products where we gained market share in technical ceramics.

Looking to the second half, sales to industrial talc end markets are anticipated to modestly improve driven by plastics recovery, continued growth in Coatings now they're diversified and revenue from new business wins.

In paper, a structurally declining market is our working assumption, but the fall in the first half was greater than expected. And this was a result of aggressive price increases by our key end customer that temporarily shifted demand to lower-quality paper. This has been resolved now, and we are expecting a better performance in the second half, which we are already seeing in the third -- in third quarter, we're seeing good recovery. As a reminder, we optimized talc additive production by the monetization of other minerals. We extract 1,000 tonnes of nickel concentrate per annum. So it's not a huge amount. But this year, the majority of our output is going to be sold in the second half versus the first half in 2018.

Talking to the integration of Talc into Elementis. I would say it's on track. But I would start by saying, Talc is just a great business, and we are absolutely thrilled to own it. The people, the assets and the opportunity set are very, very high quality. The strategy of focusing on resilient, growing industrial talk end markets has delivered consistent sales growth. As part of Elementis, they are scoped to do even better, leveraging our surface chemistry expertise, customer relationships and distributor network. There are opportunities to unlock additional value and additional growth.

Integration will be completed by the end of the year. All key business leaders have been retained, and they're excited to be part of Elementis. $2 million of cost synergies have been identified. The majority of which will accrue in the second half. We're also making progress against revenue synergies by expanding distribution. 30 Elementis distributors in the Americas and Asia will be selling our talc by the end of 2019. In addition, 15 of our top 20 direct coatings customers in the Americas and Asia are evaluating our talc for their formulations. This rest -- this represents about $8 million of revenue synergy that we're targeting for 2020 and '21.

Internally, there are a number of innovation projects ongoing that will target talc-based new products for Coatings, Energy -- sorry, Coatings, Personal Care and even in the Energy segment, we see some opportunity. Near term, the Talc team is on track to secure $6 million of new business among plastics, ceramics and coatings customers in 2019. And we see significantly more new business opportunity in 2020. So we expect second half results to be noticeably better as the combination of new business, cost synergies and the shift of nickel sales to the second half is expected to improve performance.

Turning to our Chromium business. I'd like to start by stepping back and reminding you all why we like this business so much. And there are 3 things. It has an extremely strong and durable competitive position in North America. We're the only producer of chromium chemicals. We hold a 70% market share. Second, it's a highly cash-generative business. And third, it generates high return on capital employed. Even in the past few years where our profits were more modest, returns exceeded 20%. So this is a business we really like. In the first half, revenue declined 2% as higher pricing was offset by a 4% decline in volumes year-on-year as market demand from industrial applications, such as auto and general industrial weakened. Operating profit declined by 19% due to weaker product mix and increased plant reliability costs. And one point I want to bring your attention are the conditions that we see in the global chromium market. As a result of the weakening macro environment since the second half of 2018. Demand for chromium chemicals is reduced. With global capacity unchanged, we estimate that industry utilization levels have fallen from 92% last year at this time to the low 80s currently. This has impacted global pricing levels. And while our North American business remains robust as a result of our strong market share and our unique delivery systems, pricing in the rest of the world is sequentially down in the first half of 2019 and showing signs of further pressure for the rest of the year. That said, in the second half, we expect an improved product mix to generate a modest performance improvement on the first half of the year.

And finally, our Energy business had a steady start to the year with sales up 4% and adjusted operating profit broadly flat. Our drilling in North America declined as rig counts fell about 10% versus prior year due to infrastructure constraints that are hindering increased oil production. We, however, have benefited from $5 million of new business in the Middle East and Central Asia. In addition, we've seen an uptick in deep-water drilling activity that's increased sales of our high-value hectorite-based additives. Looking forward, 3 new pipelines are going to open in the Permian Basin before the end of 2019 and thus support additional drilling in 2020 and beyond. In addition, the growth of our business in the Eastern Hemisphere is a strategic priority, and the start-up of our plant in India in the second half of 2020 will provide an effective base from which to serve this region. We expect second half performance to be slightly better than the first driven by new business and some cost savings.

So looking forward for Elementis as a whole, we see improved momentum in management actions driving a stronger second half performance. We expect market conditions to be consistent with the second quarter. Integration of our recently acquired Talc business is progressing well, $2 million cost synergies, and we're seeing early progress on revenue synergies. Improvement in second half performance is underpinned by $10 million of fixed cost reduction and the delivery of $22 million in new business. And innovation is core to Elementis. Our new product pipeline is much improved as we're going to launch 20 new products over the next 18 months.

I just want to take a minute and remind you all of the strong long-term fundamentals of Elementis. Today, Elementis is a transformed portfolio with approximately 80% of earnings coming from Personal Care, Coatings and Talc. In each of these businesses, we're market leaders with advantage positions, access to unique raw materials, differentiated chemistry and formulation expertise. Now this enables Elementis to create value-added products and strong customer relationships. Going forward, we see opportunities to expand our presence geographically and by product category, whilst also achieving savings throughout our supply chain. Our innovation pipeline is focused on sustainable and differentiated new products, and our business has an attractive margin and cash generation profile with room for further improvement. In November, we'd like to share with you how we're going to make that further improvement. We have a Capital Markets Day set in London, and you'll have opportunity to meet and hear from our business and technology leaders at Elementis. We'll outline our organic growth opportunities as well as highlight the additional efficiency opportunities that we see at the company. And provide some specific financial metrics of what we hope to achieve. So I look forward to seeing as many of you there as possible. And I think at this point, Ralph and I would be happy to take all your questions.

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Questions and Answers

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James Curran, Elementis plc - Director of IR, Strategy, M&A [1]

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Kevin.

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Kevin Christopher Fogarty, Numis Securities Limited, Research Division - Analyst [2]

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Kevin Fogarty from Numis Securities. Just a couple on cost savings. Obviously, savings outlined for the second half of the year. Could you just give us a bit of granularity on where divisionally you kind of see the greatest impact for efficiencies to come through? Secondly, in terms of working capital, I mean, the improvement in H1 seems to be sort of largely driven by inventory management there. Can you just give us a feel as to sort of what you're doing differently, particularly on inventories? And just finally, a third one, just on product development. With specific sort of reference to the Personal Care product development you've outlined, could you just give us a sense as to sort of pricing premium that these could achieve relative to the rest of the portfolio, just to give a sense as to where that might be moving to?

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Ralph Hewins, Elementis plc - Group CFO & Executive Director [3]

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I'll take the first two, and let Paul cover the product one. On the cost savings by division, I mean just to clear, it is about $3 million in the first half, $7 million in the second half. We think we both spoke about a couple of million dollars of cost savings in the Talc business so the cost synergies should be coming through there then. Most of the rest of the savings will come through primarily in the Coatings business as we implement the transformation program and also some overhead costs in our central and corporate overheads. There's a limited amount elsewhere.

In terms of the working capital. Kevin, yes, I mean, you're right, inventory levels have come down. I think there's a couple of things that are going to continue to help the inventory levels come down that we're doing differently. One is in terms of the timing of our purchases. We did increase our particular raw material inventories in the latter part of last year as we saw some opportunities to buy. I don't think we're going to be repeating that this year. So the timing of that will go down. But second, throughout our system, we're implementing much more rigorous demand planning, which enables us to operate with a much tighter levels of inventory throughout the value chain.

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Paul Waterman, Elementis plc - Group CEO & Executive Director [4]

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Okay. I think one thing I'd add on the working capital, when you have so many less products in your portfolio, your ability to forecast, it gets kind of -- sort of like a correlation there that's a negative correlation.

In terms of product development, what I -- the simple answer actually is neither AP Actives new products nor Cosmetics would be dilutive to margins. They are all very high value, very distinct products. And so our aspiration is that they'll be consistent with the kind of margins that we have made. And before you ask the question, the way that we define the skin care opportunity, for example, we're really going to play in the top -- top 15% of the category, top 20% of the category because that skin care segment is quite large. So this is going to be about premium rheological modifiers.

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Ben Gorman, UBS Investment Bank, Research Division - Associate Analyst [5]

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Ben Gorman from UBS. Two quick ones, if that's okay. In terms of the Summit business, I know you're sort of hoping that certainly, some of the headwinds are improving in the second half. I'm just wondering why overall trajectory in the second half isn't better than Q2. What you're seeing? And I think that the overall outlook is similar. And then secondly, just on net debt in terms of IFRS additions. Is that included in your covenants? And how much does that affect your overall leverage?

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Paul Waterman, Elementis plc - Group CEO & Executive Director [6]

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Yes. So I think on the Summit business. I mean, in the second half, we expect volume to continue to grow in sort of a quite a steady way. But I think the big point is really the repositioning to India is kind of a massive benefit for the business. We'll lower our operational costs, $5 million to $6 million a year by doing that. We'll avoid almost $3 million a year of tariffs. And of course, we'll have a beachhead to grow in Asia, which is a big, big deal longer term. The other issue is the real way we grow value in this is more innovation, more distinctive new products ultimately to go with the volume. And those are on the way for early 2020. So that's our focus, and that's kind of how we're positioning the business for, I would say, a pretty quick recovery. The -- getting through the pricing situations in 2019 is sort of a transient kind of situation for us.

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Ralph Hewins, Elementis plc - Group CFO & Executive Director [7]

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Ben, on the net debt, it's not included in our banking covenants. So the $509 million net debt you saw that we quoted was excluding IFRS. If we added IRFS onto the sort of (inaudible) have about $50 million more liabilities, about $8 million more EBITDA. So the ratio would increase by about 0.15 as our covenant don't include that. We're quoting our net debt-to-EBITDA, excluding the impact of IFRS 16, but it's all in the numbers.

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Unidentified Analyst, [8]

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[Nicola Klein from Exane]. Can I first ask a question -- I'm sorry, for the short-term nature, but how has July been going so far? And the reason why I ask is because I think for a lot of chemical companies, they saw strong April and May and then a weaker June, so the exit rate of Q2 was a lot lower than the average of Q2. So I just want to check on your assumption that conditions look like Q2 going forward, what that's based on? And then the second question is on the India plant. Can you confirm, I think you're going to spend about $15 million of CapEx from (inaudible) in this Indian plant to sort of upgrade. Can you confirm how much is in the $50 million guidance for this year? I mean, how quickly this should come online. So Paul, you talked about the AP Actives benefit, how quickly should that come through?

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Paul Waterman, Elementis plc - Group CEO & Executive Director [9]

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Do you want to take this one?

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Ralph Hewins, Elementis plc - Group CFO & Executive Director [10]

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Yes. So July trading was in line with our Q2 levels of trading. I'd also highlight in the Talc business, things are going quite well. As we've highlighted, we're going to expect more nickel sales to come through in the second half, and we did quite well in July there. So we've seen an uptick also in the paper demand in the Talc business in July. So that particular part of it is going quite well. The Coatings business, I think things are going consistently. Equally, we're seeing relatively soft demand if you compare that to last year. So versus last year, it's still a little bit softer, but we're not seeing anything like the 1Q levels of demand that we saw at the beginning of the year.

In terms of the India plant. So we spent about $4 million on the acquisition of the plant. We're going to be investing about $19 million in addition to that over the course of the next couple of years. I think about $5 million or so this year and about $12 million next year. And I think the thing to really confirm is we're going to finance all of that within our $50 million of CapEx, 2019-2020. So that's part of our effort to focus a lot of our investment in terms of growth and productivity. And this is very much a growth and productivity investment. It's improving the competitiveness of our antiperspirant active supply chain, but it's also giving us access to growth opportunities, for example, in the Energy business. So I think it's a great example of growth and productivity investment.

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Paul Waterman, Elementis plc - Group CEO & Executive Director [11]

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And I'd just add one thing. The other thing we're going to be making at the India plant is organic [fixotrops] to support our Coatings business. And so that will enable us to be really quite a low-cost producer of that product line to support our growth in Asia as well. So Ralph is right. It's just a -- I think a good example of spending within your existing $50 million for growth and productivity.

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Sebastian Christian Bray, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [12]

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Sebastian Bray of Berenberg Bank speaking. I would have 2 questions, please. The first is on SummitReheis. You gave the volume index back to the start, I think, of this year in the slide. Could you talk about the volume development since this business was acquired? How much lower are the volumes, if indeed, they are lower, too? And a question also on the category growth. Has there been a change in the deodorant product launch frequency and the growth of that category since the business was acquired? And finally, a last one on Talc. Am I right in saying that the paper sales were down in the mid- to high teens from the half year? And if you could comment on the pricing across the whole portfolio, that would be good.

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Paul Waterman, Elementis plc - Group CEO & Executive Director [13]

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Okay. So SummitReheis, taking the first question, since the acquisition, the amount of inflation that we experienced, both in aluminum and zirconium was really, really quite significant. And so if we backed up to the very beginning, our volumes would probably be down somewhere between 15% and 20%. But the thing I would say to you, though, is that what peeled off really were the lowest-margin volumes. And so we again focused on value, not volume. However, as we've come through that, we have seen that the volumes have come back, and they're continuing to go in the right direction. And the customer relationships are actually quite strong. So so we're actually quite fine with where we're at and happy with what the future looks like.

In terms of category growth. Globally, category has grown -- it's been pretty consistent. It slowed a little bit in '17 with all of the inflation, but it's still been sort of low single digits globally and as I said, kind of mid-single digits in Asia.

On the paper sales situation, our paper business in Talc is dominated with sales to one key customer. And that key customer, very significantly increased their prices. And as I said in the talk, really -- their share kind of shifted away from them to lower-quality paper. They woke up and adjusted that actually. And as a result, their business has come back very strongly. It also helped that the low-quality paper production reduced by that 6% as some capacity came offline. So the gap closed up, and our volumes came back really, really considerably in June and July. For the first half though, paper volumes were down 22%. And that's against our planning assumption -- our longer-term planning assumption of about 5%. But listen, I really have to say to you in July, it's turned really quickly and come back very, very nicely. So we feel pretty good about where we're at on paper.

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Martin John Evans, HSBC, Research Division - Analyst of Global Chemicals [14]

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Martin Evans, HSBC. Just following up on Sebastian's question again about the antiperspirant active. Just a sort of structural question in terms of natural versus chemical and aluminum as a base. It seems to be -- it may be a niche market that as sort of an anti-chemical trend developing on some of these products that are actually advertised as aluminum-free. I mean, clearly, I guess, that's playing into your space. Is that something that you've seen any indication of in terms of consumer preference for more natural antiperspirants? And if so, how would you, I guess, respond to that.

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Paul Waterman, Elementis plc - Group CEO & Executive Director [15]

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So I think what I would say, Martin, is that you definitely, if you took any additive and usage survey in cosmetics, natural, natural, natural is sort of going north big way. However -- and therefore, in some of the categories, it translates to different purchase behavior. But in the antiperspirant actives category. That has not happened, actually. And I think it's because fundamentally, people like products that actually work and in the technology, aluminum, zirconium, aluminum -- hydrochloric works incredibly well. And so we have not seen that. We do think that the -- as you think about new products, as you think about ways to add value to the category, it's fair to say the holy grail is probably to do something natural that actually works. But that's still work in -- that's work in progress. That's not an easy thing to do actually in this category. So the antiperspirant category is very healthy. Actually, we don't see any kind of behavioral change of those attitudes.

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Martin John Evans, HSBC, Research Division - Analyst of Global Chemicals [16]

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And secondly, just correct me, I think you said in the second half, you're hoping for a mix improvement. Can you just say to that is?

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Paul Waterman, Elementis plc - Group CEO & Executive Director [17]

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More than hope in the sense that we have customers in the higher-margin side of the Chromium business, Maddox customers, for example, that did not buy in the first half and are buying in the second half. We see the same thing on [technical oxide]. So these are sort of orders that are in the bag. And the third thing, we had a big customer, LANXESS. They weren't -- they do a lot of wood treatment work in the United States, they weren't able to produce in the second quarter. The spring was so wet. And so they delayed production to the third quarter. That business is coming back in a big way as well. So yes, we definitely see a better product mix in the second half, but we also see it in the context of a bit of a tough environment actually. So that's kind of how we hold Chromium.

Martin, you still have energy?

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Martin John Evans, HSBC, Research Division - Analyst of Global Chemicals [18]

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Sorry, just just a quick follow-up, the -- how was pricing in the Talc portfolio in H1? Was it broadly inflationary? Or are you being able to put through increases that are faster than that? And do you have any view on the directionality of Talc pricing over the next 2 to 3 years?

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Ralph Hewins, Elementis plc - Group CFO & Executive Director [19]

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Yes, I mean, the -- we implemented some price rises last year -- middle of last year, that stuck so they've helped us. For example, in the Coatings part of the portfolio Sebastian, in the first half of the year, whilst the industry was facing quite a lot of challenges, we actually saw some growth in our revenues that was really helped by these price rises coming through. In the -- sort of what we call other diversified, which is typical technical ceramics, we have, I think, very strong differentiated offer there. The specifics of technical specifications that you need to provide Talc for in that segment is really very, very tight. Because we've got some unique capability in doing that, that gives us an ability to really capture some of the value from that segment. And we've also put through price rises in other segments of the business. I think on one hand, we are seeing those price rises stick. On the other hand, we've been very thoughtful about how we manage our margins and look at the volume and price/mix of that. So we're looking for a lot of progress in Talc in the second half of the year, not just from the other minerals timing, but also from the growth we're seeing in the -- in the Coatings and eventually with a long-life plastics business. So we're very confident of the progress in the second half.

Martin, you have one?

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Martin John Evans, HSBC, Research Division - Analyst of Global Chemicals [20]

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Yes. Life sciences, I thought that follow-up with a maybe a slightly unfair question. But obviously, a lot of your assumptions in the second half assume a fairly stable economic-ish environment. But if, for whatever reason, given the seasonality and given the macro that it doesn't work out as you plan and therefore, your debt levels go beyond 3 and so on, do you have a sort of -- I appreciate that the Investor Day coming out, which will be focused very much on growth dynamics. Do you have a sort of a disposal or a deeper restructuring backup plan that you might have to push the button on if you find that your core trading is worse than you think at the moment?

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Paul Waterman, Elementis plc - Group CEO & Executive Director [21]

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Yes, I would say, we're -- as I said earlier, we're very happy with our portfolio. We look at the environment as we're seeing it in Asia, in United States, et cetera. And we're comfortable with our assumption. Now if we're off a bit, then obviously, we take actions to optimize our fixed cost base and manage cash and make trade offs. Although obviously, nothing that would sacrifice our longer-term growth ambitions and safety and operational reliability, those things. But from a portfolio standpoint, we're -- we've done a lot of work to get to where we are. We're very happy with the portfolio.

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James Curran, Elementis plc - Director of IR, Strategy, M&A [22]

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Anybody else? If not, thank you very much for coming.

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Paul Waterman, Elementis plc - Group CEO & Executive Director [23]

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See you in November.