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Edited Transcript of NK.PA earnings conference call or presentation 25-Jul-19 4:00pm GMT

Half Year 2019 Imerys SA Earnings Call

Paris Jul 30, 2019 (Thomson StreetEvents) -- Edited Transcript of Imerys SA earnings conference call or presentation Thursday, July 25, 2019 at 4:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Conrad Keijzer

Imerys S.A. - CEO & Director

* Olivier Pirotte

Imerys S.A. - CFO

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Conference Call Participants

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* Eric A. Lemarié

Bryan Garnier & Co Ltd, Research Division - Research Analyst

* Jean-Christophe Lefèvre-Moulenq

CM-CIC Market Solutions, Research Division - Financial Analyst & Sector Coordinator

* Josep Pujal

Kepler Cheuvreux, Research Division - Head of Building Materials & Construction Sector

* Sven Edelfelt

ODDO BHF Corporate & Markets, Research Division - Research Analyst

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Presentation

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Operator [1]

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Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to today's 2019 first half results conference call. (Operator Instructions) I must advise you, the conference is being recorded today, the 25th of July 2019. I'd now like to hand the conference over to your speaker today, Mr. Conrad Keijzer, CEO. Please go ahead.

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Conrad Keijzer, Imerys S.A. - CEO & Director [2]

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Good evening, everyone. And thank you for joining our Imerys 2019 First Half Results Conference Call. Joining me on the call today is Olivier Pirotte, our Chief Financial Officer. Today, we reported our first half 2019 financial results. Our H1 revenue of EUR 2.3 billion was down 1.5% on a like-for-like basis against a strong first half of 2018. We have been operating in a challenging market environment since the third quarter of last year, and this continues to drive down our volumes.

In this unsupportive environment, we delivered once again a solid price-mix of plus 2.7%, positive in all of our businesses, and more than compensating the inflation of our input cost. Our actions to deliver cost improvements and to improve our cash generation has delivered results. They partly offset the lower contribution of volumes as well as the negative effects of the deconsolidation of our North America Talc subsidiaries and the temporary shutdown of our Willsboro plant in the U.S. Both events had a combined impact of EUR 64 million on revenue and EUR 20 million on current operating income, representing roughly half of the drop in COI in the first half of the year.

We generated a solid net current free operating cash flow of EUR 77 million, and we maintained a strong balance sheet with a net debt-to-EBITDA ratio of 2.0 before IFRS 16. Please note that this does not include a total of EUR 271 million of operating lease liabilities under IFRS 16, representing 0.2x debt-to-current EBITDA.

Like-for-like, our revenues declined by 2.0% in the second quarter versus a decline of 0.9% in the first quarter, as a result of a challenging comparison basis with prior year and weaker-than-expected sales in June. Our volumes in Q2 were down for the fourth consecutive quarter as the continued weakness in automotive has spread to broader industrial markets.

Iron and steel production has turned negative in Europe with production volumes worsening to minus 4.3% in Q2 from a decrease of 0.5% in Q1. Despite these significant headwinds, we were able to achieve a positive price-mix in all of our businesses, up 2.7% at group level, more than offsetting our variable cost increases.

Our strong pricing ability resulted in a EUR 30 million positive price-mix contribution to COI in Q2, which more than compensated the inflation of our input cost. We have seen some easing in our raw material inflation, with our overall variable cost up 3.4% in Q2 compared to 5.5% in Q1. Our year-on-year variable cost inflation has eased a little for items like energy, freight, and we have seen lower pricing for key raw materials like alumina. All in all, the balance between price-mix and variable cost is a positive EUR 9 million in the first half.

As communicated at the beginning of the year, we have set clear priorities to lower our cost and to improve our cash generation. This is starting to pay off with a net reduction of EUR 19 million in our fixed costs and overheads in the first half year. These cost reductions are split between EUR 10 million from the actions to address the loss-making ceramic proppants and Namibia operations in the second half of 2018. Please note that this positive effect will not continue in the second half. An additional EUR 9 million from our various actions to adjust our cost base to our lower-trading volumes. We also have seen some first benefits from our Connect & Shape transformation program.

Our strong focus on cash has resulted in a net current free operating cash flow of EUR 77 million in H1. We have managed to more than offset the EUR 40 million decline in current EBITDA with disciplined CapEx spend levels and lower working capital requirements, thanks to improved inventory management across all of our businesses. These were the highlights of the first half.

I would now like to hand over to Olivier Pirotte who will provide us more detail on our financial results.

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Olivier Pirotte, Imerys S.A. - CFO [3]

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Yes, indeed. And thank you, Conrad. So if we first deep dive into our revenue, which for the first half of 2019, there are several observations I would like to highlight. First observation, as you can take from the left side of the chart, there has been a EUR 53 million negative effect from the deconsolidation since mid-February of our North American Talc subsidiaries, respectively EUR 18 million in Q1 and twice that amount in Q2, i.e., EUR 35 million. It means that restated for such deconsolidation, H1 2019 revenues of EUR 2.263 billion would have been up 4.3% instead of posting a reported decline of minus 2% versus last year.

Let me emphasize on the specific situation that these subsidiaries are working under Chapter 11 judicial protection towards an efficient and permanent resolution of the liabilities. As per schedule, they've engaged in productive negotiation of a proposed plan of reorganization with both the representative of current and potential future claimants.

Second canon. As illustrated on the right side of the chart is Imerys succeeded to maintain a robust price-mix of 2.7%, EUR 63 million, positive in its 2 business segments that had mitigated the impact of a decrease in organic growth by lower volumes that reached minus 4.2% over the period against challenging comparables and market conditions.

Thirdly and finally, let me also draw your attention that H1 revenue benefited from a favorable exchange rate impact of plus 2.3% primarily due to the appreciation of the U.S. dollar versus the Euro that should smooth down, everything being equal, in the second semester.

Moving to the current operating income. First half 2019, COI totaled EUR 245 million, which is EUR 40 million below the prior year semester. Half of the decline, EUR 20 million, is coming from the Talc and wollastonite discontinuities I just mentioned, respectively minus EUR 11 million for the Talc-related subsidiaries deconsolidation and minus EUR 9 million over the semester for the temporary shutdown of our U.S. wollastonite plant in Willsboro. Excluding these 2 elements, the current operating margin was 11.4% in the first half of 2019, which is 60 basis points above the 10.3%, posted as such.

Then and as commented earlier by Conrad Keijzer, Imerys benefited from the following strong positive factors against the lower contribution from renewals over the period. First, the firm price-mix effect, the EUR 60 million fully offsetting the EUR 51 million carryover in shape of inflation in variable costs. Second, the reduction in fixed costs and overheads by EUR 19 million since the beginning of this year. And third, the tight management of our working capital and most practically our inventories that translated into a lower absorption of fixed costs for EUR 17 million over the period.

Now how does that translate into our 2 business segments and the related business area. Let's first start with the Performance Minerals business segment which represents 55% of our revenue. This business segment's revenue totaled EUR 1.244 billion in the first half of 2019. The reported change of minus 3% is totally related to a significant payment effect, negative by EUR 55 million, mainly due to the deconsolidation of the North American Talc subsidiaries we referred on earlier. On the like-for-like basis, Performance Minerals revenues was down 1.8% or half of that, excluding the temporary shutdown of a wollastonite plant in Wellsboro that has started as per expectations, operation early June.

Regarding geographies, this business segment has contrasted geo trends, notably, relatively soft market conditions in Europe and in the U.S. to the country of APAC, which is up on a like-for-like basis, thanks to strong sales of conductive additives for mobile energy application, especially lithium-ion batteries in China and South Korea.

Globally, current operating income for the segment came to EUR 144 million in the first half of 2019, resulting in an operating margin of 11.6%. Excluding the North American Talc subsidiaries' deconsolidation and the temporary shutdown of Wellsboro, this current operating margin was 12.5% in the first half of 2019.

If we look at the second business segment, the High Temperature Materials & Solutions, sales of EUR 1.037 billion in the first half of the year amounted for 45% of total revenues. Like-for-like change in revenue trended down in the second quarter at minus 3.2% versus minus 0.5% in the first quarter. The business segment revenue was impacted by tougher market conditions in the second quarter.

Car production continued to weigh on the foundry and abrasive markets in Europe, iron and steel production weakened as a consequence of capacity reduction of steel mills but building chemistry had done better. The business segment's current operating income totaled EUR 97 million, leading to an operating margin of 9.3% in the first half of 2019 due to volumes down, partially offset by price increases and downward trend in alumina prices and fixed costs and overhead reduction.

Let's also look at the full P&L below the EBIT line. Net income from current operations, which is down 10% to EUR 159 million, posted a lower trend than the current operating income. Main reason is the group's opportunistic asset-liability management, notably, the full repayment last March of its EUR 56 million Japanese yen-denominated private placement maturing in 2033, which translated in Q1 into an improvement of EUR 15 million of the financial results. Excluding the full repayment of this private placement, net income from current operations would have decreased by 10% -- by 17%.

The tax charge of minus EUR 66 million reflected in a fixed tax rate of 29% versus 29.6% in the first half of 2018. Other income and operating expenses, net of taxes, amounted to negative EUR 62.8 million in the first half of 2019, including EUR 50.1 million restructuring costs related to the first phase of the transformation program and the EUR 4.7 million which is linked to the temporary shutdown of the Willsboro plant in the U.S. Let's remind you that the full year negative impact of this disruption is assessed to be around EUR 25 million on the net income base. Consequently, net income group's share amounted to EUR 96 million.

Our financial structure. Net financial debt amounted to EUR 1.519 billion as of June 30, 2019, which represents a ratio between net financial debt and current EBITDA of 2x. In addition, operating leases liabilities related to the right of use of the assets under the IFRS 16 represented EUR 270 million as of June 30, 2019, which is actually 0.2x of net financial debt to current EBITDA ratio, and that leads to a EUR 1.790 billion net financial debt under IFRS 16.

More importantly, the change in our net financial debt over the 6 first months of 2019 plus EUR 221 million raised notably from the following items: First, the payments on the dividends in May 2019 for EUR 171 million; second, the purchase -- the repurchase of treasury shares of EUR 22 million; and finally, the deconsolidation of the North American Talc subsidiaries' cash embedded there for EUR 29 million.

The Group's robust financial structure is essentially made of bond financing for EUR 1.9 billion with an average maturity of 5.7 years. The Group also had EUR 1.3 billion embedded in the credit lines. And as a result, the resources globally totaled EUR 3.2 billion with an average maturity of 4.4 years.

And now, Conrad, I hand it to you for the conclusion.

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Conrad Keijzer, Imerys S.A. - CEO & Director [4]

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Thank you, Olivier. Before we open the call and take your questions, I would now like to conclude with our financial guidance for the full year. Given that market conditions continued to be challenging, our focus on cost reduction and cash generation will remain a priority.

For 2019, after the forecasted negative impact of minus 7% on net income from current operations of the deconsolidation of the North American Talc subsidiaries, the temporary shutdown of the Willsboro plant and assuming no further deterioration in the market environment, we expect full year net income from current operations to decline by around 10% versus 2018. This guidance factors in the sequential improvement of the current operating income in the second half compared to the first half.

I would like to reiterate our commitment to achieve our midterm targets announced last June at our Capital Markets Day. By 2022, we target a more than 200 basis points increase in our EBITDA margin over the 2018 level.

This concludes our prepared remarks. Now we will be pleased to take your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question today is from the line of Josep Pujal from Kepler.

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Josep Pujal, Kepler Cheuvreux, Research Division - Head of Building Materials & Construction Sector [2]

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I had 3 questions, please. The first one is on the current operating free cash flow. Could you define the word current for the free cash flow? Does it exclude restructuring charges, for example?

Still talking about this net current free operating cash flow, the decrease in CapEx. Where has it been? In which divisions? Is it something that you believe it can impact operations going forward? And what is your guidance on CapEx for the rest of the year?

My second question is on your full year guidance for the net profit, current net profit. I see that in H1 you published a minus 10% net income from current operations, then you say that sequentially, you expect an improvement in H2 versus H1 and the full year guidance is still minus 10% for the current net profit. So I wanted to understand how all this articulates? May be linked to that, there is the question on the EUR 25 million of the wollastonite. Did it fully impacted H1? Or there will be some of the amount in H2?

And my third question is, let's say, still on this guidance on the current -- the accounting of the wollastonite. If I understand well, it negatively impacts also the current operating and current net profit meaning that you do not consider that as an exceptional. What should we read from that?

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Conrad Keijzer, Imerys S.A. - CEO & Director [3]

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Okay, Josep. So first is your question on the current operating free cash flow. We actually were quite pleased that our current free operating cash flow is, in fact, slightly up from prior year, even though we had about EUR 40 million lower EBITDA. So what you saw is much more disciplined spend on CapEx indeed. But I would also like to recognize the better working capital management, particularly on inventories. More specific to your question on restructuring, I will refer later to that to Olivier.

You also were asking on the details behind the CapEx. I could say that we've been looking very critical an environment of challenging market conditions. We said at the beginning of the year, we will focus on cost and on cash generation, so we've been looking very critical at both our maintenance CapEx as well as our organic gross CapEx. Obviously, in terms of maintenance, we're doing the right thing. So we're not cutting any corners, don't worry. I will say that we will continue to be disciplined on our CapEx in the second half like we also will be on inventory as well as on our receivables and payables.

On your second question, Josep, current net income, the minus 10% this year. You said there is a sequential improvement. This is the statement that you used. I'm not seeing it because your full year guidance is also minus 10%. Please keep in mind, and I think it's footnoted somewhere in the press release that our current net income in the first half included, actually, a positive benefit from the repurchase of a Japanese bond. If you correct for that, our net income was actually down 17% in the first half. So there, I think, is the answer, the second half should be better, and then we indeed expect to come out somewhere around minus 10% net income for the year.

Your question as it relates to wollastonite, that minus 10% guidance includes a EUR 25 million full year net income impact of wollastonite. Finally, you had also question on the accounting treatment of wollastonite. I would like to refer the question on the accounting treatment of wollastonite as well as the restructuring cost to Olivier.

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Olivier Pirotte, Imerys S.A. - CFO [4]

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Yes. Josep, thank you. So on the current operating free cash flow definition as such is really the notion of current. So all the restructuring charges are not including that. So it -- before other operating income and expenses, so the restructuring charges are not included in that. That's clear.

Second, on the treatment on the wollastonite. So obviously, we continue to bear operating cost associated to that -- these activities, whether there's been stops or restart and resume recently. So all these costs are actually included in COI, that's the reason why we mentioned that for the first half of the year, this -- the COI or current operating income were EUR 9 million of the impact of the wollastonite. They should have done as such, I mean that I know in the operation.

Then you have obviously some, let's say, exceptional costs and items that we support because of the specificities of the production shutdown that we faced. And you remember that it was something around EUR 3.5 million in the first quarter that we mentioned. As far as the half year results, there is such a shock, which amount to EUR 4.7 million. So there has been obviously a reduced amount of, let's say, noncurrent items related to the operation from the first quarter to the second because obviously I mean we faced most of the costs during the first half of the year.

So I hope this answers your question that -- so yes obviously already it's linked to the operation we continue to book that as -- on the COI line. So it impact us for EUR 9 million, and on the -- let's say, on noncurrent line, you have an impact of EUR 4.7 million. So total impact obviously you have then to deduct some taxes impact but that is the order for micromanagement so far. And so for the full year, we do expect that we maintain our assessment of the EUR 25 million impact on net income, so after the exceptional -- because we are still in the recovery phase after the shutdown. And we'd like to have more visibility on how our customers will react after this shutdown.

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Operator [5]

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(Operator Instructions) The next question comes from the line of Sven Edelfelt from ODDO.

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Sven Edelfelt, ODDO BHF Corporate & Markets, Research Division - Research Analyst [6]

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Three for me as well. Could we have more color on the deconsolidation impact on the operating profit of your U.S. Talc business for H2? I believe there has been some one-off in your Three Forks talc plant last year in H2. So that is the first question. Should I continue? Or...

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Conrad Keijzer, Imerys S.A. - CEO & Director [7]

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Yes, please continue.

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Sven Edelfelt, ODDO BHF Corporate & Markets, Research Division - Research Analyst [8]

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In Brazil, I understood there has been 2 major leaks on your kaolin Barcarena site. Could you add more flavor on that, please? And if anything -- any provisions are booked? And on your guidance, if I'm not mistaken, Olivier, you were guiding for EUR 500 million operating profit, is that correct?

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Conrad Keijzer, Imerys S.A. - CEO & Director [9]

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Could you repeat your last question, Sven.

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Sven Edelfelt, ODDO BHF Corporate & Markets, Research Division - Research Analyst [10]

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I would like to more -- to better understand the guidance on the operating profit line. If I'm not mistaken, you're guiding for EUR 500 million for the full year, is that correct?

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Conrad Keijzer, Imerys S.A. - CEO & Director [11]

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Okay. Yes, we're not guiding for operating income. We're guiding for net income. So I can take that last question right way. But as far as your first question and your second question, the deconsolidation, H2 effect of talc, I'll defer that question to Olivier. Your second question, leak in the Brazil river, this is, I believe, a false story. There's no developments in our operation in Brazil or any leaks reported to my knowledge. So this is new to us. What's the source of this? It's something that we are unaware of.

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Sven Edelfelt, ODDO BHF Corporate & Markets, Research Division - Research Analyst [12]

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Okay. We will send the resource to Vincent.

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Conrad Keijzer, Imerys S.A. - CEO & Director [13]

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Okay. Sure. But anyway, so my answer on this, to our knowledge, no leak. And we would be worried if there would be a leak of any significance, so you can imagine that there is nothing there because we, as management, are unaware. So there either is nothing or it is minuscule in terms of what has transpired there. Perhaps, Olivier, you can answer the question on deconsolidation in H2 talc.

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Olivier Pirotte, Imerys S.A. - CFO [14]

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Yes. Sven, so let's try to summarize what it is about, I mean on the Talc subsidiaries. Last year, the impact on our current operating income was EUR [60] million, if I'm right. I'm looking to the (inaudible) to be sure because there are so many figures, lastly, but it was the order of magnitude. So -- and you can imagine that here indeed -- I mean on the first half of the year, we mentioned that the deconsolidation of the talc activities has an impact of EUR 10.6 million, EUR 11 million to be very precise. So let's -- you can figure it out that actually -- I mean it's half-half repetition between first half of the year and second half of the year as far as the impact is concerned.

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Sven Edelfelt, ODDO BHF Corporate & Markets, Research Division - Research Analyst [15]

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So it's another EUR 11 million in H2?

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Olivier Pirotte, Imerys S.A. - CFO [16]

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Probably a bit less than that, EUR 7 million to EUR 8 million.

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Sven Edelfelt, ODDO BHF Corporate & Markets, Research Division - Research Analyst [17]

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Okay. Sorry, I didn't catch it.

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Operator [18]

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The next question is from the line of Jean-Christophe Lefèvre from CM-CIC.

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Jean-Christophe Lefèvre-Moulenq, CM-CIC Market Solutions, Research Division - Financial Analyst & Sector Coordinator [19]

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I have a question regarding the destocking effect we had over the first quarter. Could you quantify it over the second quarter, notably in the filtration business? And what is your view for the second half, please? This is a difficult story. Also maybe some more flavor on abrasive business, which was a hit over the first quarter, what is -- what can we assess for this business over the second half of 2019?

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Conrad Keijzer, Imerys S.A. - CEO & Director [20]

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Okay, Jean-Christophe. As far as your first question on destocking, I think what we saw is an interesting combination of destocking, both with our clients but also at Imerys. I'd like to highlight actually the impact on our P&L. As you saw in the bridge that Olivier presented, EUR 17 million, 1-7, from lower contribution, basically inventory reduction, so lower contribution to our fixed costs and overhead. So there was definitely an effect of destocking inside the company. But indeed, there also has been an effect, some of our clients clearly have been destocking. The key thing, indeed, has been in the U.S. we saw some destocking, significant destocking at the beginning of the year for our filtration business. This was companies that are very active in terms of filtering their beer, so the big beer manufacturers. We also saw destocking in the corn syrup, fructose filtration segment. So our filtration business really was suffering quite a bit from destocking. We have unfortunately not seen any restocking.

Then as far as your second question on abrasives. Yes. We had a weak Q2. It's fair to say that it was weaker than Q1. If you look at the underlying dynamics what we saw in the key segments for abrasives, industrial and automotive, in the first quarter, we saw automotive build rates in Europe down roughly 5%. In the second quarter, they actually were down roughly 10%. If you look at Asia, first quarter similar, minus 5%, second quarter, actually high single-digit down. So what we actually have seen in the second quarter is a further weakening in automotive. And also the second quarter was weak actually in the U.S. So this clearly is impacting the abrasives business.

I will say we saw weakness in the second quarter, in general, in our high-temperature segment, our high-temperature materials also very much impacted by the weakening in iron and steel, I don't know if you have these numbers, but we saw there actually negative production volumes of 0.5% in the first quarter and 4.3% in the second quarter. What happened in the Iron and Steel industry is that in the first quarter, the furnaces were all still running, and actually, there was an inventory build basically across all of the major iron and steel manufacturers in Europe. In the second quarter, you saw several announcements of, indeed, capacity being taken out of the market and that is explaining the lower production rates in the second quarter affecting our high-temperature materials business.

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Operator [21]

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(Operator Instructions) Your next question is from the line of Eric Lemarié from Bryan Garnier.

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Eric A. Lemarié, Bryan Garnier & Co Ltd, Research Division - Research Analyst [22]

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Just 3 quick questions for me. First one regarding the Talc, could you maybe give us an update on the ground process and the use of talc processed in the U.S.?

Second question, still on the talc. Could you remind us maybe in your view, what is the worst-case scenario regarding this talc issue?

And the third question is just to check if I understood properly, this -- there's an impact of the repurchasing impact from the Japanese yen private placement repayment, it's one-shot positive in H1 and Q2, actually, and will not have any further positive impact in Q3 or Q4, right?

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Conrad Keijzer, Imerys S.A. - CEO & Director [23]

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Okay, Eric, let me start with the last one. That's an easy one.

The Japanese yen, indeed, there was the impact -- the positive impact of this in the first quarter, actually. So that's in the first half numbers. There will not be any impact of that in the second half.

Your question on talc, the situation there is actually proceeding very much according to plan. So we're quite pleased with the progress that we're making there. A tort committee has been formed where all the current claimants are being represented, a future claims representative has been appointed, and we are actually engaged in very constructive, productive negotiations with all of these representatives. So so far, actually, we're actually quite pleased with the progress.

Your question, as far as worst-case, let me remind you that we actually have ring-fenced our liability, our legal entities, our subentities have filed for Chapter 11 on -- starting February this year. Since that date, we have not seen any new lawsuits, any new claims. So we're effectively being protected by the Chapter 11 bankruptcy law, which is actually a favorable treatment in the U.S. for companies to resolve their liability, and ultimately, the objective is to emerge out of bankruptcy. Yes, so that's basically our debt.

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Olivier Pirotte, Imerys S.A. - CFO [24]

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And Eric, I confirm to you the Japanese yen is absolutely -- the buyback actually of the private placement took place in Q1. And this is kind of one-off as such because we don't expect to buy anything else, I mean during the remaining part of the year without a benefit or profit.

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Operator [25]

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We have a question from the line of Jean-Christophe Lefèvre.

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Jean-Christophe Lefèvre-Moulenq, CM-CIC Market Solutions, Research Division - Financial Analyst & Sector Coordinator [26]

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Yes, Jean-Christophe again. I have a small follow-up question regarding the reduction of inventories. Should we assess that it will continue over the second half? Or is that too difficult to answer to that question, please?

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Conrad Keijzer, Imerys S.A. - CEO & Director [27]

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Yes. Jean-Christophe, I think the answer is that we started off the year relatively high on inventory. We had actually relatively slow finish of the year last year that was the same actually with our clients. So -- where -- as we started all with relatively high inventory levels, I think it's fair to say that these have come down now to actually very decent levels. We're actually quite pleased with the current level we have. The discipline will be there in that we don't want to see it creep up again. But no, we don't expect significant further reductions in inventory in the second half, if that was your question.

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Operator [28]

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We have a question from the line of Josep Pujal.

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Josep Pujal, Kepler Cheuvreux, Research Division - Head of Building Materials & Construction Sector [29]

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Yes. In fact, remark on a question. The remark is that the minus 10% in net income from current operations in H1 that you put, if it's impacted by what you say, one-off linked to the Japanese yen, and excluding that, it would be minus 17%. I think that it would be fair to put minus 17% instead of minus 10%, I guess, but just my opinion. Then on -- if we look forward to 2020, my question is, do you -- this minus 7% that have been impacting 2019, the talc temporary deconsolidation. But I guess, that as you -- as soon as you emerge from Chapter 11, you produce talc again in the United States and the Willsboro temporary shutdown, so the 2 reasons of this minus 7% in 2019. Do you believe that we should see in '20 or at least in H2 this coming back and positively impacting the activity?

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Conrad Keijzer, Imerys S.A. - CEO & Director [30]

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Yes, sure. Well, let me first quickly answer your question on the minus 17% versus minus 10%. Yes, the accounting rules are pretty clear on this. We achieved a positive financial result on the buyback of the Japanese bond. So we need to include that in the net current income. So the reality is it is minus 10%. It's a fair point you make that underlying we actually were doing minus 17%. So I don't disagree with that comment. You see it also footnoted like that.

As far as the corrections, let's say, made for talc and Willsboro, out of the minus 10% in the first half, 7% of net income was indeed -- that reduction was attributed to talc deconsolidation as well as Willsboro. What will happen next year, I think it's really very, very early to judge right now if at this point in time, next year we're actually having the entities emerged out of bankruptcy. And it's also actually very early to speculate how they will emerge out of bankruptcy and what the scope will be. It's fair to say that the appetite in Imerys is not very high to reenter the business in the U.S. in the cosmetics segments with talc, as you can imagine. So to right now sort of assess what the business will be next year and when we would emerge exactly out of bankruptcy is early days.

As far as Willsboro, we are actually pleased that we're up and running again. As you are aware, in early June, we reopened the mine and the plant, the processing plant, so that was actually on schedule. We still see an impact in terms of reduced volumes. And yes, so this is right now still for us an impact this year, a full year impact of EUR 25 million on net income.

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Operator [31]

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And the next question is from the line of Sven Edelfelt.

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Sven Edelfelt, ODDO BHF Corporate & Markets, Research Division - Research Analyst [32]

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Again, 2 very quick ones. Could we have, please, a bit on Kerneos on the aluminate price because if I'm not mistaken, the operating profit for Kerneos would be up in H1 compared to the rest of the Group? That's the first question.

And on the talc case on the probable signature, (inaudible) would it be like early 2020? Or is it more likely to be end of H1 2020? If you have a view, obviously.

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Conrad Keijzer, Imerys S.A. - CEO & Director [33]

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Sure. Your first question on Kerneos, we actually were quite pleased if you look at the margin development that we saw in Q2. First quarter, we had still in the high carryover of raw material increase from last year. If you look at the second quarter, and what you saw is our year-on-year raw material increase is actually easing. We're still year-on-year up for items like energy, for items like freight, however, if you look at items, which specifically are affecting Kerneos, like alumina, but also for example, bauxite, what you see is that these prices have come down. So for alumina, we're actually sitting around $350 per tonne right now. That is a nice reduction.

What you see is that (inaudible) is running both lines again in Brazil. And yes, you see actually that the prices have come down quite nicely, (inaudible) is also fully back in business.

So Kerneos is actually -- in terms of the margins, we were quite pleased with what we saw in the second quarter.

As far as your second question on talc, we remain as far as timing on our earlier guidance where we thought that somewhere mid-next year, we should have made significant progress here. But yes, it's obviously difficult to predict, and we're certainly not going to rush into things. We want to do this all in the right way. And like I said before, if and when we would emerge out of bankruptcy, the business needs to be de-risked in the right way.

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Operator [34]

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And there are no further questions at this time, so I'll hand the call back to the speakers.

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Conrad Keijzer, Imerys S.A. - CEO & Director [35]

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Okay. Thank you once again, all, very much for your interest and for your time. We're sitting here in Paris, it's 42 degrees outside. So some of us are not looking forward to go home right now already, but -- because it is nice and cool in the office. But we will wish you very much a great summer, and we look forward to reconvene on the 28 of October for the Q3 financial results. Thank you very much.

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Olivier Pirotte, Imerys S.A. - CFO [36]

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Bye-bye.

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Operator [37]

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Thank you. That does conclude the conference for today. Thank you for participating, and you may now disconnect.