Imerys (NK:PA), a global leader in specialty minerals, has reported a solid performance for the first half of 2024, with a significant increase in demand for its products. The company announced an 11% increase in adjusted EBITDA to $384 million and maintained stable net debt levels.
Imerys has successfully completed asset disposals and unveiled its climate transition plan, positioning itself for positive momentum in the second half of the year. The company is targeting an adjusted EBITDA range of €670 million to €690 million for the full year.
Key Takeaways
- Imerys posted an 11% increase in adjusted EBITDA at $384 million.
- The company maintained stable net debt at around €1.2 billion.
- Imerys completed the disposal of assets serving the paper market.
- A climate transition plan was disclosed, indicating a strategic focus on ecological transition markets.
- Full-year adjusted EBITDA is targeted between €670 million to €690 million.
- A temporary volume-driven slowdown in high purity quartz is expected due to high inventories in the photovoltaic sector.
- Imerys signed a settlement agreement with Johnson & Johnson (NYSE:JNJ) over asbestos litigation, pending court approval.
- The company anticipates solid H2 performance with recovery in traditional businesses and growth potential in Graphite & Carbon.
Company Outlook
- Positive business momentum expected in H2 2024.
- Full-year adjusted EBITDA targeted in the range of €670 million to €690 million.
- Focus on growth markets related to ecological transition.
- Uncertain recovery for high purity quartz due to unclear inventory levels in China.
Bearish Highlights
- Loss of sales and affected volumes due to the shutdown of Carbon Black operations in June.
- High purity quartz market faces uncertainty.
- Automotive market in Europe is under pressure.
Bullish Highlights
- Strong demand for Specialty Minerals leading to volume and revenue growth.
- Positive price impact expected in H2 from the company’s CapEx program.
- Long-term solid growth and recovery anticipated.
Misses
- Estimated €10 million in sales lost due to the shutdown of Carbon and Graphite operations.
- Lower future contribution expected from TQC due to high inventories.
Q&A Highlights
- The company serves both the semiconductor and photovoltaic markets; no need to switch focus.
- China accounts for about 70% of EV sales, making it the largest market for automotive sales.
- Imerys aims to increase returns on capital employed and is selective with CapEx projects.
- Lithium CapEx is seen as a long-term investment with an expected impact on the return on capital employed.
- Negative contribution from the other segment is due to corporate costs and lithium expenses.
In summary, Imerys has shown resilience and strategic foresight in the first half of 2024, with a robust performance in its Specialty Minerals segment and a clear plan for growth in the ecological transition markets.
The company has also taken significant steps to resolve its asbestos litigation, which could strengthen its financial position pending court approval. Despite some temporary setbacks and market uncertainties, Imerys is poised for continued success and is confident in its long-term outlook.
Full transcript - None (IMYSF) Q2 2024:
Alessandro Dazza: Good morning to all of you. Thank you for joining us today to review Imerys H1 2024 results. With me this morning, Sebastien Rouge, our CFO. And, as usual, let me start by giving you some highlights for the semester we have just closed and in particular, on the second quarter. And, to say, it was a good one, very solid performance. Demand was strong for Imerys Specialty Minerals, resulting in volume and revenue growth compared to last year. It's now the third quarter in a row of continuous growth. The good performance is mainly coming from the U.S. market holding up well and also finally, our European activities recovering gradually, particularly in consumer goods and which is good news, industrial and end markets as well. Asia performing also okay. H1 prices were slightly down, approximately 1.2% on the first 6 months with a high comparable basis. I'd like to remember from last year, but stabilizing in Q2 with just a minus 0.6% difference to last year. Second important highlights, Imerys posted an adjusted EBITDA for the first semester 2024 of $384 million, up 11% versus last year, representing a solid 20% margin in line with Q1 '24 performance. Positive price/cost balance, significant cost savings and a positive contribution of our JVs, all of these contributed to this solid performance and increased H1 profitability. Looking specifically at Q2, EBITDA, this was up almost 14% versus last year, thanks in particular to an increased contribution of our more traditional historical Performance Minerals and Refractory Minerals businesses. From a cash point of view, the group generated €120 million of operational cash flow before strategic CapEx. Net debt remained stable at approximately €1.2 billion, representing a net financial debt to adjusted EBITDA ratio of approximately 1.7x. Finally, on a more strategic side, the group continued to execute on its road map. On the M&A side, we announced on July 5, the completion of the disposal of the assets serving the paper market. On the sustainability side, we disclosed our climate transition plan, demonstrating our engagement to address climate change. Furthermore, Imerys renewed the scientific partnership with the National Museum of Natural History reaffirming Imerys commitment to biodiversity protection. So, all in all, a strong performance in Q2 and in H1 in an economic environment, which still remains overall uncertain. So, as I just mentioned, Q2 Imerys confirmed its sales recovery. This slide shows the rebound in revenue. Sales were up compared to the last 3 quarters and sequentially 7% plus versus Q1 and 1% plus versus Q2 of last year. This rebound is entirely driven by volumes as prices have been slightly declining, exchange rates has had a negative impact in perimeter as well a negative impact even if minor. On the next slide. This graph highlights the significant improvement of Imerys EBITDA margin in H1 '24 reaching 20%. What are the main drivers of this improvement, for sure, volume recovery, a positive price/cost balance, cost savings and an increase in contribution of joint ventures. If Q1 benefited from an exceptional contribution of our JVs as we reviewed 3 months ago, mainly thanks to our high purity courts business. Q2 showed a strong contribution of our traditional activities, confirming that the wide range of solutions Imerys can offer is a key element of the group success. Let's look now a bit more in detail to Imerys end markets and the recent trends. Construction, the biggest, the most important exposure for the group, I would say, a mixed picture. In general, infrastructure and nonresidential remains solid, where residential, which represents Imerys largest exposure by far remains a bit subdued even if finally showing signs of improvement. From a geographical perspective, the situation could be summarized as follows: Europe, finally, first signs of recovery as interest rates start to decrease. Residential sector still low level, but I think the worst behind us. North America, good momentum for sure nonresidential. Residential is still weak, but also clearly improving. China, I would say, in general, positive trends confirmed benefiting from public programs in all sectors. Consumer goods holding well in the U.S., always helped by a robust job market, flat or flattish in Europe as a consequence of steel persistent inflation and growth in China hampered by increased household savings, low stock exchange loan inflation. Automotive, I would say, a bit worried at the moment, if we exclude China, markets remain fundamentally soft, as already mentioned during our Q1 results call, and this is expected to continue for the rest of the year. In Europe, we observed an even stronger decrease than expected and a negative outlook for the rest of the year. Recent publication by carmakers confirmed this trend. North America should be a bit more resilient in China doing well, increased production by 8% in Q2 versus last year, fueled by government incentives and really booming exports. H2 is expected to be a bit slower, but still on a positive trend. For the energy sector, slight rebound, thanks to industrial recovery and we expect further improvements in H2. Chinese industry is about to post another year of robust growth and industrial production picking up, including solar activity, and we'll be back to this. Electronics pursuing its catch-up after a slow '23 and electric vehicles overall, good, up 18% versus Q2 '23, but with a very contrasted performance in terms of geography. China production is still moving, 25% up in Q2, U.S., to a lesser extent, still up 15% in Q2, but from a very low base. When Europe is definitely struggling, minus 3% in Q2 versus '23, notably to Chinese imports and cuts in subsidies in certain European countries. Moving to the last slide on our end markets. Industry & Equipment, finally, I would say, industrial production in Europe is starting to show some recovery, driven by rising consumer incomes and energy prices falling from past record highs. Activity in North America is expected to increase in H2, mainly driven by overall construction. And in China, it tells up reasonably well, considering the overall weak economic fundamentals, but strong export activity. Fixed steel production also contrasted by geography. Europe still persistent difficulties, high energy prices still impacted the competitive landscape and weak construction markets also impacting production. North America benefiting from this infrastructure overall good activity. Asia, China, I would say, kind of stable. I now hand over to Sebastien for more details on Imerys' H1 financial performance.
Sebastien Rouge: Thank you, Alessandro. Good morning, everyone. Let's go through some of the key aspects of our financial performance, and we start with revenue. Sales reached €1.9 billion in the first semester with progressive recovery of volumes. Prices are normalizing after 2 years of high inflation and include some market-driven adjustments when needed. Looking at Q2, you see a positive volume effect compared to Q2 '23, driving a year-on-year improvement in revenues. This reflects an improvement of European end markets, especially consumer goods and industrial applications while maintaining a good momentum and market share gains in the U.S. If we look now into more details at our 3 segments. First semester '24 revenue generated by Performance Minerals reached €1.2 billion, in line with last year. Revenue in America was up 3% at constant scope and exchange rate, reaching €543 million in H1 '24. Sales were supported by volumes, up 1.4%, mainly driven by consumer goods and U.S. construction with solid pricing. In the second quarter '24, revenue reached €284 million, plus 7.1% like-for-like, confirming the good business momentum and benefiting from some market share gains. Revenue in Europe, Middle East, Africa and Asia Pacific decreased by 1.7% at constant scope and exchange rates in H1 '24 as compared to last year. After a weak first quarter, this business area improved in Q2, driven by dynamic sales into plastics, paints and filtration activities with volumes up and prices stable, driving like-for-like variation of plus 4.5% versus Q2 of '23. Adjusted EBITDA of Performance Minerals activity increased by 19% in H1 '24 compared to prior year, supported by the recovery of the activity and significant cost savings. Looking now at our solutions for Refractory, Abrasives, and Construction business. This segment recorded sales of €620 million in H1, of which €320 million in the second quarter of '24, in line with last year level. It benefited from a rebound in refractory business worldwide and an overall good level of activity in the U.S. Prices have decreased by 2% as energy surcharges were discontinued at the beginning of '24. Adjusted EBITDA in absolute value and in percentage of sales has improved significantly, supported by a positive price cost balance and cost savings actions. Now, we complete this segment review with the newly created solutions for energy transition. The Graphite & Carbon business posted a 13% revenue decrease in H1. Nevertheless, carbon black revenue is progressively recovering as demand rebounds in Asia after a prolonged destocking period. Adjusted EBITDA for the first semester reached €20 million, a decrease of 29% versus last year, impacted by declining volumes and some price concessions, partially offset by cost savings. The Quartz Corporation posted an increase in revenue of 64% compared to the first semester of '23. Very robust H1 performance was supported by well-oriented underlying end-markets. However, photovoltaic overproduction and consequent high inventory in the value chain is currently heavily affecting TQC sales. Now, if we look at the group profitability as a whole. Adjusted EBITDA for the first half of '24 reached €384 million, up 11% versus last year. This evolution reflects volumes impact almost neutral, reflecting the progressive demand recovery. Base business, which took advantage of positive price cost balance fueled by a decrease in cost of €57 million. The evaluation also includes fixed cost and overhead increase of €21 million, in line with the increase of the activity. In H1, Imerys enjoyed an increased contribution from our joint ventures and associates. As a result, first semester '24 adjusted EBITDA margin increased significantly. If we look at Q2 only, you noticed €197 million of adjusted EBITDA, better than Q1 with positive volume contribution and acceleration of cost reduction. Looking now at the other elements of our income statement for the first semester of '24 driven by the increase of EBITDA, current operating income improved at €253 million or 13.3% of sales. Income tax expenses of €50 million corresponds to an effective current tax rate of 22%, the bigger contribution of net profit from JVs, not taxed at our level, supported this rate decrease. Current net income from continuing operation thus landed at €173 million, up 25% versus last year. Net other operating expenses represented €31 million, impacted by nonrecurring costs, mostly related to asset disposals and also some restructuring, all in all, in line with last year. Net income group share at €142 million is at the same level of last year, which still add a €44 million contribution from discontinued operations related to the HTS solutions, which we disposed of in January 23. If we look now at the cash flow generation, Imerys reported a current free operating cash flow of €88 million in line with last year. The free operating cash flow figure includes €171 million in paid capital expenditures, out of which €32 million are strategic CapEx. I'll remind you the strategic CapEx correspond to graphite and carbon expansion capacities; they will come to an end by the end of the year and the lithium projects. A positive element is the good development of the operating working capital, inventory, in particular, which only slightly higher figures than in December in spite of the recovery of activity. The line other adjustments correspond mainly to the difference between joint ventures share in net income and the dividends we effectively received in H1. This dividend received amounted to €49 million in H1 '24. How do these different elements translate into Imerys balance sheet? Thanks to the generation of €88 million net current free operating cash flow in the first semester and small proceeds from disposal, we maintained the debt close to June and December '23 levels. At the end of June '24, the ratio of net financial debt to current EBITDA was stable at 1.7x adjusted EBITDA, reflecting the solid financial structure of the group. On this good note, I now hand over back to Alessandro for the outlook...
Alessandro Dazza: Thank you, Sebastien. Before we discuss the outlook for the second part of the year, let's have a look at the end markets we serve and the impact of the disposal of the assets serving the paper markets, which impact it will have on our exposures. Basically, the sale of these assets has completely eliminated Imerys exposure to graphic paper, leaving within the group only the small packaging and board business, which serves consumers applications, and it has been added to our consumers business. Other activities will proportionately grow in importance, mechanically, such as construction that moves from 37% to 39%. So, now on the right of this slide, you have Imerys exposure to end markets, which, as we said in the past, should be our long-term reference. We believe we are now positioned on growing end markets with solutions that help the ecological transition and therefore, will grow, evolve underlying markets in the long term. To conclude, let me wrap up with the outlook for the coming months. The group expects to continue benefiting from positive business momentum in H2 '24, supported by our well-diversified geographical footprint, broad application portfolio and overall improved economic conditions. Assuming that there will be no material change in the current macroeconomic environment, and we have assumed a significantly lower contribution of joint ventures in the second half, and I will answer your questions later on, we target a full year 2024 adjusted EBITDA in the range of €670 million to €690 million. This compares to €668 million of last year. As I remind you, the last year included the 100% of our, let's say, paper business, which has been divested now in July 24. So, with the streamlined portfolio, Imerys continues to progress on its strategic road map, serving end markets with significant potential for growth. Thank you very much. We can now open to questions.
Operator: [Operator Instructions] And now, we will take our first question, and it comes from line of Sven Edelfelt from ODDO.
Sven Edelfelt: So, I would have three questions. The first one would be on TQC. Can we have more detail to what extent the slowdown expected in H2 is coming from volume rather than pricing? I understood previously that you had some long-term contracts or those contracts still being honored by the Chinese customer? Or did they simply cancel the shipment that might explain your cautiousness? Second question on the asbestos. I think Johnson & Johnson has accepted to contribute to higher cash payment to the trust. And the 15th of August hearing has been confirmed. Can we hope for the vote being launched earlier than the 26th of October, that is scheduled as of now? That's the second one. And then the third one is related to guidance. I understand TQC is lower than expected. But on the contrary, the underlying business is better. And when I look to Imerys historic figure, usually, when volumes recover, they are very quickly in the high single digit, if not double digit. So, to what extent, I mean, your guidance could be completely rigged and, in the end, in Q3, we could have an increase in guidance on the back of higher growth from the underlying business?
Alessandro Dazza: Thank you, Sven, for the questions. Let me address them one by one. What can we say on the slowdown, especially high purity quartz? Fundamentally, it is market driven, and we believe temporary slowdown. The main markets served by our high purity quartz joint venture are photovoltaic, semiconductor, optical fiber and others. I would say semiconductor, optical fiber continues to perform well on the back of all these Internet and artificial intelligence trends. What has clearly had a significant slowdown at the end of Q2, and we expect to continue for certainly for few months, maybe quarters are rather in the photovoltaic sector. What is good, demand remains very strong. We believe we will grow 10% for the next 10 years, is growing faster than 10% at the moment, simply on the back of the euphoria of last year, there has been a strong overproduction that has caused high inventories. You correctly said most of the production is in China. Therefore, the visibility is limited. How long will it take to come back to a more normal inventory level, very difficult to guess. We want to be prudent. We have experienced a similar trend about a year ago for batteries in the entire value chain. We know when there is a lot of euphoria, some producers tend to keep producing above demand. If we see on one side, Graphite and Carbon coming back, again, some customers may be here and they are slow, but most of the demand is coming back and is growing fast and it's coming back to our expectations. We see exactly the same happening in the photovoltaic world. Inventories, slowdown of current production, once again, temporary. I'm convinced demand remains strong. Imerys is investing a lot in photovoltaic plants or making agreements with energy producers to install photovoltaic farms. It is the cheapest, easiest, best way to produce renewables. Therefore, really underlying demand will remain strong for many years to come. We have to get through this high inventory level, and we'll be back to solid growth. So, we're not worried in the long term. let's see how long this softness will last, I said, difficult to predict. It's really a volume play, then rather than in price. Yes, there have been announcements that prices dropped, but it's rather for the low end of the silica world. We are only limited exposed our, let's say, very high purity business has value in the application. Therefore, prices have remained relatively stable. Time will tell, but it's really a volume-driven slowdown. And, in terms of contracts, as we said in the past, we don't comment on contracts. We have short, medium- and long-term contracts as a normal business. I don't think people are not honoring contracts. I think if the business slows down, we have to adjust to a slowdown, forging, imposing. We have seen it in Graphite and Carbon is the same. If there is a slower demand for some times, we adjust, we wait until it picks up and then we accompany our customers in future growth. So, really for me, very solid end markets, temporary slowdown due on-high inventories, return is a matter of when rather than if, and on the long-term perspective of this business, absolutely no doubt. Your second question was around Chapter 11. I think you have pointed out a very important step in the process. A settlement agreement has been signed between the North American talc entities previous Imerys, North America and Johnson & Johnson. It settles all open discussions between the 2 stakeholders. Why is it important? Because it puts an end to all the oppositions Johnson & Johnson has exercised in the past and pressure on our Chapter 11. And therefore, I believe it's another brick in this wall to close the Chapter 11 case. The settlement will add USD 505 million to the Imerys trust. So, also in monetary terms is an important step. Being so important, it needs to be approved by the court and the hearing is scheduled for August 15. Since it's a signed agreement, we do expect the court to approve it. Once approved, this will become part of the overall reorganization plan, which means what Imerys had filed in January, this will be included. We do not expect any other change. So, law firms are including this new event in the existing reorganization plan. Once approved, we can ask the court for a final approval of the reorganization plan, and this approval will launch the voting process. I'm not aware of the October date that you mentioned, Sven, frankly. We do believe the hearing will come after August 15. We will request for a hearing. It's summertime, but I honestly hope and count that it will be definitely before that date. And we believe September is a good idea or a good reference for a potential new hearing to launch this vote. That's where we stand today. The last topic is around guidance. I don't know what we will say in Q3. Otherwise, I would adjust my guidance today. I think what we have indicated is a proper reference for the way we see the business today, overall, say, traditional underlying markets for our traditional businesses are recovering, especially construction on both sides of the ocean, with industrial production moving. Is it a big rebound, strong rebound, no. But it's clearly signs of recovery, as we said in Q1, and we have confirmed the numbers in Q2. So, we target to have a second half for traditional businesses in line with the first part. Normally, H2 is 10% lower because of August and December, but we believe it's going to be a solid H2. Graphite & Carbon will continue its recovery. We were penalized partly in June because we have to shut down our biggest operation in Carbon Black to connect the energy recovery units. You may remember, we have signed an agreement with E.ON of Germany to build a large waste gas recovery, energy recovery unit on site and we had to stop our entire operation 2 weeks to connect to the neighboring operations. So, that this has cost us sales because volumes are really picking up. And therefore, it has cost us some sales. So, we do expect the Graphite and Carbon doing well in H2. The big question remains on how fast with the high purity quartz recover, really impossible to say, no visibility on the level of inventories in China. We have taken a prudent approach. In Q3, we'll give you an update, and we will know more for sure 3 months down the road. Don't forget H2, we will not have the contribution of our assets serving the paper market, around €190 million in sales, and I would say probably, something between €25 million and €30 million in EBITDA that will not be there and so the guidance reflects all these events to the best of our knowledge today.
Sven Edelfelt: Sorry, Alessandro, just a follow-up. So, if I understood correctly, the guidance includes, let's say, continued growth of the underlying business like the one we saw in Q3, meaning no acceleration. Is that correct?
Alessandro Dazza: I don't know growth and acceleration, I don't know. At the moment, we cannot say there is a very strong rebound. There is a recovery. There is a positive trend. We saw it in Q1, even stronger in Q2. I think we still need a bit of help on interest rates in Europe, a bit more confidence. So, I would say between growth and acceleration, is a difficult choice. I think a solid H2 ahead of us, improvement versus last year and continuous recovery. Not a big rebound, not yet.
Sven Edelfelt: Okay. So, continued like 3% volume growth in H2?
Alessandro Dazza: I'd like to make your guess. But I think we have turned the corner, is really the world economy is improving, and we see that clearly in -- Maybe the only market that is under pressure today is automotive. Automotive in Europe, in particular, you have seen the announcement of big carmakers, they are a bit worried. We see in our polymer's application for cars. We see very strong solid growth in China, much less in Europe, but all other markets are going in the right direction.
Operator: And the next question comes from the line of Aron Ceccarelli from Berenberg.
Aron Ceccarelli: So, my first one is on Performance Minerals. I mean, very strong performance in terms of top line and earnings. Maybe can you impact a little bit the volume rebound? You mentioned market share gains. I would like to understand what's the contribution from market share gains compared to market growth. And, I would like also to understand if there was any kind of one-off benefit in your Q2 performance. Also, looking at H2, you mentioned consumer goods to be one of the positive drivers of the performance. I would like to understand maybe what kind of degree of confidence you have going into the second half as we see most of the consumer goods companies reporting lighter-than-expected numbers? The second question is on TQC. Can you confirm if the €200 million CapEx has been confirmed? And also, can you provide some quantitative or at least qualitative comments around the equity rate of the quarter? Because I understand that April and May, things slowed down a little bit, but probably in June, things got a little bit softer than in the previous 2 months, especially in the solar part of the business. And finally, I mean, very good performance on the cost side. If I remember correctly, you should reprice your transportation and logistics contracts in the first half of the year. So, I would like to understand maybe if you can talk a little bit about what increase in terms of cost here you expect? And how much the cost savings that you basically reported in H1, we should expect into H2?
Alessandro Dazza: Again, I will address after the other. In terms of markets, yes, Performance Minerals is definitely doing well, as you said, and we enjoy both volume growth and market share gains, especially in the U.S. I think our commercial actions are starting to deliver. We have a good innovation pipeline that is starting to deliver. It takes time, but it is delivering. It is basically in all sectors from polymers to paints. It is in consumer goods. It is important packaging and the part that stays with us. It's not so easy to say how much is volume and how much is market share gain. I would guess 2/3 on the volume growth and 1/3 on share growth. I think it's an adequate figure to give you. On consumer goods, we hear what you say on other companies. Maybe in China, we don't see this growth. But in Europe and especially in the U.S., for us, it remains quite solid. We are a bit upstream. So, we normally see it may be a bit earlier, like in the negative times, in the good times than others, but we do see a sustained business. Don't forget that we lived last year, high inventories. Consumers are typically some small businesses. Therefore, there is a part relating to distribution and distribution takes time to destock. So, we probably live a downturn at the end of last year with some destocking. We saw distributors selling more than they were buying from us, which is a clear sign of destocking. Today, this is gone. On the contrary, we see confidence and even a slight maybe restocking, not excessive. Everybody is prudent. But for sure, consumers remain confident also for the second part. Did you see you have 2 questions? One on CapEx. Our CapEx program is ongoing. First part in the U.S., which was launched 18 months ago, is basically coming to commission between now and the end of the year. The second step was rather on the European operations, is ongoing, will come on stream fully by the end of next year. There is no slowdown, no second thoughts. The markets we are serving will grow rapidly and fast in the long term. So, we are continuing and pushing hard to implement these capital expenditures. They are important to support and accompany our customers. No second thought at all. In terms of trading, we don't give month by month. But I would say you have seen the results of our high purity quartz in Q1. You have seen in Q2. So, the trend is clear. We don't need to comment it. And if I look specifically, I think we see now these high inventories. So, I think we will see a few more months, maybe quarters difficult to say of slow business in photovoltaic until inventories come back to more normal level. The question is really how long, it is new. We don't have the visibility to comment. But the remaining businesses will remain strong and the long-term direction of the curve is really not in discussion, it's just a matter of understanding how long it will take to bring inventories down. In terms of costs, Sebastien, do you want to give some figures?
Sebastien Rouge: Has a very good memory. Yes, our biggest contract for transportation is June to June. We are very confident about the cost development. You have in mind freight and energy are the 2 main factors for variable costs. On both fronts, we are happy about the contracting, which is taking place, and we do not expect a big increase at all on the transportation side. So, again, with volumes that are stable, I think the logistics costs are well under control, even though you see some spikes sometime on the spot market, but mostly we buy on our contracts, and I think it's well-orientated. Same thing for Energy. You see, in particular, in Europe, Energy costs have really gone down, not back to pre-crisis levels, but really at affordable prices. And we've been able to hedge ourselves. So, we are, therefore, very confident of the absolute level of electricity gas that will have up until the end of the year. So, that should facilitate for us our goal, which is always to have a positive price cost balance, and that's our goal for H2, clearly.
Operator: And the question comes from line of Ebrahim Homani from CIC.
Ebrahim Homani: I have two, if I may. The first one is about your guidance. You said it's a recovery, not a big rebound. Is it possible to have more details on the price you expect in H2? Will it be possible to face a positive price impact? And the second question is on TQC. What's your implicit contribution expectation given this guidance, this EBITDA guidance you gave? And in Q3, should we consider a €20 million contribution of TQC as it was in Q2 or maybe be more optimistic on this contribution?
Alessandro Dazza: On price, I want to be optimistic and, yes, I believe we are going to move into positive territory. If you look at Q1 and Q2, you see we were about 2% below. In Q1, we were 0.6% or about 0.5% in Q2. The surcharges we still had at the beginning of last year are clearly gone or were gone in the second half of last year. Therefore, I believe we will have a positive price impact in H2, I expect. Time will tell, but we are going in the right direction. In terms of TQC and in guidance, we don't give guidance for single businesses, therefore, allow me to pass on this one. We're being prudent because we've lived these high inventories a year ago in Graphite and Carbon. We were disappointed. It happens when you live in a market that is such a strong growth, people produce and produce and produce and then one day, you have to readjust. So, we are in the middle of this readjustment before a few months will be difficult ahead of us. What remains important is the long-term view of this business, its underlying markets are extremely well-oriented. So, don't look at the quarter, let's look at really the long term. It's a great business, and it will deliver good performance. We will see in the coming months.
Ebrahim Homani: So, for the Q2 and we have to keep cautious on TQC for the next quarter. Is there anything it's fundamentally a good business?
Alessandro Dazza: Correct. We have taken a prudent approach because we have experienced that in the past. So, we definitely want to be prudent until we have more visibility on the inventory levels. And we will give, of course, an update in Q3, but we want to be very, very prudent.
Operator: And the next question comes from Laurent Runacher from LRESG Advisory question.
Laurent Runacher: I'm afraid the big topic of the day on TQC and to know to what extent you can use the growth in the semiconductor area to fill volumes that were supposed to be directed in the PV area so that it could smooth the, I would say, temporary problem as far as overstocking is concerned in the PV place.
Alessandro Dazza: Thank you, Laurent. As we said when we presented this business, the larger part of our activities addresses the PV market and to a smaller extent, semiconductor optical fiber and other industrial applications. So, we do address semiconductors. The market is going in the right direction. It's positive, it's growing. We have never given up on this market. So, it's not a choice to serve one or the other. We serve both products, are slightly different. We are glad to have both markets, and therefore, there is nothing to switch in my opinion from one to the other. Each market has its own trends, its own products. We're present in both, and we will continue to be present in both, simply 1 of the 2 legs of this business today are offering a bit of overstocking. It's a matter of time.
Laurent Runacher: And I had another question regarding the Carbon and Graphite business. So, you had to shut down your operations to adapt to the new energy feeding from your German energy company. So, at the end of the day, what kind of a rough number has it cost you? I guess it's, worth, €10 million sales or around -- is it a good estimate?
Alessandro Dazza: Could be. I mean, it could be in this level of sales, Laurent. What is important is especially the carbon black side of the business is recovering very strongly. We are glad that soon we will commission our fourth line because we are filling line #3, which we commissioned last year very rapidly, and therefore, starting down for half a month has had an impact. We will recover these volumes because the value there is a pipeline of inventories at our customers and so on. So, I think these sales are not lost. We'll come back on H2. That's why we expect a strong H2 for this business. Then, as I said in Q1, not all customers are back to full activity. Depending on the success of a specific car or brand, we have some customers really running full, others that are a bit behind because their models are less successful or the geography they serve. Look at Europe are, at the moment, a bit under pressure. Once again, here, I believe the growth in the mid long term is guaranteed. Probably we were all a bit too optimistic on the rapidity of adoption on EVs, especially in Europe and in the U.S. But on the contract is going still very strongly in China, which is the biggest market in the world. It continues to grow solidly. So, once the very last spots of customers with high inventories will be consumed in both business, Graphite and Carbon black will be back to solid growth. we will recover what was lost.
Laurent Runacher: Can you share with us, just a last question, can you share with us when you look at the automotive sales? What is the share of China to understand to what extent the recovery in China is not a real good news. And at the end is more than making the balance for the European disappointment.
Alessandro Dazza: I don't have all the statistics for automotive, I'm sure they are available. So, you can find them. So, I would say in the world of electric vehicles today, China accounts for about 70% of sales in EVs. That's my last number. So, it is by far the single largest markets. And, in terms of production, probably even more because they export a lot. Comparably, they export more than any other country. Then the question is where our battery is made. And there, I would say that probably the share of China is even higher, followed by Korea and Japan and now slowly, I hope Europe one day. We serve all battery makers. So, at the end, if a battery is produced in Korea, Japan, in China or tomorrow in Europe, as long as we are serving all the big battery makers, I think the location of production will probably be relevant in the future. So, for me, it's more a question of overall demand of EVs going forward because we are in every car to make it simple. We are in every car. So, no matter where they make.
Operator: And the next question comes from the line of Auguste Deryckx from Kepler Cheuvreux.
Auguste Deryckx: So, I have one question on quartz. Are you losing market share? And if yes, is this in the benefit of lower quality of quartz, such as the one made by Pacific quartz or in the benefit of Sibelco? And my second question is on carbon and graphite. Are you confident in your ability to reach a top line of about €300 million next year?
Alessandro Dazza: Auguste, thank you for the questions. On our high purity quartz, I think the answers are rather no to both, meaning I don't think the very high purity quartz is losing share to a lower purity quartz. Both products are needed. Both products were in our presence. They're using different ways and the value in use of high-purity quartz is there. Is there today, was there before. That's why this business exists, if you want to be efficient in the production of your silicon ingots, you need high purity quartz. That's why I don't think there is a movement of share between the different qualities. Secondly, on competition, there are no statistics so I cannot really comment if you're winning or losing. I believe, really, the issue now is on overall volume drop led by inventories. As I said, we need to sit through this small cycle is temporary and then it will go back to the growth that really the underlying markets are still showing. So, that's my comment on the shares. And on Graphite and Carbon, our midterm ambitions have not changed at all. Is the 300million? Not even the 300 million is enough. If you look at our Capital Market Day, we want to reach a higher level than 300. As for high purity quartz, we had a setback with high inventories last year into the beginning of this year. We're coming out. We are growing again. The production lines are installed. Will we already be at 300 next year? I will tell you next year, but it's going really fast. So this business will deliver 300 and more on a run rate basis when we get there. A bit too early to tell you.
Operator: Now we're going to take our last question for today. And the question comes from the line of Mourad Lahmidi from BNP Paribas (OTC:BNPQY) Exane.
Mourad Lahmidi: So, three for me. The first one is on the paper business. Coming back on that disposal, how much it will reduce the capital employed of the company? Another way to ask the question is, was there any debt associated to the paper-based activities? My second question is on TQC. So, in your guidance, you say a significantly lower contribution from TQC. Is it compared to H1 2024? Or is it compared to H2 2023? And my last question is more a general question. If you take a step back on your business and look at it in terms of return on capital employed, can you help us understand what are the areas where you make the most returns in the areas where you are not satisfied with the returns. Essentially, have you seen most recent projects delivering higher returns? And is it a KPI where management is incentivized in terms of lifting up those returns?
Alessandro Dazza: Thank you, Mourad. I will let Sebastien comment on the assets serving the paper market in terms of capital employed and debt and maybe also on the ROCE, which is, of course, an important KPI that we follow, we report to the Board, and we are incentivized on. Looking at TQC, once again, we don't give specific guidance of each single business, even more so in a moment like this one where we are facing a big question mark on inventory levels. So, to tell you that if it is late H2 last year or what we say, and I think the words are clear in our outlook is a significantly lower contribution. We had an incredible Q1 this year. We said there were some shifting from last year, so some exceptional profitability. I think we at the end, still a reasonable Q2. Overall, a strong H1, we doubled our results compared to last year, but we enter a phase of low activity. We want to be prudent. So, as we said, we will have a significant lower contribution compared to past expectations for sure and also past results. Then I said, no specific comment on the guidance of a single business. In terms of paper or images assets serving paper. Do you have this number by hand?
Sebastien Rouge: Actually, they are on our balance sheet because they are reported as assets and liability for sales. You have to remind actually we have done 2 sets of impairment of these assets in 2022 and 2023. So, now what is remaining is pretty small. You see on our balance sheet at the end of June, we have just over €200 million of assets, a bit over €130 million of liabilities related to that. There is no significant debt attached to it, just a few leasing contracts, but nothing material at your level. We have disposed of the business with a little bit of cash so that the spinoff company can operate. But basically, the big swings in terms of capital employed has been done last year when we did the large impairments.
Operator: Mourad, any further questions?
Mourad Lahmidi: Yes, I had the question on return on capital employment that's still pending.
Sebastien Rouge: We don't publish return on capital employed by business. I think, as Alessandro says, that's our goal to increase the return of capital employed, there is no doubt. Our relatively large reshuffle of portfolio is actually changing that a little bit. You have in mind that actually our HTS business was relatively low and capital employed. So, it has, we say, pushed the average down. Let us go back to, I would say, a stable portfolio so that we are actually on the positive trend going forward. Also, the strategic CapEx we have done in the last 2 years have a mechanical impact on the short term. Alessandro was mentioning that we have put hundreds of millions on Graphite and Carbon. It will be probably next year and the year after, where they bring full speed return on capital employed. We have so far not identified any of the latest large CapEx that are not meeting our threshold. So, for everything that we do, whether it's big CapEx or M&A, we are aiming at 15% IRR. So, pushing our IRR, we have not set any guideline yet, but it's clearly part of our transformation to structurally improve the return on capital employed going further. One thing that you have to take into account is the lithium CapEx when they speed up, obviously, that will be long-term investments so that we'll have also mechanically and we have accepted that, I would say, for the time being, a little bit of weight of this specific indicator. But that, I think we will speak again when we enter into the CapEx when we speak about the partnership that might come along in the next years.
Operator: And the question comes from the line of Aron Ceccarelli from Berenberg.
Aron Ceccarelli: I have a clarification. On Page 11 of your press release, you showed us a €19.2 million negative contribution from the other segment on adjusted EBITDA compared to a positive one of €12.9 million in the first half last year. I was wondering if you can shed some light on these figures, please?
Sebastien Rouge: Yes. By construction, this other segment is negative. So, it's made out of 2 things. First of all, that's the corporate costs and the normal way of doing is actually to spread equally year after year, so that it does not impact the way you see the operational performance to spread the corporate costs towards the old businesses. And the second part are the lithium costs that we expense. You know that we capitalize a fair amount of them, but we have a growing level of expense, and they are also impacting that. So, the fact there is a bit of negative is the normal course of business. What you saw as a positive last year was actually the result of our very strong cash reduction impact, which we are mostly on the corporate and global group expenditures and this, I would say, benefit that we enjoyed last year. We did not distribute that to the businesses. So, it stayed as a positive last year. And we have, I would say, normalized this year. That's mostly the result of these 2 impacts.
Operator: There are no further questions. I would now like to hand the conference over to your speaker, Alessandro Dazza, for any closing remarks.
Alessandro Dazza: Thank you. And just the closing remarks, and thank you for listening today, and we wish you a good summer, and we'll give you more updates at the end of Q3. Thank you very much. Goodbye.
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