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“The second quarter showed no improvement in the economic situation created by the unprecedented crisis the global economy is going through,” said Gérard Buffière, CEO. “We aggressively continued the drastic reduction of our costs and made generating free cash flow our priority. Our results for the first half of 2009 reflect this.
“I thank our shareholders for showing their confidence in Imerys by subscribing extensively to the rights issue completed on June 2. Our financial structure is even stronger as a result. We cannot see any tangible signs of improvement on our markets, and great uncertainty hangs over activity levels for the coming quarters. We are therefore keeping up the discipline and management efforts that alone can guarantee achievement of our goal of an operating margin close to 10% for the start of next year.”
The markets served by the Group in Europe and North America have not posted any upturn since their collapse in the fourth quarter of 2008; only some emerging markets recovered slightly in the second quarter of 2009. Output decreases remain substantial, especially in industrial equipment-related markets. Steel production in Europe and North America fell approximately 45% in the first half of 2009, compared with the same period in 2008, but showed a slight improvement at the very end of the period.
Over the first half of 2009, the Group’s implemented destocking and cost savings plans led to a substantial inventory reduction of €129.4 million (approximately $184.6 million), compared with €42 million (~ $59.9 million) for the first quarter. Fixed cost cuts were reduced by €85.6 million (~ $122.1 million), made possible by the low level of production. Booked capital expenditure was halved at €56.9 million (~ $81.2 million), compared to €114.1 million (~ $162.7 million) in the first half of 2008.
To date, the Group does not see tangible signs of a lasting upturn. Fixed cost and overhead reduction programs are being maintained, while cash flow generation remains the priority. It is expected that the continuation of these actions will enable the Group to maintain its goal of achieving an operating margin close to 10% by the start of 2010.
Sales for the first half of 2009 totaled €1,374.0 million (~ $1,959.8 million), down 22.6% compared with the first half of 2008. Affected by lower volumes (€231.0 million, ~ $329.5 million), current operating income totaled €110.0 million (~ $156.9 million) for the first half of 2009. Net income from current operations totaled €46.7 million (~ $66.6 million), down 70.8% vs. the 2008 first half.
At €383.2 million (~ $546.6 million), first half 2009 sales for the Minerals for Ceramics, Refractories, Abrasives & Foundry division were down 35.7%. The minerals for refractories, fused minerals and graphite markets in all geographic zones remain affected by the sharp drop in industrial equipment and automotive production recorded since the middle of the fourth quarter of 2008. This trend is intensified by massive inventory reductions across the entire downstream customer chain. However, in Europe and North America, steel production in May and June was marginally higher than in previous months, while Chinese and Indian markets improved slightly compared with the first half of 2008. In abrasives and graphite, levels of demand remain significantly lower than in 2008 but improved in May and June compared with the previous months. The ceramics market is still affected by the crisis, particularly in the construction sector in developed countries.
Since the end of 2008, output has been cut sharply in all of the business groups (by more than 50% in some activities), and industrial facilities are adapting to demand. Measures that combine part-time working and working time reductions have been implemented in France, the UK and Switzerland, whereas substantial workforce reductions took place, in particular, in the U.S., Austria, China and South Africa.
Minerals for Refractories enhanced its portfolio of mineral reserves during the first half through the acquisition of high-quality assets in the U.S. This capital expenditure represents a large share of the amount committed by the business group during the period.
At €443.4 million (~ $632.4 million), the Materials and Monolithics group’s sales were down 18.4% in the first half of 2009 vs. the same period in 2008. For Building Materials in France, single-family housing starts decreased by 23% in the first half of 2009. Despite a resilient renovation sector, the clay products market posted decreases in volumes for roofing items and for bricks (approximately 16% and 21%, respectively), compared with the first half of 2008.
Capacity adjustments for Building Materials in France continued during the first half of the year, with most production lines idled. A roof tile line was shut down definitively at Pargny sur Saulx (Marne), and the modernization program at the Wardrecques (Nord) plant was successfully completed. The Bessens plant (Tarn-et-Garonne) was closed early in the year and its production divided between other sites. Optimization of the La Boissière du Doré (Loire-Atlantique) brick plant is nearing completion, and slate mining is now concentrated at a single site (Grands Carreaux in Trélazé - Maine et Loire).
Monolithic Refractory markets related to liquid metal production remained very difficult throughout the first half, except in India. Many production stoppages took place in steelmaking, while other outlets (cement, glass, incineration, petrochemicals, etc.) held out better. The end of major original-fit projects weighed increasingly on volumes. Production capacities were reduced in all geographic zones except India, where business remained firm in the first half. Efforts also focused on the reduction of sales, administration and logistic costs.
Additional details are available at www.imerys.com.