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Imerys Struggles in First Quarter (posted 5/7/09)

May 7, 2009
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Imerys experienced a heavy volume slump that led to decreases of 21% in sales and 80% in net income from current operations.

Imerys recently announced its financial results for the first quarter of 2009, including a heavy volume slump on the Group’s markets that led to decreases of 21% in sales and 80% in net income from current operations.

“The first quarter of 2009 confirmed a historical slump in all our markets and virtually all geographic zones since November 2008,” said Gérard Buffière, chief executive officer. “That downturn is being intensified by inventory reductions at different levels in the value chains to which our products contribute. I want to congratulate our people for their quick reactions and their efficiency. Thanks to them, the Group can now benefit from the first effects of the cost reduction plans that we will energetically continue to implement and step up. These measures will enable Imerys within a year to raise its operating margin to close to 10%, under the market conditions that prevail today. I want to reiterate our determination to prove the soundness of our business model in the difficult environment that the world economy is currently experiencing.”

The Group’s markets, affected by the global economic crisis, continued the downturn begun in the fourth quarter of 2008. Slumps were on an unprecedented scale, particularly in industrial equipment-related markets, with an approximately 47% fall in steel production compared with the same period in 2008 in Europe and North America. The trend remains negative in the construction sector in Europe (single-family housing starts in France down 13% on sliding 12-month basis) and North America, where record low levels were reached for housing starts early in the year. Global paper production decreased by approximately 13%. Only some consumer-related markets, in particular filtration, held out better.

As a result of the unprecedented fall in volumes (28.2%), sales decreased 21.3% from the same period in 2008 (23.8% at comparable Group structure and exchange rates). Current operating income fell 62.0% (66.2% at comparable Group structure and exchange rates). Fixed cost savings partly offset the impact of lower sales volumes. In late 2008, to improve its ability to weather adverse conditions, the Group started to implement actions to adapt to lower volumes.

The first effects of those programs were felt in the first quarter of 2009, including a decrease in fixed costs of €28.6 million (approximately $38.1 million), reflecting the swift implementation of cost-saving plans; inventory reduction of €42 million (~ $56 million); and a 32% decrease in booked industrial capital expenditure. Without the completion of the programs launched in 2008, capital expenditure would have been halved.

The Group continues to make cash flow generation the priority and, since the beginning of the year, has aggressively continued to implement actions for that purpose. In 2009, the priority given to cash flow generation will be reflected in: lower inventory (production stoppages, suspension of extraction and overburden campaigns, purchasing restrictions on raw materials and chemicals), which should decrease by approximately €100 million (~ $133 million); a substantial decrease in booked capital expenditure; and financial structure improvement through further debt reduction. The fixed costs and overhead reduction programs are being continued and stepped up. They should enable the Group to increase its operating margin to close to 10% within a year, in the market conditions that currently prevail.

First quarter 2009 sales totaled €694.3 million (~ $924.3 million), an unprecedented drop of 21.3% compared with the same period in 2008. At comparable Group structure and exchange rates, the decrease in sales (23.8% vs. first quarter 2008) can be explained in full by the collapse in sales volumes in all business groups (28.2%). The decrease already amounted to 23% for the November/December 2008 period.

The downturn is intensified by inventory reductions in many of the value chains to which Imerys’ products contribute. Industrial equipment-related sectors (Minerals for Refractories, Monolithic Refractories, Fused Minerals, Graphite & Carbon) were especially badly hit by production stoppages, as were construction-related sectors in developed countries (Minerals for Ceramics, Performance Minerals). Global paper production also fell sharply. The downturn continued for clay building materials on a French market hit by lower housing starts. Only some directly consumer-related markets, such as Filtration, held out better. In that particularly difficult context, the price/mix component improved 4.4%, with positive impact in all four business groups.

Minerals for Refractories, Fused Minerals and Graphite markets were dragged down by the sharp fall in industrial equipment and automobile production recorded since the mid-fourth quarter of 2008 in all geographic zones. This decrease was intensified by inventory reductions. The Ceramics market is still affected by the construction sector crisis in developed countries.

At €193.0 million (~ $256.9 million) for the first quarter of 2009, sales decreased 33.0%. Since the end of 2008, production capacity reduction plans have been implemented in all the business group’s activities. In Minerals for Ceramics, part-time working measures were taken in France and the UK, and industrial assets are being adjusted to demand.

Minerals for Refractories took the following measures: the Vatutinsky plant in Ukraine was idled for several months and production capacities were significantly reduced with a substantial decrease in mining and periodical stoppages of several calcination lines. In Fused Minerals, output was gradually reduced by approximately 50% in Europe and China through measures combining manpower reduction and part-time working.

In the first quarter of 2009, Performance Minerals markets (paint, plastics, adhesives, etc.) followed the downward trend in construction-related sectors, particularly in North America and Europe. Minerals for Filtration markets held out better. Overall, sales for the segment fell by 15.8% to €118.5 million (~ $157.9 million). In Performance Minerals, American production was adjusted to demand with further capacity reductions. The industrial optimization plan for the Minerals for Filtration activity has delivered the expected savings since the end of 2008. Additional measures were taken in the first quarter of 2009 with the suspension of extraction campaigns and the periodical shutdown of some American production units.

Sales for the Materials & Monolithics group fell 16.6% for the quarter, compared to the first quarter of 2008, to €228.9 million (~ $304.7 million). In Building Materials, single-family housing starts in France recorded a further decline of around 13% over 12 sliding months. Moreover, weather conditions were particularly unfavorable in January and February. Despite a resilient renovation sector, volumes on the clay products market fell 19% for roofing and 23% for brick compared with the first quarter of 2008.

Capacity adjustments in Building Materials continue: half of the production lines were idled for several weeks during the quarter. Optimization of the La Boissière du Doré (Loire-Atlantique) brickworks is in process. The Bessens (Tarn & Garonne) plant was definitively shut down during the quarter and its production was transferred to other sites. Slate production is now concentrated on the Grands Carreaux (Maine et Loire) mine.

Monolithic Refractories markets relating to liquid metal production were very difficult throughout the quarter, due to many production stoppages, particularly in the steel industry. Other outlets (cement, glass, incineration, petrochemicals, etc.) held out better. Moreover, the completion of major projects begun by its customers in 2008 partly offset the slump in the activity’s sales.

Production capacities in Monolithic Refractories were reduced, whether temporarily or definitively, in all geographic zones except for India, where business remained firm in the first quarter. Efforts also focused on reducing selling, administration and logistics expenses.

Additional details are available at www.imerys.com.

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