Imerys S.A. (OTCPK:IMYSF) Q4 2022 Earnings Conference Call February 17, 2023 4:00 AM ET
Company Participants
Alessandro Dazza – Chief Executive Officer
Sebastien Rouge – Chief Financial Officer
Conference Call Participants
Sven Edelfelt – ODDO
Mourad Lahmidi – BNP Paribas
Jean-Christophe Lefèvre Moulenq – CIC
Cameron Needham – Bank of America
Eleonora Martignoni – M&G
Alessandro Dazza
Good morning to all of you. Thank you for joining us today to review Imerys’ Q4 and 2022 Full Year Results. With me today, as usual, Sebastien Rouge, our CFO.
Let me start by giving you some highlights of the year we just closed, a year which confirmed again Imerys’ strong financial performance and resilience in a very challenging context. 2022 was marked by an extraordinary inflation, with prices of energy reaching record levels, particularly in Europe during the summer. In this context, Imerys managed to close the year with a positive plus contribution of variable costs, as we will see in a few slides. We delivered double-digit organic growth at 12.5% for the full year. Volumes were negatively impacted by the crisis in Russia and Ukraine, by continuous lockdowns in China, an important country for the group. But the decline of paper production which is back to its historical trends after a short rebound post COVID, as well as a certain weakness in industrial markets, especially in Q4 where we could see a significant customer destocking. Sebastien will deep dive on this later on.
What is most important, despite declining volumes, Imerys demonstrated its resilience and posted an increase in EBITDA of 11% for the year and an increase of 23% in current net income with Q4 ‘22, above last year performance. Just as a reference and to underline, I believe the good performance, our current net income in ‘22 is at the same level as ‘21, although we have sold approximately 20% of the company, I remind you, the HTS business.
As said, current EBITDA, up 11% year-on-year, €720 million, above the guidance we had communicated in November, which I remind you was 690, 710 range. The group generated an operating cash flow of €105 million before strategic CapEx despite strong inflation on working capital. Again, Sebastien will give you more details. We accelerated our spending on strategic CapEx, €85 million in 2022. We want to rapidly increase our capacity and support future growth in fast-growing end markets. I will comment more on this later on.
Finally, Imerys has completed the disposal of the high-temperature solution business to Platinum, an American private equity, on January 31 of this year. Based on the strong results of 2022 and the proceeds from the disposal of the HTS business, the Board of Directors will propose to the General Meeting of Shareholders in May to pay a dividend of €3.85 per share compared to €1.55 per share paid last year, which represents a payout of €327 million and includes €200 million from the proceeds of the HTS disposal.
If we now look at on the next slide, the development of the group over the last few years, Imerys confirms its business model is resilient even in challenging times. We recovered, as you can see on the left side, we recovered rapidly after the COVID crisis in ‘21 and mastered well the recent inflationary environment. The group was able to increase its EBITDA, which reached record levels at what we call old perimeter before the HTS disposal, on the right. This remarkable achievement was possible, thanks to our position of leading supplier of really specialty solutions, diversified footprint, both geographically and end markets but also thanks, I believe, to the tremendous effort of the teams to work on costs, to control costs and expenses. In particular, I would like to remind two programs that contributed to this performance: Our IQ program industrial excellence; and our STEP program driving purchasing and supply chain improvements.
Let’s now have a look at the markets we serve. The two, let’s say, recent or still ongoing divestiture, HTS and the assets serving the paper market, will position Imerys on attractive growing end markets. On the left of the slide, you have the previous exposure to end markets, on the right, where we stand today after the HTS divestiture, still including our paper business. As you can see, paper business exposure, 9%, 10% is still significant, but will be reduced after the contemplated disposal of our assets. The new Imerys is significantly less exposed to iron and steel, which as I always said, per se is a good market, but cyclical. You can also note on the right the relevance of the energy and electronics market, that we now want to show separately as this will be a driver of future growth for this group. Construction will remain the most important market for Imerys followed by consumer goods. I will go in details on each of these markets in the following slides.
Let’s start with Construction, the biggest, the most important for us, as I mentioned in previous communications. Markets clearly showed evidence of slowdown both in Europe and North America, maybe a bit less in the remaining parts of the world. Drop in the U.S. is quite impressive, 10% basically for 3 quarters in a row, clearly relating to rising interest rates, partly shortage of workforce and higher raw material costs. In Europe, the weakness is less evident, comes mostly from lower residential demand and new builds, probably for very similar reasons. France is a good example as we know from the newspapers. This trend will probably continue also in the first part of 2023. On the contrary, we do expect a robust recovery in China after difficult years. Consumer goods markets continue to progress well, confirming resilience even and sometimes unexpectedly in such an inflationary environment as we live today. The decline in energy prices in Europe should help to support this trend as well as a good strong job market in the U.S.
On the next slide, automotive. Another important market, production levels look good on the table, have improved, but thanks to a more favorable supply chain and a very low comparable basis last year. I remind you the Jeep crisis. Still, in Europe, especially in Europe, I would say production remains significantly below pre-COVID levels, which for me, offers a good opportunity for continuous growth in the future. Energy and especially electrical vehicles have been very dynamic markets, boosting demand for lithium ion batteries, where Imerys definitely plays a role. Electronics has been a bit softer on the back of high inflation and spending reductions.
On the last slide on the markets industrial applications remains important for the group. Weakness in demand, especially in Europe around the end of the year, general slowdown of activity on the back of high cost of energy. Same is clearly evident on the bottom right on iron and steel demand. Graphic paper, still an important market today, as I said, around 10% for the group, at least for the time being as return, I would say, to its historical trend of decline after a good ‘21, I remind you, after the COVID crisis, with the exception maybe with some areas in Asia where consumption of paper is still growing on the back of growing population.
Let’s move on to the cost side, cost and prices on this slide. As I said at the beginning, Imerys has managed to offset through pricing, the exceptional rise in input costs in 2022. The impact of inflation shown on the figures on the right part of the table is simply incredible is in magnitude. The balance price variable costs, as you can see, was positive for the full year, and I really think this is an exceptional achievement given the context. I think the worst is behind. I believe we have passed the peak of this inflationary spiral, at least in manufacturing, and I do not expect input costs to rise any longer. This should give us the possibility to finally return some savings to our customers. It’s important to safeguard this transparency and the relationship with our customer base.
Let’s now move on to the main CapEx of this year. As mentioned, we spent €85 million in these large and strategic projects. Jade, what we call Jade internally, the Jade project in China will allow Imerys to produce locally high aspect ratio minerals for lightweighting of polymers, typically for automotive applications based on our patented proprietary technology. China is today, by far, the largest automotive market in the world. This CapEx puts Imerys at the center of the happenings. Commissioning is underway and should be completed before the end of this quarter.
Now our graphite and carbon business, we are just completing the third production line and have started the construction of the fourth production line in Belgium to expand carbon black supply to lithium-ion batteries, or battery makers. At capacity, these 2 lines will add over €100 million top line for the group at good levels of profitability. In synthetic graphite, in Bodio in Switzerland, we expect to finish our third expansion before the end of 2023. Also in this case, products will mainly address rising demand in lithium ion batteries.
Last but not least, we continue our work on our lithium extraction project, the EMILI project. And I’m very happy to announce that for the first time, we have produced in a lab scale, the first grams of not only lithium, but battery-grade lithium, confirming that our technology works. Important also to mention that EMILI has been selected as a winning project within France 2030 program, and will receive a grant of approximately €22 million for R&D and piloting.
On the next slide, a few words on innovation. I will not go through all the products, but the group has launched more than 80 new products in 2022 with 3 main areas of focus: green mobility, as we just mentioned; sustainable construction; and a lot of new solutions, natural solutions for consumer goods. What is important that each innovation project today is screened with the so-called portfolio sustainability assessment framework. So with clear rules, verified and audited by an independent body, why do I say this? Today, customers want new products, but they want sustainable products for the future.
Let’s move on to something just as important as innovation is ESG, our responsibility. We have – we had launched our first 3-year ESG sustainability plan in ‘19 that came to an end in 2022. We have largely and successfully achieved the targets. More – here, you have a representation of a few of them, more is detailed in our universal registration document. What are we going to do in the future? We are launching a new, even more ambitious plan for the next 3 years, ‘23, ‘25, which will continue to focus on what we believe are the pillars of our sustainability efforts: Our people; our customers and products; and our planet. We set the bar even higher. We want to continue to be the reference in our industry in terms of sustainability. Again, I will not go in the details of this table, and I’ll let you check these as well as other KPIs that we are listing in our [indiscernible]. Nevertheless, I would like to spend a word on the very last line of the slides around climate change and greenhouse gases emissions.
And on the next slide, you will see what we have done. Until today, Imerys has set targets on the reduction of CO2 emissions in relative terms, therefore, in relation to sales, targets that we have clearly largely achieved. We have now decided to make a step change – in 2 big changes. First, we have decided to align to the 1.5 degrees trajectory. In the past, we were aligned to the 2.0 degrees trajectory. Second, we target to reduce greenhouse gases emissions in absolute terms, not relative. It means tons of CO2, period. Our goal is to reduce CO2 emission by 42% until 2030 from the reference year, which was 2021. It’s a very ambitious target. I believe we can achieve it and we want to achieve it for our planet.
Last year, to give you some numbers, we have reduced our greenhouse gas emissions by 10% in absolute terms and we will accelerate in the coming years. We have identified several decarbonation levers, you see on the left side of the slides. But honestly, this will not be enough to reach this 42% reduction. We need more. We count that technological developments in the coming years will help. And by the way, we have 8 years to get there, and we will make it.
I now hand over to Sebastien to go in more details on our financials.
Sebastien Rouge
Thank you, Alessandro. Good morning, everyone. And let me walk through the key aspects of our financial performance, and we’ll start with revenues.
Sales reached €4.3 billion in 2022, a 16.8% increase versus prior year. This was mostly driven by a good organic growth of plus 12.5%. As we have seen throughout the year, the contribution of prices has been significant. Also, if you look at Q4 alone, it’s a little bit lower than what it was in Q3 when we still look in relative terms. The revenue also included a positive currency effect of €211 million that’s supported by the increase of USD as compared to euro overall in the year. The negative €72 million of perimeter that you see is related to the early divestiture, in particular, the hydroscaling business in North America.
If we look now into more detail on our two business segments, we start with Performance Minerals. This segment generates 66% of the group’s turnover, with sales of €2.9 billion in 2022. All geographies saw improved trends with like-for-like revenues up 13.6% versus ‘21. The group faced some customer destocking in Q4, this was especially in EMEA, while the activity was sustained in the U.S. and in Asia.
Overall, also if we look by market, we have a soft paper market throughout the year. On the positive side, we have an overall level of activity that was supported by the sales of ceramic and building products going to the construction industry; a better performance of filtration and agriculture markets that we report under consumer goods; and high demand for carbon black and synthetic graphite that goes to mobile energy. Also, we noted a rebound of the automotive market in Europe. Current EBITDA of the segment increased to €555 million. That’s a margin of 19.5% as compared to sales.
If we look now at our refractory, abrasive and construction business, our second segment recorded sales of €1.4 billion, and represent 34% of Imerys’ consolidated revenue. In the last quarter, the revenue was impacted by significant customer destocking and by the shutdown of some large customer plants, in particular in Europe. On the other side, the business continued to benefit from dedicated commercial initiatives and new product launches. In particular, the demand of specialty binders for construction and infrastructure remains supportive. In India, our new greenfield operation in Vizag continues to ramp up and serves the dynamic domestic refractory and construction markets of this part of the world. Current EBITDA increases to €202 million with a margin of 14.1% as compared to sales.
If we look now at the group profitability as a whole, the current EBITDA for ‘22 reached €720 million, up 11% year-on-year. This takes into account a decrease in volume contribution for €101 million. A continuing positive price contribution over €700 million, which more than compensated for the €483 million net increase in variable costs, which was a consequence of extremely high inflation on energy, freight, raw materials and packaging throughout the year. We note also an increase of €103 million of fixed costs and average, also now impacted by the rise of inflation. As a result, current EBITDA increased to €720 million. As a percentage of sales, margin decreased to €16.8 million, mostly because of the mechanical impact on inflation. If we look at the fourth quarter alone, current EBITDA was stronger in absolute terms and in relative terms as compared to the Q1 of 2021.
Looking now at the other elements of our income statement. In absolute terms, the current operating income increases by €81 million, a bit more than the EBITDA increase that we just looked at. Net financial result was negative at €50 million. impacted by FX variation and marginally by the rates increase. Income tax expenses, €105 million corresponds to an effective tax rate of around 27%, in line with the one of 2021. Current net income from continuing operation thus increased by 22.3% to €284 million.
We have net operating income and expenses in – of €807 million, and they are mostly impacted by an impairment loss that we have booked on the ongoing disposal of the assets serving the paper market. You’ll remember that we had started to book this loss in Q3. And it now, for the full year, reaches €108 million, thus explain most, if not all, of this line. All in all, net income was at €237 million, very well in line as compared to last year and also includes the contribution of the discontinued activities.
If we look now at the cash flow generation, we report a current free operating cash flow of €20 million, strongly impacted by inflation and working capital, and by the increase of strategic CapEx that was mentioned by Alessandro. This figure includes €406 million paid in capital expenditure, of which €85 million are specific growth CapEx doubled as compared to last year. You remember that we have deliberately increased our envelope for growth CapEx as part of our capital allocation strategy. The net cash also includes €233 million increase in operating working capital as compared to December last year. It is mostly driven by the mechanical impact of inflation on the valuation of our inventories and receivables. It will obviously be driving our attention for an improvement in 2023.
If we look now at the overall balance sheet of the company, 2022 and the closing of the divestiture of HTS drive a further strengthening of Imerys’ financial structure. As previously said, the €20 million of net current free operating cash flow did not cover all of the impact of our net debt. I want to highlight among them, the €138 million that we have paid for dividend and the €122 million that are reflected in the reclassification of discontinued operation.
We have, before the HTS closing, disposal and acquisition that generated a net positive cash proceeds of €86 million. As a result of this, when you look at the balance sheet at the 31st of December, our net debt increased slightly in absolute terms, reaching €1.67 billion at the end of the year. With the closing of HTS divestiture and the positive cash impact of €710 million that we received in January, we would then decrease the financial debt under €1 billion, and the net debt-to-EBITDA ratio would drop to 1.3 only.
On this comforting note, now back to Alessandro for the conclusion and the outlook.
Alessandro Dazza
Thank you, Sebastien. Let me now wrap up this presentation with a few takeaways. We see, as we speak, so with the beginning of 2023, we see the destocking that we have mentioned coming to an end. So we believe business should pick up gradually in Q1 2023. China reopening will also have a positive impact on activity overall and especially in Asia. We believe in a normalization of energy prices in Europe and lower inflation worldwide, and this should have a favorable impact on profitability for Imerys.
Though we expect the different dynamics in growth trends depending on the geography, U.S. probably better positioned than Europe at the moment. And the end markets, automotive, lithium-ion better than probably construction short-term. Overall, the group is confident to resume its growth path during the year. And constantly, we confirm that our midterm organic growth and current EBITDA margin ambitions, as presented in November at the CMD, at the Capital Market Day, will remain valid.
Thank you very much for your attention. And I suggest to open the floor to questions.
Question-and-Answer Session
Operator
Thanks so much, sir. [Operator Instructions] Today’s first question is coming from Mr. Sven Edelfelt from ODDO. Please go ahead. Your line is open.
Sven Edelfelt
Yes. Good morning, gentlemen. And Congratulations for the results. I would have a first question, please, on the exceptional dividend. At the Capital Markets Day, you were talking about either a share buyback or an exceptional dividend. Can you maybe explain what discussions you had on how you come to this exceptional dividend rather than a share buyback? On the – if I remember correctly, you were more talking about €250 million at that time. You posted €200 million. So there is €50 million missing. Does that – in that there will be something with this €50 million? Second question on the agenda. I had in mind that you – we could see a potential buyer. Shall we expect the result of a drilling for the summer? And then the third question, can you give us a sense of the volume that you had in January to help us understand where are you going?
Alessandro Dazza
Thank you, Sven, first for the congratulations, and then for the several questions that I will address together with Sebastien. I’d start with share buyback and/or dividend is a decision that the Board is taking. Personally, I believe that in the case of Imerys, an extraordinary dividend as we are doing, it’s a more adequate form to return money to shareholders. We perfectly know that the liquidity of our shares is limited and therefore, removing a number of shares from the market, I don’t think it would have been a good idea for the group. For this reason, I believe that the decision is going more in terms of an extraordinary dividend. In terms of number, €200 million or €250 million, frankly, I do not remember having mentioned any number, neither €200 million nor €250 million. But I’ll let Sebastien comment on this. Maybe…
Sebastien Rouge
No, I don’t remember that we have given specific numbers either. I think it goes well into the capital allocation that we described, which is taking our natural free cash flow plus the proceeds of the dividend.
Alessandro Dazza
Proceeds of the divestiture.
Sebastien Rouge
Of the divestiture, sorry. And splitting that into three – one-third of that being returned to the shareholders. So we had given ourselves a 3-year perspective, but mostly coming from HTS. So that’s, by far, the biggest chunk that we see right now. So we are, I think, well in the frame of what we declared earlier in – at the end of last year.
Alessandro Dazza
And I believe we are faster in returning than the 3 years. And last, Sven, I think keeping some money to grow this company, I’m happy as well as returning to the shareholders. On EMILI, as said, the work proceeds well. I remind you that the main purpose of this year is to complete the studies, meaning the scoping study and largely the so-called pre-feasibility study, which should define completely the technology, the CapEx and the OpEx. Only at this time, I believe it is the moment to potentially contact a partner. When you talk to an investor, you want to tell him what you have today. We have a lot, but not yet something which is easily auditable and sustain with numbers and figures.
So is it H2? Maybe probably around the end. But the time line is, let’s say, between the second – end of the year, beginning of next year, where we will be able to have something much more precise in terms of business plan, project CapEx, OpEx to discuss with potential partners. On [indiscernible], work continues, your assumption that by summer, we will have a very good picture, the answer is yes. It’s a big area, and we want to be sure to check all of it, to understand what we have. And I think it is progressing well. By summer, for sure, we will have all the answers we need to potentially communicate or evaluate if we have a business case.
As far as January is concerned, I would say the de-stocking we saw in November, December continued in January. So January will be more aligned to November, December than of a recovery. I remind you that last year, typically, we compared to last year. Last year, January was very strong, January, February strong months. we were coming out of 2020, a very good 2021. No crisis yet, no war in Ukraine, Russia. So I remind you that last year, Q1 was the best quarter of the year.
So difficult comparison. Destocking, that is coming to an end, we see a good level of order intake. But for sure, it will be a gradual recovery in Q1 and probably even in Q2 for the time being. I would say we see very positive signs, signals from the automotive industry after 3 years, 4 years of very low levels. On the contrary, we see clearly a slowdown in construction. Newbuilds in the U.S. has dropped. Newbuilds – say, needs for newbuilds remains very high. There is a lack of new buildings, but there is a slowdown today because affording a mortgage on a house or a financing on a house today has become significantly more expensive. So a combination of lower inflation, maybe a stop in this rise of interest rates should give the boost in the second part. But as said, is gradual as we move along in 2023. Well, address them all.
Sven Edelfelt
Thank you. Thank you.
Operator
Thank you, sir. We will now go to Mourad Lahmidi coming from BNP Paribas. Please go ahead.
Mourad Lahmidi
Yes. Good morning. It’s Mourad from BNP Paribas Exane. I had four questions for you. So the first one, jumping back on the volume question, is it to say that Q4 is seen by the group as a trough level? And if you look at it on a sequential basis, you do not expect further deterioration, is that correct? Second question…
Alessandro Dazza
Yes, post all the questions. It’s easier, and then we will answer.
Mourad Lahmidi
No problem. So how much of the pricing that you took in 2022 will be embedded in your 2023 top line growth? Third question, could you provide us with a pro forma EBITDA, excluding the paper-related activity? And fourth question on the lithium. So you mentioned that you produced the first grams of lithium. Is that related to the pilot plant that you were mentioning at your Capital Markets Day? Thank you.
Alessandro Dazza
Thank you, Mourad, for the questions. Q4, is it the lowest level? I will tell you at the end of Q1. Clearly, Q4, we saw the impact of a slowdown in the U.S. and in Europe. China not yet open, but also a lot of destocking. So I believe the worst will be behind when the destocking has ended. My feeling it’s ending. We see, as I said, order intake rising. Q1 for me, it’s at risk, again, because of also comparable basis. I don’t think it will go beyond Q1. So I expected tough Q1, to make it simple, better or lower than Q4, difficult to say. It depends really on the destocking levels. In October, I would have probably said – I would have probably said the ‘23 will be very tough. Today, I’m much more confident, much more optimistic. We do expect this slowdown, this recession to be mild as for sure in the U.S. and probably in Europe as well. So, to be seen, difficult Q1 and then gradually within the Q1 and going forward in ‘23, a positive trend. On pricing, if you look at our communications by quarter, Q1, Q2, Q3 and Q4 last year, there has been a rise Q1, Q2 and Q3, and there has been a slow decline in Q4, 18% price increase, for two reasons: Energy has started to drop, and therefore, we return to our customer part of the savings; and of course, the comparison basis Q4 2021 was the beginning of the rise. So if you translate this into ‘23, how much are we carrying along purely on average price increase year-on-year, difficult to calculate because there is this concept of surcharges, energy surcharges. They represent, I would say roughly, Sebastien, half?
Sebastien Rouge
Yes, somewhere. Half of the…
Alessandro Dazza
Half of the price increase. If energy goes back to pre-crisis level, we will return half of it, and we will be very happy to return it because it’s good and healthy for the economy in general. So, we will boost activity. I give you my best guess, probably 3%, 4% should be the average increase that remains throughout ‘23. But once again, it depends a lot from energy levels as we move forward. Paper EBITDA, Sebastien, do you want to comment on this?
Sebastien Rouge
So, as we highlighted in the release, sales of the paper business, which is still embedded in our figure last year, €425 million. To give you a very precise EBITDA figure is always difficult because, as you know, it’s several assets that are scattered. So, they do not carry their own overhead structure naturally. This being said again it was confirmed, if you apply normal overhead to this activity, the EBITDA level is very well aligned with the average of the group. So again, in 2022, that’s really what I would suggest you use for your model.
Alessandro Dazza
And the last word on lithium. Your questions, no, the lab scale has nothing to do with our pilot plant. We are using the best external consultants worldwide to support us in the development of the technology, as well as in the lab scale technology testing. And the first grams, and that’s why our grams that we have produced, come from laboratories in the world that are helping us. We believe by summer to have kilos and by year-end to have hundreds of kilos, so that we can even start proper testing with customers. When we talked about a pilot plant at the Capital Market Day, we are talking about an industrial pilot. We are talking about a factory that produces hundreds of tons of lithium. So, we are talking about €100 million plus CapEx is a full-scale factory where we will test equipment in the same, let’s say, in industrial size and industrial scale in order to be able to launch the €1 billion plus CapEx without risks. So, two very different stories.
Mourad Lahmidi
Okay. Thank you very much gentlemen.
Operator
Thank you, sir. We will now go to Mr. Jean-Christophe Lefèvre Moulenq of CIC. Please go ahead.
Jean-Christophe Lefèvre Moulenq
Yes. Good morning. Do you hear me?
Alessandro Dazza
Yes.
Jean-Christophe Lefèvre Moulenq
Yes. Good morning. I have two questions from my side. First, a follow-up question on activity and we have an order of the magnitude of the EBITDA capacity [ph]. And secondly, a follow-up question is it fair to assume a slight increase of volumes [Technical Difficulty] too early to answer to this question. Many thanks.
Alessandro Dazza
Christophe, you were a bit broken up. Can you please repeat? You wanted to know an indication of EBITDA of what?
Jean-Christophe Lefèvre Moulenq
So, sorry for the bad line.
Alessandro Dazza
Yes. Okay. On volumes, I understand which volumes?
Jean-Christophe Lefèvre Moulenq
Yes. Is that fair to assume a slightly volume growth at Imerys in 2023?
Alessandro Dazza
Okay. Very clear. Now we heard you well, Jean-Christophe. Thank you. A few key figures of the HTS business in Imerys.
Sebastien Rouge
It was a good year for HTS. So, we will hit more than €900 million, close to €1 billion of sales for HTS. And as usual, an EBITDA, which is itself a little – I mean, operating profit, usually a bit better than the average of the group, EBITDA a bit lower. You remember, it’s less capital intensive. So, we are in the same ballpark as we have. You will have in the URD, all the details of this activity, that you will have a little bit of difficulties to understand because of the activity of IFRS 15 – of IFRS 5, sorry. But if we are really looking at the operational performance of HTS within the Imerys Group, close to €1 billion sales and EBITDA, again a little bit lower than the average, but at a good level and better than last year.
Alessandro Dazza
Volumes, in case of today is difficult to make a guess because I believe for sure, Q1, as I said, the comparison basis last year, very strong Q1, the strongest quarter. So, I do expect a volume drop in Q1, destocking plus activity in general. Recovery, as we move along, Q2, Q3 and Q4, will the balance be positive, very difficult to say to make a guess, really. There are too many variables in it, including energy, too many variables, very difficult.
Jean-Christophe Lefèvre Moulenq
Okay. That’s it. Many thanks.
Operator
Thank you. We will now go to Cameron Needham of Bank of America. Please go ahead. Your line is open.
Cameron Needham
Thanks. Just one quick question for me. And on your lithium project, could you just outline what the key milestones you have to hit from here just to sort of meet your anticipated start-up date of 2028? And then just also, how should we think about some of the time horizons on these milestones? Thanks very much.
Alessandro Dazza
You will find some more detailed information in our Capital Market Day documents. But to make it – to try to make it as simple as possible, ‘23 is the year of finalizing the studies on the deposit, which are largely done and extremely positive than on the technology and on the CapEx. So, scoping to be concluded in the next, I would say, couple of months. And pre-feasibility study, which will take us to the end of the year, maybe Q1 ‘24. This will give a document, which is auditable, which is according to engineering standards that will fully define the technology, the CapEx, the OpEx, CO2 emissions and so on and so on. That’s why I would say ‘23, beginning of ‘24, that’s the purpose. ‘24 until beginning of ‘25 will be the industrial pilot. So, engineering and construction, as I said before, we are talking about a factory, another lab and therefore, several millions. That will be the second step is industrial scale components and machines, the same as we will then use in the large construction that will allow us to validate the technology in its entirety or to adjust it and will allow us – which is very important, will allow us to speed up a potential ramp-up of a large plant tomorrow. Testing on a, let’s say, a small scale is much better than testing or adjusting on a €1 billion plus plant. And being an industrial scale with the same machines, it will allow us to accelerate the approval with our customers. So, we will pre-approve the products based on the industrial pilot, because it will be the same machines, and therefore, the very same product as we will come out later on. So, ‘25 will be the pilot plant as well as the running it and confirming. ‘26, let’s say, to mid-‘26, end of ‘27 will be the construction of the large units, €1 billion plus. Based on our understanding and the support we receive from large engineering groups, the construction of this size will take two full years. Therefore, I would say, between mid – end of ‘25 and then the end of ‘27 will be the construction of the big plant. Each milestone will need to be confirmed by the previous results in order to launch. And each milestone, I think will be a moment of discussion potentially with partners, but these are the key milestones. So, commissioning sometimes in ‘28 with then a consequent ramp-up of production. There is a permitting issue. There are consultation with public opinion, with the public. We do assume and hope that everything will go well, will be done properly, will be done in time, and will not delay any of these, let’s say, technical construction stakes. These are the key, I would say, milestones.
Cameron Needham
Great. Thanks very much.
Operator
Well. Thank you, sir. We will now go to Eleonora Martignoni of M&G. Please go ahead.
Eleonora Martignoni
Good morning and thanks for taking my question. I had just one, please. Would you be able to provide an update on the North American talc litigation, please?
Alessandro Dazza
Eleonora, good morning. Yes, of course. You will note that there is no specific indication in our press release around it, because there is no significant change compared to our last communication. There is a mediation ongoing between law firms, representing the plaintiffs. In January and February, there has been a lot of activity that makes me very confident that we might soon reach an agreement. But it’s just a confidence feeling rather than effect. The mediation ordered by the court is ongoing. The plaintiffs has to agree, especially on one topic, which is the repetition between the different groups of plaintiffs, repetition of the money that will be made available one day in the trust. There is no discussion with Imerys. Our terms and conditions have been reconfirmed every time. We are still waiting for this step to happen. As I said in the past, the moment that this agreement is found, I said hopefully soon, this will need to be written and adjusted in the so-called plan of reorganization, will be filed with the court, and the court will launch a voting. If this voting reaches the threshold, the required threshold of 75%, which we hope if the plaintiffs agree on how to share the money available, then we will eventually emerge and close this longer-standing topic. It’s a process. It will take a few months. I remain as always confident because our part is done. We cannot give you a date on – because it’s not in our hands, we are not even at the table of the negotiations.
Eleonora Martignoni
And the provision that you booked is the same then as of H1, I assume?
Alessandro Dazza
Correct. The provision has not moved. The provision amounts to approximately 100 and…
Sebastien Rouge
$110 million, it just varies with FX.
Alessandro Dazza
Exactly unchanged.
Sebastien Rouge
Phrasing to positions, but unchanged.
Alessandro Dazza
And the commitment we have taken to close this deal is below this provision. And therefore, we are, I would say, over-provisioned or largely on the safe side.
Eleonora Martignoni
Okay. Thank you.
Operator
Thanks very much ma’am. As we have no further audio questions at this time, we will turn the call over to the written questions or submitted questions. Please.
Alessandro Dazza
I see one on the screen that I will read out. So, what was the reason, the assets serving the paper industry had to be sold against a loss? Do you want to explain the loss, Sebastien?
Sebastien Rouge
I mean, the loss is really related to goodwill allocation. So, before you go maybe on business context, it’s true that you allocate goodwill based on current profitability, and we have already communicated that the paper assets within Imerys were still profitable with a good job done over the year to make sure we resize. On the other end, the growth expected is very low, if not negative. Then the multiplier you apply on the transaction cannot be the same as what is left. So, when you confirm that, obviously, we had to book and I would say, an accounting loss, obviously, not reflecting the cash proceeds.
Alessandro Dazza
Correct. And if I may add, this business was purchased in 1999 at a time where nobody knew Internet will revolutionize the world, especially printed paper. And the goodwill was built at that time, fundamentally. The paper market grew until 2006, maybe 2007, and has been declining ever since. So, this business care is a legacy of value, which is a purely accounting value. I think it has largely repaid the work done over years, but it carries a number attached to it, which takes to a time that is different from today. So, this part as well as the one relating to exchange rate differences, big assets were in Brazil, the devaluation of the real forces you from an accounting point of view to book certain differences that when you divest, you have to write-off. So, for me, it’s more an accounting and in legacy, then a real issue with the business itself, which as Sebastien said, has been declining, but delivering a profit over the years. I understand there are no more questions. Therefore, we would like to thank you for listening today and for the interesting questions. We closed, I would say, a very good year for the company. We look positively to 2023, because we believe this slowdown will be short-lived and this group will resume growth. We are well positioned on the markets we want to serve. We have firepower, and we will use it to grow this company. Thank you very much, and have a good day.
Sebastien Rouge
Thank you.
Alessandro Dazza
Thank you.
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