Imerys SA plans to expand in growth markets, and the French minerals processor and maker of building materials may increase debt without undermining its credit rating, Chief Executive Officer Gilles Michel said.
“We need to increase the company’s presence in some emerging markets such as China, Brazil and India, where there’s still a strong growth potential, and in some industries,” Michel said in an interview at the company’s Paris headquarters.
Imerys is looking at new markets after a second-quarter drop of 3.1 percent in like-for-like sales at comparable exchange rates as French housing starts slumped, Europe steel production fell and emerging markets slowed.
“Even if the environment is less supportive in 2012 and 2013, Imerys can develop geographically and in industries where we weren’t before and where growth is strong,” such as ceramics used for the recovery of oil and gas in the U.S., Michel said. There are also growth opportunities in cars, packaging, energy, electronics, “or even health and home care as well as agriculture, where we’re not very exposed,” he said.
Michel, 56, joined Imerys in 2010 and took the top job in April last year.
Moody’s Investors Service raised Imerys’s credit rating one step in May 2011 to Baa2, the second-lowest investment grade, with a stable outlook.
“I don’t want to undermine the strength of our rating,” Michel said. “It’s a lethal sin to be vulnerable against a backdrop that offers little support.” If Imerys plans an acquisition, “I would clearly look at the impact on our rating,” he said.
The company, which bought the talc business of Rio Tinto Plc for $340 million in 2011, expressed an interest in aluminates maker Kerneos, three people with knowledge of the matter said in July.
The CEO declined to talk about Kerneos, which makes cement aluminates used as binders for cement used in construction, pipe anti-corrosion protection, refractories and steel production.
“The world is more uncertain,” Michel said. “That’s leading us to be more selective in our development with higher profitability criteria when risks are higher.”
The company is “keeping a tight rein” on fixed costs and on expenditure for maintenance and investment, Michel said.
Imerys’s net debt was 1 billion euros ($1.31 billion) at the end of June, or 1.5 times earnings before interest, taxes, depreciation and amortization. That was down from 2.5 times three years earlier. The company said it has spent 1.8 billion euros on 71 acquisitions since 2000.
“If justified, the company’s financial robustness allows it to take on more debt and have higher ratios than today,” Michel said.
The CEO reiterated a forecast that net income from current operations in 2012 will be “at least comparable” with 2011.
“Italy, Spain, Portugal and Greece account for less than 7 percent of our sales,” Michel said. “We’re not materially exposed to a large disruption in these markets.”
Still, the possibility of trouble in the economy remains a threat, Michel said.
“We live in a world where systemic risks exist,” he said. “While we would have laughed if one had said five or seven years ago that Europe or the euro could unravel, or that a developed country might collapse, we now know that it’s possible, which implies a lot of uncertainty.”
Imerys shares have advanced 24 percent in Paris trading this year, giving the company a market value of 3.33 billion euros.