Umicore Sa Ord New

Hello and welcome to the Umico half-year 2024 results call. My name is Caroline and I'll be your coordinator for today's event. Today's call has been recorded. For the duration, your lines will be on listen only mode. However, you will have an opportunity to ask questions at the end of the call. This can be done by pressing star 1 on your telephone keypad. If you require assistance at any point, please press star 0 and you'll be connected to an operator. I will now hand over to your host Bart Sabs, the CEO, to begin today's conference. Please go ahead, sir. Thank you.

Yes, thank you. So good morning, everyone, and welcome to the Umicore H1 results update. Today, I think we have a pretty packed and interesting agenda for you. We'll first start off with the strategic review on the batching materials where we stand. Let's then have a look at the key figures and the highlights of the first half 2024. Then we'll go over the business review for the different business groups. One of us will talk to you about the financials. I'll be coming back with the outlook for 2024. Then we'll do a wrap up and then it's open for Q and A. So let me start off by the strategic review for battery materials. Now there's a new market reality out there and we have to adjust to it. The market context is challenging and we have seen a slowdown in the growth of EV sales in the short and mid-term. The OEMs are revising the speed, but also the regional setup of their electrification plants, and this results in a more limited visibility in the short and mid-term. Now, of course, we cannot stand still, and we're taking, therefore, immediate actions, and we have been taking those actions already. Now, we launched already the strategic review to assess our growth projections beyond 2024 for the battery materials business we talked about strict capital discipline and this year we will be spending less than 650 million euro additionally we have launched a further efficiency and cost measure program on top of our efficiency for growth program which we announced earlier now if we look in the broader picture and despite the current slowdown in the growth we do see that policymakers continue to support this clean mobility trend. And this is also reconfirmed by the Green Deal as published recently. Now, this is where we are for 2024. Now, in a second step, and we're using here a layered approach, is that we're taking stock of what we have today. And today, we have an interesting footprint. And as well, we have a projected order book. And we brought those elements together in a base scenario. And some of the main assumptions and main considerations in this scenario are, we have at least an 18 month delay in ramp up of customer contracted volumes. We see substantially reduced volume projections reflecting the current offtake commitments or at take or pay thresholds in line with the currently confirmed investment waves. We are more prudent on our assumptions on operational cost evolution, and we're minimizing further expansion of the existing footprint in Europe and Korea in order to serve our customers with the contract that we have today. This will result in lower capex spending going forward. This will also result that at the end of this decade and the last years of this decade, we will have a well-utilized global capacity at the exception of our Chinese scam assets basically in China. So what is the consequence of this? We're taking an impairment across the battery materials business. This is a $1.6 billion non-cash adjustment, mostly related to property, plant and equipment and non-current inventory, mainly in Asia. This means that the remaining book value that we'll have at June 2024 stands at 1.5 billion. So the remaining book value, 1.5 billion. The battery materials EBITs will remain negative or below break even in 2025 and 2026. And in the last years of this decade, we will see returns above the cost of capital. Now, what I now discussed is the base scenario and where we take stock of what we have today. This is not an end point. This is the basis from which we start and build further for our strategic review. So that is also what we're continuing to do in the next months. So we are now having a comprehensive and structured review to see how we can further unlock more business value from this business. We're exploring opportunities on top of the current base that we have. And we do this in close cooperation with all our stakeholders but then particularly also with our downstream industry partners. The guiding principles for this review are we will focus on maximizing our capacity utilization of the existing assets first before we consider any further expansions. We're looking at our global footprints, and this includes, of course, Asia, Europe, but as well Canada. And for Canada, we can say that pending The outcome of our strategic review, which is still ongoing, we are delaying at this moment in time on spending for that site. So again, no conclusions taken for that site, but we're spending our investments until we have that final review done. Further, we will optimize the battery material setup in close alignment with our customers and their new growth path. We will continue to leverage on the strong agreements that we have. and on our differentiating camp position that we have in Europe, which I do feel that our customers value a lot. We will focus on further customer diversification and we are open to partnerships along the full value chain. Our focus on technology as well as operational and cost efficiency will remain an integral part of this review and we will come with our conclusions at the capital markets day in q1 2025. next to the review of the battery materials update of course we also keep focusing on our other business groups our foundation businesses and their strategy execution at the same time at the group at group level we are implementing capital and cost discipline across the group now What I also felt in earlier discussions and based on feedback is that there might be merit in trying to explain our take-or-pay mechanisms even more clearly. So how do these take-or-pay mechanisms actually work? So on the one hand, we have a contractual annual off-take volume, which is agreed upon for the confirmed investment waves. That means that for every confirmed investment wave, there's a dedicated annual contractual volume, which is fixed. Next to that, we have also a take or pay floor defined as a percentage of that contractual annual volume. And that percentage is also defined for that specific year. So there's a specific percentage and a specific contractual annual volume for a given year. Now, at the start, and especially in the first year of the ramp up of SOP, the first year of SOP, that percentage is somewhat lower. Well, once the contract is up and running, these percentages on average go to 85%. Now then annually, what do we do? We look how much did the customer or how much will the customer take in that specific year. And then we compare it with the annual contractual volume multiplied by the take or pay percentage. And that difference, if the customer volume would be below that take or pay floor, we will receive a compensation. Now let me transit to the key figures and highlights for the first half of this year. Now we have been operating against a softer macroeconomic environment and also a less favorable metal price context for PGMs. Our revenues will stand or stand at 1.8 billion for the first half of the year. We have 168 million euro free operating cash flow, 20% adjusted EBITDA margin, and 393 million adjusted EBITDA. Our role stands at 11.3% and our leverage will be at 1.7. Yeah, that's where it is. Now, if I look high level at the performance of the different business groups, I should say that actually our foundation business is broadly in line with market consensus. Catalysis had another set of impressive margins, 25%, return on capital of 40%. Our recycling business continues to do well with EBITDA margins of 36.5%, a return of capital close to 70%, and this despite lower PGM prices and a maintenance shutdown. Our specialty materials business also had a good performance, but was suffering somewhat from a more difficult market context for cobot and specialty materials, and there the return on capital came in around 8%. Our efficiency for growth program is well on track, and this should yield 70 million, as you know, for 2024, and I can tell you that we're very good on track and already more than halfway through the half of this year. We remain committed to a strong balance sheet, and we have a resilient depth maturity profile and Juanes will talk more about that later in the presentation. We also reconfirm or adjusted EBITDA outlook for 2024 and this will be in the range of 760 to 800 million euro. Let me now transit to an overview of the different business groups and let me start off again with battery materials. Now, I've talked about this before. We see that the market is changing. We see a slowdown in the ramp up, and this is what we have to take into account for the short term, but also for our longer term evolution. So if you then look at 2024, for the first half of this year, we do see a decline in our revenues and adjusted EBITDA, which is quite significant versus last year. Revenues are down 33%. At the same time, all volumes are broadly in line with H1 2023. Our adjusted EBITDA is close to break-even, and this EBITDA includes costs related to the startup of our greenfields in Canada as well as in Poland, €170 million in CAPEX, and of course the €1.6 billion in payments, which I highlighted earlier. When I go to catalysis, there we see that the market actually, in terms of ICE productions, is globally flat. Now, it does disguise some regional changes. On the one hand, we see strong growth in China with 6%. America is more muted. 3% decline in Europe, but especially Japan and Korea is rather weak. We also see in the HD segment a decline in Europe with 13%. And China, the HD volumes remain at a low level. And despite that, they had a small growth, but overall low level. Now, if you then go to the underlying performance of the business, despite this more difficult market context, our EBITDA is still reflecting a very strong performance as it's in line with last year. And this is thanks to strict cost discipline and efficiency measures. In the automotive catalyst business, we are significantly improving our quality of earnings. Despite some lower light duty and HDD sales applications, we do see strong underlying performance. So in the future, it's not only about top line development, it's also about the improvement and evolution of the quality of earnings. And that's what we're working on. And that's what the teams are doing very successfully. We've started also the streamlining of our R&D organization, as we announced earlier, in the context of the maturing market of ICE. so internal combustion vehicles, but also in the context of the weaker Euro 7 legislation. In the PMC, we saw slower sales in the homogeneous catalyst business, but overall, despite the lower PGM prices, we did see that results are resilient and our metal hedges made up for those stiltas. The fuel cell market remains difficult in China, and the earnings of that business is affected by cost that we are incurring related to the startup or the actually the construction of our plant in changshu as anticipated this project is on track and going well now if you look at recycling there we also have some important news to share with you today so we have taken some decisions throughout our battery recycling solutions business So what we basically, we came to the conclusion that we're going to postpone our investment in a large scale European battery recycling plant with a startup production anticipated not earlier than in 2032. 2032 at the earliest. And this, given the slowdown in EV sales, what does that mean concretely? Short term, there will be a lower availability of battery scraps. There will also be a delayed influx of end-of-life batteries as a consequence of this slower trend. But we also see that there's a longer useful life for batteries as such good news for the market, but that means that these batteries will come back only later to be recycled. Now, in the meanwhile, we are continuing to focus on the further industrial developments and deployment of our pilot plant in Hoboken. We're further optimizing our technology And I'm talking, of course, here about the Hoboken plants in Belgium. Now, coming to the broader context of battery contracts of recycling, and there, of course, the PGM prices do play an important role. We see that rhodium is down roughly 50% year on year, palladium 35%. And you can imagine that for a business that has significant or high exposure to these metals, that this has an impact on our results. And that's also what we see basically when we look to the H1 performance. Now our revenues are down 30% or maybe 16% for that business. And this reflects a less supported precious metals environment as I highlighted earlier. Now for the precious metals refining business, we can say that our suppliers mixes broadly in line with last year. Our revenues, of course, are impacted by the unfavorable PGM price environment. At the same time, in Q1, we also have the plant maintenance shutdown. So that's all according to plan. Now, if we look at the earnings, these earnings are still robust and strong on the back of further efficiency improvements that we have taken, as well as a reduction in the energy cost. For the Jewelry and Industrial Metals Business Unit, we see stable revenues, but also here higher earnings based on cost discipline and efficiency measures. For Precious Metals Management, there especially the rhodium environment was unfavorable, and therefore the earnings were significantly impacted and will be lower than last year. Let's now come to the Specialty Materials Business Group, and we report for the first time on this business group. that's a business group which highlights which actually turn centers around three business units so cobalt and specialty materials is really working on cobalt and nickel chemicals and in all a variety of applications with a very strong distribution footprint we have the metals the deposition solution it's all about layering semiconductors microelectronics that's what this business is focusing on so coatings That is the focus of that business. And then electric optic materials. Here you can think about solar panels in space, but also night vision. You can think about fiber for your internet. So germanium is in quite a lot of applications here as well. Now, the cobalt and specialty materials business unit is operating in a difficult situation. market context, especially for cobalt. And this is, of course, also related to the weaker environment that we see for the battery materials business as these metals are, of course, playing in both markets at the same time, and these are communicating vessels. For metals, the earnings are also reflecting that, while our revenues are relatively stable. Now, the metal deposition solutions, there we see solid performance, solid earnings, solid revenues. electric optic materials we see an increase in revenues our germanium solutions business is doing well we see a slower demand in the optic fibers and we have some production backlog in the infrared solutions we also would like to highlight that we signed a long-term partnership with a company called stl on the refining of germanium in the democratic republic of congo now This is wrapping up the business group overview and section, so maybe, Juanes, if you could guide us through the financial numbers, please.

Yes, sure, Bart.