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spk01: 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.
spk04: 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.
spk07: Yes, sure, Bart.
spk04: Good morning to you all.
spk07: As mentioned earlier by Bart, the performance across the different business segments was impacted by the softer macroeconomic environment and by a less favorable metal price environment. This resulted in revenues being 13% lower versus the same period last year, now amounting to 1.8 billion euros. In catalysis, volumes were down due to a less favorable customer and regional mix in the light-duty vehicle market and a more challenging heavy-duty diesel market in Europe and China. In battery materials, while chem sales were broadly in line with the first half of last year, the revenues from the refining activities decreased, and additionally, last year's revenues still included a non-recurring lithium margin effect. In recycling, revenues were down due to the plant maintenance shutdown in precious metals refining and the lower contribution from the trading activities. Now, the adjusted EBITDA amounted to €393 million, which is €125 million below last year's first half. The good traction of initiatives around efficiency, together with the PGM hedges, helped us to offset some of these market headwinds, in particular in catalysis and recycling. In battery materials, EBITDA declined due to the absence of last year's one-off items and due to the increased cost basis related to the greenfield investments in Poland and Canada. The EBITDA margin for the group remains strong at 21.8%. Margins in catalysis increased despite lower volumes, clearly illustrating the increased quality of earnings. The royalty of the group reached 11.3%. This takes into account the impairment and write-offs of capital employed in battery materials for €1.6 billion. Last summer, we introduced a company-wide efficiency program called Efficiency for Growth. For this year, we target a saving of €70 million, and today we achieved more than 50% of that target. The implemented initiatives include charging partners for additional services, better prices and payment terms for raw materials and services, increase throughput in operations, optimizing the usage of raw materials in a product and improving the yields in our processes. So basically reducing waste or the cost of rework. Now considering the latest challenges in battery materials and the overall market softness, we are now identifying additional cost savings and cash improvement measures across the group. And we expect to land on this target in the second half of this year. Now moving to the consolidated P&L. Taking into account depreciation and amortizations of €152 million, adjusted EBIT amounted to €241 million versus €373 million in the same period last year. The adjusted net finance cost decreased to €56 million, reflecting higher interest income on our cash deposits. the financing cost of gross debt remained stable, with the average cost of gross debt at 3.3%. And the cost of debt is expected to remain well under control, considering the maturities of the existing instruments and the conditions of the recently secured funding instruments. The adjusted tax charge decreased to €67 million. This is driven by the lower adjusted taxable earnings. In combination with a higher provision for uncertain tax positions, This also resulted in an adjusted effective tax rate of 36.3%. The adjusted net profit group share amounted to €118 million, which results in an adjusted EPS of €0.49. The supervisory board proposes an interim dividend of €0.25 per share, which will be paid on August 21st. The net result group share was impacted by the non-cash impairment and write-off in better materials of 1.6 billion euro in amounted to approximately minus 1.5 billion euro now moving to the balance sheet the balance sheet of the group continues to be strong despite the 1.6 billion euro impairment and write-off in better materials liquidity is high with close to 1.3 billion euro of cash at the end of june in considering the net financial debt of 1.4 billion euro In the equity of 2 billion euro, the net gearing ratio remains balanced at 41.6%. Now, looking at the cash flows, I would like to highlight that the free operating cash flow amounted to 168 million euro. Cash flow from operations before movements and networking capital amounted to 185 million euro. Now, networking capital for the group decreased with 269 million euro. Next to declining PGM prices, the strong focus on payment terms and inventory management helped us to reduce the working capital needs in catalysis and in residing. Capital expenditures, including the capitalized development expenses, decreased to €285 million, which is almost 20% lower than last year's first half. This reduction is primarily driven by battery use, with the key investments in the first half of the year being the expansion of the European and North American footprint and some upgrades to the Korean plant. As mentioned earlier by Bart, we are actively managing the cash out across the company. For 24, we aim to keep the capex below 650 million euro by pausing or delaying projects across the company. Now looking at the net cash flow bridge, you can see that the net financial debt increased with 166 million euro now amounts to 1.4 billion euro this equals a leverage of 1.7 times the last 12 months adjusted ebda the free operating cash flow of 168 million euro covered partially the cash outs related to taxes and financing dividends and also an equity injection into iron weight of 100 million euro we continue to be committed to a strong balance sheet going forward and although we expect net financial debt to move up towards the end of the year we continue to expect our leverage to remain well below 2.5 by the end of the year now as bart mentioned earlier we want to highlight also that the group has a debt profile that is well spread as you can see in this graph we have an average maturity of 5.6 years and the long term that is fixed rate also important to highlight is that the debt to refinance between 24 and 26 and this includes the 25 repayment of the 500 million euro convertible bond is fully covered by the new debt contracted in the first half of this year. So this year we concluded an eight-year loan agreement with the European Investment Bank for 350 million euro, supporting the financing of our R&D activities at attractive conditions. The first tranche of 250 million euro was drawn in February and a second tranche of 100 million euro will be called early 2025. Next to this EIB loan, we completed in April a fixed-rate, sustainably linked U.S. private placement note for €499 million. This consists out of tranches with maturities ranging from seven to 12 years and a weighted average maturity of more than nine years. We have drawn the funds in the meantime in the course of July. Now, as we shared earlier, we have entered into forward contracts looking in larger shares and longer periods of the strategic metal exposure at historically attractive prices. In these graphs, you can see that over the past six months, we increased forward metal hedges, in particular for rhodium in 27 and even in 28 now, and across the entire period for gold and silver. We also increased forward hedges for platinum, but to a lesser extent, as we expect more upside on this metal given its future usage in fuel cell catalyst applications. This metal-hatching approach enables us to protect future cash flows from metal price volatility, and it also provides better visibility on our future earnings. So here I would like to conclude the section on financial performance and hand it back to Bart. Thank you.
spk04: Yes, thank you, Juanos, for that. And let's now have a look at the outlook for 2024. So based on the performance in the first half of the year and assuming precious metal prices remain at current levels for the remainder of the year, Umicore reconfirms that it anticipates 2024 group adjusted EBITDA to be within a range of €760 to €800 million. So for the battery materials business, we're expecting volumes in line or slightly below versus last year. We will have an EBITDA around break-even with one of €50 million, which is positive, included in that number. For catalysis, we are expecting the EBITDA of the business group 2024 to be in line with the previous record year, and this despite the lower price environments. For the recycling business units, the EBITDA will be below the level of previous year, but broadly in line with the current market expectations. And for specialty materials, here also the expected EBITDA will be below last year, and this is somewhat below the current market expectations. So now before going to the Q&A, I would like to still make a wrap up. So what have I been sharing with you right now? First thing to remember is that we are adjusting to the new reality in battery materials. The market situation has changed. It's affecting the overall industry. And also, Umicore has to react to that and respond to that and see that reality. That's what we're doing and we're taking actions immediately. We have tried, we have actually shared with you today our view on 2024. We have shared with you a base scenario. Well, what we have today, contracts and footprints that we have. We have mentioned to you that there's a significant painful impairment that we have been taken. And therefore we now from this basis will continue to review our battery materials business. And I'll come back to that in a capital market day in Q1, 2025. Now, when situations are difficult or some areas are not going as planned, it's always tempting to look at the things that can be better.
spk07: That's human.
spk04: That must be that way. At the same time, we should also remind ourselves what we do have and also focus on the strong fundamentals that we are building on. Our three other business groups are performing well. They are world-class businesses, and they really are the backdrop of the company. And this helps us to go through these more difficult moments, especially for a battery materials business. Another strong fundament in our organization is our people. We have a deep expertise. We have a deep knowledge. And this is what you hear each and every time when you talk with industry participants out there. that credibility, that depth we have. I also have seen from our colleagues the resilience and the courage and the willingness to succeed. And we're going to face these challenges head on and have full trust that together we'll get through this step by step, day by day. Today is a period of repositioning for sizing opportunities which will come in the future. If that day comes, we will be ready. So thank you for that. And I would like now to go to Q&A.
spk01: Thank you. As a reminder, if you would like to ask a question, please signal by pressing star 1 on your telephone keypad. Kindly limit to one question only. We will take the first question from line Ranuf or from Siti. The line is open now. Please go ahead. Hi Ranuf, your line is open now. Please go ahead. There's no response from run-off line. We will take the next question from line Chetan Udhishi from J.P. Morgan. The line is open now. Please go ahead.
spk03: Yeah, hi. Thanks for taking my question. I was just wondering, you know, first just coming to your auto catalyst business, pretty strong margins. Is this all underlying or was there some unique specific one-offs that may have supported the numbers because clearly the margins in your catalyst business has been surprising on the upside now for the last two, three years consistently. And just in the context of some recent data suggesting maybe things are worsening in autos, can you also remind us or just indicate to us what you see in the business as we look into third quarter at this point? Just coming back to battery materials, it feels like at the moment, yes, you are you know, adjusting to the new reality, but it doesn't feel like you're taking any dramatic actions at this point in terms of footprint optimization, et cetera, et cetera. If anything, you are saying your EBIT will remain below break even now till 2026. So is it the base case for Umico now to just wait for the market to recover and then participate in that recovery? Is that the where we should think about your battery material strategy going forward?
spk04: Yes, thank you for that. And maybe, Juan, if you take the first part on the AutoCADs, relating the financials.
spk07: Yes, sure, Bart. So looking at automotive catalysts, on the one hand, we have the volumes and the revenues. We are at the level where the volumes are peaking, and in 2024, you see that the volumes have somewhat come down. At the same time, uh, structurally in catalysis, uh, the teams have been working on EFG and EFG consisted of different components. First of all, there's a top line, uh, looking at the pricing element, uh, where the teams have been very active in pricing, uh, upwards, I would say also including, uh, additional elements in the pricing, but also if we look at procurement, the procurement of raw materials, raw materials used in production, uh, and in the product, uh, those, uh, are also subject to negotiation to price negotiations. And also looking at efficiency in the process, this is where continuous improvement continues to be made in order to drive the cost down. So it's really a structural improvement of the quality of earnings. I think also looking at the return on capital employed, what we also see is that the team is working on the networking capital. So reducing the inventory necessary across the operations, but also looking at payment terms. with suppliers, improving those payment types, also helping to bring down the net working capital. So also that plays into the overall equation looking at grossing.
spk04: Yeah, exact one. And I think this is basically the result and an applause to the many colleagues and the change in culture that we had over the last three years in that business. So going forward, please don't only look at the top line, but also look at the structural improvement in that quality of earnings and basically the lower PGM dependency that we will see going forward. So yes, we're proud of that. And yes, it's exceptional, but that's the merit of hard work and the position that we have in the industry. Now, your question on H2 is that in our forecast, we did factor in some slowdown in those sales. So we see some softness in the market. We're still not at the level of 2019, that's for sure. And we also see that in overall, the average lifetime of a car is now 12 years instead of 10 years. So we do see that in this macroeconomic environment, consumers have been postponing already quite a while buying a new car. So I'm not sure how the next years will evolve, but if these consumers ultimately buy a new car, this could lead to an upside for this business potentially later on, especially if the electrification growth rates would remain a bit more muted as they are looking now today. Now coming to your question on the battery materials, uh, business, what I've been focusing on for the first, uh, months that I'm here now, it's now roughly two and a half months. If I, if I'm calculating in a Royal way, um, is that we went, we want to bring clarity and I'm using a layered structured approach. So first clarity on 2024, that's what the market needs immediately. That's what we need to do. We brought that clarity. Now, secondly, we're taking stock of what we have. And we looked at the customer commitments, the customer contracts that we have on which we can build. And we look at the capacity that we have available in China, Korea, and of course, Europe. We brought those together in a base scenario. And this is the basis from which we now continuing our battery materials review. So you should not read any conclusions in these statements. It's the base from which we're starting our review. We're looking at many opportunities, many different scenarios, and we will be further refining those as we go forward in the next months. And our conclusions will come in Q1 2025. We're following a structured, detailed process. For ONES, that's what we do here at Umicore, and we'll take our time. And that's why I decided that the Capital Markets Day will be in Q1 2025.
spk03: So can I confirm, so are you saying the numbers you are putting in the slide, which is EBIT anticipated to be below breakeven in 25 and 26, that's before any actions that you might take?
spk04: Yes, exactly, and that's a very important remark that you make here, and it would have been better if I'd told that myself, but indeed, this is the assumption for the base plan. So any further actions, talking about cost improvement, talking about... bigger decisions as you, or more bold decisions as you refer to it, are not included in that. So this is what we know today with what we have today without doing any further actions.
spk03: Okay, and last question, sorry not to give, I'm sure others have questions as well. In terms of your take-or-pay agreements, have you really retested them in this market scenario? Because we've seen in the past with Umicore, the take-or-pay agreements haven't held in the past. So I guess this is a concern that why would customers still hold them in this environment?
spk04: Well, there's a reason why there are take-or-pay mechanisms, Chetan. The reason is that the battery materials business is a nascent business. That means supply chains have to be shaped. And if you want to do investments, there has to be an outlook on offtake, right? And it has to be a level of security because, I mean, these are business, these are expensive, and these are huge investments that we're making right now. That's why these contracts have been drafted that way. That is the underlying spirit of both parties signing these contracts. And both parties have signed knowingly these contracts. I can confirm that today these contracts are in full force. And of course, that we will stand by these contracts. And there's not any discussion ongoing on these mechanisms as we speak.
spk03: Thank you. Thank you.
spk01: Thank you. We will take the next question from Ranulph or from Siti. The line is open now. Please go ahead.
spk05: Hi there. Can you hear me now? Yes, yes. Welcome. Yeah, great. Thanks for the question. So firstly, just on... on ironway i mean i guess in light of the discussions today i mean what should we make of the recent press articles regarding ironway scoping new sites in canada talking to the governments there um and in north uh north spain as well i mean does that sort of signal a shift to even more reliance on jvs and and sort of partnership funding um second question uh Given, you know, maybe now feels like the time for transparency. I mean, can you give more specifics on what the positive one-offs in battery materials were last year? And then thirdly, could you just talk about the mood across the employee base in the company, given the struggles in battery materials and how you were sort of supporting that? Thank you.
spk04: Yes. Thank you. Indeed, on Ironweight. I think you also saw the news article that came out yesterday with the CEO, Bloma, from PowerCall. I mean, they still see a very strong trend going forward. They reconfirm their position and their belief in that path. And as you know, IronWay is a joint venture that we have together with PowerCall. And our conversations are in a positive spirit. We continue on our path. What we have included in our base scenario is what we know today, the waves that we are building and basically committing to at this point in time, anything that would come in the future would come on top, of course, of that base model, which is not included today. So we stand by our IronWay joint venture. And of course, we're looking into different options and scenarios as any other joint venture would do together with the other shareholders. So yes, we're still very excited about this venture. Now, maybe on your question on the 2023 one, could you please take that one?
spk07: Yep. So looking at transparency and looking at showing better the underlying performance, what we have decided today is to show 24, to break up the business group into battery materials and specialty materials, and also to be explicit on 24, what are any unusual elements. And this is something we highlighted earlier in the course of June. Today, we are further in setting that baseline, basically, looking at the baseline that led to the impairment. Also here, we try to create clarity. We try to create transparency on where we are. So going forward, we will focus on 24, explaining what is driving the results, the underlying performance, and where we are. So 24 is first the baseline that we will welcome.
spk04: Yes, so thank you, Juanes. And regarding the mood of the employee base, well, I came a bit to it in my presentation concluding slide or wrap up slides. And of course, everybody recognizes that this situation where we are with better materials is not where we want to be. Of course, this is not fun. We understand the seriousness and yes, that impacts our colleagues. Now, what I've seen in the last two months is enormous resilience. I mean, when I walk through the corridors here in the office, or I go into the plants, people come to me and say, Bart, we're going to do this together. I mean, We know that in difficult times we're at our best. So I feel a lot of resilience, a lot of passion, a lot of belief, and I truly feel that we are uniting throughout the group. The group together wants to win. The group together wants to get through this more difficult times. We'll have to make tough decision. That's real. We're open to that. Our colleagues know that, but we are resilient. We have experience. We are strong. We have a basis to grow from with our conflict that we have. And throughout the group, I feel the support and we'll get through this day by day, step by step.
spk05: Great. Thank you very much. Maybe I could just try and clarify one more time. The positive one-off in 2023, was that bigger or smaller than the 50 million positive one-off this year?
spk07: It was substantially larger, yes. Thank you. And as we said, at the time, it was driven by the lithium margin, but also looking at some of the valorization we did on the scraps containing lithium. That also helped.
spk05: Thank you very much.
spk01: Thank you. We will take the next question from line Rhea Kotecha from Bank of America. The line is open now. Please go ahead.
spk02: Hi, good morning. This is Rhea speaking. I've got a couple of questions, please. My first one is on the battery materials impairment. As I can see, the impairment is mainly on the Asia assets. And why do you think the European ones maybe aren't the same at some point, given we're seeing similar trends in the European market in terms of shifts in battery technology? My second question is a bit more on the value creative nature of the business. And so now you've pushed out when you think this business will make its cost of capital, which is the last years of the decade. versus just one year ago when that was expected to be closer to mid-decade. So how convinced are you internally in this projection and therefore whether this is a good business to play in when things can change so clearly? And just following up on that, over the past one month since you first addressed the market, EVs have arguably become worse, ICE maybe a bit better. And at your 1H result, we can see that the returns you're making in catalysis and pgm recycling are brilliant it's over 40 in catalysis and 70 in recycling and you're essentially recycling cash from that into a business that made a negative five percent rookie at the first half which obviously is under earning but internally what are the debates you're having as to why you think this is a good business to play in rather than an exit or sale from the assets okay maybe let me uh start with the impairment exercise
spk07: so looking at the intended exercise what we did is we looked at the existing assets and the existing contracts and as you know looking at the existing business we have the china volume that did not take off this year we have the legacy contacts that are tailing off and we also have the the other contracts where we expect a delay a delay of 18 months so this is something we take into account when looking at our baseline at the same time We also assume that we will minimize the expenses going forward so that we will use the existing asset base. So basically Europe, Korea and China. And based on the current volume commitments and volume projections in line with the current investment base, we also reduced substantially those volume projections. Now, if you look at the final picture where you land and the impairment value you get to, I think this is driven by a couple of elements. First of all, there's the assets in China where we believe, or in the base case, we assume that those will remain underutilized. So that is driving a large part or a large share of the impairment. And that's why we also highlight it's mainly related to Asia. But also we can't ramp up. The ramp up is somewhat slower in Europe. So there that also drives some of the overall impairment, I would say. Looking at the value creation, so yes, we continue to see in that base case scenario that there is a value creation towards the end of the decade. So this is again driven by the existing assets that we have and by the contracts that we have, the strong contracts that we have. At the same time, this is a base case, this is a scenario based on what we have today, what we see today, but it's also a basis for future growth, I would say for future, for the strategic review, which is still ongoing.
spk04: Yeah, that's right. And the way you have to see it is that the base scenario that we're showing right now is showing what we know today. Right. We're not saying anything else. We're showing what we have today. In the meantime, we're still performing our further strategic review. We're engaging with our stakeholders. We're talking to our customers. And the last weeks and months, besides, of course, working on all these things, I've been heavily engaging also with our customers. And I'm talking here battery makers, but also even further downstream OEMs. And I can tell you a bit what we were talking about in these meetings. Clearly, everybody was talking about the slowdown electrification and those growth rates. Everybody was talking about low-capaciturization. And we see this across, so battery makers, but also uh, based on craft Philippines, you can see that also other cattle material makers are facing the same. The second part was then, okay, we now have these low capacity civilization. How long will it take to get back to a normal situation? That's where a lot of the discussion was revolving on, but every time and every meeting, and this is with potential as well as existing customers, Europeans or Asians, huh? It always came back to Europe and it said, what's your view on Europe? you there have a strong asset in Europe. What's your view, for instance, on local content requirements? So you clearly feel, you can clearly feel that these battery producers, that these downstream producers are really still eyeing local supply chains in Europe. And if I'm in this customers and discussion with these customers, right? They're really also talking about NMC and they're really saying, okay, We see that you have a plan. We see that you have contracts. Let's see where we can go. And therefore, as a critical or an important element in our further strategic review, which will take time because these conversations do take time, it will be reflecting, okay, how strong is now this different saving asset that we have in Europe? And I do believe that we have a strong differentiation. We have the biggest operational plans in Europe. We have contracts underpinning. And I see that other potential customers, including Asians are also clearly eyeing to Europe. Yes, there will be some LFP, but there's also going to be a big space of NMC. And that's why my customers tell me, and that's why I also have that conviction. And yes, if you look at the capacity available in Europe, this is way below the growth forecast that also our customers show today for NMC in Europe. So yes, I still see options beyond this. And this gives me the conviction, of course, that we can go to value creation. If that path will not be clear, of course, we're following a structured process. And this will ultimately lead to the good solution. That's on that part. Now, for the rest, I think you were talking about the great returns in our business. And maybe, Juanes, if you would like to step that further.
spk07: So maybe coming to the question really on the capital allocation. You're right. I mean, looking at catalysis, looking at recycling, excellent, great business, world-class businesses, world-class performance. We allocated capital to battery materials, as we also saw and still see a unique positioning and great return targets. Given the current performance, this is where we are clearly taking actions, where we are slowing down the CapEx in battery materials, where we are making stock of where we are. Uh, and looking, uh, how to, uh, how to further improve this year. So at this very moment, we have that action of slowing down capex and bathroom kills because of the challenges.
spk04: And we have the strategic review going on. Exactly. One. And so basically any capital allocation that, you know, now see if the battery materials, uh, business will be to finish off or mainly or Korean and European assets to serve all the contracts that we have under the belt today, because we have strong contracts under, under the belt and the future.
spk02: excess or more capital allocation on top of what we do today is part of this strategic review and we'll give you more insights in q1 that's really clear thank you i've just got two quick follow-up questions if you don't mind first can you help quantify how much of a drag the underutilized china plant is on your ebit for battery materials and if you were to just shut the plant down any idea of what uplift you would get And my second question is on the combustion engine outlook. Are you able to give us anything a bit more near term into the third quarter about how the market has developed? Are you seeing any suppliers going into early summer shutdowns? And just some context around that would be really helpful. Thank you.
spk04: Yeah. Now, of course, talking about specific operations that we typically don't do, of course, I understand that this could be interesting information, but probably it's also interesting information for more than just broader use. So this we cannot share. Now, right now, of course, this capacity is lowly utilized. That's also in the plan. But again, this is not the end point, right? We're still looking into options. How can we take use of this asset going forward? This is part of the strategic review, and this will lead then ultimately to the decisions that we take. But today, that's not where we are. Now, if you ask on the evolution in the car market, we do see some softness in the last months, and that is reflected in our forecast. And if we assume that the current softness prevails, yes, of course, our outlook will stand, and that's why we confirm. So that's where we are today.
spk02: Okay, thank you. That's really helpful. Thank you.
spk01: Thank you. We will take the next question from line Charles from Jeffress. The line is open now. Please go ahead.
spk06: Hi, can you hear me? Yes. Wonderful. Can I just ask on the impairment? Can you just give any detail on the split between CapEx and inventory adjustments? Because I remember two CEOs ago, there being an amount of permanently tied up working capital that appear to be capitalized at a very, very high cobalt price. So I'm just wondering, like, how much of this is related to pure CapEx being taken down and how much is working capital? And as related to that is essentially how much CapEx is kind of in the remaining capital employed of the business, just so we have a good idea of like a run rate, DNA rate. That would be my first question. And the second one is just, In terms of the strategic review, are all options on the table? Obviously, you've got some very well-positioned assets in Europe. I guess if you think about how attractive some of those are potentially, is the idea that you could completely exit the business, you could divest of everything in some way, is that being considered or is that purely off the table? Thank you.
spk07: Okay, good. Let me maybe start with the impairment question, trying to break it down. So if you look at the impairment exercise and then look at the capital employed before and after, the capital employed in battery materials stood at 3.1. And we now impair 1.6 billion, non-cash. And that brings it down to 1.5. Now, looking at the impairment, out of the 1.6, 1.5 is related to non-current assets. And then if you look at those non-current assets, property, plant, and equipment, where we took a 1 billion impairment. And looking at the property, plant, and equipment, before impairment at the end of June, we were at 2 billion net book value. After the impairment, we are now at 1 billion of net book value. And then talking to the non-current inventory, this is where the permanently tied up inventory in the operations indeed is overvalued. If you look at today's metal prices, and we talk about cobalt, but we also talk about nickel, sorry, about lithium. So looking at cold and lithium, this is where the overvaluation basically in the mark-to-market led to an impairment of 400 million on the permanent inventory.
spk04: Yes, and to your broader question on the strategic review. Well, in essence, of course, a strategic review looks at everything, right? I don't have any preconceived ideas today. So there's openness, right? Now, at the same time, I also said that we're looking at partnerships along the value chain. And you should not read too much in that as any conclusion on partnering of the business or selling of the business. No, my belief here is that this is a nascent industry. That means we have to bring visibility. And visibility you can only bring if you build supply chains. And that starts all the way from raw materials all the way to the car OEMs. and yes i'm open and probably more open than we were in the past because initially umicore thought to do a lot of things on their own now if there are options in certain sections of the value chain that would trigger more value creation or would unlock more potential we will look into this and we are open uh open for these options so again we're looking at this thing holistically we have a structured process we have clear case that we're going through, and ultimately that will lead to good decisions on which we will share then the direction and the outcome in Q1.
spk06: Thanks very much.
spk01: Thank you. As a reminder, if you would like to ask a question, please signal by pressing star 1 on your telephone keypad. It appears no further question at this time. I will hand it back over to your host. Thank you.
spk04: All right. Well, once more, thank you, everyone. Thank you for attending. For us, this was an important update that you can understand. Some of you we will see still in the days to come. But for everybody online, thank you for being here, and I wish you all a wonderful day.
spk01: Thank you for participating in today's call. You may now disconnect.
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