Full Year 2020 Umicore SA Earnings Call
We have transformed into a either a market, which is 7.5 what it was black students. Mm.
We have now successfully completed the situation or 20 20 grand strategy and everything is in place when you'll be able to keep them rolling technology five point you have to Market position and highly disappointed megatrends as well as Financial District admissions office. So what was it like this would be a little suspicious moment to bring it back on my extension and he leaves make sure a smooth transition. Did you cost?
Let us know we do the oil a 2020.
I limited to the TV find my agenda with the best possible to have off and then it goes black iris from spreading in your stock.
We have an older couple extra line.
Discontinue service for our customers globally and I'm truly grateful to my 11,000 calling of their engagement during the challenging time off and the resulting in matters of the huge download is the automotive industry. One of our end markets is dead. Yeah. See you next movement during the year the spring we work on the front that we were closer by our customers of most hobbies and interests had to endure a relationship. Most of our country stands in contrast. We saw a short recovery which started in China and the second quarter to Thursday and other reasons or the summer months and gather space through or older while the performance analysis was invited to a significant extent dead.
Is proportional manner from the recovery in the second half due to our leading positions generally Technologies, particularly China and Europe.
Service Technologies Market women was also severely affected by it and then in addition market conditions u e z battery supply chain. We mainly drug use is overcapacity. I know and the presence of excess inventories.
excluding the effects
You mean more sales volumes on Capitol Materials or d d Rosie in line with the easy which concerns position in the pack those rules.
In recycling we achieved the rest of the phones. We nearly doubled earnings convention 2019 with high rental prices and spring training position quite far along is because you were supposed to be
Overall record in 2020 and this goes to show the merits of our specialty which bills on the entirety of our activities in the states of unprecedented conditions.
This is really a consequence which we observed in the second half of last year continues to support our business today and I can already say that we are off to a strong style and use all those when you want.
We should not be available and your market demand remains extremely businesses and that is not yet the violence and the experience of last year, So I think contributed very rapidly.
For a moment and then it gets into control and we must oppose more disruptions in the economy or Corporation in 2020-21 Thursday. We should see again the next to the reservation or room project 3 we open these rules contributing to the growth.
Saturday we expect to keep everything from our leading position in the afternoon Technologies. Particularly Europe in China, even in in the automotive Market, which I'm going to projections by industry experts should keep recovering
we expect to benefit from the initial impact of the production of these standards for heavy duty diesel application as well as the office which we carry out in 2020 receive Food Market directions, and we project sustainable growth. You more sales volumes for Dd's.
This allows to resume rotors for 2021 is the current market consensus and this is 560 million-euro. This was a big cost investment and module continuing to replace the pricing pressure.
In response, we expect grew up and a computer very favorable survivors. In addition. Once again who's our performance off at the end of last year and the price is very interesting overall and they're currently unavailable then 2021 recycling or decreased very significant levels of 2026.
What is it depends on the weather is early in the year and does vary in mind that we remains a hot bath you find a 10-minute or it has a couple stuff and then we have to reserve policy is increasing weather related to cleaner ability or it needs a circle or place an order. For instance. I agree recovery plan in Europe or by the setup of any Administration Target in China Wok other words the regulatory drivers continue to get stronger against this background or motivations maintains petit jury selection is very high in particular. We have received the construction or Capital materials and then people and it will start production was the end of the year.
This additional capacity where they call me the time to serve the growing demands of Europe and the growing use or customs.
We had also pursued it's a rapid series of the company's production to Korea and you know, the extension of of Catherine's production capacity in China or light bulbs and use the applications and responsibly the focus of our investments and just roll and midterms is to keep improving the environmental and safety performance of the Hoboken.
We have continuously increased.
For research and development and testing team materials and recycling or in terms of product and process Technologies.
The same I believe that we have responded most effective is the challenges caused by the pending operate as I mentioned in my introductory remarks the prime everyone is shooting for healthy, and I would like to get something or medical stuff or the working conditions and I would like to thank you, So how do you supposed to be adopted to require precautions?
We also managed to diversify our sources of funding and read the base with the cash fit with comments on that.
Finally forced us to adjust rapidly changing market dynamics which resulted in the streamlining operations and in the early 2000s.
Those are into the business for you.
This is Laurie Berkner retail 2020 which are actually come into the details or press release those to turn it off.
Do you Automotive Market was severely by incorporating and local car production contracted by 18% in 2028. So the market that was X Games 2019 and you can fix it and see how deep the production Cuts where the first off across Regions Bank Ross also show that the recovery started earlier and was most pronounced in China.
This is a 80% Market action off or did the dishes and Gathering Technologies allow us to benefit a disproportionate manner from the market because we need the second power in China and you are real particular month. You may recall that I mentioned a year ago that to be towed because of my life in China and the benefits there are our leads Euro continuous benefit from a decline or either Car Sales mix or we're also supposed by sporting events, or I can give you the Japanese and or use the taxes.
The station recapping is business, which is merely a business from today's do too depending upon the account has the same. I would like to underline that the business really Automotive Catalyst show tremendous resonance resilience. It's so expensive and not just leave it for the whole year. We're only moderate level of 2019 after the first half which reflect the beginning back of the the market promotion and or all the phones combined with the effect of pulsating allows us to achieve record revenues and release the second part of Utah.
Repeat that last 15 minutes expressed in GLS which by the way the relevant investment to look at 450 suppliers.
Like a 17% in 2020 in stock market was riveted by increasing the end in Europe. Where did you see? Oh two regulations are supporting a group and information of electrified influence. The number of the models thing is honesty to region or the 5 lines is turning pressing issue or an order you plug in hybrid remains very popular in Europe where they make up how of TV sales.
In China used during the federal of a 2020 and so Improvement at the end of the year one thousand four years old program in China company or violent events for 2018 the Chinese market with this road very limited growth in 2019-2020. What was anticipated?
Cancel material is reboot some of that in the Seventeen percent increase in glos or and this will do to be excessive entries in the value chain off. Maybe these these excess inventory Corrections. You record sales volumes cancel materials for d d Rosie design with the market. Despite a somewhat unfavorable plus comics.
This performance was supposed by some people in Europe where we double our sales volume in 2028 from small base.
No problem on the road in vacations and then for energy assistance and also that it was variable.
Be recorded lower revenue is a Cobalt and Specialty material list activities due to the image and electronic materials to two thousand and four or five is used in fiber optics or satellites.
Yeah, they're all Painting and installation of those from.
Yes, you are affected by the underutilization for capital of China and price on pressure as well as tire fixed costs following reasons and not really the extension programs.
In 2020, especially for pgs.
That's the price of the great around 2025 lower depends on YouTube on the industry in the first part of the year off you more strict than the Nationals to affecting you require higher and the shift from the Gathering is exacerbated with a rep.
service advisor sources can hardly keep
Keep up on the line of argument and the recalls me over to the as pushed prices you have.
when was extremely Halloween 2020 which has resulted in a remarkably High contribution from our creativity thought you meant or goal is to sort of investment buildings has remained very high probably too inconstant the crisis context as these mentors continue to be seen by investors bought those days in a row select the phone off as metal points are are even higher today and in certain cases much higher than the other suggestions of 2020 Edition that were entered into the options on the 20 and which meant as we did not prevent it from the price right off of 2020 Roseville and see why
Did you with the largest factor behind increasing revenues that early in two thousand twenty thousand just pocket you already know Springs and virus from entering or spreading in our staff. We have any higher availability of the whole month, which is a regular basis should be done in 2020 with an extended shutdown 2019. Also continue to be saved and improved oversight materials in particular feature is very expensive capitals.
The Press has been with the management. This is really benefiting from high priority and generated exceptionally High terms.
I would like to send you a couple of chops.
Just thank you Mark and good morning to everyone.
Sumac has already provided you with the group's key financials this slide puts the adjusted operating earnings in historic perspective despite the challenging business context in a particular the down in in the automotive sector in the first half of the Year managed to generate records adjusted earnings and margins due to its Diversified and unique business portfolio took the case and pasta, crisis the recycling business group and it's metal price sensitivity. Once again demonstrated its counter-cyclical characteristics with its Stellar performance more than offsetting lower link your palaces and energy and Surface Technologies.
The effect from higher metal and trading results in recycling pushed group margins to the new bracket when focusing on the second-half performance next recycling also catalysis contributed to year-on-year growth and even exceeded pre-clovis margins on the back of cost savings and a strong volume recovery.
Operating cash flows expressed here is just a tbda reflect the same trends.
When stripping out the 24 million euros year-on-year increase in depreciation charges adjusted ebita increased 7% to reach a new high.
You know first half year release we referred to the particularly pronounced operating leverage effects at play then a negative factor in catalysis and energy and Surface Technologies. And of course the driver in recycling.
In the second half of the year that average affecting catalysis reversed and turned positive through combination of business recovery and cost-savings effects, including some initial benefits from the restructuring measures of the first half.
As Mark mentioned these underlying earnings drivers are expected to persist going into 2021.
By contrast in energy and Surface Technologies, the negative effect accelerated in the second half finally in recycling the margin Tailwinds of the first half continued into the second law of increasing overall group margins.
reviewing yumikos full piano the 5% higher adjusted operating result translated into a three-per-cent higher adjusted net group result wage continuing to trend of the first half Finance costs increased on a four-year basis mostly on the back of higher gross financial debt, for example the interest you on the 390 million a private placement at payable as from September 2019 was now accounted for 4 year also the financial charge related to the 500 million-euro vegetable bond that we issued in June and which consists of the discounted value of the implied conversion rights, and the amortized transaction costs was newly accounted for
You just detects rate with stable at 24.2% resulting in flat adjusted text charges year-on-year despite some substantial changes on the line Regional result distribution, the most significant impact on the full p&l comes from the 237 million euros adjustments to evit this includes thoughts a million of charges already recognized in the first half leaving 165 million for the second half, which is somewhat higher than the previous guidance of some hundred and fifty million euros.
This next slide provides some detail on these adjustments one of the first half of the Year. These charges were concentrated in catalysis the second half year items motion relate to the energy and service Technologies and recycling segments. Most of these adjustments find their origin and you me cause response to COVID-19 crisis and the resulting changes in business context in some business units.
over half of
The charges are restructuring related as we consolidate activities on fewer sites in the automotive Catalyst and Cobalt and Specialty materials business units close to the full charge in recycling consists of a 15 million euros provision to establish a green zone neighboring the Hoboken plant as already explained by Mark.
A consultation with the city and the residents continues this best estimate may be updated going forward.
In energy and Surface Technologies the bulk of the charges relate to the before mentioned restructuring in Cobalt and Specialty materials, including a non-cash value impairment following the sale of part of the package. It's right size permanent Cobalt inventory.
Of the total rebate adjustment of 237 million euros close to a hundred fifty million euros has a non-cash nature and most of the remaining ninety million bucks will be cashed out in future years.
After accounting for tax affects the impact of these adjustments on new Migos net profit amounted to 192 million euros.
Now despite the challenging business context in 2020 yumikos operating cash flows where the highest years cash flow from operations before changes in working Capital Grille 15% to 707 million euros as a spotted on the top line on this top graph.
Cash working capital further increased in the second half growing 204 million euros over the full year.
driven by prices and PGM prices in particular
catalysis all the highest increase in working capital with an acceleration in the second half
working capital and recycling also grew but to a much lesser extent than in ketosis. Well energy and Surface Technologies reduced its working capital needs.
The working capital trends for the current year. We'll also depends to a large extent on the prevailing metal prices.
I spent on Copaxone capitalized development costs amounted to $435 Euros compared to $588 in Euros over the same period in 2019.
This reduction reflects the decision following the COVID-19 outbreak to restrict spending on non-strategic projects as in 2019 energy and Surface Technologies accounted for approximately two-thirds of capex, which rechargeable battery materials Greenfield plan and Poland as a key project.
For 2021 we would currently guide for an increase in group capex from the 20 20 20 20 Level. Finally this combined flows resulted in a positive net month free operating cash flow of 168 million euros compared to a net cash out of 39 million in 2019.
As you can see from the chart on this next slide this free operating cash flow was sufficient to fund the financial and tax cash out as well as the interim dividend payout resulting in a roughly stable net financial debt compared to the end of 2019.
At this table. Financial debt corresponds to a solid leverage ratio of one point eight times just for food group now next to stabilizing the absolute level of net indebtedness. We took the opportunity in 2020, as you know, to further strengthen and diversify our sources of funding amongst others by securing to important new long-term funds instruments an eight year loan with the European Investment Bank of 125 million euros and a five hundred million euros five-year convertible.
This concludes my section and I and like over to you would like to reach home issue COVID-19 s complicated or locks off if they could growing up. It was very effective thing to have on your vehicle off or customers into the rate of the ultimate advantage of the phones and expect even better with almost across businesses in 2021.
Of course of action who successfully demonstrated the mirrors or everything is in place for them to keep trying and so those are nice. So this would be suspicious mobile to start preparing for the succession. It would be I would like to open the door to your question who role too or other area?
Thank you. We will now start the Q&A session. Please note that we kindly request that you take the following guidelines into account. Please ask only one question per person to give everybody the opportunity to ask questions to ask your question. Please use the recent button at the top menu on the team's window keep your microphone muted until I call your name wage. You will then be able to mute your microphone and ask the question directly after that. Please lower your hand by clicking on the race your hand button again for those connected via phone or fax that do not have the race and functionality in their settings. Please send an email to your with your questions to the IR at the mailbox. We will treat the incoming questions during the live session. And the first question comes from Sebastian. Please unmute yourself and go ahead.
Good morning, and thank you for taking my question. It's on.
The topics plan if you recall is moving back to a more volume Centric strategy in China is the Greenfield expansion that was stopped in 2020 Jeep back on the menu. And where are these incremental volumes primarily going to be coming from in the year 2021 is there still spare capacity in Korea will have to come from China Bank you
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Perfect, Mark. Oh, okay. Good. Thank you. Sorry for the technical hiccup. So let me then restart because I don't know exactly how much of my life I answer you have already heard. So the the the strategy is not changing. The the the fact is that we expect much better volumes in 2021 because of the because of the fact that the Vault the models that we serve are showing very good traction. Now from a regional distribution office viewed the volume growth is going to be spread across Europe and Korea Korea to a more limited extent because there may have some I would say low longer available capacity. We expect quite a bit of recovery in China in terms of the month.
or or products and in terms of
The sales but not to an extent where the capacity we will be able to utilize the full capacity in China. And finally we see continued excellent Traction in Europe and towards the end of the year or new plant in Europe will also come on stream and start producing for the European market.
Thank you. Just to clarify is the China Greenfield now now happening again or is the expansion Still Still stopped?
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Okay. Thank you. The next question comes from Adam Collins. Please. Ask your question.
Yeah. Hello everybody. First of all, can I congratulate mark on twenty-five years of service to give me a call and the business has certainly been transformed in this. So like to offer you my full thanks for some great service. I had one question in relation to the structural issues in the non-automotive a battery of Catholic materials. And this is sort of a quick two-parter. So firstly on stationary applications does enemy have a future in utility-scale wage only portable electronic side again, could you address whether l c o is a commoditized space now?
Thursday
Adam can you hear me? Can you hear you now? Have you heard Mark? Okay, we're still having technical problems. So what I propose is that we take off we tried the settings here and
We start the call up in 5 minutes. I think that's better than than continuing to to struggle our apologies for that. I am wondering what my darling.
Yeah, I think we'll it's for us to fix things on our end. So if we could maybe reconvene in five minutes, that's okay with you our apologies again, we'll try to fix things here.
does it work if I
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Yes, Mark, we heard you well.
Okay, can you I think now you can hear us. We apologize for the inconvenience. We will restart the Q&A. I believe Adam Collins was asking a question, please. Go ahead and a mute yourself.
Okay. Okay. I don't know. Did you hear the question originally? Would you like me to replace it? I didn't hear the question. Let's go ahead and Page. First of all, I would like to to thank you for your kind words, which preceded your your questions they go they went straight to my heart. Thank you. So let me start with Thursday. I'll see you which indeed as you pointed out is a commoditizing um product commoditizing market and we have clearly the average sized L. See you in or development programs as well as in or capacity allocation plans as or Focus clearly has moved to Georgia Automotive applications where there is more room for differentiation and today in in portable Electronics in terms of the stationary applications dead.
So for energy storage applications.
The picture is somewhat different and MC has a role to play. There. It is. One of the Technologies which is being utilized one of the mainstream Technologies in in ESL. And we expect that it will continue to to be the case. However, it's a project driven business with weather patterns can be somewhat erratic indeed. So I wouldn't extrapolate Too Much from the fact that it was very low in 2020 compared to Prior years. I think it's a it's a business that will continue to have ups and downs and but it's for us a good business a good application and again an MC has definitely a role to play there.
Okay, thank you. May I just clarify the first the first point about a portable Electronics? So so l c o is challenged. Do you have an MC play into portable Electronics or is that all set and we'll keep your going to be emphasized? Cuz that's challenge to that's it's an MCS for a portable Electronics or portable applications. Uh dog has a long time ago be in one of the the outlet for Unique or products, but that's something that has been emphasized already a longer while ago because of the the the the focus clearly a shifting to Automotive applications and the developments in automotive require a lot of resources, and we want to to be sure that we have that right critical mass and the right the right Focus.
Okay. Thank you, ma'am.
Thank you, Adam. Our next question is coming from the IR m box from Charlie Webb from Morgan Stanley Mark. The question is how sustainable do you believe the age to margin get those just our would you expect some normalization from this very high level in 2021?
Good morning, Charlie the it's a bit earlier in the year to to tell about to talk about the the margins in home business because there is still quite a level of uncertainty regarding demand patterns. However, I would say that again if depending with the caveat that is dependent make does not cause disruptions to the to the market. I would expect indeed the higher levels of margins which we achieved in the second half of of last year to be more or less sustainable wage. Why did we have such an improvement? First of all because we have completed a certain number of custom proven programs. We have streamlined operations. We have thought I had the operation successful operational excellence initiatives. So you have cost improvements which are definitely sustainable and secondly, we have a very month.
40s mix
Affect um, which indeed is uh is today set to continue throughout the 2021. So I would say again with the with the caveat that I've mentioned about the uncertainty and the the limited visibility that we have today. I would say that more or less. Yes. These margins are sustainable.
He also has a second question in energy and Surface Technologies. Can you help us better understand what you're seeing in the underlying cathode and TV markets around pricing technology and the increasing use of LSD and demand in particular what you expect from Europe in 2021.
So that's a very comprehensive question that covering many many bases and many important aspects of the the market divorce in the in in battery materials. So first of all, I expect the continued strong Traction in Europe, there is little doubt about that long in the the the the amazing efforts that are being carried out by Automotive makers to bring new electrified models to to the market wage the impact of the more stringent CO2 regulations the change in the consumer mindsets as well. So I expect very strong attraction in Europe and and strong growth and that's why I mentioned in my remarks that that the or new capacity in in Poland will actually come in timely to serve the growing wage.
It's of our customers in the region. You will also recall that we serve to a certain extent the European market through or facility in Korea. So that will need to continue for a while in terms of other market dynamics. I would say that I expect no change in 2021 in terms of pricing environment Soul pricing pressure continues to be to be very very much present indeed. I expect no real change in terms of margin configuration. I mean give or take a few basis points which are somewhat difficult to uh predict ahead of time. But other than that, I expect a certain continuation in terms of both pricing and and margin context and the real difference for us. We'll we'll come from the additional volumes down.
Also in terms of margin you have to bear in mind that we're adding we continue to add significant fixed cost to our cost base as we continue to expand. I mean the the construction of a new plan to start up of a new plant imply additional DNA charges imply significant start-up and qualification costs, and we thought it would be useful to quantify those and that's why we have mentioned the some fifty million of additional fixed costs to be taken into account. Now, let me talk to a few words about the technology development or the technology Revolution. Um, actually what we describe the year or two years ago already is clearly materializing wage. There is a gradual Trend to increase nickel content in in the capital of the chemistry today the vast majority of the market is a what we call log.
MIT nickel
Chemistry Market, but the higher higher legal compositions are starting to take a greater proportion of of the market and this gradual Evolution continues along the lines that we had anticipated a year or two ago. LSD is gaining somewhat ground in China clearly wage. You have seen that some of the best-selling models in China in the course of 2020. We're low speed low range low-cost am using lfp. So I think that as I mentioned a year ago that or even more recently that LSD will have a game to play its I see that as a as a niche, uh, chemistry in a way because of the intrinsic limitation it has in terms of weight in terms of range.
In terms of overall performance, but clearly for lower-cost cars with low range requirements and low speed requirements. That's so so the chemistry that can be considered. Now this being said and sorry to offer a long answer to your question. This this big said, please bear in my life that today the the LSP chemistry is mostly using idle capacity spare capacity, which I am in China so that may also distort somewhat the the the the the cost of the price comparisons and at if at a certain point in time, you said you would have to be built to to produce lfp. This may have an impact on the other the price comparisons and we remain convinced I remain calm
That uh that and fees and higher nickle nmc's will continue to be the mainstream whether it's an MCS or or in CMS. I mean this family of Technology wage will remain the the mainstream because it offers a unique trade-offs between costs performance range sixty and and all the parameters which are important for the for the electric vehicles to be successful.
Thank you. The next question comes from Casa. You can unmute yourself. Yes. Good. Good morning. I would suspend like to spend my question on the rhodium, please you appear to have made some some Hedges on rhodium while in the past year has not been a paper market for that. Can you maybe elaborate on who's the counterpart it adjust the financial party or someone who who had some some spare rhodium. And is there yet the establishment of of a rhodium vegetable market for for you now going. Can you maybe elaborate on that? Thank you.
It's Phillip. I'll I'll take
I'll take that question. So unfortunately, we cannot go into too much of of details. I think the important thing is that we felt we we should say that we have indeed touched a a minor part. I have to emphasize a minor part of the volume exposure and 20 22 $23 through I would say forward contract. So this is with individual Choice. What is indeed? I think the importance in in in a way is that you have counterparties that today's records volume prices are willing to step into forward contracts for 2022 and 2023. So so a minor part of of that exposure is hashed you right we typically in the past have not entered into hedges for audience, but obviously given the current pricing context we felt it was approved.