Full Year 2021 Umicore SA Earnings Call
Hello, and welcome to the Umicore full year result, 21 earnings call.
My name is Courtney and I'll be your coordinator for today's event. Please.
Please note that this call is being recorded for the duration of the call. Your lines will be on listen only however, you will have the opportunity to ask question. This can be done by pressing star one on your telephone keypad to register your question if.
If you require assistance at any time, Please press star zero and you will be connected to an operator and I will now hand, you over to your host Mckee is my joke CEO a few months ago to begin today's conference. Thank you.
Thank you very much good morning, and thanks, everybody for joining my first earnings call as CEO of Umicore and second call with all of many of you following the announcement of all.
Our partnership with Volkswagen swapped battery materials will be similar to what you want. So welcome also on behalf of Philip our CFO , who is today here with me.
I am four months into my role of leading the outstanding Technology company, you'll recall, which is highly talented purpose driven people.
And I think challenging and dynamic time.
So before diving into the details of our record 21 was that they wanted to give you a short insight into my own due diligence when you because what they should be.
I truly believe that Umicore has what it takes to be the leader in clean mobility materials and recycling a pioneer in sustainability.
The nature of it we highly synergistic business groups and the G and surface technologies got challenges and recycling and with a proven DNA and I think this is very important in managing major transformation.
It's really unique in the industry, we have already made significant progress in preparing umicore for its next chapter of growth. We are further strengthening our competitive leadership position is a different value chains that we actually have been at the same time, we are developing this strategic directives for you'll be cool.
Two what's 'twenty.
We listen to your feedback I have listened to your feedback on the need for more transparency and disclosure. This presentation is as we think the start of a journey into this direction and I'm looking forward to sharing even more with you on the upcoming capital markets day that we have no sense what Julien.
Second so.
You can see the agenda, we will go through all of the aspects of our 'twenty. One results and then also talk about the 22 now.
Now, let's look at the details of the 'twenty one performance.
2021 was again a year of record performance for the group we beat by saw our 2020 results. Thanks to strong underlying operational performance across all business groups.
Once you have got a further boost.
The exceptional precious metal prices and we were able to fully utilize our unique business model, which allowed us to take maximum advantage of these price developments also in that aspect of our business we have recorded.
<unk> operational performance.
And growth rates are impressive our revenues increased by more than 20%.
While profitability nearly doubled resulting in strongly improved EBIT and EBIT.
Margins, our free operating cash flow grew to a record level close to 1 billion euros.
Allowed us to significantly reduce our net debt and further reduce our gearing ratio of Philips will elaborate on those numbers in more detail later in this presentation now if you only want to remember one thing from our 2021 results than it is at our topline and earnings will not only substantially.
But what's even more important to a large extent structurally in 2021 .
So now let's talk about the structure of performance. So this slide shows you the elements.
They've got behind it excluding the year on your.
Precious metal prices at our 21 operating profit increased about 160 million versus 2020, that's an impressive growth of 30% purely to operational business performance, including volume growth increasing margins structurally for all three business groups.
Precious metal prices contributed approximately 270 million compared to 2020, and we can split this.
Roughly into a suite.
Three quarters in recycling in one quarter.
Less than one.
Water in catalysis.
While this is an external sector. The fact that we are able to benefit from these precious metal price gains to this extent results from our strong position the value chain of our differentiating technology also offering superior value to our customers. This was particularly the case in recycling.
Part of our active management on that front me. It's also using mechanisms to manage volatility in this regard for 2022, we are significantly hedged against precious metal price risks except of course for rhodium wherever we remain naturally hedged.
Now let us.
Go more deeper into a business group by business group and let's start with let's see catalysis business school, the underlying automotive market.
Prize in 2021 was flat versus 2021 2020 already was a good start of the Covid pandemic started well in the first half 2021 , but then the semiconductor shortage severely hit the output of the automotive industry a year over year.
Versus 'twenty 'twenty, even the combustion engine market.
Market, including hybrids decreased about 2% overall.
2019, as our restaurants, we have been seeing a contraction.
The automotive market in 'twenty.
'twenty, one by 60% so 21.
For sure not an easy year for.
For the global automotive industry.
Given this context the performance of our catalysis business group in 2021 is even more impressive all three business groups delivered strong operational results.
Revenues by one quarter, while earnings increased over proportionally and more than doubled.
The business unit's outsell motive catalyst outperform the automotive market and gained market shares.
This was especially the case in Europe in China in both the light duty and heavy duty segment.
Production of Chinese and European light duty internal combustion engine cars decreased by minus four or five 4% and minus five 9%, respectively. <unk> was able to increase revenues by 13% in China and 60% in Europe in this segment, reflecting those.
Market share gains.
Whereas there's clearly concerns that we have the right product for the right technologies in place. Moreover, It is a very positive signals for the next waves of it.
Emission legislations like Euro seven where.
Where we expect to further benefit from this strong.
And innovation portfolio, we're looking at the heavy duty diesel segment.
The market share gains accelerated even stronger heavy duty diesel sales in Europe .
Core sales grew by 32% versus the market of plus 15.
China revenues were up 34% in a market that contracted by 17%.
Tremendous boost but also we have to mention a strong final sprint in demand for the <unk> excellence in the first half.
The nationwide implementation of China six is that.
Drove up our revenues as well significantly.
So those significant top line gains in automotive catalysts have also been very successfully transformed into bottom line results.
This includes the structural improvements on manufacturing footprint and improved efficiency overall in operations that have already been launched and because of the years of 2020, and 21 and with the resulting lower breakeven point the margin uptick we have achieved in 'twenty, one will be largely sustainable for the coming years, putting our automotive.
Catalyst activities in an excellent competitive position, whereas the demand in precious metals chemistry was strong with good contribution to top and bottom line results.
One was an outstanding year for the excused catalyst sales volume nearly doubled in 'twenty. One further solidifying the human cause market leadership position with now 40% market share in the mobility segment.
This performance was driven by strong demand from existing programs.
As well as through business wins with several new customers, especially in China. Thanks to these achievements.
This unit is in good position to also generate a growing contribution in earnings the two.
Towards the business.
On the next slide let US return now to the automotive catalysts business with some more details in the in the AR.
In the frame of more transparency that.
We have said as you can see the majority of our revenues are coming from the light duty gasoline segment, where we have a very strong market position and accelerating even with a 21 wins that we have just laid out our exposure to light duty diesel it's quite small so the continued market decline. This segment will not have.
The major impact on our overall business.
HDD represents about 20% of our revenues in 2021 with strong growth vectors to further benefit from the longevity of combustion engines.
In these markets you may now better understand why we are quite confident about the future of our automotive catalyst business as we combine our strong position in the right market segments. It will remain there for the long run even in class electrification scenarios, an excellent cost position with a globally optimized production footprint.
And the low breakeven point.
The right product and technology portfolio with strong demand from our customers also for the next wave of emissions legislation, we will use the upcoming CMT.
To further detail our strategies and directions on automotive catalysts, but I think this is already a good summary.
Situations now, let's move to the next business group E&S tea energy and surface technologies.
Revenues and earnings were up primarily thanks to an outstanding performance in cobalt <unk> specialty materials in rechargeable battery materials volumes for electric vehicle NMC cathodes, where it went up with a different regional performance our market position in Europe is strong and this.
Market and we grew our volumes in line with the regional market growth with that defending our position in Europe and China, we were not.
Able to follow the market growth as our platform and customer mix proved to be favorable in regards to market performance.
Disruption as we had already laid out.
Last year at.
The same time in 2021, we entered into advanced Col. One customer qualification processes for high nickel EV platforms with several Asian and European Carton Betsy Williams, we are confident that the outcome will allow us to ramp up our high nickel cathode material revenues and.
That we would catch up in China once those programs will be launched with <unk>.
Significant volumes expected already.
In the course of the second half of 'twenty 'twenty, three I would come to that a little bit more.
Details in the next slides the cobalt <unk> specialty materials business unit had a very good 2021 , especially compared to 2020 when in the sector. The Covid impact was quite severe and finally also the metal deposit solutions electro optical and material businesses generated higher revenues in 2020.
One.
Within the spirit of increased transparency again, you will find on this slide now more details on our Catholic material business in 2021, our global capacity was 65 gigawatt hours two thirds of this in Korea, one third in China. Our plan forward is too expensive.
To about 120 gigawatt hours in 2024, then more regionally balanced of course with our European capacity coming online already mid of this year, our high nickel related caseloads material revenues are planned to reach about 75% of total sale.
Its volume in 2024, and we are progressing well in adjusting our flexible production lines to articulate and of course, all newly added capacity will behind it already from the start of production, which is also the case in our Nissan plant I would also deep dive on that in a second it is important to mention that these capacities to not yet.
Include a potential north American footprint expansion that we are currently investigating and also the plant capacities for the joint venture with Forbes Swagger in Europe has to be added to those numbers, we will share more details with you on our future plans for capacity expansion beyond 2002.
54, and including all aspects of our business planning for the rechargeable battery materials business unit in our upcoming capital markets day.
I also wanted to give you a quick update on our caseloads material can you get the Giga factory and visa, where we are well on track to start production mid 2022 this year in Poland.
The footprint of the NESA site can accommodate a potential capacity of more than 200 gigawatt hours and our current plan foresees around 40 gigawatt hour at the end of 2024 as an interim step I also wanted to highlight again that the manufacturing process and visa reflects the latest evolution of <unk>.
<unk> proprietary caseloads materials production system and process.
This giga factory with that will be the industry, leading one in terms of purity quality and consistency and with it represents a very important asset for Umicore. In addition, MISO will be supplied with 100% Green energy Green electricity from the start so it is understandable why dislocation is.
So highly attractive for our customers talking about customers is a good lead over.
To talk about the.
Hmm.
Trying to ensure that we have announced to be closing with Volkswagen This year.
After the announcements we have been asked to provide more details about the plant partnership as the joint venture agreement still needs to be finalized we cannot give you. All the details that you are looking for but we have tried to at least give you some more insights to the guiding principles of this endeavor for the sake of clarity.
Again, it's important to mention that trucks Boggan has chosen <unk> as a partner as they see us as the leading player in this industry with a unique combination of three elements a state of the art technology portfolio, including highly a proven and well established track record in mass scaling at highest quality.
Our strong capabilities on the supply side of course, with raw materials upstream, where let's see histories and routes.
You'll be closer for Umicore. This means secured access to a large portion of the European electric vehicle market and with this significant economies of scale, even beyond the joint venture for the full Catholic material business both umicore.
For us the joint venture is also a possibility to satirize, our technological innovations and industrial skills. While it is very important to mentioned, while protecting critical IP and knowhow on the large volume basis.
It also entails a combination of umicore expertise and VW is buying power on the raw material side unlocking opportunities that both partners could probably not.
Unlock individually.
Lastly.
There was a lot of questions about investment we can confirm that investments are shared between both partners.
And also important to mention with the grip mechanism.
To allow those investments to be value creative for both partners.
And I just want to remind.
Everybody that value creative for Umicore means.
Two.
<unk>, <unk>, which is earning more.
And then the cost of capital.
Just to make that clear.
Yes.
Finally, I also wanted to highlight that with an ambition to reach a capacity of up to 160 gigawatt hours in 2013 through this joint venture alone.
We expect to add nearly three times or three times of human cost for 2021 cathode material capacity and this is really significant if you just imagine.
The order of magnitude the dimensions of it is just really significant.
My point of view and will be an important element.
Our growth forward.
Last but not least a recycling the recycling business units. So as already pointed out precious metal prices have been exceptionally high in 2021 with a peak mainly H one I will not go into further details right now as I have already.
The impact of those prices.
Our earnings development, let's now well.
Have a look at the performance of our recycling business grew revenues and profitability for recycling grew to an all time record level last year driven.
The exceptional metal prices I meant that we had already mentioned, but also based on our strong operational performance in all business units revenues grew by a third while adjusted EBIT increased by nearly 60% in the precious metal refining business unit to further process improvement efforts.
The plant in Hoboken has been able to convert a very favorable environment into outstanding results. Despite all the challenges and headwinds related to the necessary COVID-19 protocols and the plant maintenance in second half of 2021.
Julie and industrial metrics benefited from a strong surge in demand, especially in jewelry and lots of them engineered products.
Finally, our precious metal management team has been able to repeat the outstanding 2020 performance and would that contributed well to the business group results.
So now after this brief insights into the performance of our activities in 2021.
I'd now like to hand over to Filip, who will give more details on the financials of the deal.
Thank you Mathias and good morning, everyone.
So as the key financials on this slide layout. The group's performance in 2021 was outstanding in the history of our company now.
<unk> already commented on the underlying drivers so I will not repeat them here, except to say that these numbers reflect the convergence of a strong operational performance in almost all of our business units with the strong external tailwind in the form of records precious metal prices.
These combined factors far outweighed earnings headwinds, such as higher raw material costs higher fixed costs related to our growth.
And additional R&D spending.
And last but not least these record earnings converted into very strong free cash flows reducing net debt by close to half a billion euros year on year.
Theres a few messages we want to highlight on this next slide that plots the group's adjusted EBITDA and corresponding margin trends.
Apart from visualizing the outstanding performance in 2021, the top graph also shows that in recent years Umicore consistently increased its EBITDA year over year.
This graph starts in 2017, but this has actually been the case since 2014 last year's EBITDA was three times that of 2014.
Now the underlying drivers have been different over time, which we see as a reflection of the value of your <unk> business portfolio.
It's a strategy review we are preparing for the capital markets day in June is predicated on continuing this earnings track Records.
The second element to highlight on this slide is the seasonality into 2021 results.
The performance in the first half of the year was exceptional with the combination of pretty much optimized.
Operational efficiency across most of the group.
Cost discipline, and obviously speaking precious metal prices.
<unk>.
However, despite the tide turning on some of these external factors in the second half second semester EBITDA still came in well above the levels of recent years.
This seasonality was also reflected in the margin profile.
As you know muscle results are particularly important to <unk> group margins, given they contribute and acquired direct way to the bottom line.
While margins are therefore truly peaks in the first half also second half group margins were well above historic levels.
Umicore has consistently increased its adjusted EBITDA margin year over year since 2014.
Now switching to cash flows.
Rose to 80% of the records, one 2 billion euros of cash flow from operations was converted into operating free cash flow.
Net working capital was reduced across all the business groups and most swing catalysis amounting in total to 167 million euros of caution.
This includes the effects of lower PGM prices and slowing car sales towards the end of the year.
Cash spent on Capex and capitalized development costs stabilized year on year amounting to 416 million euros.
Compared to 435 million euros in 2020.
Energy and surface technologies accounted for approximately 60% of group Capex driven mainly by the rechargeable battery materials European expansion for which we do expect some capex carryover effect into 2022.
And Cabela's and recycling Capex spending was kept close to the low levels of 2020.
With the exception of environmental and safety related investments.
Our strategic growth projects the focus across the group is very much on further increasing the efficiency and productivity of our existing installations, which already contributed to the 2021 performs.
Looking ahead into 2022, while working capital management remains a key area of focus taking into account amongst others. The price increases in metals and raw materials. Since the start of this year, we could see a meaningful increase in working capital compared to the level and the 2021.
As to Capex. We currently expect the substantial year on year increase in 2022, mainly driven by the growth investments in rechargeable battery materials and including the above mentioned 2021 carryover effect.
The.
Operating free cash flow of close to 1 billion euros translated into a net financial debt reduction of close to half of the 1 billion euros.
Net interest charges cash taxes and dividends combined led to a cash out of just short of 400 million euros Umicore in 2021 returned to pre pandemic dividend payout amounting to 181 million euros, while the buyout of the minority shareholders of one of our important precycling entities in Germany drew.
$54 million of cash.
Net financial debt to end of year came in just below $1 billion, which corresponds to obviously strong leverage ratios is worth mentioning that umicore recently concluded its first sustainability linked loan in the form of renewal of one of its existing withholding syndicated credit facility that was successfully extended.
Two 500 million euros and was underwritten by 13 banks.
Okay.
Looking at the full P&L the operating line clearly drove the trends here.
Adjusted net financial costs were stable, while adjusted tax charges increased almost proportionately to the pre tax profit.
As reflected in the slightly lower tax rate of 23, 1% compared to the 24, 2% we had in 2020.
This resulted in a doubling of the adjusted net result, and the adjusted earnings per share to 667 million euros, and two euros and <unk> 70, respectively.
We recorded total adjustments to EBIT of minus 75 million euros of which 39 million were already accounted for in the first half of the year.
The most significant items in the second half where on the one hand additional largely noncash restructuring cost in catalysis related to a decision to stop a development program and precious metal chemistry and on the other hand, additional environmental provisions, including related to the Hoboken Green zone initiatives and reflecting really the strong.
Interest and Umicore, some voluntary offer to acquire houses neighboring plant.
This concludes my section.
Thank you very much Philip.
Next I would like to introduce our update on our ESG implementation ESG.
Important for Youll recall beyond.
Just initiative because it's at the heart of what we are doing following the launch of our let's go for zero initiative mid of last year, we have been intensively working on the further rollout of the targets into the full organization.
And have signed up to key initiatives like T. S. Tcf D or Spi in parallel we have implemented a fully linked ESG governance system that will allow us to steer the progress in achieving our ESG targets and support our increased disclosures on ESG, beginning with the 2021 and <unk>.
We will report as I.
Said before we will provide you also more details on our ESG implementation and to pencil that in our capital markets day.
Let us come now to the outlook.
For 2022 .
We expect again, a strong underlying performance in 2022 across all of our business groups. Despite the cost deflation and provided that the geopolitical developments the pandemic or supply chain constraints will not result in additional material disruptions to the economy all unit cost.
Operations, assuming current metal prices prevail for the remainder of the year earnings, including the effect of the mentioned strategic hedging would still include a significant precious metal price uplift versus 2020, albeit below the 270 million uplift.
2021 .
In the presentation and our press release you can also find our detailed guidance statements by business group I will not cover this now, but we will of course be able to discuss potential questions. On this later in the Q and a section.
During this presentation. We have started to also highlight some of the more mid to long term considerations for our businesses, we would like to invite you to a much deeper dive into our 2030 strategy during our capital markets day that will take place on June 22nd during this event.
We will further detail our views on the growth prospect in our key markets.
Cause ambition and capability to fully capture the anticipated exponential growth in demand for rechargeable battery materials the value creation potential over the next decade of our automotive catalyst activities as.
As well as the resilience and strong underlying performance of the <unk> businesses and less favorable precious metal price conditions.
<unk> ambition and plan to capture growth from the next wave of sustainability driven markets such as fuel cell catalyst battery recycling and solid state batteries and finally as already said, we will provide an update on our ambitious let's go for zero roadmap.
Now, let me wrap up the key messages that we wanted to give you in this presentation.
2021 was a year of outstanding operational performance for Umicore across all business groups with structural improvements significantly beyond precious metal price effects for 2022 has just laid out in our guidance statement, we see another year of strong underlying performance with group ahead of us.
Benefiting from the sustainability of measures that have been implemented throughout 2020 and 2021 already.
Have already made significant progress to prepare umicore for the next chapter of growth and we will share. This plant forward as well as our long term strategy with you at our upcoming capital markets day, explaining why umicore will be a clear net beneficiary of the unfolding Alex.
Suffocation resolution.
Thank you very much for your attention Philip and I will now be more than happy to answer the questions you might test. Thank you very much.
Thank you as a reminder, if you would like to ask a question on today's call. So please press star one on your telephone keypad.
If you change your mind on wished you withdraw your question. Please press star two please be advised that caught us all committed to one question per 10, I should rejoin the question queue should you have any follow up questions. So as a reminder, that with star one on your telephone keypad.
And our first question comes in from the line of Whim Horst calling from KBC Securities. Please go ahead.
Yes. Thank you good morning, I would like to ask a question on rechargeable battery materials.
Can you maybe update on the pricing and conditions both for the qualifications you are doing for high nickel and also specifically the conditions at pricing conditions, you are seeing in the Chinese market, where obviously pricing has been under pressure in the past few years. So that's my question.
Thank you very much for that question. So of course, you understand that we cannot disclose pricing.
Conditions that we have with our customers I can only say so much that of course.
The pricing is always driven by the value of the product and through our as we see strong technology. We think that we also will achieve the right pricing level now for China.
Obviously the market as we have said before is a market that has a little bit different structure than Europe , where we're at.
NSP.
<unk> technologies has been accelerating faster so.
We still think that <unk> will be in the mix, but you can assume the more the high nickel NMC.
Technologies will come up that from a mix point of view of the average price point in China should also increase.
Thank you. The next question comes in from the line of Charlie Webb, calling from Morgan Stanley . Please go ahead.
Good morning, gentlemen, thank you very much for the additional disclosure in the slides very useful.
Just.
Question around cash flow.
Obviously, you mentioned that Capex is going to be stepping up significantly and that we should expect perhaps what we had expected in the western capital unwind toll increase in the in the second half it doesn't materialize to fall into 2020. So you just wondering if you can frame that in terms of magnitude.
Numbers, why we should expect Capex for 2022 to come out.
Likewise order of magnitude what type of working capital.
Reversion of the benefit you had in 2021 should we expect in 2022, just any kind of.
<unk> quantified or kind of ranges or magnitude you can present that would be very helpful.
Yes, good morning, Charlie Thanks for the question. So indeed, let's maybe start with with Capex have you seen that capex.
As I mentioned, there's a carryover effect into 2022, so that will play a role then obviously we have the <unk>.
<unk> events.
Investments in rechargeable battery materials, which are there. We also youll see in the other units. We've had in 2021 basically roughly the same kind of capex level of 2020, which was a very low <unk>. So you can expect that.
A bit of a recap.
Coming to coming to your question on quantification I would say currently that for example for Capex I would say well above $500 million.
That's the number I was.
I mentioned today, and we'll obviously update that as we go in the year.
Working capital.
Indeed also we're very happy with the performance we had in 2021 and we work across the group very hard on that but it's fair to say that the picture, which is basically what you see end of the year reflects the low.
The lower metal prices compared to the average of 2021 also.
The low volumes in automotive so we do expect to reverse that to put a number and you also have seen that some of the metal prices since the end of last year, whether it's precious metals also for example, lithium have increased.
That substantially.
To put a number on that.
Print from doing that for the time being I think we said or I said in my voice voice hope a substantial year on year increase, but I would I would leave it there, but again, we will update you as we go into the year and also.
I also have to say that it will depend on the pricing evolution.
Metal pricing solution.
Thank you. The next question comes from the line of Chatham Odessa, calling from JP Morgan. Please go ahead.
Yes, hi, good morning. Thank you for letting me ask a question I just got two related questions actually first days.
If I look at the sort of second half EBIT I didn't do it.
Annualize it somewhere.
700 million of EBIT.
Yes.
Our second half 2021.
I am just looking at the consensus for 2020.
Something like 815, I know you haven't given any specific guidance on 2020, but I just was curious to understand what are the key moving parts, we should be thinking about when we think about.
The annualized run rate in second half and how that May change in 2022.
And I think the related question is should we assume the second half margin in <unk>.
In the catalysis that has now to be more a normalized level or.
Is it is there a reason to believe it may be different than that in 2022.
Yeah. Good morning, Chetan, So I mean on the seasonality I think it's an important point that we tried to highlight when you look at 2021, indeed that the first half was really exceptional because you have this convergence of a lot of driving factors the metal prices the.
Every efficient running of the plans in terms of the volumes coming back.
You have China five effecting.
In catalysis and in the second half.
You saw a number of headwinds.
I think we mentioned clearly metal prices and then.
Also the volumes in automotive, which means that the first half is not.
Really a good basis to extrapolate for 2022, but it also means that the second half is not necessarily a good basis, because as we said we do expect in the automotive market to have a.
Yes.
<unk>.
Growth will return to.
Let's say two virtual environment, we have the metal prices at current levels, which are higher than what we've seen in the second half so.
Be careful to extrapolate from I would say quarterly or half year numbers.
<unk>.
When looking at 2020 to your question on the margins I think it's fair to say that without going too much into details that the margin evolution we've seen.
In catalysis and also in the group in General Indeed, I mean was definitely driven by the external factors, but is also structural so you've seen a substantial increase.
Also in the second half when you compared to historic margins and that we consider to be structural because it's based on the underlying business and also the efforts, we're making into the footprint adjustments. For example, we've done in catalysis and the general cost discipline. So there's definitely a structural element in to that and then you have the external factor which kind.
That's further boosted that particularly in the first half of the year.
The next question comes from the line of Charley Bentley, calling from Jefferies. Please go ahead.
Thanks, Thanks for taking thanks, I just wanted to ask a couple of questions just on the on the capacity. Thanks for giving all the detail there. So on <unk> just one thing in the release. It says 28 gigawatt hours as after the second expansion by the end of 2003 and in the presentation as far as your gigawatt hours.
24, So can you just square that for me. Please and then also just in the other two regions if I look.
The kind of percentage split implies kind of a 25% capacity increase in Korea, and 20% in China.
I guess with the China like what gives you the ability and the confidence to be able to expand these capacities today.
Is that all kind of consistent and underpinned and the existing Capex plans.
When should we expect these to come in thanks.
Yes, Charlie Thank you very relevant question is indeed the.
The capacity expansion that you see we talk about growing from 65 to 120.
And of that.
You compare that what is already the announced capacity.
The lying investments you would come to around 100 or so.
Additionally, <unk> is kind of some news and our planning that we are that we are sharing and with that it's also explains Mr. Because we see the demand in our MISO capacity being sold are so strong that we are currently working on the plan to.
Make it happen that we go a two step approach to 20 gigawatt hours in 'twenty three and then at the end of 'twenty four to come.
Close to the 40 gigawatt hours, which gives us the total equation.
100000, so it's a good catch and it's absolutely in line with.
With our pending so on China.
You're also right we are not banking only to utilize all of the existing capacity in China and this is based on the <unk>.
The promising developments, we have also with our Chinese customers. When we said when I was talking about the so-called.
Advanced qualifications, where we're in where I think we already said in December we will be able in the course of this year.
Maybe even two.
So to the extent already up to the capital markets day to share more insights on that what kind of customers, where how much et cetera, but please bear with us for the moment at this point in time I cannot give you more granularity on that.
Meta.
Thank you. The next question comes in from the line of Maria <unk>, calling.
Calling from Bank of America. Please go ahead.
Hi, Thanks for taking my question today.
Tough one around the contracts that you're working on it.
I just wanted to know whether you can give us some detail on the nature of the contract.
They will start to then the take or pay form with the minimum offtake is it likely to be the same.
At this time.
John .
Portion of say your 2025, and the 40 gigawatt hour are you sort of aiming to have contracted.
Yes. Thanks.
So let me repeat that.
A question just to make sure I completely understand it. So first part of the question is what is the nature of the contracts of the <unk> that we are expecting to close in the near future is its take or pay or some other topic and then your question was.
Can you repeat the second part of your question what is the what is the rate of <unk>.
Are you referring to.
How much sort of capacity is going to be contracted.
Okay understood. So first of all regarding the take or pay or the contractual.
Conditions.
As usual in this business that has different customers with different.
Other types with different contracts. So you cannot generalize that I think what we are doing what we are.
Been always doing is to protect his umicore.
The way we are setting up these contracts could be different forms, but this would be always.
At the.
Top of our priorities now in terms of some.
In terms of what is the amount of.
Of a.
Contracts, we are close to pre the 25 capacity.
Also here, we would want to ask you to wait for our capital market day. As we said we are in progress to be announcing some significant <unk>.
<unk> up in that direction, we cannot do that right now.
We would like to share the math in full detail even beyond that time horizon.
In June so.
If this would be okay for the for the moment I would be happy to answer it like that.
Thank you. The next question comes in from the line of Martin Dan driver, calling from ABN Amro. Please go ahead.
A question with regards to the Green zone in Hoboken side, you mentioned in press release $58 million.
Due to the purchase of the houses and the surrounding area can you share with US what is the total plan in terms of housing Capex and do you actually treat yourself capex, meaning is it in the Capex guidance.
Or do you quantify if you could qualify this differently. Thank you.
Yes.
Without going too much into into detail.
On the numbers so what.
What we've taken in terms of provision.
For 2021 was 46 million euros of additional provision related to the Hoboken Green Zone remember we already had.
Approximately $50 million. So we have a provision if I. If you allow me to round it close to $100 million $90 million to $100 million of provision related to this project on top of that and so what we basically do is we have a voluntary offer to purchase the houses in the nearest so next to the plant.
And the intention is to.
<unk> does houses and make it into what it says which is a green zone. Then we have a second I.
I would say.
Layer of houses, where we purchase the houses, but where we will not demolished the houses which means that we have a combination of cash out and thats. What the provision is covering in addition to obviously all the works that go into that and then we have a small portion which is capex.
Sure.
Related basically buying the houses that we will not demolished in total I think the message we want to convey is that we take this.
This whole topic.
And obviously seriously we spend a lot of money. So if I put it all together were above $100 million related to this project and we actually have in 2021 already.
Cashed out.
Quite a lot of money. So you should think about 60 to 70 million euros to realize this project and I think what we are.
Very happy to see is that.
And the fact, why we need to.
Increase the provision is actually because we have a lot of pickup.
The people.
Living in that area. That's go into an accepted basically a voluntary offer which will accelerate and help us to realize this project, which could leaves us very important it's only one part of the whole program related to Hoboken, and its emissions, but it's an important part of the project. So we're very happy in a way it's a real commitment.
Lot of money, which we're happy that we're able to really implemented that at.
Pete.
Thank you. The next question comes in from the line of Adam Collins, calling from Liberum. Please go ahead.
Yes, hi, good morning, I had a couple of related questions on muscle price inflation. So you talked about a quarter.
Precious metal EBIT tailwind in 'twenty, one coming from catalysis.
Can you explain how that affects the business and then on the Capex side.
We've obviously seen quite a big price rise in both lithium and nickel.
In 2021 could you just confirm that.
<unk> model that is similar to catalysis in.
Full indexation.
The key.
Metal inputs.
And if that's the case to what extent has this.
Being big enough to optically impact margins in the coming year to.
To the extent that youll ship posture that cost.
Which affects revenues, but that's negligible margin.
Okay.
Yes. Thank you Adam so first on the <unk>.
I mean, the model is and you know that then.
As we said.
Slightly more than three quarters is really in recycling.
In terms of the price impact I think that's too much.
As.
It is well known and there is about a quarter, which is related to catalysis and that basically reflects the fact that in catalysis all of our key business units.
They work with PGM PGM prices.
If you look at 2021, and you've seen the kind of spike.
Spike in prices. It doesn't mean, that's in terms of the price effect on our earnings we do get some effect and Thats basically the quarter of the $2 70 that youll see in catalysis and that is.
Because we have these businesses that operate with Pjm's and debt.
And that is part of our business model and I would say, it's really the exception of the nature of the PGM prices and again, we're talking mostly in the first half of the year.
Of course, that's in terms of the lithium without going into details I think the the principles absolutely that the lithium costs is transferred to the customers.
The.
Point is that different than for example.
Our cobalt price or a nickel price, where you have very clear market reference at the lithium that is.
Sometimes less.
Less obvious.
And dishes and indications in a way it's more like a chemical.
Then the metal which are the principal is indeed that.
Obviously transferred to the customer, but I would say the mechanism is somewhat less.
Mechanical than what you would have on.
Global turmoil Nicole.
Thank you. The next question comes in from the line of Ronald for calling from Citi. Please go ahead.
Hi, good morning, everyone.
Apologies apologies if I missed this at the start I was wondering if you could just.
Provide a bit of additional context around the performance in cobalt <unk> specialty.
Sure.
In 2021.
It was an extraordinary year.
And also provide some commentary around yes.
How much of that you expect to unwind.
In 2022.
And if I could just tack on a second I'd just be curious to know what the.
<unk> capacity for LCR is in Europe .
And your capacity guidance for battery materials. Thank you very much.
Yes.
Thank you for the question so our CSM.
Comment to that so as we set.
Up in performance was.
On an absolute scale, good, but also especially compared to 2000 22020, the end markets of the CSM business, which is in the cobalt and nickel chemicals, but also tooling materials was quite down due to COVID-19 . So if you make a year over year comparison the increase in the performance.
First of all coming from.
Coming from.
Revenue up driven by the end markets, but also the price environment was quite favorable in 2021 for us in this regard so.
The second part of the question.
I think those the volumes that you mentioned for Esa rather neglected in this capacity extension. So I don't know the exact number but they are not material for sure.
Predictors.
Thank you. The next question comes in from the line of Joe Gina Freezer, calling from Goldman Sachs. Please go ahead.
Thank you good morning, Thanks for taking my question.
I noticed that your guidance for 2022, it hasnt changed much since your most recent update at the end of 2021.
If anything it might be slightly more positive.
I mean time energy costs in Europe have skyrocketed.
Was just wondering if you could help us understand any potential impact from higher energy costs.
And what do you mean <unk> approach to managing them. Thank you.
Thank you George for the question. So yes, I'm afraid we are.
The.
All companies lift through which is.
Context.
Accelerating inflation, so that goes for us as well and that's included we definitely wanted to include that in the outlook statement.
Energy focus as you'd like.
Can you say I think is the most important the most significant part of that if I try to quantify the impact and again based on what we know today and what we see today I would say the total inflation impact year on year brokerage.
Probably something like $100 million.
And energy cost is definitely the largest.
Part of that.
Now like also other companies.
We clearly expect a.
A substantial part of that.
Cost inflation generally.
Experts into into our prices so.
With energy cluster is an important factor.
As we know a number of activities, which are quite energy intensive we do have some hedges for <unk>, specifically electricity and natural gas in Europe with I would say by and large was still exposed to the.
To the market price.
Unfortunately, having a lot of operations in Belgium, It doesn't help because we've seen quite a spike, particularly in electricity price in Belgium, and disrespect. So we do expect to be able to transfer part of that so I would say general cost inflation into our practices.
Thank you. The next question comes in from the line of Sebastien <unk>, calling from <unk> Bank. Please go ahead.
Hello, Good morning, and thank you for taking my question. It's on the guidance for NSE in surface Tech and what if anything has changed since December of last year and why.
The wording that I have from December of last year in front of me.
Earnings of energy in surface Tech segment are not expected to show a significant uplift for the period 2021, 2020 free and the wording you used to pay was a slight increase year on year 2022 to 2021.
Has that been any substantive change.
Phase two two and a half months ago and if so is this partly as a result of the fact, the LSP prices in China have rallied more strongly even NMC because carbonate lithium carbonate price input has gone up disproportionately versus hydroxide is there any impact from that thank you.
Sebastian let me take the question.
No.
<unk>.
The outlook, we gave for 2022 is compliant with the statement that we did end of last year. So what we said is that we will grow earnings in the segment, however, under proportionally versus the market expectation. So this hasnt changed so we are working on it of course to improve it.
But it's not something we can state today. So you can rest assured the staple it's the same and.
No. It is not in this since not related to the mix that we of course like as a general development in the market because it confirms what.
What we've been saying before but no there is no direct link.
Thank you. The next question comes from the line of Geoff Haire, calling from UBS. Please go ahead.
Good morning, and thanks for taking the question I just had one question I wish I had one question and one clarification.
One of your comparable Johnson Muffy commented recently that when the move to Euro seven Hopkins I don't see any increase.
And the value add.
You get on low cost producer and revenue compared to euro six.
Great with that and secondly.
Just a clarification Philippe you mentioned I think to chat on this question.
<unk> prices are up.
Versus the second half than the first half of this year, which we can say, but I was under the impression that most of your muscles are hedged with the exception with med Mal or hedged with the exception of rhodium. So is it really what you are saying is that rhodium prices have moved up and that should help.
The first half may be better than the second half.
Okay. Joe. Thank you I will take the first question. The second one Philip will take so regarding euro six versus euro seven so there are true.
Influencing factors the first of all it's coming from the technology, because it's just more stringent emission legislation, who need simply sit more technology.
More pjm's included.
More complex the system to treat so that's for sure.
A lever for value up scenario now on the other hand, you have to also see and that's the reality of where we are in today.
Today the Oems.
Basically announcing that.
The euro seven probably will be the last emission legislation in front of us the last major upgrade and what they want to do is they want to give long term contracts for the for the suppliers in the market to be the partners on the long run I think we are very well positioned as we just said.
So the technologies that we have and the positive momentum we have on the import market to to gain market share. So we can already see that we have in there.
Good position in that race, but of course, the downside the second effect.
Is.
Of course the competition for these businesses were at the end of the day, the customers, which will which would mean also cost competitive competition.
At the end of the day, what we see.
The upside on the technology should be able to overcompensate potential price pressures from this increased competition. So.
Our view is that that euro seven.
<unk> is providing.
Value up.
For their respective markets.
And the second question on the.
The price evolution.
I think we can definitely confirm that origin prize is an important element I think we've said it before you know that it's a significant part of the <unk>.
Price.
Delta.
Sure.
And the Boston, Indeed rhodium price.
As come up quite a bit since the end of last year.
Nobody knows what the price will do but there's a let's say structural supply demand equation behind pbms.
Which is important which is linked to intrinsically the outlook for the automotive industry. So yes rhodium is at play, but I wouldn't want to I think that the question of shutdown was more broader in terms of overall earnings. So what to just finished two two metal prices I mean, its everything its the mix also in terms of assumed volumes et cetera, So it's with rolling them as.
Clearly an important sector the other precious metal prices also play.
We.
Let's say largely etch those so that should be much less important factor then I think also maybe making but the link with the.
The question of Georgina on inflation.
Given that we are in metals and precious metals I think youll have D.
The efforts to pass on cost inflation.
First of all try to manage cost inflation and pass it on them into your pricing, but clearly metal prices and the fact that we have precious metal prices.
There is also an element into the overall equation, but so short answer yes. So volume definitely is important but there's other factors in the boardroom.
Yes.
Look through the seasonality.
Thank you. The next question comes in from the line of Charley Bentley, calling from Jefferies. Please go ahead.
Great. Thanks, just one.
One follow up just on my last question is just on the utilization rate. So can you give an indication of utilization rates.
Your cathode capacity and also for China, and then second one is just on this comment around catalysis margin. So if I, if I back out the $70 million of metal price benefit the underlying margins around 15%. If I look at consensus is looking for around 17% long term or do you think is kind of a plausible.
Long term margin for this business.
Johnson Matthey recently suggested that kind of 14% was a target goal is that how you see or do you think you can do better than that thank you.
So I will take your first question Charlie Thank you.
I will answer the second one.
So capacity.
I think we have tried to elaborate.
In December we have to.
Today, China and Korea, our Korean capacities are quite well utilized as of today, the Chinese one's not and this hasnt changed and this is something which is also.
As we have said before the burden on our.
Fixed cost if you will of the onto under utilization, but as I repeat as we said before.
Current.
Prospects that we have on these advanced qualifications will boost OLED high nickel.
Value, but also give us significant upside on our Chinese local business.
<unk>.
That's all I can disclose at this point in time.
And Philips.
To the question of the sustainability of the margins, Yes, I think it's a good question for the capital markets day to give a bit more of the perspective and the building blocks for that will stay with us wanting to evade the question and im not going to comment on what the.
Other companies have.
So I think what we're trying to say is that.
Okay.
C.
One compared to.
Previously as an obviously jump in 2020, which was exceptional with this margin uplift we considered to be structural because it's linked to let's say first of all the product mix, but secondly, also all the efforts, we're making in terms of making sure that our cost base is as competitive as possible. We've done a number of footprint adjustments you know those.
Okay.
Continuously work on.
Operational efficiency of the plant is I think one element really especially for catalysis and that will also be the case for.
We charge a battery materials, which is going to be very key. So there is a structural increase in margins.
Without wanting to give.
The percentages I think mid teens is probably indeed.
A good estimate.
Allow us to come back on that maybe in the capital markets day to give you a bit more the structure into that into that answer.
Thank you. We currently have no further questions in the queue. So as a reminder, if you would like to ask a question on todays call. Please press star one on your telephone keypad now.
Thank you and we do have a follow up question from the line of Carter, calling from Bank of America. Please go ahead.
Hi.
In catalysis.
Why.
Recently constructive on volumes going into 'twenty two.
<unk> production guidance.
Sorry, this year last week from your peers.
More constructive on say the orders coming in.
Are there any kind of just the pricing side.
China can you remind us as to what other pricing levers you see obviously the next two yet and when do you expect the benefit from China's six to come in.
Yes, let me maybe answer the.
<unk>.
First question first and then the second.
Regarding the outlook on didn't want to automotive market. So.
Indeed, we.
A little bit cautious if you want to maybe compared to other announcements because we have seen the unpredictability of the.
Chip crisis unfolding in the last year now if we would just judge on the momentum that we see in our.
Orders over the last two to three months, we can be also slightly positive. So we see that there is an uplift on a on the orders that come from our customers.
Given our quite substantial market share in this segment. It is a good indication also about the global automotive industry, where we see indeed see it pick up now.
We just want to wait.
<unk> global supply chain that is not only related to the semi conductors if it comes now again under load.
We are confident that umicore will be able to follow in terms of production capacity this might not be might not be true for all of the participants in the supply chain from experience in automotive you turn up the volume.
If you will.
Quite significantly in a short time.
Some members of the supply chain will keep up and then we have unplanned disruptions. So we stay more conservative on that but I would agree too.
So a positive sentiment.
That we see currently.
Second question on the China, five with China six.
It'll just extend its effect against the China six nationwide on the heavy duty was implemented in 2021, so in the first half.
'twenty one there was sprint.
Effect on catching.
Still as China sites.
<unk>.
Product <unk>.
Heavy duty trucks, which of course.
Bye.
Concept.
But if you if you want them to China six months. So now the implementation is fully there in China.
That means the effects of the fix achieved.
<unk> from China.
I'll now in full swing already and will be therefore 2020 to enter into following years.
Thank you. The final question is a follow up from the line of Adam Collins from Liberum. Please go ahead.
Hi, Yes, just a couple actually.
First of all in recent years, you've provided quantitative guidance in the range of about 10% at the Q AGM stage.
Is it your intention to continue.
And then on the Capex side forgive me I didn't hear your reply surrounding triangulation to LCI is that I know you've exited now and could you also just comment on where you stand in terms of LNP has been a suggestion in the past.
You have the capability and high manganese.
Some sense away with that.
Okay.
Let me ask let me answer let me answer your.
Last two questions one Felipe will take the first one so say.
Capex no we're not exiting this business, but the shift of weight versus the other or technology is simply faster accelerating. So so this is to stick with it.
And then in terms of how we call it the <unk>.
This is so <unk> technologies.
We are as well in quite active stage. This is a newer technology that is introduced to the market we have it.
And all the lessons learned as discussed in December from from behind nickel topics to stay very close to our customers and it helps us actually that we are now much closer to the OEM customers through our announcement and other activities that we did not announce and this helps us really to see what are the needs on the segments too.
Really.
Answer the question at the end of the day the OEM as I have said before these are interested if a technology it's called HLA.
<unk> they want a product that fits into from a performance and price equation into a certain market segment and today, we have quite some activity on.
On sampling.
Testing together with customers and you can be sure we'll be announcing.
As soon as we have also.
A quantification on that ticked up quite busy right now with HSM.
Yes.
On the guidance I mean, you're right to mention that Adam I think 10% is kind of the range. We have historically tried to use I would say the answer is we've tried to be as specific as we can based on the.
A visibility we have and all the factors. So if we can be specific.
To that extent, we will we'll do it I think it's fair to say that like all companies, we're coming out of this.
Special.
Phase with the with Covid. So we have to kind of recalibrate a bit you also see that I mean, the earnings went from <unk>.
Around at 502 billion midyear or so.
So.
The let's say the visibility factors both on the economic outlook and then also on things like metal prices will play a role to see how tight we we make the guidance, but definitely we will try to make it as specific as we.
Really feel comfortable doing based on the visibility we have.
Thank you that was the final question in the queue. So I shall turn the call back across to yourself for any concluding remarks. Thank you.
Thank you very much operator, thank you very much all participants to this call very good questions very good discussions and of course, we are looking forward to continue this now.
Jim that we will have in April and of course, we hope to have a lot of participation from your side in our capital market day that hopefully if the COVID-19 situation allows we would be able to do as a physical event, especially myself being new as a CEO I would like to meet you personally to exchange the views.
You may call the future of the different strategies together with the whole management board. So I'm looking forward to that and of course I'm looking forward to the roadshow in the coming days with each of you to go into more detail about our 'twenty one business performance in 2002. Thank you very much and have a great day and continued weak.
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