Full Year 2022 Umicore SA Earnings Call
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Hello, and welcome I'm too.
Umicore full year 2022 results calls.
Please note this call is being recorded.
The duration of the call your lines will be on listen only however, you will have the opportunity to ask questions. At the end. This can be done by pressing star one on your telephone keypad.
I will now hand, you over to my T. S me like to begin today's conference. Please go ahead.
Thank you very much and also a warm welcome.
Well, our 2022 annual results call I have the pleasure to be in the room with a bunch of stuff out with today with the stock that as CFO of Umicore in October of last year and once we introduce himself later, but I can already stated.
State that I'm very happy that he joined the team with its broad and deep experience of Umicore not only from a financial perspective, but also from his experience in operations and in our business. We're also as I said one is we'll use the chance to introduce himself in a minute. So if we go to the agenda.
After today's call on page number three you will see that we start as usual with some highlights of 2022 before.
Give you more flavor on the different businesses that.
We have the three business groups.
And then I hand over to wanted to give you a deep dive on the financials before.
Before I will cover our progress in sustainability in ESG and provide an outlook for 2023 and then as usual we will have questions. So let's go now to page number five where we will talk about the key figures of 2022.
2022 as you all know it was a year marked by multiple external events that had significant impact to the global economy and also to the end markets that we waited.
And with that we are very proud that we have achieved a strong result.
Strong results in our.
Earnings, but also especially in revenues up 10% year over year. Despite the significant macroeconomic headwinds and in this environment. You would go has again proven its resilience and operational excellence because adjusted EBITDA is the second highest in the <unk>.
History of the group is standing at $1 2 billion below the record levels of last year because of the.
Cost inflation environment, and the less favorable precious metal price levels that we have seen but also.
Because of an increased spending that we have done for innovation and growth preparation I will cover that aspect in the second.
One is we'll give you further granularity on the building blocks of this as we think strong and robust results in front of all of the headwinds of 2022.
Our strengths that is by the way also visible in our returns on capital employed that is reflecting a significant value creation.
19, 2%.
On the next page we have a reminder of what we have introduced.
Here's our raised 2030 strategy and we can say two things to that first of all the underlying mega trends that we have been a defining for that strategy not only confirm they are really accelerating.
And there's also a portion I would cover a little bit later.
But it's also.
Effect that we have covered already quite some significant milestones in achieving that strategy to build the foundation for the growth and that's what I wanted to share with you in the next two slides. So on slide number seven you can see that.
We have made significant progress indeed on the customer side closing value creative contracts.
For all of our businesses and especially the battery material business, the joint venture with flexible and clearly.
As we think milestone and even benchmark for the industry. It's a strong signal of recognition of our products technology and process expertise and we have even the large debt with an Mou that we have signed with Volkswagen with powerful for the North American business also giving good momentum for our original expenses, but also with <unk>.
We have made.
Very good progress on our long term supply agreement backed by selected <unk> as the shareholders, but also outside of battery materials. We are clearly recognized.
As the reliable transformation partners that we want to be an example would be the.
See this supplier awards 2022 that Umicore has achieved with also this in mind so overall.
Very good traction on the discussions with the customer side on our battery materials business, especially.
Has been increased acceleration in the second half of the year with Oems and cell makeup. So I can confirm that we are fully on track for what we have said earlier our ramp up of our.
Is this already significantly visible in 2024, starting already at the end of 'twenty. Three and then also we have made major steps in the technology portfolio and our innovation ecosystem, a strong IP creation over the years. So I want to pick one specific topic is the <unk> technology that we have.
<unk> into industrialization is.
This year and also prepare.
Last year of course with a lot of our research work that has been done to solve two of the key issues and it would go more in detail in the Q&A. If you want to serve the two key issues technical issues that you were standing in front of it the stability of the material and the connectivity and with that we see.
Market introduction of 2026 of this solution that is catering the needs of the design to cost market.
Sitting it at lower cost and high performance I can give you more flavor into Q&A. If you want on the next page we see another very important.
Success and this is the success of regional value chain, you know that battery material as the taxi business is and will even be stronger in the future our regional business with retail supply chain and with the opening of our new supplant we have confirmed our leadership position in Europe to be the only company with a giga.
Factory up and running and the company with the largest supply chain integration outside of China from refining and.
And Kevin and we were very happy to supplemented with one very important agreement on the raw material supplier nickel, which you know is.
One of the if not the most important ingredients and we have secured a long term supply of low C. O two legal proceedings from tariffs on that.
We're working on that on a breakthrough process with <unk> to bring the NICU in a very efficient way and this is completing our picture for the roofing side and also we are.
Further progressing on the expansion plans that we have in Canada dealing with all the momentum that we have to be iras.
Also in the key mobility ecosystems, we have made significant steps up and ESG work with is something I will cover a little bit later in the documents. So very good progress on implementing proof points for our strategy setting the foundation now.
Yeah, a little bit more granularity on the different business group, starting with catalysis and their 2022 results. So first of all the underlying markets and most important market for catalysis automotive market to be more specific the combustion engine automotive market as you can see here two messages. This market is still a big.
It will continue over time to be a significant however, it didn't.
Move much in the last three years, we know all the reasons for that is supply chain constraints, while the end consumer demand is there Oems had too.
Take down their production target, creating a quite volatile environment of many changes in the supply chain.
And with levels that are still significantly below the pre pandemic level and with that if we move to the next slide slide 12.
It is even more impressive what our catalysis business group.
Against this backdrop another record performance in 2002 with both revenues and earnings exceeding the previous results achieved in 'twenty, one up 5% and 4%, respectively and was that the adjusted EBITDA stands at $419 million and with that largely offsetting cost inflation through increased.
<unk> efficiencies and also a quite strong pass through ability into pricing as a result of that we keep the EBIT margins well above historical levels with 23, 6%. So very strong performance by automotive catalysts that I'll cover in a separate slide but also precious metals chemistry activities were quite performance.
At year end in fuel cells and stationary catalyst.
We had revenues that were in line with 'twenty. One that was caused by the shutdowns lockdowns that we saw in China due to COVID-19, but very good progress on the customer side to additional.
Contracts closed with our commercial vehicle customers in China, which is the biggest end market as well as good traction on implementation implementing what we have said last year is.
Fuel cell catalyst plant in China that is on track to be ramped up.
So a little bit more deep dive on catalysis, because we want to make sure you understand the root cause of the strong performance. So first of all it's a strong market position.
Chip position has.
Clearly been confirmed through the 'twenty two results through market share gains in nearly all global markets, especially in China.
So this is.
Proof point as we see those results also from an operational side. The strong cash flows that we have projected for our rise 2030 strategy are fully on track are confirmed.
Especially the resilient and I have to say flexible operating model, it's really paying out in an environment, where probably volatility will if at all increase in the future. That's a strong asset to happens we're very confident on the value creative.
The nature.
Nature of the business also on the long term because euro seven has been concern has been confirmed to be of value for the market and the wasteful umicore to even further differentiate through technologies and the good thing is also that we are continuing our strong market success with good progress in securing euro seven platforms with several customers.
So altogether our.
Our revenue profile is structured very beneficial because we are over 80% of our revenue.
In the longevity segments, so the light duty vehicles gasoline market as well as heavy duty diesel. So that's a strong base, where our teams with the operating model.
Strong ability in.
In execution.
We made a great year.
Next to cover is <unk> energy and surface.
Technologies on slide 15.
Before we go into the review of the performance of <unk>.
It's important for me to not a change in the revenue definition that we have decided to apply from 2020 as lithium manganese.
Creasing, the valuable and volatile components in rechargeable battery materials, it was decided to not longer treat them as consumables, but as hedged methods in order to make the accounting approach consistent with the revenue performance indicators used in human cause other business units and from now on.
Pass through value of purchased lithium manganese will therefore be excluded from the revenue calculation as it is currently already the case as you know for cobalt and nickel.
S T. A 2021 and 2022 revenues have been restated Accordingly, I think this is giving also much more clarity and transparency.
The fundamentals of the business.
Now on page 16.
We again highlight the fact that electrification is.
Not only concerns it's rapidly accelerating its driven by the stick and carrot approach in the different regions U S, providing more carats with the IRS and the stick.
In Europe with the combustion engine banned from 2035 that is now.
Fully confirmed.
And you might have.
The European Parliament has put in a proposal now too.
To even extend that quasi band to the commercial vehicle side, where now for 2040, a 90% reduction of Cotwo.
Is proposed which of course would be another strong accelerator of that.
Yeah.
The demand, but also the availability of renewable energies is making strong steps forward the wall in the subsidies.
<unk> seen as.
Catalyst of renewable energies the international Energy Agency. We just saw a report this week is forecasting two four terawatt of new renewable energy capacity will be installed until 2007, which is actually the current power production of China.
So it's gigantic.
Basically say that.
Energy prices is a catalyst as COVID-19 was for the renewables as Covid was for communication technology sonar for us of course Thats a good news in terms of the addressable market, but for the industry. It provides also a significant challenge because of the supply demand situation in the different regions is by far.
That is by far more balanced, which we would show you on the next slide which is slide 17. So you can see that today already in Europe and in North America, the demand and the supply of not balanced between.
Needs of electric vehicles for batteries and battery materials and the capacities of Cameron.
Assistance.
You can see that this gap is continuing it.
Leased into 2013 now what is today done obviously this gap is breached by importing materials from mostly Asia.
But we also know and I think agree that this would be more and more difficult if not impossible.
Mainly because of three things you have the local content requirements that.
Post by subsidies and also the geopolitical fences.
And stick approach, but more simply speaking it is the C or two requirements of the car manufacturers that want to go down that need to go down in their scope three emissions in with it.
Large transport of thousands or millions of tons of material, it's simply not possible.
Cross continent in last part of this the lessons learned from the Microchip supply chain crisis is that you have to have reliable supply chain being close to your customers and thats, what the customers want so the consequence.
We can see a potential under supply of Kim until 2030 of course. These are all announcements today that can change and personally scat also about the announcements in a way that.
We know the human cost strength in building capacity, we don't know that all of the markets. So you can also Q1 from the Green bar discount, even 10% to 20% of the capacities that will never come true.
But it does not include yet as some other effects like in the U S. I would expect that the IRS will drive up even more.
Electric car production, which is the.
The reason why the IR rate is existing and in Europe , It's look yet, including the commercial vehicle demand that we just have talked about so altogether quite a tense situation and for companies that have existing supply chains in the regions are just building it up like we have in Europe is building up.
Medicare makes us quite confident that we can be off.
Significant advantage to our customers with.
With that in the future and ultimately this will be an advantage for umicore.
A little bit more flavor on the 2022 results of the E&S key segments. So we had to.
The higher revenues and earnings.
In the business group.
Quite substantially increase of them in new charger for battery materials. The sales volume of cathode active materials from our legacy contracts remains as we had anticipated and previously discussed communicated subdued revenues and earnings.
Went up year on year, including ultra favorable exposure to the lithium price in 2022 and this also we had chip at our half year results the sensitivity of the revenues and earnings to the lithium price will be.
Discussed before decreased throughout 'twenty, three and this will be further minimized from 2004 through the way, we have structured our contracts and through hedging mechanisms. So over the year. The business unit has made strong progress on the customer side with very good traction on commercial discussions as well as appropriate qualifications and we feel very well on track for what we have.
Said earlier, which is our 2020 for volume ramp up that is in full swing.
As a next step in the execution of our strategy our intention as well to group the global rechargeable battery materials activity within one legal entity setup will as we believe provides the best foundation for the business year to scale and we will give flexibility on financing options to support the growth.
Of the activity within <unk> co.
In specialty materials also revenues increased substantially versus 'twenty one.
<unk> and exceptionally strong demand and supportive price environment. The first half of the year before and expected normalization of the demand hasn't happened in the second half and metal deposit solutions and electro optic materials recorded both stable revenues compared to the previous year.
No.
Finally <unk>.
As part of this recycling, let's have a let's have a look at the last year performance of our recycling business group <unk> 22 was again marked by a volatile precious metal in PGM price environment. As you can see the average price of rhodium in 'twenty two decreased versus a record year of 'twenty one and this of course is an important input parameter for our business.
Yeah.
And on the next page to see that against this volatile precious metal price environment. The recycling business group. Indeed delivered another excellent operational and also environmental performance.
The revenues in PMI precious metal refining we're close to the record levels in the previous year's reflecting solid volumes and an overall good availability of complex input materials earnings states on a very good level compared to previously is strong however below the record year of 'twenty, one, reflecting only a partial ability too.
The significant cost inflation that is.
Mainly on energy. In addition, the long term nature of our contracts in this business that only allow for a limited pass through of inflation during the time of the yen.
Long longer term.
Processor in the course of 'twenty two there was another important progress we made in recycling, which is on the battery recycling solutions, we have created.
Business unit for that it has now.
Implementation the latest generation of our lithium ion batteries flow sheet into the operations that we are running already since 10 years. So a lot of knowhow and experience have been put into increase.
Recovery yields.
Also.
Very good steps have been made to extent the customer portfolio with several additional agreements with Oems and battery maker. So altogether, we are well on track also here and as we said this year, we will decide on the location for our high capacity battery recycling plant in Europe with up to 150.
Tons of capacity in.
In the same business group jewelry and industrial metals. We're also had a strong revenue and performance increase across most of the product lines and precious metal management was slightly below the exceptional strong 21.
So with this granularity I will now handover to one is who will give you more color on the financials of the 2020 business here.
Thank you Martin and good morning to everyone.
Im very excited today. This is my first earnings call as <unk>, new CFO for Umicore and I'm very much looking forward to our future interactions.
Let me take a quick moment to introduce myself. So I have been with Umicore for 17 years and I've had the opportunity to work for different business units across the group enrolls in both financial and General management.
In my new role I will continue to focus on performance and on risk management and my personal ambition is to ensure that we stay on track with the execution of the <unk> strategy.
Now, let's have a look at the key figures for 'twenty two.
As Matthew said earlier Umicore financial result in 2002 was driven by strong business performance in a year with plenty of macroeconomic challenges.
Of the unprecedented cost inflation, the continued supply chain disruptions and the volatile price environment for precious metals.
Now despite this challenging context, Joe Mccourt grew revenues with 10% to $4 2 billion Euro.
And as we mentioned earlier, we now exclude the lithium manganese pass through sales from a revenue calculation. This will allow us to better compared to business performance and the rechargeable battery materials business unit.
Now as you can see in the graph on the top right. The revenue increase was driven by the business groups energy <unk> surface technologies and catalysis.
In rechargeable battery materials, we benefited from a sharp increase in lithium price during 'twenty two combined with a time difference between on the one hand purchases and all the other handset sales.
This product.
Now going forward the lithium price exposure has been substantially reduced as we started hedging lithium as we do for you on the battery metals cobalt and nickel.
Also in global specialty materials revenues increased substantially here, we benefited from an exceptional strong demand and supportive prices for a couple of the nickel in particular during the first half of 'twenty two.
In catalysis, we were able to grow revenues largely thanks to the automotive catalysts business outperforming the markets and then recycling revenues were again outstanding and in line with last year's record level.
Now if you look at EBITDA, the adjusted EBITDA amounted to $1 2 billion, which is 8% down compared to the record level last year. As you can expect the unprecedented cost inflation did create an important headwinds in 'twenty two.
Now when the graph on the bottom right you can find more details on the impact of the external factors on EBITDA.
Year over year cost inflation before pass through to customers resulted in a headwind of more than $180 million.
And on top of that the lower price vehicles for precious metals resulted in 70 million euro lower contribution versus last year.
Yes.
So how did we deal with this cost inflation.
In catalysis and to some extent in energy <unk> surface technologies, we were able to offset a substantial part of this cost inflation headwind.
Did this through a mix of pricing adjustments and efficiency improvements in operations.
In recycling the bulk of the cost inflation resulted from higher energy costs.
These were harder to pass on because of supply disruptions resulted in increased competition globally for certain restocking fleet.
Now the bridge on the bottom right clearly shows that excluding 40 is exceptional external fix the group's underlying performance increased substantially year over year.
And the strong performance of the group is also reflected in the adjusted EBITDA margin, reaching 27, 3% in.
In catalysis, yes, just the EBITDA margin is in line with previous year again, demonstrating that we successfully offset cost inflation.
The ramp up cost in energy <unk> surface technologies.
Energy cost inflation recycling did weigh somewhat on our margins, but in all three segments. Adjusted EBITDA margins remained well above the target of 20% that we have set in our 2030 licensed strategy.
Rosie for the group reached 19, 2%, which is still an historic high.
And <unk> increased in both catalysis and energy <unk> surface technologies.
So now moving to the consolidated P&L, let us first have a look at the bottom line as you can see the group shows the net result of $570 million in 'twenty two.
If you look at some other P&L elements.
You will see that depreciation and amortization increased slightly to 286 million euros.
Which resulted in an adjusted EBIT of 865 million euros.
Adjusted net financial charges are now about 125 million versus last year, which reflects higher interest charges on short term loans in line with the general market and somewhat higher foreign exchange related costs.
Adjusted tax charges were lower versus last year now, it's 145 million Europe next to lower taxable profit.
Adjusted effective tax rate for the group decreased to a level of 20% versus 23% last year.
The adjusted net profit group share amongst a 593 million, which results in adjusted EPS earnings per share of $2 47 versus $2 77.
And last year.
Yes, Justin has had a negative impact on EBIT of 32 million and.
And are mainly related to the increase.
In environmental provisions for legacy items, and also includes restructuring and impairment charges related to the stationary catalyst business in Denmark.
Now moving onto the next slide with the free operating cash flow.
We'd like to highlight that free operating cash flow for the group remained strong at a level of $344 million and continues to support the execution of our growth strategy.
In the top graph you can see that the operating cash flow after changes in working capital. This is the dark Blue line reached a solid level of 835 million.
The working capital in 'twenty, two increased by 342 million.
The higher metal prices in rechargeable battery materials was one of the main drivers here.
In the bottom graph looking at the light Green line, you will notice that capital expenditures, including capitalized development expenses increased to 491 billion in 2002.
Energy <unk> surface technologies accounted for more than 60% of the group's capex driven by the expansion of the European footprint in rechargeable battery materials.
And the other two segments catalysis, a recycling capex slightly decreased.
I would like to emphasize again that within the group Capex discipline remains a key focus area.
We continue to make future expenses conditional upon concluding value, creating agreements with our partners.
So moving to the net financial debt.
At the end of 'twenty, two net financial debt amounted to $1 2 billion, which corresponds to a leverage ratio of <unk> 96 times last 12 months adjusted EBITDA. So we continue to have a strong balance sheet supporting our 2013 license strategy.
As you can see as you can see in the bridge net financial debt increased 144 million versus last year. The solid free operating cash flow of 344 million Europe enabled us to $488 million related to taxes net interest dividends and net purchases of own shares.
I would like to repeat that going forward. Our funding policy remains unchanged, meaning that we continue to have the ambition to maintain our leverage ratio at investment grade level throughout 2030 lifespan.
As you know end of last year, we issued the sustainability linked U S private placement the EMR.
$590 million has been drawn early this year and generate.
The UCP transaction was a success in particular, considering the volatile financial market complex end of last year. It also illustrates the strength of our relationship with institutional debt investors and it was a strong validation of our 2030 of our strategic plan.
With this I would like to conclude my section on the financial performance and hand, it back to Martin. Thank you.
Thank you very much.
Not only strong performance on the financials, but also a very good progress on sustainability.
We can report back to us significant progress in the roadmap that we have called less scope for zero that we started in 2021 in terms of Q2 reduction our targets for scope, one two or three have been validated by LPTA and the even better news is that we have even slightly over achieved the respective 22 data points.
On the glide path that we have towards our 2035 and 2030 targets. So that's a very good news and also we are proud that already as of last year, 55% of the energy.
Needs in Europe have been based on renewable energy is quite a high value that we don't stop and we will further increase.
In terms of zero in the quality and how we have made also good progress in safety safety performance.
<unk> was better than the group over the year, but also by actively taking the topics of water and biodiversity and finally, we have also set a good momentum and further improving our ESG governance, not only through the implications applications of Tcf's.
But also by adding additional committees to our supervisory Board sustainability Committee as well as an investment committee that will provide further guidance and governance for the development of the group rise 2030 and.
Sustainability roadmap, so last quarter at least before we go into the Q&A session I want to provide you some flavor on the outlook for 2023, starting with catalysis automotive catalysts is expected to benefit from its strong market position in gasoline catalyst applications, our supply chain recur.
Every and anticipated rebound of the Chinese heavy duty diesel market and therefore, adjusted EBITDA of the catalysis business group is expected to show further good uplift in 2023 versus the already very good 2022.
And Ian is key in energy in surface technologies as it's expected that the earnings of the rechargeable battery materials will be in line with the 2022 level.
<unk> that in 'twenty three the cobalt <unk> specialty materials business unit will no longer benefit from the exceptional profitability that occurred in the first half of 2022 adjusted EBITA of the full E&S technologies business group in 2003 is anticipated to be somewhat below the levels of.
2022 recycling finally in recycling the precious metals refining business unit is expected to continue to benefit from an overall supportive supply environment.
Assuming the current precious metal prices were to prevail throughout the year adjusted EBITA in the recycling business group in 'twenty three is expected to be below the levels of 22 due to the full year effect of the cost inflation. So overall adjusted EBIT and EBITDA for the group I expect it to be below the levels of 'twenty two.
In line with the current market expectations.
So I want to close this introduction on page 23, where if there would be only three things that you would remember from this presentation I would ask you to remember that first of all Umicore has shown a very resilient strong business performance in a volatile market with improving and confirming the underlying cause.
<unk> of the group its resilience second the Mega trends that are based.
The basis for our right 2030 strategy.
And then confirm they are accelerating and finally, we have taken big steps positive steps in implementing the rise 2030 strategy with key milestones and as we think proof points for the validity of the strategy achieved in 2022, and we are fully energized to take a 23 in the same.
With the same.
Mount of progress. So thank you very much for listening to us and we are now more than happy to answer any questions you might have.
Thank you, ladies and gentlemen, as a reminder, if you would like to ask a question. Please signal by pressing star one on your telephone keypad.
We kindly ask you to limit yourself to one question. Each so once again that is star one for your questions today.
And our first question comes from Charlie Webb.
Morgan Stanley . Please go ahead.
Good morning, everyone.
Thank you very much for the question maybe.
Maybe just one on free cash flow.
Im kind of Capex expectations.
Looking into 2023, maybe you can just help us remind us where you expect capex to come out in 'twenty. Three how are you seeing the current inflationary environment as it relates to kind of Capex. So you've got a lot of spending to do to position yourself for growth just understanding that the kind of the capex profile and kind of remaining on the free cash flow also working capital.
With the new supplant now kind of expected to ramp up in 2023 is that already fully loaded when we're thinking about the kind of the working capital front.
Working capital will go into that fund is that already done or is that ahead of us. So we can get a gauge on that kind of working capital dynamic. Thank.
Thank you, yes. Thank you very much John its excellent that the first question immediately goes to our new CFO . So our entities over two one.
Okay. Thank you so let's have a look at some of the key components as you mentioned capex.
For 'twenty three I mean, given the value creating agreements that we have concluded in 'twenty two plus years.
We plan to step up Capex in 'twenty three in particular for the footprint in Europe . So, yes, thats something we anticipate looking at inflation inflation with respect to Capex.
It's not something I mean, we have also programs in place to improve Capex density, where we also already see benefit in the course of 'twenty two and also in the course of 'twenty three.
From that angle, we don't expect a major impact on the plan for 'twenty three and looking at your question with respect to the.
Plant in Europe .
We are.
Where we are still in the ramp up stage I would say looking at the capacity utilization.
In respect to working capital I think the working capital needs in Isa they.
But they will they will increase but more at the end of the period because as we said the ramp up will start end of 'twenty three and we're in full swing for 2004, So thats what you can expect.
Okay. So just to gauge a little bit on that capex and any kind of gauge on where that should be for 'twenty three relative to <unk>.
But maybe more in absolute terms relative to 'twenty two would be helpful and just on working capital I guess is it right then to assume if we cyclical low demand in the second half that we should expect further working capital outflows.
In 2003 thank.
Thank you.
Yes, so basically with respect to Capex I mean looking at consensus.
In analyzing potential I would say that we don't feel comfortable with what we see in consensus.
Okay.
Okay.
Thank you.
And now we're moving on to our next question, which comes from <unk> <unk> of.
Of Jpmorgan. Please go ahead.
Yeah, Hi, Thanks, good morning.
Had a few questions first I'll just start with the.
The mention of carving out our I think putting all of the <unk> businesses.
Great.
Just curious.
What is the next step because you also mentioned material this would be we didn't umicore.
Sorry, you're actually ruling out any any external participation in this business because one would think when corporates announce.
Carving out something as an independent entity that makes logical outcome is either.
It becomes independent wholly or there is.
A link associated with raising financing through that independent entities. So I'm just curious what.
Other sort of mixed.
Milestones on.
On that business in terms of.
Corporate action side.
The second question was.
Just looking at the corporate R&D.
That is clearly going up.
I could also see some of the R&D cost in the corporate line out associated with the new <unk> material.
Projects and I am curious why is this not in E&S D and why is it sitting in corporate line because it seems it's more directly related to the.
Our E&S business.
Sure.
Last question.
Catalysis.
The margins have continued to surprise on the upside here for sure and if I look at second half the margins are up versus first half.
I am just curious again here you tried to address it during your comments, but.
Are there some temporary factors.
Or you think the.
Strictly the margin level in this business has reached a stage, where I know EBIT margin closer to 20% and there's probably you want to be a norm at least for the next few years. Thanks.
Thank you very much <unk>.
Good question, let me start with the first one.
And what we have said about the structuring of the entities. So IBM battery material business is an instrumental.
Part of our <unk> 2000, <unk> strategy is the growth engine of the group.
This does not change.
With this announcement right and what we what we have said in the capital market day, we remains totally true.
Looking on all of these options to finance our business going forward at this point in time, we don't exclude any options and we have decided to.
This step to give.
To de complex if I also.
<unk>.
Units in terms of need debt structures like S&P systems, all the it systems. If you do that at an early stage, where we are now before you go into the growth of that complexity, but of course.
A key reason is also to have all of the flexibility for financing options. As we are as we said at the same Stefan I just can repeat it as we are a public listed group we have available.
All of the options you can think of and we will make good use of it also for IBM now on corporate R&D, Yes, it's a very good observation. It's mirroring the way we are treating R&D and Umicore you we have a stage gate process, where we have.
Everything that has a trajectory of more than five years for hitting the market in terms of innovation is in our corporate R&D Department. So these are things today, especially of the activity has increased on the solid state battery activities you might also remember our announcements together.
To build.
With intermezzo, a new battery material capitalize et cetera. This is all in the in the corporate R&D. So long term topics sodium ion batteries.
Other technologies that would.
Bring major breakthroughs to that market that's in corporate R&D and then when it reaches the industrialization phase so that means when concrete customer qualification project and launch preparations are in the.
There it is handed over to the factory to the IBM business group and this has just happened now as we speak for the HL and technology, where we have reached that critical milestone solving the hurdles that we have a technical hurdle sit with us for industrialization and for that we bring them up to scale and scale.
With up to two large quantities thats the trigger point.
Last question on catalysis, due we think thats a temporary effect no. Indeed, we don't think that because there are two effects happening right now the first one is that the preparation on the operations model.
So to bring down the breakeven points to increase the flexibility to really pay off now.
On the one side on the other side, we see that the.
Also that we have to the market to our customers what we call ourselves the reliable transformation partners, maybe compared to other contenders in the market that might not have that so clearly because we live in both worlds and on the long term combustion engine and electrification.
Also gives us a good traction on.
Being awarded new businesses in the in the Euro seven domain that is also largely.
<unk>.
No.
Helping our equation on the profitability so.
<unk> actually.
What is behind so we see it as more as a.
As a step function.
Also for 'twenty three as we said in the outlook, we're quite confident that we can continue or even increase the performance of the business group.
Thank you very much.
Thank you.
Next we have Geoff Haire of UBS. Please go ahead.
Good morning, and thank you for the opportunity.
Turning to ask some questions I have two questions. If that's all right. The first one I think is fairly straightforward. If you were to strip out the impact of cobalt and lithium and nickel from the ESP.
The ability for the second half and then obviously that would imply for the guidance as well for 'twenty three.
Would you still see profitability dawn in 'twenty three.
Because it's very it's hard to see where you are.
Given the movement of metal prices, where our profitability is actually going in that business underlying and then the second question I had is that we've obviously had the European.
Greendale for industrial plan published our proposals published what do you understand this.
The difference is thats going to make for them.
The EV business in Europe going forward.
Yeah, Yeah. So let me answer the first question I'm not sure if I told you on the.
But I would point out the following.
What we have said is that we had a step up.
In revenues and earnings in the IBM.
Business.
Unit inside of <unk>.
<unk> business group in 2002, and we have said that.
We think that this will remain for 'twenty three.
Now if you go one level above the E&S tea, which is the wider business group and there is one big change that because of a change that is that year over year, which is the <unk>.
Cobalt <unk> specialty materials that had an extra ordinary.
Demand, but also cobalt pricing environment in the first half of 2022, and if you look to the cobalt pricing until the end market demand that has normalized in the second half. So we see the performance of that business more going forward.
With that trajectory and with that overall in <unk>, we said should be somewhat below but the important message I think is that the part of it is on track. We also have said that the effect of lithium.
In 2003.
It will be less like in 'twenty, two we're adding other elements that are more on the operational efficiencies of our plants ramp up in Liza.
As well as.
The fact that we are now hedging as one has pointed out hedging if you Miss a metal and also at the end of 'twenty three the first of our new projects. If you want to say start which are stabilizing and then.
The big step up happening in 'twenty four in terms of what it was is concerned no.
I Hope I've answered your question that are now coming to the green deal.
So you have seen that.
European Union did not copy one to one what was the inflation reduction Act and I think they shouldn't.
Personally.
C is in what I'm, hoping for is of course on the funding side, there will be more momentum in that.
Already to date, there is quite significant funding available in the EU, but what I'm, hoping for and I see signals in that regards that especially on the permitting side on the speed to market on the ability to keep up with it.
I've shown you the discrepancy before.
Demand supply for the cathode material.
Is something that.
Im sure the European Union will show.
So that we and other companies can even speed up and followed the demand of our customers.
So can I just come back on the RPM business, you said, there's a step up in revenues and profit.
Is that excluding let's say on the impact of lithium in 'twenty two as well.
So as a whole so so.
Effects, what I was saying is that the effects of lithium that we have seen into two of the good results of that.
Those effects will be less in 'twenty three.
It will tail out in 'twenty, four and then with the volume ramp up we are in this new business model, where we have.
Lithium is a hedge metal and.
We only measuring ourself on the underlying business performance, but for 'twenty two if I take if you took away the impact on lithium with RPM revenues and profits will be up.
So I mean, there are several effects that go into that so the first one is obviously the lithium as I've said, then we have talked about.
The subdued volume subdued volumes, which is not in use which we have said earlier and you have the mechanism, which is called the take or pay contracts that.
<unk> role in that so even if the volumes were not as contracted the expected earnings.
Ah contributing.
Is that all work together in that equation.
In 'twenty, two but as we said 'twenty three 'twenty four the picture would be much more straightened in this regard which is the important message that we wanted to send to them. Okay. Thank you.
Thank you and now we're moving on to Sebastian Bray of Baring Bank. Please go ahead.
Thank you very much for taking my questions I have two please.
First is on magnitude of state paid.
I suspect the answer might be no, but I'm going to try anyway.
Nicole quantify what it is getting.
Currently for the Canadian plant, because it could build or just the magnitude of state aid more generally.
And is it a triple digit million amount for what is the magnitude order of magnitude we should be.
Thinking about.
Second question was on the moving parts in the energy and surface Tech guidance for 'twenty three 'twenty four 'twenty five in.
In the near term so let's look at 'twenty free.
If you were to have no lithium impact in the year 'twenty free so I assume it's still positive would be earnings in the cathode bet. So just focusing on the unit margins in <unk> be flat down or up and just a quick question on the VW JV.
For modeling purposes, given data is quite limited at this stage is it right to assume that everything in the battery materials area is still fully consolidated until 'twenty five and then the JV only really gets going from 2006. So how should we think about with thank you.
Yes, let me stop thank you Sebastian very good questions first state at Canada, Obviously, we cannot.
Close our contract that we have closed and we use with the Canadian government in Ontario.
Regional government, but I can give you so much flavor as the.
The dimensions, we're talking about in percentage of.
State it versus the Capex.
Are quite similar to what you see in the IRI.
In North America.
Big difference.
Between Canada, and North America is not so much in the Capex.
Eight eight rates, but funding.
<unk> funding rates, but it's more on the what's called the Opex.
Tax credits that's currently in the discussion on U S. We also here, but that's public knowledge the Canadian Federal government has announced that they will come out also with a counterproposal for that part so that they really come at par with what's in it.
I array because you can as you have seen quite a couple of big players have decided for Canada.
<unk> our self so we rest assure that there will be no differences in state aid on the between Canada and North America. So, it's but anyway I think that this is not for US has not been the reason to invest in Canada, North America, driven by the market need and the demand and our customers.
Asking to do that so overall it is.
As a value creative business for us in any way it otherwise we wouldn't have.
Wouldn't pursue it in and the contracts that we see going forward in that direction.
Is actually.
So in terms of <unk> I think.
I come back to what we have what I have said that we have set end of end of 'twenty. One so we have in 'twenty two.
<unk> hundred 23, there was a transitory time, where we have legacy contracts that we are very happy to add that we will fulfill them either in volume or take or pay we had some lithium effects that are strong in 'twenty. Two then in 'twenty three and we have adapted our business model as we ship today to be more independent of that the most.
<unk> message for US to date was to go into this ramp up that we cannot moving much closer.
I understand it's difficult end of 'twenty one to answer.
Dissipate something that has happened in 'twenty four but now has become much closer to that event we.
We can even with more confidence say that we are totally on that trajectory.
Now for Volkswagen joint venture yes.
Remember the <unk> joint venture is it 50 51 as we have discussed.
Which means that the.
For modeling purposes, I think the assumption from 2026 onwards to use the respective streams as non consolidated I think thats the right approach into Mali.
That's helpful. Thank you for taking my questions.
Thank you and we're now moving on to Husky.
<unk> of KBC Securities. Please go ahead.
Yes. Good morning, I have two questions. Please the first one would be on the ramp up schedule for RPM towards the end of the year and into 2004 can you provide a little bit of additional color on where the growth is going to come from.
In the second half of this year is it.
Mainly in Asia or is there also.
<unk> and capacity utilization rates in your Chinese plants. For example, and then also to to which kind of customers is that is that two Oems is that too.
Battery cell producers can you maybe offer a little bit of additional clarity on that and then second question would be on cost inflation.
Energy to other things and can you maybe elaborate a little bit on the cost inflation impact you will see.
This year and what kind of flow over from last year. What is maybe 10, new new elements coming into the picture and those were my questions. Thank you.
Yes. Thank you.
It's a good opportunity to provide some more flavor on the customer landscape for IBM.
<unk>.
<unk>.
And most of these calls I am asked about is there any news on the customer side and I always.
Say that would be used in some time and then we share the news I will do the same.
Here again, so we are in quite advanced discussions with several customers in.
Maybe important to mentioned customers as well as the OEM side, but also especially on the <unk> side because with the progress we have made on the technology roadmap.
Trillium side, especially that becomes a very hot topic.
Now we also very confident that that's it.
In the first half of the year the.
The first half of this year, we can we can announce another major step up from a from a customer side it will be.
<unk>.
Good adding to our regional mix, that's what I would like to say, here's a regional mix, which which will more go into utilizing the full global capacities of Umicore in the short term and then help us to transfer that into.
More regionalized setup I'm, sorry, I cannot be more specific you would understand when when once we are able to share the news, but I would say that.
The ramp up will not my message basically is the ramp up with not only happen in these sites will be discussing in all of our global factories, because we need to be fast.
Our customers need the material, but then.
Most of those are things that will start because of the localization requirements of those customers over time, they will either go into the one of the other region, but to start with we can use our existing capacities and that's an important point to mention now.
For the inflation question I will hand over to <unk>.
So looking at the expectations.
For inflation for this year.
Unexpected.
Catalysis any ESD.
We will be able to offset given the operational efficiencies that we have.
And also some of the volume effect.
In recycling, where we were primarily hit by the inflation.
Last year because of the energy going forward. The LNG portion is where we were able to hedge the substantial part of the of the energy exposure and as such reduce the uncertainty there at the same time looking at Bell.
Belgium, and the specific situation of the indexation.
We expect to sort of inflation on the payroll to payroll indexation. So as we said earlier in recycling, we are working on the necessary initiatives to offset the inflation.
In this environment. It takes more time looking at some of the multi year contract and so on it.
It will take more time to offset it but it's ongoing I would say.
And can you provide a number in fact, there was the $184 million for 22 can you provide us an additional inflation number for 'twenty three based on your current expectations.
Well again, we don't expect still a full year effect.
Typically on recycling.
There will still be a substantial headwind.
I would say more than half.
Let's give that figure.
Understood. Thank you very much.
Yeah.
Thank you.
Next we move to Nicola Tang of BNP Paribas. Please.
Please go ahead.
Hi, everyone. Thanks for taking the questions.
Just wanted to ask a little bit more about the tax incentives surround the IRI, which obviously has come into play since you made the decision on the Canadian investment.
And considering all statements and comments.
Comments, you made around the supply in North America until at least 2030 I was wondering if those two factors that will make you consider adjusting the scope of your Canadian investment in terms of capacity.
And at what stage would you also consider thinking about sort of adding battery recycling in North America as well to kind of create a regional question.
And then on the second question.
Justin.
Referring to HSN and the developments that you've made can you just remind us in terms of timeframe from where we are today towards commercialization and how that's shaping up in terms of potential discussions with customers. Thank you Yep yep. Thank you. Thank you very much so first question.
IRA impact.
Of course.
And I said this before the moment is IRA Bill was clear and it was decided we received a lot of.
Traction with our customers that had to.
Today's of future potential customers that had to redo their supply chain for North America, because the current setup didn't work and we see currently also with some discussion in the news.
In the U S car manufacturer in the Chinese battery maker, how difficult it is to make that happen.
And now we.
Of course seeing that increased traction there are two things that we have.
We always keep in mind. The first thing is any type of a further.
<unk> needs to be value creative and needs to have.
We have quite some standards.
The contract that we have done together with Volkswagen it's for both partners.
And this is something a little bit at the benchmark that we see going forward.
We will always make sure that we have the very accretive returns at this sometimes it takes some time to discuss the second thing is that we always.
When we make commitments, we want to be 100% sure that we can operationally deliver because maybe you can call it prudent or you can call it conservative but.
Said it before I think in this market the ones who have the biggest announcements are not the ones that will make the business later, but it would be the ones that have plants up and running at the quality that is needed and that's what we are focusing on.
So I would say at this point in time, it's too early to say that we would.
And anything we are always open for discussions we have our plan. Our plan is well on track and for the moment, we are concentrating on that but as we said we are always open to provide more value creating investment opportunities. If they are there, but at the time being we stick to our plan of battery recycling could be and is already.
In our more mid to long term plan for North America included but also here, we want to concentrate first on Europe .
To implement what we have said, but also we.
The next step after Europe for sure would then be North America, but it's not yet completely panel each of them. It's a very good topic because HSM fit.
Fit to what has been asked earlier. It has just moved into the industrialization phase because we have been able to solve two key issues, which is the stability of the material and the connectivity, which is complicated if you have a very high manganese manganese, which environment. So we have developed.
Tori.
Coating as doping technology that solve that and now we are we have moved with us.
Actually it's five different programs immediately moved into the next stage.
Programs with.
Oems and cell makers in all of the three worst region. So we really are.
Interest from.
Everywhere in the world the timeframe of that as we said would be to be expect to hit our plans in 2026 why would you say why does it take so long if you say its industrial logic industrialized, it's ready to be produced in the plant, but it's still there's always a long qualification process.
Our business and there is a second thing that is more on the OEM side and the battery cell makers side is the adaptation of what's called the battery management system. Because this is a new battery chemistry is now stable and it's now.
Can be tested and the current battery management system developed for NMC. The algorithms that are used for LSP.
You need a third one right because it's a different setup and with that.
We are in very close contact with our customers to provide samples and to help them to actually develop this battery management system to Harvard harvest.
The big advantage that we see like we see a 10% or 10% cost advantage of HSM versus LSP based on non Chinese production. So so for example, a production in the U S.
At $25 submitted in Europe per kilowatt hour dollar dollar per kilowatt hour and 25% better energy density.
Alongside with the other elements of Recyclability.
The capability of our capability to produce in the existing NMC factories et cetera. So that's really a breakthrough for us that we are trying to accelerate as much as possible, but we need our customers to be also ready to digest it from from their operating system point of view.
Sounds great and if I could just.
Squeeze in a quick follow up one on <unk>. You mentioned you would use existing facilities is it fair to say that whatever sort of capex or investment requirements and it is factored in.
<unk> your midterm Capex guidance.
Yes indeed.
We have in our plan we have that we have provided we had said that <unk> is part of that.
It's not that <unk> require no capex no additional capex compared to NMC factory, but it's more like adding certain steps on quoting and doping as not only of the Cam, but also of the pecan phase.
And with that.
Included in our current plan indeed.
Thanks, so much.
Thank you and now moving on to a question from re Equitation of Bank of America Merrill Lynch. Please go ahead.
Hi, Good morning, Thanks for taking my questions I have a couple of months by Foster Wheeler from closing the gap with peers.
From Poland participation support cashless, maybe define some data points, you're talking with regard to market shot that makes you think.
Sorry, we can hardly understand you can you can you come closer to the microphone.
Yes sure Scott.
Yes, let's give it a try.
So my first question is on closing the gap with pads.
<unk> performed well in your legacy Osha <unk>.
What are signs of data points that you're talking with regard to market share in particular that made you think you're closer to closing this gap.
When you maybe expect sort of a subdued volume from <unk> to 'twenty one.
While some LNG pads expecting to drive 30% to 40%.
Yeah.
So.
Let me repeat if I understood the question.
So it was the question how to close the gap versus our peers right, while while you said that the LSP.
Capacity or market growth.
Pretty strong.
We have looked at growth that's your question.
Yes.
Pat Thank you goodbye volumes that is 40%.
Hi.
Due to volumes.
Hard at chop.
Yes.
Okay very clear.
Yes, it's not very clearly understood. So I think we're very confident that.
The assumptions that we have made will play out for us because as you know we have.
<unk> kind of.
<unk> been very successful with new contracts in the last 18 months I would like to say and Thats, what we will harvest going on.
Now the big differentiation that we have with our competitors in terms of speed is capacity because today.
The ability to use capacity that you have in Asia to Kate at the North American and the European market is there and are pleased that the current business model and Thats why.
Those competitors can do that but when we take the next steps and when when the.
<unk> and when we have the respective regulations in Europe kicking in also on the Q2, especially.
What counts is that you have capacity in those regions and today, we are the only ones that have capacity in Europe , and we are not the first one but in the very first group of players to play in the North American peers.
So with that we see a strong exploration possible for us.
When when our new programs hit the factory so actually it's an it's a time advantage that is based on the regional differentiation of the different markets.
Okay and can you maybe talk about your stage of contracting with customers in North America.
Donnelley it seems as if passed all announcing contracts at a faster pace.
Just want to understand this because youre trying to negotiate ties a contract similar to the freight box Logan JV all that more competitive.
The relationship.
Is that one more contract to be announced as my understanding is that correct.
So yeah.
Yes, so first of all to answer in North America.
We applied the same principles, we have applied in Europe , we have applied with the folks back into a venture.
Take enough time to create value creative contract is a strong demand to work with US you have seen maybe that we that we have.
Already signed an Mou again with <unk> and also to expand that.
It's not yet decided whether this would be part of the joint venture will be a separate initiative, but you can rest assure that the same.
Principles will apply in terms of value creation now on top of that.
There are.
Other very active and very advanced discussions for North American entry.
At this stage.
Even more demand than we have planned to put in capacity. So we are in a good situation too.
To negotiate in the right way, if you know what I mean.
And yes, I can also confirm that we are very.
Confidence to have.
At least one more announcement in the first half of this year.
On.
Major customer contract.
<unk>.
So with that I can just repeat what we said we feel very confident on this ramp up that we have already proclaimed one year ago for end of 'twenty three beginning of 'twenty four.
Okay. Thanks very much.
Okay.
Thank you and as we're nearing the end of the call. We will take a few more questions from people in the queue, but we kindly ask to please limit to one question per person. Thank you.
And with that we are moving onto JV Ronan <unk> of credit Suisse. Please go ahead.
Hi, Good morning, and thank you for taking my question.
I would just would like to ask about what difference it makes for your battery materials business.
For the differential that you see between the.
The U S IRI and European Green.
Charles plant.
My sense is that it.
It makes more it is more important more important to have a local value chain.
In the U S.
And then in Europe , and I would like to understand whether thats that cheese base acute tallied.
Tallied perception or not the reason why I'm asking is because it's not clear from the European regulation that there is a push for having the full value chain within Europe I E.
There are plans for batteries there are plans for Evs, that's clear, but it is not clear that actually the materials has or will also have to be produced in Europe , whereas in North America. There are signs that suggest that the full value chain, including materials will have to be local I would just like to understand what's your take on it whether it's.
Some misperception or anything you can comment on thank you.
Yes.
It's not a misperception and thats basically because the plans of the European Union has not been.
Fully finalized so it's very clear that in the U S through the IRR there is.
What will it really it turns out like it is at today it will be a closed shop right. It will be local for local market that is clearly incentivized by the tax credits for the cars at the end of the day that at the end of the value chain.
In the Europe .
This has not been so clearly outspoken yet but for Europe , we see from the beginning and that was why Umicore has invested we saw another strong driver that has the same effect, which is the customer voice because what is there in Europe will be is expected in the future is that <unk>.
Comes across and that the scope three of an electric vehicle is pretty bad today.
<unk> producing a battery is the biggest contributor to the scope three footprint of a car and some of the Oems in Europe have already when they are sending out the RF queues for battery materials, you have to commit to certain C or to a level that you.
Dealing with and with it being not in the region with a fully integrated supply chain you would have no chance to meet that target.
I can clearly speak because it's open and public BMW. For example has its an in and out requirement is that you do it or not and others have that as well we know without work on flex back is that they also very much <unk>.
Cities until two so I think that the.
The consequence is the same as the root cause is a different one in Iowa in irate its more.
<unk> approach so you get money if you're there in the U S. More stick approach. If you are not there you would have additional cost because you see a two question doesn't payout.
And then we will see how.
The subsidy.
Scheme is looking like there is also.
The last word has been spoken about.
From a strength point of view.
Currently I see both arguments similarly strong from a different.
<unk> recently.
Thank you very much.
Thank you and we have come to your last question, which comes from Ronald <unk> of Citi. Please go ahead.
Great. Thank you for taking the questions.
Firstly, please could you just clarify the <unk> outlook for 2023.
I think you said it'll be.
It will be in line with 2022, but.
Talking about giving the ships.
You took the EBIT EBITDA.
Can you give us a kind of a guide on volume growth relative to the overall MMC.
Bond.
Numbers for next year.
Well below perhaps.
And secondly, if I could just squeeze in on <unk>.
Could you clarify.
How you are able to protect your recent developments in the coatings and that opens I mean is this something we expect payers to follow it very very quickly or is this really a differentiator for you.
Thank you very much.
Yes. Thank you so the earnings on the development.
On the E&S T said we.
Traditionally never disclose.
Concrete numbers below the level of the business groups and we will also not change this going forward, but I can provide you so.
Much of our guidance.
When we say performance than it's meant to EBIT EBITDA equation of the business group.
Of the of the business unit in this case.
<unk> is expected to be in similar territory than it was in 2022 and with the effects that we have described in other parts of the questions.
And Thats.
The next levels of difference on the E&S business group is.
The cobalt <unk> specialty materials they have.
Better performance in H, one H.
And <unk> in 2022, because of the price environment of cobalt in the end market demand and this full.
Full year effect for 2023 will somewhat.
<unk>.
The EBITDA of the whole business group. So this is the math again on E&S T now for HOS Indeed.
This specific.
I mean, HL Percy is not a new technology, it's where the market. However.
Two points that we have now hit the breakthrough to basically make it from a lab thing into an industrialized product. We have protected this also with with patents that we have put in place and of course with the usual.
Trade secrets that we put around it. So we are confident that we have something that is representing considerable competitive advantage versus our peers.
Okay, great. Thank you very much.
Thank you and that concludes today's question and answer session I would now like to hand, the call back over to Ms. <unk>.
For any additional or closing remarks.
Yes. Thank you very much. Thank you very much again for the very well educated and deep questions really appreciate the discussion.
Thanks for listening to us and I wish all of you a very good continued.
Hey, and hope to meet you soon again in person maybe in the next days when we're doing a roadshow. Thank you very much and take care.
Thank you that concludes today's call and you may now disconnect.