Earnings call: Umicore's Strong Cash Flow Amidst Metal Market Challenges

Umicore (UMI.BR) has demonstrated resilience in its 2023 financial results, achieving a 25% EBITDA margin and strong cash flows despite a challenging metal price environment.

The company's earnings call, led by CEO Mathias Miedreich and CFO Wannes Peferoen, highlighted a record performance in the Catalysis segment, robust growth in the Recycling business, and a promising outlook for the Battery Materials segment, which is expected to drive growth in 2024.

Umicore has refined its business segmentation and implemented strategies to boost EBITDA and cash flow while reducing volatility from precious group metal (PGM) pricing.

Key Takeaways

• Umicore achieved a 25% EBITDA margin and strong cash flows in 2023.
• The company doubled its capital expenditure (CapEx) to increase growth investments.
• The Efficiency for Growth program was launched to enhance EBITDA and cash flow.
• Business segmentation was refined, creating Battery Materials and Specialty Materials groups.
• Catalysis segment recorded a year-on-year EBITDA increase of over 4%.
• Recycling business group performed strongly, with revenues above EUR 1 billion.
• Umicore expects 2024 Battery Materials segment revenues of EUR 575 million to EUR 675 million.
• The company reconfirmed its post-2026 EBITDA margin target of more than 25%.
• Corporate costs are projected to decrease by EUR 15 million to EUR 20 million in 2024.

Company Outlook

• Umicore anticipates the launch of Battery Materials 2.0 in 2024 with a robust order book.
• Group adjusted EBITDA for 2024 is projected to be between EUR 900 million and EUR 950 million.
• The Catalysis segment is expected to have slightly lower adjusted EBITDA in 2024 compared to the record year of 2023.
• Battery Materials revenues and earnings are projected to be higher in the second half of 2024.
• Corporate costs will be reduced due to the Efficiency for Growth program.

Bearish Highlights

• Revenues decreased in 2023, largely due to the metal price environment.
• Adjusted EBITDA for Recycling in 2024 is expected to be below the previous year but still above pre-2020 levels.
• Specialty Materials segment is projected to have somewhat lower adjusted EBITDA in 2024.

Bullish Highlights

• Automotive Catalysts sales and volumes increased, particularly in Europe.
• Umicore's Recycling business group delivered strong performance despite PGM price challenges.
• The company has a strong order book for Battery Materials 2.0, indicating potential future growth.

Misses

• There were no specific misses mentioned in the provided context.

Q&A Highlights

• Umicore's contracts with BMW (ETR:BMWG) are secure and not impacted by US presidential elections.
• The company has increased hedging for rhodium and palladium to protect future earnings and cash flows.
• Umicore is collaborating with OEMs to develop cost-effective alternative chemistries that use fewer critical materials.
• Revenue and EBITDA are not directly affected by EV OEMs reducing pricing, as Umicore's contracts have fixed pricing.

In summary, Umicore has navigated a difficult metal price environment to deliver strong financial results and is positioning itself for sustained growth in the future. The company's strategic initiatives and diversified portfolio provide a stable foundation for its ambitious plans in the coming years.

Full transcript - None (UMICF) Q4 2023:

Operator: Hello, and welcome to the Umicore Full Year 2023 Results Call. My name is Laura, and I will be your coordinator for today's event. Please note this call is being recorded. And for the duration of the call, your lines will be on listen-only. However, you will have the opportunity to ask questions at the end of the call. [Operator Instructions] Today, we have the CEO, Mathias Miedreich; and CFO, Wannes Peferoen as our presenters. I will now hand you over to your host, Mathias Miedreich, to begin today's conference. Thank you.

Mathias Miedreich: Good morning, and welcome to the presentation of Umicore's 2023 results. As announced by the operator, I am here today as usual with our CFO, Wannes Peferoen, and we will share the presentation and Q&A together. If we go to the agenda of today, it follows our usual structure. We will start with 2023 highlights, give you then a deep dive into our business groups that is followed by a more detailed review of the 2023 financials by Wannes, and then we will conclude the session with an outlook wrap up and Q&A. So, let us start with the highlights of 2023. 2023 was a successful year for Umicore, where we have been able to demonstrate again agility and resilience in a tough environment. It was also a year that concluded our preparation for the volume ramp up in battery materials that is starting now in 2024, as well as it was the year for us to confirm and further precise key assumptions for our RISE strategy and with that, replacing planning with facts and data like the strong order book for battery materials and the reduced funding needs to execute that order book. Revenues decreased in 2023 mainly impacted by the metal price environment and we will come back in more detail to that later. Our profitability remained on a high-level with a 25% EBITDA margin showing the very good ability of Umicore to contact versus the headwinds in PGM prices inflation and also some reduced volumes in some of our end markets. Very notably, we have unlocked strong cash flows in 2023, applying a very strict working capital management in all units, especially in Catalysis and Recycling and this resulted in a very healthy operational cash generation with a cash conversion rate of 125% from EBITDA to operational cash flow in ‘23 versus 73% in the year before. At the same time, you would have noticed that we have been significantly stepping up our growth investments as planned with all capacity extension programs for battery materials ramping up on-track and with more than nearly doubling the amount of CapEx that we are spending. And those two developments, doubling the CapEx and having more cash flows was extremely good, because we could fully compensate that additional CapEx through organic cash flows and that's exactly how our growth model is built. Finally, I want to mention that we have been working in 2023 also very intensively on ways to further boost and accelerate the more mid-term and long-term EBITDA and cash flow generation, while also reducing volatility from PGM pricing. I think that's a key point forward. We call this initiative the efficiency for growth program. And, I will now hand over to Wannes, who had already pre-announced a little bit of that in our half year results, but now will give you more details on this very important program for Umicore.

Wannes Peferoen: Thank you, Mathias, and good morning to you all. Mathias, talked to the strong margins and the strong balance sheet of the Group, which are a clear illustration of the financial discipline we apply. Now given the context of the market headwinds, we have been further reinforcing the financial discipline across the Group. In October last year, we shared the revised needs for net capital expenditures between now and ‘26. And over the past year, we also stepped up the forward hedging of the precious metals exposure in order to increase the visibility of the future earnings and cash flows. I will come back to this later. Now last summer, we also kicked-off a program across the company called Efficiency for Growth, which focus on identifying and implementing efficiency improvements across the different businesses and functions. The program targets recurring improvements to EBITDA through topline growth and cost optimizations and also improvements to working capital needs. Our teams have identified over 350 initiatives, which are expected to create a EUR 70 million EBITDA impact in ‘24 and more than EUR 100 million from ‘25 onwards. The initiatives cover amongst others volume based pricing, leveraging on centralized procurement, standardizing operations to increase flexibility between plans, digitalization and automation in manufacturing and administration, streamlining and prioritization of our project portfolios in IT, R&D and maintenance. So, as you can hear the different initiatives will bring more focus and synergies across the Group. And this bridge is well to the next topic, that Mathias will cover.

Mathias Miedreich: Yes, thank you, Wannes. And exactly some update now on the refined structure of the Group. We have, as previously announced, now implemented refined business segmentation in Umicore since the beginning of this year, going from three to four business groups. And while there is no change for Catalysis and Recycling, the former E&ST perimeter is now split into two business groups. First, the Battery Materials and obviously, as we had discussed many, many times, our target is to give more clarity and transparency on the business dynamics and the growth evolution forward, but with that also we will be exposing more as we think the secure and resilient nature of our Battery Materials business model, especially if you compare it with other market participants. And, at the same time we step up with a loud management team to apply full focus and dedication to execute the growth strategy and ramp up for Battery Materials. Now secondly, Specialty Materials, this business group is mainly concentrating the Umicore businesses with a non-auto context, non-auto end markets. And also here, it gives focus and exposure for management to nurture this business in its own market context. So, after this introduction of the highlights, let us now deep dive in the different businesses still in the structure as we had it before and we will start with E&ST. When we look at E&ST, the business group that we now had for a while and especially the Battery Materials business. And 2023 was the final year to prepare the growth ramp up for Battery Materials that is now starting in ‘24 and to set up the right structure with a dedicated business group as just explained. And, as we had promised now two years ago, we have been reshaping the Battery Materials business in all of its aspects from customer base to technology, from capacity expansion to funding. In that sense, we see 2024 as the year of re-birth of the Umicore Battery Materials business. It marks if you want the start of Umicore Battery Materials 2.0. Now, looking back to 2023, we have achieved all major steps and milestones that we had targeted, securing the assumptions in our plan, as I said previously, with facts and data. The focus is now on execution to ramp up the volumes and to continuously work on efficiencies in CapEx and OpEx using also the efficiency for growth framework that has been introduced by Wannes to drive sustainable EBITDA growth forward. In addition, we are also confident that the unique and resilient business model of UBM will start to stick out from competition, especially in the current more volatile environment for electrification globally. We come back to that in our guidance for that new business group. To summarize, 2024 can be considered, as just said, as the birth year of a, Umicore Battery Materials 2.0 that will, as we ramp up grow faster than the market on the back of a strong order book with superior profitability and with a robust funding plan in place for the needed CapEx forward. But before we look into 2024, let us share how ’23 looked like in the previous setup of E&ST. Revenues of E&ST in ‘23 have decreased year-on-year, while the adjusted EBITDA margin has increased to 24.6%. In Rechargeable Battery Materials, RBM at that time, revenues were down versus 22%, reflecting the lower non-recurring lithium effect and reduced volumes of some legacy contracts. Earnings were slightly above last year despite increased spending on growth preparation and R&D, as they were supported by substantial one-off effects of lower cost mass production test runs and valuation of Battery Materials group. And just to clarify, mass production test runs, they are needed to validate the launch of new product and processes, and they are especially frequent in years of greenfield startups in 2022. As you remember, we had started up NISA and we had this cost, but then in 2023 not anymore to that extent. I want also to remind everyone of the composition of the revenues in RBM. Now, important when we have a separate reporting on that segment. There is a split between the CAM revenues, the cathode active material that are one-to-one function of the CAM volumes. And, there is a second element, the refining revenue, that is an upstream revenue that is a function of an active make or buy decision that Umicore takes. And this upstream flexibility is a great asset for us as we can always optimize profitability by choosing the best mix between make and buy depending on the market conditions. So in addition, let us now also look to the business units that are in the future part of the Specialty Materials business group, and I will also make some comments just as a reminder on the end markets that those businesses are serving. So, Cobalt and Specialty Materials were the end markets of the two materials industry, industrial catalyst, superalloys and ingredients for pigments and paints. In 2023, we saw a combination of slowdown in demand in the CSM end markets, as well as a further decline in cobalt and nickel pricing, leading consequently to a decline in the year-on-year performance. Metal Deposition Solutions, the end markets here are the electronics and semiconductor industry, optics industry, as well as the jewelry industry. And in MDS, as we call it, we had stable revenues with 2023 being the year to successfully introduce a new platinum-based electrolytes in the portable electronics market, a key success especially in the plating of smartphone contact systems that we also think is a great asset into the future. Electro-Optic Materials, finally, with the end markets of optics, telecommunication and space power, here we saw a good increase in revenues versus the year before driven by space power applications and optics. Let us now move to the Catalysis business group. And, before we dive into the segment specifics, let's look to the market as usual. So, here we can state that in 2023, we saw an increase in global internal combustion engine car production of 80% in comparison to a weaker ‘22. And, this mainly is driven by the effect of a now largely unblocked supply chains in the automotive sector and the consequent catch up effect of volumes. Gasoline and diesel light-duty production was in particular well up in Europe, North America and China. And finally, also the heavy-duty diesel segment recorded a significant increase in production, mainly in China and Europe as well with a good growth forward. Now for Catalysis, that is resulting into a record performance again, so consecutive third year where Catalysis is posting a record performance with revenues up and EBITDA increasing by more than 4% year-on-year, resulting in increased margins. And this performance uplift is driven by an accelerated work on operational efficiency. Again, the Efficiency for Growth or how we call the EFG really pays out here, especially into the future, as well as by higher volumes. And strict working capital management coming back to what I said in the beginning has unlocked very substantial cash flows in-line with the plan, because we have always said that Catalysis and Recycling will be the key cash providers for our growth forward, and that works pretty well. In Automotive Catalysts, sales and volumes are up versus the previous year, and the business unit was especially strong in the European market, outperforming in the passenger car as well as in the heavy-duty diesel segment and with that increasing market share further in that region also according to our plan. PMC, Precious Metal Catalysts was impacted by a lower demand in some end markets, while the business unit Fuel Cell and Stationary Catalysts had a very good traction in securing business for hydrogen electrolyzers. And as you know, we do here not only the catalyst for fuel cells, but also for the electrolyzers. And that's also one of the reasons why last year we had the honor to break the ground for our fuel cell and electrolyzer catalyst plant in China as a further capacity extension. Now, on the next page, as usual, we want to give you some more insight in our very successful Automotive Catalyst business and to expand a little bit why we have such a good position. So, first of all, the first important data point is the fact that we have been able to even further increase our exposure to what we call the longevity segments of the market. I remind this is the heavy-duty diesel and the light-duty gasoline part of the market that will really be there on the long run, even if you look into hybridization, etcetera, which is now representing 84% of our automotive catalyst revenues. And the second important fact is that we also have a very healthy regional split of our revenues in this light-duty gasoline segment with Europe, China and America well-balanced, providing an excellent platform for the business forward. Now finally, let's move to the Recycling business group. And, even though it needs probably no repetition, I will quickly talk about the PGM price environment that came down significantly in ‘23 and post a serious headwind to our business with average rhodium rates down by 58% or more than 58% and palladium 38%. And that records the importance of strict cost and efficiency management to counter these effects. Now, in this challenging context, the Recycling business group continued to deliver a strong performance in ‘23 with revenues above EUR 1 billion and EBITDA of EUR 372 million, and those results are well above the pre-2020 levels, the year in which the rhodium price started to peak and with that demonstrating the resilience of this Umicore recycling business model. The counter measures that the teams have taken versus this decreased PGM price environment were threefold. First of all, to optimize the input streams and maximize the PGM density. Secondly, to focus on operational excellence and cost reduction in manufacturing. And finally, an accelerated forward hedging strategy to protect our future earnings, and that's an important point that Wannes will talk more about in the financial section just in a second. And finally, two more things that I wanted to highlight. In Battery Recycling, we are continuing to prepare for the capacity expansion and significant ramp up with currently being in the finalization of the site selection for that ramp up. And secondly, our Precious Metal Management business unit for them in 2023 was a year where, again, they have been able to demonstrate also the strength of this side of the unique Umicore Metals Management System in a volatile market environment resulting in a significant higher results contribution year-on-year. And with that, details on the businesses, I hand over to Wannes, to give more insights on the financials.

Wannes Peferoen: Okay. Thank you, Mathias. Let me start the financial review with the year-over-year bridge of the top line and the earnings of the Group. Revenues amounted to EUR 3.9 billion which is 7% down versus previous year, and which is primarily reflecting the decline in PGM prices and the reduced non-recurring lithium margin effect in 2023. The adjusted EBITDA reached EUR 972 million which is EUR 179 million below previous year. The decline of PGM prices resulted in a headwind of more than EUR 150 million in particular in Recycling and to a lesser extent in Catalysis. Cost inflation created another EUR 50 million year-over-year headwind, the different initiatives to increase operational efficiencies, supported EBITDA and the working capital across the different businesses. Now the EBITDA margin of the Group remains high at 25% with every business group performing well above the RISE 2030 target of 20%. And the ROCE of the Group, as we mentioned earlier, reached to 30.5% well in value creative territory. Now, if we look at the consolidated P&L, depreciation and amortization increased to EUR 298 million resulting in an adjusted EBIT of EUR 674 million versus EUR 865 million in 2022. Adjusted net finance cost decreased to EUR 110 million reflecting lower Forex related costs, while the net financing costs remained stable. The average cost of gross debt remained at a reasonable level of 3.3%. The cost of debt is expected to remain well under control considering the maturities and the conditions of the existing instruments and the recently secured funding instruments. The lower taxable profit resulted in adjusted tax charge of EUR 121 million. The effective or the adjusted effective tax rate for the Group increased slightly to 21.6% versus 20% last year. And then the adjusted net profit Group share amounted to EUR 447 million which resulted in an adjusted EPS of EUR 1.86. The adjustments had a negative impact on EBIT of EUR 82 million and are spread across the different business groups. The adjustments are mainly related to divestments of historic activities, streamlining the footprint in Catalysis and the technology portfolio in E&ST. And finally, also some updates to environmental provisions related to legacy items. Now, moving to the cash flow generation in the Group. As shown on the green line in the top graph, the net working capital needs for the Group decreased to EUR 346 million. Next to decline in PGM prices, the operational efficiencies and strict inventory management in Catalysis resulted in a 50% improvement of the cash conversion cycle. In Energy and Surface Technologies, net working capital remained stable year-over-year. The inventory growth in preparation of the ramp up in CAM volumes was offset by the decrease in battery metal prices. The substantial reduction in net working capital combined with the solid EBITDA led to an increase of cash flow from operations to EUR 1.2 billion. Capital expenditures, including capitalized development expenses increased to EUR 885 million. Energy and Surface Technologies accounted for more than two-thirds of the Group's CapEx, driven by the expansion of the European footprint in Battery Materials. Now even when considering the step up in CapEx, the free operating cash flow continues to remain very strong at the level of EUR 332 million. In the next slide, you can see the net cash flow bridge, which shows that the net financial debt at the end of ‘23 increased with EUR 162 million and now amounts to EUR 1.3 billion. This results in a leverage ratio of 1.3x last 12-months adjusted EBITDA. The Group continues to have a strong balance sheet and we expect to stay well within investment grade territory. The free operating cash flow of EUR 332 million supported the filling of taxes, dividends and equity injection into IONWAY. In December, Umicore successfully signed a new five-year Revolving Credit Facility of EUR 600 million under the sustainability linked loan format with a solid pool of international banks. This RCF replaces the EUR 495 million RCF expiring in ‘25, and comes in addition to the existing EUR 500 million sustainability RCF contracted in ‘21. Early February, Umicore concluded an eight-year loan agreement with European Investment Bank for EUR 350 million supporting the financing of our R&D activities at attractive conditions. As shared in October last year, we confirm that the total net capital expenditures for the Group between ‘22 and ‘26 are expected to amount EUR 3.8 billion. This takes into account the non-refundable capital grants, the partial funding of IONWAY through non-recourse debt, the disciplined phasing of capacity expansion in-line with customer contracts and orders and the improved utilization of existing assets in Asia and an optimized asset light upstream model. The net capital expenditures, including the contribution to IONWAY amounted to EUR 922 million in 2023. Now, as we highlighted earlier, during ‘23, we entered into forward contracts locking in larger shares and longer periods of the strategic metal exposures at historically attractive prices. The graphs on this slide show the significant increase of the future hedges, in particular for rhodium and palladium. This metal hedging approach enables us to protect future cash flows from volatility in metal prices and as such provides better visibility on our future earnings. Here, I would like to conclude the section on the financial performance and hand it back to, Mathias.

Mathias Miedreich: Thank you very much, Wannes. And, I also want to highlight again, especially the topic on the increased visibility of the Precious Metal price environment for the hedging. This is really also a strong addition to our 2030 RISE strategy, and I'm very happy that we have been able to secure that last year. Now, looking to our progress on sustainability, 2023 was also a year with good and very good progress in our decarbonization roadmap, with now 41% global use of renewable energy compared to a 35% baseline in 2021. And in Europe, it is even close to 60%. And with this development, we can confirm that we are well on-track for our 2025 target to be at 100% renewable energy use. And last year, we have also unveiled the Umicore Climate Transition Plan that underlines our commitment to climate action resilience and transparency. And with that, we feel very comfortable that our sustainable element of the growth forward is secured. Now, with that deep dive on the businesses in 2023, let's come to the outlook of 2024. So, let me start with Battery Materials. And here, in Battery Materials, as we said, we want to give to the market as good as possible outlook because it's the first time that we give this guidance. And in that sense, we are defining it in a way that we are expecting revenues in the range of EUR 575 million to EUR 675 million and an adjusted EBITDA margin of around 22%. Let me make three comments to that. The first one is, this 22% of EBITDA margin should also be understood as a reconfirmation of our guidance on the post 2026 EBITDA margins of more than 25%. We are fully on-track with our planning in this regard. Second remark on the revenues, I also want to remind everybody that this revenue guidance in our definition of revenues is excluding the value of the battery metals like nickel, cobalt, lithium and manganese. And the third comment would be that the revenues and earnings are expected to be weighted in H2 ‘24 as a reflection of the ramp up profile of the new customer contracts. And with that, the birth year of Umicore Battery Materials 2.0 is happening now as we had hoped for. So, that's very good. Secondly, on Catalysis, the adjusted EBITDA is anticipated to be slightly below the levels of the previous record year, close to current market expectations. And maybe a comment to that, with this outlook, we are continuing to be significant about the historic levels on such a plateau that we are now trying to push into the future with all of the good elements that we have laid out in 2023 and the years before. Recycling, in Recycling, we expect that 2024 adjusted EBITDA will be below the level of the previous year, but still well above the pre-2020 levels and in-line with the current market expectations. And here also a comment that due to the shutdown as we usually have a maintenance shutdown scheduling, the solid underlying performance is particularly shifted in H2 2024 as a function of the shutdown or maintenance shutdown of the smelter in Hoboken in H1. Finally, Specialty Materials, the 2024 adjusted EBITDA for Specialty Materials is expected to be somewhat below the level of the previous year. Now, on top of that, is it anticipated, we anticipate that corporate cost will be EUR 15 million to EUR 20 million lower in ‘24 versus ‘23 that is already to be understood as one consequence of our Efficiency for Growth program. And all things together and based on the above, we expect the Group's adjusted EBITDA for the full-year ‘24 to be in the range of EUR 900 million to EUR 950 million. Now before we go to the Q&A session, last page on wrap up. So, if you would only remember three things from that presentation, then I would ask you to remember first that Umicore delivered a strong cash flow performance in 2023 with strong margins in a tough year confirming the unique business model in the different segments of Umicore. Secondly, that 2023 was the year of reshaping Battery Materials, Battery Materials 2.0 has been born and is now setting the base for the ramp up and growth starting in 2024. And finally, that Umicore is well equipped for 2024 and beyond applying financial discipline and accelerated efficiencies in the execution of our 2030 RISE strategy. With that, we finish the first part of the session and now hand over back to the moderator for Q&A.

Operator: Thank you very much. [Operator Instructions] We'll take our first question from Tristan Lamotte with Deutsche Bank (ETR:DBKGn). Please go ahead.

Tristan Lamotte: Hi. Three questions, please, all quite related. I calculate an EBITDA around EUR 138 million for Battery Materials for 2023, given the comments that EBITDA will be at a similar level year-on-year. Could you confirm that's in the right ballpark? And could you also provide the base for Battery Materials revenue for 2023? You've guided to growth, would it be fair to assume growth in-line with the EV market at around 20% for 2024? Second question is around the one-offs in Battery Materials. I was wondering if you could quantify roughly the size of those one-offs and the proportion of EBITDA? And the third question is on the relative size of the CAM revenues versus the refining revenues in Battery Materials, would say 15% of EBITDA for refining be a reasonable assumption? Thanks very much.

Mathias Miedreich: Yes, thank you very much. Very relevant question. Let me start with the last one, then I go to the first one and Wannes will cover the middle one. So, on the refining revenues, please understand this is a commercially sensitive topic, because it's part of our business model that we don't feel comfortable to share. The important message that we wanted to bring through is that the refining revenue will always be optimized based on profitability and not for revenue, and that's kind of the moving part in the puzzle. But, we will not disclose the split unfortunately of those. Now looking to the guidance of Battery Materials with the math that you have just made, so please understand that, we have tried to make a maximum clarity very early in the year. Normally, Umicore is not giving a quantitative guidance so early in the year. We normally do that in April or in July, but we felt it is necessary to give a range and you should take it as it is. It is a range today that we will be further trying to narrow once we go alongside in the year and looking to growth. Now, we don't know what will be the growth of this year of the market, but if you refer to as a comparison the last year market growth in Battery Materials, we are more than confident that we will outperform that market growth with our volume growth forward. Now, Wannes on the one-offs.

Wannes Peferoen: So, looking at the one-offs in Battery Materials, I think there's a few moving parts. I mean, first of all, there's a lithium margin that was substantial in ‘22 and that started fading out in ‘23. This is something where you can get grasped, let's say, the magnitude. If you look at the revenue bridge, you can see that the substantial part of that is linked to the lithium margin that has been fading out moving from ‘22 and ‘23. Then looking at the cost side, we highlighted that we have the mass production test trends that we had in ‘22, in particular linked to the ramp up of the NISA lines. And this is something that reduced in ‘23 after that ramp up in ‘22. And then looking at the valuation of the battery scraps, that's something that was also linked to those mass production test trends. So in ‘22, the output of these test trends, the scraps were written-off as we didn't see an immediate opportunity to valorize those, while in the course of ‘23, we were able to develop, I mean, adequate routes to recover the value and as such that also contributed. So, I think those are the big moving parts. If you look year-over-year, ‘22 and ‘23, I think it's important to highlight those moving parts. At the same time, think what we also want to do looking forward is setting the baseline from ‘24, what is driving the performance and giving those insights.

Operator: Thank you. We'll now take our next question from Sebastian Bray with Berenberg. Your line is open. Please go ahead.

Sebastian Bray: Hello, everyone. Good morning, and thank you for taking my questions. I’d have three, please. The first one is on what has changed versus six to eight months ago in terms of your own expectations. I can see that cobalt prices have come under significant pressure. And if I take a step back, it looks as if implicitly the guidance for Energy and Surface Tech for 2024 EBITDA is around EUR 50 million to EUR 60 million below consensus expectations. Could you confirm this? And has the only thing that has changed for this segment relative to your initial expectations for ‘24 whatever they may have been the cobalt price? I'll pause and then I'll ask the other questions in turn.

Mathias Miedreich: Yes. So, it's very relevant topic. So, I detail several elements to it. The first one is that the underlying raw material prices have a different effect to the different parts of our business and indeed in the CSM business especially. There is relatively direct correlation of profitability to those prices, and cobalt and nickel prices have been going down because nickel is also an element that is used in the chemistries going forward. So, you're right with your assumption and you are also right to read it in a way that the former E&ST performance, if you want, would be more in the range of 2023. So yes, there is this gap to the current consensus, that's what I confirm. Now, what has not changed in our assumptions is everything around the Battery Materials business. And if you recall, we have been looking at the half-year results to a Battery Materials result above the last year that has been achieved. And going forward in 2024, the composition we see as a complete different structure, right. We are ramping up now a business. It's a rebirth, as I said many times in my speech before, where the new contracts are ramping up and the volumes are driving our profitability and the impact of those one-time effects that Wannes, has been talking about is largely faded out. So, it's a complete new business setup that we have been trying to guide in the best way in our outlook so far.

Sebastian Bray: That's helpful. Thank you. And the second question is just on the consensus leading out to 2026 and it relates to how the JV with VW is accounted for. I have the feeling looking at consensus EBIT that the working assumption for many analysts for ‘26 is just to prorate or consolidate Umicore share of revenue and EBIT for this JV. Is that a reasonable thing to do for ‘26 while waiting further clarity on what happens? Or is it 100% sure that this will end up in an associates line that is not added to EBIT that comes after it?

Wannes Peferoen: Yes. So to be frank, to be direct, I have not looked too much into how the consensus is built up around the IONWAY joint venture. At the same time, if you look at how we will do it, it's indeed accounted under the equity method.

Mathias Miedreich: Yes.

Wannes Peferoen: But then the income from the JV will be included in the EBIT and EBITDA performance indicators that we published.

Mathias Miedreich: Yes. And no, and there is I would say to directly answer your question, there is, we don’t see that this would change and it will be part of our EBITDA. There’s one important thing to mention and that we had announced earlier as well, there is a certain time in ‘25, ‘26, where the volumes of PowerCo will be directly served by Umicore, while the IONWAY ramp up capacities are build up. And during that time, of course, that's normal revenue and EBITDA line that we are reporting. But that's just a bridging and kind of risk mitigation if there should be any timing delays for the joint venture capacities. And that was, but we have said it before. So no, I think, there's no change to our planning and how to account the revenues with ultimately Volkswagen (ETR:VOWG_p).

Sebastian Bray: It's not fun. Just to double check here, the Capital Markets Day, 25% EBITDA, that is pro rata consolidating the sales from VW JV and the EBITDA or it's just taking the EBITDA contribution and allowing that to raise the margins as well?

Wannes Peferoen: It's a second one indeed. So, it's consolidating the EBITDA versus the revenues generated at Umicore level.

Sebastian Bray: I see. So, in other words, if we were to do a pro rata consolidation, the margin target would actually be lower. So, let's say we take, we multiply the JV sales by 51%.

Wannes Peferoen: Yes.

Sebastian Bray: And add them back in actually at lower 25% margin target, is that right or?

Wannes Peferoen: Yes, you would see that effect, but again, I think the effect is something which will become more visible as from ‘26 onwards as IONWAY joint venture starts to ramp up in the first years, that's not something that is driving the equation.

Sebastian Bray: That's understood. And I appreciate I'm taking time here. But, just to clarify, in 2026 a reasonable base case modeling assumption is to pretend that Umicore is still servicing the VW JV out of its own fully consolidated production?

Mathias Miedreich: Sorry, could you repeat the last topic? What should we assume? We didn't totally get.

Sebastian Bray: I appreciate it's early, but as a reasonable base case for 2026, Wannes, I believe you alluded to this. We can assume that Umicore is servicing the JV out of its own fully consolidated production.

Mathias Miedreich: Yes, yes, okay, understood. Yes, yes, that's correct. And second remark I wanted to make to your previous math that you made on the non-consolidation of revenues. Please also note that we guide for an EBITDA margin larger than 25%. That's an important notion I wanted to make.

Sebastian Bray: That's helpful. Thank you for taking my questions.

Operator: Thank you. And we'll now take our next question from Chetan Udeshi with JPMorgan (NYSE:JPM). Your line is open. Please go ahead.

Chetan Udeshi: Yes. Hi, morning. Firstly, I have to acknowledge that your guidance is very precise. It's like EUR 50 million delta for full-year given all the uncertainties that you have talked about, also given the second half phasing. It's just interesting to me how precise the guidance is, but just an observation. I was just following up on your previous comment and I appreciate you don't want to give us a split of RBM between CAM and the refining part. But I mean, can you sort of point us to some sort of goalpost in terms of how big the relative revenues are within your guidance? Is CAM clearly more than half of that number? Because I would have thought your refining business typically is serving your captive CAM business. So, maybe the revenues are not that high, but I might be wrong. So, any sort of just color on the relative size of the two businesses will be useful? The second question, I was just looking at your R&D spending in the E&ST business in 2023 and it seems in second half for instance you've seen almost a EUR 30 million, EUR 40 million reduction in absolute R&D spend. How much of this is actually the one-off impact that you mentioned, which is the associated with the validation for the mass production versus how much of this is more rationalizing? And I'm just curious why would you rationalize the spend on E&ST. One can understand more in Catalyst given that with E&ST sorry, not E&ST Battery Materials, you're still sort of ramping up that business and clearly, I guess, the aim is to be at the forefront in terms of technology roadmap, maybe any color there would be useful? And last question, just, is the EUR 800 million CapEx the right ballpark for 2024? And what is the D&A that we should have for 2024? Thank you very much.

Mathias Miedreich: Yes. Thank you, Chetan. Very good questions. So first, let me react to your comment on why we're so precise in our guidance. So, that should be also understood as a result of the, our intent, first of all, to be as transparent as we can. And secondly, why can we be so sure about it, it's because we have a major difference to the past, which is the increased hedging. If you have seen the slides of Wannes where we are significantly upstilling, especially rhodium and palladium to nearly three quarters of the expected volumes, that gives us much more clarity in the planning forward and that's what we want to achieve to have a more stable result. As we in the Battery Materials business, also trying to always make sure that we are not linked to the effects of the metal price variations going into the future. Now the second, your first question on the refining versus CAM. Here, it's important to mention, so we will not give you a number, but I can reassure you that, of course, the CAM portion is significantly larger than the refining portion. And it's not to be understood that we have a refining business that we sell to the outside world it is captive refining business for UBM, but it depends on and maybe what if needed, Wannes can give more explanations to the exact accounting to it. But there is, if we are refining upstream materials ourselves, there is a revenue that we are recognizing. If we are buying metal salts, we don't have the revenue, but only a cost in our bill of material, which we will as we said, we're able to do that based on the market conditions always to optimize our profitability. And that's how it should be understood. It's not to say that there is a big refining business besides the CAM business, it's an internal measure to optimize results. And with that, I hand over to Wannes, for the other two questions.

Wannes Peferoen: Yes. So, maybe let me first come back to your question on R&D and the fluctuation I would say over the different periods in the year. What you see in R&D underlying is indeed also the MPTR runs, so the mass production test runs, but also looking at qualification runs and the cost that that entails. So, that is explaining some of those seasonalities, I would say, and some of those fluctuations across the year. Now, looking at CapEx, so you asked for a certain CapEx guidance for ‘24. I mean, if you look at our plan, we expect for CapEx in ‘24 to be in the same order of magnitude as we had in 2023. And then looking at depreciation and amortizations, how that will evolve going into ‘24, given all of the new ramp up that is happening. This is where we expect depreciation and amortizations to increase with about, let's say, 10% versus the level of ‘23.

Chetan Udeshi: Thank you.

Mathias Miedreich: You're welcome.

Operator: Thank you. Thank you. We'll now move on to our next question from Riya Kotecha with Bank of America (NYSE:BAC). Your line is open. Please go ahead.

Riya Kotecha: Hi, morning. I've got three questions, please, related to RBM. My first is on the guide for ‘24 with EBITDA guidance flat and Wannes now mentioning that D&A is expected to be higher year-on-year. Is it then fair to assume that actually EBIT and EPS is much lower into ‘24 for RBM? My second question is on how exposed the company is, to the underlying EV market. And within that range of revenues, is the lower end of EUR 575 million, is protected by some minimum off-take or are you still exposed to underlying EV market volumes here? And my third question is, just taking a step back how should we think about profit growth in this division over 2024 to 2026 as this year, despite volumes expected to be above the EV market, profits of clash, and you've got another greenfield project ramping up in 2026. So, when do you expect the inflection in EBIT in this division? Thanks.

Mathias Miedreich: Okay. Thank you, Riya. I will take the two and three, and then Wannes will talk about EBIT and D&A, etcetera. So EV market, so, we I want to differentiate between this year and maybe the future or the near future. In this year we are, as we have said, it's basically a new business that is ramping up with a strong order book. So, that means in the ramp up year, you have, of course, the risk of volatility, because our customers could have problems in their ramp up, etcetera, but it's less a function of the EV market, it's more a function of the technical performance of the different ramp ups that are happening. And there is also a part of our business that is going into China, as we have said, into Chinese EVs that will be delivered to Europe, which I think are the currently the big winners in all of these discussions. Now going forward, if we look into a more mid-term exposure to volatilities, of course, we have for our contracts the take or pay conditions that we have laid out. But there is another important risk mitigation factor that I wanted to mention is that when we look to our North American business that we had announced, we have as the key customer that was also officially announced, BMW. And we can also confirm that the models of BMW actually, if you look to any impact that you might have from a presidential election in the U.S., let's put it like this on IRA or some people speculate around that, that wouldn't impact Umicore because anyway those models that our products go into, they are not from a price point of view, from a market price point of view, they have not been planned to be IRA compliant. And also these are the model that our customers, is exporting all over the world. So, I think that's also a very reassuring fact going forward. Now your question, I want to be precise on the coverage of, are we covered in terms of take or pay in this year, in the ramp up, I say for the part of our business that has take or pay contracts, we said the Chinese doesn't have, Chinese contract. But the other ones, yes, but in the year of ramp up, the bandwidth of coverage is bigger. That's also normal because the ramp up can always be a little bit more fluctuating. But overall, we feel confident that the volumes that we have planned will also materialize. Now second question or third question is on the profitable growth forward, and you know that maybe I will give you some data points for the math. So, we are guiding for 22% EBITDA margin this year. And you can also see that we have a good increased capacity utilization, but it is not a fully utilized setup yet. And as our business is basically a function of utilization, automatically into 2025 when you imply a higher utilization rate with the ramp up the contracts that now ramp up in 2024 being at full rate in 2025, you can calculate what will be the consequence out of that. So, that makes us, gives us a good confidence on the growth of profits going forward. Now for the third question, EBITDA, etcetera, I hand over to Wannes.

Wannes Peferoen: Okay. So, looking at EBITDA in Battery Materials, I mean, as we indicated, it's early in the year to give already a precise guidance. So, this is why we prefer to create a range. At the same time looking at that range, we can say that it's roughly in-line with ‘23. Now, looking at the question on EBIT and D&A, on D&A, I've indicated the overall expected increase. If you look at the total level versus ‘23 where we expect an increase of about 10%, and obviously this is primarily in Battery Materials given that the focus of the investment is in Battery Materials. So, that D&A would indeed increase in Battery Materials. So, looking or bringing it back to EBIT level, this will weigh in on EBIT. At the same time, I think we can confirm that EBIT is expected to stay in positive territory.

Riya Kotecha: Thank you. Thanks.

Mathias Miedreich: You're welcome.

Operator: Thank you. And we'll now take our next question from Geoff Haire with UBS. Your line is open. Please go ahead.

Geoff Haire: Yes, good morning, and thanks for the presentation. I just had a few questions, if you could help me with them. First of all, on the hedging that you've done longer term in Recycling, does that mean that going forward the Recycling business is not going to see the same level of profitability at peak metal prices that it has in the past, because you've done so much long-term hedging? So, that's one question. Secondly, just on RBM, I just wonder if you could clarify, is the Kokkola refining complex for the supply of cobalt materials, is that within RBM or does that still sit within Cobalt and Specialty Materials? And if it sits within Cobalt and Specialty Materials, when you take product from that into RBM, does that come at cost or at price? Those are my questions. Thank you.

Mathias Miedreich: Yes. Thank you, Geoff. Let me immediately react on the second one. It's actually not the fact that it's in CSM. We have the full activities in Kokkola. So, the refining and the precursor pCAM activity is consolidated in UBM. So, there is no transfer price or any type of setup. It's fully part of that business. And for hedging, I give it to Wannes.

Wannes Peferoen: Yes. So, bringing it back to the Recycling business. Yes, you are correct. I mean, looking at the peak profitability that we have seen, this is something we do not expect to come back. Also, if you look at the drivers, the drivers were primarily the peak in prices for rhodium and palladium, and you have seen the evolution of rhodium and palladium, it has come down on average to 60% and 40%, respectively. And if you look at the key applications of rhodium and palladium, it is very much linked to and very uniquely driven by Automotive Catalyst. And we know about the internal combustion engine, this is not a market we expect to grow substantially in volume or to further decline basically over time. So this is where we have confidence that the metal price will not necessarily go back to previous levels, and where the levels that we have been able to secure, or from historical perspective, or still very interesting, so, this is where we have decided to increase the hedging in particular for rhodium and palladium, which secures the future earnings, future cash flows and brings also more visibility to the results.

Mathias Miedreich: And if I want to add, that's a deliberate decision that we take, because we as Wannes said, we are judging the upside potential lower than the downside risk and the downside risk for us, it is important with our plan forward that we have a stable view on cash flows, because we want to make sure that, as we have said in our plan, use as much as possible organic cash flows to secure our growth forward. And this, I think, is an excellent move that we now did to have that secured, while giving up on an opportunity that is very unlikely to materialize. So, we think it's a great deal.

Geoff Haire: Okay. Thank you. So, can I just ask one other question, I forgot I wanted to ask? The other question was around pricing. We've seen a number of EV OEMs reducing pricing. And certainly in the U.K., a number of OEMs are offering 0% APR if you buy EVs. How do you deal with OEMs reducing their prices of their selling product and perhaps coming back to you and asking for lower pricing in materials that you're putting in? What is the, how do you protect yourself in that negotiation?

Mathias Miedreich: Yes, actually, it's actually true. We see a lot of inflow of those requests, and we I really like those requests. Because you know that, our revenue and that's what I, that's why I pointed it out in the beginning, our revenue definition and consequently also the underlying EBITDA is excluding the metals. So, we are not interested to have certain metals at a certain price or a certain metals even in our battery chemistries. So, the feedback and what we're doing with the OEMs that want to reduce their cost is to work on chemistries that use less of those critical metals or no metals at all. So for example, our cobalt less technology that we are developing, the HLM technology, which replaces nickel by manganese, we have seen indeed quite an uptake in interest, by the way also on the mid-nickel-high-voltage technology that reduces nickel. So, that is a great driver for us to potentially even have a margin up, because we can offer to our customers a significant reduce of, I don't know, 10%, 20%, 30% of cathode cost through the use of less or different materials. And if we can increase by 2%, 3%, whatever 5% our transformation technology premium, that's still a very good win-win deal. So, indeed that has been significantly increasing over the last six months to have these discussions, and we are very much welcoming them. And then it's again, great news that we have such a business model that is not dependent on the metals itself.

Geoff Haire: But if you have a platform that you're already supplying into and the OEM comes back to you and says, we need to cut the costs here because we're cutting our price. Do they not have to retest with a new cathode, so you have to go through that process or how does that work?

Mathias Miedreich: Yes. And so in principle, our contracts, as we said long-term, they have averaged eight years duration and have fixed pricing. So, that means if OEM comes back and say, hey, I want to reduce the price, we are always reactive to that and we're trying to implement a new, as I said, different technologies that need to then be validated and need to be brought into the platform. So, it will not happen overnight, that's also clear.

Geoff Haire: Yes.

Mathias Miedreich: But it's also a protection mechanism for us, because we can plan better for the business years to come.

Geoff Haire: Okay. Thank you.

Operator: Thanks. That's all the questions that we have for today. I will now hand it back to Mathias, for closing remarks. Thank you.

Mathias Miedreich: Very good. Thank you very much for the good questions, good discussions and looking forward to hopefully see many of you during our London Roadshow next week, Paris Roadshow and also here in Brussels. Thank you very much, and have a great weekend when it comes.

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