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 CEO & Chairman’s review

Umicore Chairman, Thomas Leysen and CEO, Marc Grynberg look back on 2015, the accomplishments of the Vision 2015 strategy and take a look at Umicore’s future.

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The past year has been pivotal in Umicore’s development. Despite a challenging macro-economic and metal price context in the latter stages of 2015, Umicore managed to maintain momentum, posting double digit growth in both revenues and earnings. Revenues increased 11% year on year to EUR 2.6bn and recurring EBIT grew 21% to EUR 330m. It was particularly rewarding to see that a significant part of this increase stemmed from strong demand in businesses to which we have continued to allocate significant resources such as Automotive Catalysts and Rechargeable Battery Materials. This recovery was further supported by productivity improvements and selective restructuring initiatives.

Most of those business units that rely partly on metal margins for their profitability encountered increasingly challenging market conditions as the year progressed. Fuelled by uncertainties related to China and other emerging countries, many metals saw pricing headwinds turn into a price collapse as the year progressed. For some metals this resulted in price levels not seen since the start of the financial crisis. The combination of higher sales volumes, supply and product mix improvements and some foreign exchange tailwinds did more than offset these negative metal price effects.

Cash flow generation in 2015 remained highly positive. We continued to fund major long-term growth investments, completing the most significant part of the Hoboken expansion project and bringing on stream a number of capability and capacity enhancements in the Automotive Catalysts and Rechargeable Battery Materials as well as smaller investments in the other business units. We were also able to continue returning cash to shareholders through dividend payments and by buying back close to a million of our own shares during the year. The Board of Directors has proposed a gross annual dividend of € 1.20 per share for 2015. This represents an increase of 20% and, in the context of Umicore’s policy of paying a stable or gradually increasing dividend, represents a strong signal of confidence in the potential of the company.

2015 marked the final year of our Vision 2015 strategy and the articulation of new goals for the coming five years – Horizon 2020. The overriding conclusion from the past five years is that we have made the right strategic choices. From an economic perspective, the Horizon 2020 strategic priorities sould be seen very much as a continuation of the agenda that we set for Umicore a number of years ago. With the exception of photovoltaics, the megatrends that are driving our business are, if anything, even stronger than they were back in 2010. We have laid sturdy foundations for growth in the businesses that are driven by the push towards cleaner mobility and recycling and while the negative metal price evolution in 2015 prevented us from attaining the growth potential we outlined in 2010, we expect that the contribution of these investments has started to be visible in 2015 and should be felt more fully as from 2016.

Our overall 2020 goals are to be a clear leader in materials for clean mobility and in recycling, to have doubled the size of the business in terms of earnings and to ensure that our Catalysis and Energy & Surface Technologies make up proportionately more of our earnings by 2020, meaning a more balanced portfolio.

In order to ensure the best chance of success over the coming years we will need to continue sharpening the focus of the business. With this in mind, in early 2015 we announced our intention to divest the zinc business units – Building Products and Zinc Chemicals. Both business units have improved their positioning in recent years and are ready to develop further in an environment that is specifically aligned with their respective products, services and applications. While our intention is to complete both transactions by the end of 2016, we will concentrate in the first instance on making progress with the Zinc Chemicals divestment. It is not yet clear what impact the French competition authorities’ objections relating to the business practices of Building Products might have on that business unit.

In terms of sustainability performance the progress towards our Vision 2015 goals has been largely very positive. On the environmental front, we achieved a reduction in CO2 emissions of 26% compared to the baseline year of 2006 and compared to a targeted reduction of 20%. The achievement of the metal emission reduction targets was even more pronounced. The impact of emissions to water and air were driven down respectively by 26% and 37% compared to a targeted reduction of 20%, representing an outstanding performance.

With regards to people development and stakeholder engagement we also made big strides. The people survey of 2014 indicated a high level of engagement and satisfaction among our employees and in 2015 the business units and sites made progress with their action plans for further improvements. By 2015 we had ensured that the vast majority of Umicore employees received an annual appraisal and development plan and we had also made good progress in further reducing the exposure levels of our employees to various metals. In the area of sustainable procurement we have built on our reputation as a pioneer in the field and have ensured a steady roll out of our Sustainable Procurement Charter and a rigorous implementation of measures to guarantee that materials treated by Umicore are conflict free and sourced in a sustainable and ethical manner.

The one area where performance has been less than satisfactory has been safety. We set ourselves the target of becoming an accident-free company by 2015 and, while our safety performance is better than at the start of the programme in 2010, we have fallen short of this objective. We recorded 47 lost time accidents in 2015 compared to 37 accidents recorded the previous year. While we can be proud of the achievements in certain parts of Umicore, with 84% of our production sites having had no lost time accident for a year or more, it is evident that we need to adapt our approach if we are to realise our zero accident ambition.

We have published in this report our new environmental and social objectives that form an integral part of our Horizon 2020 strategy. We have retained certain Group-wide objectives to which all business units are expected to contribute – the most pressing of which is the continued drive towards zero accidents. In other areas we have taken a broader look at Umicore’s contribution across the value chain and have developed a series of goals that have been largely aggregated based on the priorities of the business units. The common denominator for all of these objectives is that they have the potential to provide the business units with an enhanced competitive edge, whether through sustainable metal supplies, more eco-efficient operations, improved access to talent or better performing products and services. You can discover more about these objectives here.

At the time of writing, 2016 is off to a volatile start and the global macro-economic environment has been proving uncertain. The markets have been fearful of the possibility of an economic hard landing in China and these nerves have been frayed further by various well-documented geo-political risks. Commodity prices – metal prices in particular – remain at low levels and announcements of supply cuts have hardly had any positive impact. While we anticipate significant volume growth across our main growth platforms, metal prices are currently at lower levels than the average of last year. Given the high level of market volatility it is difficult to estimate what impact metal prices might have on the anticipated benefits from the strong volume growth. As usual, we will provide more guidance at the end of April when issuing the first quarter trading update.

We would like to take this opportunity to extend our thanks and appreciation to all our stakeholders for their contribution to our success over the course of 2015. We have a clearly defined path ahead of us and we are looking forward to making the most of the various opportunities together with our customers, employees, shareholders, suppliers and other business partners.