Financial

Substantial growth in revenues and earnings driven by strong underlying operational performance in all business groups, further supported by an exceptional precious metal price environment.

Umicore posted all-time record revenues and earnings in 2021, despite the severe disruption in global car production in the second half of the year as a result of the semiconductor shortage. This outstanding achievement reflects a substantial outperformance of the automotive market and high operational efficiency in Catalysis, a sharp demand recovery in key end-markets and higher sales volumes of EV cathode materials in Energy & Surface Technologies as well as a robust operational performance and optimized input mix in Recycling. The exceptional precious metal price environment provided an additional tailwind to this strong underlying growth and operational performance, contributing approximately € 270 million to adjusted EBIT compared to 2020.

Revenues for the full year grew by 22% to € 4.0 billion and adjusted EBIT increased 81% to € 971 million. Excluding the approximate € 270 million precious metal price impact, adjusted EBIT increased 30% to reach approximately € 700 million. Adjusted net profit of the Group more than doubled to € 667 million. Cash conversion came in at record levels with adjusted EBITDA growing 56 % to € 1,251 million, net working capital decreasing by € 167 million and capital expenditure stabilizing at € 389 million. Net financial debt was reduced by € 454 million to € 960 million or 0.77 times LTM adjusted EBITDA. Umicore recently signed its inaugural sustainability-linked loan.

Revenues in Catalysis reached record levels with strong growth across business units. Automotive Catalysts outperformed the global car market. This was enabled by market share gains and a favorable platform mix in the European and Chinese light-duty gasoline markets, particularly strong demand for Umicore’s China V heavy-duty diesel catalysts in the first half. Sales volumes of fuel cell catalysts were also well up. This strong operational performance was further supported by efficiency improvements and high PGM prices and resulted in a record adjusted EBIT of € 326 million.

Revenues and earnings in Energy & Surface Technologies increased, reflecting higher sales volumes of EV cathode materials in Rechargeable Battery Materials and an extraordinarily strong contribution of the Cobalt & Specialty Materials and – to a lesser extent - Metal Deposition Solutions business units. Adjusted EBIT increased to € 139 million, despite higher fixed costs related to recent and ongoing expansions and higher R&D spending in battery materials.

Recycling posted record revenues and earnings, significantly above the previous record levels of 2020, driven by a robust operational performance in the various business units, a strong contribution from the trading activities and an exceptional precious metals price environment.

Strong operational business performance improvement and significant precious metal price effects

Strong operational performance drove approximately an € 160 million year-on-year increase in adjusted EBIT. This corresponds to some 30% adjusted EBIT growth compared to the 2020 adjusted EBIT of € 536 million and reflects a significant and sustainable performance uplift, growing adjusted EBIT over-proportionally to the underlying revenues and thus improving EBIT margin.

On top of this, it is estimated that the year-on-year price impact of the exceptional precious metal price context on Umicore’s 2021 adjusted EBIT amounted to approximately € 270 million, including the effect of strategic hedges and the price benefit on higher volumes. More than 75% of this tailwind was in Recycling and was linked to the higher rhodium price.

PGM prices, in particular rhodium and palladium, have increased substantially since 2019, reflecting a tighter market, driven by growing demand from the automotive industry as a result of more stringent emission norms. Both metals reached their historical peak price in the first half of 2021, followed by a price correction in the second half of 2021 due to the impact of the semiconductor shortage on global car production which in turn impacted PGM demand for automotive catalysts. Despite ending the year below the price levels at the start of 2021, the average prices for these metals for the full year 2021 remained well above the average price levels of 2020. Other precious metal prices such as gold and silver also traded at prices well above historic averages in 2021.

Due to significant existing strategic hedges, Umicore was less exposed to the fluctuation in gold and palladium prices. It was, however, fully exposed to the fluctuation in rhodium price. See financial review section for more details on Umicore’s current strategic metal hedges.

The Catalysis business group delivered a record performance in 2021, posting an increase in revenues of 24% to reach € 1,687 million with strong growth across business units.

Automotive Catalysts outperformed the global car market, which was severely impacted by the semiconductor shortage and contracted by 1.7% year on year for ICE (internal combustion engine) vehicles, including HEV/PHEVs. This outstanding performance was driven by further market share gains and a favorable platform mix in light-duty gasoline applications in Europe and China as well as strong demand for China V heavy-duty diesel catalyst technologies in the first half of 2021 - ahead of the nationwide adoption of China VI. The business group also benefited from a substantial increase in sales volumes in the Fuel Cell Catalysts activity, reflecting a successful expansion of its customer portfolio in China, as well as higher revenues in the Precious Metals Chemistry business unit.

Adjusted EBIT and adjusted EBITDA, which amounted to € 326 million and € 402 million respectively, also reached record levels, reflecting a strong operating leverage effect from the combination of substantially higher revenues with structural cost reductions resulting from production footprint adjustments as well as strict manufacturing and SG&A cost management. The favorable PGM metal price environment provided an additional uplift in earnings. This record performance was particularly driven by a strong first half of the year, as the release of pent-up demand, high plant productivity, the strong demand for China V heavy-duty diesel technologies and record PGM prices converged into peak margins. Margins in the second half normalized well above historic levels on the back of lower volumes due to the semiconductor shortage, some cost inflation towards the end of the year and lower PGM prices.

2021 turned out to be another challenging year for the automotive industry, after a difficult 2020 in which global car production was profoundly impacted by the COVID-19 pandemic. While the start of 2021 showed promising signs for a recovery of the automotive industry, with a 27% year-on-year increase in the first half of 2021, car production plummeted in the second half as a result of a severe shortage in semiconductor supply, which caused car OEMs to reduce production or even completely stop assembly lines. As a result of this decline in the second half, global ICE car production for the full year 2021 contracted by 1.7%.

Against this challenging backdrop, Umicore’s Automotive Catalysts delivered record results, outperforming the global ICE car market both in volumes and revenues (+18.5% year on year). This growth, although more weighted in the first half as a result of the specific market context, reflected a favorable platform mix and market share gains in light-duty gasoline technologies, particularly in Europe and China, as well as strong demand for Umicore’s China V compliant catalysts for heavy-duty diesel applications. The increase in adjusted EBIT was even more pronounced, supported by cost savings resulting from previously implemented footprint adjustments and operational excellence initiatives in manufacturing and SG&A. Umicore’s light-duty and heavy-duty catalyst production capacity expansions in China were successfully commissioned and start of production is expected in Q1 2022.

The light-duty vehicle segment represented 81% of Automotive Catalysts revenues in 2021, of which 78% for gasoline technologies.

The Chinese ICE car market, which represented 28% of Umicore’s global light-duty catalyst volumes, decreased by -5.4% over the full year, reflecting a profound impact of the semiconductor supply shortage in the second half of the year. While Umicore’s sales volumes were not immune to this downward trend in the second half, it outperformed the Chinese market for the full year both in volumes and revenues (+13.2%), benefitting from its favorable customer and platform exposure.

In Europe, which represented 30% of Umicore’s light-duty catalyst volumes, Umicore substantially outperformed ICE car production, which declined by -5.9% over the year, both in volumes and revenues (+16%). This performance was driven by further market share gains in the gasoline segment and confirms Umicore’s strong position in gasoline catalyst technologies.

Umicore also outperformed both the North American and South American car markets, which combined represent 25% of Umicore’s light-duty catalyst volumes, reflecting a favorable platform mix in both regions.

In Asia, Umicore benefited in particular from the ramp-up of new platforms in India, Japan and Korea and outperformed the car market both in volumes and revenues.

The heavy-duty diesel segment represented 19% of the business unit’s revenues in 2021.

Umicore’s heavy-duty diesel catalyst activity has been growing steadily in the past years and the business unit established a strong position, particularly in the Chinese and European heavy-duty diesel markets with each region representing respectively 58% and 30% of Umicore’s global heavy-duty sales volumes. In Europe, Umicore’s revenues (+31.9%) strongly outperformed the market (+15.2%), reflecting the ramp-up of new platforms. In China, Umicore benefited in particular from strong demand for its China V catalyst technologies in the first half, ahead of the nationwide implementation of China VI emission norms. Umicore’s revenues (+33.6%) therefore significantly outperformed the Chinese HDD market (-17%).

The supply chain constraints caused by semiconductor shortage also affected the heavy-duty diesel market in the second half of the year, in particular in Europe. In China, its impact was less material as heavy-duty diesel production in the region declined significantly after the strong China V buying in the first half.

Revenues for Precious Metals Chemistry were well up year on year driven by peak demand levels for homogenous catalysts from the high-end pharmaceutical and fine chemicals industries as a result of strong post-COVID-19 recovery. Following the severe downturn in the automotive industry in 2020, demand for inorganic chemicals also benefited from a strong recovery at the start of the year while the impact of the global semiconductor shortage on car production dampened second half volumes.

Revenues for Fuel Cells & Stationary Catalysts were also strongly up compared to 2020, driven by high growth in the fuel cell catalyst business, while revenues in stationary catalysts remained stable. Volumes in 2021 for proton-exchange-membrane (PEM) fuel cell catalysts used in hydrogen powered transportation almost doubled compared to 2020, positioning Umicore now at 40% global market share in the mobility segment. This is a result of strong demand from both existing customers in Korea and China and market share gains in China, where Umicore contracted several new customers throughout the year. This positive development fuels a growing contribution of the Fuel Cell Catalyst segment to the business group’s earnings. In stationary catalysts, demand from the power, refinery and chemicals end-markets is project-driven in nature and felt in 2021 the repercussions of project postponements in the COVID-19 context. The last months of the year showed early signs of recovery with order book levels gradually increasing.

Revenues in Energy & Surface Technologies amounted to € 1,174 million in 2021, up 12% compared to the previous year, with all business units contributing to that growth.

In Rechargeable Battery Materials, sales volumes of cathode materials for EVs were well up, particularly in the first half of the year, with high demand for Umicore’s NMC cathode materials for the European EV market. Revenues in Cobalt & Specialty Materials and Metals Deposition Solutions increased substantially, boosted by a sharp post-COVID-19 recovery in demand in key end-markets as well as a supportive price environment. Revenues in Electro-Optic Materials benefited from a recovery in demand and new customer wins.

Adjusted EBIT and adjusted EBITDA in Energy & Surface Technologies were up 85% and 41% respectively, reaching € 139 million and € 262 million respectively. This significant increase in earnings was primarily driven by an extraordinary contribution from the Cobalt & Specialty Materials business unit.

Revenues in Rechargeable Battery Materials were up year on year reflecting primarily higher sales volumes of EV NMC cathode materials. This increase was driven by strong demand from the European market, particularly in the first half of the year, whereas in China, Umicore’s NMC volumes reflected an unfavorable customer and platform mix. Shipments of NMC cathode materials used in energy storage benefited from a pick-up in demand in Korea, while sales volumes of high energy LCO cathode materials used in portable electronics were below the level of previous year.

Despite the adverse impact of the semiconductor supply shortage on the automotive industry, global sales of EVs in 2021 more than doubled versus 2020, while demand for EV NMC materials increased 74% year on year. Growth of Umicore’s sales volumes did, however, not match the global growth in NMC battery materials. After a strong first half, growth of Umicore’s sales volumes slowed down in the second half, affected by production schedule adjustments of qualified platforms and an unfavorable customer and platform mix in China.

Over the course of 2021, Umicore successfully entered into advanced customer qualifications for new high-nickel EV platforms in Europe and China with different battery manufacturers and car OEMs. It is currently expected that upon successful qualifications, the first sizable portion of these platforms will start commercial production in the course of the second half of 2023.

EV sales in Europe increased substantially compared to the previous year, supported by stringent CO2 targets and subsidy schemes in most European countries. Umicore’s sales of NMC cathode material grew in line with the market demand for battery materials, which was up by 48%, reflecting its strong position in the region.

Sales of EVs in China recorded significant growth in 2021. While the semiconductor supply constraints weighed on overall vehicle production, car manufacturers in the region prioritized EV production where possible to meet the Chinese New Energy Vehicle (NEV) credit targets. The growth in China was primarily driven by a substantial increase in sales of short-range LFP-based vehicles, while demand for NMC battery materials increased to a much more modest extent. Umicore’s volume growth did not match demand growth due to an unfavorable platform and customer mix. As a result, production in Umicore’s Chinese plant remained below capacity.

Revenues for Cobalt & Specialty Materials were well up compared to the previous year, reflecting a sharp recovery of customer demand in key end markets, after the particularly severe impact of COVID-19 on its 2020 activity levels. Earnings further benefited from the context of increasing cobalt and nickel prices.

Revenues from the cobalt and nickel chemicals and related distribution activities increased substantially driven by significantly higher volumes at favorable conditions. Order levels for cobalt and nickel chemicals were well up in the first half of 2021, reflecting a sharp post-COVID-19 recovery in demand and related customer restocking behavior. Demand remained at an exceptionally high level in the second half of the year, with increasing cobalt and nickel prices triggering additional inventory build-up.

Revenues from the tool materials activity were also well up driven by a recovery in demand from the construction sector resulting in high order levels for alloyed powders. Revenues from carboxylates increased compared to an already robust 2020, reflecting solid demand from the coating and paint industries as well as higher order levels for naphthenic acid.

Revenues for Metal Deposition Solutions were well up compared to the previous year, driven by higher revenues in both the electroplating and thin film product activities. Order levels of decorative applications for the jewelry sector and platinized applications for industrial use benefited from customer restocking after the COVID-19-related slowdown in demand in 2020. Revenues from base metal finishing applications were also higher driven by the successful launch of a new connector application which allowed the business unit to further extend its customer portfolio. Finally, sales in micro-electronics and optics were also up, benefiting from a strong recovery in demand for electronics in the semiconductor industry.

Revenues for Electro-Optic Materials were up year on year. The business unit saw a clear recovery in demand for high purity chemicals used in optical fibers with the pick-up of 5G projects worldwide. Volume growth in germanium substrates also accelerated, mainly in the second half of the year, driven by strong demand from the space industry for both traditional geo-satellites and low earth orbit constellations. Through new customers wins, Umicore continued to expand its germanium recycling solutions. Moreover within infrared solutions, new business wins in Europe and North America in the security and surveillance segment compensated for the normalization of demand in 2021 for infrared cameras, which recorded a COVID-19 related spike in the previous year.

The Recycling business group set another all-time record performance in 2021, significantly above the previous record result achieved in 2020.

Revenues reached € 1,108 million and adjusted EBIT amounted to € 573 million, representing an increase of 33% and 58% respectively compared to 2020. Adjusted EBITDA amounted to € 640 million, representing an increase of 51%. This exceptional performance was driven by a continued strong operational performance and high activity levels in the various business units, a strong contribution from the trading activities and an exceptionally strong precious metals price environment with peaking PGM prices in the first half. The Precious Metals Refining business unit took full advantage of this exceptional metal price environment by leveraging its unique recycling technology to optimize its intake of complex PGM-rich input materials.

Revenues and earnings for Precious Metals Refining increased significantly compared to the previous year reflecting an exceptional precious metals price environment and in particular for PGMs in the first half of the year, as well as an excellent supply environment and robust operations with high processed volumes. The business unit took full benefit from the extraordinary market environment by actively leveraging its unique recycling technology to maximize intake of highly complex PGM materials, which resulted in an absolute record year in terms of revenues and earnings.

Supply of industrial by-products and end-of-life materials remained strong and Umicore managed to maintain total processed volumes in line with the high levels of 2020, despite the challenges induced by COVID-19-induced quarantine rules.

Revenues for Jewelry & Industrial Metals were well up compared to the previous year, driven by a strong performance across product lines. Revenues for platinum engineered materials increased substantially reflecting a recovery in demand for high-quality and high-grade glass applications as well as market share gains in performance catalysts following a successful expansion of its customer portfolio. Demand for precious metal-based investment products remained high, in particular for silver coins and gold bars which are seen as safe haven investments in a context of the economic and geopolitical uncertainty. Sales volumes of jewelry products also increased, driven by a strong recovery in demand from the luxury sector following the pandemic-related slowdown in 2020. The performance of the business unit was further supported by a strong contribution of the refining activities which benefited from the favorable precious metal price environment.

The earnings contribution from Precious Metals Management remained broadly in line with the exceptionally strong performance in 2020. This outstanding performance was supported by continued strong demand for gold and silver from the industry and investment end-markets as well as very favorable trading conditions as a result of the high precious metals price volatility.

In 2021, corporate costs increased, partly offset by a higher contribution from associates. The increase in corporate costs results amongst others from higher R&D and innovation initiatives linked to Umicore’s mid- to long-term technology roadmap and additional digitalization initiatives with related information system costs. Corporate costs are expected to continue to increase above inflation in 2022 as Umicore is committed to its longer-term innovation and digitalization and is preparing its systems and organization to accommodate for future expansion.

Financial result and taxation

Adjusted net financial charges totaled € 100 million, compared to € 104 million in the same period last year with lower foreign exchange related costs more than offsetting somewhat higher net interest charges. The latter takes into account the issuance of a convertible bond in June 2020 which in 2021 carried a full year of interest. When excluding these non-cash interest charges on the convertible bond, cash net interest charges for the Group decreased.

The adjusted tax charge for the period amounted to € 196 million, up compared to € 103 million last year as a result of the substantial year-on-year increase in taxable profit combined with a slightly lower adjusted effective group tax rate (23.1% versus 24.2% in the same period last year). Taking into account the tax effects on adjustments, the net tax charge for the Group amounted to € 179 million. The total tax paid in cash over the period amounted to € 175 million and was also well up from € 79 million last year.

Cashflows & Financial Debt

Cashflow generated from operations including changes in net working capital more than doubled to a record level of € 1,405 million, compared to € 603 million last year. After deducting € 416 million of capital expenditures and capitalized development expenses, the resulting free cash flow from operations was € 989 million, compared to € 167 million in the same period last year.

Adjusted EBITDA was € 1,251 million, up 56 % compared to € 804 million generated in 2020. This corresponds to a record adjusted EBITDA margin of 31.0 % for the Group, substantially up versus 24.6 % in the same period last year, driven by higher margins across Business Groups, particularly in Recycling and Catalysis. Some 60 % of adjusted EBITDA was generated in the first half, reflecting in particular the lower PGM prices and global car sales in the second half versus the first half.

Net working capital for the Group decreased by € 167 million since the end of 2020. This is a further reduction of € 137 million compared to end of June 2021 which benefited from some temporary cut-off effects. Working capital came down in all Business Groups, but most so in Catalysis where it reflects lower precious metal prices and softer volumes in the second half. At current metal prices, working capital in 2022 is expected to increase from the levels of end of 2021.

Dividend payments over the period amounted to € 181 million while the net cash outflow related to the exercise of stock options and the purchase of treasury shares to cover stock option plans and share grants amounted to € 22 million. The acquisition of the remaining 8.8 % minority shares in the listed subsidiary Allgemeine Gold- und Silberscheideanstalt AG and its subsequent delisting resulted in a cash out of € 54 million in the second half.

The 2021 record free cash flow drove a reduction in net financial debt from € 1,414 million at the end of 2020 to € 960 million at 31 December 2021, corresponding to 0.77 LTM adjusted EBITDA. Equity of the Group was € 3,167 million, corresponding to a net gearing ratio (net debt / net debt + equity) of 23.3%.

Adjustments

Adjustments had a negative impact of - € 75 million on EBIT of which - € 39 million was already accounted for in the first half.

Environmental-related provisions took up € 58 million of this total with additional provisions for the creation of a green zone neighboring the Hoboken plant accounting for the bulk. This reflects the success of the voluntary offer to purchase neighboring houses. The creation of the green zone is a key building block of the site’s plan to further reduce the impact on its neighbors. Taking into account the use of the provision over the period, the total provision for the creation of the green zone at December 31 amounted to € 44 million.

EBIT adjustments also include € 34 million of restructuring charges of which € 23 million have been accounted for in the second half and are mainly related to a decision to stop a development program in Precious Metals Chemistry linked to the semiconductor industry. Impairment charges took up € 18 million of the total EBIT adjustments and were close to entirely accounted for in the first half and were mostly linked to the closure of Automotive Catalysts’ heavy-duty diesel operations in Frederikssund, Denmark as well as the impairment of certain related IP.

A positive EBIT adjustment of € 40 million was recognized related to a tax credit in Brazil resulting from a landmark ruling by the Brazilian Supreme Court in May 2021 covering multiple years. Including positive adjustments to financial and tax items of € 9 million and € 17 million respectively, the total adjustments to net group earnings over the period corresponded to - € 49 million.

The contribution from Element Six Abrasives – a JV in which Umicore has a 40% stake - to Umicore’s adjusted EBIT was strongly up compared to previous year’s COVID-19-hit net earnings. This reflects the combination of substantially higher revenues with cost savings and efficiency gains across activities. Sales of carbide-based materials exceeded the already significant order levels recorded in 2020 driven by continued solid demand from the mining, agricultural and road paving end-markets. Revenues from oil & gas drilling equipment were also well up reflecting the gradual recovery of the global drilling industry after its abrupt standstill in 2020 and the related rebuilding of stocks by customers, while precision tooling products benefited from a recovery in demand from the automotive industry.

Hedging

Umicore entered into forward contracts to cover part of its expected structural price exposure to certain precious metals for 2022, 2023 and 2024. For 2022, based on the respective currently expected exposures, the following lock-ins have been secured: close to two thirds for palladium, more than half for gold, somewhat less than half for silver and close to one third for platinum and rhodium. For 2023, the expected lock-in ratios are: close to a third for gold, silver and palladium and a minor portion for platinum and rhodium. For 2024, only a minor portion was locked-in for the expected gold, silver and palladium exposures.

Next to strategic metal hedges, the Group typically manages a portion of its forward energy price risks by entering into energy hedges. Currently, Umicore has hedges in place that cover a minority portion of its expected European electricity, natural gas and fuel needs for 2022 and following years. These hedges particularly cover future energy needs in Belgium, Finland and Poland. While these contracts are expected to mitigate a portion of the energy price inflation effect on next year’s earnings, Umicore remains largely exposed to energy market price fluctuations. Hence it expects, based on the current market price outlook, a material energy cost headwind effect in 2022, particularly for its Belgian operations.