Umicore SA (UMI) Earnings Call Transcript & Summary

Hello, and welcome. My name is Bill, and I will be your conference operator today. At this time, I would like to welcome everyone to the Umicore 2026 Half Year Results Call. Please note that this call is being recorded. [Operator Instructions] I would now like to hand over the call to Bart Sap, Umicore's CEO; and Wannes Peferoen, Umicore's CFO. You may now go ahead, please.

Okay. Now it's my turn. Good morning to all, and welcome to our H1 2026 earnings call. Let's open this presentation with a personal note for our CFO, Wannes Peferoen, for whom since the last set of numbers. Wannes, on behalf of Umicore, I'd like to express my sincere thanks for all your investment and dedication over many years at Umicore. We've worked together in different moments throughout our career. I've always valued our collaboration. I wish you the very best in what is to come. And first of all, some well-deserved if you're close ones.

Thank you, Bart.

As also announced in April, Lily Liu will succeed Wannes as of August 1. Lily is leaving this call in Wannes's capable hands. She's, of course, following this very closely, and those who participate in our roadshow next week will get to meet her. So once again, also a very warm welcome to you, Lily. Now let's have a look at our H1 performance and where we stand today. I'm really pleased with the broad-based earnings uplift that we delivered in H1 2026, primarily driven by strong business execution and efficiency. Underlying earnings were up strongly in the double digits. Earnings growth also benefited from a metal price tailwind, particularly pronounced in Q1 2026. This tailwind came from a broad basket of metals. In addition to that, our drive for efficiency had an even greater impact on earnings growth. This is something we are really proud of as a management team. So, thank you to our teams for their remarkable efforts. These results provide us with confidence to upgrade our full year 2026 adjusted EBITDA guidance to slightly more than EUR 1 billion, while previous guidance provided in April was to approach EUR 1 billion. Let me also draw your attention to our midterm strategic framework highlighted at the bottom of this slide. Our trajectory today shows indeed that we are well on track with our core midterm plan. We delivered increased margins, stronger returns, improved cash generation and a robust balance sheet. Our H1 2026 performance and numbers now on the next slide. We have revenues growing 7% to EUR 1.9 billion. Earnings growth outpaced revenue growth and adjusted EBITDA increased 33% year-on-year. We delivered remarkable adjusted EBITDA margin accretion of about 600 basis points to 30.2% in H1 2026. The ROCE is follow suits with a 660-basis point increase year-on-year to 23%. Cash conversion of earnings increased sharply as well with a free operating cash flow of EUR 295 million versus an outflow in H1 2025. Strong adjusted EBITDA growth allowed to achieve a significantly lower leverage ratio year-on-year to 1.52, well within target. In short, these numbers reflect strong momentum, greater underlying business activity and sustained efficiency, further supported by a favorable metal price environment. Let's now go through business group performance, and we start this time with Catalysis. A quick overview of market dynamics first. Overall, and as anticipated, global internal combustion engine production in H1 2026 was EUR 1.5 million lower year-on-year. The global decline was driven by the light-duty vehicle market, so the passenger cars, production dropped 4% year-on-year. You will notice mixed regional trends. The slowdown in China and Europe was only partially offset by stable to growing production in North America and South America. Looking at HEV production, Europe was flat and China increased slightly. India and Thailand, on the other hand, delivered combined a 16% increase in production. Now on to performance in Catalysis on the next slide. Very solid set of numbers, largely driven by sustained operational excellence. Automotive Catalysts, earnings up on broadly stable revenues year-on-year. Umicore did outperform the light-duty vehicle market as well as the HD market with strong volumes. Precious Metals Chemistry delivered materially higher revenues and earnings. Sustained demand levels across inorganic chemicals and homogeneous catalysts were further supported by favorable PGM price environment. Fuel Cells & Stationary Catalysts. The segment was weaker year-on-year overall, yet we saw different trends between the Fuel Cell Catalysts and the Stationary Catalyst divisions. So, on Fuel Cell Catalysts, a lower adjusted EBITDA due to lower hydrogen technology adoption in China. We see some delay there. Yet at the same time, and on a positive note, we start production at our new proton exchange membrane catalyst plant in Changshu, China. This brings, of course, some start-up costs. Then on Stationary Catalysts, volumes remain strong as demand for backup power solutions for data centers continues to grow. As you know, we are very well positioned to further capture the growth in this market segment. So, take a step back on Catalysis, and I do want to highlight the long-term trajectory of the segment, which you see in the chart at the bottom right, steadily growing revenues over the long term with improving adjusted EBITDA margins. Adjusted EBITDA margins reached a remarkable 28.3% in H1 2026. Operational excellence remains our core focus, and Catalysis is a great example for that. Recycling now with another outstanding performance. Metal prices overall continued to increase in H1 2026 versus 2025. This was most prominent in Q1. We saw continued high volatility overall in 2026, and Umicore benefited from a broad basket of metals, so not only PGM and precious metals, but also minor and specialty metals. The Recycling segment performance was stellar. Our revenues increased, yet most remarkably, we had significant adjusted EBITDA margin accretion to 52%. And also here, you can see an attractive return profile of the recycling segment over time. First, Precious Metals Refining. Revenues were broadly in line with H1 2026. We successfully managed the anticipated maintenance shutdown of the Hoboken plant. And as a reminder, 2025 was a year without a shutdown. Adjusted EBITDA was higher, the favorable metal prices and mix did offset lower volumes and lower average hedging prices versus 2025. Then Jewelry & Industrial Metals, very high volumes on the back of high gold and silver prices, the over-the-counter business successfully captured the momentum even longer than what we had anticipated before. Demand for gold and silver bars was strong, mostly in the first quarter, combined with robust demand in the luxury end market. This resulted in sharply higher revenues and adjusted EBITDA. On Precious Metals Management, sustained volatility and high prices offered ideal market conditions for trading and Precious Metals Management captured that momentum. Before diving into the Specialty Materials results, I would like to come back to a statement made by Veerle Slenders, our EVP, Specialty Materials during our Capital Markets Day in London last year. She described Specialty Materials as the hidden gem of Umicore. Over the past year, we have worked to increase the visibility of these activities, and we will continue to do so. In the first half of 2026, Specialty Materials delivered an excellent performance, benefiting from favorable market dynamics while leveraging its strong position in structurally growing technology-driven end markets. These businesses are creating tangible value in increasingly connected and geopolitically complex world, supported by our unique metals expertise and closed-loop business model. So more to come here. Now back to the numbers. In H1 2026, revenues and adjusted EBITDA were up strongly year-on-year in the double digits with significant margin accretion. In Cobalt & Specialty Materials, we delivered a material increase in revenue and earnings year-on-year on the back of strong cobalt momentum. Efficiency benefits also contributed to the earnings growth. The business is looking at Tungsten as part of our closed-loop business model, another example of metal and metal affected by the geopolitical situation. In Electro-Optic Materials, demand for substrates and high-purity chemicals for space applications and data communications was again strong. The combination of high germanium demand and export controls as well as the broader market conditions remain supportive for our closed-loop refining and recycling services. Here again, operational excellence also contributed to the material increase in adjusted EBITDA. Looking ahead, we will keep diversifying our customer base in these growing end markets. In Metal Deposition Solutions, revenues increased year-on-year on the back of solid demand for semiconductors and industrial applications. Growth was only partially offset by softer demand in the decorative applications. Battery Material Solutions now. In Battery Cathode Materials, revenues increased, yet volumes remained in line with last year. As a result, the year-on-year increase mainly relates to take-or-pay compensations related to contractual volumes. In H1 2026, adjusted EBITDA reached EUR 90 million compared to minus EUR 15 million last year. Going forward, we will keep our disciplined approach for this business. Battery Recycling Solutions. As we said before, the lithium-ion recycling opportunity is expected to materialize from the middle of the next decade. In the meantime, we continue to optimize our processes and technologies. In this context, earnings contribution was negative as anticipated. We remain very diligent here on execution and cost management. I'll now hand over the floor to Wannes for the financial review.

Thank you, Bart, and good morning, everyone. As you heard from Bart, we delivered a strong first half with a significant improvement in EBITDA, margin, cash generation and returns. I will start with the overall performance of the group. Adjusted EBITDA increased 33% to EUR 577 million as a result of 3 key drivers, first, broad-based growth in volumes and activity; second, ongoing top line and efficiency measures; and third, favorable prices for precious metals and minor metals like cobalt. All 3 drivers made an equal contribution, and they more than offset inflation. The EBITDA margin increased from 24% to 30%. We also delivered strong cash generation. Cash flow from operations was EUR 565 million compared to EUR 260 million last year. Working capital represented a cash outflow of EUR 132 million, mainly reflecting higher activity levels and higher metal prices, in particular in Catalysis. CapEx was EUR 130 million, up from EUR 109 million last year. This is mainly due to the planned maintenance shutdown in Precious Metals Refining as well as some selective growth investments. After CapEx and capitalized development costs, free operating cash flow amounted to EUR 295 million compared to a cash outflow of EUR 54 million last year. Free operating cash flow was largely absorbed by taxes, net interest, dividend payments and equity injection into Ionway and other associates. In January this year, Umicore contributed EUR 175 million in equity to Ionway. Net debt increased EUR 151 million to EUR 1.5 billion. The leverage ratio improved slightly from 1.6x to 1.5x. Now looking at the consolidated P&L. I already covered EBITDA, so jumping to EBIT. Adjusted EBIT increased 47% to EUR 442 million as a result of strong operational performance and continued efficiency measures. Adjusted net finance charges were EUR 80 million, down from EUR 102 million last year. This was mainly due to lower foreign exchange losses, partly offset by the impact of interest rate changes. The adjusted tax charge was EUR 78 million, up from EUR 64 million last year, reflecting higher profit before tax. The adjusted effective tax rate decreased from 31.7% to 21.3%. Adjusted net result group share was EUR 273 million, up from EUR 135 million last year. And adjusted earnings per share doubled to EUR 1.14. Adjustments had a negative impact of EUR 34 million, largely related to restructuring programs and environmental provisions. Net result group share was EUR 240 million compared to EUR 137 million last year. Finally, return on capital employed improved significantly from 16.4% to 23%, supported by strong EBIT in the first half and continued capital discipline. Now turning to the balance sheet. Our liquidity remains strong with a cash position of EUR 1.8 billion and continued access to EUR 1.1 billion of undrawn credit facilities and commercial paper. Gross debt was EUR 3.2 billion and the cost of debt increased to 3.5%. Group equity amounted to EUR 2.45 billion, corresponding to a net gearing ratio of 38.1%. Now we continue to hedge precious metals in order to reduce volatility, increase visibility on future cash flows and protect future earnings. At the end of June, we had forward contracts in place, covering part of our expected exposure for precious metals up to 2030. This includes meaningful coverage for gold, platinum, silver, palladium and rhodium up to and including '29. There was limited additional hedging this half due to minimal counterparty interest and a strong backwardation. We also maintained energy hedges for a significant portion of our European electricity and natural gas. So we are also reasonably well protected from rising energy prices. So to conclude, we had an excellent first half. We delivered broad-based earnings growth with adjusted EBITDA up 33%, a margin of 30%, strong cash conversion and a robust balance sheet. The foundation business performed well, and we continue to exercise discipline on costs, capital and cash. Bart, before handing it over for the outlook, today is my last earnings call for Umicore, and I would like to thank you for your trust, your engagement and your constructive dialogue over the past 4 years and you being the investors and the analysts next to you, Bart. It has been a privilege to interact with you and to be the CFO of Umicore. I leave the company in good hands with Bart and Lily, and I wish them the team at Umicore every success going forward. And Bart, here, I hand it over to you for the outlook.

Well, thank you for your kind words, Wannes. And I understand that not only for me, but also for the broader set of people. So I said, but it's really well deserved as well. So thank you, Wannes. And so let's now talk about the outlook for the rest of the year. In short, as said, we are increasing our adjusted EBITDA guidance to slightly above EUR 1 billion. The upgrade is based on the confidence provided by strong results in the first half of 2026. Please keep in mind 2 assumptions, stable metal prices versus June 2026 and no major deteriorations in the macro environment, which we all know remains volatile. Looking now at each business segment. In Catalysis, we have strong ongoing momentum, and we expect 2026 adjusted EBITDA to be in line with our record high of 2025 on the back of our excellent positioning and sustained operational efficiencies. And Recycling, given remarkable performance in H1 2026, full year 2026 adjusted EBITDA is likely to be significantly above 2025. Yet keep in mind that H2 will be lower than H1 as exceptional conditions are not expected to continue beyond H1. Specialty Materials, full year 2026 expected significantly above year-on-year, yet with a slowdown in H2 versus H1. Specialty Materials is expected to continue to benefit from supportive margins for cobalt products, although the performance uplift from H1 2026 should further moderate into H2. In addition, performance should be supported by healthy demand for germanium products and resilient activity across end markets. Overall, the business is really well positioned to capture high-quality growth opportunities going forward. And in Battery Materials, the importance of take-or-pay mechanisms is increasing, as we said previously, in a context where the volume trajectory is expected to be stable year-on-year. As such, we continue to focus on executing our midterm plan while navigating volatile and competitive market dynamics. This requires continuous rigorous capital allocation and cost base reductions. Then on corporate costs and CapEx. We remain selective and disciplined on both fronts. Corporate costs. We continue to invest in AI-driven solutions to further enhance operational excellence. Capital expenditures are expected to be in line with 2025, including selective high-quality growth investments in our foundation businesses. So, to summarize on the outlook, we're confident in our ability to continue executing our plan. H2 will not be as high as H1, yet full year 2026 is expected to be a strong year overall. A few words of conclusions now before the Q&A. Looking at the first semester, 2 things really stood out to me. a broad-based earnings growth driven by strong execution. This led to high margin accretion year-on-year. Importantly, we were disciplined in our spending. We delivered strong cash generation and maintained a robust balance sheet. And as we move forward, we remain firmly convinced of 2 realities. First, our circular multi-metal platform is unique and well positioned as it continues to benefit from the growing strategic momentum behind critical raw materials. Secondly, volatility is the new normal of the world we operate in, yet Umicore is built for change. As such, we will continue delivering value through a clear set of priorities, disciplined execution and strong customer focus. And with that, we can go to the Q&A.

[Operator Instructions] Your first question comes from the line of John Campbell with Bank of America.

I was interested to learn a little bit more about the fact you're exploring further opportunities towards tungsten. Can you maybe elaborate on exactly kind of what you're looking at? What is the rationale, et cetera? And are these opportunities maybe that you see in the U.S.? Or would that be mostly in Europe?

Yes. So, thank you, John, for that question. I mean tungsten is somewhat part of our portfolios, and we see actually tungsten coming in with some raw material streams that we have. Today, we -- well, today, we are starting to valorize tungsten while we did not do it before, for instance, coming from our filter cakes, and this is something that we're now further investigating. At the same time, we have a strong flow sheet in Poland, where we will be able to recover that. So, this is what we are referring to. And as we further develop our capabilities, more could be there to come. Of course, everything depends on the further evolution of the tungsten price. So, it's more Europe oriented, not so much U.S. at this point in time.

Your next question comes from the line of Georgina Fraser with Goldman Sachs.

My question is related to your Battery Materials segment. Bart, earlier this year, you were quite vocal about the need for Europe to seek partnership with Chinese battery producers. There have been several partnerships announced between European auto OEMs and suppliers with Chinese players in recent months. I was just wondering how you're seeing the landscape evolving and whether there's any new opportunities coming up for value recovery in your Battery Materials segment.

Thank you, Georgina. Very clear question. And I can confirm that indeed, the momentum in Europe is warming up in that respect. I mean, there's indeed a more significant interest, especially for, let's say, new platforms looking at Europe. So yes, that trend is definitely there. We always said that partnerships is what we are looking at next to our own midterm plan. So we'll continue to further explore these options. And if there would be something to announce, of course, we'll come back to you in due time. But in general, I would say that the ecosystem indeed is evolving in the right direction.

Your next question comes from the line of Christian Faitz with Kepler Cheuvreux.

Wannes, all the best for your future ventures. And also congrats on the results. I have also a question on the Battery Material Solutions business. Maybe a bit more mid- to long term. When would you see actual underlying demand returning? And can you describe a bit the current situation? Is it that your target market, i.e., the higher value added European vehicles are just not selling? Or are they also switching to cheaper cathode active material at this point in time?

Yes. Well, I think -- thank you for your questions, Christian. And also thank you for having attention for the full team here because indeed, they all do a great work sometimes even in the background. Now on Battery Cathode Materials, I think we indicated earlier that for the time being, the importance of take-or-pay is higher than what you would have wanted it to be when you were showing our trajectory at the CMD in 2025. Of course, that's why we have the already at length discussed the take-or-pay provisions, which we will continue to enforce and continue to stand by. Now if you refer more to technology, I think a lot has been said around, of course, the adoption of LFP, and we do see indeed some players really working on that and the market share in Europe, of course, for LFP is increasing. At the same time, we also see a very strong trend and a much more clear trend, which is firming up also over the last months in the mid-nickel high voltage, where we do believe that we have good solutions going forward. And at the right nickel content, meaning nickel sufficiently low, this is definitely a contender for locally produced -- against locally produced LFP. So yes, there, we do see potential, and I think we have a good set of technologies to serve that market.

Your next question comes from the line of Sebastian Bray with Berenberg.

It's on the metals pricing dynamic as we move into '27. I have 2 parts. The first is on cobalt. It's very unusual to see a spot price of a metal literally flat as a straight line since last December. Is anything going on here where the informal market has a very different price? And what do you think is happening for '27? And if I might expand the theme of pricing, at current hedge levels, what would be the price impact for the recycling segment? Is it positive or neutral for '27?

Okay. Thank you, Sebastian. I will start with the cobalt market maybe and then Wannes, if you could do the recycling segment. Yes, on the cobalt market, you know that the cobalt price, of course, is through a price discovery mechanism. So that's basically on feedback on, let's say, the metal transactions for cobalt as market participants see those, of course, substantiated with underlying trading transactions. Now the cobalt market is much more, of course, than just the metal price. It's a matter of refinery income that you have. And on the other hand, the premiums on the end product that you sell. So basically, the refining charge and the premium, they constitute the revenue pool. And I think for our activities, that revenue pool is the most important indicator of the margin that you can make. Now there has been a momentum late '25, early 2026 that allowed us given those market circumstances to really lock in a part of that revenue pool, and this is part of the strong benefit that you have seen in H1 2026 that lock in, of course, and these exceptional metals we have is somewhat reducing in the second half of the year and expecting it to be normalizing into 2027.

Okay. And then looking at the Recycling segment and the hedge levels that we have for the precious metals, looking at '26 this year was the year where we still had a substantial roll-off versus last year. Looking at '27, this is where the price levels are more or less in line with what we see in '26. So basically, the impact for Recycling segment moving into next year would be neutral.

Your next question comes from the line of Mutlu Gundogan with ABN AMRO.

One question on Catalysis. You've won market share in H1. You won market share in 2025. Can you elaborate a little bit on your recent platform win, so late 2025 and 2026 and thus your market share expectations going forward? And that would obviously be for LCD, but also HDD, please?

Yes. So on the market share in Catalysis, I think you are right. And of course, it depends a bit on the different markets that we're looking at. You're right that we have been gaining market share and that you see that in the numbers. I think what you also see in the numbers is our strong position with local Chinese OEMs, which are still exporting quite a bit of volumes out of China, allowing our Chinese activities actually to continue to run at a very high level despite lower ICE sales in that market. If we look at Euro 7, as mentioned before, we were successful in gaining platforms, and this is that you start seeing true, of course. It all depends ultimately also on the sales that the actual cars do depending on different customers that we have, and there's always some variation. But right now, it looks strong. And if you then indeed see to the overall market development, it's indeed seems the case that we're still outperforming in terms of volume the market, which is supporting our results next to, of course, the high focus on operational excellence and efficiency.

Your next question comes from the line of Tristan Lamotte with Deutsche Bank.

I'm interested in some of the faster-growing areas of your business. I was wondering if you could just give a little bit of detail on your total exposure in areas like germanium, so sales or EBITDA and then also semiconductors, what your kind of total exposure is there? And then just coming back on Battery Materials, you have a target of at least EUR 275 million by 2028. And that's obviously a very large step-up from where we are now. So I'm just wondering if there's a scenario where you don't make that and the level of confidence now as it stands.

Yes. Maybe I can start with Battery Cathode Materials. Looking at the plan that we have ahead of us. So as we shared with the capital -- or during the Capital Market Day, this plan is very much supported by the long-term agreements that we have with a few customers. And it's also on the back of that ramp-up volume program that is included in that contract, and it is protected by the take-or-pay clause. So that's basically the underlying foundation of the plan and that we still deem feasible. Yes, indeed. And next to that, as mentioned already as well, we continue to focus on customer diversification. We had some first that we announced last year, of course, with our Korean customer, and we continue to grow there. Now as, let's say, to the other strong growing business, we always said that, for instance, for Specialty Materials, for instance, specifically then mainly also in the field of electric optical materials that we see a very strong CAGR of 10% plus. We continue to stand by that. Even -- momentum is even potentially even stronger than how we saw it. We see areas indeed in -- so Electro-Optic Materials. We also see the stationary catalyst market still as an interesting market where we also foresee continued growth. Now -- saying exact number on the exposure, I don't have it top of mind, but it's clear that in this geopolitical context, where critical raw materials for sectors like defense, but also data centers, et cetera, several metals are gaining into importance. So if you look at the basket of metals in Hoboken, but also in Specialty Materials, right, you'll see that they all have been supporting undercurrent today for that metal price, and that's also, therefore, an indirect exposure to that end application. But rest assured, areas, as you mentioned, we are further exploring those and see how we can further leverage our unique business model across business groups to further extract value. So I would say more to come there, but too early to now fully quantify it at this moment in time.

Your next question comes from the line of Thea Badaro with BNP.

I have a question on your Stationary Catalyst business. We now have a bit more color on the size and the profitability of one of your closest peers in this division. Could you maybe help us understand how meaningful this business is for you? Any indication could be really helpful.

Yes. Well, I mean, we have seen indeed maybe more broadly the stationary market warming up, and we have seen one of our industry players also making a significant acquisition in that field, more specifically around Cormetech. We intend to grow that business. Let's say, it's definitely not yet at the level, let's say, of a PMR or ACC, that's for sure. But we do see a potential to more than double the EBITDA going forward. And we will do that actually in a very capital disciplined way. We are working out these plans more concretely, and we'll be coming back to the market in due time. But definitely, we see it as a good growth opportunity next to elect optic materials. And that could be sizable, especially towards the end of the decade going into 2031.

Wannes, I wish you all the best.