Urban Mining and Cleantech Gold Fever · Umicore Thin Film Products is one of the leading producers of source materials (evaporation materials and sputtering targets) for vacuum deposition

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Urban Mining and Cleantech Gold Fever

Summary :

FOR QUALIFIED INVESTORS ONLY, Please see inside front cover for important disclosures

Share Price 62.33 EUR Number of shares 109.3 m

Fair Value 59.00 EUR Market Cap 6813 mEUR

Upside -5% Enterprise Value 7066 mEUR

Symbol ENXTBR:UMI Credit Rating NA

Ising Code BE0003884047

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Sales 9,691 14,481 12,548 9,819 8,828 9,698 10,445 11,115 11,617 12,024

Growth 39.7% 49.4% -13.3% -21.7% -10.1% 9.9% 8% 6.4% 4.5% 3.5%

EBITDA 431 537 483 421 345 411 441 537 631 706

Margin 4.4% 3.7% 3.9% 4.3% 3.9% 4.2% 4.2% 4.8% 5.4% 5.9%

EPS 2.20 2.87 2.09 1.61 1.58 1.56 1.20 2.21 2.46 3.38

P/E 13.8 11.4 18.3 23.0 21.5 24.9 37.9 28.3 25.4 18.4

EV/EBITDA 8.8 7.4 9.3 10.3 11.5 11.1 12.0 13.3 11.3 9.8

Dividend 0.80 1.00 1.00 1.00 1.00 1.20 1.30 1.35 1.40 1.45

Dividend Yield 2.6% 3.1% 2.6% 2.7% 2.9% 3.1% 2.9% 2.2% 2.2% 2.3%

Analyst Wim Lewi, CFA Valuescan.be [email protected]

UMICORE Equity Report

19/06/2017

mailto:[email protected]

THIS DOCUMENT MAY NOT BE DISTRIBUTED TO PERSONS IN THE US, AUSTRALIA? CANADA OR JAPAN

1

I. Company Description

Activities

Umicore N.V. (formerly Union Minière) is a multinational materials technology company headquartered in

Brussels, Belgium. The company currently groups its activities into four business areas: recycling, catalysis,

energy materials and performance materials. Umicore is globally active with over 14.000 employees and 86

industrial sites.

The history of Umicore goes back to the creation of Union Minière in 1989 by the merger of four companies

in the mining and smelting industries. Umicore has since reshaped itself into a more technology-focused

business encompassing such areas as the refining and recycling of precious metals and the manufacture of

specialised products from precious metals, cobalt, germanium, zinc and other metals. To symbolise this

trend of moving away from mining and the production of commodities and base metals, the group Union

Minière changed its name to Umicore in 2001.

In 2005, its copper smelting activities were spun off in Cumerio and in 2007, the zinc smelting activities

were also listed opportunistically in 2007 into the Nyrstar vehicle.

The company has been a component of Belgium's benchmark BEL20 stock market index since its 1991

inception.

Umicore is play on the emerging ‘cradle to cradle’ mentality. The company has made a successful switch

from metal processor to an ‘urban mining’ company that gains precious metals and other rare materials

from waste. Umicore also invests into promising technologies like materials for electric vehicle batteries

and recycling techniques. However the early ‘cleantech’ excitement has cooled and we probably need

another major natural disaster before governments become serious again and use their stretched budgets

to stimulate change. The company share buy-back price level of around 33 Euro also supports market

sentiment. GBL is also steadily increasing its stake.

Risks

The decline of precious metals as part of the global metals correction has hurt the recycling activity.

The gold price has proven resilient over 2015-2016, compared to most industrial metals that suffer from

overcapacity and slower demand (China). Competition for waste and industrial scrap could increase as

competitors are attracted by the high ROI of recycling. Higher waste acquisition costs can eat into the profit

margin of Umicore and its clients.


2

B. Activities

Sales EBIT

Recycling treats complex waste streams containing precious and other

non -ferrous metals. The operations can recover some 20 from a wide range of

input materials ranging from industrial residues to end-of-life materials. The

business group is organized in six business units: Precious Metals Refining,

Battery Recycling, Jewellery & Industrial Metals, Precious Metals Management,

Technical Materials and Platinum Engineered Materials.

The Umicore's precious metals facility in Hoboken, Belgium has become the flagship of the group. Umicore

is often called an ‘urban or above-ground mining company’ as it derives its metals and mining products

from objects that have been in use in industrial or consumer products.

Precious Metals Refining

Umicore is the world's largest recycler of precious metals. Most of the materials (around 66% in terms of

refining charges) put through the refining process are by-products from the production of non-ferrous

metals, such as dross, matte and speiss from the zinc smelting industry and anode sludge built up during

electrolysis. Other sources of materials used for recycling include slag, spent fuel cells, automotive and

industrial catalysts and scrap electronic equipment.

Battery Recycling Battery Recycling is a second business unit, focused on the recycling of spent rechargeable batteries from

laptops, mobile phones and hybrid electric vehicles. Jewellery and Industrial Metals produces semi-finished

precious metals-based products, for jewellery and industrial applications and is a major recycler of scrap

and residues from the jewellery industry.

Precious Metals Management

The Recycling segment also encompasses a management unit, which sells precious metals in ingot form to

industrial clients and offers access to related financial instruments for hedging purposes. The unit is based

in Hanau, Germany. This division delivers typically to large gold and silver investors that store physical

commodities for clients, like gold ETF’s, central banks, etc…

Recycling36%

Catalysis39%

Energy Materials

23%

Elimin./Discont.-2%

Recycling58%

Catalysis24%

Energy Materials

12%

Elimin./Discont.-6%


3

Technical Materials

The Technical Materials Business Unit is one of the leading suppliers of functional materials for high-tech

industries. The material solutions, semi-finished products and building components are key components for

many production processes. Technical Materials is divided into two business lines: BrazeTec and Contact &

Power Technology Materials. BrazeTec materials are used to manufacture products like spectacle frames,

cooking ware, cutting tools, mills, radiators and air conditioning equipment. Umicore is also a leading

manufacturer of high-quality materials for metallic contacts for use in electrical engineering.

Platinum Engineered Materials

This unit manufactures platinum-based components for the chemical industry and the glass industry.

Applications in the chemicals industry include chemical intermediates, emission trading, animal feeding,

fertilizers, explosives and transparent plastics. Applications in the glass industry include display glass,

technical glass, chrystal glass, fiber glass and optical glass.

The Energy and Surface Technologies division manufactures a range of specialised metal products like

oxides and salts of cobalt, lithium and nickel for use in the production and storage of clean energy including

rechargeable batteries and photovoltaics. The metals are also used for a range of other applications like

glass and ceramics. The division also produces and markets products of germanium, both in compounds for

doping optical fibres and in semiconductor wafers.

Energy Materials is headquartered at the company's plant in Olen near Antwerp, with production and

commercial facilities in a number of countries worldwide.

The business group is composed of four business units - Cobalt and Specialty Materials, Electro-Optic

Materials, Rechargeable Battery Materials and Thin Film Products.

Cobalt and Specialty Materials Umicore Cobalt & Specialty Materials produces a variety of cobalt- and nickel-based chemicals for the

following application areas: the production of rubber tyres, pigments for ceramics, catalysts for paint

drying, plastic production and nickel chemicals for surface treatment. Umicore also produces cobalt and

pre-alloyed powders for the production of diamond tools and hard metal applications such as stone cutting,

construction and wear parts. Besides, the unit offers a range of recycling services such as the recovery of

cobalt from customers in the petrochemical and hard metals industries and the recovering of rhenium from

super alloys.

Electro-Optic Materials

The main markets for this unit are thermal imaging and opto-electronic applications, for which Umicore

supplies germanium wafers, infrared lenses and optics, and germanium-based chemicals.

Umicore’s Infrared Optics for thermal imaging provides innovative optical solutions for automotive night

vision, thermography and security and surveillance, firefighting and many others. Germanium wafers are

used in terrestrial solar cells (CPV), space solar cells, high brightness LEDs, and various semiconductor

applications. Umicore produces the highest quality of GeCl4 available in the industry.


4

Rechargeable Battery Materials

Rechargeable Battery Materials provides cathode active material for a range of applications. One in five Li-

ion batteries ever produced for portable electronics contains Umicore materials. These are also used in the

hybrid automotive industry. Electric vehicles are recognized by the market as being the biggest growth area

for Li-ion batteries for the years to come. Umicore materials can be found in more than 15 electrified cars

that are on the market today. Another application is stationary storage. Umicore focuses on grid

stabilization, on back-up power and on home energy storage systems for domestic solar panel applications.

A fourth application are handheld electrical tools which increasingly need higher power and come with

more demanding weight restrictions.

Thin Film Products

Umicore Thin Film Products is one of the leading producers of source materials (evaporation materials and

sputtering targets) for vacuum deposition of thin films. The unit is active in the business fields of optics

(anti reflective coatings), optical data storage, wear protection & decorative coatings (door handles, turning

tools,..), electronics & semiconductors, displays, photovoltaic cells, and architectural glass.

The activities are organized in two main business lines: Large Area Coatings (LAC) and Optics & Electronics.

Umicore was the pioneer and continues to be the market leader in cylindrical (rotary) Indium Tin Oxide

sputtering targets for displays, photovoltaics and architectural glass coatings.

Electroplating

Umicore’s Electroplating is one of the world's leading suppliers of precious metal electrolytes and special

processes for electroplating used for technical, functional and decorative applications. Our portfolio is

complemented by precious metal compounds and electrocatalytical anodes and cathodes. Umicore

produces electrolytes and anodes for the following application areas: electronics (connectors,

LED/Leadframe, sliprings, smartcards, relays), decorative surfaces (jewellery, fittings, clothing accessories,

spectacle frames, writing utensils, cosmetics packaging), industrial applications (hydraulic components and

automotive) and printed circuit boards.

Umicore's catalysis is composed of two subdivisions, Automotive Catalysts and Precious Metals Chemistry.

In automotive catalysts, a field in which the company had begun research in 1968, the company ranks third

in global market share behind BASF Catalysts (formerly Engelhard) and Johnson Matthey. Umicore

increased its presence in the sector with the June 2007 purchase of the catalyst division of troubled

American auto parts manufacturer Delphi for 55.6m USD.

The Automotive Catalysts unit produces catalysts that are used in automotive emission systems for light-

duty and heavy-duty vehicles. The catalysts perform in a wide range of powertrains, including gasoline and

diesel engines, natural gas, and alternative fuels, and are increasingly important in engines supporting mild

and full hybrid vehicles. Umicore develops catalytically active after treatment solutions which transform

pollutants into harmless gases before releasing them into the environment. The catalytically active

materials consist of a combination of oxides and precious metals like platinum, palladium and rhodium

incorporated into a porous structure which allows intimate contact with the exhaust gas.


5

(Source : Company presentation)

Precious Metals Chemistry converts metals into inorganic and organometallic chemicals, highly potent

Active Pharmaceutical Ingredients (APIs) and novel homogeneous catalysts for use in the fine chemicals, life

science and pharmaceutical industries. Umicore products are present in daily applications such as tooth

paste, LCD screens and swimming pools.

Discontinued : due to the search for divestment the two zinc businesses of Building Products and Zinc

Chemicals are no longer included in the three major business lines.

Building Products

Building Products is specialized in the manufacture and marketing of rolled zinc products

(VMZINC®) for building envelopes and interior wall cladding. VMZINC offers a range of

systems supplied with preformed finishing accessories produced specifically for covering

facades in the service and residential sector, for both new construction and renovation.

Zinc Chemicals

Umicore Zinc Chemicals transforms zinc into high quality products that are used for corrosion or ultraviolet

radiation protection. The business unit is a global leader in the production of fine zinc powders, zinc oxide

and zinc battery materials as well as being a reference in zinc recycling. Zinc powders provide corrosion

protection in industrial coatings used in ships, sea containers and construction. Zinc battery materials are

used in cylindrical alkaline batteries and a variety of emerging energy storage applications.


6

II. Sectors overview

Recycling Industry In Europe, we currently produce 6 tons of waste per person per year. In 2010, total waste production in the

EU amounted to 2, 5 billion tons. From this total only a limited (albeit increasing) share (36%) was recycled,

with the rest was landfilled or burned, of which some 600 million tons could be recycled or reused. Just in

terms of household waste alone, only 40 % of it is reused or recycled and in some countries more than 80%

still goes to landfill.

(Source : Arc21)

The waste management market is worth 1 trillion USD currently, and it includes municipal solid waste

(MSW), industrial waste, waste-to-energy and sustainable packaging. By 2020, the waste industry's value

could be worth 2 trillion USD, with Europe facing the toughest strategic challenges and Asia and South

America seeing the fastest growth.

At a global level, waste production is estimated at between 4bn and 6bn tons, with the highest levels in

developed countries – two or three times more the level in emerging markets. However, emerging markets

will present the greatest waste generation and waste management challenges with some 70% of global

waste ending up in landfills and only between 25% and 30% being recycled.

China, the world's most populous nation, has seen municipal waste output growing from 31 million tons in

1980 to more than 210m tons in 2010, the largest figure of any country in the world. The country is

expected to produce twice as much waste as the US by 2030, according to the World Bank. China is looking

to move away from landfill, which now takes up around 80% of waste.

Waste management is also an opportunity in Russia, where municipal solid waste is overwhelmingly sent to

landfills. The remaining capacity of landfills is estimated to be 30-35%, meaning that Russia will need to

double capacity to accommodate growing volumes of waste by 2025.

In South Africa, only 10% of municipal waste it is recycled. The country has a National Waste Management

Bill which has set a national target to cut by 70% before 2022 the amount of plastics, cans, paper, glass and

tires that are sent to landfill.


7

Waste of Electrical and Electronic Equipment

Waste of Electrical and Electronic equipment (WEEE) such as computers, TV-sets, fridges and cell phones is

one the fastest growing waste streams in the EU. While production levels have been growing steadily, the

lifecycle of many devices is decreasing, leading to volumes of 'e-scrap'. Strict European Union legislations,

escalating landfill prices, and awareness on the environmental impact of WEEE have heightened demand

for recycling of waste electrical and electronic equipment in Europe.

(Source : www.Electronicrecyclers.com)

The WEEE market earned revenues of 1.30 bn USD in 2012 and is estimated to reach 1.79 bn USD in 2020.

The market will continue to grow as governments, especially in Scandinavia, Alpine States and Germany,

create transparent legal frameworks for WEEE recycling development and commercialization. Germany,

France, Italy and Central and Eastern Europe, in particular, offer immense opportunities.

(Source : www.theatlantic.com)

Umicore’s Recycling unit is mainly focused on the refinery of precious metals. Umicore Precious Metals

Refining is one of the world's major processors of by-products from the non-ferrous industry. Among

others, these industrial by-products include: dross, PM-containing slag, matte, flue dust, hydrometallurgical

residue, filtercake, tankhouse slimes and copper cement. The precious metals unit is also specialized in the

recycling of electronic scrap, spent automotive catalysts, spent industrial catalysts, fuel cells and sweeps

and bullions.

http://www.electronicrecyclers.com/


8

The revenues of recycling highly depend on the selling prices of the refined materials. Umicore is selling the

following refined metals.

(Source : Company presentation)

(Source : Comex)

Catalysts Market

World demand for catalysts will grow 4.8 percent per year to 20.6 bn USD in 2018. Demand for emission

control technologies (ECT) is set to grow substantially as stricter global emission standards come into force.

This is especially true in emerging markets where rapidly growing car sales and stricter emission standards

are combining to create a powerful source of new demand.


9

(Source : www.transportpolicy.net)

Asia-Oceania is estimated to be the largest growing market for automotive catalytic converter market.

Japan and China are the main contributors to the growth of the automotive catalytic converter market in

the Asia-Oceania region. The market is projected to grow at a CAGR of 8.6% from 2014–2019.

(Source : IHS)

The industry for catalyst coatings is effectively a global oligopoly: Johnson Matthey, Umicore and BASF

control 90% of the market. Umicore controls 30% of the light duty market.

Energy Materials/Cobalt Market

Cobalt materials are either refined into cobalt metal (cathode, coarse powder etc.) or into downstream

chemical products (cobalt salts) or specialty materials (fine cobalt powders). In 2012, global refined cobalt

output was approximately 77,000 MT. An estimated 53% of this output was in the form of chemicals or

specialty products, 39% in solid metal form and approximately 8% in the form of coarse cobalt powder.

Umicore, active in chemicals and powders, produced 5,4% of refined cobalt in 2012.


10

(Source : Accuval)

One of the key active materials in rechargeable batteries is based on cobalt. The energy storage market is

expected to grow from 32 bn USD in 2014 to 50 bn USD in 2020.

(Source : eeTimes)


11

II. Business Model

A. Growth Expectations

Recycling sales are to forecast due to precious metal price fluctuations Umicore does not report the recycling (48% of sales) product mix and drivers of the sales and profitability.

Most of the profit is however generated as a Treatment Charge for third parties. These companies collect

the industrial and electronic waste and pay Umicore for the metals recovery. Umicore can however hold on

to the extra yields on the process and will also have its own recycling stream. It is clear that the high

precious metal prices till 2014 have initiated new streams of recycling initiatives. The recent decline in the

gold price has changed the profitability curve of some recycling activities. This has a negative influence on

the recycling demand. Over the last years, Umicore has attracted recycling business thanks to the high

efficiency of its process. On the other hand, competition is emerging and waste acquisition costs are rising

as the residual value of garbage/waste has increased.

The gold price has lost some its shine as it did not react anymore to further monetary easing after 2014 and

became inefficient as a hedge against inflation risk (Bitcoin alternatives). Gold’s big post-crisis surge was

driven in part by ETFs that allowed average investors to get in on gold’s rise easily and inexpensively.

Because these ETFs only supply gold on paper, gold lost its value of being a safe harbour in times of conflict. Today, if you look at Gold ETF data, much of the money that jumped on the gold bandwagon during the

post-crisis years has left. The gold holdings of ETFs are lower than they were in 2013.

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000Sales


12

Mapping the sales divided by 10 against the gold price gives a leading indicator for the Umicore precious

metals recycling sales. Also the prices of rare metals have declined in the meantime. This is more related to

the reality check on Chinese growth and the deflation of the expected commodity ‘super cycle’ that has

skewed many investors into overweight positions in the industrial metals space.

(Source : Company data and Valuescan.be estimates)

With the gold price now around 1200 USD/Oz and stable, the recycling results have bottomed out.

Umicore mentions a hedging strategy without disclosing the exact amounts.

(Source : Company data and Valuescan.be estimates)

The recycling activity is relatively asset-light and makes a generous ROA. It is clear that Umicore is using an

aggressive depreciation on the assets. The currents fixed asset base underestimates the necessary

investment to compete with them. There are also significant other barriers like environmental permits and

know-how.

Other Recycling

Umicore has been investing in expanding its recycling activities to other regions and products. The battery

recycling is a very promising activity that is also tied to the success of the Electric Vehicles in the Energy

division. It is clear that this will become a growth story further out in the horizon. In the meantime, these

start-up costs eat into the profitability while the sales numbers are too small to compensate the declines in

the precious metals recycling activity. These activities will however propel the growth in the DCF horizon

2017-2020.

0

200

400

600

800

1000

1200

1400

1600

1800

2000

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Assets Sales/10 EBIT Goldprice

Recycling

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Assets 648 690 700 728 1089 1115 945 928 913 923

Sales/10 368 326 434 478 727 1165 959 666 600 620

EBIT 102 108 153 110 182 273 260 216 133 137

Goldprice 610 820 890 1120 1380 1720 1650 1230 1231 1232

AssetTO 5.7 4.7 6.2 6.6 6.7 10.4 10.1 7.2 6.6 6.7

Margin 2.8% 3.3% 3.5% 2.3% 2.5% 2.3% 2.7% 3.2% 2.2% 2.2%

ROA 16% 16% 22% 15% 17% 24% 27% 23% 15% 15%


13

Long term growth drivers Recycling

Recycling FY16 comments on Hoboken maintenance works => environment risks

Revenues for Precious Metals Refining were slightly down year on year due to lower demand for specialty

metals, particularly selenium, tellurium and indium as well as lower received prices for PGMs. Although

demand for specialty metals picked up somewhat towards the end of the year, prices remained well below

the levels seen in recent years; this was also the case for PGM prices.

The maintenance shutdown, which was brought forward from early 2017 to December 2016, was

successfully completed. In addition to the regular maintenance work, process improvements were

implemented and several investments in auxiliary installations were completed. While processed volumes

in the fourth quarter were impacted by the shutdown, yearly volumes were in line with the previous year.

Umicore is carrying out a series of investments in the Hoboken facility to reduce metal emissions. This will

focus in first instance on a revamping of the lead refinery in order to both curtail the risk of lead emissions

and further improve occupational health at the plant. While overall emissions have been reduced

significantly and consistently over the past twenty years, a spike in dust emissions has occurred at the lead

refinery during repair works. The investment aims at achieving the next step of drastic reduction in dust

exposure risk.

Long term growth drivers Energy and Surface Materials

The Energy Materials division is driven by the demand for electric vehicle batteries. There is still a lot of

uncertainty about the demand and used technology in the market. The government budget deficits have

halted the subsidy stream to get this market going. The cheap shale oil in the US has also decreased the

urgency to work on energy independence for the developed world. There will have to be more natural

disasters before governments take the CO2 impact on the world serious. Nevertheless, this division is

growing faster than GDP.

Energy and Surface Materials FY16 comments

Revenues and volumes for Rechargeable Battery Materials were higher (excl.metals) year on year driven

by demand for NMC (nickel manganese cobalt) cathode materials used in the transportation

segment. In this market segment the increasing market penetration of electrified car models and the use of


14

larger batteries enabling a longer driving range are strong fundamentals for growth. The expansion

program to triple capacity for cathode materials in China and Korea by the end of 2018 is on

track and new capacity will gradually come on stream as of the second half of 2017.

Ongoing capacity debottlenecking projects in China were completed at the end of 2016 => strong 1Q17

Long term growth drivers Catalysis

Umicore's catalysis is mostly exposed to the Light Duty Vehicles. This market has suffered in line with the

European economic recession. Its exposure to China and other EM have compensated these declines and

improved environmental awareness in China is a positive driver. Umicore is also positioning itself for the

Heavy Duty Diesel market in which it wants to penetrate as the emissions road map tightens in Europe of

the next couple of years with the EURO-6 norm: All vehicles equipped with a diesel engine will be required

to substantially reduce their emissions of nitrogen oxides as soon as the Euro 6 standard enters into force.

For example, emissions from cars and other vehicles intended to be used for transport will be capped at 80

mg/km (an additional reduction of more than 50 % compared to the Euro 5 standard). Combined emissions

of hydrocarbons and nitrogen oxides from diesel vehicles will also be reduced. These will be capped at, for

example, 170 mg/km for cars and other vehicles intended to be used for transport.

Catalysis FY16 comments

Revenues for Automotive Catalysts were well up year on year, both for light-duty vehicles and heavy-duty

diesel applications. In the light-duty vehicles segment, demand was particularly strong for Umicore’s

catalysts for gasoline engines. Demand for heavy-duty diesel catalysts was well up in Europe and Asia.

Global light-duty vehicle production grew 4.3%, almost entirely driven by the Chinese car market and to a

lesser extent by growth in Europe and North America. Umicore’s volumes and revenues grew faster than

the global market.

Sales by Segment overview

UMICORE Y2009 Y2010 Y2011 Y2012 Y2013 Y2014 Y2015 Y2016 Y2017 Y2018

Recycling 4,785 7,269 11,649 9,590 6,663 5,204 6,252 6,886 7,161 7,376

Catalysis 1,187 1,582 1,932 1,872 2,020 2,181 2,749 2,779 2,974 3,092

Energy Materials 547 707 729 764 826 1,191 1,474 1,469 1,689 1,858

Elimin./Discont. 418 133 170 323 310 252 -777 -689 -710 -710

Totals 6,937 9,691 14,481 12,548 9,819 8,828 9,698 10,445 11,115 11,617

Growth%

Recycling 51.9% 60.3% -17.7% -30.5% -21.9% 20.1% 10.1% 4.0% 3.0%

Catalysis 33.2% 22.1% -3.1% 7.9% 8.0% 26.0% 1.1% 7.0% 4.0%

Energy Materials 29.2% 3.1% 4.7% 8.2% 44.2% 23.8% -0.3% 15.0% 10.0%

Elimin./Discont. -68.2% 28.1% 89.5% -4.0% -18.7% -408.3% -11.3% 3.0% 0.0%

Totals 39.7% 49.4% -13.3% -21.7% -10.1% 9.9% 7.7% 6.4% 4.5%


15

B. Profitability

Recycling

Umicore mostly acts as a toll refiner, where the valuable metals that are contained in the raw materials are

completely or partially returned to the supplier. Hence the margin has been relatively stable despite the

sales volatility. Efficiency investments can improve the margin over time. Major costs beside waste

acquisition are energy and environmental costs (purification of water, CO2, … ).

Recycling competition

Most competitors are also customers that focus on other niches. No other company can process as wide a

scope of materials as Umicore. Garbage recycling has become a multibillion dollar business that has also

pushed up the prices and value of garbage and the right of collection. This is negative for Umicore as their

clients gain between the spread of the garbage acquisition cost and the refined materials. Companies like

Waste Management and Republic services bid against each other for the rights of garbage collection.

There are now experiments with old landfills that are reopened and recycled for the value of the materials.

That is the inverse of the previous situation where garbage had a negative value.

For the moment, this competition is not yet present in Europe. On the other hand, the environmental

regulation has become much tighter. This is the biggest barrier to entry in Europe. Umicore has the

advantage of being operational near urban environments for more than a century and has recently gained

recognition for its environmental efforts.

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

EBIT%


16

Segment Margins

It is clear that Umicore is a technology leader in the recycling space and its high ROA (>20%) is a reflection

of decennia of experience and investments that will not be quickly overturned or copied.

FY17 outlook very hard to reconcile with IFRS numbers, because “non-recurring” elements

Umicore expects full year recurring EBIT excluding discontinued operations in between a range of € 355

million to € 385 million and would represent an increase of 11% to 20% compared to 2016.

Profit by segment expectations => energy materials is swing factor + recycling recovery

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Recycling Catalysis Energy Materials Totals

EBIT 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Recycling 110 182 273 260 200 139 133 116 158 192

Catalysis 20 69 91 80 71 76 116 126 134 139

Energy Materials 24 37 34 14 22 35 37 74 101 149

Elimin./Discont. 27 23 13 -8 7 4 -1 -7 -7 -7

Corporate 0 0 0 0 -19 -39 -41 -43 -43 -43

Totals 181 311 411 346 281 214 243 265 343 430

Margin%

Recycling 2.3% 2.5% 2.3% 2.7% 3.0% 2.7% 2.1% 1.7% 2.2% 2.6%

Catalysis 1.7% 4.3% 4.7% 4.3% 3.5% 3.5% 4.2% 4.5% 4.5% 4.5%

Energy Materials 4.4% 5.3% 4.7% 1.9% 2.7% 2.9% 2.5% 5.0% 6.0% 8.0%

Elimin./Discont. 6.3% 17.3% 7.6% -2.6% 2.3% 1.7% 0.2% 1.0% 1.0% 1.0%

Totals 2.6% 3.2% 2.8% 2.8% 2.9% 2.4% 2.5% 2.5% 3.1% 3.7%


17

C. Capital Needs

(Source: Company data, Valuescan.be estimates)

Capex

The maintenance capex is relatively low around 0.8-1.2% of sales. This is also explained by the high asset

turn-over of recycling at 10x. The company continues to spend 30-50% of all capex into growth activities.

Many of these investments start to contribute to profits from FY16 onwards and accelerate into 2018.

Working Capital

The company sales growth in recycling has not put any demand on Working Capital as it is a throughput

operation.

Debt

Since the Nyrstar spin-off, the debt situation at Umicore is excellent and gives a lot of flexibility for future

investments if and when opportunities arise because some competitors in the cleantech space are in a

tough financial situation during the ‘trough of disillusion’ phase.

(Source: Company IFRS reported, 2015-17 Valuescan.be estimates)

-500

-400

-300

-200

-100

0

100

200

300

4003. Capex

0

50

100

150

200

250

300

350

400 5. Net Financial debt

0

200

400

600

800

1,000

1,2004. Working capital

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6 6. Dividend

Solvency 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

NetDebt/EBITDA 0.4 0.9 0.6 0.8 0.5 0.5 0.5 0.9 0.8 0.8 0.7 0.5 0.2

ONCLiab/ONCAssets 2.0 3.1 2.7 2.4 2.6 2.6 2.5 2.8 2.6 2.7 2.7 2.7 2.7

EBIT/Fin.Costs 10.7 3.5 2.4 80.1 398.1 7.2 6.4 34.3 7.0 15.3 11.6 5.3 37.0

Tangible IC/NetDebt 8.4 4.7 8.0 4.8 6.8 8.5 8.4 6.3 5.8 5.9 5.8 6.9 13.7

NetDebt/Equity 0.1 0.3 0.1 0.2 0.2 0.1 0.1 0.2 0.2 0.2 0.2 0.2 0.1

Liquidity

CurrentA/CurrentL 1.7 2.0 1.7 1.5 1.4 1.5 1.5 1.3 1.4 1.3 1.4 1.4 1.5

Receivables/Payables 1.1 1.0 0.9 0.9 0.8 0.8 0.8 0.8 0.8 0.7 0.7 0.7 0.7


18

D. P&L and Balance Sheet tables with Cash Flow ratio’s

(Source: Company data, Valuescan.be estimates)

Price 62.33 EUR NoSh 109 MktCap 6,813 Code ENXTBR:UMI CredRat 0.00

Target 59.00 Debt 253 EV 7,066 Isin I_BE0003884047

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Sales 8,310 9,124 6,937 9,691 14,481 12,548 9,819 8,828 9,698 10,445 11,115 11,617 12,024

Salesgrowth 9.8% -24.0% 39.7% 49.4% -13.3% -21.7% -10.1% 9.9% 7.7% 6.4% 4.5% 3.5%

Gross Profit 716 816 528 722 908 843 772 632 741 776 856 964 1,034

Gross Margin 8.6% 8.9% 7.6% 7.4% 6.3% 6.7% 7.9% 7.2% 7.6% 7.4% 7.7% 8.3% 8.6%

R&D

R&D%

SG&A 392 541 347 410 497 497 491 417 498 513 507 525 541

SG&A% 4.7% 5.9% 5.0% 4.2% 3.4% 4.0% 5.0% 4.7% 5.1% 4.9% 4.6% 4.5% 4.5%

EBITDA 431 381 291 431 537 483 421 345 411 441 537 631 706

Margin 5.2% 4.2% 4.2% 4.4% 3.7% 3.9% 4.3% 3.9% 4.2% 4.2% 4.9% 5.5% 5.9%

Depreciation 106 107 110 119 126 138 140 131 168 176 194 201 213

Amortisation 0 0 0 0 0 0 0 0 0 0 0 0 0

Other operating income 0 0 0 0 0 0 0 0 0 3 -6 -9 0

EBIT 324 275 181 311 411 346 281 214 243 265 343 430 493

Margin 3.9% 3.0% 2.6% 3.2% 2.8% 2.8% 2.9% 2.4% 2.5% 2.5% 3.1% 3.7% 4.1%

Financials -30 -77 -76 -4 -1 -48 -44 -6 -35 -17 -30 -81 -13

Pretax 294 197 105 307 410 298 237 208 208 248 313 349 480

Tax Rate -20% -34% -20% -18% -19% -20% -22% -21% -23% -23% -23% -23% -23%

Tax -57 -67 -21 -54 -76 -60 -52 -44 -48 -56 -72 -80 -110

Adjustments 0 0 0

Net adj. 653 122 74 249 325 233 179 171 169 131 241 269 369

EPS adj. 5.21 1.06 0.66 2.20 2.87 2.09 1.61 1.58 1.56 1.20 2.21 2.46 3.38

# Shares 125 115 112 113 113 112 111 108 108 109 109 109 109

Dividend 0.65 0.65 0.65 0.80 1.00 1.00 1.00 1.00 1.20 1.30 1.35 1.40 1.45

Valuations

EV/Sales 0.3 0.3 0.4 0.3 0.4 0.4 0.4 0.5 0.5 0.6 0.6 0.6

EV/EBIT 11.2 12.4 12.2 9.6 13.0 15.4 18.5 18.8 19.9 20.9 16.5 14.1

PE 22.4 28.0 13.8 11.4 18.3 23.0 21.5 24.9 37.9 28.3 25.4 18.4

EBIT Growth -15% -34% 72% 32% -16% -19% -24% 13% 9% 29% 25% 13%

NET Growth -81% -39% 237% 31% -28% -23% -5% -1% -23% 84% 11% 35%

EPS Growth -80% -38% 235% 30% -27% -23% -2% -1% -23% 84% 11% 35%

Balance Sheet 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Tangibles 623 709 764 805 864 912 999 1,062 1,023 1,070 1,118 1,145 1,149

Intangibles 112 123 130 146 144 150 164 221 211 261 261 261 261

Other Fixed 191 103 125 147 143 164 166 169 161 175 175 175 175

Financial Assets 278 195 224 274 267 251 223 259 219 222 222 222 222

Non-Curr.A. 1,204 1,130 1,244 1,372 1,419 1,478 1,551 1,711 1,614 1,727 1,775 1,802 1,806

Inventory 969 899 860 1,183 1,305 1,235 1,106 1,183 1,054 1,189 1,272 1,323 1,393

Receivables 846 585 519 790 825 773 719 833 797 817 878 914 962

Cash 219 255 185 125 104 131 99 90 74 84 59 108 261

Other Current 48 156 19 42 60 51 36 35 491 328 328 328 328

Curr.Ass. 2,081 1,894 1,583 2,140 2,295 2,190 1,961 2,141 2,416 2,418 2,537 2,673 2,944

Total Assets 3,285 3,025 2,827 3,512 3,713 3,668 3,512 3,851 4,030 4,146 4,312 4,475 4,750

Equity 1,531 1,332 1,367 1,575 1,722 1,806 1,723 1,750 1,785 1,848 1,942 2,057 2,268

LT Debt 181 423 176 195 24 3 26 23 71 24 24 24 24

Other NC Liabil. 376 317 340 357 368 420 413 471 419 467 467 467 467

Non-Curr.Liabil. 2,088 2,072 1,883 2,127 2,113 2,228 2,162 2,244 2,275 2,339 2,433 2,548 2,759

ST Debt 216 166 186 290 347 351 288 366 339 401 401 401 401

Payables 798 603 610 895 1,039 976 913 1,079 1,003 1,098 1,171 1,218 1,283

Other Curr.Liabil. 184 184 148 199 214 112 149 163 413 307 307 307 307

Current Liabilit. 1,198 953 944 1,385 1,600 1,440 1,350 1,607 1,755 1,806 1,879 1,927 1,991

Total Liabil. 3,285 3,025 2,827 3,512 3,713 3,668 3,512 3,851 4,030 4,146 4,312 4,475 4,750

Net Debt 178 333 176 360 267 222 215 298 336 341 366 318 164

Working capital 880 852 640 921 937 970 800 809 925 928 1,000 1,039 1,093

Inv/Sales% 11.7% 9.8% 12.4% 12.2% 9.0% 9.8% 11.3% 13.4% 10.9% 11.4% 11.4% 11.4% 11.6%

Rec/Sales% 10.2% 6.4% 7.5% 8.2% 5.7% 6.2% 7.3% 9.4% 8.2% 7.8% 7.9% 7.9% 8.0%

Pay/Sales% 9.6% 6.6% 8.8% 9.2% 7.2% 7.8% 9.3% 12.2% 10.3% 10.5% 10.5% 10.5% 10.7%

Capex/Sales% 4.5% 1.9% 2.8% 1.8% 1.4% 2.1% 3.2% 2.7% 2.3% 2.0% 2.2% 2.0% 1.8%


19

III. Valuation

DCF valuation range:

(Source: business plan estimates from previous chapters by Valuescan.be, these can differ from the actual results)

Saved 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Salesgrowth 7.7% 6.4% 4.5% 3.5% 3.5% 3.5% 3.5% 3.5% 3.0% 2.5% 2.0%

Sales 10445 11115 11617 12024 12445 12880 13331 13798 14212 14567 14858

Oper.Margin 2.5% 3.1% 3.7% 4.1% 4.5% 4.5% 4.5% 4.8% 4.8% 4.8% 4.5%

Oper.Income 265 343 430 493 560 580 600 662 682 699 675

Depreciation 176 194 201 213 220 228 236 244 252 258 263

WC changes -72 -39 -54 -38 -40 -41 -42 -38 -32 -26

Taxes -56 -72 -80 -110 -125 -130 -134 -148 -153 -156 -151

Capex -209 -242 -228 -216 -224 -232 -240 -248 -256 -262 -267

Free Cash Flow 176 151 282 326 393 407 421 468 488 506 493

Working Capital 928 1000 1039 1093 1131 1171 1212 1254 1292 1324 1350

Net Debt 253 102 -181 -506 -899 -1306 -1727 -2195 -2682 -3189 -3682

Tax Rate -21% -21% -19% -22% -22% -22% -22% -22% -22% -22% -22%

WC/Sales 9% 9% 9% 9% 9% 9% 9% 9% 9% 9% 9%

Capex/Sales -2% -2% -2% -2% -2% -2% -2% -2% -2% -2% -2%

Deprec./Capex 84% 80% 88% 98% 98% 98% 98% 98% 98% 98% 98%

Free Cash Flow 151 282 326 393 407 421 468 488 506 493

Discount Factor 1.000 0.926 0.857 0.794 0.735 0.681 0.630 0.583 0.540 0.500

Discounted Flows 151 261 279 312 299 286 295 285 274 247

Horizon Value 2,291

Terminal Value 4,192 Sensitivity Base Case

- net debt 253 Rg/WACC 8.5% 8.0% 7.5% WACC 8.0%

Equity Value 6,230 1.5% 51.6 55.9 60.9 LT Growth 2.0%

Nr Shares 109 2.0% 54.2 59.0 64.7

HV/TV Ratio 37% 2.5% 57.2 62.7 69.3 Target Price : 59.0Fin. Assets 222


20

Contents and methodology

I. Company Description Brief company history to situate the roots and recent material events.

Description of the activities in the reported segments that are used for the business model.

The necessary background for investors to understand what the company does.

II. Sector Overview Description of the market environments in which the company operates.

Expectations of market growth potential and market share trends.

The necessary sector background for investors to understand the business model.

III. Business Model

Value = Growth x Profitability / Capital needs

A. Growth Expectations The growth expectations are modelled by reported segment on a 10y history and 3y forward.

The long term drivers by segment are evaluated, company expectations vs. sector dynamics.

Recent results are discussed and a growth conclusion is discussed with the segment table.

B. Profitability The profit margins are modelled by reported segment on a 10y history and 3y forward.

Competitive situation and operating costs are discussed per segment, peer comparison.

Profitability conclusion in a segment EBIT table, including corporate or exceptional costs.

C. Capital Needs Equity reports often spent too little attention to the capital needs to realise growth and profitability.

Hence, Capex, Working Capital, Debt and Dividends are discussed.

The Capex is modelled towards the maintenance level at the end of the 3Y forecasting horizon.

IV. Valuation We use a DCF to translate the future free cash flows into a fair value estimate.

The WACC is set at 8% for all companies as our expected return for the Equity investor.

ValueScan.be measures value with the same yardstick, independent of noise or hype.

For companies with higher risk profiles, a higher WACC is possible and will be justified.

A ROIC analysis backtests the valuation with an EVA analysis. The historic Equity value is compared to

the historic EVA calculation. This indicates whether the market has been over- or undervaluing the

company in the past.

http://www.valuescan.be/Salesgrowth

http://www.valuescan.be/ProfitMargin

http://www.valuescan.be/CapitalNeeds


21

Disclaimer : The Valuescan.be document is not an investment recommendation. The Valuescan Document has been prepared solely for informational purposes, and is not an offer to buy or sell or a solicitation of an offer to buy or sell any security, product, service or investment. The opinions expressed in this Valuescan Document do not constitute investment advice and independent advice should be sought where appropriate. The information provided on this Valuescan Document or in any communication containing a link to this Valuescan Document is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation or which would subject Valuescan.be to any registration requirement within such jurisdiction or country. Neither the information, nor any opinion contained in this Valuescan Document constitutes a solicitation or offer to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service.

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