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Executives

Marc Grynberg – CEO

Filip Platteeuw – CFO

Analysts

Mutlu Gundogan – ABN AMRO

Tony Jones – Redburn

Joe Dewhurst – UBS

Junior Cuigniez – Petercam

Denis Lepadatu – Kempen

Adam Collins – Liberum

Christian Stiefel – Morgan Stanley

Filip De Pauw – ING

Edward Donohue – One Investments

Evgenia Molotova – Berenberg

Wim Hoste – KBC Securities

Denis Lepadatu – Kempen

Umicore Group (OTCPK:UMICF) Q2 2014 Earnings Conference Call July 30, 2014 8:00 AM ET

Operator

Welcome to the Umicore Half Year Results 2014 Conference Call. (Operator Instructions). At this time I would like to turn the conference over to Mr. Greenberg. Please go ahead, sir.

Marc Grynberg

Thank you Allen. Good morning -- good afternoon everyone actually I should say and welcome to the presentation of Umicore’s results for the first half of this year. I will talk about the overall business evolution during the first half of the year and we will also update you on the outlook for the full year and then I will hand over to Filip our CFO who will cover the financials. After that I will wrap up before handing the call over to you for any questions that you might have.

If we look at the overview in first place we can see that overall revenues were slightly down year-on-year. The reason behind the decrease was the effect of lower metal prices and currency headwinds. On the other hand volumes grew nicely in automotive catalysts rechargeable battery materials in particular and that has offset almost entirely the negative metal and currency effects on revenues.

Metal prices do not impact the revenues only. As you know they also have an impact on the profitability of our battery recycling activities and this was one of the main reasons for a lower recurring EBIT in the first half of this year next to unfavorable exchange rate and to a lesser extent higher depreciation charges.

On the other hand we have seen some clear benefits coming through from the difficult but necessary cost reduction efforts that we have made over the past 18 months most notably in performance materials. Our Vision 2015 investment programs remain very much on track and I will elaborate on the project in a moment.

Filip will comment on the financials later on in more detail. Let's suffice it to say for now that our financial positions remain very strong. Once again we generated solid cash flows and we were able to return more than €100 million of cash to shareholders in the form of share buybacks and dividends payments. Our share buyback program is nearing completion and the Board has now come to the conclusion that some 8 million of the shares we currently own could be cancelled. This cancellation will of course be submitted to the approval of the shareholders in the coming week.

In the meantime an interim dividend of €0.50 will be paid out which is consistent with our dividend policy.

The profit outlook for the full year is in-line with the guidance that I provided back at the end of April, although I should specific today that it is becoming more likely that we will end up in the upper half of the recurring EBIT range of €250 million to €280 million assuming that metal prices stay more or less where they are today.

We see some positive developments on the demand side in several of our product businesses and as anticipated the effects of cost reduction measures started to percolate to the bottom-line.

In terms of revenue generation, I mentioned that metal prices and currency exchange rates provided significant headwinds in comparison to the first half of 2013. The good news though is that we saw some good volume growth in several part of the businesses such as automotive catalyst or across the energy material division.

From a profitability point to the same metal price and currency effects was by the far main reasons behind recurring EBITDA decreasing 8% year-on-year. As we indicated back in April we also process somewhat lower volumes in recycling mainly due to the work being done in Hoboken and to prepare for the expansion.

In the project businesses EBITDA improved as a result of volume growth although some of that growth effect on EBITDA was dented by increasing price pressure and we started to see the effects of recent cost reduction measures. Compared to EBITDA recurring EBIT was down a bit more in percentage terms due to an increase in depreciation charges as a result of new growth investments coming on stream.

If we look a bit more closely on the investments you will see that capital expenditures were €72 million in the first half. The execution of our growth strategy is on track although CapEx was on the low side in the first half compared to prior years which in due to the timing of certain large projects. You should expect a higher level of CapEx in the second half driven by the expansion in Hoboken and the ongoing growth projects in automotive catalysts and rechargeable battery material.

R&D spending on the other side was stable both in absolute value and as a percentage of revenues and the focus of our R&D programs is also very much unchanged. The number of employees increased a little since the end of last year following the acquisition of Palm Commodities and the completion or the ramp up of certain new production facilities, Automotive Catalysts in particular.

In terms of safety the number of lost time accidents was a bit lower but very sadly this was completely overshadowed by the tragic accident which cost the lives of two more employees in all in Belgium back in January. Our ambition to make Umicore a safe place to work remains unabated and in the meanwhile we have reinforced the emphasis on further safety.

Let’s take a look at each of the business groups in turn starting with Catalysis. The revenues in Catalysis were up slightly. In Automotive Catalysts the revenues followed a trend set was close to that globally commodities production which itself by some 4% in the first half.

We recorded once again strong growth in China where we continue benefit from the successful market penetration of international brand. In other regions the picture was subdued. In Europe and North America revenues were flat in a recovering market which reflects a rather unsupportive platform mix. The good news is that most of that effect of temporary nature. In Europe in particular where a new Euro 6 light duty diesel contracts will kick in soon and help us to somewhat rebalance the mix. It is also worth noting that we continue to win market share with Japanese OEMs globally.

In the second half of this year the ramp up of the HDD business and the new Euro 6 Light Duty contracts should start to contribute to both the top and the bottom line. The precious metals chemistry revenues were lower year-on-year and the contribution to recurring EBIT is much lower which unfortunately it's offsets the improvement achieved in Automotive Catalysts.

The business units faced in the degrading market conditions and was affected by the weakness of the Brazilian economy and in particular the automotive related demand. You can see on slide 10 that we still have a significant wave of investments underway in Automotive Catalysts across the globe.

While we start ramping up the first two HDD lines in Florange. We’re installing a third line which is due to be commissioned at year end. We’re also ramping up HDD production in China and the new plant in India for light duty applications will be commissioned towards the end of this year. More recently we announced two new investment projects for Automotive Catalysts. Firstly the growing demand for Euro 6 Light and Heavy Duty applications will require Umicore to add capacity in Europe and we have therefore decided to build a new plant in Nowa Ruda in the southern part of Poland.

The new capacity should come on stream in the first part of 2016. Secondly, together with our joint venture partners we have decided to build a new tech center in Korea which will help grow in complexity with our Korean customers.

In Precious Metals Chemistry we have completed the move of our U.S. operations to Tulsa, Oklahoma and are also expanding the capacity for MOCVD precursors at the Hanau site in Germany.

In energy materials, higher sales volumes across businesses and the acquisition of Palm Commodities were the main engines for the 12% revenue growth. The growth was most pronounced in rechargeable battery materials which continues to benefit from a strong demand for high energy density cathode material used in high-end portable electronics such as tablets and smartphones.

This cathode is specifically made of Lithium-Cobalt-Oxide. If we look at NMC compounds on the other hand sales were lower year-on-year due to the declining demand for notebook PC, that is a segment which typically relies on standard grade and lower margin products and has therefore diminishing traction to Umicore.

The demand for higher end NMCs used in automotive applications increased as more electrified vehicle platforms get introduced in the market and as the sales of previously introduced models are gradually increasing. In the Cobalt & Specialty Materials business revenues were higher following the acquisition of Palm Commodities. The revenues of Thin Film products were boasted by a pickup in demand for rotary ITO targets used in the production of flat panel displays.

In Electro-Optic Materials revenues increased too, as a result in particular of higher demand for finished optics used in commercial applications and the contribution from germanium recycling and refining activities was also higher. After a long period of inactivity not to say near that it was also encouraging to see orders coming in for substrate for use in concentrator photovoltaics.

Overall the profitability of the business group continues to recover from the lowest seen in 2012. This is due to improving demand as well as the cost reductions that has made in the Electro-Optic Materials and Thin-Film products businesses. Price pressure continues to be a factor across unit and may affect unit margins further in the second half while I expect market demand to continue to be supportive.

As you can see on slide 12, we have been busy adding capacity in the rechargeable battery materials operations in Korea and China and the precursor plant in Korea is now in trial phase.

In Cobalt & Specialty Materials we’re working on an upgrade and expansion of the fine cobalt powders production in Olen, Belgium an investment that should be operational next year.

In Thin-Film products we have just entered into a joint venture agreement China with First Rare Materials. A company that operates under the brand name of Vital and which has leading positions in minor metals. The JV which will be 60% owned by Umicore will invest in fully fledged capabilities to produced rotary Indium Tin Oxide targets and recycle expense targets.

As the market for larger area displays is growing fast in Asia and in China in particular the JV will be well-positioned to serve the industry with best available rotary technology.

In performance materials revenues were down 4% compared to the same period last year while recurring EBIT improved by 16% as a result of cost reductions. In building products revenues were higher; demand in Europe was well ahead of last year in large parts due to the mild winter conditions which allowed unusually high level of construction activity in the region during the first quarter. In contrast orders from overseas market were lower year-on-year.

I think chemicals revenues were stable reflecting good volumes and higher premiums since several applications. Recycling modules however were lower due to a continued tightness on the zinc residue markets. Both of the zinc related units have generated higher earnings as a result of the cost reduction measures that we have implemented in recent months.

In the precious metals related activities revenues were down year-on-year, this is due to a combination of factors such as lower metal prices, still very particular and the economic slowdown in Brazil. The contribution of Element Six Abrasives was much higher compared to the first half of last year as sales volumes were up after the successful introduction of innovative products which helped the business gain market shares. Also in Element Six Abrasives earnings started to benefit from recent cost reduction measures.

Further adjustments to the production configuration of Element Six Abrasives have been announced with the intended discontinuation of production in Sweden and the consolidation of production activities in South Africa and Ireland.

In building products, the new production facility for surface treatment in Viviez opened in June and production is ramping up as we speak.

Other investments in performance materials include the capacity expansion for zinc powders in Malaysia which is on stream and the construction of the new zinc powder plant in Changsha in China which has just started.

We have also set up a new joint venture in China to expand our business presence in the electroplating market locally. Umicore will own majority stake in that joint venture.

The recycling business group as anticipated bore the brunt of the impact of lower metal prices which was the main reason for revenues and recurring EBIT to decrease by 13% and 34% respectively. As we indicated that the time of the first quarter update the available capacity in Hoboken was somewhat constrained in the first part of the year due to the engineering and testing work that we carried out as a preparation for the expansion project.

As a result we processed lower volume than in the first half of 2013. We have also seen some minor changes to the supply mix with lower availability of certain BGM rich industrial by products for instance or certain types of complex e-scrap. Facility was shut down during the past several week for maintenance and as we have received a permit for the expansion which is of course good news, we have made use of the downtime to start some of the investment work related to the expansion. This will cause CapEx to be higher in the second half of the year.

It now remains to be seem how the facility will perform once it restarts. Our assumption today in that respect is that the modifications we’re bringing to the flow sheet should improve throughput in the short term and if that is confirmed we should be able to make up for the bound time in the remainder of the year volume wise.

Lower metal prices, gold and silver in particular also caused much reduced availability of recycling residues for the jewelry and industrial metals business unit. This effect was partly compensated by higher sales of products for industrial use or for high end jewelry. I expect the performance of the business group overall in the second half of the year to be broadly of the same magnitude as in the first half. This is subject of course to how Hoboken facility performs after we restart it and assuming of course no material move in metal prices. I should be able to tell you more about this at the time of our third quarter update end of October. After catalysis, recycling is the division where we are investing the most in terms of capital expenditure. The lion share of these projects is happening at the Hoboken plant. And as I indicated a minute ago, we have now started to work on the (indiscernible) expansion projects. We are also investing elsewhere in the division, for example, in the expansion of our silver refining and recycling capabilities in Thailand, Brazil and Germany.

At this stage I would like to hand over to Filip who will comment on the financials.

Filip Platteeuw

Thank you Marc. Good afternoon everybody. I propose to first look at our cash flows, our recurring EBITDA over the first six months was 8% lower than in the same period of last year. This 8% compares to the 50% lower recurring EBIT, which includes the impact of our higher depreciation charges and year-on-year our depreciation charges increased by some 7% obviously as a result of our recent growth investments. Compared to the second half of last year recurring EBITDA was actually stable and year-on-year our recurring EBITDA excluding the recycling segment increased by 13% and this is again an indication of the improvement in most of the units outside of recycling.

Despite the lower EBITDA our free cash flow before financing over the period and this as you know after investments, after CapEx and changes in working capital needs was higher than in preceding semesters and this was due on the one hand we had a continuous optimization of our working capital base and on the other hand we had the rather slow CapEx spending in the first half of the year. The latter is merely a timing effect and we expect CapEx spending to ramp up as we continue the year.

We currently anticipate CapEx spending of between €220 million to €250 million for the full year. As mentioned by Marc the majority of these investments are in catalysis and in recycling. On the working capital side we also expect to see an increase in the working capital in the second half of this year. This high free operational cash flow on the first six months allowed us to keep our net financial debt stable actually even reducing it by 30 million since December of last year.

This change in corporate is more than a €100 million cash returned to shareholders in the form of dividends and share buybacks which the 100 million corresponds to half of our cash flow from operations of the period. And this confirms again our commitment towards shareholder value creation even in the periods of metal price headwinds. The tax cash cuts over the period amounted to €28 million and our net interest charge was negligible.

Needless to say that our capital structure remains very strong, notwithstanding the sizeable investments and the cash returns. Our average net debt is half the recurring EBITDA and our net gearing ratio stays below 11%.

We took the opportunity of the period to further reduce our weighted average net interest rate, still below 1.3% and still at a historic low.

Moving to the next slide on earnings per share. Our 15% lower earnings per share reflects the decline in EBIT, the P&L tax charge for the periods equally decreased in in-line with the operating income and corresponds now to recurring effective tax rate of 22%. The financial result was somewhat lower than in the comparable period of last year and this is mainly due to adverse financial FOREX results.

Our Board of Directors has approved an interim dividend of €0.5 per share to be paid out on the 4th of September and which accounts for a payout ratio of well over 50% compared to the previous recurring EPS.

In the first six months of this year we bought back some 1.5 million own shares or 1.3% of our total outstanding shares and we currently hold 11.4 million treasury shares which brings us very close to the 10% buyback mandate limit.

In view of our excellent capital structure and strong cash flows the Board has decided to propose to shareholders the cancellation of 8 million treasury shares. As you know we ear-mark parts of our treasury shares to cover the stock option plans.

Finally a word on non-recurring EBIT, which amounts to a loss of €9.4 million over the period which compares to a loss of 22.8 million in last year of the same first six months. Restructuring charges made up €11 million and our link to on the one hand the closure of the Swedish production plant of our joint venture Element Six Abrasives that is reported in performance materials. And on the other hand some further cost reduction measures in energy materials.

These charges are compensated to the amount of €6 million by the reversal of past metal inventory impairments and this is response to higher pricing of certain metals.

This concludes the financial section. Marc, I hand it back over to you for the wrap up.

Marc Grynberg

Thank you Filip. Before turning to your questions I would like to wrap up the key messages of this presentation. Revenues were slightly down despite good volume growth in the product businesses and that is the result of significant metal price and currency headwinds. These headwinds have also affected the overall profitability of the group in the first half as anticipated, although cost reductions have thus mitigate the effects to some extent.

The next message is that the execution of our strategic growth program remains right on track and CapEx will be higher in the second half of the year as a number of key projects in recycling, catalysis and energy material has been launched. At the same time we continue our efforts to improve the cost structure and working capital management in order to restore margins where needed.

Finally the outlook for the full year remains consistent with the guidance we gave back in April, although as I mentioned earlier it is becoming more likely now that we would end up in the upper half of the range of €250 million to €280 million recurring EBIT. I should be able to say more about that at the time of the third quarter update at some of the uncertainties by definition should be lifted by then such as the performance of the Hoboken facility and the evolution of metal price.

With this I would now like to open the floor to your questions.

Question-and-Answer Session

Operator

(Operator Instructions). We will now take our first question from Mutlu Gundogan of ABN AMRO. Please go ahead. Your line is open.

Mutlu Gundogan – ABN AMRO

I have four questions. The first is on the outlook. Can you tell us what the main drivers of increase in your guidance to the upper range? Are those higher metal prices or should we think about something else?

Secondly is about recycling. Can you share with us what your assumptions are that results in earnings in the second half will be equal to the first half, and I’m particularly interested in your available capacity and throughput expectations?

Then thirdly on automotive catalyst, I remember that in the second half of 2013 your earnings were lower, partly due to start-up cost for HDD. Can you tell us whether you still had these costs in the first half and how they compare to the cost in the second half?

And then finally on building products, there is a remark on the final page in which you talk about the statement of objectives of the French Competition Authority. Can you tell us what these allegations are and why do you dispute those? And also can you tell us whether you have already provisioned for this and if yes, what the amount is? Thank you.

Marc Grynberg

Let me start with the guidance upgrades or fine tuning, whatever you would call it. It is partly the result of the slight upturn that we have seen in metal prices recently. I mean upturn is not applicable to all metal prices. Some of them have not started to react yet, I would say to better economic news but at least the trends of unfavorable currency and metal price moves seems to be broken and so there is a little bit of an impact of metal price assumptions in the guidance upgrade. The rest I would say is the confirmation of the positive developments that we see in the demand and sales trend in our product businesses.

Of course when we communicated the earnings guidance back in April we didn’t have the visibility that we have today by definition as time has passed. And we have had in the meantime the confirmation that of some of these positive trends in terms of demand and so that’s combined with the metal price effect allows us to be somewhat more optimistic and guiding towards the upper end of the upper half of the range today.

Now let me move to your question about recycling, so what we exactly mean by the remark that were made a minute ago is that since we have a fairly prolonged shut down for the time being because we carry out not only maintenance work but also a number of modifications to the facility as part of the expansion investment project.

We believe that or we assume at this point in time or we anticipate that the throughputs as a result of these modifications will improve already after we restart the facility. I mean after certain ramp up period of course and fine tuning, and will provide us with a little bit more available capacity so that we can make up for the downtime and basically much the performance of the first half in terms of volumes and in terms of revenues.

So this is the assumption today. I cannot tell you more because I have to see how the facility restarts, how it performs after the restart whether the modifications we have made do deliver benefit that we’re supposed to deliver and then we will know whether the assumption made today is justified or not and that’s why I mentioned that further update should be expected at the end of October as part of the Q3 trading update.

And of course that assumes that the metal prices do not fundamentally move compared to where they are today because that's the other element which has an impact upon the revenue and profitability of the recycling activity.

Turning to your question regarding AC. Yes we continue to have startup up cost related to new production lines in automotive catalyst and qualification cost for new lines that are coming on stream as we continue to install capacity with a third HDD line now coming up plus the plant in India, plus the other investment that I have mentioned. You will continue to have those. The difference is that with the ramp up of HDD and some new Euro 6 passenger car diesel contracts the contribution of these investments will start to be visible in terms of top line and bottom line and that will of course that contribution will have offset some of these continued costs.

And then finally let me address your questions regarding building products and the statement of objections that we will see from the French Competition Authority. Just to be clear it doesn’t, it does not relate to any price fixing so there is no price fixing allegation. It only relates to practices that we have with or distribution network and the fact that these practices are deemed to be inappropriate by the French Competition Authority because they consider we have a dominant position in the market while actually we have less than 2% market share in France. So we believe this is totally unfounded. What is the difference of opinion based on? The French Authority considers that the relevant market is the market of zinc roofing products which is not a market in itself and while we consider in-line with European jurisprudence and also case law in Germany that the market is a market of building materials for roofing and for rain water systems.

We do not compete with other zinc materials. We compete also with copper, with PVC, tiles, and all kinds of materials that are used exactly for the same applications with a few choice of the customers and the distributors to go for either material. So that’s the difference of opinion but since we received the statement of objections we have to disclose that. It is early in the process, the discussion has just started with the authority. It is way too early to assess a possible level of risk and of course since it is not possible to assess the risk and because we believe it is totally unfounded, there is no provision in the books.

Sorry for the extensive response, but it is difficult to summarize in two sentences.

Mutlu Gundogan – ABN AMRO

No, it's very good. Thanks.

Operator

Our next question comes from Tony Jones of Redburn. Please go ahead. Your line is open.

Tony Jones – Redburn

I have four questions as well. Firstly, could you talk about what drove the reduction in other expense? I think it declined by about €27 million in this half, so just explain what was driving that. Also could you provide a bit of -- provide a view about the confidence in the vision 2015 return on capital target, so just maybe how should we think about getting to that or whether it's a -- we should be expecting a substantial decline in CapEx?

Then in recycling, the guidance that you've given for EBIT in the second half, does that imply that the negative impact from price hedges falling away from a high level, is that basically washed out now where we can just think about volume and metal prices? And then finally in energy materials, the price pressure, I was struggling to reconcile that comment with the expectation of higher revenue. Could you provide some sort of EBIT guidance, what that impact could be in the second half? Thank you.

Marc Grynberg

Tony, I guess we will have to revert you regarding the (multiple speakers) so Filip will take it up. We cannot respond to that question off the cuff. The confidence in the ROCE target, the Vision 2015 ROCE target of exceeding 15% ROCE is of course still there, it's a matter of now of carrying out or investment projects and ramping up production and sales in the various activities. The investment hump of the past few years has been significant and it is adding a lot of capital employed and it takes a bit of time to ramp up revenues and contribution from these new investments. I have no reason to believe that the ROCE targets would have to be adjusted. I see no change in market trend. Sometimes there are some delays we discussed that earlier that for instance the penetration of electrified vehicles is a bit lower than we had originally envisaged.

But overall I see no reason to modify the target tor the expectation of the ROCE between 15% and 20% in the future.

In recycling it is indeed fair to assume that metal price and available capacity will be the main driver for the mix of supply is also a critical factor but it's relatively stable I would say give or take a few minor modification, it's relatively stable and there is no I would say as we move into the second half of the year, there is no hedge effect that would distort the comparison to last year. No major effect I would say.

And then the price pressure in energy materials is a continuous factor in the business and is been there like for an continuous to be there and what we wanted to mention is that the volume growth is somewhat mitigated by this price pressure when it comes to the revenue growth. Revenue growth is a bit lower than volume growth in that segment reflecting the price pressure in some case the price erosion and we expect that to continue in the second half of the year.

Tony Jones – Redburn

Could I just follow-up with one quick question which is on CapEx? Have you got any view on what the CapEx could look like for next year? So I think you said 220 million to 250 million for this year. Will it decline, I mean, or go up?

Marc Grynberg

It's too early to give you precise guidance. But please bear in mind that we have a very large investment project that is just got off the ground, that’s the recycling expansion in Hoboken. It's a €100 million CapEx project which is going to be spread over 18 months. So in the second part of this year and the bulk of it will be spent next year and there are also a number of projects in catalysis with the plant construction in Poland, the new tech center in Korea, et cetera, that will also and further expansion of our rechargeable battery materials activities in Asia that will justify a continued high level of CapEx.

Now this being said, it's of high level I mean we’re not in a phase where we’re going to move to CapEx equal to depreciation or where maintenance CapEx is the guidance. Growth CapEx continues to be a major theme. But it's too early to tell what magnitude would the CapEx spend be next year.

Operator

Our next question comes from the line of Joe Dewhurst of UBS. Please go ahead. Your line is open.

Joe Dewhurst – UBS

I'd also like to ask four questions. Just on the recycling business, so at the start of the year there was also lot of concern around the supply of residues particularly from South Africa because of the impacts with the mining strikes. Do you see that will -- are you expecting those residues then to start to return in the second half or is there a lag period while the plants ramp-up production there?

And then on the battery materials side, just some -- again some sort of feeling around where we are now as far as costs per kilowatt hour for the automotive batteries. You are effectively trying to bring the cost down and essentially maybe how far we are off now the $200 per kilowatt hour kind of level, but also some sort of feeling as to how competitive you are, say, versus the competition? So are you more advanced than the competition in that sort of technology race or effectively are there certainly other providers which are pretty close to you? And then with the buybacks, are you -- now that you've sort of cleared the treasury shares, should we expect that you will do a similar level of buybacks now in the second half as well? And that's it. That's just three questions. So those three questions.

Marc Grynberg

I will start with the first couple of questions and then I will hand over to Filip to talk about buybacks. The situation regarding the South African mining operations and the revenue streams has not normalized yet despite the end of the strike. As you may have read or heard it will take a significant number of month in order for production to be back to pre-crisis levels to prestrike levels. There are a number of technical difficulties that need to be overcome in order to bring the all of the operations back on stream and back to their previous levels of operations. So I would not expect the supply picture to normalize anytime soon in the very short term. It will take quite a bit more time.

And by the way if you look at the PGM prices, platinum and palladium prices or rhodium prices in particular. They have not moved downwards when the end of strike was announced because the physical situation of the market has not yet normalized. So I think that’s the market prices tend to confirm this situation.

Concerning RBM, the battery materials, I will have to revert to you. We will have to revert to you regarding where the industry stands in terms of dollars per kilowatt hour I don’t have a very fresh update of that figure that I could give you write now. We will have to check it out. But let me comment on the other part of your question that’s the technology position versus competition.

In the automotive segment we continue to be very well positioned with our NMC materials the nickel, manganese, cobalt compounds of different grades that are being qualified for a large number of applications and models that are either already on the roads or due to hit the roads and we continue to maintain a technological gap in terms of product performance to a quite large extent. But of course we wait for the market to take off in more meaningful numbers to see all the benefits of that technological leadership position coming through.

In other segments of battery materials, the picture is somewhat different in the high-end portable electronics where high-density lithium cobalt oxide is required to run tablets and smartphones, our position is absolutely unique in terms of technology and materials performance. And that helps us of course expand the business as we what for the automotive demand to take off in a more meaningful numbers.

While from our standards applications and more standard products whether it's NMCs or standard LCOs, our competitive position is not equally good, and we are not prepared to enter into price wars to defend a position in the low end of the segments whether it's for notebooks or some other applications.

So we have to, we’re making choices and we focus on the high end for technology. It deciding factor in our customers’ decision.

And that on the buyback Filip will.

Filip Platteeuw

We have a mandate the 10% buyback mandate that runs into mid-2015 so the idea is that we basically will now continue and complete the current mandate to go to the 10% and we will ask for shareholder approval through the AGM for the cancellation. And the reason why we do the cancellation is basically it provides us with the flexibility indeed to continue buyback program. So we don’t need a new mandate we can continue under the current mandate trends until mid-2015.

Now buybacks I would say part of the shareholder value equation to get with dividends and other elements over, so we will have to see whether we continue with certainty with the cancellation if approved we will have the flexibility to continue to buybacks under the current mandate.

Operator

Our next question comes from Junior Cuigniez of Petercam. Please go ahead. Your line is open.

Junior Cuigniez – Petercam

Thank you for taking my questions, a few from my side. First is on performance materials where cost-cutting was quite impressive if I may say, but EBIT up 60% despite a falling top line. Do you see a further improvement potential there and then how do you see the construction market in general? Another question is on the financial charges. You said that the majority of the financial charges were impacted by a fixed, but I also saw that your recurring financial charges increased substantially. Could you give us some color why this was and how do you see this tracking into H2? And then the third question is I just want to check to be sure, you said the increased throughput in recycling could compensate for lower volumes from the downtime. Do you mean to compensate the total downtime or only the incremental from the CapEx expansion?

Marc Grynberg

Let me start Junior and then I will hand over to Filip for the question related to financial charges. In performance materials, we will continue to look at the cost picture with great care and focus. There is the potential for further cost reduction is not as massive as it was as what we have achieved so far. We have started, I mean we have already achieved a number of significant measures or implemented a number of significant measures that have included site closures or consolidation. Optimization of the back office organization in certain other areas et cetera.

So there is a bit -- there is continued attention to costs and we review that on a continuous basis but you should not extrapolate that this will continue at the base you’ve seen recently. This would not be a realistic assumption.

Then on recycling, what I meant by the volume assumption and throughput assumption is that since the downtime in the second part of the year was higher than or longer than in the first part of the year. The higher throughput could help us mitigate that effect and basically match the volume that were processed in the first half of the year. So that is the in a way the marginal effect that I try to describe when it comes to throughput and available capacity and then Filip perhaps on the financial charges?

Filip Platteeuw

Yes so on the financial charges, so as indicated when you look at the recurring financial charges there an increase mostly related to the adverse FOREX result. There is also a bit of impacts on discounting of provision because of the lower interest rates in general. The actual net interest cash out is again is very low, the difference that I think you referred to is between the total and recurring is related to IFRS 39 impacts, so you know that’s a non-cash transactional impact which also relate to FOREX relates, but that is €2 million.

Operator

Our next question comes from Denis Lepadatu of Kempen. Please go ahead. Your line is open.

Denis Lepadatu – Kempen

I also three or four questions if I may. And the first one is related to performance materials. I noted that the main recovery in that segment is related to the equity-related income, so I was wondering if you believe that that performance which I assume is mainly connected to Element Six Abrasives is something which is sustainable and something that we could extrapolate for the second half and for next year. Two questions related to the expansion of Hoboken. In the press release you mentioned that there are -- you are still in discussion with local stakeholder to address remaining questions. My question is, is there any other permit that you still have to receive or what do you exactly mean with that sentence? And secondly, regarding the timing of the maintenance for this year, I'm not sure if I understood correctly if the longer maintenance already took place or is it taking place in Q3 or it already partially took place in Q2? And thirdly I wanted to ask you about the change in the platform mix in North America. As in Q1 you have mentioned that sales have been growing broadly in line with the market and now that situation has deteriorated. So the question is did you witness any significant platform changes in the meantime or is it just related to more depressed sales of existing platforms that you are exposed to and the actual platform exposure did not change?

Marc Grynberg

Let me start with the questions in reverse order, so the platform mix in the U.S. has not changed but the models on which we’re qualified has not been selling as well as earlier this year, so the mix is not changing. It's just -- it has just become less supportive. The downtime in the maintenance shutdown in Hoboken is taking place in the third quarter of this year. So early in the summer month of this year to be in the more precise and then regarding the permit, we do not require any other permits or otherwise we wouldn’t have been able to start the investment related work.

Some of the stakeholders have raised a number of questions and concerns and concerns some of them relate to noise for instance, noise levels and we’re working with them and also with the other industry that are located on that side and which also have industrial activities that may generate noise to see how the concerns of the neighbors can be addressed but that’s nothing odd of the ordinary and nothing that would or could delay the expansion investment work.

And then on performance materials I must admit that I’ve not made note of the question and would you please repeat it?

Denis Lepadatu – Kempen

Yes, no problem. I noted that the main recovery looking at total REBIT for the division is actually coming from the equity line, from the income from associates basically and I was just wondering if that is sustainable because it has shown quite a bit of a jump versus what was reported in the previous one or two years. And I'm just wondering if that's sustainable because it was like €9.4 million versus €4 million in H1 2013.

Marc Grynberg

Yes it is indeed the result of sustainable improvement that has been made and significant changes that has been made to the production configuration in Element Six Abrasives so that’s probably out of the performance materials activities, the one that has gone through the most significant restructuring in the past let’s say 12 to 24 months and we now see the benefits of that restructuring coming through with the next step being as I mentioned the intended closure of the Swedish plant and the consolidation of production in two sites, in South Africa and in Ireland.

So in terms of cost reductions it is indeed a sustainable improvement, now on the revenue side you may also have noted that the picture at Element Six Abrasives has also improved in the first part of this year with better demand with market share gains in some applications so that of course remains subject to the market development and demand trends in these various applications. So the sustainability aspects of that is somewhat more relative and I also I would like to draw your attention to the fact that like other activities of performance materials, there is a little bit of seasonality to be taken into account and so you should not fully extrapolate H1 into H2.

Denis Lepadatu – Kempen

Okay. That's very clear and maybe just one follow-up, would you be able to indicate how much longer would be the maintenance period in Q3 relative to a normal maintenance period?

Marc Grynberg

Well I could but we’re not willing to disclose that information unfortunately. So I cannot tell you Denis.

Operator

Our next question comes from Adam Collins of Liberum. Please go ahead. Your line is open.

Adam Collins – Liberum

I think I've got four, still two. So first of all just for the record, could you tell us what the FX impacts on revenues and recurring EBIT was on a the year-over-year basis. Second one and the third actually relates to the trends in recycling, in the statement you are alluding a more favorable trend observed towards the end of the period in some categories. I wondered if you can just could expand on that from what you were saying earlier, it doesn’t appears if one of those improving categories yet is the South African PGM industry. So where were the improvements being seen? You also say in the same area that there has been a deterioration in availability of complex e-scrap. I think you alluded to that in previous quarters. Just trying to understand to what extent that’s about the fact that your competitors are adding capacity or is that more of a general statements about diminished availability across the industry, some in connected perhaps with the enforcement of the WEEE Directive? So is that an industry problem or specifically because of more competition and then just finally trying to understand where we’re in the ramp up process for both the French and Chinese HDD plants. I wondered if you could sort of say where you expect the run-rate to be in terms of volume at the end of ’14 compared to where it was at the mid-year stage, just to give us a sense of how much more (Technical Difficulty)

Filip Platteeuw

FOREX we estimate I will give you an estimate on the recurring EBIT, we estimate that these impact year-over-year would be a low double-digit number so meaning something close to 10, but if its higher than 10 if we look at the what’s behind that it's obviously dollar as you know but I would say it's more important, our currencies like Brazilian Real, South African Rand. So there is a number of currencies into play here. So a low double digit number in recurring EBIT and Korean Won indeed. Now that is the direct impact and obviously there is indirect impacts in terms of (indiscernible) that’s not included here obviously.

Let me comment on other questions, as I mentioned on previous questions it is difficult to comment on every quarter on the supply mix evolution which was, it's not changing drastically from one quarter to the other. So we see some minor adjustments to the mix taking place in the first quarter and in the second quarter of this year. One fact indeed as you pointed out and as I mentioned earlier that the PGM rich residues from the mining industry are not yet back to a normalized level so this is not the improvement that was absorbed in the second quarter.

The improvement that we saw was that some of the existing supply streams from the industry, the industrial some types of industrial byproducts were becoming slightly more abundant and so pricing conditions have improved a little bit on those. I mean volumes are anyway constrained as long as we don’t have the additional capacity on stream. So we’re not looking (Technical Difficulty) materials. So there have been some improvements there on categories of industrial byproducts but unfortunately not at the PGM rich materials.

In terms of end of life [ph] products, the situation is spent -- and the catalysis remains the same as far as we’re concerned the segment is highly competitive as I explained last time and I see no complications because of the additional or the new interest that some other players have put in now in spent automotive catalyst. So pricing conditions have deteriorated significantly and in terms of the e-scrap it is really a matter of industry availability to competitive picture have changed and actually the competitive picture pressure doesn’t have a big impact on the complex, the most complex e-scarp and the additional capacity that you have referred to in Europe is not capable of treating the same complexity or the same or equally complex materials we are treating in Hoboken.

So the competitive picture is not changing but the availability remains a little bit erratic and the WEEE implementation remains in perfect (indiscernible).

Coming back to the HDD business, the ramp up is gradual so in China we will not see much of that in coming through the numbers in the remainder of this year. It will be relatively small and not so material but it's more of a matter of 2014 [ph] for the French facility should reach a relatively high degree of capacity utilization by the first two lines while the third line which is currently being installed with ramp of production next year.

Operator

Our next question comes from Christian Stiefel of Morgan Stanley. Please go ahead. Your line is open.

Christian Stiefel – Morgan Stanley

I have three questions, the first one on rechargeable battery materials. So you were indicating some pricing pressure in NMC cathode materials for the automotive battery market given oversupply at battery cell customers. Can you provide maybe a little bit more color here so as to understand the oversupply situation moving into the second half? And also related to the business unit itself, would you say that the majority of growth here is still coming from the lithium cobalt cells in high-end electronics or from the automotive MNC cathode material parts? The second question I have is on the PGM metal situation. Are you now strategically hedging again at these levels or are you still leaving that aside? And my last question is a more technical one, if you could give us some guidance on full-year DMA, that would be much appreciated.

Marc Grynberg

Christian, let me start with the questions regarding battery materials and explaining what meant would be the price pressure in the automotive segment. There is, while I mentioned that we have a very strong technology position in that segment as far as cathode materials are concerned. What we see is that our customers, the battery makers are fighting like hell to win contract and to win new platforms at the OEMs and go quite low into the pricing of the battery in order to get these contracts of the applied parameter pricing strategies to get these contracts and of course when once they won the contract they have to make the batteries and the low prices that they offer to their customers mean that they end up putting a lot of pressure on their suppliers to try and avoid their margins to be squeezed to a level that would be totally unbearable or sustainable and to the all supply chain gets under pressure in order to meet these type of commitments.

I think this is typical of an application where cost has to come down in order to make application affordable in the absence of scale effects and should normalize once indeed scale effects can be attained. his being said, in the meanwhile, the growth -- the volume growth in battery materials comes mostly in the -- from portable electronics, the demand from the automotive applications while growing steadily remains modest in absolute terms because we’re starting from very low levels and in the high density of lithium cobalt oxide demand is today will be the main engine for growth and I expect that to be the case for still a number of month, if not quarters.

Filip Platteeuw

Yes on the hedging as you know we have a number of metal in our portfolio, you see also from the note in the report that includes PGMs, there is not fundamental change or no material change in the current hedge book I would say so we do have hedges for this year, for next year. It includes a number of metals including some PGMs but nothing significant in terms of change in the hedge book that we would want to signal.

And then on the full year, I think the last question was full year D&A if I understand it correctly. So on the full year D&A I would say we need to give the guidance I would say full year D&A €170 million. But again it depends a bit on strong when the installations exactly are commissioned and when they start producing 170 I would give us a guidance.

Operator

Our next question comes from Filip De Pauw of ING. Please go ahead. Your line is open.

Filip De Pauw – ING

Two questions from my side. The first question is on the performance materials division. There was already a question on the margins and I think we all understand that room to reuse costs further is becoming more limited. My question is, is it a fair assumption that there is quite a degree of operational leverage in that segment meaning that if and when volumes recover, there is still quite some room for higher margin in this segment? And then the second question is on working capital. It was quite a good performance in the first half of this year, part of that is due to working capital. My question is, is there an effect in there from lower metal prices and if yes, to what extent could we see some reversal of that in the second half of this year? And those are my questions.

Marc Grynberg

Filip, I have to say that the operating leverage is somewhat lower in performance materials than it is in some other divisions because we don’t have such a high level of fixed R&D costs or costs for the new development, new project start up et cetera. So I would say the operation leverage is somewhat lower. There is one and on the other side we do not bank of dramatic changes in volumes. I mean this is a business area that does not offer huge growth opportunities. I mean it's most of these businesses within performance materials typically move in-line with GDP. So there could be some further improvement in margins coming from growing improvements and further cost reductions but it's not -- you should not assume that this would be massive as far as working capital is concerned, Filip, you’re right to highlight in detail the first half year we have quite a release of working capital. Now that’s as always that’s a mix of different factors, you have some price effects, volume effects so it's always a mix but I would say just like in CapEx the first half year free cash flow indeed was relatively high so we do expect for the second half of the year indeed a lower free cash because on the one hand will have the higher CapEx and on the other hand we do expect an increase in the working capital again due to obviously the price of the metals but also some volume effects. So second half of the year we do expect an increase in working capital.

Operator

Our next question comes from Edward Donohue from One Investments. Please go ahead. Your line is open.

Edward Donohue – One Investments

Hopefully a couple of questions from my side. One thing I just wanted a better understanding was looking at the catalysis unit, to have an understanding what's going on with regard to your position in North America and in Europe looking at the auto volumes in the industry and which are roughly 5% in both areas and yourselves flat. Can you give some understanding what's actually going on and what could reverse that? And just looking at slide 11, there has been a constant growth in revenues and unfortunately the REBIT seems to be going the opposite direction. Again, what could be reversing that trend?

Marc Grynberg

Can you repeat the second part of the question?

Edward Donohue – One Investments

If you look at slide 11, you have your revenues continually growing, and if we actually look at REBIT, it's actually on a downward path and I'm trying to get an understanding what's going to reverse that bearing in mind that you still seem to lagging with regard to industry volumes and there is certain discussions with regard to a slight slowing of auto demand will stop into the second half and potentially the next year.

Marc Grynberg

So that’s regarding catalysis?

Edward Donohue – One Investments

Yes.

Marc Grynberg

Okay let me start with the second part of the question, in catalysis you have two business units, you have the large -- that is evolving positively both in terms of revenue and recurring EBIT and you have a relatively smaller precious metals chemistry activity that makes precious metal base compound that are used in automotive catalyst that you’ve chemical capitalist applications in large science, other chemical applications and revenues and the recurring EBIT of that activity were substantially down. So that’s not related to the emission control part of the catalyst and hopefully some of that is of temporary nature. Part of this is related to the weakness of the Brazilian economy, we have precious metal chemistry business (Technical Difficulty) and clearly the economic there has not done any good to that small.

Now coming back to the sales trends in catalysis, it is somewhat uncomfortable to have to comment on the quarterly or half yearly trends because you’ve short term move that’s in one direction that are going into the other direction of the quarter.

In a way once you have qualified for a certain engine platform your volumes will depend on how that platform (Technical Difficulty) and of course like any global sphere we have a complete portfolio of (Technical Difficulty) that the market average and in some other cases and some other times we move in-line with the market -- but not as good as the market. But that tends to change. If you look at the trends in the long term the market position stay relatively unchanged in the passenger car segment and this is what matters most to us because in a way when you qualify for a platform you have it for the lifetime of the platform which is 3 to 5 years and in the meantime there isn't much you can do to help the platform sell better than the average markets.

So that’s the generic explanation. Now in Europe we have some of these temporary effects and there is in particular some new Euro 6 contracts that we have in the pockets that will kick in the second part of the year and will rebalance our mix and help us grow a bit faster than the next time.

So number of temporary effects and in the past several years I have had the privilege that I could -- the comfortable position that I could comment on Umicore growing faster than the market and in the past couple of quarters it was the other way round and next year I would again tell you that we’re in line or operating faster than the markets.

Edward Donohue – One Investments

Okay. And if I may ask another question, it's on Hoboken, I just need a understanding of next year, now that you're going to go into the actual physical implementation of the upgrade program, how do you shoehorn an upgrade program into a maintenance period when you're doing the maintenance as well? Should we either see longer maintenance periods to allow you to do both activities or do we see more maintenance periods in normal -- I just -- not being an engineer and I apologize to how one conceptually sees that?

Marc Grynberg

Well, because we don't want to disturb the operations too much and we don’t want to lose too much volume, the idea is indeed to carry out the major piece of the investment project while the facility is down anyway for maintenance. If need be we extend a bit of the regular maintenance timeline so that we have time for both the regular maintenance operations and the additional investment work. Although in most cases these run simultaneously so it's not that we have to double the maintenance downtime. It's some additional days, sometimes a week or two additional time for the investment project but really these work simultaneously. And it requires of course in order to be able to carry out maintenance and investment simultaneously and such a complex facility.

You’ve months of engineering and planning work that are required in order to do that properly and during the downtime you see 100s of people on the sides during the construction or the maintenance or the modification works. So it's quite impressive.

Edward Donohue – One Investments

Okay. And my final question and I apologize if it appears rather pedantic, but looking at consensus prior to today, it was roughly round about €266 million your new guidance, if the market follows the same mid-path is roughly €272 million. That would imply H2 lower than H1 or am I missing something?

Marc Grynberg

No you’re not missing anything. We typically have some seasonality effect in certain units and that is the case in performance materials and energy materials in particular. And so that's the factor that has to be added to the acquisition to make the figures work.

Operator

Our next question comes from Evgenia Molotova from Berenberg. Please go ahead. Your line is open.

Evgenia Molotova – Berenberg

I have several. The first one is on -- the first two actually on catalysis. In HDD, do you expect the breakeven for the full year or because of the first half you will still expect to have negative EBIT in this division? Second, in light duty, as far as I understand the mix deterioration is caused by the fact that there are less, how to say, large engine-size vehicles being sold in both Europe and U.S., so where is your confidence coming from that this trend will reverse?

And then the question on the 15% ROCE target by 2015, because 2015 is the next year and you will still have quite sizeable CapEx and Hoboken will not yet be working at full capacity, so do you assume positive improvement in metal prices to reach to this target or not? And in, yes, I think this is basically -- yes, there is a last one on the rechargeable battery, I'm very sorry. So in electronics at the beginning, catalyst materials was also very profitable stream and then because of the competition between the producers and high commoditization rate, it became much less profitable. So it seems like competition between battery suppliers in EV is now also improving. So what gives you confidence that it will not follow the same destiny as electronic materials? Thank you.

Marc Grynberg

Evgenia I don’t remember having said that HDD was negative in the first part of the year.

Evgenia Molotova – Berenberg

No, no, you didn't, it's my assumption. You didn't, that's my assumption.

Marc Grynberg

Yes but that’s what I wanted to clarify because it sounded from the question that this was a given which it is not. So that’s your assumption and since I did not comment on the REBIT or the EBIT performance or contribution of the HDD in the past, I’m not going to start now. So suffice to say as I have mentioned in the recent communications that the contribution both to the bottom line and top line from the HDD ramp up will start to be visible in the second part of the year and will be far more meaningful in 2015 in-line with the rate at which we add capacity and ramp it up.

In LED, it is really the fact that we have I would say regardless of the sales trend which you described about the market. It is really the fact that we have a number of new contracts for platforms that we didn’t have in the past or in the recent past that gives me the confidence that our passenger car position in Europe will improve and/or growth will resume in that region.

Evgenia Molotova – Berenberg

And in North America?

Marc Grynberg

Well it the passenger car diesel business in North America is --

Evgenia Molotova – Berenberg

Yes, I know, I know. But, I mean, do you expect because you said that the mix deteriorated in North America. So do you expect this trend to reverse going forward?

Marc Grynberg

I don’t have a clear view on that because while in Europe as I mentioned this is my confidence and my view is based on the contract effects on the mix in America. I don’t see major changes in contracts and so it will depend on how the rate that we serve do sell in the marketplace. And as far as the return on capital employed is concerned. For 2015 I think it's too early to provide guidance as to the profitability of our operations next year suffice to say that for the medium term indeed. My confidence remains that we should achieve more than 15% ROCE whether it's already going to be the case in 2015 I think we will come into the picture a bit later once we have sufficient visibility to do that.

Evgenia Molotova – Berenberg

Do you expect some -- the goals, do you expect some improvement in metal prices or you think that even at current metal prices you can achieve this level of returns?

Marc Grynberg

Okay, sorry I missed that part of the question. We do not bank on higher metal prices to achieve 15% return on capital employed this should be achievable with the investments that we have made in the recent times and the positions that will offer us in certain segments like HDD battery materials et cetera and the expansion of the recycling activities. So we’re not banking on metal price improvement in order to get there and so if metal price do improve that would be an additional cherry on the cake.

And then your question about RBM as you’re pointing out this is a business that is moving very fast sometimes from high-tech to commoditization. So there is a constant need of developing new products, new technologies and constant need for investments. We see indeed pressure now in price pressure in the commodity segment for the reasons I mentioned but this is not related to commoditization and it is to the contrary related to the introduction of the new very expensive technologies in the market and the fact is that they are priced to do makes them not so competitive compared combustion engines. I mean electrified cars are more expensive than combustion engines than the cars with combustion therefore they are not necessarily affordable to the all consumers and so there is still quite an effort to be done in order to get there.

Now in terms of technology we’re not following a commoditization trend in automotive applications because there is still a lot of work to be done to make the batteries more efficient or to increase the performance of the batteries and that requires new material technologies to improve the energy density, to improve the power density as the case maybe. So there is still a lot of research and development work ongoing and what will really be a significant driver in the margins in that respect will be the volumes and scale effects that can be reached. You need to reach scale to absorb these very significant development cost and start-up cost for new technologies.

Operator

Our next question comes from Mutlu Gundogan of ABN AMRO. Please go ahead. Your line is open.

Mutlu Gundogan – ABN AMRO

First on automotive catalysts on HDD, if I remember correctly, you had said that you had expected this to become break-even at year-end, you now expect it to contribute already in the second half. Can you tell us what has changed or what has driven this positive development, if there is certain region that's doing better, it seemed that you were alluding to France, a bit more color will be helpful. Second, on precious metals chemistry, you talk about the start-up cost related to the new facility in Tulsa. Can you tell us if that is a large part that explains the decline in earnings or is it just minor? And then finally on precious metals refining, the preparatory work you talked about at the Q1 result and the testing work that had impacted the volumes, can you tell us how you are coping with that? Has -- are you able to better cope with that than you were in the first quarter? So what I'm actually getting at is has a negative impact of that on volumes differed from the second quarter versus the first quarter?

Marc Grynberg

I don’t recall I think I commented that precisely on HDD breakeven. So I cannot answer your question about what has changed because I don’t think I have changed my views and remarks in that respect. For PMC for precious metals chemistry, the main impact to the degradation and the results is the economic downturn in Brazil and to a lesser extent the start-up cost of the new facility in Tulsa.

So the main factor is the Brazilian economy and the impact it has had on our operations there. And then regarding the engineering and testing work, it's difficult to compare H1 and H2 in that respect because in a way we’re now in the heart of the matter and are in the execution phase, have moved into the execution phase of the expansion project while in the first part of the year we were not and that’s why this was really the engineering and testing work. It interfered with production while now we conduct the investments during the downtime as I mentioned earlier.

So it's really difficult to compare and again what I can say that is we hope that the throughput improvement that the modifications are supposed to bring after we restart the facility in the summer, it will help us to make up for some of the lost volumes because of the extended downtime

Operator

Our next question comes from Oliver Reiff of Deutsche Bank. Please go ahead. Your line is open.

Oliver Reiff – Deutsche Bank

Just one question from me to clarify an earlier answer. Can I ask if you have any greater visibility on the likely size or impact of the maintenance required to Hoboken in 2015 relative to what you are doing in 2014? Thanks.

Marc Grynberg

Oliver unfortunately it's too early to tell because like for the volume or either the capacity questions I have to figure out how the facility performs after we restart it and considering the modification that we’re doing now and because that will determine the timing of next maintenance shutdown. So it's really too early to tell the timing of the duration, sorry, of the next maintenance shutdown. I’m afraid I can’t.

Operator

Our next question comes from Wim Hoste of KBC Securities. Please go ahead. Your line is open.

Wim Hoste – KBC Securities

Two questions from me. First, your thoughts on the buyback continuation and the canceling of shares, I previously assumed that you had a large treasury share portion, could at some point be used maybe for an acquisition. Has your thoughts on acquisition changed now that you made a decision to cancel a large part of your treasury shares? That is the first one.

And the second question is on energy materials. First quarter revenue was up pretty big over 20%, first-half revenue was up 12% suggesting lesser second quarter performance. Could you maybe clarify what is behind the difference in trends? Is it the erratic quarter patterns you sometimes refer to in rechargeable battery materials or are there other elements explaining the big difference in top line performance in your first and second quarter?

Marc Grynberg

On the buybacks nothing really has changed I mean you’re right that we always mention that the treasury shares can potentially be used to for an acquisition. We’re close to the 10% so I think it's fair that we give an indication of what we will do with the treasury shares and so when we go for the cancellation, if one day there will be an opportunity, a very sizeable opportunity that would require us to raise capital I think we have the excess to the capital markets to do that. So we’re not really relying on those shares and obviously today this is not on the agenda. So no real news, it's just that we’re reaching the 10% as mentioned we want to create the flexibility to continue with the buybacks and that’s why we go for the cancellation.

And let me then talk about the energy materials growth patterns, it is somewhat erratic indeed but I’ve to say that Q1 was exceptionally high in terms of growth because normally there is a seasonal downturn in demand for battery materials for cathodes in the first quarter of the year and so that’s the trends or the patterns we have seen in prior years and which we have not seen this time around. So the Q1 levels were very high relative to Q1 of 2013 so that’s the main reason why you’ve this difference in growth patterns between Q1 and Q2.

Operator

Our final question today comes from Denis Lepadatu of Kempen. Please go ahead. Your line is open.

Denis Lepadatu – Kempen

I only have one follow-up question. I was wondering if you could give some indication whatsoever based on what you know now and based on your base case for the expansion work to be undertaken at Hoboken if we can see given current metal prices any increase in recycling profit in 2015, taking into account the throughput -- the potential throughput improvement?

Marc Grynberg

Well I think that although I don’t like to comment on 2015 figures, if you extrapolate what I said about the fact that we expect throughput improvement from the modifications that we’re doing today and considering that in the first half we had some constrained capacity for the reasons that were also discussed. Indeed if you extrapolate that you should be able for those as well to process more volumes on a full year basis in 2015 compared to this year and if metal prices stay where they are, that should look good.

So at this stage I understand we have no other questions in the queue, is that correct Eva?

Operator

That is correct. We have no further questions at this time in the queue.

Marc Grynberg

So very good. At this stage then I would like to close the call and thank you all for your participation and active questioning. Of course as usual if you have follow-on questions please feel free to get in touch with our investor relations team and we would have the chance of meeting in the coming days, Filip and I with most of you I believe in Brussels or in London and we look forward to continuing the discussions on that occasion. So thank you. Have a nice rest of the day and talk to you soon. Bye.

Operator

Ladies and gentlemen that will conclude today’s conference call. Thank you for your participation. You may now disconnect.

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