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 CEO & Chairman’s review

Umicore Chairman, Thomas Leysen and CEO, Marc Grynberg look back on 2013 and give their view on the prospects and priorities for 2014 and beyond.

As we anticipated this time last year, 2013 turned out to be a challenging period for several of Umicore’s businesses. We generated a recurring EBIT of € 304 million, which was some way below the record profits we generated in 2011. The main reasons for this decrease were the impact of lower metal prices and the sluggish economy in Europe. The metal price tailwind of the last few years turned into a headwind, reducing the profitability of our Recycling activities. Despite this, the Recycling activities continued to produce by far the most significant level of returns of all our businesses. In Catalysis, a less favourable product and regional mix in addition to higher start-up costs continued to impact profitability. The results of Energy Materials improved from the lows of 2012 while Performance Materials overall posted a robust performance, considering an economic context that remained highly challenging. The difficult but necessary cost reduction efforts initiated in 2012 and continued in 2013 helped to improve our competitiveness and profitability in a number of business units.

In 2013 we continued to invest strongly in our Vision 2015 growth initiatives. We spent € 280 million on capital expenditures with a clear emphasis on those businesses offering the highest growth potential. In Catalysis we continued to deploy new production infrastructure to enable our customers to meet more stringent emission norms around the world. These investments included new production lines for heavy duty diesel catalysts and technology development centres in Japan and South America. In Energy Materials the focus was on a further expansion of production capabilities for rechargeable battery materials to cater for emerging demand in automotive applications. In Recycling a series of investments in the Hoboken facility neared completion and we announced a major project to expand the capacity at the plant which should receive final approvals in the course of 2014. We also continued to invest strongly in research and development programmes, although the absolute level of spending was lower than the previous years as some of our key projects are moving to a commercialization phase. While these investments confirm the confidence we have in our growth prospects, they also placed a burden on short term financial performance through increased depreciation charges and start-up costs.

Operational cashflows remained very positive during the year. Despite the high level of investments that we outlined above and paying for a medium-sized acquisition in the Energy Materials business, we were still able to show a year-on-year increase in net cashflow before financing. We continued to buy back our own shares during the year and returned some € 85 million to shareholders in the process. The Board of Directors has recommended a stable dividend pay-out of € 1.00 a share which represents a dividend yield in excess of 3%. Together the buy-back and proposed dividend represent a return to shareholders of close to € 200 million for the year.

The continued ability of the business to produce these strong cash-flows means that Umicore’s financial position remains very solid. Notwithstanding the lower earnings and high level of investments, net financial debt decreased further in 2013. This will allow us to continue funding our various growth projects and also provides us with the financial flexibility to look at larger acquisition opportunities should they provide a compelling strategic fit and, of course, be available at the right price.

In terms of sustainability performance we again made good progress. On the environmental front we further reduced our CO2 emissions compared to the baseline year. The most significant part of the improvement is sustainable and is the result of targeted energy efficiency measures that are now bearing fruit. Although metal emissions to air and water increased, largely as a result of increased activity levels, the overall environmental impact of these emissions is still well below the challenging targets that we have set ourselves for 2015. In terms of product sustainability we have now conducted sustainability assessments for a broad sample of our products and services. The challenge in the coming years will be to harness the results to generate value for our customers and to provide a more complete view on our sustainability contribution as a Group.

Our initiatives to promote sustainability in the supply chain moved to another level. We attained conflict-free smelter status for our main recycling operations with other activities scheduled to be certified during 2014. We also continued to deploy our own Sustainable Procurement Charter to our suppliers with over 1,000 key suppliers having signed up to the charter by the end of the year. Although engagement with some suppliers to address areas for improvement is, in some cases, a difficult and complex process we are pleased with the overall level of progress made.

We also continued to make strides in being recognized as a great place to work with the vast majority of our employees now working in sites that have received preferred employer recognition. We will conduct the next edition of our employee survey in 2014 and this will provide a barometer of the progress that we’ve made since the last survey in 2011 and will also give us an indication of where we can make further improvements. Our efforts in the area of employee health – particularly in the area of workplace exposure to metals – also made excellent progress in 2013.

Umicore’s safety performance in 2013 improved further with the number of accidents dropping by more than a quarter and the vast majority of our operations ending the year accident free. The tragic accident in Olen in January 2014, in which two of our employees lost their lives, has removed all satisfaction that we had derived from these improvements. We have started an initiative to intensify the focus on process safety company-wide and we are adamant that the necessary lessons will be learned from the accident. Wherever needed, improvements will be made to further reduce the risk of a similar accident happening in future, either in Olen or elsewhere in Umicore. More than ever we remain committed to our goal of making Umicore a zero accident workplace.

Looking forward to 2014, there are positive signs but uncertainties remain. There are indications that some of our key markets are starting to show signs of recovery and the European economy has recently moved out of recession and is expected to grow modestly. Many of our businesses are set to benefit from this trend and are better positioned from a competitive perspective than before the economic crisis. In addition, a number of recent investments will start their contribution to Group revenues and earnings. Conversely, the global economy remains in a state of flux and the impact of shifting monetary policy on emerging market growth has recently become an area of attention. It remains to be seen how all these factors will play out on metal prices.

In the 2014 outlook that we gave in February we indicated that full year recurring EBIT could end up slightly below that of 2013 if current metal prices persist. While we expect a definite improvement in the performance of our product businesses, this may not be sufficient to fully offset the impact of lower metal prices on the profitability of the Recycling business group.

The longer term prospects of Umicore are sound and well recognized. We have the financial strength, the products, the technologies and the people to succeed. By focusing on the right priorities, 2014 will bring us closer to realizing our Vision 2015 objectives. Our ultimate aim is to deliver on these objectives and to improve our performance from one economic cycle to the next. It’s not a question of focusing on either long term growth or managing the current economic conditions capably – to succeed we must do both.

We would like to take this opportunity to extend our thanks and appreciation to Umicore’s employees for their commitment in 2013, to our shareholders for their continued support and to our customers, suppliers and other business partners for their continued loyalty.