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Economic review

Profits were lower due to the effect of lower metal prices on recycling margins as well as mix effects and investment-related costs

While some businesses started to show signs of recovery during the year, this was not enough to offset the impact of lower metal prices on recycling revenues and margins. Earnings were lower year-on-year due to a combination of this metal price effect, mix effects and higher costs linked to our Vision 2015 growth initiatives. Some business units did see profitability recover somewhat as a result of the benefits of selective cost reduction measures taken in previous periods as well as in 2013.

From a financial perspective Umicore’s position remained very strong. Cash flows were strong and we were able to reduce net debt further, even after a buying back more than 2% of our own shares during the year and making an acquisition.

Revenues, earnings & returns

Revenues were down 2% compared to 2012, reaching € 2.4 billion. An increase in Catalysis and Energy Materials was more than offset by a decrease in Recycling.

Turnover (which includes metal values) was 22% lower year-on-year. This was due to the significant decrease in the prices of most precious and specialty metals from the second quarter onwards. For Umicore, revenue is a more meaningful metric of “top-line” performance than turnover as it excludes the price of metals passed through to customers.

Recurring EBIT was 18% lower than in 2012 at € 304 million. This primarily reflected the impact of lower precious and specialty metals prices and this effect was most pronounced in the second half of the year. Some of our activities felt the effects of a less favourable product and regional mix while others saw profitability recover somewhat as a result of the benefits of selective cost reduction measures. In Catalysis, recurring EBIT was 19% lower as a result of a less favourable mix as well as higher costs related to the start-up of new growth investments and additional depreciation charges. Revenues in Energy Materials grew strongly, driven by the increasing sales of materials for use in rechargeable batteries. Recurring earnings in Energy Materials recovered largely as a result of the cost reduction programmes that had been implemented from 2012. In Performance Materials, although revenues were down 3%, recurring EBIT was at the same level as 2012 with the benefits of cost reduction measures counterbalancing the economic headwinds experienced by several business units. Recycling revenues and recurring EBIT were down 13% and 23% respectively as a result of a sharp drop in metal prices. Lower demand in certain end-markets of Jewellery & Industrial Metals and a lower contribution from its recycling activities also had a negative impact on revenues and performance of the business group. Net recurring corporate costs were at roughly the same level as those of 2012 at € 48 million. For a full discussion of segment economic performance see the business group review.

Non-recurring items had a negative impact of € 43 million on EBIT. Restructuring charges accounted for € 31 million, the majority of which related to the closure of Element Six Abrasives’ plant in South Africa and the closure of Zinc Chemicals’ plant in Melbourne, Australia, as well as the implementation of cost reduction measures in Building Products. Umicore also booked environmental provisions of € 8 million related to the remediation of historical pollution on site surroundings. Impairments on permanently tied-up metal inventories, resulting from lower metal prices, accounted for € 2 million. The impact of non-recurring charges on the net result (Group share) amounted to € 39 million.

Depreciation charges on property, plant & equipment and intangible assets totalled € 159 million compared to € 152 million in 2012. This was due to the completion of more new growth investments in 2013. Overall recurring EBITDA decreased by 12% to € 463 million.

Average capital employed was slightly above the levels of 2012 with higher fixed assets more than offsetting the effects of lower working capital requirements. Umicore generated a return on capital employed (ROCE) of 13.6% compared to 16.7% in 2012. This was below our Vision 2015 target of generating a return on capital employed of above 15%.