Umicore SA
XBRU:UMI
Earnings Call Analysis
Q2-2023 Analysis
Umicore SA
In the face of a less favorable precious metal price environment and low macroeconomic growth, Umicore has maintained robust margins in the first half of 2023. The company recorded group revenues of EUR 2.1 billion, consistent with the past two years, which is indicative of its resilience amidst challenging market conditions. Moreover, Umicore upheld a solid adjusted EBITDA margin of 25.1%.
The Catalysis division has outshone with an exceptional performance in H1 2023, marking increased revenues and better margins due to operational efficiency and higher automotive market volumes, particularly in Europe. Automotive Catalysts saw sales and volume growth over the previous year, while the Heavy-Duty Diesel (HDD) segment experienced significant production increases across China and Europe.
Energy & Surface Technologies, despite additional spending on growth and R&D, matched its revenues and earnings from the prior year. Significantly, Rechargeable Battery Materials (RBM) exhibited a stable performance and is set to escalate volumes towards the end of 2023 and into 2024.
The Recycling business group proved robust in operation although it was against a backdrop of declining precious metal prices, particularly rhodium. Cobalt & Specialty Materials faced demand slowdown and price decreases for cobalt and nickel, while Metal Deposition Solutions saw a small drop in revenues and Electro-Optic Materials increased its revenues over the first half of 2022.
Umicore demonstrated fiscal prudence by maintaining a leverage ratio of 1.3 times the last 12 months' EBITDA. Adjusted net profit was at EUR 233 million, a decline from last year's EUR 321 million due partly to a lower adjusted EBIT, but the company generated a free operating cash flow of EUR 60 million for the first half of the year.
For the full year 2023, Umicore provides guidance for adjusted EBITDA to be in the range of EUR 960 million to EUR 1,020 million. This outlook signifies a performance in sync with the solid first-half results and ongoing strategic initiatives.
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Thank you for standing by. My name is Deb, and I will be your conference operator today. At this time, I would like to welcome everyone to the Umicore Half-Year Results 2023 Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. [Operator Instructions] Thank you.
I would now like to turn the call over to Mathias Miedreich, CEO; joined by Wannes Peferoen, CFO. Please go ahead.
Thank you very much, and a very welcome and good morning to everybody so close in front of August and probably holiday seasons for some of us. I'm welcoming you to the presentation of our results for the first-half of 2023. And I'm here today, as has been said already with our CFO, Wannes Peferoen, who will give us the details of the financials, while I will go over through the general presentation of the business.
And with that, before going into Q&A, we will walk you through this presentation, as we said, focusing on the highlights of the first-half of 2023, the business and financial review and, of course, the outlook for the rest of the year. And then, as usual, we go into Q&A.
So first, let's talk about the highlights. Our margins continue to be strong in the first-half of 2023, despite a less favorable precious metal price environment, low macroeconomic growth and still impact of cost inflation. The group revenues for the first six months amounted to EUR2.1 billion, in line with the levels achieved in the first-half of '21 and '22, demonstrating business resilience in the context of challenging market conditions.
The group's adjusted EBITDA margin amounted to 25.1% were in line with our 2030 RISE ambition, where I remind you, we have said we will consistently be over 20%. And our balance sheet continues to remain strong with a leverage ratio of 1.3 last 12 months EBITDA.
I will come back to the performance of the business groups a little bit later in the presentation in more detail, but already a brief summary, Catalysis delivered another outstanding performance as we had planned, recording revenues and earnings above the levels of the first-half of 2022. E&ST, Energy & Surface Technologies did as well develop as anticipated and with that is on track for the significant growth of RBM and Recycling posted a strong operational performance in the context of declining PGM prices. It is now one-year since we have introduced our 2030 RISE strategy, and we continue to make progress on different fronts also in H1 of this year.
Let us start with growth. We continue to have traction in closing value-creative contracts for RBM, as well as gaining further market share in Catalysis. And coming closer now to 2024, we fully confirm the significant volume ramp-up, let RBM will see and that we are well prepared to master. In addition, we have confirmed as we think our position as technology leader. One example is our new solid-state battery material prototyping center that is one of its kind and give us significant advantages in development speed and time to market for solid--state battery technologies.
And other examples are the strongly increased customer engagements on our HLM technology, with now 12 projects in A and B sample phase, confirming our own conviction on this technology, as well as the gaining market conviction on HLM.
And then finally, in terms of governance, we will align our organization and reporting structure even better to our growth path, and I will come to that in more details in a minute. We have completed the Management Board with a Chief Technology Officer and EVP, People and Organization. And at the level of the Supervisory Board, we have created two committees, the Investment and Sustainability Committee.
So since the introduction of our 2030 RISE strategy in June of last year, we have continuously strengthened our governance and organization to support our growth plans towards 2030 in the best way. And we are continuing to do so by creating two new positions in our Management Board, reflecting the importance of people, talent, technology and R&D for Umicore.
And for this, we have appointed first of all, Ana Fonseca Nordang to take the role of Executive Vice President, People and Organization from September 1st. Ana brings over 20-years of international experience in various executive human resources roles spending a large part her career at Equinor. And Ana will continue to ensure together with us, the other Management Board members that the people strategy is kept at the heart of Umicore's thinking and planning going forward.
As already announced in May, Geert Olbrechts will join the Management Board as of August 1 and become EVP and Chief Technology Officer of the group. He has began his career at Umicore already in 2000 and currently serves as SVP, Research and Technology and Supply at our Automotive Catalyst business unit and in his new function, he will drive technology and innovation together with the other stakeholders of the group.
In addition to the completion of the Management Board, we will also implement an enhanced organizational structure as a consequence and in support of the significant growth ahead, especially in Rechargeable Battery Materials. So what we know as RBM today will be organized and individually reported as a new business group, Battery Materials led by Ralph Kiessling, who is currently the EVP, Energy and Surface Technologies. And this setup would provide the needed focus and structure as we think to support the anticipated strong growth of the material -- Battery Materials business and would provide. And that's also important additional transparency and insights into the business group's performance going forward.
The business units, Cobalt and Specialty Materials, Electro-Optic Materials and Metal Deposition Solutions now part of E&ST, Energy & Surface Technologies, will be grouped in a new business group under the leadership of Geert Olbrechts as a responsible EVP and the external reporting according to this new organizational structure will be implemented as from the fiscal year 2024, meaning as from next year.
Let's now turn to the business review and go more detail on the underlying trends of the markets of our different business groups, starting with Catalysis. The first-half -- when we look at the automotive markets, first, the first-half of ‘23 saw an upward trend in global ICE, internal combustion engine car production in comparison to a weaker first-half of 2022, enabled by a recovery of the global automotive supply chains and unlocking basically the production capabilities of the OEM’s gasoline and diesel light-duty production was, in particular, well up in Europe, North and South America and India, while China production volumes remained broadly flat versus the previous year.
The HDD segment recorded also a significant increase in production, driven by strong growth in the Chinese, as well as the European market in this regard. In front of this backdrop, Catalysis posted again an outstanding performance in H1 of this year with increased revenues and margins enabled through continued work on operational efficiency, as well as by the increased volumes in the automotive market, as we have just covered.
In Automotive Catalysts, sales and volumes are up versus the previous year. The business unit was especially strong in the European market, outperforming passenger car, as well as in the HDD, heavy-duty diesel segment and with that, increasing market shares further in that region. Precious Metal Catalysts, PMC performance was in line with last year was H1 '22, while the business unit Fuel Cell & Stationary Catalysts had very good traction in securing business for PEM electrolysis catalysts now already representing about 10% of the total revenues in the fuel cell and hydrogen segment of Umicore.
Now, moving to Energy & Surface Technologies. In Rechargeable Battery Materials, revenues and earnings are in line with previous year despite an increased spending on growth preparation and R&D still including a remaining positive effect from this year. RBM is continuing to progress in the execution of the 2030 RISE strategy. The business unit has now several long-term value-accretive customer partnerships and contracts with car and battery OEMs in place.
And as we have communicated previously, we expect that these contracts will now result in a significant volume increase from 2024, actually, already starting at the later end of this year. In Cobalt & Specialty Materials, a slowdown in demand as we also had reported before, impacted performance, as well as the decline in cobalt and nickel prices compared with an exceptionally strong H1 2022. And finally, in Metal Deposition Solutions revenues were slightly down compared to H1, while revenues in Electro-Optic Materials were up versus H1 2022, reflecting strong customer traction.
So last but not least, let us move to Recycling. First of all, I propose to have a look on the market context, in this case, the precious metal price environment. And as we can see, on this slide, the first-half of this year was marked by a very volatile and also decreasing PGM price environment. This was particularly the case for rhodium, where the average price in H1 ‘23, nearly halved, compared to the average price in H1 of the period -- in the previous year, H1 2022.
In this challenging context, the Recycling business group continue to deliver a strong operational performance in the first-half of '23. The business group recorded revenues of EUR536 million in line with the level achieved in the same period of the previous year with a strong performance of Precious Metals Management, which benefits by nature of their business model benefiting from a volatile metal price environment, compensating lower revenues in the other business units. A dedicated operational excellence program has been started in the parameter of Recycling in order to further improve competitiveness and to reduce operating cost and Wannes will give some more flavor on that in this section.
And having said that, I will give now the floor to Wannes to comment on the financial aspects of our H1 results.
Thank you, Mathias, and good morning to everyone. As shared earlier by Mathias, and again, challenging market conditions, the group was able to demonstrate a solid financial performance during the first-half of the year. Revenues reached EUR2.1 billion, which is in line with the same period last year despite a less supportive precious metal price levels. The revenues in Catalysis increased in line with the market growth.
In Energy & Surface Technologies, revenues declined, primarily due to the Cobalt & Specialty Materials unit. In Recycling, revenues remained stable year-over-year with an exceptionally strong Precious Metals Management unit compensating for the decrease in the other units.
The adjusted EBITDA amounted to EUR519 million in the first-half of the year versus EUR601 million in the same period of last year. In Catalysis, EBITDA increased, thanks to the volume growth across the different regions and segments and a further increase in operational efficiencies. In Energy & Surface Technologies, the EBITDA declined year-over-year as anticipated.
While earnings were stable year-over-year in Rechargeable Battery Materials, Cobalt & Specialty Materials was impacted by less supportive cobalt and nickel prices and a lower demand due to the destocking in the supply chain. In Recycling, the EBITDA was negatively impacted by the combination of both lower PGM price levels and the year-over-year cost inflation.
Early this year, we launched a major operational excellence program in our largest recycling facility in Hoboken, which also started to generate savings and will gradually offset the increase in payroll and energy costs in Belgium. The program includes the use of automation and digitalization, as well as lean methods to improve the operational performance and initiatives range from automation of the sampling activities to automation of the loading and unloading of process steps to the optimization of maintenance and downtime cycles.
Now, moving to the adjusted EBITDA margin. The group reached an adjusted EBITDA margin of 25.1%, which reflects the overall strong performance. Across all business segments, the adjusted EBITDA margin remained well above the RISE 2030 target of 20%. The ROCE for the group amounted to 15.2%, which is well above our cost of capital.
The adjusted net profit, group share amounts to EUR233 million for the first-half of the year versus EUR321 million previous year. The decrease in adjusted EBIT resulted in lower tax charges, while the financial cost somewhat increased. I'll come back later to the cost of financing. The free operating cash flow generated in the first-half of the year amounts to EUR60 million.
Now, let's move to the next slide where we can have a deeper look into the cash flow movements from operations. As you can see in the top graph, the operating cash flow after changes in working capital, the dark blue line remains solid at a level of EUR409 million. The net working capital for the group increased slightly with EUR26 million. In Catalysis, strict inventory management, combined with declining PGM prices helped to substantially reduce net working capital, even though volumes were up.
In Energy & Surface Technologies, net working capital increased somewhat anticipating the volume ramp-up towards the end of the year. At current metal prices, we expect net working capital to remain more or less stable in the second-half of the year.
In the bottom graph, you can see the capital expenditures, including capitalized development expenses. That increased to EUR349 million in the first-half. Energy & Surface Technologies accounted for more than two-third of the group's CapEx, driven by the expansion of the European footprint in Rechargeable Battery Materials. We anticipate that capital expenditures will increase up to EUR800 million for the full year, which is in line with current consensus.
As I mentioned earlier, the free operating cash flow for the group amounted to EUR60 million, meaning that the expansion of Rechargeable Battery Materials is entirely supported by the free operating cash flow generated in Catalysis and Recycling.
CapEx discipline continues to be a key focus area in the group with the necessary governance and business unit, corporate and board level. New expansion programs remain conditional upon concluding long-term value-creating agreements with our partners with the necessary margin protection measures.
Now, let's have a look at the net financial debt position and the leverage ratio of the group. At the end of June, the net financial debt of the group amounted to EUR1.4 billion. Considering the leverage ratio of 1.30 times last 12 months adjusted EBITDA, the group continues to stay well within investment-grade territory and continues to have a strong balance sheet. In January, the group has drawn the fence of the sustainability linked U.S. private placement notes for a total of about EUR500 million.
The average cost of gross debt now amounts to 3.23%, which is 57 basis points up from last year. The cost of debt is expected to remain well under control, given that the average maturity of the group financial debt is close to five years, and there is no major refinancing needs before ‘25.
As illustrated in the bridge, net financial debt increased to EUR287 million versus end of last year. Next to generating a free operating cash flow of EUR60 million, we financed approximately EUR350 million related to taxes, dividend, net interest and also EUR79 million equity injection into our joint venture with PowerCo. Towards the end of the year, we expect net financial debt to remain roughly in line with the levels seen at the end of June.
I would like to conclude the financial review by reminding you that in line with our dividend policy, an interim dividend of EUR0.25 per share will be paid on August 22.
And here, I will give the floor back to Mathias, who will share the outlook with you.
Yes. Thank you very much, Wannes. So as Wannes just said, the outlook and the guidance for 2023. For Catalysis is expected to continue to benefit from a strong market position in gasoline catalyst applications and a further gradual recovery of the Chinese heavy-duty diesel market. In this context, adjusted EBITDA in 2023 is expected to be somewhat above the levels of 2022. Revenues and earnings in the second-half of the year are, however, anticipated to reflect the lower PGM price environment as just discussed versus the first-half across the business units.
In E&ST, Rechargeable Battery Materials, 2023 adjusted EBITDA is anticipated to be above the level of previous year. Considering the normalized performance of Cobalt & Specialty Materials in 2023 compared to the exceptional profitability in 2022, adjusted EBITDA of the business group in '23 is anticipated to be somewhat below the levels of 2022.
And in Recycling, the performance of the business group is expected to reflect the decline in PGM prices and a related, less supportive supply environment for PGM-rich recyclables. And assuming current metal prices were to prevail and considering the current outstanding strategic metal hedges, it is expected that the 2023 adjusted EBITDA of the business group will be below the level of 2022.
However, still well above historical pre-2020 levels. Revenues and earnings in the second-half of the year are also anticipated to be below the levels of the first-half, also reflecting the further recent decline of PGM prices. So altogether, summing it up, based on the solid performance of the first-half of the year and assuming precious metal prices remain at current levels for the remainder of the year and all else equal, Umicore expects its adjusted EBITDA for the full-year ‘23 to be in the range of EUR960 million to EUR1,020 million. So this was the guidance.
And before we go into the Q&A session, I just wanted to wrap up our short presentation. So if you would only remember three things from our today's presentation, and it would be the following three points. First of all, Umicore showed a resilient business performance in H1 despite a difficult market environment. Secondly, for the full-year of 2023, as I have just said, the adjusted EBITDA is expected to be in the range of EUR960 million to EUR1,020 million. And third, we are actively progressing in the execution of the 2030 RISE strategy, also by aligning our organization, governance and reporting structure to the expected growth forward.
And with that, we would like to conclude our presentation, and I'm more than happy to receive your questions.
[Operator Instructions] Your first question comes from the line of Ranulf Orr from Citi. Please go ahead.
Hi, good morning, everyone. Thanks for taking the questions. Three from me. So firstly, on RBM, you confirmed the volume ramp-up from growth acceleration for next year, but how should we think about EBITDA? Should that follow that? I think consensus is around 24% growth in for the ST EBITDA next year. Are you kind of comfortable with that level of growth?
Secondly, how should we think about free cash flow in the second-half, given the continued rapid PGM price declines? And thirdly, just an update on the Canada plant, please and where you are with that?
Yes. Very good. Let me give you the first and the last, and Wannes will talk about the cash flow. So, indeed, for RBM, we expect volume to increase. We also expect EBITDA to increase next year significantly. However, it is expected to be not following the same way the volume increase, because we're still in the ramp-up phase and we're investing into further growth. But the answer is, yes, you will see an EBITDA increase next year.
Now, on the Canada side, I can confirm that our plan is fully on track. And the plan, I remind all of us, we have said that we will start construction within this year. This is all aligned going forward and we are negotiating the different contracts on the different fronts on the customer side, but also with the authorities. And we'll come back to you in due time once those are finished. And as you know us from previous contracts, we take a lot of emphasis on quality of contracts and of value creation. So that's why we take the time that is needed to do that, but I can confirm we are on track for what we have said before in terms of timing and start of the activities.
And then third question to Wannes in terms of cash flows.
So in terms of cash flows, first of all, if you look at Catalysis, looking at the PGM price level, which is under pressure, this is, as you can expect, also creating pressure on the EBITDA. At the same time, I think Catalysis were able to accelerate freeing up of cash flow from the inventory, from the working capital. So the latest forecast is that, from Catalysis, we still expect to generate EUR3 billion of cash flow until 2030.
And then looking at Recycling, this is where we also have hedges in place to a certain extent, which also support the cash flow generation going forward.
Okay, thank you.
Your next question comes from the line of Sebastian Bray from Berenberg. Please go ahead.
Hello, good morning and thank you for taking my questions. I have two, please. Firstly, I may have misunderstood how these segments -- the subsegments of Energy & Surface Tech are being structured. But to me, it looks like there’s Rechargeable Battery Materials and everything else. Within the everything else category, if we take the examples of Metal Deposition, Electro-Optic Materials and so on, are those parts of Umicore core? Or are there a potential source of funding for expansions in cathode material later down the line?
And my second question is just on Recycling hedges. The business beat consensus expectations slightly in H1. I'm wondering how much of this metal exposure that we've got going into H2 and to ‘24 is spot? Because Umicore has previously given some indication of how much is hedged in the past.
Thanks, Sebastian. Very relevant question. So let me answer the first one. So, indeed, let me reconfirm. So the new organizational structure we will have and report in four business groups, no change on Catalysis and Recycling. There will be one single business group that is basically the scope what we call RBM today. So we will report the Battery Materials business on the level of business group. And then we have the fourth business group that is housing Electro-Optic Materials, Metal Deposition Solutions and CSM, Cobalt & Specialty Materials.
Now, I have to say that all of those business groups and the business units are part of our integrated business model, and we consider them indeed as core because the underlying threat of metals of recycling and circularity and of the metals business model that we are running, they are all part of that and will help us to drive forward.
And if you remember what we had explained in the RISE 2030 strategy, we basically have categorized our businesses in 4 categories, the one that are strongly growing, the one that provides cash flow and the one that I would consider more specialty or advanced material businesses that probably don't have such a big growth market in front of them, but are very profitable and very high ROCE businesses. And with that, we all -- we consider all of them as core for Umicore.
Now, on the hedges, I hand over to Wannes.
Yes. So looking at Recycling at the performance in H1, the first-half, as I mentioned earlier, we had an exceptionally strong performance in Metals Management on the back of the volatility in precious metals prices. So this supported definitely the performance in H1. Looking at the hedges at the start of the year for rhodium, in particular, we were -- we had hedged about, let's say, 25%.
Now, moving into the second-half, we are at a higher rate. So about two-third of the volume exposure for the second-half is hedged. At the same time, you also need to know that the average price of rhodium over the first-half is still substantially higher than the spot price of rhodium today. So there is that impact that we also expect in the second-half.
Now, moving into ‘24, this is where the hedges of rhodium are today at the level of around one-third, I would say.
Thank you. That’s helpful.
Your next question comes from the line of Riya Kotecha from BofA Securities. Please go ahead.
Hi, good morning. Thank you for taking my questions. I have three questions, please. My first one is about utilization at different battery plants regionally going into 2024. Aside from the new contracts to ACC and the China battery OEM, any other incremental volumes we should be thinking about?
My second question is that, a peer recently announced the capacity increase to 1 million tonnes, citing that this decision was in part taken to uphold his 20% market share target. At the Capital Markets Day last year, Umicore too mentioned that it has a 20% market share target. As such, should we expect the company to also increase its capacity by 2030 to uphold this? Or is there a risk that if industry growth is more rapid than Umicore that this market share target is pared back?
My third question is on cash flows. The FCF was particularly weak given the sharp decline in the PGM price in the second quarter. So can you give some more color on the moving parts of the working capital and timeline on expectations of the unwind? And if cash conversion remains weak, does this have an impact on the financing options in RBM? And more widely, can you give us an update on financing here and the carve-out as well?
Thank you, Riya. Very important question. So number one, regarding the utilization of next year. So, I would say that, in order of utilization, the Korean plants, obviously, will be the ones that will have the highest utilization rate, because of the existing business, but also of the incremental ones. We have then China, where we had said that already end of this year, we can start with the new Chinese contract that we have secured and that will significantly increase the utilization of -- in China.
And then in Europe, in Nysa, actually, we are starting one a very significant project next year, SOP, which is the ACC business that will be SOP in Nysa that will come on top of the current activity. So we can see also an increased utilization here.
Now, in terms of the second question in terms of the capacity announcements and market share consequences and what we would do about it. I want to rephrase our point of view on that. So when we had communicated our ambition in the RISE strategy, we have said that we have an ambition towards 2030 in terms of capacity and market share based on value-creative contracts. And for us, the first priority are the value-creative contracts to close them and to come to the goal that we have pronounced.
Now, that goal is not to follow every announcement of other competitors in terms of capacities. For us, the only thing that counts are contracts. Capacity per se is not valuable for a company. It's only valuable if you can fill it. So what we are doing, we are progressing towards 2030. We are continuing with our contracts. We have had good traction, and we are also looking forward to some good traction on that front. So no, there's no change in our end on our conviction and plans with regards to the RISE 2030 targets.
And then finally, cash flow, I will hand over to Wannes.
Okay. So looking at some of the dynamics in the working capital as explained earlier, in Catalysis, this is where we have been able to reduce substantially the inventory in the pipeline. So looking at buffer inventory, but also scraps and so on. So that has substantially increased the cash conversion cycle in Catalysis. Looking at Catalysis, Catalysis has been able to create over EUR0.5 billion of free cash flow in the first-half.
Looking at E&ST, as I explained earlier, this is where we are anticipating some of the volume growth in the second-half and where the inventory has gone up somewhat in preparation of the volume ramp-up. At the same time, we also expect that it will, again, somewhat go down towards the year-end. So looking at working capital overall, we think it should not exceed or not substantially exceed today's levels.
Now, looking at the financing options, we continue to explore. And as we explained earlier, over time, the carve-out could create opportunities. So that's where we continue to make progress with the carve-out and where we expect to be able to land by the year-end carve-out and which also will help us going into ‘24 and reporting externally on the Battery Materials Group.
Next question?
Your next question comes from the line of Georgina Fraser from GS. Please go ahead.
Hey, good morning, everyone. Thanks for taking my questions. The first one is on Catalysis. I think it's clear that we should be thinking about a lower 2H than 1H. But I just wanted to check that, that's driven by metal prices and that there aren't any kind of underlying end market drivers behind that?
And second question is, you've hedged on electricity and gas prices to a fairly large extent out to 2027. Could you give us any indication at what level those hedges have been made?
And then my final question is a European battery materials player has kind of reconfirmed that they're aiming for 30% EBITDA margins in their battery materials business. I was wondering if you could please remind us what you see as the margin potential for RBM and your best estimate on the time frame for reaching that target? Thank you.
Yes. Thank you very much, Georgina. Let me comment on the first topic. So, indeed, the variable here that we see are the precious metal prices, you see volumes also for the second-half of the year, still quite robust, and there is also no other underlying topic. So when we comment for the second-half, we come it in relation to the precious metal price environment.
Now, commenting on the EBITDA side, I don't want to comment for RPM or Battery Materials. I don't want to comment the EBITDA announcement of our competitors. However, we see -- and here, also, we have to make sure to always, and we had this discussion before, compare apple-to-apple because some of the competitors include metal into the EBITDA margins others not. So in our case, where we do not include that when you say other competitors are at 30%, I think this is a range that we feel absolutely -- or north of that comfortable.
That is correct, Mathias. And then looking at electricity, as you know, and as we shared earlier, for this year ‘23, we were indeed largely hedged for the European activities. Going into the next year ‘24 until ‘27, we also have hedged outstanding, although those hedges are at more attractive rates and basically, more close to historical rates.
Okay, thank you.
Your next question comes from the line of Chetan Udeshi from JPM. Please go ahead.
Yes. Hi, good morning. A few questions. First, can I start, Mathias, with your comments around utilization? Because I found it interesting you ranked the regions by utilization for next year. And I was surprised China is actually looking better in terms of utilization than Europe. So, maybe can you help us understand what's going on in the European capacities? Because I thought you already had certain business that you were supplying to LG and Samsung as part of those old contracts that were signed in 2018, '19. So are you saying most of that business is now happening only via Korea and your European business is actually not participating in the supply to those customers? And hence, we have to wait for ACC and all the other contracts to help increase the utilization of the European plant? That's one.
The second question was on just this lithium impact because I'm always a bit confused. If I look at the release, it says lithium is now considered to be a hedged metal, but then it also says there is still a benefit from transactional exposure. So can you maybe help us understand the difference between the two?
And the last question, I guess, might be more difficult to answer, but I'll try anyway. But given the strategic hedging across lithium across all the other PGMs, I'm just curious if you had any mark-to-market number in mind that we should be thinking about as a potential earnings level for Umicore if the metal prices were to remain at these levels into next year and the year after? And the hedging benefit starts to unwind step by step?
What is the earnings level that we should have in mind? I was sort of calculating somewhere between EUR500 million to EUR600 million of EBIT per year based on all the stuff that we know or I know at least at the moment. But if you have any such number, I think that would be highly appreciated. Thank you.
Yes. Thank you, Chetan. Let me take the first one and Wannes the next two. So no, sorry, there might have been a misunderstanding. I was not putting the certain ranking in order of utilization out there. I was just going through the different plans in terms of history. Indeed, the utilization of the existing or longer existing capacities, especially in China, when we add this relatively short-term ramp-up that we had reported on is good because it's increasing short term the utilization in China and where we all know that has been quite for some time, not so well utilized.
Now, in Europe, just to give you some more flavor on that, of course, Europe is as of today, before Canada at the site where we are constantly investing in capacity expansion. So it will be a construction site for the next year. So there will be always additional capacity on top of that. So what I can confirm is that, for the European capacities, we basically have major SOP next year, which is the SOP for ACC.
But having said that, the activities, and we had said that also before, when you ramp up such a plant going forward, it's a growth period, it's also consisting a lot of qualification and sampling for the SOPs that are starting then afterwards. So the plant is quite busy and this sample is also sellable volume, right, by the way. It's not just tests or something like that. That is said in the volume, which goes into quite significant amounts for some of our customers. So the plant will be quite busy over the next year as well. We're already starting -- we're starting to feel that the second-half of this year.
So that's the granularity I can give at that point in time. Of course, when we come closer to '24, and when we are reporting them in our new structure, we have more room to give more details, but that's basically where I would put it right now. And then I would -- for the lithium topics, I will hand over to Wannes.
Okay. So looking at lithium, as we explained last year, we had access last year to a substantial amount of supply of lithium at historically attractive prices. And this is, where we decided to hedge transactionally to hedge the lithium going forward. Now, matching the historical purchases, the historical supply and attractive prices, we max those with sales in '22, but also with sales for '23. So that's where there's still a discrepancy between purchase and sales price on the lithium for the sales in '23.
So, again, with new sales being recorded, we transactionally hedge those. So meaning there's no spread between purchase and sales price, but we still consumed some of the historical supply into the sales for '23. So that has generated, again, as Mathias shared earlier, a positive contribution in H1, which will fade out in H2 basically. So we are nearing the end of that.
And then maybe coming back to your question on the mark-to-market on the strategic hedges. This is something unfortunately I cannot share. At the same time, the figures you mentioned seem way out of proportion -- what we anticipate.
Thank you.
Your next question comes from the line of Geoff Haire from UBS. Please go ahead.
Yes, good morning and thank you for the opportunity to ask some question. First of all, could I just ask about the outlook for RBM in Q3? We had LG Energy Solutions and also energy -- LG Chem yesterday talking about weakness and softness in Q3 for their business. Is this something that you're seeing as well?
And my second question is on Recycling. You mentioned Mathias that a lot of the -- there was an offset to lower metal prices from the volatility in the trading business. I'm assuming that metal prices sort of stabilize, there would be another leg down in profitability because that volatility disappears, and therefore, you don't get the trading profit coming through to offset.
And then my final question is, could you possibly give us what the RBM EBITDA in 2022 is so that we can then work out have a better understanding of how the outlook works, please?
Thank you, Geoff. I will take the question one and three, and will ask Wannes to talk about two. So, for RBM, let me repeat again, the pattern that we have here. So we have said way back that 2022 and 2023 will be more or less comparable, but not in line with market growth. And our growth will start in end of '23 and going into '24.
Now, the reason why the growth is starting end of '23 is because new projects are starting and having SOP. So with that, we have basically induction of volumes, that is not directly related to the current market trending weaker or softer. It's simply adding more projects to the plant. So, I don't know if this helps, but this is not comparable to a statement, which would be based on current production. We are increasing the output because we have closed more contracts in the past, and they are now hitting our plants and bringing us up towards 2024.
Now, on the RBM side, I fully understand why this is a necessary number for you to have. But at this point in time, we cannot provide it just like that. We will work through the Investor Relations team also now in the next months to come to see how we can give you a better reference and how we can guide and help to build models also looking to 2024 in terms of also outlook and consensus. So bear with us for some time. We are working on a way to make that more transparent and understandable.
And then on the Recycling and PMM question, I hand over to Wannes.
Yes. So looking at Recycling, as you have seen the evolution of the rhodium price, that created an excellent environment for the metals trading for the metals management activity to create exceptional results. If you look at the rhodium price over the last weeks, we expect that it has somewhat reached a floor, and we expect that it will be rather stable going into the second-half. So meaning that for the second-half, we expect that the resulting contribution from metals management will basically normalize again.
Okay, thank you.
We have now come to our last question. Your final question comes from the line of Mazahir Mammadli with Redburn. Please go ahead.
Hello. Thanks for taking my questions. I only have two. So in the Q1 update, you said that the RBM results you expect flat year-on-year. But now you seem -- it seems like you've upgraded it to increase year-on-year. Can you maybe give some more color what has changed in the interim, how the market has evolved?
And the second question is, so you are serving the European demand from the Korean RBM plant right now. And as the Nysa plant ramps up, you will shift serving European demand from there. So should we expect the Korean capacity utilization to slightly go down from 2024 onwards?
Yes. Let me maybe start with the second question. Now, of course, the -- there is a certain volume shift between the -- what we had as a Korean footprint only at that point in time to European-based volumes to Europe. However, we also have new contracts, new projects that will then land in our Korean facility. So we are quite confident that in 2024, and that's what I had said before, we will also have -- despite that unloading effect, if you want, a quite good utilization of Korea, that is based on current, but also on the visibility that we have on contracts to be closed in the future.
So, no, you could -- if your conclusion was that the European ramp-up would lead to a significant decrease in utilization of the Korean plants, I would say, this is not the case because we will be able to replace those volumes.
And for the RBM question, I will hand over to Wannes to give you some flavor.
Yes. So for RBM, we expect earnings and performance somewhat in line with last year, where last year, we had an exceptionally strong contribution from the lithium margin. As I explained earlier, there's still some of that in ‘23, but to a lesser extent. At the same time, last year, we were also confronted with quite exceptional startup costs related to the Nysa factory. So looking at the mass production testament as well.
Thank you.
I will now turn the call back over to Mathias for closing remarks.
Yes. Thank you very much. Thank you for your attention. Thank you for the good discussion, and good questions. We wish you all a very good summer break. And look forward to engage then maybe with some of you next week during our road show that we will be doing. Thank you very much, and have a great end of the day.
Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.