Umicore (EBR:UMI)

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Naveen Kasthuri

Umicore (EBR:UMI) is a global materials technology group. It focuses on application areas, such as materials science, chemistry and metallurgy. It has four business areas: Catalysis (which is involved in reducing automotive emissions), Energy Materials (for the production and storage of clean energy), Performance Materials (dealing mainly with precious metals) and Recycling (which treats waste for metal contaminants). It also has operations in five geographic areas: Europe, North America, South America, Asia-Pacific, and Africa.^[1] Increasing commodity prices and emission trading regulations impact Umicore's revenues.

Business Growth

• Revenue: For FY 2010, revenue increased 16% from €1.72 billion in 2009 to €2.00 billion.
• Net income: For FY 2010, net income increased from €146 million in 2009 to €343 million.^[2]

Trends and Forces

Umicore's profitability in its Performance Material division is negatively impacted by rising commodity prices

The price of energy and commodity raw materials (such as zinc, platinum group metals, steel, aluminum, copper, etc.) has risen in the past few years. For example, since November 2010, steel producers increased their prices at least six times, resulting in price increases of 20 to 30%.^[3] Flat rolled steel is crucial to Umicore's production processes and products and this price increase drastically affects its costs. In addition, due to turmoil in the Middle East in 2011 and reduced oil production, energy prices have increased, rising 28% from 2010 and continuing to increase.^[4] Manmade and natural disasters can also disrupt the supply of commodities and increase prices. Because Umicore's performance material division is highly reliant on commodity supplies, a disruption in the supply and price of commodities can decrease its profitability as Umicore isn't able to immediately pass on higher costs to its consumers.^[1]

Rise of emissions trading regulation and climate policy positively impacts Umicore's Catalysis division

With increased calls to reduce global warming, lawmakers are considering placing regulations on the amount of emissions to be produced from an organization or state. For example, in emissions trading (or a cap-and-trade scheme), companies or countries would face a carbon limit and would have greater incentives to reduce their emissions instead of buying excess emission credits. Established schemes include the Kyoto Protocol, European Union Emissions Trading Scheme, and Northeast US states' Regional Greenhouse Gas Initiative. However, as consumers demand more green products, more regulations with harsher restrictions are being considered.^[5] This would benefit Umicore's revenues as it is a large manufacturer of catalyst systems for the reduction of emissions from industrial processes and for vehicle exhaust emission control. In 2010, its Catalysis division consisted of 35% of its total revenues.^[1]

Competition

• BASF SE (BASFY)
• E.I. du Pont de Nemours & Company (DD)
• Johnson Matthey (JMAT)

Umicore has a diversified portfolio of services so no one business competes directly with all of its services. However, its "green" initiative approach to its products, unlike that of BASF and DuPont, allows it a niche position in the market, especially as there is increased pressure to move towards more environmentally friendly products.

References

1. ↑ ^{1.0 1.1 1.2} Umicore 2010 Annual Report
2. ↑ Umicore 2010 Financial Statements
3. ↑ http://online.wsj.com/article/SB10001424052748704775604576120382801078352.html
4. ↑ http://www.bloomberg.com/news/2011-04-18/fed-s-fisher-lockhart-say-rising-oil-prices-threaten-growth.html
5. ↑ http://www.reuters.com/article/2011/07/11/us-carbon-schemes-idUSTRE76A2GJ20110711