Ladies and gentlemen, thank you for standing by and welcome to the Umicore Half Year 2020 Results Call. At this time, all participants I must advise you that this conference is being recorded today. I'd now like to hand the conference over to your speaker today, Mark Greenberg. Please go ahead, sir.
Thank you, Nadia. Good morning, everybody, and welcome to the presentation of Unicolor Results for the first half of this year. Obviously, the presentation will address the effect of the COVID-nineteen pandemic. And by way of introduction, I will walk you through in a moment the impact of COVID-nineteen on the automotive industry which is our largest end market. I will also comment on our response to the crisis.
I will then cover the developments the businesses and the outlook for the coming month before handing over to Philip, who will walk you through the financials. Finally, I will wrap up before opening up the call to you for any questions that you might have. Before speaking of markets, our members, though, I would like to express, once again, my immense gratitude to all those who have fought and continue to fight the pandemic on the front lines as well as to all the Umicore employees who have done the extra mile and have adjusted to very challenging mark conditions in order to ensure business continuity As you well know, the automotive industry is the largest end market for Umicore's clean mobility solutions. It is, therefore, useful first instance, to take a closer look at what happened to that industry in the first half. The figures on this slide clearly show the brutality and depth of the impact of the pandemic on the automotive industry, comparing monthly production of cars across all power trains in the first half of twenty nineteen, which we considered at the time to be very low with the much worse figures for 2020.
You might recall that the downturn in the automotive industry actually started in the second half of twenty eighteen, and grew worse in 2019. In the first half of twenty nineteen, we saw steep declines in the world's largest car market, with production down 12% year on year in China, down 6% in Europe and 4% in North America. While we consider the market contraction to be severe a year ago, the figures this year are simply brutal. Production, for instance, down 88% in China in February, down 93% in Europe in April, and down to almost 0 in the U. S.
In April when OEM assembly lines were shut down following lockdown measures. Globally, car production in the first half was down 35% compared to the already depressed levels of a year ago. Thereby wiping out some 15 years of industry growth. The only piece of good news came from China, where the recovery started in March and has been remarkably strong since then. In other regions, car production only resumed later as you can see from the graphs at a modest pace.
The next slide details the trends in sales of Full EZs and plug in hybrids. China as the largest market for EVs shows steep drops compared to the first half of twenty nineteen when EV sales were already facing severe headwinds. We have added for reference the average figures for the second half of twenty eighteen to show the sequential trends. We see some recovery as of March when lockdown measures were lifted, but from a lower base and with EV sales remaining well below the depressed levels of the first half of twenty nineteen, and even below the levels of 2018. It is worth noting that while the Chinese car market has been recovering remarkably well, in terms of internal combustion engines, demand for NEVs in the Chinese market remains depressed.
Europe shows relatively good year on year growth in the first half, except in April, during the lockdown. The growth coincides with the introduction of tighter CO2 regulations in the European Union. However, This performance needs to be put into perspective as it starts from a low base and roughly 50% of volumes are plug in hybrids which, on average, need 5 to 6 times less kilowatt hours and therefore, 5 to 6 times less battery materials than full EVs. In comparison, in China's full EVs account for about 75% of the NEZ markets. Globally, sales of electrified vehicles were down 17% year on year.
However, expressed in gigawatt hours of battery demand the contraction was more severe because full ED sales declined way more than plug in hybrid sales. An exceptional crisis call for prompt and firm measures. All response to COVID 19 was 1st and foremost, to protect our employees by providing the healthy and safe working conditions. We introduced strict hygiene and precautionary measures across sites early on, and those continue to be reviewed by a dedicated global crisis committee and adjusted as needed. This week, had to tighten these measures again in those regions where the pandemic is unfortunately regaining ground.
We also took immediate measures to maintain the financial health of the company, particularly in terms of preserving cash Production capacity was adjusted and employees were furloughed when and where necessary. We also took measures to optimize working capital we delayed some of our capital expenditures, but decided not to delay EHS related or strategic investments. To ensure that the efforts were shared equitably among all stakeholders, Umicore's management and supervisor report decided to halve the dividend for 2019 to $0.375 per share. Swift and consistent implementation of these different measures allows Umicore to generate positive free cash flows in excess of 1,000,000 despite reduced activity levels. As a matter of precaution, we have also decided to further strengthen and diversify our funding structure and increase liquidity Philip will comment on that later.
We have a strong balance sheet and ample liquidity to pursue our strategy. As part of the longer term response to the crisis, we have reassessed the production footprint of certain activities as well as the carrying value of selected assets. In this context, we have decided to consolidate our North American operations for automotive catalysis in Burlington, Ontario and closed down our automotive catalyst operations in Tulsa or Clahoma. As the assessment is ongoing, further measures may be required in the second half of twenty twenty, potentially leading to additional cash and noncash adjustments, the second half of the year of a size, which could be similar to or somewhat higher than those recorded in the first half of the year. I will now move on to the business review for the first half of the year.
Considering the brutal impact of the pandemic on the global economy, unaccord showed great resilience with results in the first half in line with those of the first half of last year. We demonstrated once more the validity of our business model and strategy based on 3 main pillars with complementary activities that are not necessarily exposed to synchronize cycles. The first half of the year. So a stellar performance by our Restructuring Business Group, offsetting the COVID 19 impact in the Catalysis and Energy And Surface Technologies Business Groups. At EUR 1,600,000,000, for the first half, revenues were only 4% balance compared to the first half of twenty nineteen.
Adjusted EBIT was up 1%, while adjusted EBITDA was up 5% year on year. Capital expenditure plans were adjusted at the beginning of the pandemic and CapEx spend amounted to somewhat slightly more than EUR 160,000,000 compared to EUR 241,000,000 in the first half of last year. Philip will elaborate on the financials in a moment. I would also like to point out that the board has decided to pay an interim dividend of per share. As mentioned before, the car industry has been severely hit by the COVID-nineteen pandemic.
With unicorns customers shutting down their assembly lines, we also needed to shut down the majority of our automotive catalyst plants for 6 to 10 weeks with additional periods of reduced activity, and this has a severe impact on earnings. The global car market shrank by 35% compared to the same period last year, with car production slumping in all regions. 1st in China and shortly thereafter in other regions as the pandemic spread and car OEMs were shutting down their factory umicore's catalysts volumes and revenues were slightly less affected than the global car market, as we continue Also, in the heavy duty diesel segment, our volume suffered slightly less than the market as we benefited from higher demand for our China 5 Technologies. The pace of recovery in car sales since the outbreak of the pandemic has been different across regions. In China, there was a remarkably fast recovery with a focus on returning to work and investing in private transport as opposed to public transport where social distancing is more difficult.
In Europe and in North America, the return to work after lockdown was more gradual and consumers are not rushing to the dealerships to buy new cars. While revenues in Precious Metals Chemistry were impacted by COVID-nineteen in the segment of organic chemicals in the segment of inorganic chemicals for the automotive industry. Demand for fuel cell catalysts for transport remained solid and was up year on year. The business unit also benefited from higher demand for its pharmaceutical ingredients. COVID-nineteen also had a significant impact on the results of the Energy And Surface Technologies business group.
Global EV sales in the first half declined by 17% year on year, with a more pronounced decline of 44% China, which is the largest EV market in the world. The demand for battery materials was down even more approximately 25% because the sales drop, sorry, was most pronounced in China and the U. S, which are predominantly fully EV markets. This drop was only partly offset by volume growth in Europe, driven to a large extent by demand for plug in hybrids. Since full EZs have a battery size, which is typically 5 to 6 times larger than in a plug in, the trends in regional and thus vehicle mix amplified of the EEV sales drop.
We expect inventory corrections in the second half of the year to keep a Ymicore's overall sales of cathode materials were lower than last year due to the COVID-nineteen impact on EV sales. While we fared better than the easy market, our sales were materially lower than we had expected, which led to unused capacity. This unused capacity combined with higher fixed costs related to the ongoing expansions resulted in significant negative operating leverage. Demand for cathode materials for energy storage systems has picked up in Korea has picked up in Korea, Since the government completed its investigation of safety incidents in February, however, volumes for the first half remained subdued. Demand for high energy capital materials used in high and portable electronics was substantially lower year on year, as the COVID-nineteen pandemic also reduced consumer spending in this market segment.
Construction of the new cathode materials plant in Poland unfortunately incurred some delays due to the restrictions linked to the pandemic. Commissioning is now expected in the first half of 2021. For Cobalt And Specialty Materials, after a good start of the year, The impact of COVID-nineteen became severe in the 2nd quarter with effects felt on the refining and recycling activities and on most of the end markets. Electroplating recorded slightly higher revenues, while revenues in Electronic Materials were roughly stable year on year. The Restructuring Business Group achieved record results with all business units contributing to this growth.
This performance reflected solid supply conditions, favorable metal prices and trading conditions across activities and in the precious metals refining business, units, a higher availability of the Hoboken smelter. The smelter had no shutdown in the first half of twenty twenty, compared to the extended maintenance shutdown in the first half of twenty nineteen. This month The smelter is undergoing a regular planned maintenance shutdown of roughly 4 weeks, which is one of the reasons that the first half performance cannot be extrapolated to the 2nd half in a linear manner. In the Jewelry And Industrial Metals business unit, We enjoyed very high demand for gold recycling services and for investment products, which is typically the case in times of recession, and uncertainty when gold acts as a safe haven. The Precious Metals Management's activity also contributed to the results in a larger proportion than usual, which happens at times of high and volatile PGM prices.
All employees of the recycling segment have done outstanding work to ensure continuity of operations despite the restrictions imposed by COVID-nineteen, and this allowed us to benefit from the combination of favorable conditions, which I have just described. Unfortunately, the Hoboken site has been in the news in the past few weeks around increased lead in blood values and recent fire incident. Please allow me to provide some context around this. In all our sites, we constantly strive to reduce metal emissions. This is also the case for Hoboken, and thanks to very significant investments to enhance the environmental performance of the plant We have succeeded in bringing metal emissions consistently and substantially below the legal norms.
Despite this, we regretfully learned that the lead in blood values of the children living close to the Hoboken plant had increased unexpectedly as opposed to historically low levels in 2019. Lead emissions measured both by Unicore and by the authorities gives no indication that such an increase in blood levels will occur. Umicore is now investigating possible causes that may have resulted in the higher readings and is forming a task force with the municipality to explore sustainable solutions. Including possible offers to purchase certain houses closest to the plants. We hope to make sufficient progress in the coming months to be able to quantify the effort needed.
Umicore is also investigating the causes of the fire in the finery in March 2020 and a small fire on the roof of a wastewater treatment section in July, and we are updating and expanding our emergency planning with a special focus on fire safety and prevention. We are obviously continuing to execute the environmental program launched several years ago to further reduce emission, and we have reinforced our internal organization to strengthen emergency planning to protect the environment and the local community. Safe operations remain our top priority and we aim to take all necessary steps to present such incidents in the future. Given the current evolution of the pandemic and the uncertainties creates in our key end markets, It remains impossible to provide a reliable, quantified outlook for 2020. Despite the very limited market visibility, We continue to expect full year adjusted EBIT for the group to be below the levels reached in 2019.
Looking at the outlook for segment now. In Catalysis, we expect a much better second half compared to the trough levels of the first half This is predicated on a 25% decline in car production over the full year considering the 35% decline of the first half and the most recent trends. However, given the low visibility in car production and end consumer demand in the current pandemic and recession context, it is impossible to predict market development and hence to provide a quantified outlook for the business group. In Energy And Services Technologies, supply chains are somewhat longer than in Catalysis, and I expect demand in the second half to be subdued as excess inventories in the battery supply chains will need to be reduced. As a result, adjusted EBIT in the second half is likely to be below the levels of the first half.
In recycling, the first half performance should not be extrapolated, as I've just mentioned, in a linear manner, to the second half as Hoboken is undergoing a 4 week planned maintenance shutdown in July. And usual seasonality patterns in other businesses need to be taken into account. While the response to the COVID-nineteen crisis has mobilized considerable resources, we did not lose sight of the longer term growth prospects of the company. Our response has been articulated in such a way as to protect our employees and ensure business continuity without compromising our long term growth strategy. While the current crisis has a near term impact on our growth trajectory, the long term drivers behind the strategy remain intact supporting growth opportunities in clean mobility and recycling.
The midterm outlook for electrification, in particular, is very promising as governments increasingly support the move to cleaner mobility with subsidy plans and stimulus packages. Tightening emission norms remain on the agenda in key regions, confirming the need for more complex automotive catalyst technologies in the future. Imicore's closed loop business model also offers answers well needed answers to resource scarcity and a path towards a more circular economy. And with this, would like to hand over to Filip who will cover the financials.
Thank you, Mark, and good morning, everyone. So Marcus already provided you with the key group financials for the first half of this year. On this first slide, we put the adjusted operating earnings in a historical context to illustrate graphically the resilience of our group numbers despite the current challenging business context. The stellar performance in recycling entirely offset the earnings line in Catalysis And Energy And Surface Technologies and supported group margins. This complementarity is similar to what we have experienced in previous crisis and an intrinsic advantage of Umicore's unique business portfolio.
Operating cash flows expressed here as adjusted EBITDA also reflect this. When stripping out the EUR 16,000,000 year on year increase in depreciation charges, which result from recent investments and the Cocoa acquisition, adjusted EBITDA increased 5% year on year to the 2nd highest half year contribution in recent years. Also driving a higher margin. In our press release, we refer to the particularly pronounced operating leverage effect at play in the first half. This next slide illustrates this.
The leverage reflects the fixed cost base of our operations, such as the capital costs and depreciation charges, the specialized skilled labor force and cost links to license to operate standards. A substantial change in activity levels and revenues as witnessed in the first half of this Therefore disproportionately impacts EBITDA and EBIT to an extent that temporary measures such as Furloughing can alleviate, but not compensate. For Catalysis And Energy And Surface Technologies, this operating leverage was strongly negative as on average, plants operated substantially below their capacity. In the case of Energy And Surface Technologies, the increasing operating cost base of the rechargeable battery materials activity due to recent expansions and ongoing projects acts as an additional headwind. By contrast in recycling, the leverage effect on earnings resulting from increased activity levels in higher metal prices and also favorable trading conditions was highly positive and compensated for Catalysis And Energy And Service Technology Our full P and L shows little change year on year when considering adjusted earnings The stable adjusted operating result translated into a stable adjusted nets group result.
Net financial costs increased as expected, mostly on the back of the increase in financial debt. For example, the interest due on the EUR 390,000,000 U. S. Private placement debt, which we entered into in June 2019, was now accounted 4. These high interest costs were partly offset by lower forex costs.
The net interest charge is expected to increase further to the cost of the newly issued convertible bond of EUR 500,000,000. While the bond pays 0 coupons and therefore will carry no cash interest cost. In accordance with IFRS, we will recognize as from the second half of this year, a finance cost that consists of the discounted value of the conversion rights and the amortized transaction costs. These combined costs are expected to add approximately EUR 12,000,000 of financial charges on a full year basis corresponding to some EUR 9,000,000 after tax. The tax charge in the first half was also stable year on year, reflecting the stable adjusted asset base for the group, despite some substantial changes in the underlying regional results of distribution and a stable effective adjusted tax rate of 24.3 percent over the period.
These results exclude material adjustments or nonrecurring items as we used to label them, which reduced the group's net results over the period by EUR58 million. The next slide provides more details on these adjustments, which accounted for a total of EUR72 million on the level of EBIT. Almost all these adjustments are linked to the effects of COVID 19 on a number of our businesses and our response to them. As Mark explained, we reacted to this new reality by assessing our production footprint This resulted in restructuring measures, of which the closure of Automotive Catalyst production site in Tulsa in the U. S.
Was by far the most significant. Total restructuring related adjustments accounted for a EUR 31,000,000 charge before tax In addition to these restructuring measures, we also assess the carrying value of certain non current assets in view of a change market output and accounted for certain impairments. The associated total adjustment amount to another EUR 31,000,000 pretax charge, including EUR 24,000,000 related to intangible assets such as capitalized development costs and specific IP rights. Of the total EUR72 million EBIT adjustments, 48,000,000 are noncash and 24,000,000 will result in future cash outs. EUR 55,000,000 are related to our Catalysis operations.
In view of the changes in market context due to COVID 19, we are continuing to reassess our footprint and monitor the value of certain assets. This may trigger additional adjustments in second half of the year of a similar or somewhat higher magnitude than those recognized in the first half. As already briefly mentioned, despite the challenging market context, Jumiccor's group cash flows showed resilience in the first of the year. Cash flows from operations before any change in working capital amounted to EUR347000000 compared to EUR 298,000,000 in the same period of last year as is spotted on the top line on this top graph. Cash working capital increased by EUR72 million over the period.
This increase was driven by higher precious metal prices and in particular BGM prices. Working capital increased in Catalysis and recycling, while energy and surface technology reduced its working capital needs. Cash preservation remains 1 of the 2 of the group priorities and working capital management, obviously, continues to be very much part of that. Cash spent on CapEx and capitalized development costs amounted to EUR 167,000,000 compared to EUR 258,000,000 over the same period last year. This reduction reflects the decision following the COVID-nineteen outbreak to restrict spending on non strategic projects with the exception of safety and license to operate investments.
In the first half of the year, Energy And Surface Technologies accounted for just over half of group CapEx. This proportion is expected to increase in the second half in view of the projected spending related to the rechargeable battery materials greenfield plant in Poland For the full year, we would currently guide group CapEx to approximately 1,000,000. Finally, these combined flows resulted in a net free operating cash flow of EUR108 million, doubling year on year. And this free operating cash flow has been almost fully translated to a million reduction of our reported net financial debt since the end of 2019. Here again, the technical note related to our recently issued convertible bonds.
Under IFRS, the value of the conversion rights of the bonds amounting to EUR 50,000,000 is recognized in equity and leads to a temporary reduction of our reported net financial debt by that amount. Over the 5 year life of the bond, this value will be gradually added back to our reported financial debt. More importantly, however, this stable net financial debt, which corresponds to 1.75x adjusted EBITDA confirms our stable funding structure. Moreover, since the outbreak of the virus, we have substantially increased and diversified our sources of liquidity. Our initial response following the COVID 19 outbreak consisted of increasing, are committed and undrawn backlines over and above the already substantial headroom offered by existing facilities.
Then in June, we secured 2 important long term funding instruments composed of an 8 year loan with the European Investment Bank of EUR 125,000,000 to partially fund our greenfield battery materials planned in Poland and a EUR 500,000,000 5 year convertible bond The proceeds of both instruments June. This substantial liquidity combined with a well diversified long term debt structure with no near term material maturities provides a solid basis to pursue the group's long term strategic ambitions and whether the current market challenges. This concludes my section and back over to Mark.
Thank you, Philip. As a wrap up, I would like to say that, I'm proud of the great resilience that Umicore has shown in the most challenging context we have ever faced. Our performance in the first half demonstrated once more demerits of complementary activities within our business portfolio with very strong results in recycling offsetting the impact of COVID 19 in Catalysis And Energy And Surface Technologies, which were badly affected by the widespread shutdowns at our customer. At our automotive customers. Our performance also highlighted the agility and determination of our employees.
It is also important to point out once more that the long term drivers behind our growth strategy in clean mobility materials and recycling remain intact with our portfolio of complementary activities, our strong technological capability highly engaged teams and strong balance sheet, we are definitely well equipped to emerge stronger from the current crisis and resume our growth With this, I would now like to open the call to your questions and are therefore hand over the call to Nadia.
Thank you. Ladies and gentlemen, we And the first question comes from the line of Charlie Webb from Morgan Stanley please ask Just a moment. So the first question comes from the line of Charlie Webb from Morgan Stanley. Please ask your question. Some reason, I have a problem here.
So
Hello. Can you hear me?
Yes. There we are.
Yes. We can hear you.
Good morning, guys. Morning, Matt, morning, Philip. Thank you very much for the presentation. Just a few questions from my side. Unfortunately, around the delay to your podium plant, obviously, very unforeseeable.
Just be useful to understand how that impacts given, I guess, we shipped it back. Roughly 6 months, the growth outlook for your European cathode business into 2021, should we assume that that has been delayed effectively by 6 months, or will you be able to offset that with utilizing capacity elsewhere? That's first question. 2nd question, just on recycling, obviously a very, very strong first half, as you said. Just understanding, you noted in your kind of commentaries on the division, end of life auto cats, obviously had a positive effect on the mix in H1.
What did you see? I know some of your peers noted it, obviously, up in availability of material ahead of lockdowns. So was that a positive effect for you guys as well? And how we think about that into the second half, has the availability more normalized now
or do you still see
a very positive mix?
Is there a kind of more of
a secular trend or just availability in the market that we should be aware of. And then lastly, if I may, just around E and ST, can you help us understand as we think about the second half comments that it will be weaker sequentially because of inventory effects, in the cell manufacture supply chain. How does that tie into obviously a step up in platforms launched, auto markets getting better? And I guess also there's still a positive contribution from the Freeport Cobalt asset that you acquired. So just trying to understand the moving parts and how what we should really think the underlying kind of run rate of kind of demand of the busy is there?
That would be helpful.
Good morning, Charlie. These are many questions and, I should have said initially that I would like everyone to raise one question at a time to give the chance to everybody to raise a question. But let me answer your 3 questions, to start with the the last question on energy and surface technologies. I hear that you are quite optimistic on the market development of EV. I today, I would say I don't know.
Because I don't see, I don't see clear signs that the global EV demand would be recovering. We do have a fairly supportive market environment in Europe. However, starting from a very small base and with a very high proportion of the plug in EV. So in terms of battery demand, this is by far not making up for the shortfalls elsewhere. In China and in the in North America and in other regions of the world, the easy market is anemic at best So I would, not dare to call that a recovery or supportive market from a global point of view.
So that's the first part of the comment. Secondly, indeed, the supply chain are quite, I would say, full of excess inventories. And because of the dynamic demand of the first part of the year, following, I would say, investment to gear up for a higher growth. And this has to be reduced. And that's why today, my expectation is rather, I would say, a downbeat indeed.
But the reality is that, we don't know because the visibility is extremely limited, so I can only comment based on what I see today. But I would want to be with you that I don't necessarily share your optimism, you may not necessarily share my, more pessimistic view. And the reality is probably that nobody knows and will see. So that's on the on the E and S. D.
Regarding, the supply situation in recycling, it is indeed to be expected that the supply conditions will remain supportive, it's not very supportive for the second half of the year. We have not seen huge fluctuations because of the COVID-nineteen in most segments, except maybe in certain areas where collectors had to, stop their operations for a little while But overall, we are well supplied and the objectives are pretty good for the remainder of the year. And your, sorry. And yes, then the first question regarding the Polish plant, is, that today it's too early to tell, whether we will be able to make up for the delay because that will depend on market developments. I see that, yeah, market is also somewhat affected or affected to a very large extent, in terms of growth by COVID-nineteen.
So I would reserve my response to that question until we have some form of visibility into future market demand, but I expect that the delay that we incur today. That's the assumption that I'm making. I mean, it's only an assumption. The delay that we're incurring because of COVID will more or less, match the delay that we see, the delays that we see in the market developments.
Thank you. And your next question comes from the line of Jean Baptiste of Bank of America. Please ask.
Hi, good morning, Philip, good morning, Mark, to follow-up on the Charlie's question previously. I remember that you had said regarding your Polish plant that you had orders, you had orders already lined up. And so you had, basically, you had to build this plant. So how have you been able to, I mean, to explain that to your customers, where does where are then they're going to, to find volumes. If they still need those, this is my first answer, well, only a question.
Thank you.
Good morning, Abazit. Again, what I would say is that our customers are equally affected by the, by COVID-nineteen and the impact of COVID-nineteen on the, on end demand from the consumers. So I do not expect that to be the delay to be a major factor in the way we deal with those customers and their demand plus please bear in mind that that there is quite a degree of excess inventories in some of the supply chains. That can help deal with the spikes if any would occur.
Your next question, thank you. Your next question comes from the line from Geoff Haire. So please ask your question. Your line is open.
Sorry to come back to this question again, but this week we've had LG and STI, both talking about double digit gigawatt growth for batteries in the second half of the year. If they're right and you're right, that would imply that the supply chains are massively over supplied 12 months. Is that effectively what you're saying? Or is there, are we missing something in those two comments from the battery impact manufacturers and what you're saying about supply chains?
Good morning, Geoff. Yeah. Difficult for me to answer that question because in a way, nobody knows. And I mean, I don't see, I mean, I don't see customers rushing back to the consumers, sorry, rushing back to the dealerships to buy cars, any cars. So There may be growth, there may be stability, there may be, I mean, I think that the visibility given the current stage of the pandemic is so low that I would be at odds commenting on that.
And my view is just a view And their view is a view that may be valid, but the reality is that today nobody knows And again, the visibility on the end consumer demand is solo, the visibility on the risk of the pandemic, further expanding is currently, low or is currently concerning in a way. So I would I tend to air on the, I would say, on the precautionary side of things because I don't see markets as I don't expect markets be very supportive. And I would be more than happy to be proven wrong. But again, I can only say that the visibility is so low that the reality is that we can only offer a scenario or a set of assumptions but admitting that we don't know. And I think that the reality is that nobody knows.
And everybody has to start with a set of assumptions
So I'm assuming from your comments today that I think you've said that you expected flat sales in in cathode materials back in, April? I'm assuming you're now assuming that sales will be down year on year for the full year?
I'm saying that, it remains to be seen. We'll see. The market developments are so uncertain. The only certainty, again, sorry, I missed that in the previous part of my response, the only certainty that we have is that there is a lot of excess inventories that has to be worked down first.
Okay. Thank you.
Thank you. And your next question comes from the line of Charles Bentley from Credit Suisse. Please ask your question. Your line is open.
Just wanted to ask on the nature of the delays of the Poland plan. I mean, are they continuing today? I guess there wasn't really an indication of any risk of a delay from COVID until today. Can you explain kind of what's happened with that And then I guess it's from your comments also sounds like market development kind of are kind of maybe as much of a factor as actual relation is that fair? Thanks.
Good morning. So the delays are typical COVID induced delays. With restrictions on the transport and movements of people and goods not allowing, certain, I would say, construction works to take place during a number of weeks and certain equipment to be manufactured in time with our customers are being transported to the new site. So this is purely, I would say, COVID. These are purely COVID injury delays that you would see probably in most, projects of that of that source nowadays.
So nothing to do to delays are not continuing. If that's also a part of your question, it's just the effect that we can estimate now of what has happened in the 1st part of the year. So hopefully, there will be no other lockdown measures needed in Europe and some of the parts of the world. And then I think the, we can say that this will be what mean, the first half of twenty twenty one is a realistic, expectation.
Thank you. And your next question comes from the line
Hi, thank you for taking my questions. I just wanted to get your comments on the contracts in casted materials but are they being delayed by customers or are you seeing a mixture of delays and cancellations, at the moment? And just one quick one on working capital. If you could break out, the inflow from ENSD, and the kind of the outflow in recycling just to kind of see the because ditch your moving parts, that would be really helpful. Thank you.
Hi, Mubasher. We see no cancellations in the contracts and the contracts are multi year contracts. So, we are reviewing constantly with the customers when the volumes need to be delivered. And I have no concern or no reason to believe that there would be cancellations because the volumes will be needed. As I mentioned, the midterm prospects or electrification, remain extremely supportive and solid.
And so the materials will be needed. The EVs will be produced and sold. Currently, indeed, there are delays because of the current pandemic situation and its impact on the economy and on tumor behaviors. But I have no reason to believe or to expect any cancellations, contracts. I will ask Philip to take the question on working capital.
Yes, good morning. So on working capital, maybe starting with energy and service technologies, indeed after a number of years of increases. We've had a decrease in working capital also because we put quite a lot of focus on that. It's a combination of I would say volume effects and pricing effects, if you take the metal prices related to, to that operation, that business you will see that the prices have, have come down. So it's a combination of volumes, the market that we already discussed and prices.
In Catalysis, we have a bit increase, as we highlighted before, that's mainly driven by, by metal prices by PGEM price that's a very important factor. Obviously, COVID and the impact on logistics had also, I mean, has an impact Catius business has as many different plants needs to be close to the customer. So but it's mainly metal price driven. And then in recycling, it's metal prices. Obviously, it's, it's some temporary effects.
But, let's be clear that we really focus internally when we talk about working capital and 1stenses on the catalysis. So making sure that we manage the effects of metal price increases and on E and ST to bring down the working capital recycling I mean, just short of 80% of ROCE in the first half of this year. So that's obviously less of an impact and also that has a business model, which as you know, is lower in working capital anyway. So really the focus is on
Thank you. Thank you. And your next question comes from the line
Hello, I have 2 relatively quick questions, if that's okay. And just to go back to Jeff's comments, if your customers, LG and Samsung and all the others, are expecting a better third quarter, then it doesn't really matter whether they're right or not about the end market demand. Because in the end, they expect better demand, they'll be buying more inventory ahead of time. So to ask the question again, if your customers are expecting a much better quarter and presumably filling their supply accordingly and you're expecting a destocking, then the level of excess inventory at your customers must be absolutely massive. Suggest that we're hugely over ordering at the end of last year.
And is that wrong? And if so, why is that wrong? And then just very quickly, could you comment on the target to get to 60 gigawatt hours and 100 gigawatt hours as previously communicated at the beginning of the year. Has anything changed in those 2 ambitions? Thanks so much.
Hi, Alex. Good morning. I don't share your interpretation of the statements made by the 2 players, the 2 battery players that you mentioned. It's not because you have expectations that you produce an order, you produce an order, materials, if your own customers are ordering. Effectively.
So again, I'm not saying I'm right. I'm not saying they're wrong. I'm not saying they're right. And I'm wrong, we'll see what the market development is. And again, think we are humbled enough to say that the visibility is not there today to answer these questions with any degree of precision and give you a more, a more, I would say, solid guidance in that respect.
So I don't share your reading of their statements in a way. So And then sorry, you had a second question on the gigawatt hours. I mean, I cannot answer that question today. I mean, once the pandemic will be over and we'll have again a more, reasonable visibility on market developments, I will able to answer that question in a reasonable manner.
So you can't confirm that your previous guidance about the total gigawatt hours you expect to be installed by 2021 2020 3, you can't confirm, but that's still valid?
Well, today, there is nothing I can confirm because again, let's see. I mean, tell me when the pandemic will be over, and I will tell you, and I will answer the question. Nobody knows what market developments will be in the near term. And clearly, you're talking about something which is very near term. Which is next year.
So, let us first go through the crisis, figure out once the pandemic is over and hopefully that will be soon enough. And let's figure out how markets resume, recover, rebound, whatever we happens at that time. And then we'll, we'll answer that question. Next question, please.
Thank you. The next question comes from Charles Bentley from Credit Suisse. Please ask your question.
Hi,
guys. Can I ask on, on capital volumes in the second half? I mean, I know visibility is basically 0, but like can you give me any indication on whether you expect any region to be higher, half on half in the second half? Then can I just squeeze in the kind of recycling question? Can you just give an update on kind of what hedged, how far you're hedged out to?
I will hand over to Philip in a moment regarding the hedges. No. At this stage, I would prefer again to reserve my response on volumes for the second half. And And the yes, the regional mix, I mean, if I look only at the picture today, and again, don't know how it will evolve in the coming weeks or months. The picture today that the largest markets in the world are still severely depressed and that is, in particular the case in China, where we don't see, as we speak, a recovery in EV demand may change tomorrow, I don't know.
And Europe looks today better. Because of the introduction of the new CO2 regulation. So although overall sales volumes of cars and production volumes of cars remain subdued. The penetration of plug in hybrids and full EVs is increasing in Europe. So from a regional perspective, our what I see today is that a somewhat more supportive picture in Europe as a result of the CO2 regulations and the introduction of broader of new models, indeed a broader model lineup.
And while China and the U. S, are extremely depressed. Philip, on the hedges, please?
Yes, on the hedges, good morning, Charles. So not really anything to add compared to what we in the press release. So what we, also mentioned the mid of June. So when we talk about hedges, we talk about Russia Metals and certain PGMs, PGMs, it's mainly palladium and partly platinum, you know, that there's no future market for rhodium. So in rhodium, we have an hedged, which is a very important, obviously.
And so in terms of the exposure for this year, we, I mean, the bulk of of the exposure is, is locked in already. Then for quarter, but then, palladium, we locked in more than half for 20 one as well as part for 2022. And then we also have a portion of the silver and platinum exposure also hedged in for the next two
Right. Thanks.
Thank you. And your last question comes from the line of Georgina Iwamoto. From Goldman Sachs. Please ask your question. I was wondering, are you able to share what proportion of EST is China compared to Europe as of today?
And how would you expect that to change over the next 5 years? Even just a qualitative answer would be extremely helpful. And then if you think about the supply lands scapes and barriers to entry, we do expect to have a higher market share on European platforms versus China as the European market develop in the future?
Let me start with the second part of your question, which is can be answered in a straight manner. The answer is yes. The, as I explained on previous occasions, the market is more fragmented in China, then it is in other parts of the world. And therefore, I indeed expect to have a larger share of of European platforms or platforms sold into Europe, then would be the case for the domestic market in China. The China versus Europe?
Okay. Yes. Of course. In, clearly, if you look at the first half of the year, the market has been down, in China by a significant margin. I mean, EV sales dropped by, 44%, the gigawatt hour demand drops even much more than that because of the some of the excess inventories are clearly in China and the overcapacity is in China.
So battery demand has dropped quite dramatically. And so indeed, in the 1st part of the year, China represented a much reduced portion of our E and ST results compared to prior years, that's the, that's indeed the case of getting at the market evolution. I would like to add one one thing which I should have actually mentioned in my presentation and could have helped with some of, to appreciate some of the market developments. Clearly, our revenues are down in E and ST because of the market developments in EVs. And if I look at our volumes and our revenues, in the rechargeable battery materials segments, while they were down, they were much better than the overall market.
So that is another perspective maybe to offer and another way to look at things. It's not satisfactory. Of course, I would have preferred the market to do well and Unico to be on track with its growth plans and not to end up with unused capacity. But the other way to look at that reality is that we're doing relatively well compared to the average of the industry. And compared to the overall market development.
And this is one of the reasons why I have, as I have no visibility on the market developments, I remain confident that we are well positioned to, to resume our growth trajectory when market conditions will allow that.
And our next question comes from the line
changing topic to recycling slightly. You said not to extrapolate the performance into the second half. I'm just wondering if you can give some idea on the moving parts, you've talked about the shutdown, but perhaps the trading component that supported growth in the first half as well and how much that contributed as well and if that continues too? Thank you.
I would say the main difference when I, between H1 and H2, when I mentioned that we should not extrapolate in a linear manner, relates to the maintenance shutdown. So that's the main moving part, because by definition, the availability of the smelter will be 4 weeks less. In the second half compared to the first half. And in the current market conditions, considering the the supply mix that we have, the metal prices, etcetera, 4 weeks availability means quite a bit. Trading conditions, clearly, the contribution of the metals management activities was very high in the first part of the year.
I don't want to go and quantify that, but it was very high. It's disproportionately larger than in, I would say, normal years. And difficult for me to say whether that will be repeat it completely in the second half of the year because it depends not only on the absolute level of metal prices. It depends more important on the volatility patterns in the PGM markets. And so we'll see where, these are in the 2nd part of the year.
But let's assume that trading conditions remain the same as in the 1st part of the year. There would be no reason to have a lesser contribution in the second
session. And I hand over to the CEO, Mark Greenberg.
Thank you, Nadia, and thank you, I'd like to at this point to thank you all participants to the conference call and offer you as usual to add reach out to our Investor Relations team to address your following questions. I'm pretty sure that there will be a follow on questions. And in any case, we will also speak again in the beginning of next week and have a chance to elaborate on some of the things that are closest to your past. So thank you for now and wish you already a nice and sunny weekend and wish you all to keep well. Bye bye.
That does conclude our conference for today. Thank you for participating. You may all disconnect.
Adi, are we in the private room now?
No. I transfer you.