Ladies and gentlemen, thank you for standing by, and welcome to the Uncore Announcement of the Partnership with LGM Conference Call. At this time all participants are in a listen only mode. There will be a presentation followed by a question and answer session. Time, if you wish to ask a question, you will need to press star 1 on your telephone and wait for your name to be announced. I must advise you that this conference is being recorded today.
Tuesday, 24th September 2019. I would now like to hand the conference over to our speaker today. CEO, Mark Greenberg, Thank you. Please go ahead sir.
As you know, a unicorn has a transition not to disclose customer names or actually any details about the commercial contracts. In a limited number of cases though, we depart from the commission. And of course, there needs to be enough good reasons to do so. So as a matter of introduction to this call, I thought it would be appropriate to explain very briefly why we are communicating about this non exclusive agreement with GTM. Firstly, this agreement is the 1st mid client in the industry in several respects.
It's the 1st multi year agreement of Scotia magnitude and with volume commitment, which creates ability along the supply chain to easy manufacturers. The 1st agreement to support global easy platforms with exactly the same products to be supplied in 3 different regions. This agreement goes to show that our unique global positioning is competitive differentiator. The 1st agreement encompass material supply, IP rights, and in the future recycling, which goes to show that the business is driven by technology and that our closed loop model is gradually gaining traction. The agreement also confirms that leading battery manufacturers, which have in house cathode materials capabilities, will continue to rely on the technologies for materials specialists, And in this respect, I would like to read the announcement or very short section of the announcement that as you can release very early this morning, Asian time, where they say that Umicore had the world's best technology in vehicles sold out in manganese cathode materials industry, which LG can help adjusted for easy victories.
I think this is quite telling. Obviously, We only communicate about commercial agreements when both parties to the agreement deemed it's appropriate to communicate. And in this particular case, we wanted to confirm that the fundamentals behind the electrification are intact. But easy demand is clearly taking off with you becoming a key easy region. Both parties felt it was also important to signal a signal or confirm that this business is and remains a technology business where scale and global capabilities are key.
While the agreement with LGM fits in the growth trajectory, which we have shared with you previously, it is exciting news and represents a key milestone in the consistent and successful execution of our long term growth strategy. With this, with this, I would like to now open the floor to your questions And as usual and also benefit of the limited amount of time that we have, I would ask you to limit yourself to one question at a time.
Thank you, are wanting your telephone and wait for your name to be announced. And we already have a couple of questions, sir, on the queue. And our first comes from the line of William Holstead from KBC Securities.
Yes. Good morning, everybody. My question is about the the time frame of this contract. Mentioned, several years. Can you offer a little bit more, precision about, yeah, how many years this is more or less?
Is this roughly 5 years. Is this longer and shorter?
Can you offer any additional package on that? Thank you.
Good morning, Wayne. So the what I can say, it is that it's the typical average duration of a platform. Okay, understood. Thank you.
Thank you. And our next question comes from the line of Ronald or from Redburn. If your line is in mute, sir, Italian mute.
Sorry, apologies. Thanks for the question. I just wanted to does this agreement cover all of your, supply with LG chem, or could there be additional volumes to them in the future alongside this? Thank you.
So, Ronald, good morning. So this agreement covers the vast majority of our supplies as you can for the coming several years. So, of course, as I mentioned, as a response to the previous question, for the duration of the platform, that for which the product is qualified. And there is a bit of upside that has been incorporated in the contract where there is a possibility for upside in case the demand proves to be higher market demand was to be higher than what was anticipated. And it does not cover our other supplies to LG chem, which maybe for other applications and automotive, like in energy storage or in possible electronic this is a purely, automotive platform for an MC Automotive platform.
Thank you. Next question comes from the line of Muthu Gantogan from AVN AMRO. Your line is now open. Can I ask your question?
Yes, sir. Good morning, and then congratulations on the on contract there, Mark. I understand that this is a take or pay contract. Can you tell us how the price of this contract compares to the volumes you sold in the last few years?
Good morning, Mutlu. Yes, your understanding is correct. So there is a volume commitment, a volume commitment. Which is also one of the reasons you wanted to signal that there is a change happening in the industry because EV manufacturers and their supply chains needs to more predictability in order to develop the capacities in particular. And indeed it is a temporary contract.
Unfortunately, I'm not the liberty to disclose details about the pricing. So if I could say at this point in time that it is a pricing that was agreeable to both parties, obviously. All right. Thank you.
Thank you. Next question comes from the line of Tom Wrigglesworth from Citi. Your line is now open.
Good morning.
Thanks for
the opportunity to ask questions. Does LG Kim agree but it won't invest in further upstream capacity whilst, this agreement's in place. Obviously, there's, you know, yeah,
Good morning. And the answer is, there is no such agreement because there is no need for such an agreement As I've mentioned on several occasions in the past, there will be a co existence and continued co existence of in house and external supplies to players, which like LGchem, have do have in house capabilities. So we're not substituting in house capabilities. We understand that LGchem and other some other players will continue to increase capacity. And at the same time, will continue to rely on growing capacities and capabilities from 3rd party suppliers just to make sure we have access to the best technologies and predict capabilities around the globe because I would like to, highlight once again that one of the specificities of this contract is that it's a contract that covers global supplies from the main EV regions being Korea, China, and Europe.
Of exactly the same products for the same platforms. And so this global aspect is quite relevant when it comes to assessing the coexistence of in house and external supplies.
Thank you, Mom.
Thank you. Next question comes from the line of Adam Hollins, Liberum. Your line is now open.
Good morning, Mark, and congratulations again. I wanted to ask about the comments about cost licensing that are made in the statement. What IP does, LG Kim have that might be of interest to you? Just to point a clarification in terms of the the comments that came out overnight from LG Kim. I saw a press report that suggested that LG Kim was saying that roughly half of the, long term production volume will be supplied by your European factory.
Could you just clarify if that's the case?
Yes. Good morning, Adam. So indeed, actually more than half of the volume we supplied out of Europe. Indeed, and you may recall that what I said a while ago that There was no reason for us to adjust the timing of our investment plan in Europe when we said that we're pushing out some line additions in China. So, this is indeed a very, very correct, more than half of the volumes will be applied out of Europe.
The cross licensing agreements, I'm not going to enter into details of the patterns that are covered on each side. I would like to say and to reiterate to this stage that for both parties, it represents a strengthening of the IP portfolio and the IP portfolio is extremely important to provide players with the required freedom to operate. And what it will also do is strengthen the ability of both players to defend the IP against some certain competitors.
Okay. Thank you.
Thank you.
Next question from the line of Nathalie Divine from Tuphircam.
Hi, good morning. Thank you for taking my question. If you can just come back to your comments that there is upside incorporated in the like, if not, this is higher than initially gets tested. Is it like you have to set aside part of your capacity to actually meet that potential upside or how does it work?
So that's, actually as a matter of the capacity planning, you may also recall or you that what I explained earlier is that we work with multiple customers, multiple platforms such that statistics specifically speaking, we have better probabilities to have the highest utilization rates when one model has better than than planned. It makes up for another not coming as well as forecast. And this is a kind of the flexibility that we will continue to use in order to cater for possible upside on this contract, because you will also recall from my previous statement, we're trying to to plan for capacity in a way not to end up with excess capacity indeed. But that will continue to be, I would say, a day to day operational focus is how we manage capacity. How we accumulate the required flexibility.
It's not going to be trivial, but that's definitely something that is part of our plans.
Next question comes from the line of Gunther Zechmann from Bernstein.
Hi, good morning. Can you explain a bit how the ramp will look like on the volume right, over the duration of the platform. And also on the price, is that a fixed price over the duration of what are the flexibilities or on pricing during that time please?
Okay, let me start with the second part of your question. So the price has been negotiated for the duration of the agreement indeed. Whether it's fixed on that, I'm not going to disclose, but it's been, I mean, or moving during the duration of the contract, I'm not going to disclose, but it's been it's predetermined. And the ramp will be pretty quick, indeed, because the demand for EVs is moving pretty rapidly. So the, it's not like, and a lot of work has been done in the past several months with LGchem to prepare for the line and for the qualification therefore a fast ramp up.
So it's
going to be pretty fast.
Next question comes from the line of Jan.
Good morning, Marc. And thank you for answering the questions. I'm trying to understand, could you explain why you haven't raised or accelerated your targets on the 175 kilotons of cathodes. Does that mean that some of the that you had any spare capacity or any capacity that was not fully committed at that stage? Thank you.
Now, actually, we don't have, spare capacity or uncommitted capacity. And this is where we have used the flexibility or the modularity that I referred to earlier by pushing out some line additions in China and not changing the investment schedule for Poland. And clearly, the announcement to date in the trajectory, the growth trajectory that we had explained earlier with the 175,000 tons of capacity to be reached initially planned by end of 2021 and now we 12 to 18 months today. So we're still in sync with that, with these comments. And and no, there is no reason for us to change that.
And there was clearly a need to maintain the contract in Poland where a lot of, to maintain schedule the timeline for the project in Poland, because as I explained earlier, the more than half of the volumes over time will be supplied out of that plan. Thank you.
Thank you. Next question from Sebastian Bray from Berenberg.
Good morning and thank
you for asking for answering my question. I just would have one on the extensive IP collaboration. What so that you've mentioned
that the length of the life of
the platform is the length of the contract. My guess is that's 5 to 80 years. What happens to the IP transfer after this contract is done? Are both parties still free to use the other's IP or does, is there an expiration date, to the licenses as they are awarded?
Good morning, Sebastian. So the IP agreement is not exclusively tied to the platform and the platform life that is actually underlying the supply part of the agreement. So it's a surprise that platform And as I mentioned earlier, it's important for the parties to strengthen their portfolio. To have the freedom to operate and to be able to defend their IP in the market.
If if I may throw it so differently, would LG Chemical be able to use unicorn technology to produce its own halfodes post
the end of this agreement?
No, because, the, the agreements again covers a product, recipes, product, IT, fundamental ITP, but does not cover the process now and the process I see that you report perspectives and which is absolutely fundamental in making the product and giving the product the right properties and quality.
Many thanks.
Thank you. Next question comes from the line of Chetan Deschi from JP Morgan. Your line is now open.
Just one question.
I don't know, Mark, if you can give this color, but Of course, you're not giving us the actual duration of the volume contract. Is there a way you can quantify how much of these volumes in a single year during the peak volume ramp up of this contract cover the total capacity that you guys might have planned for next 3 to 5 years. So how much of your total capacity is taken up by by this single itself, some number there would be useful. And the second question is given the size of this contract, know, I think historically, I remember in your past, you guys have talked about China being the site where you will have the the biggest capacity post ongoing expansion. Do you think maybe that changes in, like, 3 to 5 years, maybe Europe becomes a of your sort of expansion, drive going forward overall or part of your capacity share in Canada?
Good morning, Chetan. And no, unfortunately, I cannot disclose the percentage of or capacities or future capacities that the contract represents. So it cannot be very helpful there. I can only say that this is a big contract, obviously. China will be for the foreseeable or largest production could be the largest where we will have the largest capacity.
So for the reason that we're explained in the past, so there is no change to that perspective in the short short term order for the future. This being said, I expect very fast growth in Europe in the coming years, driven by a licensing CO2 legislation and a clear electrification roadmap of most OEMs selling cars in Europe. So expect that Europe will become a very, very significant market for Umicore in the medium term indeed. It's too early to say, and when Europe will overtake China in terms of EV presence. I can only say that I expect a very strong and very significant growth in this region indeed.
Thank you.
Thank you. Next question comes from the line of from UBS. Your line is now open.
Good morning and thank you for the opportunity to ask some questions. Just wanted to ask, does this agreement limit in your opinion your ability to supply other battery pack producers or OEMs for that matter.
Good morning, Geoff. No, it does not it does not, so the contract, as I mentioned in my introductory remarks, is non exclusive. So it doesn't infringe on our ability or doesn't decrease our ability or more willingness to work with a large number of battery manufacturers and our OEMs in terms of technology development in terms of for the qualifications and in terms of supply and as well as in terms of closed loop. It is a key milestone in the execution of our strategy. And it is not the only one.
So you have to clarify,
you have other contracts that are similar to this that you haven't told us?
There are, as I mentioned indeed earlier, in some cases, there is a common willingness to announce contracts and this is rather the exception than the norm. In our business.
And next question comes from the line of Ronald Moore from Redburn. Hi,
thanks for taking the second question. I was just wondering if there was anything specific to your relationship with LG Can that, allows you to, to, to announce, this, this type of deal or Yeah. To ask it another way, is there any reason why we shouldn't see more of these types of, long term volume commitment deals being announced between you and other cell producers or even automotive OEMs? Thanks.
Ronald, I cannot in the rule out further announcements in the future. And clearly, We have a number of customers with very, very strong and longstanding ties from a technical point of view and commercial point of view. In the different regions, both on the sides of battery manufacturers and car OEMs. So, I expect that in the future as the market will need more predictability in order to develop the supply chain that this will become a possibility indeed.
Thank you. And the next question comes from the line of Martin Evans from HSBC.
Yeah. Thanks. Again, it's just
back to the location being in Poland. And what's happening, market the Koreans capacity sites that we saw last year, is that those operations running at full capacity, which is why you've chosen that, most of the volumes, as you say, for this agreement will be coming out of out of Poland.
Good morning, Martin. No, that's not the reason why we chose that most of the volumes would come out of Poland. We are actually aligning, or production to the customer's needs And as I mentioned, we're talking about global platforms. And so it is important to produce in the region where the end market it's going to be. And so part of it is coming up.
Part of it is China and a big chunk of the agreement covers the European market from a battery cell production point of view and from an EV end market point of view. So it's really in alignment with the needs of the customer more than anything else.
Thank you. And, another question comes from the line of motu Gautam, ABN AMRO.
Yes. I'm I'm here again. Can you state this remark? I mean, I assume that there are curvy e v models outside contain a debt free from lgchem that has a cash flow from Umicore. So how does this contract change from the existing situation?
This contract relates to new platforms, Zulu 2. And as I mentioned earlier, our global platforms, that has very specific requirements in terms of the cathode material and in terms of the location of production. So it's new. It's new. It doesn't overlap with the current things that the Umicore, the current supply that Umicore has to LG.
Some of which will be platforms that reach more assumed to reach end of life. So, this is natural evolution of the business.
Sure. I mean, I'm just wondering to what extent would you I mean, is it possible that but, I mean, Humoko alone will still pitch for new EV models and you might, you know, future models you might team up with different battery producers. So it'd be possible that you will compete with your own partnership.
Yes, this is possible because there, as I I think explained on previous occasions, but there may be overlaps between supply chains and we will indeed continue to work with LGM and with others in pitching for new platforms, new EV platforms, so I cannot totally rule out that we may be pitching through different angles and through different, I would say, supply partnerships for the same platform. That's very clear.
From Jean Baptiste to Roland.
On my previous question, does does this agreement, suggests that you have made significant progress in silicomanodes? When you first presented at your CMD over a year ago. It's something that it was at, in the research state, in the research state, and you mentioned that it was it seems really like to be one of the, avenue worth exploring to digital make, energy density in, for the new military Are you still in development stage, or have you reached any form of commercialization stage on this product?
So, Jean Baptiste, when it comes to Silicon Annodes, we are in commercial stage for non automotive applications. And when it comes to automotive applications, we're still in development at the development stage, which means that the silicon annual development is not really part of this agreements at GCN. I see that there's a longer term option for the automotive application.
Thank you.
Thank you. And another from, Jeff, Harry, UBS. Hi.
Just following up on my last question. When you go in, Hendrick for business with other OEMs or Samsung or SKI, how would you assure that LG doesn't get to see what you're working on for other companies. And so if we're late, some of that concerns that do you have a partnership with one of their major competitors in graphic art manufacture?
Sorry, Jeff, but I'm I did not really understand the question.
So if you're in partnership with with with LGM currently, in both IP and supplying them.
If you're then going to bid
for contracts with other battery pack manufacturers, how will you assure them that they won't bet what you're working on for them doesn't get seen by LG because, obviously, that would be a major concern that one of their major competitors
hopefully, what they're doing? No, clearly, similar to what we're doing in Catalyst, first of all, we have very strict procedures and processes in place to segregate the development work that is done jointly with our OEMs or with battery OEMs from one another. And this is, I would say, well established industry practice, both in the Catalysts business and in the battery materials business. On top of that, I would like to repeat what I said on previous occasions is that There is a significant trend to customization and most of the work that we do in the context of such partnerships and development is ending up in exclusive products or exclusives that are really sorry, products that are tailor made for a given platform. And indeed, I'm not shareable with others.
Okay. Thank you.
Thank you. And we will now take our last question and that comes from the line of Martin Evans. Your line is now open.
Yes, thanks. There have been
a lot of headlines, in the last few weeks and months about Tesla, choosing amongst others, LG 10 for for some battery supply related to factory and so on. Would it be a a simplistic assumption that a correct assumption to assume therefore that that some of your carbon materials that are going to lgchem we'll end up in the Tesla. Thanks.
Martin, unfortunately, I'm not allowed to to mention where the products would be going. So I'm sorry. I cannot answer that question. Not allowed to answer that question.
Okay. Fair enough.
Thank you. No further questions please continue, sir.
Okay. So, I would like, now to, thank you very much for your participation at relatively short notice to this conference call this morning. And again, as I mentioned in my introductory remarks, while this announcement fits perfectly in the growth trajectory that we had announced and communicated earlier and shared with you on previous occasions. This is a key milestone and a very important news for Unicore and the confirmation that we are continuing to consistently execute our growth strategy in such materials. And with this, I would like to close the call and invite you as usual to reach out to our investor relations and media relations teams.
If you have phone questions. So, thank you, and have a great day. Bye bye.
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