Approach to economic and financial performance
Goals and performance
In The Umicore Way we state that
"We develop, produce, apply, market and recycle metal-related materials and we contribute to material based solutions. We combine our competences in metallurgy, chemistry and materials science with a thorough understanding of our customers’ needs, applications and systems.
We focus on those business areas where we can attain leadership positions which are recognized by our customers and which allow us to create value.
We want to be the preferred partner of our customers. We are committed to the growth of our business through the competence of our people, excellence in operations and technological innovation."
As part of our Vision 2015 strategy we have identified specific growth areas linked to societal and environmental megatrends and we expect these areas to offer double digit annual growth on average to 2015 and beyond. We aim to generate average annual ROCE of 15%+ during that period as a Group.
Below you will find more information on the following elements:
- Operational returns
- Shareholder returns
- Financial strength
- Research and development
- Market presence
- Indirect economic benefits
- Who is responsible?
Umicore seeks to generate economic value through its existing businesses and any acquisitions or organic growth initiatives that it undertakes in line with its overall strategy. This entails generating a return on capital employed (recurring pre-tax operating profit / average capital employed for the period) in excess of our overall Group pre-tax cost of capital. This cost of capital can vary over time in function of our risk profile and the state of the world’s debt and equity markets. Our targeted return on capital employed (ROCE) in the context of Vision 2015 is 15% on average between 2011 and 2015.
Investments are assessed on a case-by-case basis: acquisitions are normally expected to be earnings enhancing in the early phase of their integration and value enhancing shortly thereafter. Similar criteria exist for organic investments although the pursuit of longer-term growth projects invariably requires a longer view on expected returns.
In terms of operational performance an emphasis is placed on ROCE. We deal with precious and other rare metals and we therefore have relatively high working capital intensity. Operational managers are therefore incentivized to manage performance from both an earnings perspective and also by minimizing the operational capital employed.
Umicore aims to create value for shareholders in the medium term. This is achieved in the first instance through achieving solid operational performance as outlined above. We seek to grow our existing businesses and also to enter markets which have attractive growth potential and to develop leadership positions within these markets (see below). We communicate about our business in a transparent and timely manner and by doing so aim to promote a fair and accurate valuation of the Umicore share price. Direct shareholder returns are realized through the payment of dividends which are paid out through an interim dividend in October and the difference after the Annual General Meeting at the end of April (for more information about the dividend policy please consult this page). Umicore has a policy of paying a stable or gradually increasing dividend (for a history of the dividend payout since 1989 please click here). We may also, from time to time, return cash to shareholders by other means, for example through share buy backs and cancellations.
Umicore aims to safeguard the business through sound financial management and by maintaining a strong balance sheet. We have no fixed target regarding debt levels but we aim to maintain an investment grade status at all times. We also seek to maintain a healthy balance between short term and longer term debt and between debt secured at fixed and floating interest rates.
As a materials technology group, the future success and financial sustainability of our business depends on our ability to develop and successfully introduce innovative products and services. With this in mind we invest consistently in research and development, with the equivalent of between 5% and 7% of revenues typically being spent on R&D every year.
Umicore seeks to gain market leadership positions in all the businesses in which we are present. The nature of our business, which consists of a high number of niche products for highly specific applications, means that we do not have a presence in any country or region which makes up a significant part of that country or region’s economy. Our business is global in nature with 74 manufacturing sites in 36 countries.
Our sites often play a very prominent role in the economies of the local communities in which they are situated. However, given the fact that our operations tend to be rather small in size and are geographically dispersed we do not consider that we have any indirect economic impact on any particular country or region that would merit separate reporting. We have a corporate policy regarding donations which provides a framework for all charity donations and other such contributions which we make at site and Group level.
Our approach to financial and economic management derives in the first instance from our vision, values and organizational principles found in The Umicore Way. Specific internal policies have been developed to frame the company’s approach to specific financial and economic aspects including: Dividend, Financing and Funding, Transfer Pricing, Credit Management, Hedging, Capital Expenditure and Mergers & Acquisitions.
Accountability for the economic and financial performance of Umicore lies with the Executive Committee. The Executive Vice Presidents are responsible for the overall financial performance of his/her segment. At business unit level the head of the business unit is responsible for the overall financial performance of the business unit. The Chief Financial Officer has overall oversight of the financial and economic performance of the Group and is supported by a Corporate Finance team that includes specific expertise centres covering aspects such as tax, treasury, accounting & control, and the internal control environment. At business unit level, financial controllers are responsible for managing the financial and reporting aspects of the business unit.