Johnson Matthey Plc

Good morning, everyone, and thank you for coming along today and for those of you joining on the webcast. For those of you who don't know me, I'm Martin Dunwoody, Head of Investor Relations at Johnson Matthey. And a little bit about me before we start. Could everyone turn mobile devices either to silent or off for the duration of the presentation? So I'm very pleased today to welcome Liam Condon, our CEO, and Stephen Oxley, our CFO. We'll have a presentation as usual and then plenty of time for Q&A afterwards. And we'll take questions from the room and also from the webcast. Ahead of the presentation. And with that, I'll hand over to Liam.

So thanks a lot, Martin, and warm welcome, everybody, from my side to everybody here in the London Stock Exchange and, of course, to everybody who's joining us online. We really appreciate your interest in our full year results presentation and, of course, our outlook today. Now, I have to say, one year ago when I stood here, I was really excited because it was my first time standing in front of you for Johnson Matthey. And I've been asked a lot, so how is it now after a year? And I have to honestly say I'm even more excited this year. And I'm going to explain why as we go through the presentation. going to hear today in different parts and the way we're going to set it up. Our results are in line with expectations. This is what Stephen is going to talk about when we go through the financial year. So Stephen's going to present the financial results in a couple of minutes. And our results in summary are in line with market expectations. We're delivering on our commitments. I'm going to show this to you in one or two slides. We're making good progress against the strategic milestones that we set out. And we're transforming JM to drive growth. And this is the part that I will come back to after Stephen has finished and explain what we're doing to drive JM forward and to catalyze the net zero transition. And you can see at the bottom net zero transition driving growth. This is actually the reason why I'm so super excited about the future of JM, because the world has changed significantly in the past 12 months. net zero transition is really ramping up due to regulation due to incentivization and we have great businesses that can capitalize on that so we're going to talk a lot about that today but first let's look at how we're doing as a company in very brief summary form based on the scorecard that we gave you last year and and i hope you you remember this one the idea behind this was to say look we've got certain financial targets which you know But how do you know that we're actually making progress beyond the financial targets that we only report every half year? So what we wanted to do was to give you some milestones, some guideposts. And this is the scorecard we set ourselves. We said we're going to try and tick these boxes over the next couple of years and show that we're delivering on our commitments. Now, when we set this out... All of us, I have to say very honestly, because there's a lot of transparency involved here, but it's very helpful for us internally tracking our progress and hopefully it's helpful for you externally as well to be able to see how we're doing as a company. Did not know how this would look after 12 months. We're only a year in. We've still got a long way to go. But what you can see after the first year is basically a lot of green. There's only one red traffic light in here. And we are fully on track with all of the milestones that we've set out so far. And I think it's hard to underestimate how much progress has actually been achieved within the space of 12 months. This is really quite phenomenal for JM to see this amount of progress happening in only 12 months. There is one red traffic light on here, and it's related to our target around employee engagement. I have to say, very honestly, what we're doing, the amount of change we're driving within the company, this is tough stuff. This is hard on people. We're asking people to really go the extra mile. So it's tough. So we haven't been able to turn that to green yet. We're impressed with the positive attitude of all of our employees, and I'm 100% confident that we will change this one to green as well. Now, all of these elements, I'm going to go into them later on in my presentation after Stephen's part, so we'll talk about them. But I just want to give you a snapshot up front versus the scorecard. We said ourselves we're making good progress. We know we've got a lot more to do. but we're on track and we're delivering on the commitments that we made to you 12 months ago. So with that I'll leave that by way of a summary introduction and then hand over to Stephen to talk us through the financials and then I'll come back to explain how we're driving each of the individual businesses forward. Over to you Stephen.

Thank you Liam and good morning everyone. I'll start this morning with the headlines. In a challenging market environment, our overall operating performance was in line with market expectations. On an underlying basis, sales were up 6%, operating profit declined 21%, and earnings per share were 179 pence compared to 213 last year. Sales growth was supported by pricing as we acted to mitigate inflation. This was partly offset by lower metal prices. Operating profit was impacted by lower PGM prices, reduced volumes in clean air and PGM services, as well as cost inflation. The second half of the year was stronger as we recovered more cost inflation. We also started to see the benefits of our transformation programme that will build this year towards our target of at least £150 million. We've got a strong balance sheet. Net debt came in at 1 billion, and our net debt to EBITDA ratio was 1.6 times, with the lower end of our target range of 1.5%. We are proposing a total dividend of 77 pence, in line with last year, and our commitment to at least maintain our dividend. Now let's turn to our performance in more detail. On a continuing basis, sales grew 6% at constant currency to £4.2 billion. There were strong gains in our growth businesses, both catalyst technologies and hydrogen technologies. This was partly offset by a decline in PGM services due to lower metal prices and refining volumes. Clean air sales grew 2% as increased pricing more than offset a decline in volumes. And our value businesses delivered strong sales growth. We recently announced the sale of diagnostic services. And together with the sale of Piezo products last November, this supports our strategic milestone of delivering at least 300 million in net proceeds by March 2024. So turning to profit. Group underlying profit decreased 21% to 465 million. I said the recovery of inflation would improve in the second half. And over the year, we recovered 96 million of around 150 million of cost inflation. We also delivered 45 million of transformation savings. In addition, we experienced currency translation benefits of around 38 million pounds. However, there was an adverse impact of 55 million from lower metal prices. And we also saw lower auto-related volumes in both Clean Air and PGMS. And I'll talk more about the individual businesses in a moment. But looking first at the rest of the income statement on an underlying basis. Despite rising interest rates, our finance charge remains broadly flat at £61 million. And as a reminder, almost 70% of our debt is fixed with an average maturity of four and a half years. The underlying effective tax rate of 19% was slightly higher than the prior year. And we expect our tax rate this year to be around 20% given the higher rate of UK corporation tax. Underlying earnings per share decreased 16% to 179 pence. Our reported results were impacted by one-offs totaling 59 million. We recognised a gain of 12 million on the sale of piezo products and battery materials, and we incurred a charge of 41 million, largely as a result of implementing our transformation initiatives and the consolidation of our clean air manufacturing footprint. We also closed a legal claim in Clean Air with a £25 million settlement of a long-standing customer dispute. Resolving this puts all of our auto legacy claims behind us. Turning to free cash flow, we generated 74 million pounds. Precious metal working capital was slightly higher, reflecting a temporary increase in refinery backlogs of around 250 million, which was offset by cash generation in clean air. Non-precious metal working capital also increased as a result of lower VAT payables. CapEx was 301 million in line with previous guidance. This includes the ongoing renewal of our refining assets and increasing hydrogen technology's manufacturing capacity. And after dividend payments and completion of our share buyback, we ended the year with a net debt of £1 billion. So turning now to the individual businesses. Clean air sales grew 2% as we increased prices to mitigate cost inflation. This offset a decline in volumes, with supply chain disruption impacting vehicle production, particularly in China as a result of COVID. In light-duty diesel, sales were up 4%, outperforming a declining market. So looking at light-duty diesel by region, in Europe, our growth was driven by strong platform performance. In the Americas, we slightly outperformed a growing market driven by the ramp up of a new platform and further strong platform performance. We were in line with a declining market in Asia impacted by China with lockdowns, a weak commercial vehicle market and increased electric vehicle penetration. Light duty gasoline sales decreased 1% underperforming the market. In Europe and Asia, previous platform losses resulted in lower sales. But we continue to invest in our light-duty gasoline business with some early signs of success as we win new customers. Heavy-duty diesel was up 3%, significantly outperforming the market. In Europe, we delivered sales growth ahead of the market due to higher revenue per vehicle and good performance in off-road platforms. In the Americas, our heavy duty sales mix benefited from the Class 8 truck cycle and improved mix. And in Asia, sales decreased as lockdowns in China significantly impacted vehicle production. There was a progressive improvement in Clean Air's performance with the majority of inflation recovery taking place in the second half. We also delivered the initial benefits from our transformation programme. However, cost inflation, product mix, lower volumes and exchange rates impacted underlying operating profit, which decreased 28% to 230 million, as well as margins, which were 8.7%. We are on track to generate at least £4 billion worth of cash by 2031. We delivered around 600 million of cash in 22-23, or 400 million excluding the reduction in metal prices. This brings the total to 1.4 billion over the last two years, or 1 billion excluding metal prices. In PGMS, sales decreased 8% to 570 million against a strong prior year. This was driven by lower average metal prices and reduced refinery intakes with less auto scrap due to a buoyant second-hand car market. In a volatile market, our metals trading service performed well. And with lower metal prices and volumes, operating profit reduced from 308 million to 257, and higher cost inflation was offset by pricing and operational efficiencies. In catalyst technologies, sales grew 17% to 560 million, largely driven by strong growth in licensing and refills and improved pricing. We had a great year in licensing, winning 11 new licenses. Growth in first fills and refills also reflected higher pricing and a positive mix. And we're unlocking new growth in our new markets and sustainable technologies. So, for example, our new license wins this year included five in low carbon hydrogen and sustainable fuels. Higher pricing, greater licensing in the benefits of our transformation program, offset significant cost inflation and the profit impact of around 10 million from the loss of our business in Russia. Underlying operating profit of 51 million was in line with the prior year, and margin recovered from 7.6% in the first half to 10.5% in the second. In hydrogen technologies, revenues more than doubled to 55 million, with higher sales, mainly from fuel cells, as we increased manufacturing output. The business reported an operating loss of 45 million, reflecting scaled-up investment, and we expect the business to break even in 2025-26. As you heard from Liam, in January we agreed the long-term strategic partnership with Plug Power in the US. That's one of the leading players in the hydrogen economy. And we recently secured our second strategic partnership, this being with Hystar, the leading European electrolyser company. These help underpin our 2025 target of at least 200 million in sales from hydrogen technologies. Moving on to costs. We've made good progress on our cost transformation program and delivered 45 million towards our 24-25 savings target of at least 150 million. As examples, we've generated around 20 million in procurement savings as a result of improved pricing and raw materials substitution, with more to come. We're de-layering the organisation, and this generated 10 million in savings. In IT, we've created a global service hub and generated benefits from co-location and process standardisation, which has delivered savings of around 10 million to date. We've improved and automated our HR processes with a further saving of 5 million. And in addition, we're rationalising our real estate, we're driving benefits from our new Finance Shared Service Centre, and we're accelerating the consolidation of Clean Air's manufacturing footprint. We've also made much improved progress recovering inflation. Raw materials represent 40% of total costs, and prices here have increased 6% year on year. This excludes substrates in clean air, which are a pass-through cost. Labour, which represents 30% of our cost base, rose 3%. We've made one-off payments rather than higher salary increases. And energy costs constitute a relatively small proportion of our cost base, but these increase by more than 80% in the year. So in total, we incurred cost inflation of 150 million and recovered around 65% with a strong acceleration in the second half. Our investment decisions are based on a prudent, disciplined approach to capital allocation. This year, capex was 301 million, down from 422 million in the prior year, which of course included battery materials. Last May, I guided to total capex of a billion over the three years to 24-25. We now expect cumulative capex of 1.1 billion, largely reflecting an acceleration of hydrogen technologies. And as a reminder, our capital deployment is modular and dependent on achieving clear milestones, making sure that we do not overcommit to any particular project. In hydrogen technologies, we're scaling up investment to meet committed customer demand. In catalyst technologies, we anticipate modest investment in the short term to support growth. In clean air, we will reduce our capex to 50 million in 2024-2025 as we complete our investment in new plants. And in PGMS, our refineries need substantial replacement capex to maintain our leading position. So finally, turning to the outlook for 2023-2024. We expect at least mid single digit growth in operating performance, assuming constant precious metal prices and currency. This is underpinned by efficiency benefits of 55 million, which we expect to more than offset cost inflation. In clean air, we expect strong growth in operating performance. External data suggests that limited growth in vehicle production this year, so our margin expansion will be driven by further pricing and efficiency benefits. PGM services will be driven largely by precious metal prices, with recycling volumes expected to remain subdued. In catalyst technologies, we also expect strong growth in operating performance with increased licensing revenue and a margin uplift from improved pricing and efficiencies. In hydrogen technologies, we expect strong sales growth and an operating loss similar to last year. Metal prices continue to be volatile and it's difficult to predict how they may develop. Rhodium in particular has seen an unusual sell-off in a highly illiquid market, pushing prices lower despite the market being in balance. And therefore the Rhodium price is significantly lower than we expected. So to illustrate the potential impact, if prices were to remain at their current level for the rest of the year, the adverse impact would be around 50 million, but we are of course working hard to mitigate this risk. You may have seen in today's announcement that we've updated our rule of thumb to help you with your modelling. And at current FX rates, underlying operating profit would be around 10 million lower. So in summary, our overall operating performance was in line with market expectations. We're making good progress with our transformation program and are on track to deliver a savings of at least 150 million by 2425. We've recovered the majority of cost inflation through pricing. We continue to build our commercial muscle and remain committed to delivering further efficiencies. Finally, we're investing behind growth and we're encouraged by the progress and customer wins in our growth businesses. And with that, I'll hand back to you, Liam.