Johnson Matthey Plc

I think we're ready to go. Yeah. So good morning, everyone. I'm Martin Dunwoody, head of investor relations at Johnson Matthey. And thank you to all for coming along today. And for those of you who are tuning on the webcast, before we start, just a point of admin, if you can turn all mobile devices to silent or off. Very pleased today to welcome our CEO, Liam Condon, and our CFO, Stephen Oxley. We're going to have a presentation, as usual, and then plenty of opportunity for Q&A from the room, and we'll also take questions from the webcast. I'll point you to our cautionary statement on the screen, and then with that, I'll hand over to Liam Condon, CEO.

So thank you very much, Martin, and warm welcome to everybody here in the room at the London Stock Exchange. And of course, a warm welcome to everybody who's joining us online as well. Now, the program today is I'm going to give a brief introduction, give a short update overall where we stand as JM. what progress we're making on our transformation journey. Stephen's going to talk us through the financials, the presentation, and then we're going to take a bit of a deep dive into the different businesses and give you an update and some further insights on how we're progressing overall as a company. Now, I think you all know I joined the company about a year and a half ago. It was actually in March of last year. And at that time, the Russia-Ukraine conflict had just started. We were still suffering from somewhat from COVID-related supply chain issues. We went into a period of extended heavy inflation. Overall, it's been a really weak, I'd say, almost recessionary environment. We've had high interest rates, and now we have another awful conflict in the Middle East. So, to say the least, it's been a pretty volatile time in that period, and you can see that reflected also in platinum group metal pricing, where there have been significant declines over the year. Palladium is down over 40%. Rhodium is down almost 70% on a 12-month basis. And that has impacted our reported results. So there's a lot of things out there that we can't control as JM. But there's an awful lot as JM that we can actually control. And that's what we've been focusing on. And I'm pleased to see that our underlying operating profitability has actually improved by 10%. So I think this is good progress to note here today. Personally, I think this is due to the fact that we're making real progress on the transformation side. And I'm going to give you a brief update, just share some thoughts on the key topics that we're addressing in a minute on transformation. And we're going to come back to those themes in the presentation later on. Now, this isn't just about short term. The journey we're on for Johnson Matthey isn't just about improving operational performance in the short term. It's about setting this company up to be great for the future as well. It's about developing a platform for sustainable growth and sustainable value creation. And that's why it's so important for us to also make sure that we're delivering on our strategic milestones, because they are what set us up for the future as well. And I'm pleased that on that front, we're tracking along very well with the progress that we're making. Now, on the transformational side, I've spoken about different topics that we're addressing. One of the biggest, not on here, but it's actually our portfolio transformation where we're divesting the value businesses. This has a big impact because it allows us to double down on focus on the businesses where we can be a global leader. But the areas apart from those divestments that we're really doubling down on is commercial. I spoke a lot about improving the commercial muscle, strengthening the commercial muscle of the company. And now we're not just talking about it. Now you can actually start to see the results show through in what we're presenting. So if you look at the pricing development in our core businesses, margin improvements in clean air and quite an astounding margin improvement actually in catalyst technologies. And we're winning new business in all of our businesses. So this is what the commercial, improving the commercial muscle is all about. But again, it's not just talking about what we're doing. I think what's really important is that we start seeing that this is flowing through to the results as well. On capital projects, we've placed a special emphasis here on also strengthening the foundation And this means also building up capabilities in the company. And we have a very disciplined approach to capital investments. And I'll talk a little bit later about that. We're also working hard, improving operational efficiencies. But this disciplined approach also allows us, despite the fact that we still have inflation today at still a pretty strong rate, it's coming down, but we still have inflation. we can actually reduce our planned capital expenditure. And we'll talk a little bit about that as we go through the presentation today. And on the cost side, I'm pleased to say that we are making very good progress as well. I spoke about the need for Johnson Matthey to become more efficient because that allows us also to have a stronger platform for growth. Multitude of things underway. Our global business process outsourcing is underway. This is something that we're not just planning anymore. This is going into the implementation phase. We'll have a fundamental impact on Johnson Matthey going forward. also has a big impact on our cost position. Procurement, we're getting much, much better at. We'll talk about this during the presentation. And we're streamlining our footprint, whether this is clean air and manufacturing facilities that we'll talk about and our real estate. We're taking a streamlining approach here. And all of this is flowing through and all of this is going to increases our confidence that we will be able to actually exceed our original target of 150 million savings in 24, 25. So these are the themes that we said will be key for us to drive the transformation. And what you're starting to see in the results that Stephen will present is this is starting to shine through. And then finally on this piece, the strategic milestones, I'm not going to go through all of them. We'll pick up different elements throughout the presentation. The key point is everything here that we've committed to delivering, we are on track for delivering. There is nothing here that we will not deliver. The only one that's yellow is employee engagement, which, as you can imagine, with a huge transformation ongoing, creates a degree of uncertainty. What I'm actually really pleased about is in the latest employee engagement survey we did in September, the engagement scores have improved. So this, for me, is a strong sign that we're going in the right direction and we're very confident that we'll be able to achieve all of these. The ones that we haven't yet achieved, they're all on track for achievement within the stated timeframe. So this, I hope, gives confidence that we're not just improving operational underlying performance, but also strategically setting the company up for success in the future. So that just by way of introduction. Now, I think it would be a good point in time to take a deep dive into our financials. And with that, I'd welcome Stephen to this stage. Over to you, Stephen.

Thank you, Liam. And good morning, everyone. As you can see, our headline numbers have been impacted by a significant reduction in average metal prices. As a result, sales were down 1%, and operating profit decreased 15%. In spite of this, we delivered a good underlying performance, driven by improved pricing and cost savings from our transformation programme. Excluding the impact of metal prices and foreign exchange, operating profit was up 10%. There's positive momentum in our growth businesses, both catalyst technologies and hydrogen technologies. We've also improved profitability in clean air and catalyst technologies as a result of our actions on pricing and efficiencies. Earnings per share were down as a result of operating profit, higher taxes and increased finance charges. We continue to maintain a strong balance sheet. Net debt came in at around a billion pounds and our net debt to EBITDA ratio was within our target of 1.5 to 2 times at 1.7. Lastly, we've maintained our dividend. We're announcing an interim payment of 22 pence in line with last year. Let's turn now to our performance in more detail. On a continuing basis, group sales declined 1% at constant currency to just under £2 billion. Clean air sales grew 4%, supported by increased pricing and slightly higher volumes. In our growth businesses, catalyst technologies, sales grew 5% and in hydrogen technologies, they were up 61% as we scale this business. This was offset by a decline in PGM services due to lower metal prices, as well as a reduction in refining volumes, both of which we flagged in May. Sales in our value businesses were down because of lower consumer demand in battery systems. Turning now to profit. Underlying operating profit was up 10% to 244 million, excluding the impact of foreign exchange and metal prices. The increase was driven by higher pricing, which delivered a benefit of 35 million and cost savings of 25 million from our transformation programme. And this was partially offset by a decline in PGMS and CT volumes. including an impact of 55 million for metal prices and 9 million for foreign exchange, underlying operating profit decreased by 19% to 180 million. Total savings from the transformation programme are now around 70 million and we continue to make good progress. So as you can see, we've made significant reductions taking out management layers and improving procurement with more to come from these initiatives. We've yet to see the full benefits of our drive for greater back office efficiency, as well as the consolidation of a manufacturing footprint and office space. We're driving our transformation programme harder and we now expect to exceed our 24-25 cost savings target of 150 million. Looking at the rest of the income statement on an underlying basis, our finance charge increased to 41 million as a result of higher interest costs. A loan note matured in June, and as a result, 60% of our debt is now fixed, with an average maturity of four and a half years. The underlying effective tax rate of 22% was higher than the prior year as a result of one-off items, but we still expect the full year rate to be 20%. Our reported results were impacted by 44 million of non-underlying charges. Most of these arise from impairment and restructuring costs as a result of our transformation programme, as well as the consolidation of our clean air footprint into new and more efficient plants. We're making good progress divesting our non-core value businesses. The diagnostic services transaction has now completed, realising a small profit that was offset by a loss on the disposal of our Russian business. This brings total cash proceeds from divestments to just over 60 million. And we remain on track to secure proceeds of at least 300 million by the end of 23-24, fulfilling this strategic milestone. We ended the half year with net debt of just over a billion, consistent with year end. Precious metal working capital decreased as a result of lower metal prices. Refining backlogs remain well managed, but inventory in PGMS increased by about 100 million due to a routine shutdown and stock take at our US refinery. Precious metal working capital increased as a result of lower VAT payables and higher inventory to support sales in our growth businesses. CapEx of 157 million includes the ongoing renewal of our refining assets and the construction of a UK hydrogen technologies plant in Royston. This will complete next March and start operating later in the year, delivering another important milestone. Turning now to the individual businesses. Clean air sales were up 4% as we increased prices and benefited from higher volumes in light and heavy-duty diesel. In light-duty diesel, sales grew 7%, outperforming a declining market with a new platform win in the Americas and a recovery in China after COVID lockdowns. Heavy-duty diesel was up 5%, underperforming the market. We outperformed a strong market in Asia, but in Europe we underperformed a growing market with a weaker mix. Light-duty gasoline sales decreased 1%, underperforming the market. In Europe, sales grew in line with a strong market, but we performed below the market in Asia and the Americas as a result of platform losses. Underlying operating profit in clean air increased 22%. Our focus is on improving the margin, and we have already started to see the results. Margin expanded 110 basis points to 9.6%, supported by increased pricing and cost savings. This was partially offset by a weaker product mix. We expect strong cash flow generation this year, albeit more moderate than last, and we remain on track to generate at least £4 billion of cash through 2031. In PGMS, sales decreased 16% to 230 million against a strong prior year. This was driven by lower average metal prices and reduced recycling volumes due to continued low levels of auto scrap. To give some context, The average price of rhodium over the last three years was over $14,000 an ounce, and it peaked in early 2021 at $29,000. Since then, the price has declined and stabilised at around $4,000 in recent months. Our metal trading service performed well, benefiting from volatile pricing. Operating profit of 78 million was also impacted by lower metal prices, although we offset lower refining volumes through cost savings. Given current metal prices, we are further reviewing the cost base in PGMS in order to improve profitability. In catalyst technologies, sales grew 5% to 282 million. We improved pricing across our portfolio with a stronger commercial focus, and we also delivered good growth in formaldehyde following recent project wins. Licensing sales were up 6%, driven by growth in both our core portfolio and sustainable solutions. We had good license wins in both areas, which Liam will talk to later. Underlying operating profit increased 84% to 35 million. Improved pricing and greater efficiency led to significantly improved margins. These were up 480 basis points to 12.4%, well on our way to our mid-teens target by the end of 2024-25. In hydrogen technologies, sales grew 61% to 37 million, with higher volumes in fuel cells, which represent the majority of our business today. We also increased sales of components and samples in electrolysers. As we scale the business, we're putting an emphasis on strategic customers and multi-year partnerships. These relationships underpin our run rate sales target of more than 200 million by the end of 24-25. The business reported an operating loss of 26 million, reflecting planned investment, though we also benefited from higher volumes. We still expect the business to break even in 25-26. And we are making good progress in the construction of our UK plant in Royston. Together with improved productivity, this means we can phase our CAPEX more effectively. As a result, we're reducing our CAPEX guidance for the three years to 24-25. So moving on to our full year outlook. Given the performance in the first half, we now expect at least high single digit growth in operating performance, assuming constant currency and metal prices. This is underpinned by transformation benefits of 55 million. In clean air, we continue to expect strong growth in operating performance and a stronger second half with double digit operating margin for the full year. External data suggests limited growth in vehicle production this year, so margin expansion will result from further pricing and efficiency benefits. BGM services performance will be driven largely by metal prices, with recycling volumes expected to remain subdued. As I mentioned earlier, we're reviewing the cost base in order to improve profitability. In catalyst technologies, we anticipate very strong growth in operating performance and a significant uplift in margin as we continue to deliver improved pricing and efficiencies. And in hydrogen technologies, we expect sales to grow strongly. We'll continue to invest for growth in a disciplined manner, resulting in an operating loss at a similar level to last year. It's difficult to predict how metal prices will develop, but if they remain at their current level for the rest of the year, the adverse impact on full-year operating performance would be around 80 million, which we're working hard to mitigate. And at current foreign exchange rates, underlying operating profit would be around 15 million lower. Finally, as I mentioned earlier, we're reviewing the phasing and level of capex in hydrogen technologies and now expect group capex of £1 billion over the three years to 2024-2025, a reduction of 10%. So in summary... The economic environment is clearly challenging. So we're driving those things that we can control harder. Commercial rigor, pricing and our transformation program. We now expect to exceed our transformation savings target of 150 million by 2425. Clean air and catalyst technologies drove an encouraging underlying performance in the first half, and we expect this to continue into the second. And finally, we're pleased with the project wins and the progress made in our growth businesses. And with that, I'll hand back to Liam.