Johnson Matthey Plc

Good morning, everyone, and thank you for coming on today. I'm Martin Dunwoody, Director of Investor Relations at Johnson Matthey. As I say, thank you for everyone coming along in person today and those of you who are attending the webcast. Just before we start, can I ask that everyone turns their mobile devices to silent or turn them off? Very pleased today to welcome our CEO, Liam Condon, and our CFO, Stephen Oxley. We'll have a presentation on the results as usual, and then plenty of opportunity for Q&A from the room afterwards. And we will also take questions from the webcast. I point you to our cautionary statement ahead of the presentation. And with that, I will hand over to Liam.

Thank you very much, Martin. And a warm welcome to everybody here in the London Stock Exchange. And of course, a warm welcome to everybody who's joining us online today. Now, I'm afraid I won't have as many surprises as Rishi Sunak had yesterday evening. But I think we can all be grateful that we have a roof over our heads. It's not raining. And I can promise you I'll have a lot more content to deliver together with Stephen today. Now we're going to go through our presentation. We're going to talk, I'm going to give an overview by way of introduction into what's happening at JM. There's a lot of moving parts. We put out the release. And you'll see there is a lot of content in there. I'm going to try and give you the key points up front to try and connect the dots from some of the many moving parts. Then Stephen is going to talk you through the financial details. And then I'm going to talk about the strategic priorities. I think the first thing to note in our results is if you look at the reported results and the underlying results, there's quite a difference. The reason is quite simple. The PGM pricing environment was highly volatile last year. We had a super cycle. and prices were at cyclical highs and they came down. We are now back to what I would call historical averages. So the volatility has moved away from pricing, but that volatility impacted our reported results. And at JM, as you know, there's a pretty big transformation ongoing. And the key thing is, are we making a difference from an underlying point of view? So the things that we can control as JM, are they moving forward or not? And I have to say, I was personally very pleased to see that the underlying results there has been quite significant progress. So growth of 11% in this relatively still weak macroeconomic environment and with all the volatility we have, 11% in underlying growth. This is, of course, without PGM prices and Forex, but this is strong growth, I think, in anybody's book. For me, this is evidence that our strategy is working. But it's not only about the financial numbers. What we've been doing is also making progress from a strategic point of view. When we set out the new strategy two years ago, we said we're going to basically build a better JM, a stronger JM that will help drive the energy transition. And this requires us to have a more agile business model. And we put out a certain strategic milestones and I'll show you in a minute. I think we've made really good progress on all basically almost all of those milestones. And I think really importantly now we're taking it to the next level. We're two years in. We've made progress, but there's much more to go for. So we're raising the bar again and we're going to set new strategic milestones. Now, if we look back and hopefully this slide is familiar to everybody, this is exactly the same as what we set out two years ago. We said we'll be pretty religious and transparent around showing you our progress here. You've seen progress updates every half year. And this is the scorecard after two years in. And you can see that basically across the board, almost all of our strategic milestones are either fully on track or achieved. And I think this is, again, if you take the backdrop of a pretty weak macroeconomic environment, a lot of volatility, also geopolitical instability. I think it's pretty impressive that these targets have all been basically achieved. There's two in here that are coloured yellow and these are related to investments that have been delayed or where production is being started up. And whilst these are not green, I actually think they're a testament to our business model and our agility Because what they're basically saying is if the market is slowing down in certain parts, our investment will slow down in certain parts. And we just have that level of agility, I believe, today that possibly we didn't have two years ago to be able to flex up and down with the market. And this is going to be a theme for us as we go through the presentation today. So overall, I mean, you can pick out any of these milestones. If I highlight the 10 additional large scale projects and catalyst technologies, I think phenomenal progress here. We're going to talk about this a bit later and a lot more to come. If you look at the divestment of value businesses, we had targeted originally 300 million, above 300 million value creation from this. We got over 500 million. I mean, this is a green, but I think it's a very dark green on this one, allows us to do a share buyback. This is, I think, really, really good news. But it's not only the financial value, because we've completed the investment program, it allows us to focus on our core businesses. So it has an additional value for the company as well. And if I pinpoint one more, employee engagement, which is always an early predictor of performance, is going up and has turned green as well. And this is really important during a transformation that you have your employees behind you. So just some highlights in there, and I think good progress to report back on. And I'll come back later and show our new, what I believe are ambitious milestones going forward. Now, before I hand over to Stephen, I want to highlight three themes that are, I would say, mega themes that impact JM. And these three themes are starting to play out partially in our financial results already now, but you will see them play out more over time. I think the key point between these three themes is they show that our diversified portfolio is the right portfolio for JM to win in a relatively volatile environment where the energy transition is clearly not going to be a linear transition with everything moving at the same speed. Things will move at different speeds and we need the agility to be able to flex up and down accordingly. Now, one mega theme is the slowdown in battery electric penetration rates clearly has an impact on our clean air business. Clean air will generate more value than longer was originally anticipated. And this has a positive impact on our clean air business. So clearly on this one, you can look forward to increased targets, particularly around cash flow. And we'll talk about that a little bit later. But really important here, this mega trend has a very significant impact on the value creation possibilities for Johnson Matthey a second theme is very clearly that the development of the hydrogen economy has slowed down and it's still growing and make no mistake about it there will be no transition to net zero without green hydrogen it's very clear But the pace of development has slowed down. The pace of demand increase has slowed down. And with that, as Johnson Matthey, as custodians of capital, we also need to pace ourselves. We also need to then reduce investment if the market is not moving at the pace that was originally anticipated. So here this has an impact rather on our investment profile as opposed to anything else. But a theme we'll pick up on as we go through the presentation. And the final one, and pardon the pun on this, but sustainable aviation fuel really is taking off. It's an area that is driven by a mix of regulatory requirements, whether it's sustainable aviation fuels, sustainable fuels, low carbon hydrogen. This is an area where there has been an acceleration of demand and with that there's an acceleration of our pipeline and this market is a space again where there's probably more opportunity than we had originally anticipated. So we're going to lean in more here. And I think this exactly shows you the diversity of our portfolio, but it also shows you our ability to flex up and down. If there's more value to be had, we'll go after the space where there's more value. If something's slowing down, we will slow investment down and we will make sure that we're investing in a very disciplined manner. So these are mega themes. We're going to come back to these in my presentation, but I wanted to highlight them in advance because they play out throughout both our financial results and later on our strategic priorities. And with that, I'll hand over to Stephen who'll walk you through our financial details. Over to you, Stephen.

Thank you, Liam, and good morning, everyone. Let me start with the headlines. So sales were down 4% and operating profit decreased 8% as our headline numbers were impacted by significantly lower average metal prices. However, we delivered a good underlying performance, driven by our transformation programme and higher pricing. Excluding the impacts of metal price and foreign exchange rates, operating profit was up 11%. As expected, both profit and margin were significantly better in the second half, as the benefits of transformation ramped up and there's more to come. In particular, our focus on efficiencies has driven significant margin improvement in both clean air and catalyst technologies. Underlying earnings per share were 141.3 pence, down as a result of lower operating profit and higher interest. We continue to maintain a strong balance sheet, with net debt to EBITDA at 1.6 times at the lower end of our target range of 1.5 to 2. We are announcing a final dividend today of 55 pence per share, bringing the total dividend to 77 pence, in line with last year. And we've agreed the final divestments of our value businesses. We intend to return 250 million to shareholders via a share buyback once the disposal of medical device components completes, which we expect sometime around the third quarter of this year. Now let's turn to our performance in more detail, starting with sales. Group sales decreased 4% at constant currency to £3.9 billion. Catalyst technology sales were up 6%, with good performance across both catalysts and licensing. Hydrogen technologies grew 31%, with increased demand from our strategic customers. However, growth slowed in the second half as the hydrogen market softened. Clean air sales grew 2% and PGM services decreased, mainly due to lower metal prices. Sales in our value businesses were down because of lower demand in battery systems. And as I said earlier, all of these businesses are now sold or agreed for sale. Turning now to profit. As you can see, underlying operating profit was up 11%, excluding foreign exchange and metal prices. This was driven by cost savings of 75 million from our transformation program and higher pricing, which delivered a benefit of 30 million. There was a negative impact of 25 million as volumes declined across value businesses, catalyst technologies, and PGM services. including the adverse impact of 85 million for metal price and 21 million for foreign exchange, underlying operating profit decreased 8% to 410 million. Let's now look at our transformation program in more detail. As you can see, we've made good progress with cumulative savings of 120 million across a number of areas, including reducing layers of senior management and improving procurement. We've also focused on greater back office efficiency, as well as the consolidation of our office space and clean air's manufacturing footprint. As we continue to transform our business, we've upgraded our cost savings target from in excess of 150 million to 200 million by the end of this year. The full annualized benefit will come in 2025-2026. We expect this upgrade to increase associated costs from 100 to 130 million, of which around 100 is OPEX and the rest is CAPEX. Now looking at the rest of the income statement on an underlying basis. Finance charges increased to 82 million as a result of higher average borrowings and interest rates. The underlying effective tax rate of 20.8% was slightly higher than expected due to the mix of profits across our geographies. We expect some upward pressure on both interest and tax as a result of global minimum tax rates and as we refinance our debt. Our reported results were impacted by a number of non-underlying items. Major impairment and restructuring charges included 78 million of cash from our transformation program and consolidating our clean air footprint. 70 million is non-cash relating to asset impairment, the most significant of which was the write-down of our battery systems business in preparation for sale, which has completed since year end. Our divestment program incurred 9 million of transaction costs, and we'll see the upside of this in the first half of this year when we record the medical device components disposal and record a significant profit. This will bring our divestment programme to a close, with expected net cash proceeds of over 500 million, well above our target of more than 300 million. So turning now to our individual businesses. Clean air sales grew 2% as higher volumes were partially offset by lower pricing, including the impact of contracted price downs. In light-duty diesel, we outperformed the market with share gains and new platforms ramping up in Asia and the Americas. Light-duty gasoline was impacted by historic platform losses as well as lower pricing. As a result, sales were down 6%, underperforming the global market. Heavy-duty diesel was up 2% behind the market. Our strong performance in Asia was partially offset by lower sales in Europe and the Americas. Despite modest sales growth, Clean Air delivered a strong growth in underlying operating profit of 26%. We are now seeing the result of our focus of improving margin, which increased 190 basis points to 10.6%, supported by our efficiency benefits. We expect margin to expand further this year and to reach mid-teens by 2025-2026. In PGM services, sales decreased 17% to 462 million, mainly driven by lower average metal prices. Continued softness in auto scrap volumes were partially offset by high industrial and mining feeds. And to give you some idea of the movement in metal prices, palladium and rhodium reduced in the year by 38% and 64% respectively. With lower metal prices and less volatility, sales in our metal trading business were down. Our products business was broadly flat as wins in pharmaceuticals were offset by cyclical declines in agrochemicals. Operating profit of 164 million was also impacted by lower metal prices and volumes. But it improved in the second half as we continue to deliver efficiencies and metal recoveries from our asset renewals. Metal prices now appear to have stabilized. This should mean far less volatility in PGMS earnings and working capital across the whole group. In June, we will host a seminar on PGMS to give you greater insight into the prospects and drivers for this business. In hydrogen technologies, sales were up 31% to 71 million. Sorry, I seem to have missed a page. In catalyst technologies, I missed the best one. In catalyst technologies, sales grew 6% to 578 million, while operating profit increased 56% to 75 million. Catalyst sales were up 4% as we improved pricing across our portfolio, given our stronger commercial focus. We also delivered good growth in formaldehyde as a result of increased demand for biodegradable plastics in China. In licensing, sales were up 20% driven by growth in both our core portfolio and sustainable technologies. We made great progress on project wins in sustainable technologies where sales doubled from a low base. Higher pricing, better mix and greater efficiency led to significantly improved margin. This was up 390 basis points to 13%, well on our way to our mid-teens target by the end of this year. Now in hydrogen technologies, sales were up 31% to 71 million, driven by our strategic customers. Growth slowed in the second half as the hydrogen market began to soften and customers reduced inventory levels. The business reported an operating loss of 50 million as we invested to build capacity and in product development. We expect the loss to be significantly lower this year, and we now expect the business to break even by the end of 2526. Against a softening market backdrop, we've taken steps to reduce both our cost base and capex. We ended the year with net debt of 951 million, which is lower than the prior year. Precious metal working capital decreased as a result of tighter metal management across the group. This was partially offset by an increase in non-precious metal working capital as a result of lower VAT payables and higher inventory to support sales in our growth businesses. We received 41 million of net disposal proceeds from our value businesses, mainly from diagnostic services, with much more to come. CapEx was 358 million. We invested in the resilience, efficiency and safety of our PGM refining assets. And in hydrogen technologies, we've substantially completed our new manufacturing facility in Royston. Turning now to future cash flow. We have a number of levers to improve cash flow across the group. This starts with the top line. Then our transformation program, efficiency and commercial excellence initiatives that are driving higher margins. We've already seen the benefits in both clean air and catalyst technologies. And once we've delivered our 200 million cost savings, there are further benefits to come. Our new PGM refinery is set to deliver a meaningful improvement in working capital. And once it's complete, our capex intensity will also reduce significantly. In addition, more stable metal prices will smooth the recent volatility in our working capital, which means the vast majority of cash generated by Clean Air will drop through to free cash flow for the group rather than being absorbed by PGMs. All of these dynamics mean greater free cash from the group over the medium term. We're providing new capex guidance for the next three years to 26-27 of up to 900 million. As you can see here, capex is on a downward path and we expect that to continue. The largest spend over the next three years will be in PGM services, which includes around 250 million towards our new world-class refinery. This will be self-funded through the resulting improvement in working capital. Once this is complete, PGM services trends towards maintenance capex, just like clean air. In catalyst technologies, we're investing to support growth in our sustainable technologies portfolio. These are low risk investments that are project backed and with limited investment ahead of demand. As I said earlier, we've significantly reduced capex in hydrogen technologies, and this now represents just 10% of our three year spend as we pace investment with the development of the market. Finally, turning to outlook for 2425. On a continuing basis, excluding value businesses, we expect at least mid single digit growth in operating performance, assuming constant currency and metal prices. By business, we expect modest growth in clean airs operating performance with continued margin expansion driven by efficiencies before benefiting next year from recent platform wins. PGM services performance is expected to be broadly stable with limited impact from precious metal prices. In catalyst technologies, we expect further strong growth in operating performance and mid-teens margins. And in hydrogen technologies, we expect modest sales growth and significantly lower operating losses as we manage our investment in line with the market. Assuming foreign exchange and metal prices remain at their current levels, the adverse impact on full-year operating profit would be around 5 million. So in summary, we've delivered a good underlying performance with operating profit up 11%. Catalyst technologies, which is key to our medium-term growth, is growing strongly. And in clean air, we've upgraded our cash flow target. Alongside increased cost savings from our transformation programme, stabilised metal prices and lower capex, we will drive improved free cash flow. And with that, I'll hand back to Liam.