Johnson Matthey Plc

Right. Are we working? Yeah. Good morning, everyone. I'm Martin Dunwoody, Director of Investor Relations here at Johnson & Mathey. Thank you, everyone, for coming along today and for those of you who have tuned in on the webcast. A little bit of admin before we start. If you have mobile devices, please could you turn them off or turn them to silent? We're going to follow the usual format today, so we'll have presentation, followed by Q&A. And we'll take the Q&A first from the room, then the webcast. And I'd say very pleased to welcome today Liam Condon, our CEO, and Stephen Oxley, our CFO. I'll point to our cautionary statement as usual. And with that, I'll hand over to Liam for the presentation.

So thanks a lot, Martin, and a warm welcome to everybody here at the London Stock Exchange. And of course, very warm welcome to everybody who's joining us online today. As Martin said, I will give a brief introduction, say a little bit about what's happening in our markets and what's happening at JM in the past six months. Stephen's going to talk you through the financials. I'll give you an update on our strategic progress, and then we'll have most of the time available for Q&A, which we are very much looking forward to. So if we get straight into it, what you've seen from our results that we published this morning, was, we believe, a pretty resilient performance in the first half. And it was actually very much in line with our expectations. To tell you the truth, this is the first time since I've been at Johnson Matthey that we were slightly ahead of our internal budget. So just by way of framing, this was very much in line with our internal expectations. Really important point, we have maintained our full year outlook, which implies a strong second half. And I'm going to, together with Stephen, explain to you why we have that confidence in the second half. It goes without saying it's a very challenging backdrop from a macroeconomic point of view. but there's a lot of things that we as Johnson Matthey can control and we're going to talk about what they are and how they're impacting our results. One of the things that's very much in our control is our ongoing transformation. We're becoming a more efficient organization overall and you can see the benefits of that transformation both in the first half from a savings point of view and more to come in the second half and indeed in the following year as well. So we'll talk a little bit about that. And we're progressing. I think it's really important for a company like JM that's been around for 207 years, which has a very strong purpose to catalyse the net zero transition. It's important that we're not only making operational progress, really important that we're making progress on the strategic side as well. And I'm happy to say we're making very good progress here. Now, I mentioned we talk a lot internally about controlling the controllables. Focusing and we can't complain about all the stuff that's not going in our favor. We double down and focus our energy on what we can control. I'm going to unpick that a little bit. I would also mention this is, for Johnson Matthey, this financial year is really a tale of two halves. You've seen two of our businesses perform well, very well, I would argue, in the first half, and two that didn't perform so well, and I'll explain that later. So the two performing well, if you look at the overall environment for clean air, the automotive environment, I don't think anybody would argue is a difficult environment. We've actually managed to improve margin in clean air. This is a lot due to the transformation that's ongoing. A lot of progress also on winning new platforms. So I think here, very robust performance from Clean Air. Catalyst technology is the same. Great progress from a margin point of view in a chemical market that's not exactly booming. Here, good, really, really strong progress. We've also made significant progress on our manufacturing and operational efficiency side. And also here are making some noticeable wins. So good, robust, very solid first half for these two businesses and more to come. You can expect clean air to continue in the second half. You can expect catalyst technologies to continue to be strong in the second half as well. So year on year, catalyst technologies will continue to grow. What you didn't see was a strong performance from platinum group metals and you didn't see a strong performance from hydrogen technologies. So what can you expect to come here? You can expect a very strong second half for platinum group metals. And there are multiple reasons behind this. And this was in our original budget from a phasing point of view. We expect and have line of sight to a significant uptick in volumes from a refining point of view. So we have managed to replace, due to our commercial excellence efforts, managed to replace a lot of the automotive scrap, automotive catalyst scrap refining volumes, which have been somewhat depressed. We've managed to replace that with industrial feed, which is actually higher margin product, which is actually on site ready for refining now. So this is something that we know is there and is something that we can lean into in the second half. So increased volumes on the refining side. We also have a very strong and growing life science technology products business for platinum group metals, where from a seasonality point of view, vast majority of those sales come in our second half. So there we have clear line of sight. We also had planned downtime in our refineries. In the first half, which meant we didn't have as much metal recovery as if we didn't have that situation. So we expect more metal recoveries in the second half. And we have, same, a transformation efficiency program ongoing in platinum group metals. So a multitude of reasons to explain why PGMs will be so much stronger in the second half than in the first half. And on hydrogen technologies, you saw a loss. This is a, and it's still an investment business, a nascent investment business. You saw a loss that was of the magnitude of previous year, but lower sales. And of course, those lower sales have an impact then on the size of the loss. So what you will see going forward is a sequential improvement on that loss in the second half. So that will become visible because of the restructuring and the cost measures that we've already taken in that business. So a lot to look forward to in the second half. And that's all against the backdrop of what is, we believe, a very disciplined approach to capital allocation. We said we were going to divest anything that's non-core. We have completed those divestments in a relatively short frame of time, completely done. We've gotten very good cash return for those divestments. And as we had committed to shareholders, we said if we have excess divestment, cash, we'll return it to shareholders. So we're in the middle of a 250 million share buyback, again delivering on the commitments that we made. And given that some elements of net zero transition, particularly related to green hydrogen, have slowed down, we're adjusting our capex, adjusting our spending level going forward. and that also ultimately will impact our ability to generate cash from a positive point of view. So overall, plenty of reasons to understand, hopefully, why we have strong confidence in the second half, and with that, why we maintain our guidance for the full year. Now to take you through the first half financials in more detail, I'll hand over to Stephen, and with that, Stephen, over to you.

Thank you, Liam. And good morning, everyone. Let me start with the headlines. So we've delivered a resilient performance in the face of challenging end markets. On a continuing basis, sales decreased 3% and underlying operating profit 4% in line with our expectations. As you heard from Liam, we expect a stronger second half with greater transformation benefits and stronger PGM services, so we maintain our full year guidance. Free cash flow was 347 million. This was driven by proceeds from the disposal of medical device components, which completed on the 1st of July. And that concludes the divestment of our value businesses. Net debt closed at 783 million lower than year end and at 1.4 times EBITDA compared to our target range of one and a half to two times. We started our 250 million share buyback in July and completed half of this in September. The second tranche will complete by March. And we declared an interim dividend of 22 pence per share in line with last year. Now let's turn to our performance in more detail, starting with sales. Sales excluding divestments decreased 3% at constant currency to £1.7 billion. Clean air sales were down 7% to £1.2 billion as the business was impacted by weak end markets as well as previously announced platform losses. Sales in PGM services decreased 9% to 207 million, largely driven by our refining and trading businesses. Catalyst technologies grew 20% to 336 million as licensing sales more than doubled and Catalyst delivered double-digit growth. In hydrogen technologies, sales declined to £20 million as slowdown in the market development. So turning now to profit. Underlying operating profit was down 4%, excluding divestments and foreign exchange. This was partly driven by pricing headwinds from historic contract commitments in clean air and mixed effects. Volume growth in CT was more than offset by declines in clean air and PGM services. And as we discussed in May, metal prices have stabilized with an impact of just 3 million in the first half. Excluding this, operating profit decreased 2%. As you can see, we almost fully mitigated our top-line performance through the benefits of our transformation program. We delivered 35 million of cost savings in the first half, bringing the total to 155 million. We're on track to deliver 200 million savings by the end of this year. And as these savings annualise, we would deliver a benefit of more than 50 million in 2025-26, bringing total savings to more than 250 million. Initiatives in the second half include further reducing headcount, optimising our procurement and embedding global business services. The estimated cash cost to deliver the programme remains unchanged at 130 million with around 20 million to go. Looking at the rest of the income statement on an underlying basis. Finance charges decreased to 23 million as a result of hedging benefits and a release of interest on tax provisions. We expect the full year interest charge to be around 60 million. The underlying effective tax rate of 22% is in line with guidance as the world moves towards higher minimum tax rates. And underlying earnings per share were 57.4 pence. Our reported operating profit of 575 million benefited from a gain of 484 million, largely from the disposal of medical device components. In addition, we incurred 63 million of major impairment and restructuring charges. This comprises 23 million of non-cash impairments, and that's mainly due to the rationalization of our IT assets, and 40 million in cash restructuring charges as we continue our transformation. So turning now to the individual businesses. Clean air sales decreased 7% against a challenging market backdrop, where global vehicle production declined across both light and heavy duty. Volumes were also impacted by platform losses that I mentioned earlier. In light duty diesel, sales grew 2%, outperforming a declining market. This was mainly driven by a favorable product and customer mix in Asia. Sales in light-duty gasoline were down 11% as a result of lower market production, underperformance of our customers in China, as well as some platform losses in Europe and North America. And in heavy-duty diesel, sales decreased 16% due to customer underperformance in Europe, share losses in China, and weaker Class 8 truck volumes in North America, including the ramp down of a large customer platform. Despite the decrease in sales, operating profit increased 2% as we continue to focus on operational excellence and transformation. Margin increased 80 basis points to 10.4%. And we expect a sequential improvement in operating performance in the second half with further margin expansion towards our 25-26 mid-teens target. Finally, we expect strong further cash flow this year and remain on track to deliver our target of at least 4.5 billion. In PGM services, sales decreased 9% to 207 million. Our refining business was impacted by lower volumes with continued softness in auto scrap recycling and lower metal recoveries. With stable metal prices, there was a price headwind of just 3 million. Our PGM trading business was also down due to market softness and lower metal price volatility. Operating profit decreased 35% to 51 million as a result of lower refining volumes, metal recoveries and metal trading gains. So looking ahead, as Liam said earlier, we expect the second half to be significantly stronger. We have clear line of sight over higher volumes, increased metal recoveries and efficiency benefits as we optimize our cost base. In catalyst technologies, sales grew 20% to $336 million, while operating profit increased 43% to $50 million. Sales in catalysts were up 10%, driven by first fills, as new customer plants came online in China, and a cyclical recovery in methanol refills. This more than offset a weaker performance in additives and a slowdown in formaldehyde. In licensing, sales more than doubled to 60 million, largely driven by our existing portfolio. And there was continued momentum in sustainable technologies where sales more than trebled from a low base. A greater contribution from licensing, higher catalyst volumes and efficiency benefits helped to deliver strong profit growth and margin expanded to 14.9%. Following a strong first half, especially in licensing, where sales can be lumpy, we expect the second half to be slightly lower. We maintain our guidance of strong growth and mid-teens margins for the full year. In hydrogen technologies, sales decreased to 20 million, driven by a slowdown in market development and customer destocking. The business reported an operating loss of 26 million in line with last year as we reduced cost and investment to offset lower sales. Looking ahead, we expect a significantly lower operating loss in the second half as we take further action to reduce cost. And we still expect the business to break even by the end of 25-26. We closed the first half with net debt of 783 million, 168 million lower than March, and as I said earlier, net debt to EBITDA was 1.4 times. This reduction was driven by strong cash flow from divestments, partially offset by returning 224 million to shareholders through dividends and the share buyback. Precious metal working capital was flat, recognising stable metal prices and efficient management of our metal balances. Non-metal working capital increased by 146 million, mainly due to lower payables. We expect to drive working capital down over the second half by reducing inventory levels and to deliver strong operating cash flow across the group. Capex was 171 million, including investment in our new world-class refinery in PGMS. This remains on budget and on schedule to start commissioning by the end of 2025-2026. We have a clear path to improve future cash flow. Our transformation and cost programs are driving higher margins, allowing more cash to drop through from our operations. CapEx is trending downwards. In May, we guided to up to 900 million over the three years to 26-27, a reduction on previous periods. Around 250 million is for our new PGM refinery, which will be self-funded through lower working capital. Once complete, capex will then reduce substantially. Finally, we do not expect material swings in working capital now that PGM prices have stabilised. So taken together, this will generate improved cash flow and the opportunity for greater returns to shareholders. Finally then, turning to the outlook. As you've heard, we maintain our guidance for the full year. On a like-for-like basis, excluding divestments, we expect at least mid-single-digit growth in operating performance at constant currency and metal prices. In clean air, we expect modest growth in operating performance supported by further transformation benefits. In PGM services, we expect a broadly stable performance with a significantly stronger second half driven by higher sales, metal recoveries and cost optimisation. We expect catalyst technologies to deliver strong growth and mid-teens margins with a slightly lower second half. And despite lower sales in hydrogen technologies, we anticipate a significantly smaller operating loss as we make further cost reductions. And if metal prices and exchange rates remain at their current level for the rest of the year, we expect adverse impacts of around 3 and 10 million, respectively. So in summary, in the face of challenging market conditions, we've delivered a resilient performance and we maintain our full year guidance of at least mid single digit growth. We're managing the things that we can control, driving our transformation program, reducing our cost base, investing with discipline and running an efficient balance sheet. We're generating strong cash flows. Net debt is down to 0.8 billion. And we're making returns to shareholders through dividends and our share buyback. And with that, I'll hand back to Liam.