Johnson Matthey Plc

Well, good morning, everyone, and thank you for coming along to the LSE this morning. I'm Martin Dunwoody, Director of Investor Relations at Johnson Matthey, and thank you, as I say, for coming along to everyone in the room and those on the webcast. A little bit of admin before we start. Could everyone turn off mobile devices or onto silent please? We will follow the usual format this morning. Lots of news obviously, but usual format will have a presentation followed by Q&A both from the room and the webcast. Very pleased to welcome today our CEO Liam Condon and our new CFO Richard Pike. I will point you to the cautionary statement ahead of the presentation. And then. the agenda today we will go through Liam will take you through an introduction then we'll run through the financial results with Richard before Liam takes us through a strategy update obviously very interesting given the news this morning and then what that means in terms of financial outcomes from Richard before Liam wraps up with a conclusion and then we'll come back to Q&A from the room so with that I'll hand over to Liam thank you

Thank you very much Martin and a warm welcome to everybody here in the London Stock Exchange and of course everybody joining us online. So three years ago I presented for the first time here and I have to say a lot can happen in three years and I hope today is going to be the most exciting of the presentations I've held so far. Very much looking forward to doing this together with our new CFO Richard. Maybe just by way of intro, there's a lot of news today, particularly around the sale of Catalyst Technologies. And just a small backdrop to that, because I vividly recall three years ago being asked when I joined if I would be open and the company would be opening to selling different parts of the business. And at the time, I said, I do firmly believe Johnson Matthey needs to focus a lot more. We need to do a better job of simplification and we need to execute better. And we had a divestment plan in place, which we've executed on diligently. You saw the returns from MDC last year. Fantastic shareholder returns there. And now we have a new situation today. And what has changed versus three years ago, what I can tell you was there was interest even three years ago in somebody acquiring the catalyst technologies business. But the valuation that was on offer then was minuscule compared with today. And my answer three years ago was there's no point in selling other parts of the portfolio because we will not get the value for them because in our core underlying business, the margins were actually too low and the growth trajectory was not on the right pathway. And we've invested a lot in the past three years in fundamentally reshaping Johnson Matthey. And if I take Catalyst Technologies as an example, three years ago, this was a 7% operating... a profit business seven percent we were losing market share it had a 30 million EBITDA if we had sold catalyst technologies at that point in time we would have been lucky to get four to five hundred million for it fast forward to today Our team, revamp team, has done an absolutely fantastic job improving operational efficiency in the business, driving the margin. We increased sales by 50%. We doubled the margin from 7% to 14%. We trebled profitability. And now Honeywell has come and said, we recognize that. We see the true potential of that business, and we're willing to pay full price for that. And that's what we looked at with our board and with our advisors, and we concluded that is a good deal. So that is the backdrop to the first announcement that we're making today, the Catalyst technology sale, which I'll talk a little bit more about in a minute. Second piece is then, well, what about the rest of JM? And we're going to talk extensively about this. We are in much better shape than we were three years ago. Three years ago, the outlook for clean air wasn't so rosy. Again, a business with 8% margins, around that ballpark and concerns with the energy transition electrification that this business was going to fall off a cliff sooner rather than later that has fundamentally changed our business is much stronger today much higher margins almost 12 margin this year will be mid-teens at the end of this year and going towards 16 18 fundamentally different business Three years ago in platinum group metals, we were suffering from old refineries that were clogging up working capital, preventing us in our ability to generate cash. By the time this deal closes, we'll be commissioning our new world-class refinery that will allow us a step change in cash generation. This is a fundamentally different JM going forward than it was three years ago. So the rest of JM has a fantastic future and we'll talk about that as we go through. And the key point is we're incredibly value focused now going forward and now we're able to promise cash returns which we couldn't in the past. And Richard is going to expand on this extensively, what gives us the confidence in this and the confidence to be able to commit to delivering materially enhanced shareholder returns. So quick backdrop on the deal. As you've seen, very big deal, 1.8 billion. If you looked at the market cap yesterday, this is about 80% of the market cap for less than 20% of the businesses. This is quite a compelling valuation. You can look at it from a multiple point of view in different ways. We look at it originally from a reported EBITDA point of view. We come to 15 times. We have agreed with Honeywell on a standalone basis. If you add in additional costs, we'd say 13 times. And Honeywell will have another multiple based on synergies and taxes as well. Either way, it's a great multiple for this business, particularly if you compare with the multiple of Johnson Matthey today. This is a tremendous valuation. Net sale proceeds. So of the 1.8, 200 million will go in tax and horrendous advisory costs and other... other elements and of that net £1.6 billion will be returning £1.4 billion to shareholders. Based on yesterday's share price of about £14, that's £8 a share will be going back to shareholders. And we have a new, and Richard will expand on this, a new net leverage ratio, debt leverage ratio of 1 to 1.5, within which we'll be comfortably within that. This is, of course, subject to regulatory approval. There is almost no overlap between the two businesses, so we expect this to be relatively straightforward, but that's for the regulatory authorities to opine on. We expect it to close in the first half of the calendar year 2026. So until then, of course, Catalyst Technologies remains a part of Johnson Matthey and Johnson Matthey and Honeywell remain competitors. So we run the businesses separately, but we would expect to close and have that transition then completed in the first half of next year. And then the remainder of JM, as already outlined, the focus here is going to be on our core competencies. And those of you who are around in 22 will remember that I spoke extensively about the need for Johnson Matthey to focus on where we're really good and do it really well and not get distracted by lots of other things. Where were world champions? Clearly platinum group metals. That's where we will remain world champions. And with our new refinery coming on tap, this opens up entirely new possibilities for Johnson Matthey. And Clean Air, as I already outlined, has made really tremendous progress in the past three years. It's a different business than it was three years ago. And going forward, we have a lot of confidence that it's going to be even stronger. We'll talk a little bit about pockets of growth optionality that we have in the business, but main message is here, we have a much stronger PGM and clean air business going forward, which will drive a tremendous step change in our ability to generate cash and to commit to cash returns for investors. So beyond, let's say, the 1.4 billion that will go back to shareholders as a result of this deal, what we are committing to, and Richard will expand on this, is 200 million in cash returns sustainably every year from 26, 27 onwards. So that is a firm commitment going forward and I think an important part of our overall JM narrative going forward. So what can you expect by 27, 28? If we look at pro forma 27, 28, we won't have catalyst technologies. What you can expect is mid single digit Kager in the pro forma operating profit, um, What you can expect is that we'll be generating sustainable free cash flow of at least 250 million. And as I just alluded to, we'll be returning 200 million a year sustainably to shareholders from 26, 27 onwards. So that's just kind of the headline news of what we want to announce today. And now Richard's going to take you through the past year and maybe got a little bit lost in the excitement of of the announcement of the sale of Catalyst Technologies. But despite some concerns at half year, I'm really pleased how the team dug in and ensured that we achieved our guidance for the full year. We actually had a really strong second half, which gives us great momentum. And to elaborate further on that, I'll hand over to Richard. Richard, over to you.

Good morning, everybody, and thanks, Liam, for that. So, as Liam said, I'm sure you're much more excited about the going forward position rather than looking backwards. But I think there's some really important points in here in terms of the year that we've just ended, and particularly the second half, in terms of our momentum as a business. And I'll look to try and draw that out as I take you through the slides. Just touching the highlights, I mean, difficult backdrop, particularly in automotive. You know, that's sales are down like for like 2%. Virtually all of that's in clean air. But despite that, our underlying operating profit was still up 5%, primarily as a result of self-help measures. If you look at our free cash flow, strong free cash flow, but a lot of that came from the disposal of the medical devices business. But nevertheless, we actually did generate positive free cash flow for the year as a whole. And I'll come back to the first half on second half, because if you look at the swing from the first half to second half, we generated 400 million improvement in cash flow from sequentially from half one to half two. We have got quite a lot of one-off items in our numbers this year, and I'll come back to that in a slide just to explain why and what they are. Our net debt's down to £799 million, so pretty comfortable, 1.4 times leverage, and that's after returning just under £400 million to shareholders during the year. And I can confirm that we've now completed our 250 million share buyback and also yesterday, as a board, confirmed maintaining the dividend at 77 pence, which is 130 million of dividends for the year as a whole. I'm not going to labour the P&L because actually I've covered most of the things in the highlights or in the detail that we come back to in the next few slides. So I'll move us straight to sales. So you can see here the detail. As I mentioned, we've had 8% decline in clean air. Most other areas of the business have moved forward. Clean air, basically, that's a function of the global automotive production environment, so I don't think there's any surprises there. You can see in R&S a bit more of a breakdown between the various sub-segments and geographies. On PGMS, we had a strong second half, as Liam said, particularly on the refining side. which has driven us forward in that regard. Catalyst Technologies, under Moritz's leadership, have got a stellar record, as Liam said, in terms of the last three years. And this year is another continuum in that vein. Strong licensing revenue growth and actually strong catalyst growth as well as a result of new customer plants coming online. And hydrogen has gone backwards. We all know where the hydrogen market is. And a lot of this was first half weighted as a result of destocking in the fuel cell area. Moving on to profit. Again, I'm going to focus quite a bit on the second half. Clean air, as Liam said. It's both improved, as we normally do, first half to second half, because of seasonality. But more importantly... 13.2 percent margin in clean air in the second half you'll see from the the rns the sort of revenue breakdown by sector so clean air went backwards in the second half similar to the first half but obviously increased profits quite substantially and that's all about focusing on operational improvement commercial excellence getting out getting our overheads down all the things you'd expect in this type of business i think we've got a real drumbeat of activity there that positions as well for going forward PGM, you can see that we nearly doubled the profitability in the second half. And I think, as Liam said, I think there was a bit of nervousness at the half in terms of whether or not we can actually do that. So I think there's been really good focus in the business in terms of delivery on that number. Catalyst Technologies, although slightly down in the second half, were actually up in the second half versus last year as a result of the sort of momentum in the business. And hydrogen, really important, I think. You can see here a halving of the ruin rate of our losses in the second half. And against our promise that we'll get to a break-even position in the final quarter of this year, we're moving in the right direction. If I then come to the profit bridge and sort of explain why, and underneath those headlines by sector, what is it that's driving it? In very simple terms, you can see here, if you go to the 381 number, our underlying profitability for last year, when you strip out the divestments and compare it with 399, basically our outcome for this year before FX, basically, you've had about 60 million of headwinds, automotive volumes... a little bit of metal pricing pressure, mix overall, and obviously some degree of inflation. But we've more than offset all of that through our cost reductions under the transformation programme. And that, I think, again, coming back to my point about reasons to believe, gives us that drumbeat of activity and the ability to build on this as we go forward is really important for us. I said I'd come back to the non-underlying items. So firstly, a large exceptional gain in terms of medical device components. We sold that business for $592 million, I think, and generated a $491 million profit. So large elements of outcomes, large value creation from that area. But equally, because of where the markets are, we've had to basically take some right downs. So for the reasons we've previously talked about in terms of hydrogen, our profitability forecasts have moved to the right. Basically, when you look at accounting standards, International Accounting Standard 36, If your profitability doesn't generate sufficient levels within a defined time frame, you have to take impairment on the assets, and that's what's going on here with hydrogen. We have a couple of hundred million tied up in hydrogen. We've written off just over half of that balance in the year. That's in no way indicative of our actual belief in this business going forward. We think there is optionality here. There's great growth options. When the market comes back, we've now laid down the assets to actually take advantage of that. Unfortunately, that market isn't there today, and hence this impairment. We have then had other impairments. So in China in particular, we've impaired our China refinery. And I think that's partly because the market has changed over the last couple of years in terms of the competitive environment. And partly it's linked to hydrogen because a large part of that capacity was actually there to underpin the growth in the hydrogen market, which just isn't there today. Clean air, as an ongoing, not only have we been driving operational improvement, but we've also been looking at footprint. We've taken out nearly 20% of our lines over the recent past, and hence there's a write-down on some of those assets. We've also had some degree of write-down on IT, and most of the restructuring charges are linked to our transformation program. 70-odd million of that is people costs associated with the 200 million run rate moving forward. Moving to cash... I think there's a couple of things to draw out here. Firstly, there's an ongoing theme from shareholders with Gem. You generate cash, but where does it go? And there's a bit of that here, if you look. We've generated 572 million of EBITDA, and then we've driven another near 90 million out of working capital in the year. But actually, it's been eaten up in CapEx interest and primarily restructuring costs and pension contributions. So when I look forward, you'll hear me talking about these areas. How are we going to actually make sure that we're driving at least or more profit? How do we actually change this CapEx number? How do we actually get working capital moving to a different place so that actually we are generating positive cash flow year on year? CapEx in particular, we've spent £1.25 billion on CapEx over the last four years. And if you look at our return on capital, it's not high enough. So all these things are a real focus for the business. Positives, though, I mean, as I mentioned, the disposal of medical devices business, really positive for cash flow, and we've returned nearly 400 million of that to shareholders during the year. This is the point I mentioned earlier in terms of the swing in terms of cash flow, and I think this is a really important point, as well as the drivers of profitability. That cash outflow in the first half, which in part was to do with our maintenance shutdowns in PGMS, that swing I think is indicative of actually a shift in focus in the business towards cash, and you're going to see that as a continuing theme as we move forward. So to actually move on to sort of this year, where are we seeing things? So if I talk about like for like, put tariffs to one side for a second. Basically, we've... We've delivered 120 basis points of improvement in clean air. That's moving us in the right direction. As Liam said, we see ourselves moving forward towards mid-digits or 14% to 15% margins in the coming year. And actually, we've generated further 400 million in free cash flow. That's now cumulatively 2.4 billion. This ongoing drumbeat of improvement activity and underlying profitability is what gives us that belief to generate the £4.5 billion that we've promised over the period 2031. Key focus area in PGM, Louise coming relatively new into role, is getting this refinery built. It's fundamental. It's at the core of our business. It's at the core of our wider business, not just PGM. We've got another 12 months or so of build, but we expect to sort of move into commissioning phase by the end of this year and then to get through commissioning during the first half of next year. And we've got real confidence in that as well. Liam will come back to our reason for belief around that. But actually, I think we're in pretty good shape. What more can I say about Catalyst Technologies? The performance we've had ultimately has led to a situation whereby it's become a really attractive asset and I think the value we've achieved for that business is very strong for JM and we think that's a great home for the business going forward. It'll be part of a broader business in a similar space and a much bigger group and we think Moritz and the team are going to enjoy that new home once we get there because it will be part of the group for most of this current year. And hydrogen, as I mentioned, the halving of losses during the second half puts us in the right shape to actually be moving forward towards the cash break-even position. So I'm going to now hand back to Liam, and then when Liam's sort of taking you through the key areas, I'll come back on actually what does that mean going forward in terms of the financial position for the group.