Johnson Matthey Plc

Good morning, everyone. I'm Louise Curran, Head of Investor Relations at Johnson Matthey, and a very warm welcome this morning to our half-year results presentation. Thank you, everyone, for coming along to the Andaz today, and a welcome to those joining on the webcast as well. A little bit of admin before we start. If you could please turn your phones off or onto silent, and I'll point your attention to the cautionary statement. I'm very pleased today to welcome Liam Condon, Chief Executive Officer, and Richard Pyke, our CFO, In terms of agenda, we'll follow the usual format. Liam will run you through an overview. Richard will then take you through the financial results. And then Liam will cover our strategic progress in the half. And we'll, of course, leave plenty of time at the end for Q&A both in the room and then on the webcast. And with that, I'll hand over to Liam.

Thanks a lot, Louise, and a big congratulations to you on your new role. And a big thanks also to your predecessor, Martin Dunwoody, who's done great work for us. A warm welcome to everybody here in the Andaz Hotel. I'm really happy there's so many people here so we can get some heat into the room because it was a very cold morning. And a warm welcome to everybody who's joining us online today. So I'm just going to hit some of the highlights of the half and then talk about some of the key priorities that we're working on that we're going to give you more color on throughout the presentation today. So first of all, I think that the standout was the underlying operating performance increasing by 38%. an 11% increase in clean air and a 33% increase in platinum group metals. So in the environment we're in I think a very strong overall performance and a good indication of the progress we're making here. Secondly, and Richard will talk extensively about this, you will see very good progress on our implementation of our new cash focused business model. We had a significant cash outflow in the first half of last year. This time around you will see a significant turnaround and a small inflow. So that's quite a big movement and there is a lot more to come in the second half and then of course in the subsequent years. And the building blocks behind that Richard's going to talk to you about. And the third point, which is very important as well, the sale of Catalyst Technologies to Honeywell is on track. We had said that that will close in the first half, calendar half of 26, and that remains the case. And once we close that deal, as we said, we'll be returning £1.4 billion to shareholders upon closure. A final point I'd make is we have made some announcements this morning around organisational changes. I'm sure I'll be talking a little bit about this later on, what the rationale behind that is. I'll make it clear for the purpose of today's presentation, Richard is in his CFO role. Only when we get to the Q&A, you can gladly ask him about his motivation for the new role going forward. But first and foremost, it's the CFO role for today's presentation. So a few of the top priorities that we have for the next six months, for the full year and then subsequently, and just the progress we're making around that. I've already mentioned the sale of catalyst technologies and we'll unpick that a little bit later on, so what still needs to happen. But here we're fully on track for that closing in the first half of calendar 26. The second one, we've spoken extensively about our ambition to significantly increase the margin of clean air. And here you can see, again, very strong progress, 200 base point increase in the margin for clean air. an increase in absolute profitability so despite declining volumes this is a really strong performance and leaves us completely on track for our target of 14 to 15 margin of by the full year this year and with that on track for our ambition 27 28 of getting to basically 16 to 18 margin Very strong performance from Platinum Group Metal Services with 33% increase in underlying operating profit. This was clearly helped also by Platinum Group Metal pricing, the trading business, but it's also refining which has been doing well and it's also efficiencies which is where we've simply been running the business more efficiently. So a strong underlying performance here. Our new PGM refinery, which is a huge investment, and I think against the background of the importance of critical minerals, it's hard to underestimate how important this is both for JM, I think the UK, and globally. This is the world's biggest refining plant for platinum group metals. that we're building in Royston, out beside Cambridge. This is on track to start commissioning by March of 2026. It's a very big capital project. It's about £350 million capital expenditure here. And we do have a small delay of a few months, but because we have our ongoing refinery, our old refinery, our 60-year refinery, still running in parallel, this has no impact on our guidance or our ability to deliver to our customers. So in the bigger context, it's a smaller delay, but important to flag it that it's a few months. On hydrogen technologies, we are on track, and again this is now almost end of November, we're very much on track for breaking even by the end, or have run rate break even by March 26. This is something that we had committed to. And we have line of sight of that. And we're confirming that again today. I think there was some skepticism that we might get there. But we absolutely have line of sight to that. And that's why we are reconfirming that we will break even with that business or have run rate break even by March 26th. And then the final point, and again Richard will talk to this extensively, is the significant improvement in free cash flow and the building blocks going forward to give you that confidence that we will be generating 250 million free cash flow going forward on a consistent basis. And what's behind that, Richard will explain. So they're kind of the highlights. We'll unpick different elements of this as we go through the presentation. But first, I think it'd be helpful to go through the detail of the half-year results. And then I'll come back and share some more color on these strategic priorities. And with that, Richard, over to you.

Thanks, Liam. Good morning, everybody. So the building on Liam's introduction, just to remind everybody, we've now treated catalyst technologies discontinued, so the results that we'll present are excluding CT. Obviously, still a very much of an integral part of the group until we affect the sale to Honeywell, but all the numbers in here are talking about essentially the remaining business going forward. So as Liam said, I think we're really pleased with this in terms of against the targets we set out in May, actually we think we've made really strong progress pretty much across the board against where we said we would focus. So you can see that despite sales being modestly down as a result of primarily clean air volume decline, basically you're seeing strong improvements in underlying operating profit, significantly because we're focusing on the things that are within our control. That feeds through to earnings per share. And to my mind, and I will, as Liam said, spend quite a bit of time on this, I think for me, possibly, despite those headline operating profit numbers, which I think are really quite impressive in the current environment, I think the free cash flow focus in the modest time we've actually started to shift gear on this is moving very well in the right direction. Our net debt is up. That's primarily because CT had cash outflow in the first half and the dividend. We've also had a significant stock build in our US refinery because we took it down for a maintenance shut in October. So despite the stock build and despite metal prices being higher, I actually think this is all quite a good news story. And I'll talk about how that's going to play through in the second half. As a result of which, we're maintaining our dividend at 22 pence per share. In terms of looking at the P&L, I mean, I just touched on the highlights there. The only real thing I'm going to draw out is the interest charge you can see is higher year on year. That's because we had a couple of one-off non-recurring items in the prior year. This level of interest charge gives you a feel for the run rate of where interest cost is on an ongoing basis. Coming down to the businesses, so in clean air, pretty much if you look across the piece to how we're forming, LDD pretty much in line with market. Europe's been difficult for us this year, but pretty much in line. LDG worse than market, but if you recall, several years ago we made a shift from gasoline towards diesel to the primary focus, so we came out of a number of those. We've had platforms that were on running off over time, and this is a picture you're seeing that running off. In more recent times, we had an increased focus primarily towards hybrid. You've seen that in terms of announcements, but they take a while to come through. So you've got a gap between when we announce something and it's starting to feed through as a numbers. So there's no surprises in here from our point of view. And actually, HDD, we're actually start ahead of the market. So in the area that we consider was likely to continue to grow going forward and where we're strongest in terms of market share and positioning, we're actually doing better than the market as well. Over and above the sales position, basically what you can see here is the strong focus on our costs. I said basically the full year. If you looked at our plan to get us from the 12% last year into the mid-teens this year, a lot of that will be about overhead reduction. You can see that coming through in terms of the margin improvement. Also, the operational excellence, commercial excellence, those areas are getting more ingrained in the organisation. I think this gives us a strong belief that actually we're heading towards that 16% to 18% margin range. BGMS, good half. We had a weak first half last year. We have benefited from higher metal prices this year versus last year. And actually, it's been a more volatile trading environment. So the trading side of our business benefits when it's more volatile. So those things are fading through. But pleased there in terms of year-on-year improvement. There's a lot of focus at the moment. Liam touched on obviously the build of our 3CR facility. That's critical for us going forward. We've still got a couple of years of running this old asset. So focusing on the consistency of operations and actually maintaining our assets in as reliable fashion as possible is really key to Liam's point around delivering for our customers. That's where the strong focus is on in this side of the business. Hydrogen, as Liam just said, you can see here improvement year on year in terms of run rate. For those eager-eyed of you, you'll notice that our losses in the first half of this year are higher than the second half of last year. That's because we have a weighting in terms of when we recognise our revenues, it's second half weighted. And so we've got line of sight, very clear line of sight in terms of our contractual position with our customers. We see what's coming through, hence real confidence about that getting to a break-even run rate by the end of the year. And as I said, despite actually the profit number being in really good shape, this is probably where I'm most pleased, actually, in the first half. So you can see, obviously, with a starting point of profit improvement, that's a good starting point for our cash generation. But the really important thing here is that movement in working capital. And these things take a while to bed down. I talked at the year end about the fact that actually there's quite a lot of areas which are not rocket science. But in an organization that's not particularly being cash-orientated, some of these things are sort of ingrained processes that need to change. And we've started with payables. I'll come back to that. There's more to do on receivables and inventory because some of those things take longer. But actually what you can see here is actually a shift in focus. There's still a lot to do here. This is nowhere near job done. It's a modest cash inflow in the first half. But given we had circa 200 million of stock built associated with the refinery shutdown in October, and we've had high metal prices, I actually think this is really positive because that stock build will unwind in the second half. And we've got ongoing focus in other areas. So to touch on those actions, particularly around the cash side of the business, to actually replicate the CT profits that are sort of lost with the sale, we've said that we need to take a significant amount of overhead out. We used to be a much bigger group. We still have some overhead that sort of reflects the legacy of us being a big group. Losing CT, we're becoming a much more simple group. And actually, our overheads need to reflect that. We're making progress, and a decent chunk of that is on the clean air side. We talked about the fact that most of the difference between the 12% last year and 14% to 15% this year was going to be about overhead reduction. You can see that actually clean air is already delivering on that, and there'll be more to come in the second half. And a similar amount is coming through on the group side of things. And as Liam will come back to the organisational structure, as we simplify our group structure, simplify the way in which we run things, that will feed through to greater levels of overhead reduction going forward. CapEx, we're still at elevated levels, and that's going to continue through this year and next year, primarily because of 3CR, but also other areas within PGMS infrastructure which feed into 3CR. And so our target, if you remember, of getting down to 120 million, which is close to depreciation, we're on track for. But you're going to see that higher level of CapEx. And that's why, to a certain extent, well, not just that reason, but why it's quite important we're focusing on working capital in the near term, because that working capital saving offsets some of that higher capex in the next couple of years. But if you think about all of this coming together, what we said at the year end was, we'll sell CT, well on track, as Liam said, and he'll come back to that. Basically, clean air, get it to a 16% to 18% margin, well on track, get 3CR built. Yes, we've had a couple of hiccups, if you like. So we had industrial action with one of our contractors. And that's led to lack of productivity in terms of the people on site. So that pushes out the schedule and so on and so forth. I think what's been really important since the summer Our team, where we've changed the number of members, the general contractor and the subcontractor we have at Interstruction have worked really hard to get to a schedule that everybody believes in. The detailed level of work that underpins that, everybody's signed off on. Everybody's holding hands and hence we're really confident about the plan we've got in place. And if we actually generate the wind capital improvements we promised over the next couple of years, that'll actually underpin our cash generation while we're still spending more capex to then get to a situation with lower capex going forward, which underpins where we get to the 250 million of sustainable cash flow from 27-28. We've talked about this a few times, but just to reiterate on the shareholder return side, on the 1.4 billion that we're returning, I spoke to pretty much every shareholder through the year-end process about where preference was. I think everybody recognises that whilst there might be a preference in some areas for share buybacks, it would take us about six years to return with this through share buybacks. So that's not realistic. So the majority is going to come back through a special dividend with the share consolidation. And then the balance, going back through share buybacks, probably during the course of calendar 26. And then ongoing from 26, 27 onwards, we've promised that 200 million of returns from there. Depending on how the share buybacks play out, share consolidation, so on and so forth, that also determine how many shares we have an issue and things. But I think you're looking at a situation where we're likely to have about one third dividend, two thirds share buybacks from 26, 27 onwards. And then outlook for the year, my last slide, basically. We're in good shape. We're very much expecting to deliver on our promises for the full year. PGMS will be down year on year in the second half. We've touched on this before. There's low metal recoveries. There's higher maintenance costs, given the age of the asset. But nothing different to what we actually said at the year end. So we feel we're in good shape for the year. We feel we're in good shape in terms of delivering on our 27, 28 targets. And on that, I'll hand back to Liam to give you a bit more detail. Thank you.