Johnson Matthey Plc

So good morning, everyone. Very nice to see you here. I'm Louise Curran, Head of Investor Relations at Johnson Matthey, and a very warm welcome this morning. Just a little bit of admin before we start, if you could turn your mobiles off or onto silent. And I'll first point you to our cautionary statement at the presentation. I'm very pleased to welcome our CEO, Liam Condon, and Alastair Judge, our CFO. In terms of the agenda this morning, we'll take the usual format. So Liam will talk through an overview. Alistair will then run you through the financial results before Liam gives a strategic update on the progress this year and also the acquisition of Cormatet this morning. I will of course leave plenty of time for Q&A both in the room and then from the webcast as well. And with that, I'll hand over to Liam.

Thanks a lot, Louise, and a warm welcome, everybody, from my side and, of course, to everybody online who's watching and listening in today. A year ago, we presented our new strategy to you about JM becoming a more focused, a more lean and a more cash-generative company. And I'm very pleased today to be able to present the progress that we're making. And as usual, we'll be pretty open as well about where we're facing challenges. But first, let's come to some of the highlights of what we've announced today. I know there's a lot of moving parts, not easy to digest everything, but there's a lot of progress in here. First thing, the underlying growth at 6% is in line with our previously upgraded guidance. I think that was very important. It's of course 14% on a reported basis because we're benefiting from the increase in precious metal prices. Very strong margin improvement in clean air, up to 14.5%. This is great progress. Some of you will remember a few years ago we were in single digits. Now at 14.5% and plenty more room to go here. We achieved run rate break even in hydrogen technologies. We told you this is really important for us, that we want to run this business in a manner that it's not a drag on the rest of the business. We think there's great growth opportunity in the future here, but it's important for us to run it at break even. And we got to run rate break even in the final quarter. So that was very important as well. And we said we're going to generate more cash, over 160% more cash year on year. That's quite an outcome overall. And that, we have to say, is despite the fact that, of course, we have faced some challenges. And we told you last year, and we told you at the half-year results, that PGMS would be in transition for a while as we upgrade our refineries. And we have had some issues in our refineries. And we're going to talk about those. Alistair is going to talk about those a little bit later. But what's really important is we're managing those issues and they do not come at the expense of our guidance. They do not come at the expense of cash. And you can see we've delivered on our guidance this year and we're completely committed to delivering on our guidance for 27-28, which, as we'll talk to later, is excluding some of the movements on the portfolio side that we will be talking about as we go through. Now, what's really important for us as we manage that transition with Platinum Group Metals is our single biggest CapEx investment ever in our new refinery. We're pretty far advanced now with this. It's been ongoing for quite a while. It is going to cost more capex. Alistair is going to talk about this as well. But we're very confident now in the timeline will be operational next year. And this is really important from an efficiency, from a working capital point of view, from a sustainability point of view. So this is on track to be operational next year. Really important for us. Catalyst technologies, I know there's great interest in this. Catalyst technologies, we are in the final stage now of approval. We only have the Chinese regulatory outstanding. There are no more questions or no more requests for information. The market assessment has been done. There's no complaints out there. So this is just going through the process. And we are very confident that this will be wrapped up along the timelines that we've indicated. And then we will be returning 1 billion to shareholders as promised. And the final piece, bigger news today was the acquisition of Cormatech, which is a market leader in SCR catalysts in the US for stationary emission control. So like we are a market global market leader in automotive emission control. Comitech is a market leader in stationary emission control and is benefiting tremendously from the rapid growth of data centers because that's where all their growth is coming from and they're doing emission control for data centers in essence cleaning the cloud so we'll talk about this today in a bit more detail particularly also because it's breaking those Before I hand over to Alistair to take us through the financial details today, just a couple of points about how we're reshaping the group, because there is a lot going on. And overall, we've had a strong focus on what we call controlling the controllables. A lot of this is about managing cost. We have reduced the executive leadership team from nine to six. That's a one third reduction. And you can see replications of this throughout the organization makes us leaner, makes us faster, very honestly. And I personally think it makes us stronger. a lot better. We've had a significant reduction in corporate function headcount as well. We're just getting much more efficient, also using technology to automate a lot more. We're seeing strong benefits here. We've aligned our incentives to our targets very tightly. 80% of our incentives are OP or cash focused, 80%. So basically what we're saying, what we're committing to is what we're being incentivized on. And I think in times like this, there could be concerns that maybe some of these efforts are maybe not going to reflect well from a customer point of view or from an employee point of view, but actually quite to the contrary. We have seen a very significant increase in our net promoter score Our net promoter score was already very strong. Anything above 40 is a strong net promoter score. It's increased to 47. And the reason for that is we're doing a better job with our customers and helping them tap into value. A lot of our customers are struggling on the margin side. and we're taking a full cost approach and helping them manage their business better, that's reflecting better back to us then in a perception of how we're doing. And that's why this score is going up. We spoke in the past a lot about improving commercial muscle. That's a reflection of what you can see here. And on the employee side, when you have a lot of change, It is demanding. It's tough. And you need very resilient employees to get through this. Normally, your engagement scores come down when you're going through lots of change. you can see our engagement score has actually gone up and gone up quite significantly. And this is really a shout out to our employees doing an absolute fantastic job, super resilient and highly committed to delivering on the strategy that we have outlined last year. So that's just a summary of kind of the progress that we're making so far, some of the elements that we're dealing with. And now Alistair is going to take you through the details of the past financial year. Over to you, Alistair.

So thank you, Liam, and good morning, everyone. I'm pleased to be here to report results for the first time in my new role. For those of you who don't know me, I joined Johnson Matthey as finance director for Clean Air. I then became CEO of the platinum group services metal business. And more recently, I've been head of strategy. So this is a business I know well. We delivered a solid performance in 2526 with growth in underlying operating profit, margin and cash generation. Our results are on a continued basis, excluding catalyst technologies. Sales were down 7%, mainly as a result of soft market conditions in key markets in clean air. Despite this, underlying operating profit was up 14%. Excluding metal prices, underlying operating profit grew 6%, in line with guidance driven largely by cost efficiencies across the group. Earnings per share increased 16% to 128.5 pence, reflecting the higher profit, but also a lower share count following our buyback programme in 24-25. Free cash flow of 168 million was a material step up for the prior year as we intensify our focus on cash generation. Net debt increased to £880 million and remains at 1.8 times EBITDA. And we are announcing a final dividend of 55 pence per share, bringing the total dividend to 77 pence, in line with last year. Looking at the rest of the income statement on an underlying basis, as mentioned, underlying profit was up 14% at £340 million. Finance charges increased to 69 million, as benefits in the prior year did not repeat, and effective interest rates increased due to funding mix changes. As a result, underlying profit before tax grew 11% to £271 million. We expect finance charges this year to be broadly in line with 25-26%. the adjusted underlying tax charge was 55 million, an effective rate of 20.3%. This year, we expect an effective tax rate of 25% to 27%. This mainly reflects the impact of the sale of catalyst technologies on our profitability in the UK and on the UK underlying effective tax rate. On a reported basis, we recognised impairment and restructuring charges of 192 million. The impairments largely relate to the slowdown in the fuel cell and electrolyser markets. We have recalibrated our growth expectations in hydrogen technologies, and as a result, we have fully impaired the remaining 88 million of fixed assets in this business. alongside £33 million of related assets in PGMs services. We also recognise smaller impairments relating to the closure of our China refinery in PGM services and consolidation of our manufacturing footprint in clean air. Restructuring charges of £57 million reflect the actions we're taking to streamline our processes and right-size our group. Turning now to each business. Overall sales in clean air decreased 7%. Light-duty diesel sales were down 5%, driven by Europe, which saw further penetration of battery electric vehicles and gasoline hybrids. Our performance in light-duty gasoline was impacted by market share losses, largely due to the phase-out of platforms in Europe and a weaker platform mix in China. but we've made good progress winning new hybrid business in gasoline, and Liam will talk about that later. In heavy-duty diesel, sales declined 6%, driven by North America, where the Class 8 truck market was impacted by tariffs and uncertainty around incoming emissions regulation, EPA 27. We expect market demand to recover this year in the US with improved visibility of these rules. Despite lower sales, operating profit grew 12%, and margins increased from 11.8% to 14.5%, as our focus on cost reduction, including operational excellence and footprint consolidation, feeds through into performance. This underpins our confidence in margins reaching 16% to 18% in 2027-2028. In PGM services, sales were down 11%, and operating profit decreased 20%. Our refining business was impacted by a 48 million operational metal loss, recognised when we completed a stock take at our US refinery in the second half. This led to the drop in both sales and profit. We conduct stock takes every two years, so this loss relates to the full two-year period since the previous stock take. While it's normal to recognise some losses as part of this process, on this occasion they were significantly higher, with around half of the increase driven by higher metal prices. We expect this to come down in the near term as we accelerate our operational excellence initiatives and transform our refining operations. But for prudence, we are still recognising higher loss provisions this year. our performance in refining was partly offset by a stronger trading performance, supported by higher and more volatile metal prices. In hydrogen technologies, sales grew 18% to 71 million, largely driven by fuel cells, while electrolyser sales doubled from a low base. We restructured this business at the end of 24-25, taking out headcount and reducing cost, which led to a smaller operating loss of 19 million. Importantly, as you heard from Liam, we achieved run rate break even in the fourth quarter as guided. We are managing this market in line with market development and will continue to take out cost while maintaining our long-term growth optionality. Turning now to cash. On a like-for-like basis, we delivered a cash flow of 168 million, up from 64 million in the prior year. The increase was driven by higher EBITDA as a result of cost reduction, as well as lower capex and restructuring charges. We delivered cost savings of around 70 million, largely in clean air and corporate. Capex was 62 million lower than the prior year, at 239 million. and we continue to make improvements in working capital. After a strong year in 24-25, we delivered another inflow of 135 million last year. Once our new PGM refinery is complete, we expect capex to come down to around 120 million in 27-28, below depreciation. In 26-27, we expect capex of around 230 million, an increase on our previous guidance of 140 million. This is due to higher spend in the new refinery. We told you in November that the fit out of the building had been slower than expected due to industrial action by some of our subcontractors in 2025. The return to normal operations took longer than expected. And while productivity has now increased to target levels, this has impacted our fit out, particularly installation of the pipe work, a complex and largely manual process involving installing 50 kilometres of piping. We are therefore investing in significantly more resource, including running three shifts a day and adding in specialist contractors to ensure the refinery is operational in 2027 as planned. With our recent progress on improving working capital, we have identified additional opportunities which will help offset the increased cost of capital next year. For example, with greater operational excellence and agility in our clean air plants, we can now bring down our levels of inventory without impacting customer service or impacting the important net promoter score Liam mentioned earlier. So this will allow us to deliver further improvements on free cash flow this year from the 168 million towards our target of at least 250 million by 2728. Moving on to capital allocation, as you know, we have a disciplined policy with three clear priorities. The first is organic investment, where, as you have heard, we expect capex to come down materially following completion of our new refinery. Our second priority is to deliver materially enhanced shareholder returns. We have committed to increasing ongoing returns to at least 200 million in respect of 26, 27 and beyond. And we also expect to return 1 billion of net proceeds from the sale of Catalyst Technologies this year, 800 million through a special dividend with share consolidation and the remaining 200 million via share buyback. Our third priority is inorganic investment. You've already heard from Liam about the acquisition of Cormetech, which brings new capabilities and scale to our clean air solutions business. This acquisition is earnings accretive pre-synergies from year one and supports our growth in capex generation moving forward. Liam will talk more about this later. Taking into account this acquisition, together with the sale of catalyst technologies and associated shareholder returns, we expect pro forma net debt to EBITDA to remain at around 1.8 times at the end of March 2027. But we are committed to our target range of 1 to 1.5 times and expect to reach this by the end of March 2029 as we drive operating margins and stronger cash generation. Turning now to the 26-27 outlook. Assuming constant currency and metal prices, we expect low to mid-single digit growth in operating profit, excluding catalyst technologies and Cormatech. Looking at each business, we expect clean air to deliver good growth in operating profit and further margin improvement driven by efficiencies. In hydrogen technologies, we expect to be at operating profit breakeven. In PGM services, we anticipate operating profit in line with 2526, as higher loss provisions in our US refinery, as well as lower metal recoveries and higher maintenance costs in our existing UK refinery, will be offset by a reduction in overall operational metal losses in the US. If metal prices remain at current levels, we also anticipate a benefit of 25 million to support performance in PGM services. And assuming constant exchange rates, we expect an adverse impact of 2 million for the group from foreign exchange. Finally, as mentioned, we anticipate further improvement in free cash flow towards our 27-28 target of at least 250 million. We do not see any material impact from the Middle East in 2025-2026. Our direct exposure to the region, excluding catalyst technologies, is negligible, and our energy costs are well hedged in the short term. However, long-term indirect impacts on demand supply chains in the broader market are difficult to predict, given current geopolitical uncertainty, and these are not included in our guidance. So to conclude... We delivered a solid performance in 25-26, with growth in operating margin, profit and cash generation. We continue to focus on driving cost efficiencies, lowering capex and managing our working capital, and we plan to deliver return to shareholders of at least 200 million in respect of 26-27 and beyond. With that, I will hand back to Liam.