Johnson Matthey : Download the press release

Half year results for the six months ended 30th September 2021

24th November 2021

Resilient performance in the first half

Underlying performance¹,²

• Sales of £1.9 billion, up 21%, driven by a strong recovery in Clean Air and Efficient Natural Resources
• Underlying operating profit of £293 million, up 102% and ahead of pre-pandemic levels, driven by strong sales growth and higher average precious metal prices
• Underlying EPS of 114.8 pence, up materially reflecting higher underlying operating profit and lower net finance costs
• Free cash flow of £189 million, benefiting from continued strong management of working capital (1H 2020/21: £256 million)
• Strong balance sheet with net debt of c.£700 million as lower auto demand benefited working capital; net debt to EBITDA of 0.9 times
• Return on invested capital (ROIC) of 17.7%, up from 10.4% in the prior year driven by higher underlying operating profit

Reported results

• Revenue increased 23% primarily driven by higher average precious metal prices
• Following the announcement of our intention to exit Battery Materials, the assets have been impaired by £314 million
• Operating profit of £20 million, reflecting the one-off impairment in Battery Materials
• Loss before tax of £9 million, driven by lower operating profit
• Reported loss per share of 14.8 pence
• Cash inflow from operating activities of £412 million (1H 2020/21: £482 million)
• Interim dividend of 22.0 pence per share, up 10%
• Share buyback of £200 million, beginning in the New Year

		Reported results			Underlying results¹
		Half year ended			Half year ended		% change,
		30th September	%		30th September	%	constant
		2021	2020	change	2021	2020 change	rates
Revenue	£ million	8,586	6,979	+23
Sales excluding	£ million				1,938	1,679	+15	+21
precious metals³
Operating profit	£ million	20	68	-71	293	151	+94	+102
(Loss) / profit before	£ million	(9)	26	n/a	264	109	+142
tax
(Loss) / earnings per	pence	(14.8)	12.3	n/a	114.8	47.7	+141
share
Interim dividend	pence	22.0	20.0	+10
per share

1	Johnson Matthey	Issued by: Johnson Matthey Plc
5th Floor, 25 Farringdon Street, London EC4A 4AB

Key developments

• A resilient trading performance, with strong sales growth driven by a recovery in Clean Air and Efficient Natural Resources
• Portfolio changes - agreed the sale of Advanced Glass Technologies for £178 million, and in discussions about a potential sale of Health
• Announced intention to exit Battery Materials
• Good momentum across our hydrogen businesses of Fuel Cells and Green Hydrogen
• • New five-year framework contract with EKPO (ElringKlinger Plastic Omnium JV) to supply fuel cell components into commercial vehicle applications
  • Following the completion of our hydrogen technologies capacity expansion in the UK and China, planning further expansion across these regions
• Increasing pipeline of opportunities in blue hydrogen - now over 20 projects - including HyNet which continues to move towards commercialisation in 2025
• In Clean Air, on track for strong cash generation in 2021/22
• Delivered £42 million of cost savings, from our total programme of £110 million per annum by 2023/24

Robert MacLeod, Chief Executive, commented:

We delivered a resilient trading performance in what has been a challenging environment, given the supply chain volatility which has affected a number of our end markets.

Looking forward, the changing world around us means that Johnson Matthey has never been more relevant. Our metal expertise and process technologies are critical to many new markets focused on climate change solutions and give us a strong competitive advantage. We have strong foundations in Clean Air and in Efficient Natural Resources and exciting opportunities to drive our future growth in circularity, hydrogen and decarbonisation.

To ensure we are focusing our resources on these core growth opportunities we have taken some strategic decisions around our portfolio. In particular, we announced our intention to exit Battery Materials as we concluded that this business would not generate adequate returns for us. In addition, today we are announcing that we have agreed the sale of Advanced Glass Technologies and are in discussions about the potential sale of our Health business.

After eight years in the role, I will be stepping down as Chief Executive, with Liam Condon joining as my successor from 1st March 2022 and I wish him well in leading Johnson Matthey through the next stage of its evolution.

Outlook for the year ending 31st March 2022

Our expectations on guidance for the year ending 31st March 2022 are unchanged from our trading update on 11th November.

Demand remains strong in many of our end markets. However, supply chain volatility especially the shortage of semi-conductors is affecting production for a number of our auto and truck customers. Global auto production is now forecast to decline 5% for our fiscal year which is a 14% reduction since our trading update in July⁴. Consequently, precious metal prices have also declined, largely because of the lower demand from the automotive industry. We are also experiencing acute temporary labour shortages in the US that are adversely impacting our Health business.

For 2021/22 we expect growth in underlying operating performance to be low single digit at constant precious metals prices⁵ and constant currency.

If precious metals prices remain at their current level⁶ for the rest of this year, we would expect a full year net benefit of c.£45 million.

2	Johnson Matthey	Issued by: Johnson Matthey Plc
5th Floor, 25 Farringdon Street, London EC4A 4AB

At current foreign exchange rates⁷, translational foreign exchange movements for the year ending 31st March 2022 are expected to adversely impact underlying operating profit by c.£15 million.

Our capital expenditure is now expected to be c.£450 million for the year⁸ given our intended exit from Battery Materials.

Dividend and share buyback

The board approved an interim dividend of 22.0 pence per share, an increase of 10% against the prior year (1H 2020/21: 20.0 pence per share). The interim dividend will be paid on 1st February 2022 to shareholders on the register at 3rd December 2021.

The board has also approved a share buyback of £200 million that will commence in the New Year.

Chief Executive Announcement

As previously announced, Robert MacLeod will step down as Chief Executive and from the board on 28th February 2022. Robert will stay on to support the transition process until the Company's Annual General Meeting on 21st July 2022, when he will then retire from JM. Liam Condon will succeed Robert MacLeod, joining as Chief Executive on 1st March 2022.

Group Management Committee Change

Joan Braca, Chief Executive Clean Air, has decided to leave Johnson Matthey. Joan's last day will be on 31st December 2021.

Enquiries:

Investor Relations
Martin Dunwoodie	Director of Investor Relations	+44	20 7269 8241
Louise Curran	Senior Investor Relations Manager	+44	20 7269 8235
Jane Crosby	Investor Relations Manager	+44	20 7269 8242
Media
Barney Wyld	Group Corporate Affairs Director	+44	20 7269 8001
Harry Cameron	Tulchan Communications	+44	7799 152148

Notes:

1. Underlying is before profit or loss on disposal of businesses, gain or loss on significant legal proceedings together with associated legal costs, amortisation of acquired intangibles, major impairment and restructuring charges and, where relevant, related tax effects. For definitions and reconciliations of other non-GAAP measures, see pages 46 to 50.
2. Unless otherwise stated, sales and operating profit commentary refers to performance at constant exchange rates. Growth at constant rates excludes the translation impact of foreign exchange movements, with 20 20/21 results converted at 2021/22 average rates. In 1H 2021/22, the translational impact of exchange rates on group sales and underlying operating profit was negative c.£71 million and c.£6 million respectively.
3. Revenue excluding sales of precious metals to customers and the precious metal content of products sold to customers.
4. As forecast by external consultants - IHS (October 2021).
5. Based on actual precious metal prices in 2020/21.
6. Based on current precious metal prices as at 22nd November 2021.
7. Based on foreign exchange rates as at 22nd November 2021.
8. Our previous guidance was for capital expenditure of up to £600 million for the year, which included our investment in Battery Materials.

3	Johnson Matthey	Issued by: Johnson Matthey Plc
5th Floor, 25 Farringdon Street, London EC4A 4AB

Sustainable solutions as we create a cleaner, healthier world

Our vision is for a cleaner, healthier world, and we have an exciting opportunity to apply our deep expertise in complex metal chemistry to develop technologies which enable the four essential transitions the world needs for a sustainable future: transport, energy, decarbonisation of industry and the creation of a circular economy.

We have set out our own sustainability goals (see page 7) but the real difference we make to society is in the products and technology we supply to our customers - not just today but in the new technologies of tomorrow.

In Clean Air, we continue to play a vital role in reducing harmful emissions generated by internal combustion engines, and in Efficient Natural Resources our technology and leading segment positions give us a strong base from which to pivot into new areas - helping our customers decarbonise their chemical value chains and create a circular economy through recycling scarce critical materials. These businesses provide the group with a strong foundation, underpinned by our core science.

Focusing capital on climate change solutions

At our heart is complex metal chemistry, particularly pgm and nickel metal expertise, which is used across the group. It has been developed over decades, is hard to replicate and critical to many of the new technologies which address climate change. We are focusing capital allocation on high growth, high return opportunities that leverage our core competencies.

1. PGM Services (circularity solutions) - in Efficient Natural Resources
2. Hydrogen Technologies (fuel cells and green hydrogen) - in New Markets
3. Catalyst Technologies (decarbonisation of chemicals) - in Efficient Natural Resources

These opportunities are underpinned by our strong balance sheet and sustained cash generation from Clean Air.

Clean Air on track to deliver at least £4 billion of cash over the coming ten years Clean Air continues to play a vital role in reducing harmful emissions generated by internal combustion engines. As the powertrain evolves, Clean Air is undergoing a major transformation programme to drive greater efficiency and reduce costs. Our new simplified operating model is now in place and performing well, and we continue to execute footprint changes with the transfer of production away from less efficient sites into our newer plants. This includes the closure of our plant in the UK over the next two years. We remain confident that our strategy will deliver cash generation of at least £4 billion over the coming ten years1.

1. PGM Services: creating a circular economy and underpinning the group

Platinum group metals (pgms) and other scarce metals are critical to many low carbon technologies such as hydrogen powered fuel cell vehicles and green hydrogen electrolysers. Recycling these metals will be crucial in providing low carbon routes to manufacture. The carbon intensity of recycled platinum group metals is c.2%2 that of mined metals. It is also a competitive advantage to be able to offer our customers recycling solutions in conjunction with our fuel cell and green hydrogen offerings as well as security of supply for these scarce metals. We are already the world leader in pgm recycling, twice the size of the next nearest player. This position and skillset gives us a strong foundation to capture more value over time from our existing recycling capabilities and expand our offering to develop new technologies which will enable the circular economy and help our customers meet their sustainability goals.

Notes:

1. At least £4 billion over the coming ten years from 1st April 2021.
2. Source: IPA.

4	Johnson Matthey	Issued by: Johnson Matthey Plc
5th Floor, 25 Farringdon Street, London EC4A 4AB

2. Hydrogen Technologies: a new business to accelerate growth

Hydrogen - as a fuel source and energy carrier - has a huge role to play in reaching net zero, and the move to hydrogen is accelerating, with the number of large-scale hydrogen projects announced almost doubling since January 2021³.

We already have an established hydrogen business. We are well positioned to enable both the decarbonisation of transport through our hydrogen fuel cell technology and also energy through our hydrogen production technologies.

Our competitive advantage is founded on our core capabilities in pgm catalysis, electrochemistry and surface chemistry. This enables us to produce high performance components for fuel cells and green hydrogen electrolysers. We are positioned across the value chain, which includes manufacture of catalysts, membranes, catalyst coated membranes (CCM) and membrane electrode assemblies (MEA), enabling us to optimise to our customers' needs. Our customers also value the security of supply and the potential to offer recycling solutions and reduce their carbon footprint.

We created a new business - Hydrogen Technologies - which combines our Fuel Cells and Green Hydrogen businesses, accelerating our growth and scale-up in both markets. We are expanding our Hydrogen Technologies manufacturing capacity and, following the completion of our expansion last year, we now have 2GW capacity in the UK and China. We are planning further expansion in these regions to ensure we are able to meet growing demand.

Fuel Cells

We have been a leader in fuel cells and active for well over two decades, with our technology used as far back as the US Apollo moon landings. Our success is based on our pgm expertise, with these metals critical to producing efficient, high performance fuel cell components.

We have a track record of success, supplying components (CCMs and MEAs) which sit at the heart of the fuel cell stack. We have good relationships with many leading fuel cell system integrators and OEMs, and already supply Doosan, SFC Energy, REFIRE/Unilia and SinoHytech/Sino Fuel Cell. In addition, we signed a development and long-term supply agreement commencing in 2022 with a major German automotive supplier for the supply of next generation catalyst coated membranes into the global automotive market.

We continue to make good progress with customers. We recently signed a new five-year framework contract with EKPO Fuel Cell Technologies (a joint venture between ElringKlinger AG and Compagnie Plastic Omnium SE) - a tier one stack manufacturer - to supply CCMs into the global commercial vehicle market. Our customer pipeline includes more than 10 major truck and auto OEM platforms, for which we will supply fuel cell components, due to launch between c.2022 to 2025.

Green Hydrogen

Our Green Hydrogen business is based on the same CCM technology, pgm expertise and recycling capability as Fuel Cells. Given the commonality of technology, Fuel Cells and Green Hydrogen use the same manufacturing capacity and share expertise in developing key components, such as catalysts and CCMs. The strength of our existing position in Fuel Cells has enabled us to create this business in 18 months.

We are making good progress and expect our first commercial sales in 2022. We are testing with leading electrolyser manufacturers and in May 2021 we signed a memorandum of understanding (MoU) with Plug Power and more recently, with Hystar to develop key components for electrolysers. Hystar is a newly established Norwegian company, a high-techspin-out from SINTEF, one of Europe's largest independent research institutions.

Notes:

3. Large-scale projects defined as projects larger than 1MW or equivalent. Hydrogen Council, McKinsey & Company

5	Johnson Matthey	Issued by: Johnson Matthey Plc
5th Floor, 25 Farringdon Street, London EC4A 4AB