Johnson Matthey : Results transcript

Presentation of Results

for the Half Year Ended

30th September 2021

Wednesday, 24th November 2021

Half Year Results Presentation to 30th September 2021

Wednesday, 24th November 2021

Welcome

Martin Dunwoodie

Director Investor Relations, Johnson Matthey plc

Morning everyone. I'm Martin Dunwoodie, Head of Investor Relations at Johnson Matthey and a very warm welcome to our half-year results presentation. It's the first time we've done this in person for two years so it's very good to see you all. I'm very pleased to introduce today our Chair, Patrick Thomas, our Chief Executive, Robert MacLeod and our Chief Financial Officer, Stephen Oxley. We're going to have a presentation as usual, followed by Q&A and with that I'll hand over to our Chair, Patrick Thomas.

Introduction

Patrick Thomas

Chair, Johnson Matthey plc

How Johnson Matthey is positioned for the future

Thank you very much Martin, and I'd like to welcome you all here this morning. Thank you also to all of those of you who have dialled in on our webcast and I look forward to hearing your questions later on. As Chairman of Johnson Matthey, I think it's very important that I'm here today at the results to set out the context of how our business is positioned for the future. Given the recent announcement of our intention to exit Battery Materials and some of the other changes that you have seen, I'd also like to give you some background on the Board's decision to appoint Liam Condon as our next Chief Executive.

Following our announcement two weeks ago, I've spoken to many of our stakeholders and a large number of shareholders. And I would like to first start by thanking them for taking the time to speak to me in the past weeks and for the feedback that they've been able to give me. It was a challenging decision that we took on Battery Materials and I'll appreciate that it was a disappointment to many of you. But it was driven by our commitment to deliver value for our shareholders through disciplined capital allocation and it is the right thing to do in the long run. It will enable us to focus our resources on higher returning growth opportunities that are core to the Group's capabilities. Nevertheless, the Board and I regret the impact on the share price and we're determined to restore the value to our shareholders and much more.

We have today announced even further steps to simplify our portfolio in order to focus on our core growth opportunities. You'll have seen this morning the announcement of Advanced Glass Technologies. And in addition, we are in discussions about a potential sale of Health and will provide an update on its conclusion in due course. Following the sale of Advanced Glass Technologies, we've also announced that we will be returning £200 million to shareholders through a share buyback process. We also recognise the need to return to the important topic of capital allocation in due course.

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Strong foundations

I want to emphasise that the foundations of the Group are strong with our Clean Air business set to deliver £4 billion of cash in the next ten years and the Efficient Natural Resources business already a leader in many of its markets. We're well positioned to deliver attractive growth. We have great opportunities within Efficient Natural Resources in helping our customers to decarbonise many chemical and industrial processes, and our recycling capabilities will help to create a circular economy. In Hydrogen our leading technologies in fuel cells and in both green and blue hydrogen mean that we're well positioned to benefit from this opportunity that is growing and coming towards us faster as the world accelerates in the transition towards net zero.

Importantly, many of these technologies needed to tackle climate change are underpinned by our catalyst and metals expertise which has been developed as a backbone of Johnson Matthey over many decades. Metal is at the absolute core of what we do, and it is why we are the trusted partner of the - partner of choice for our customers and why we're positioned to win in these markets.

New Chief Executive

We'll have a new Chief Executive Officer, Liam Condon, who will join us on 1st March next year. Robert has been our Chief Executive Officer now for a period of nearly eight years and he discussed with the Board some time ago his intention to retire. I never think he looks old enough to actually qualify to retire but apparently that is the case. On behalf of the Board, I would like to thank him for all the work that he has done to move Johnson Matthey forward. Thank you, Robert.

We had a very rigorous and wide-ranging selection process to select Liam as the right person to succeed Robert. We began the process at the start of the year and engaged a well- respected external agency to manage the process. It has been extremely thorough, evaluating a number of external and internal candidates and we've ensured that we have taken sufficient time to find the right person. Liam was the unanimous and standout candidate in the Board's view as the right next Chief Executive for the company's future.

Liam is a dynamic and values-driven leader. He has a track record of leading science-based businesses whilst delivering consistent performance. Importantly, he is commercially focused on driving growth as well as in modernising organisations. He has a strong external engagement with stakeholders, regulators, and government. And he has operated extensively in Asia, the Americas and Europe. He will be meeting several of the shareholders in the next week and I look forward to you having the opportunity of meeting him in the future. Liam's attributes will all be key for Johnson Matthey as we continue to globally commercialise and scale our attractive high growth businesses to address the climate change challenge. On behalf of the Board, I welcome warmly Liam to the role and wish him great success.

Board priorities

Let me also be very clear about the Board's priorities. We are first and foremost focused on creating shareholder value. We have a set of strong valuable businesses which provide a foundation for exciting growth opportunities. When Liam joins, he will have a remit from the Board to conduct a complete review of the strategy of our Group to determine how we can

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best deliver value for you our shareholders. There are no preconceptions or sacred cows. We also recognise that this requires urgency, and we will ensure that Liam hits the ground running on 1st March so that he can report back to you by the time we announce our full-year results later in May.

Robert and Stephen will now take you through the performance in the first half and update you on some of the other progress we have made in our business. And I look forward to any questions you may have afterwards. Thank you.

Business Update

Robert MacLeod

Chief Executive, Johnson Matthey plc

Resilient performance in the first half

Thank you, Patrick, and good morning, everybody. Today I plan to talk about our current business and our future growth opportunities before handing over to Stephen to take you through our financial performance. But first of all, we delivered a resilient trading performance in a challenging environment where some of our key end markets saw weakness, particularly in the second quarter. We have strong foundations in Clean Air and Efficient Natural Resources. And it's the science, particularly in metals chemistry, which is at our heart, that underpins these businesses and will enable us to develop and win in new areas such as hydrogen. We are focusing our investment in delivering on largescale opportunities in climate change solutions where we have leading technology and can generate future value for all of stakeholders and society. And to that end, we've made some decisions around our portfolio which I'll take you through now.

Portfolio changes

Battery Materials

We recently announced that we intend to exit our Battery Materials business and are now pursuing its sale. While our technology was testing well with customers, it became clear that our capital intensity was too high to deliver adequate shareholder returns in a market which is commoditising rapidly. We have some excellent capabilities but it's too early to assess their value. However, for accounting purposes we have fully impaired our assets until we have resolved the sales process. And we will of course update you as soon as we can.

Health

On Health, recent business performance has been challenging, largely due to labour market shortages in the US. And while we continue to make progress with our new products pipeline, we're no longer of the view that the business will achieve £100 million of additional operating profit by 2026. This is due to a combination of factors, including a reduction in the value from that pipeline, a weaker outlook in the existing business due to pricing pressure, and higher investment requirements. But as Patrick said earlier, we're in discussions about the potential sale of the business and will update you when we can.

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Advanced Glass Technologies

In addition, we've also announced today the disposal of our Advanced Glass Technologies business and given our strong balance sheet we will return £200 million to shareholders via a share buyback commending in the new year. These changes will enable us to focus our future investments.

Science and metal expertise at the heart of the Group

All our businesses have one thing in common. The scientific expertise that has been at the heart of JM since its beginnings. Our complex metals chemistry and catalysis expertise underpins all of our current and future businesses. It creates synergies across the Group, has been developed over many decades and is hard to replicate. While our PGM know-how, sourcing, management, and recycling is critical for Clean Air, it also supports our future hydrogen and technologies such as fuel cells and green hydrogen. Our catalyst technologies business also relies on our catalyst and engineering expertise. Our fundamental skillsets are interchangeable across the Group and are readily applicable to the development of a catalyst in Clean Air, Catalyst Technologies or in Hydrogen. So it's our scientific expertise that will lead the way in tackling climate change as global demand for sustainable solutions accelerates. But it's not just about having great science. It's about how we commercialise it, and I'll talk more about our growth drivers on the next slide.

Opportunities drive by climate change solutions

We have three key growth opportunities that each leverage our science capabilities. These businesses are extensions of our current offerings in circularity, hydrogen technologies and the decarbonisation of chemical processes. This is where we want to focus our resources and capital, where we have strong products today and competitive advantage going forward. These opportunities are of course all underpinned by our strong balance sheet and sustained cash generation in Clean Air.

Clean Air

Delivering cash

So looking at each in turn and starting with Clean Air. As you know, this is the cash engine of the Group. It plays a hugely important role in reducing harmful emissions from vehicles as regulation continues to tighten globally. And we are targeting cash generation of more than £4 billion over ten years. And we'll do this through flexing a number of different levers. The first is targeting the strategic business we want to win. We will maintain our leadership positions in light and heavy-duty diesel. And we are being selective and targeting key gasoline platforms. We're already winning future Euro 7 business that we have targeted. These tighter Euro 7 regulations are expected to come into force in 2026 or 2027. And while they will not drive a significant value uplift per vehicle, their increasing complexity should ensure that our pricing remains strong.

Second is driving cost efficiencies. About 75% of Clean Air's cost base is variable. The remainder is fixed at around £550 million today. Our target over the decade is to reduce this by at least £100 million and whilst there is some lumpiness here, you can think of this as declining in broadly a linear fashion. But of course, this can be flexed depending on how the market changes. We're already delivering on our efficiency programmes but the biggest cost lever going forward is the consolidation of our manufacturing footprint. We have 16

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