Johnson Matthey PLC · LSE:JMAT
Johnson Matthey — Investor Day (September 2017)
145 slides from Johnson Matthey's investor day presentation, September 2017
Slide 1: Capital Markets Day: Sustained growth and value creation
Capital Markets Day Sustained growth and value creation September 2017
Slide 2: Cautionary statement
Cautionary statement This presentation contains forward looking statements that are subject to risk factors associated with, amongst other things, the economic and business circumstances occurring from time to time in the countries and sectors in which Johnson Matthey operates. It is believed that t
Slide 3: Agenda
Agenda Start Session Presenters 9:30am Sustained growth and value creation Robert MacLeod 9:50am Clean Air and Q&A John Walker and Phil Blakeman 11:00am Break 11:30am Battery Materials and Q&A Alan Nelson 12:15pm Lunch 1:00pm Efficient Natural Resources and Q&A Jane Toogood 1:40pm Health and Q&A Rob
Slide 4: Restatement
Restatement Emission Control Reallocation Clean Air % of Group Clean Air Technologies For year ended 31st March 2017 Sales excluding precious metals (£m) 2,224 2,224 60% Underlying operating profit (£m) 318.2 318.2 62% ROS (%) 14.3 14.3 ROIC (%) 30.7 30.7 Efficient Natural Process Precious Metal Rea
Slide 5: Restatement
Restatement Health Fine Chemicals Reallocation Health % of Group For year ended 31st March 2017 Sales excluding precious metals (£m) 284 (48) (1) 236 7% Underlying operating profit (£m) 64.5 (12.8) (1) 51.7 10% ROS (%) 22.8 21.9 ROIC (%) 12.3 10.4 1. Catalysis and Chiral Technologies New Markets New
Slide 6: Sustained growth and value creation
Sustained growth and value creation Robert MacLeod Chief Executive
Slide 7: Sustained growth and value creation through
Sustained growth and value Sustained leadership in creation through: growing, high margin, technology driven markets Chemistry which drives solutions to complex Relentless focus on problems operational excellence Investment in R&D which accelerates growth 7
Slide 8: Solving complex problems with world class chemistry
Solving complex problems across the group with world class chemistry Materials characterisation PGM chemistry Material design Surface and testing and metallurgy and engineering chemistry and its application Provision of Development of new and Scale-up of complex customised solutions next-generation
Slide 9: We address three big global challenges
We address three big global challenges The efficient use and Improving air quality transformation of natural Improving healthcare resources Growing population and Increasing concern by consumer aspiration is Need for affordable Health consumers and governments increasing demand for care which is inc
Slide 10: Technology leadership gives us #1 positions
Technology leadership gives us #1 positions Clean Air Efficient Natural Resources Health #1 Diesel #1 Methanol #1 opiates Joint #1 Gasoline #1 PGM recycling #1 ADHD Opportunity in #1 PGM products Opportunity to battery materials expand #1 Oxo alcohols #1 Formaldehyde #1 SNG / #1 BDO #1 NDA 10
Slide 11: Sustained growth and value creation
Sustained growth and value creation Sustained leadership Chemistry which Investment Relentless focus in growing, high drives solutions to which accelerates on operational margin, technology complex problems growth excellence driven markets Driving attractive returns: Mid to high single Progressive E
Slide 12: Sustained growth and value creation through
Sustained growth and value creation through: Sustained Breakout growth Market leading Relentless focus growth in in Health and growth in Efficient on driving Clean Air Battery Materials Natural Resources efficiency 12
Slide 13: Clear visibility of sustained growth in Clean Air
Clear visibility of sustained growth in Clean Air Heightened air quality issues causing rapid change In Europe Light Duty: • In short term, we grow strongly from substantial share gains • ICE powertrain and legislation substantially reduces diesel/gasoline share sensitivity Asia transforms in scale
Slide 14: Breakout growth in Health from broader API portfolio
Breakout growth in Health from a deeper, broader API portfolio We have established positions in attractive, growing market Increasing API complexity/generic penetration play to JM strengths Our growth will come from: • Our existing portfolio will outperform • Our new product pipeline in generics add
Slide 15: Breakout growth in Battery Materials
Breakout growth in Battery Materials through technical leadership Market is still in its early stage but the opportunity is substantial We have already developed materials with market leading performance characteristics We will invest in high energy manufacturing capacity, starting in 2018/19 15
Slide 16: Outperformance in Efficient Natural Resources
Outperformance in targeted, growth segments in Efficient Natural Resources Market has changed significantly in recent years We have leading positions in most markets We will outperform in higher growth segments Increased efficiency of operations will enhance performance 16
Slide 17: Investing in technology through three stages
We create value by investing in our technology through three stages Efficient Natural Stage Clean Air Health Resources Selectively invest through New e.g. Battery Materials e.g. Agrochemicals e.g. Medical Devices Markets sector e.g. Emission e.g. PGM Refining e.g. API Manufacturing Scale-up Control
Slide 18: Relentless focus on driving efficiency
Sustained growth and value creation Relentless through: focus on driving efficiency Improving performance through common standards and simplified processes Accelerated by IT enablement Creating a business that is more robust and more agile Releasing £50m of cost over the next 3 years for reinvestmen
Slide 19: Our vision is for a cleaner and healthier world
Our vision is for a cleaner and healthier world By 2025, we will: Enhance Have three Have excellence technology substantial and in everything we leadership in our growing sectors do targeted markets Be one of the best performing, most trusted and admired speciality chemicals companies in the world 1
Slide 20: Clean Air: Sustained growth from a global leader
Clean Air: Sustained growth and value creation from a global leader John Walker – Sector Chief Executive, Clean Air Phil Blakeman, Ph.D. – Managing Director, Clean Air Sector, Asia 20
Slide 21: Sustained growth and value creation from a global leader
Sustained growth and value creation from a global leader Europe Light Duty grows strongly in short term and broadly flat over 10 years North America Light Duty delivers consistent growth Asia transforms in scale Operational efficiency supports margin and ROIC Mid single digit sales CAGR over next de
Slide 22: Our Sector strategy assumes
Our Sector strategy assumes: Impact of legislation only included Euro 7/VII is likely to drive increased where quantifiable value per vehicle but is not included Diesel share declining to 25%* of Every 1ppt decline below 25% would Western Europe by 2025 impact gross profit by ~£4m Neutral for gasoli
Slide 23: Sales grew at 11% CAGR over last 5 years
Sales grew at 11% CAGR over last 5 years Sales 2016/17 by sub-business1 2% 37% OP grew at 18% CAGR over last 5 years 15% £2.2bn Strong ROIC at 31% 4% Europe LDV 15% Americas LDV Global manufacturing footprint Asia LDV 12% Europe HDV Asia HDV 15% Americas HDV Other 1 Sub-businesses restated: South Am
Slide 24: Share gains and legislation give mid single digit CAGR
Share gains and tighter legislation gives visibility of mid single digit CAGR over 10 years 1-2 Years 3-6 Years 7-10 Years Strong growth driven by: Good growth driven by: Growth driven by: • Additional ~20 ppts • Tightening legislation • Tightening legislation share secured in Europe in Asia and Eur
Slide 25: Four key Clean Air segments
Four key Clean Air segments to discuss 01 02 03 04 Europe Americas Asia Global Light Duty Light Duty Light Duty Heavy Duty 25
Slide 26: Europe Light Duty overview
Europe Light Duty – Broadly flat over 10 years following strong short term growth Sales 2016/17 01 Vehicle production £828m 2% 37% 02 Air quality 15% 03 JM share Hybrid / diesel / Europe LDV 4% 04 gasoline 15% Americas LDV Asia LDV 12% Europe HDV Asia HDV 15% 05 BEV Americas HDV Other 26
Slide 27: Vehicle production expected to grow
01. Vehicle production expected to grow but is not a material driver of growth 2% p.a. vehicle growth impacted by: Population + Increased wealth + Better public transport - Car sharing / ride hailing - 27
Slide 28: Air quality drives tighter legislation
02. Air quality drives tighter legislation which adds value per vehicle Gasoline : Sales per vehicle increases significantly Euro 6b Euro 6c/d Three way catalyst x2 Three way catalyst + gasoline particulate filter ~2x value per vehicle GPFs expected on >90% of GDI vehicles by 2025 GDI vehicles expec
Slide 29: Fundamental change in emission control market
03. Fundamental change in emission control market led to significant increase in JM share Public confidence in emission control significantly hit NOx emissions in the public spotlight OEMs moved quickly to improve emissions ahead of legislation 29
Slide 30: Diesel technology leadership led to share gains
03. Our leadership in diesel technology and fast response led to share gains 10x Real World Driving NOx Emissions Our technology delivers 2000 EU5 – EU6d significant decrease in NOx 1800 Tailpipe NOx emissions (mg/km) emissions 1600 1400 7x Excellent low temperature 1200 NOx conversion 1000 800 Outs
Slide 31: Gasoline filter technology driving share gains
03. In addition our gasoline filter technology is driving material share gains Particulate number emissions of JM GPF are below future regulation requirements 1.4x1012 1.4E+12 1.2x1012 1.2E+12 High performance 1.0x10 1E+1212 CF 1.5 8E+11 0.8x10 12 (09/17) 6E+11 0.6x10 12 CF 1.0 High filtration effic
Slide 32: Demand impacted by consumer behaviour
04. Demand for diesel and gasoline ICEs increasingly impacted by consumer behaviour Consumer awareness of vehicle emissions has increased Consumer are moving through a spectrum: • From: diesel to gasoline • From: ICE to hybrids • To: EV 32
Slide 33: Hybrids will become significant part of market
04. Hybrids will become a significant part of the market Consumers OEMs Hybrid offers Hybrids needed to fuel efficiency for manage fleet small vehicles and average CO2 urban driving Opportunity for more complex systems to manage stop / start engines Neutral impact on Clean Air 33
Slide 34: Diesel share of light duty Western Europe
04. Diesel / diesel hybrid share of light duty Western Europe is assumed to decline to 25%* by 2025 50 40 Mix of pure diesel ICE and diesel hybrids 30 Majority of cars assumed to be hybrids by 2025 assumption 20 10 0 2016 2020 2025 Majority view Range of views *25% of Western Europe light duty vehic
Slide 35: Sales gap between diesel and gasoline will halve
04. For JM, the sales gap between diesel and gasoline will halve Ratio of diesel to gasoline value per vehicle 7 Euro 6c / Euro 6d Final 6 6d temp 5 4 3 2 1 0 16/17 21/22 25/26 Sales ex pm diesel to gasoline ratio A 1ppt shift from diesel to gasoline (including gasoline hybrids) impacts gross profit
Slide 36: Share gains in a growing gasoline market
04. Share gains in a growing gasoline market 30 Gasoline - including hybrid - 25 vehicle production to increase 4% p.a. 20 Million vehicles 15 Legislation approximately doubles sales value for some 10 gasoline vehicles 5 JM share of gasoline market increases ~5 ppts by - 2020/21 17/18 20/21 23/24 26
Slide 37: BEVs will take share from traditional powertrains
05. BEVs will take share from traditional powertrains 30 Europe BEV penetration Consumer demand for BEVs is growing 25 20 OEMs increasing number of BEV models 15 10 Rate of uptake dependent on: assumption 9% 5 • Total cost of ownership • Infrastructure 0 2017 2020 2025 Majority view Range of views 3
Slide 38: Europe Light Duty summary
Europe Light Duty summary Key Driver Vehicle production 2% CAGR supports growth in sales Air quality - legislation Euro 6c/d adds ~2x value for most gasoline vehicles JM share Technology leadership and agility drive share gains in diesel ~20ppt and gasoline ~5ppt Diesel/gasoline share Diesel market
Slide 39: Americas Light Duty steady growth
Americas Light Duty – Steady growth over the next decade Sales 2016/17 01 Vehicle production 2% 37% 02 Air quality 15% 03 Diesel vehicles 4% 04 BEV Europe LDV Americas LDV 15% Asia LDV 12% Europe HDV Asia HDV 15% £334m Americas HDV Other 39
Slide 40: Vehicle production will grow marginally
01. Vehicle production will grow marginally Vehicle growth impacted by: Population + Car sharing / ride hailing - Diesel and BEV make gains 40
Slide 41: Legislation tightens adding sales value
02. Legislation tightens adding sales value per vehicle LEVIII particulate matter standards and fleet US legislation tightens compliance rate for particulate matter 12 100% • % of fleet required to PM standard (mg/mile) 10 meet standard increases over time 8 6 Technology adds 4 100% value further ou
Slide 42: Win share through technology in growing diesel market
03. Expect to win share through technology in a growing diesel market OEMs offering greater numbers of diesel variants Increasing demand for diesel pick-ups, SUVs and crossovers Diesel attractive option to meet tightening fuel economy standards Strong technology provides scope for JM’s diesel share
Slide 43: BEV to have marginal impact
04. BEV to have marginal impact in next 10 years 30 US BEV penetration Consumer demand for BEVs is growing 25 OEMs increasing number of BEV models 20 Rate of uptake likely held back by: 15 • Low gasoline prices 10 • BEV infrastructure 5 • Consumer preference for assumption 3% large SUV’s/pick-ups 0
Slide 44: Americas Light Duty summary
Americas Light Duty summary Key Driver Vehicle production Marginal growth supports growth in sales Air quality - legislation GPF adoption expected from 2024 from tighter particulate matter legislation Diesel/gasoline share JM technology leadership supports share gains in growing diesel market BEV pe
Slide 45: Clean Air – Asia Light Duty and Global Heavy Duty
Clean Air – Asia Light Duty and Global Heavy Duty Phil Blakeman, Ph.D. – Managing Director, Clean Air Sector, Asia 45
Slide 46: Asia Light Duty growth from tighter legislation
Asia Light Duty – Short to medium term growth from tighter legislation will almost double Asia Light Duty in 10 years Sales 2016/17 China vehicle 01 production 2% 37% 02 China air quality 15% 03 China BEV 4% Europe LDV Americas LDV 15% 04 Other Asia Asia LDV 12% Europe HDV Asia HDV Americas HDV 15%
Slide 47: China vehicle production growth
01. China vehicle production growth of 2% p.a. supports sales growth Vehicle growth impacted by: Relatively low vehicle ownership rate + Increased wealth + But will lag economic growth due to: Increased urbanisation and improvements in public transport - Usage barriers (esp. big cities) & ownership
Slide 48: China air quality legislation doubles sales value
02. China air quality focus brings legislation which doubles sales value per vehicle China 5 gasoline China 6a gasoline China 6b gasoline Three way catalyst x2 from July 2020 from July 2023 Three way catalyst + gasoline Three way catalyst + gasoline particulate filter (GPF) particulate filter (GPF)
Slide 49: China BEV growing fast
03. China BEV growing fast and impacts growth in later years BEV expected to grow share quickly: 30 China BEV penetration 25 Strong government incentives for BEV 20 15 Tightening fuel consumption legislation assumption continues to support BEV uptake 10 13% 5 0 2017 2020 2025 Majority view Range of
Slide 50: Other Asian countries provide additional growth
04. Other Asian countries provide additional growth India grows strongly • Strong growth in vehicle production • BS 6 legislation from April 2020: • Gasoline remains with three way catalyst only • Increase in technology on diesel cars partly offset as diesel market share declines Japan stable • Stea
Slide 51: Asia Light Duty summary
Asia Light Duty summary Key Driver China vehicle production 2% CAGR supports growth in sales China Air quality - China 6a and China 6b doubles sales value for some vehicles legislation China BEV penetration 13% by 2025 Other Asia Growth from tightening legislation in India and South East Asia Asia L
Slide 52: Global Heavy Duty legislation drives growth
Global Heavy Duty– Legislation in China and India drives growth over the next 10 years Sales 2016/17 01 Truck production 2% 37% Air quality and 02 JM share 15% £682m 03 BEV 4% Europe LDV 15% Americas LDV Asia LDV 12% Europe HDV Asia HDV 15% Americas HDV Other 52
Slide 53: Global truck production growth
01. Global truck production growth of 2% p.a. supports growth US low single digit growth with cyclical class 8 trucks Europe mid single digit growth China marginal growth India grows in line with GDP 53
Slide 54: Asia legislation triples sales value per vehicle
02. Asia legislation triples sales value per vehicle in China and India China V China VI SCR Selective diesel oxidation catalyst + catalysed soot filter + catalytic ASC selective catalytic reduction + ammonia slip catalyst reduction + From January 2021 (expected) ammonia slip catalyst ~3x China V In
Slide 55: BEV minimal impact on heavy duty
03. Expect BEV to have minimal impact over next 10 years Interest in truck electrification but early technology solutions not suitable for majority of market Limited by economic calculation of weight of freight carried versus total cost of ownership Broad range of possible outcomes in the longer ter
Slide 56: Global Heavy Duty summary
Global Heavy Duty summary Key Driver Truck production 2% CAGR supports growth in sales Air quality - legislation China VI / India VI drive significant increase in technology and triples sales value per vehicle BEV penetration Minimal impact on sales growth Sustained growth in global Heavy Duty drive
Slide 57: Clean Air
Clean Air John Walker – Sector Chief Executive, Clean Air 57
Slide 58: Opportunities to drive efficiency
Opportunities to drive efficiency Efficient, flexible Procurement Customer focus Organisation manufacturing 58
Slide 59: Consistent value creation from a global leader
Consistent value creation from a global leader Europe Light Duty Americas Good growth broadly flat Sustained growth Light Duty in Asia Light absorbing decline in global Heavy grows steadily Duty despite in diesel share of Duty driven by with limited strong BEV market and BEV legislation in Asia BEV
Slide 60: Battery Materials: Delivering breakout growth
Battery Materials: Delivering breakout growth Alan E Nelson, Ph.D., P.Eng. Sector Chief Executive, New Markets and Group CTO 60
Slide 61: New Markets: three businesses, focus on battery materials
New Markets: three businesses at scale, focus on battery materials Alternative Life Science Medical Device Powertrain Technologies1 Components Become a leader using our Become a leader in pharma Become a leader in the chemistry advantage and JM and agchem catalysts and development of medical capabil
Slide 62: Significant progress in high energy battery materials
Significant progress in development of high energy battery materials Investment of c.£200m from We have developed We expect to be on mid-2018 to manufacture up best-in-class high energy automotive platforms in to 10,000 metric tons from battery materials production from FY21/22 FY21/22 62
Slide 63: Evolution of the automotive powertrain faces challenges
The evolution of the automotive powertrain faces many challenges Total cost of Legislation Consumer behaviour Technology ownership 63
Slide 64: OEMs focused on affordable long range xEVs
OEMs focused on bringing affordable long range xEVs to market “Ford is…adding 13 new “All models launched after “We are now focusing on “Volkswagen is…launching electrified vehicles to its 2019 will have the electrification of our more than 30 purely product portfolio by 2020; a hybrid or fully elec
Slide 65: xEV adoption limited by total cost of ownership
Today xEV adoption is limited by total cost of ownership Total cost of ownership (TCO) for • xEV penetration today driven by passenger cars, Europe 20171 government subsidy Petrol • xEVs are forecast to reach TCO parity in the mid 2020s, depending on vehicle segment Diesel PHEV • Cost of lithium ion
Slide 66: Cathode materials market demand
Demand for cathode materials between $15bn and $100bn by 2025 Projected xEV (BEV and PHEV) global light • Estimates of xEV (BEV and PHEV) duty vehicle powertrain share 2015-2025,%1 penetration range from 4% - 25% 30.0% by 2025 25.0% • ICE and mild hybrids still expected to dominate market for the me
Slide 67: A range of materials are required
A range of materials are required Powertrain implications on cathode volumes and chemistries1 Micro HEV HEV PHEV EV Medium EV Long PHEV-bus E-Bus Material Ave. Pack size 0.6 1.0 10 30 70 70 250 demand1 (kWh) Cathode c.1 c.2 c.20 c.50 c.120 c.120 c.400 (kg), approx. Materials LFP High power Safety an
Slide 68: JM addressing challenges for xEV adoption
JM is addressing the challenges for the adoption of xEVs Total cost of Legislation Consumer behaviour Technology ownership JM focus: Technology Addressing cost investment ($/kWh) Broad portfolio of High energy material with low cathode materials cobalt Sustained cathode materials Addressing barriers
Slide 69: JM has a strong position in the value chain
JM has a strong position in the value chain Raw materials Cathode materials Electrodes Cells Systems DOI: 10.1016/j.electacta.2015.06.015 Key challenges Material cost Electrode cost Cell cost Total cost Energy density Press density Cell energy Range to address: Chemistry Structure Cell power Power D
Slide 70: Raw materials: strategic sourcing of metals
Raw materials: strategic sourcing of metals • JM-wide longstanding history of metals procurement and management • Leveraging nickel and cobalt contracts and buying power with Efficient Natural Resources • Strategic partnership with Nemaska Lithium for the supply of lithium • Developed advanced precu
Slide 71: Electrodes, cells, and systems insights
Electrodes, cells, and systems: insights to drive materials innovation • Understanding electrode structures to design cathode material morphology to improve energy density • Understanding cell performance to match cathode performance with anode, electrolyte, and separator • Understanding pack-level
Slide 72: Cathode materials: using chemistry to develop leading materials
Cathode materials: using our chemistry to develop leading materials • IP across a range of battery materials: LNO, NMC, and LFP • Over 60 R&D scientists • Leveraging nickel expertise across JM • Using Clean Air expertise in materials engineering and understanding automotive qualification cycles • St
Slide 73: Significant progress in high energy materials
Significant progress in high energy materials in the past year 2012 • Entered lithium ion battery market May 2016 • Licensed key high nickel intellectual property 2017 • Developed high energy cathode materials and scaled-up to pilot scale • Validated benefits of materials with cell manufacturers and
Slide 74: Wide portfolio of battery materials including JM eLNO
We have a wide portfolio of battery materials including JM eLNO Power Energy Anodes LFP JM eLNO LTO LMFP NMC LMNO HV-Spinel Future in scope Solid-State Silicon/C Lithium Sulfur Lithium Air 74
Slide 75: JM eLNO delivers a step-change in performance
JM eLNO delivers a step-change in performance Current Historical (20 years) Future (low Co, high energy) (5 years) + advanced +Ni N(0.87)CA +Ni chemistry + Al enhancements NC N(0.8)CA eLNO + energy density + Mn NMC111 +Ni +Ni NMC811 +Ni +safety NMC622 + cycle life + improved power + improved impedan
Slide 76: JM eLNO step-change increase in energy density
JM eLNO a step-change increase in energy density Energy density1 • eLNO will enable longer range EVs with lower pack level cost • Step-change increase in energy Energy Density, Wh/kg density compared to NMC(622), 5-10% NMC(811) and NCA materials 10-15% 20-25% with Customers In Qualification • Materi
Slide 77: JM eLNO outperformance against key metrics
JM eLNO delivers outperformance against all other key metrics Relative performance across key areas1 • On every key metric eLNO is the Range best material in the market • eLNO delivers improvements across Cycle life Target Cost energy density, power, range, life cycle and safety • Cost advantaged th
Slide 78: Customers have validated JM eLNO performance
Customers have validated the performance of JM eLNO versus NMC versus NCA “…delivered higher energy density than “…shows improved power performance than NMC(811)” NCA” “…delivered better rate capability than “…improved low temperature power NMC(811)” performance than NCA” “…cycle life equivalent to
Slide 79: Market timeline for commercialisation of battery materials
Market timeline for the commercialisation of battery materials Qualification Typical volume Milestones Timeline stage per stage Validation of cathode Initial testing 10 – 100 kg 3 - 6 months material performance Cell Full range of materials testing 1 – 2 MT Year 1 performance under different conditi
Slide 80: JM manufacturing plans for eLNO
JM manufacturing plans for high energy eLNO Production Investment Start of Milestones volume start date production Samples to multiple 5 MT 2016 Today customers from JM asset Pilot plant qualification 10 MT 2017 2018 materials to customers Demo plant qualification 500 MT 2017 2019 materials to custo
Slide 81: Conclusion
Conclusion • We have developed best-in-class high energy battery materials • Investment of c.£200m from mid-2018 to manufacture up to 10,000 metric tons from FY21/22 • We expect to be on automotive platforms in production from FY21/22 81
Slide 82: Efficient Natural Resources: Outperformance in growth segments
Efficient Natural Resources: Outperformance in targeted, growth segments Jane Toogood Sector Chief Executive, Efficient Natural Resources
Slide 83: Efficient Natural Resources
Efficient Natural Resources: Sales growth above the Market leading Strategy to market and operating profit positions deliver growth 1% above sales growth 83
Slide 84: Bringing together Process Technologies and Precious Metal Products
Efficient Natural Resources : bringing together Process Technologies and Precious Metal Products Process Precious Metal Reallocation Efficient Natural % of Group Technologies Products Resources For year ended 31st March 2017 Sales excluding precious 587 403 (71)(1) 919 25% metals (£m) Underlying ope
Slide 85: What you will hear today
What you will hear today Overview of our How we serve our Efficient Natural Our strategy customers and the Resources business and how we will rest of the Johnson and the markets deliver it Matthey group we operate in 85
Slide 86: Value from efficient transformation of natural resources
We create value from the efficient transformation and use of natural resources: Demand for the world’s natural resources is increasing Efficient Natural Resources enables our customers to use natural resources more efficiently Using JM’s core chemistry and technology expertise to solve complex and v
Slide 87: We serve four market sectors
We serve four market sectors creating value through technology Catalyst Technologies and customer service Efficient Natural Resources Chemicals Oil & Gas 2016/17 sales by sub-business Chemical catalysts Refinery catalysts and gas and process technology purification Chemicals Oil & Gas 40% of Sector
Slide 88: We use our technology to lead the market
We use our technology to lead the market Technology Leadership Positions (1) PGM Chemistry and Catalyst design and metallurgy engineering Methanol #1 Hydrogen #1 Gas Processing #1 Formaldehyde #1 FCC additives #1 PGM Services #1 AGT #1 (*) Based on multiple market research sources 88
Slide 89: We deliver outstanding customer service
We deliver outstanding customer service PGM Chemistry and Catalyst design and metallurgy engineering Scale up of complex Customer service manufacturing Leveraging our competences to provide efficient transformation and use of natural resources 89
Slide 90: Core strengths underpin #1 or #2 market positions
Our core strengths underpin #1 or #2 market positions in almost all our key segments Catalyst Technologies • JM present in ~ • JM present in ~ Chemicals - JM 30% of overall Oil & Gas(1) – 37% of overall £343m market £199m JM market Chemical catalysts • JM #1 or #2 in Refinery Catalysts • JM has narr
Slide 91: Increased demand for efficient use of natural resources
Increased demand for efficient use of natural resources MegaTrends Market Dynamics Global growth 3% Economic Development Oil price lower for longer Automotive production growth Natural Resource Increasing PGM recycle & reuse Efficiency Over capacity in chemicals High growth regions Energy Security S
Slide 92: Differentiated approach given range of growth in markets
Differentiated approach given range of growth in markets Refinery Catalysts market $8 billion (mix of large/small segments) Underlying medium Average medium term Range of growth term industry growth rate in segments rates in • segments JM present in ~ that 10% of overall market market growth that JM
Slide 93: Platinum Group Metals: secure and sustainable source
Platinum Group Metals: a secure & sustainable source of critical raw materials to JM Group and customers Precious Metals PGM Catalyst design and Management Refining engineering Supply-Refine JM Group Customers Other Customers Metal flow Customer relationships 93
Slide 94: JM strategy capitalises on current market trends
JM strategy capitalises on current market trends MegaTrends Market Dynamics Implications for strategy Global growth 3% Drive efficiency Maintain Economic Development Oil price lower for longer Increasing PGM recycle & reuse Automotive production growth Maintain in depth customer process insight Incr
Slide 95: Strategy to deliver consistent market outperformance
Our strategy to deliver consistent market outperformance Maximise growth through Focused investment in R&D to differentiated investment by maintain & extend technology segment and region and focus leadership on margin retention in lower growth markets Deliver additional value Explore long term growt
Slide 96: Maximise growth through understanding by segment and region
1. Maximise growth through deep understanding by segment and region % of sales(1) in each growth area(2) 40 35 30 34 25 27.2 25.2 20 15 10 5 8.8 4.8 0 < 1% 1.1 -2% 2.1 -3% 3.1- 4% 4.1%+ Increasing investment (1) 2017/18 budget sales 96 (2) 10 year growth rate
Slide 97: Focused investment in R&D
2. Focused investment in R&D to maintain and extend technology leadership Unique set of materials science Core shell reformer catalyst Optimised metal content, same performance and scale up capabilities Maintain R&D spend at consistent level R&D closely aligned to value creating sector positions and
Slide 98: Deliver additional value by focus on efficiency
3. Deliver additional value by focus on efficiency Enablers for Efficient Natural Resources Examples PGM refinery Operational Improvements optimisation Deliver Operational Portfolio Complexity reduction Optimisation Improvement - Operating profit 1% ahead of sales growth Spans & Organisational effic
Slide 99: Explore long term growth opportunities in adjacent markets
4. Explore long term growth opportunities by extending our capabilities into adjacent markets, geographies and technologies New natural Alternative Customer and resource landscape feedstocks circular economies Exploring new Gas to chemicals Recycling market spaces Biorenewables New customer solution
Slide 100: Consortium for low carbon chemicals and fuels
Consortium to commercialise technology for low carbon chemicals and fuels Strategic consortium Develop and scale up of Virent BioForming® Technology Aim to deliver a commercial facility to produce cost effective, bio-based fuels and bio-paraxylene 100
Slide 101: The future for Efficient Natural Resources
The future for Efficient Natural Resources means: A wider scope building on JM core competencies and leadership in chemistry and technology Performance improvement by focussed investment and efficiency Sales growth at 1% above the market (excl. PGMS) and operating profit 1% above sales growth Creati
Slide 102: Health: Delivering breakout growth
Health: Delivering breakout growth Robert MacLeod, Garrett Dilley and Paul Evans
Slide 103: What you will hear today
What you will hear today Overview of our How we create How we create Our strategy Health sector and value with our value with and what this the market we Innovator our Generics will deliver operate in customers customers 103
Slide 104: Health sector to deliver breakout growth
Health sector to deliver breakout growth We operate in a growing, $40bn segment We have expertise for both Innovator and Generics companies We have a portfolio of successful products but that portfolio is not yet at scale We ramped up our investment to broaden the pipeline from 2014 Therefore, sales
Slide 105: Outsourced small molecule API growing at 8%
Outsourced small molecule API is growing at 8% p.a. Global sales in API An attractive segment which $170bn 1 plays to our strengths Generics Increasing focus on healthcare costs is driving: $29bn Outsourced small molecule APIs 9% growth p.a. Outsourced large More targeted and Greater competition mol
Slide 106: Creating value by solving customers' complex challenges
We create value by solving our customers’ complex challenges Our core capabilities: What we do: Strong brand and position in controlled Overcome challenging problems in the substances (e.g. opiates and ADHD) development and manufacture of complex APIs Proven track record in rapidly developing Work w
Slide 107: Examples of solving customers' complex challenges
Examples of creating value by solving our customers’ complex challenges Example 1: capabilities in developing Our core capabilities: synthesis routes Strong brand and position in controlled Development of complex molecules used substances (e.g. opiates and ADHD) to treat a genetic muscular dystrophy
Slide 108: Our business is based on core capabilities
Our business is based on our core capabilities 2016/17 | Sales £243m 10% JM’s existing facilities: 25% 27% Full range of manufacturing assets in US and Europe Key development sites in Boston (US) and Cambridge (UK) Pilot and kilo lab capabilities in China 75% 63% >1,000 employees Development Innovat
Slide 109: Ramped up investment since 2014 drives breakout growth
Ramped up investment since 2014 will drive breakout growth The timelines in the pharma market are long: Generics projects typically take 4-6 years Innovator projects take even longer Opportunity to co-invest to enhance returns Development risk Projects are affected by clinical is taken by the attrit
Slide 110: Strategy: breakout growth for innovator and generic companies
Our strategy: deliver breakout growth by providing solutions to the complex problems of innovator and generic companies Trends Focus JM strengths Increased demand Scale up of complex for high potency High barrier to entry segments manufacturing drugs • Controlled substances • High potency APIs Mater
Slide 111: How we create value with Innovator customers
Health - How we create value with our Innovator customers Garrett Dilley
Slide 112: We work with innovators on API challenges
We work with innovators on their API challenges Innovators value chain Phase ~2 yrs ~3 yrs ~3 yrs 6-14 years before genericisation I II III Drug discovery Clinical Development Commercialisation Reformulation JM Development and small-scale manufacturing Large-scale manufacturing Reformulation Develop
Slide 113: Growth through expertise across development to commercialisation
Driving growth through expertise across development to commercialisation Innovators % sales Contractual terms Sales ranges Areas of focus Clinical development £250k - £5m per Number of clinical 42% 6 months - 3 years – API development and manufacture project development projects Commercialised API £
Slide 114: Core capabilities: why customers come to us
World class development capabilities Core capabilities: why our customers in Boston (US) and Cambridge (UK) come to us Crystal form expertise to rival large pharma – key in solving bioavailability challenges of novel APIs Strong brand • Proven track and position in record in rapidly Pipeline analysi
Slide 115: Customers come to JM for expertise: an example
Customers come to JM for expertise: an example JM begins work on Customer Customer A New 5 year API 1 with A awards awards API 6 commercial supply Customer A and Commercial and extension agreement signed awarded contracts Supply Agreement of API 5 with Customer A for API 2 and API 3 for API 4 2012 2
Slide 116: Innovators: growth well ahead of the market
Innovators: growth well ahead of the market We have a strong foundation in the large and growing Innovator outsourced API market With Innovator customers, we will: • Continue to grow our product pipeline • Increasingly convert these to commercial-scale API manufacturing We will add new skills and ex
Slide 117: How we create value with Generics customers
Health - How we create value with our Generics customers Paul Evans
Slide 118: We develop and manufacture complex, high value APIs
We develop and manufacture complex, high value APIs Commercialisation Generics value chain 3 - 4 years 2 - 7 years ongoing API development FDF1 development FDF and API scale-up Commercialisation Reformulation and formulation and formulation and process transfer Regulatory approval process JM API dev
Slide 119: US market characteristics
US market characteristics Indicative drug product lifecycle Drug 180 day first to file exclusivity Branded value capture product value Generics value capture ($) Price Branded price ($/unit) ~6-14 years ~3-8 years Generic price Innovator launch of First to file entry of Other generics branded on pat
Slide 120: Current portfolio will deliver low single-digit growth
Our current portfolio will deliver low single-digit growth Current product portfolio % of JM medium-term API area Characteristics JM focus sales growth Bulk opiates 18% • Lower margin • Improve efficiency Flat (principally pain relief) • Annan site Controlled Specialist opiates 31% • Higher margin •
Slide 121: Building our portfolio: API product pipeline approach
Building our portfolio: our API product pipeline approach Commercialisation 2 months to 2 years 3 to 4 years 2 to 7 years Identify Strategy Screen for fit Development Commercialisation opportunities and valuation • Continuous • JM technical • Technical • API optimisation • Regulatory filing monitori
Slide 122: API product pipeline will deliver breakout growth
Our API product pipeline will deliver Health’s breakout growth Capitalised investment of c.£25m per year Investment Investment per product £3m to £10m Over 40 API products in the pipeline: • Around 15 in early stages • Around 20 in formulation development Progress • Around 5 in regulatory approval s
Slide 123: Ramped-up investment drives our pipeline
Ramped-up investment drives our pipeline Year 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25 Pipeline capitalised Current R&D pipeline investment (c.£25m p.a.) Additional pipeline Submissions for 1 1 4-5 12-20 4-6 1-2 0-1 1-2 regulatory approval Antic
Slide 124: Pipeline operating profit
Generics pipeline delivers the break out growth in our Health sector £150m High range Pipeline operating Profit £100m Expected pipeline performance Low range £50m £0m Year 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25 Current pipeline will deliver c.£100m operating profit by 2025, addition
Slide 125: Example: development of dofetilide
Example: development of dofetilide Developed an innovative Significant financial No other generic Development and non-infringing route contribution in has entered the started in 2011 & polymorph 2016/17 market yet Utilised solid form Partner launched in June 2016 JM shares drug sciences and high pot
Slide 126: Generics summary
Generics summary Strong position today in controlled substances Ramped up investment to grow product portfolio since 2014 We will drive value from our existing product portfolio We will deliver growth from our strong product pipeline This will deliver substantial growth from 2019/20 126
Slide 127: Conclusion: Delivering breakout growth
Conclusion: Delivering breakout growth Robert MacLeod
Slide 128: Innovator and Generics businesses deliver success together
Our Innovator and Generics businesses Long-term investment commitment required deliver success together Maintain R&D at c.£25m p.a. Innovators to expand generic pipeline further Enhance our position as a technology partner-of-choice > Delivering well above market growth Continue to build our capabil
Slide 129: Health sector to deliver breakout growth
Health sector to deliver breakout growth We operate in a growing, $40bn segment We have expertise for both Innovator and Generics companies We have a portfolio of successful products but that portfolio is not yet at scale We ramped up our investment to broaden the pipeline from 2014 Therefore, sales
Slide 130: Delivering shareholder value
Delivering shareholder value Anna Manz Chief Financial Officer
Slide 131: Delivering long term shareholder value through
Delivering long term shareholder value through: Sustained Breakout Breakout growth Market leading growth growth in in Battery growth in Efficient in Clean Air Health Materials Natural Resources Relentless focus on driving efficiency Rigorous resource allocation 131
Slide 132: Guidance for 2017/18
Guidance for 2017/18: Sales growth broadly in line with the 6% delivered in H2 2016/17 Improving operating performance offset by non cash items Restructuring benefit of £10m in the year, with an annualised benefit of £25m Capex £285m, 1.8x depreciation 132
Slide 133: Sustained growth in Clean Air
Delivering sustained growth and value Sustained creation growth in Clean Air Our strong market positions and legislation deliver sustained growth Growth driven by Europe in next 2 years with share gains and increasing profitability of gasoline and gasoline hybrid Subsequently, growth driven by legis
Slide 134: Breakout growth in Health
Delivering sustained growth and value Breakout creation growth in Health Attractive high growth opportunities Maintain investment to build a broader, deeper pipeline In medium term growth accelerates to double digit as we start to benefit from the generic pipeline investment Margin improves signific
Slide 135: Breakout growth in Battery Materials
Delivering sustained growth and value Breakout growth creation in Battery Materials Market opportunity is substantial and at an early stage Our technology is market leading and customer feedback is strong Continue to invest ahead with ~£200m investment in capacity beginning in 2018/19 Expect commerc
Slide 136: Market leading growth in Efficient Natural Resources
Delivering sustained growth and value Market leading creation growth in Efficient Natural Resources Highly selective investment choices allows us to out perform markets by 1ppt Focus on operational efficiency improves margins, growing operating profit ahead of sales growth by 1ppt 2018/19 benefits f
Slide 137: Relentless focus on driving efficiency
Delivering sustained growth and value Relentless focus on creation driving efficiency Driving sustained improvements in how we run our business Improve performance through common standards and processes, enabled by IT £50m, mainly procurement savings, over 3 years to invest and enhance margin Improv
Slide 138: Common procurement standards reduce costs
Common procurement standards reduce costs to invest and enhance margin Our Procurement Opportunity Purchases of Excluding direct A global Whilst also £1.5bn* across materials in procurement mitigating 118 sites Clean Air, strategy coupled risks buying has with capability been a site level build can
Slide 139: Investing in technology through three stages
We create value by investing in our technology through three stages Efficient Natural Stage Clean Air Health Resources Selectively invest through New e.g. Battery Materials e.g. Agrochemicals e.g. Medical Devices Markets sector e.g. Emission e.g. PGM Refining e.g. API Manufacturing Scale-up Control
Slide 140: Rigorous resource allocation framework
Our rigorous resource allocation framework R&D as % sales Capex: Depn ROIC Meaningful early stage Select Investment Ahead <0% R&D investment Scale-up >5% >1.5 >WACC Sustain and grow 4-5% 1-1.5 >20% 140
Slide 141: Consistent investment weighted to near term
Consistent investment weighted to Rigorous Resource near term Allocation R&D remains ~6% of sales Capex Investment ~1.8x depreciation over the medium term 18/19 increase in capex with Battery Material capacity investment 141
Slide 142: Capital allocation
Capital allocation 01 02 03 04 Reinvest for Progressive Strategic Return organic growth Dividend Investments of Capital Continue to target ROIC 20% Net Debt* : EBITDA 1.5-2.0x *net debt including post-tax pension deficits 142
Slide 143: Growth and value creation will deliver attractive returns
Growth and value creation will deliver attractive returns Expanding group ROIC to 20% Delivering mid to high single digit EPS CAGR And continuing a progressive dividend policy 143
Slide 144: Sustained growth and value creation
Sustained growth and value creation Sustained leadership Chemistry which Investment Relentless focus in growing, high drives solutions to which accelerates on operational margin, technology complex problems growth excellence driven markets Be one of the best performing, most trusted and admired spec
Slide 145: www.matthey.com/investor
“_ \SS on Matthey” R e, enhancing life www.matthey.com/investor