Johnson Matthey PLC · LSE:JMAT
Johnson Matthey — FY2020 Earnings Presentation
46 slides from Johnson Matthey's earnings presentation, Jun 11, 2020
Slide 1: Presentation of results for the year ended 31st March 2020
Presentation of results for the year ended 31st March 2020 11th June 2020
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: Robert MacLeod, Chief Executive
Robert MacLeod Chief Executive 3
Slide 4: Confident in the strength of our business
Confident in the strength of our business Performance slightly ahead of market expectations, excluding COVID-19 Well positioned in an uncertain world Accelerating parts of our strategy to drive efficiency Net zero solutions driving medium term growth Note: All growth rates in this presentation are a
Slide 5: Performance slightly ahead of market expectations excluding COVID-19
Performance slightly ahead of market expectations excluding COVID-19 • Outperformed global light duty production; heavy duty in line with market Clean Air • Experienced one-off manufacturing inefficiencies in the first half • New highly efficient and flexible plants in Europe and Asia largely comple
Slide 6: Balancing the priorities of all our stakeholders
Balancing the priorities of all our stakeholders Customers and Our people Communities Shareholders suppliers 6
Slide 7: What we are seeing now
What we are seeing now • China recovering strongly; April and May sales in line with prior year • Europe and Americas gradually ramping up; April, May, June sales down Clean Air 85%, 70% and 40% (estimated) • Visibility remains low • Vast majority of plants operating, refineries operational albeit a
Slide 8: Immediate decisive action
Immediate decisive action Cost reduction Tightly managed working capital Postponed non-strategic capex 8
Slide 9: Well positioned in an uncertain world
Well positioned in an uncertain world Robust balance sheet • Material cash inflows from precious metal working capital • Strong liquidity Flexible cost base • Particularly in Clean Air Diverse portfolio reduces risk • A range of end markets and geographies 9
Slide 10: Accelerating parts of our strategy to drive efficiency
Accelerating parts of our strategy to drive efficiency Additional savings Consolidating Clean Air footprint of at least £80m p.a. within three years Run rate cost Driving organisational efficiency savings of c.£225m by end of 2022/23 Note: Total restructuring costs of c.£240m, which will be taken ou
Slide 11: Consolidating Clean Air footprint
Consolidating Clean Air footprint Actions Outcomes New, identical world class Driving efficiency plants in Europe and Asia reducing costs Rationalising footprint Increasing agility Optimising global Improving manufacturing network customer experience Building on investments to capture value from glo
Slide 12: Driving organisational efficiency
Driving organisational efficiency Actions Outcomes Standardising global Simplified organisation systems and processes Enabling faster Removing duplication decision making Reducing complexity Driving efficiency reducing costs Building on investments simplifying our organisation 12
Slide 13: Anna Manz, Chief Financial Officer
Anna Manz Chief Financial Officer 13
Slide 14: Resilient performance and accelerating strategic initiatives
Resilient performance and accelerating strategic initiatives Performance slightly ahead of market expectations, excluding COVID-19 Well positioned in an uncertain world Accelerating parts of our strategy to drive efficiency Note: In our pre-close trading update (30th March 2020) we guided to an impa
Slide 15: Group sales robust in a challenging environment
Group sales robust in a challenging environment 1% £92m £30m £36m (£33m) (£23m) £4,275m £4,214m (£41m) +8% (13%) (£105m) £4,170m (1%) +9% Full year Translational Clean Air Efficient Health New Markets Eliminations Full year COVID-19 Full year 2018/19 FX Natural 2019/20 2019/20 Resources pre-COVID-19
Slide 16: Underlying operating profit slightly ahead of market expectations excluding COVID-19
Underlying operating profit slightly ahead of market expectations excluding COVID-19 5% £87m £16m £601m £5m (£14m) (£2m) £566m Includes c.£8m impairment in 1H on (£62m) £539m demo as we proceed directly to eLNO (£57m) commercial plant Includes c.£30m due to lower demand in Clean Air and c.£15m highe
Slide 17: Clean Air: outperformed in a weak market
Clean Air: outperformed in a weak market Sales down 4% Outperforming the market (4%) • Light duty sales flat; market down 10% • Heavy duty diesel sales broadly in £36m £15m line with market; market down 11% £19m (£10m) (£41m) £2,720m Operating profit down 25% (£121m) £2,618m • c.£40m impact from COV
Slide 18: Efficient Natural Resources: significant operating profit growth
Efficient Natural Resources: significant operating profit growth Sales up 8% Operating profit up 40% +8% • Higher average pgm prices (c.+£47m) £103m • Strength in PGMS trading business and elevated volatility in pgm prices (£10m) £1,079m £10m • Partly offset by higher refinery £18m operating costs a
Slide 19: Health: temporary disruption in opioid addiction therapy market
Health: temporary disruption in opioid addiction therapy market Sales down 15% Operating profit down 38% (15%) • Short-term hiatus in opioid addiction therapy market £5m • Lower ADHD sales £257m • Stock build to meet higher customer demand in 2020/21 • Net benefit from footprint optimisation £1m (£4
Slide 20: New Markets: progressing eLNO commercialisation
New Markets: progressing eLNO commercialisation Sales up 7% Operating profit declined +7% • Continue to invest in the commercialisation of eLNO £32m flat £1m • Includes £8m impairment £389m of eLNO demo plant (£7m) £1m £362m • Fuel cells grew strongly Full year Translational Alternative Medical Devi
Slide 21: Operating performance
Operating performance Underlying results for 2020 2019 % change % change, year ended 31st March1 £m £m constant rates Sales excluding precious metals (sales) 4,170 4,214 -1 -2 Operating profit 539 566 -5 -6 Finance charges (86) (43) Share of profit of joint venture and associate 3 - Profit before ta
Slide 22: Reported results impacted by one-offs
Reported results impacted by one-offs Year ended 31st March 2020 2019 £m £m Underlying operating profit 539 566 Profit / (loss) on disposal of businesses 2 (12) Loss on significant legal proceedings1 - (17) Amortisation of acquired intangibles (13) (14) Major impairment and restructuring charges2 (1
Slide 23: Improved free cash flow
Improved free cash flow Free cash flow (£m) Year ended 31st March 2020 2019 Underlying operating profit 539 566 Depreciation and amortisation1 171 159 Impairments 10 - Precious metal working capital outflow (5) (198) Non precious metal working capital 4 (26) inflow / (outflow) Net working capital ou
Slide 24: Committed to our strategic growth and efficiency projects
Committed to our strategic growth and efficiency projects Strategic growth Other capex and efficiency capex Clean Air plants Maintenance Upgrading pgm refineries Smaller growth projects Total capex spend Health pipeline in 2019/20 £465m eLNO commercialisation IT systems c.£265m c.£200m 2020/21 capex
Slide 25: Robust balance sheet
Robust balance sheet Good access to liquidity of c.£1.3bn Robust balance sheet with net debt to EBITDA of 1.6 times Net debt to EBITDA at bottom end of target range • Significant improvement in the second half despite rising pgm prices and impact of COVID-19 on EBITDA Material headroom to debt coven
Slide 26: Materially reduced precious metal working capital volume
Materially reduced precious metal working capital volume Precious metal working capital movement (£m) Delivered £345m volume reduction: • Refinery backlog reduction of £162m • Focus on reducing other volumes £345m • Optimising metal across our businesses £352m £590m £597m • Reviewing commercial term
Slide 27: Continued cash inflow
Continued cash inflow Focus on reducing backlogs At least a further £300m reduction by the end of 2020/21 Note: Precious metal working capital improvement of £300m based on 31 st March 2020 prices. 27
Slide 28: Strong track record of delivering efficiency
Strong track record of delivering efficiency Annualised Delivered £m benefits by to date 2022/23 Procurement¹ 71 100 Restructuring 25 25 Health footprint optimisation 20 20 Previous initiatives beginning 2017: 116 145 Clean Air footprint - 30 Group wide organisational efficiency - 50 New initiatives
Slide 29: Accelerating efficiency initiatives and focusing our portfolio
Accelerating efficiency initiatives and focusing our portfolio Annualised Total Restructuring Future £m benefits by restructuring costs restructuring 2022/23¹ costs 2019/20 costs² Clean Air footprint 30 (91) (61) (30) Group wide organisational efficiency 50 (70) - (70) Battery Materials LFP - (57) (
Slide 30: Outlook
Outlook Given ongoing uncertainty unable to provide financial guidance for 2020/21 Diverse impact across our sectors Efficiency initiatives to support operating performance Further reduction of refinery backlogs Continue to invest in strategic growth and efficiency projects 30
Slide 31: Robert MacLeod, Chief Executive
Robert MacLeod Chief Executive
Slide 32: Growth opportunities for our science-led strategy
Growth opportunities for our science-led strategy • Tightening legislation in Europe and Asia driving value uplift Clean Air • Market leadership in our key LDD and HDD markets • Capital projects nearing completion Efficient Natural • Progressing refinery investment and new technologies Resources • E
Slide 33: Net zero solutions – driving medium term growth
Net zero solutions – driving medium term growth Battery Hydrogen Hydrogen Materials production fuel cells 33
Slide 34: Battery Materials opportunity
Battery Materials opportunity Net zero accelerating Customised solutions An attractive market 34
Slide 35: Net zero – progress in building our battery materials business
Net zero – progress in building our battery materials business Application centre – UK Four customers in full cell testing Broken ground on commercial plant 35
Slide 36: Opportunity – facilitating global net zero
Opportunity – facilitating global net zero Hydrogen Production Fuel cells • Leading low carbon hydrogen (LCH™) • Growing market and large opportunity technology for blue hydrogen production • Established player • World’s first large scale LCH™ plant to use our technology • Strong competitive advanta
Slide 37: Delivering our future
Delivering our future Balancing the priorities of all our stakeholders Accelerating parts of our strategy to drive efficiency Net zero – well positioned with science-led solutions 37
Slide 38: Appendix
Appendix 38
Slide 39: Average non precious metal working capital days
Average non precious metal working capital days Average working capital days excluding Average working capital days precious metals, year ended 31st March increased to 63 days Targeting average non precious 69 metal working capital of 50 to 60 days 62 63 59 2017 2018 2019 2020 39
Slide 40: Net debt to EBITDA 1.6 times
Net debt to EBITDA 1.6 times1 £m £m Net debt at the beginning of the year (866) Free cash flow 52 Dividends (167) Movement in net debt (115) Lease adjustments² 1 Net debt before FX and IFRS 16 transition (980) FX and IFRS 16 transition adjustment³ (114) Net debt at the end of the period (1,094) 1. N
Slide 41: A balanced debt maturity profile
A balanced debt maturity profile Debt maturity profile (£m) Good access to liquidity 300 Recently concluded: • £1bn 5 year committed revolving credit facility 200 • US$300m private placement No material refinancing 100 due in 2020 or 2021 0 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 KFW
Slide 42: Return on invested capital
Return on invested capital ROIC is 13.3%, down 3.1ppt 16.4% Investing for growth in near term (0.7)% (1.1%) (0.4%) 14.2% (0.9%) 13.3% Full year Operating profit Capital Other ROIC excl. Precious metal Full year 2018/19 expenditure precious metal working capital 2019/20 working capital 42
Slide 43: Light duty emissions control legislation roadmap
Light duty emissions control legislation roadmap 2017 2018 2019 2020 2021 2022 2023 2024 2025 → Europe EU6c / Euro 6d temp EU6d (95 g/km CO2, 2021) EU7 (est.) North America EPA Tier 3 Phase In: NMOG + NOx, PM Tightening PM = North America CARB LEV III Phase In: NMOG + NOx, PM Tightening LEV III Furt
Slide 44: Heavy duty emissions control legislation roadmap
Heavy duty emissions control legislation roadmap On road 2017 2018 2019 2020 2021 2022 2023 2024 2025 → Europe EU VI EU VII (est.) North America GHG Phase 1 GHG Phase 2 North America (CARB) GHG Phase 1 GHG Phase 2 CARB 24 (est.) Japan JP 16 South Korea EU VI EU VII (est.) Brazil P7 (EU V) P8 Russia
Slide 45: Health: generics and innovators pipeline
Health: generics and innovators pipeline Number of generic and innovator products by expected launch date and value¹ (Total products: 54) Expected time until launch Already launched 2020/21 to 2022/23 2023/24 to 2025/26 2026/27+ >£5m 1 1 2 72 operating profit p.a. 1 Potential product £2.5-5m 1 1 1 2
Slide 46: Battery Materials: bringing a viable product to market
Battery Materials: bringing a viable product to market Achievements On track to deliver Today 2020 2022 2024 Pilot plant operational Further application Commercial plant, Supplying platforms and testing capacity up to 10kt First UK application centre operational Sufficient for c.100k pure battery el