Johnson Matthey PLC · LSE:JMAT
Johnson Matthey — FY2018/19 Earnings Presentation
40 slides from Johnson Matthey's earnings presentation, May 30, 2019
Slide 1: Presentation of results for the year ended 31st March 2019
Presentation of results for the year ended 31st March 2019 30th May 2019
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: Strong performance whilst strengthening our platform for growth
Strong performance whilst strengthening our platform for growth Executing our strategy Underlying Delivered in line ROIC Dividend earnings per share with expectations of 16.4% up 7% up 10% Note: All growth rates in this presentation are at constant rates unless otherwise stated. ROIC excludes net pe
Slide 4: Anna Manz, Chief Financial Officer
Anna Manz Chief Financial Officer 4
Slide 5: Delivered in line with our expectations
Delivered in line with our expectations Underlying results for year ended 2019 2018 % change, 31st March1 % change constant rates £m £m Sales excluding precious metals (sales) 4,214 3,846 +10 +10 Operating profit 566 525 +8 +8 Finance charges (43) (39) +12 Profit before tax 523 486 +8 +7 Taxation (8
Slide 6: Sales growth driven by Clean Air
Sales growth driven by Clean Air +11% +4% +3% +17% +10% £52m £8m £35m £7m £269m £4,214m £3,846m £3,846m (£3m) Full year 2017/18 Translational FX Clean Air Efficient Natural Health New Markets Eliminations Full year 2018/19 Resources 6
Slide 7: Strong growth in underlying operating profit
Strong growth in underlying operating profit +8% £23m £44m (£2m) (£15m) (£10m) £566m £525m £1m £525m Full year 2017/18 Translational FX Clean Air Efficient Natural Health New Markets Corporate Full year 2018/19 Resources 7
Slide 8: Progressing on my three focus areas
Progressing on my three focus areas Drive increasing business wide efficiency Disciplined management of working capital Rigorous and transparent resource allocation 8
Slide 9: Delivering now as we invest for the future
Delivering now as we invest for the future Operating profit up 8% Net cost of £2m £42m £31m £566m £1m £525m £33m Procurement: £19m Restructuring: £12m Full year 2017/18 Translational FX Procurement and Costs associated with Underlying business Full year 2018/19 restructuring savings 1 group initiati
Slide 10: Group programmes
Group programmes Cumulative Annualised Achieved in £m achieved benefits the year to date Procurement 60 26 28 Restructuring 25 12 24 Riverside closure 20 15 15 Total 105 531 67 Good progress Three quarters Some benefits against of procurement being reinvested our efficiency initiatives will benefit
Slide 11: Clean Air: Double digit sales growth in both light and heavy duty
Clean Air: Double digit sales growth in both light and heavy duty Sales up 11% Operating profit up 13% £89m • Margin improved to 14.4%, up 0.2ppt £2,720m £26m £156m • Volume leverage (£2m) £2,454m (£3m) Strategic progress • Achieved 20ppt increase in light duty diesel market share in Europe Full yea
Slide 12: Efficient Natural Resources: Sales growth and margin improvement
Efficient Natural Resources: Sales growth and margin improvement Sales up 4% Operating profit up 15% £26m £1m • Margin improved to 18.3%, up 1.8ppt £991m £42m • Higher average pgm prices (+c.£16m) • Net benefits from improved efficiencies £956m (£1m) • Partly offset by investment in pgm (£33m) refin
Slide 13: Health: Sales growth with operating profit slightly down
Health: Sales growth with operating profit slightly down Sales up 3% Operating profit slightly down • Decline in high margin products £11m moving through life cycle £3m £257m • Net costs due to manufacturing footprint optimisation £247m (£4m) Strategic progress • Rationalised manufacturing footprint
Slide 14: New Markets: Strong sales growth; eLNO commercialisation on track
New Markets: Strong sales growth; eLNO commercialisation on track Sales up 17% Operating profit down 85% • Higher costs due to eLNO investment £52m £5m £362m • Strong growth in lower margin battery (£5m) systems sales • Quality issues in Medical Device Components £312m (£2m) Strategic progress • Sig
Slide 15: EPS growth slightly ahead of underlying operating profit growth
EPS growth slightly ahead of underlying operating profit growth Underlying results for 2019 2018 % change, year ended 31st March1 % change constant rates £m £m Sales excluding precious metals 4,214 3,846 +10 +10 Operating profit 566 525 +8 +8 Finance charges (43) (39) +12 Profit before tax 523 486 +
Slide 16: Reported results impacted by one-offs
Reported results impacted by one-offs Year ended 31st March 2019 2018 £m £m Underlying operating profit 566 525 Loss on disposal of businesses (12) (7) Loss on significant legal proceedings1 (17) (50) Amortisation of acquired intangibles (14) (19) Major impairment and restructuring charges2 8 (90) O
Slide 17: Free cash flow impacted by working capital
Free cash flow impacted by working capital Free cash flow (£m) Year ended 31st March 2019 2018 Underlying operating profit 566 525 Depreciation and amortisation1 159 160 Precious metal working capital outflow (198) (84) Non precious metal working capital (26) (64) outflow Net working capital outflow
Slide 18: Precious metal working capital impacted by backlogs
Precious metal working capital impacted by backlogs Precious metal working capital (£m) Precious metal backlog (‘000 Oz) 800 26% reduction in 700 ounces since H1 600 500 400 300 200 100 0 Mar-15 Sep-15 Mar-16 Sep-16 Mar-17 Sep-17 Mar-18 Sep-18 Mar-19 FY 17/18 1H 18/19 FY 18/19 • Precious metal worki
Slide 19: Improvement in average non precious metal working capital days
Improvement in average non precious metal working capital days Average working capital days excluding precious metals, year ended 31st March Average working capital days were 59, an improvement of 3 days 70 69 11 day improvement since 2016 62 59 Continue to drive improvement in working capital 2016
Slide 20: Strong balance sheet, net debt to EBITDA 1.3 times
Strong balance sheet, net debt to EBITDA 1.3 times1 £m £m Net debt at the beginning of the year (679) Free cash flow (13) Dividends (156) Movement in net debt before FX (169) Net debt before FX (848) FX (18) Net debt at the end of the period (866) 1. Net debt including post tax pension deficits. 20
Slide 21: Return on invested capital
Return on invested capital Return on invested capital 1.2% • ROIC is 16.4%, down 0.6ppt (0.3%) £2,720m (0.3%) 17.6% from the prior year 17.0% (1.2%) 16.4% • Precious metal working capital increased due to backlogs and higher average pgm prices • Investing for growth in near term • Remain on track fo
Slide 22: 2019/20 outlook
2019/20 outlook Operating performance within medium term guidance of mid to high single digit growth Improvement in average working capital days (excluding precious metals) Capex up to £500 million 1. IFRS 16 will be effective for the year ended 31 st March 2020. In 2019/20, we expect a benefit to u
Slide 23: Robert MacLeod, Chief Executive
Robert MacLeod Chief Executive 23
Slide 24: Creating a more agile and efficient business
Creating a more agile and efficient business People A more agile and efficient business Delivery of our strategy underpinned Processes by fundamental Building capability changes Driving growth Systems Better positioned in a fast changing world 24
Slide 25: Clean Air: delivering on expectations
Clean Air: delivering on expectations Sustained growth in Clean Air Growth drivers Strategy Priorities Global technology Maintaining technology Improving air leadership leadership through R&D quality Customised solutions to Capturing growth from meet tighter legislation further legislation change Ti
Slide 26: Building for the future
Building for the future Poland plant China plant 26
Slide 27: Sustained growth in Clean Air
Sustained growth in Clean Air 2017 to 2019 2019 to 2025 Strong growth driven by: Growth driven by: • Additional c.20 ppts share • Tightening legislation in Europe and Asia in Europe Light Duty diesel • Europe 6 LD – up to 2x value • Tightening legislation in Europe • China 6 LD – up to x2 value • Ch
Slide 28: Efficient Natural Resources: solid progress
Efficient Natural Resources: solid progress Market leading growth in Efficient Growth drivers Strategy Priorities Natural Resources Targeted investment in Investment in new higher growth segments technologies Making the most efficient use of the Expand newly developed Focus on efficiency world’s nat
Slide 29: Health: significant operational progress
Health: significant operational progress Break out growth in Health Growth drivers Strategy Priorities Enhance performance of Leverage our optimised existing business manufacturing footprint Increased healthcare costs Generic pipeline to deliver Expand new product driving more c.£100m additional pip
Slide 30: Battery Materials: significant progress
Battery Materials: significant progress Break out growth in Battery Materials Growth drivers Strategy Priorities Start construction of first Technology leadership commercial plant and Improving air determine scale up plan quality Focus on ultra high Further progress on Increased BEV energy density m
Slide 31: Tailoring solutions for our customers
Tailoring solutions for our customers Adding value for our customers Customer application centre “JM is a preferred cathode material company to work with due to fast Three best in class application centres response, willingness to customise the product [and] investing in science” Global focus – two
Slide 32: Confident in our future
Confident in our future Another good year; delivered in line with Mid to high single expectations digit EPS CAGR Fundamentally changing the organisation as we execute our strategy Expanding ROIC to 20% Strengthening our platform for growth Progressive Exciting future prospects dividend 32
Slide 33: Appendix
Appendix 33
Slide 34: Light duty emissions control legislation roadmap
Light duty emissions control legislation roadmap 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Euro 6d final / Europe EU 6b EU 6c / Euro 6d temp EU 7? 95 g/km CO2 North America EPA Tier 2 Tier 3 Phase In: NMOG + NOx, PM Tightening North America CARB LEV III Phase In: NMOG + NOx, PM Tighteni
Slide 35: Global growth in vehicle production
Global growth in vehicle production Light duty vehicle production outlook (million) Calendar years CAGR 1.5% 100.1 97.2 95.0 94.0 94.6 92.9 CAGR 1.9% 51.6 53.4 48.6 49.8 49.1 50.1 CAGR -0.8% CAGR 1.4% 21.5 22.2 22.1 22.0 22.6 23.1 17.8 17.0 16.9 17.0 16.9 17.1 2016 2017 2018 2019 2020 2021 2016 2017
Slide 36: Heavy duty diesel emissions control legislation roadmap
Heavy duty diesel emissions control legislation roadmap On Road 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Europe EU VI EU VII? North America GHG Phase 1 GHG Phase 2 North America (CARB) GHG Phase 1 GHG Phase 2 CARB Ultra Low NOx Japan JP09 JP16 South Korea EU VI EU VII? Brazil EU IV EU
Slide 37: Heavy duty diesel vehicle production (regulated engines)
Heavy duty diesel vehicle production (regulated engines) Heavy duty diesel vehicle (regulated engines) production outlook (thousands) Calendar years CAGR 8.0% 3,222 3,159 3,110 3,131 2,737 CAGR 11.6% 2,193 1,972 1,976 2,024 1,899 1,630 1,171 CAGR 2.8% CAGR 3.7% 603 608 633 659 590 539 551 589 597 47
Slide 38: Potential product operating profit p.a.
Health: Generic pipeline on track to deliver an additional c.£100m operating profit per year by 2025 Number of products¹ by expected launch date and value (Total products: 46) >£5m 2 3 7 operating profit p.a. 2 Potential product £2.5-5m 14 5 5 2 2 2 £0-2.5m 13 5 5 0-2 years 2-5 years 5+ years Expect
Slide 39: eLNO has superior performance
eLNO has superior performance $ per kWh per cycle to end of useful life1 (chart to scale, indexed with eLNO = 100) Current materials Step change in energy density 200 from current materials Next generation materials 150 Lower cobalt content than current materials 100 Lower $ per kWh per cycle than c
Slide 40: eLNO: Commercialisation on track
eLNO: Commercialisation on track Battery Model in Stage Validation A sample B sample C sample cell in production production Summary Early testing Basic Extended Full-scale performance performance: functionality basic plus safety, life performance Volume kgs < 10t c.200t c.300t Required Commercial JM