Ladies and gentlemen, thank you for standing by, and welcome to the 2020 half-year results conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star and one on your telephone keypad. I must advise you that this conference is being recorded today on Thursday, the 19th of November 2020. I would now like to turn the conference over to your first speaker today, Martin Dunwoodie. Please go ahead, sir.
Great. Thank you, Yella, and to everyone for joining our first half results call this morning. I'm pleased to have our Chief Executive, Robert MacLeod, with us on the call today. Without further ado, I will hand over to Robert.
Thank you, Martin. Good morning, and welcome everyone to our first half results presentation. Obviously, given the circumstances, we're still having to hold these remotely, so I'm very sorry we can't do this in person. I do hope you and your families are all keeping well and healthy. Today, I am with Anna and the IR team, and I'm also joined by Karen Hayzen-Smith, who will take over from Anna as interim CFO from tomorrow. As usual, we'll go through the presentation today and then give you a chance to ask any questions that you may have. As we know, this continues to be a very challenging and uncertain time for all of us. However, across JM, we're successfully navigating through this difficult period.
Although some of our end markets were initially badly impacted by the pandemic, they've recovered more rapidly than we previously anticipated, particularly in the automotive sector, where we're seeing a strong recovery across all regions, but especially China, where we're now seeing auto production above last year. As a result, in the half, we delivered operating performance ahead of market expectations, albeit significantly below the prior year, and at the same time, very strong cash generation. In both our operating performance and cash generation, I'm pleased that we have outperformed, evidencing that we've managed through this period well. Over recent years, we've made changes across the business, and these are enabling us to create a more simple, agile and efficient organization. This has given us a strong platform and the flexibility to invest for the future into our strategic growth projects, particularly those which are focused on climate change solutions.
In a moment, Anna will talk you through the detail of our performance in the half. First, I'll give you my highlights. As I've already said, our financial results, given the context of changes in our underlying markets, are good. During the period, we achieved this while at the same time making significant changes to our group operating model. This will deliver substantial efficiencies which will benefit our P&L. We're also fundamentally improving the management of our precious metal working capital. We've also made good progress with our longer term growth opportunities. In Battery Materials, customer testing is going well. That and the way that the market continues to develop has given us the confidence to accelerate our plans to scale up as a business. We're therefore proceeding with the initial engineering work for our second commercial plant.
Fuel cells is going really well, and we're seeing strong growth and making good progress with customers, particularly in China, and our capacity expansion is almost complete. These are just a few examples. We'll cover the details in the sectors as we go through the presentation today. Let me tell you about what we've been doing to set us up for the future. In recent years, we've been working hard to structurally improve our business. We're in a strong position today because of the changes that we have made, and we've summarized them here in three broad buckets. Firstly, we're executing on our efficiency programs, and I'm happy to report that we're well on track. These will deliver annualized savings of around GBP 225 million by the end of our fiscal year 2022-2023. Secondly, we've maintained our strong balance sheet.
This is a really good result, especially so in the current environment. Many of you will recall the unplanned outage we had in our PGM refinery a couple of years ago, which put pressure on our working capital, which was further exacerbated by higher metal prices this time last year. Since then, we haven't just looked to tackle the problem at our refinery, but we've taken the opportunity to have a good look at our business and fundamentally improve our metal operating model. This has yielded huge benefits that you see flowing through this set of results. Of course, this drive for efficiency doesn't stop there. We continue to actively manage our portfolio, and recently we have divested our activities in water and atmosphere control technologies, which are not core to our growth strategy. Before I hand over, let me summarize.
We've made good progress in the last six months, delivering against our commitments, and we remain in a strong financial position. Because of this, we're able to invest in our future in strategic growth projects which are hugely important in helping to tackle climate change. With that, over to you, Anna.
Thanks, Robert. Good morning. Today, I'll be covering three things: our first half performance, how we're delivering on our efficiency initiatives, and the significant progress we've made on working capital. Starting with our performance in the half. Group sales were materially down, and that was due to COVID. Most of the impact was in Clean Air, where we had customer shutdowns and weaker demand. As a result, sales were down 27%. Efficient Natural Resources and New Markets were also impacted, but less so than Clean Air. In Health, sales grew. Operating profit declined 42% as a result of those weaker sales. Although this was mitigated by a group-wide focus on cost efficiencies, which I'll come back to a bit later. First, let me take you through each sector in a bit more detail.
Our Clean Air business was most affected by COVID, with sales materially down as our customers closed their plants at the start of the pandemic. Our performance has broadly followed vehicle production, with our share largely unchanged. Of course, we've had the benefit of regulatory uplift, particularly in China. As the half has progressed, we've seen a strong recovery in demand, you can see this in the monthly chart on the right-hand side. This recovery reflects returning consumer demand, the rebuilding of stock in the OEM supply chain, as well as short-term incentives in China. It will be lumpy month on month, I wouldn't extrapolate the current strengths. Operating profit was down 56%, with volume leverage in line with our 75% variable cost base. Internally, we're making good progress on the initiatives we announced at the full year to simplify how Clean Air operates.
I'll get into more detail on this in a minute. They do mean that we're better placed to serve our customers and drive value during this volatility. Looking at the second half, there remains a good deal of uncertainty on both demand and OEM stock levels, and that is showing up as volatility of orders, particularly in Europe. Triangulating the external data would currently suggest that if you look at our fiscal year, in Europe and the U.S., light duty production could decline about 20%, with heavy-duty declines of around 30%. In Asia, the Chinese market is stronger and it's likely to be above the prior year. In Efficient Natural Resources, sales were down 10%. This was because of weaker demand and the usual cyclicality in catalyst demand. Catalyst Technologies serves a wide range of end markets, and the impact has varied across them.
The biggest impact was in catalyst refills. Here, COVID both reduced demand and delayed orders for our additives business and for our formaldehyde business. In methanol and ammonia, sales were down, but that was as expected after a couple of strong years. This is just the normal phasing of customer changeouts. First fills grew well as the number of new plants came on stream. Licensing was down in the period, but we signed two new licenses, and we have a really strong pipeline of projects that will deliver growth going forward. PGM Services has seen higher and more volatile average metal prices, and that's driven double-digit growth in the half. Operating profit for the sector was down 12% as the weaker demand in Catalyst Technologies and diagnostic services was partly offset by the GBP 24 million benefit from higher average metal prices.
For the full year, we expect operating performance to be below last year, with a stronger second half and similar seasonality. Our Health business saw sales growth in both innovators and generics, and that was driven by new supply agreements. In innovators, Immunomedics is progressing well and has recently received approval, so volumes are increasing in support of the commercial demand. In generics, we're benefiting from multi-year supply agreements in opioid addiction therapies. Operating profit declined 21% as the business mix in the period was weaker. Products in this sector have a wide range of margins, and we were impacted by the cancellation of one of the high-margin innovator projects in the second half of last year when it failed to get FDA approval. In New Markets, sales declined 8%.
Fuel cells saw strong demand and grew 30%, but sales in battery systems were impacted by COVID, as well as medical device components, where we saw the delay of elective medical procedures. Operating profit grew to GBP 5 million in the half as we lapped the GBP 8 million impairment of the eLNO demo plant last year. We've also seen better sales mix in Life Science Technology. For the full year, we would expect operating profit to be above last year. Looking further down the P&L. Finance charges were higher in the half. This was due to higher average interest rates across our mix of borrowings and increased interest on our metal borrowings. We've made great progress in reducing our precious metal working capital, but there is a lag before we see that benefit come through to finance charges. The finance cost will remain higher over the full year.
At 16%, the underlying tax charge is down year-on-year, as we lap a provision last year. Underlying EPS was down materially. In balancing performance against the market backdrop, the board has approved an interim dividend of GBP 0.20 per share. We expect to return to pre-COVID levels of dividend when circumstances permit and do remain committed to a progressive dividend policy. This is a reconciliation to our reported results. You can see here we took a GBP 78 million impairment and restructuring charge in the half, that's in line with the transformation we announced at the full year. You can see the breakdown of the GBP 78 million in the note at the bottom of the slide. GBP 62 million is a cash restructuring cost, of which GBP 16 million was a cash outflow in the half, the other GBP 16 million relates to impairments.
The next slide will give you an update on our transformation progress. We've announced a number of initiatives that together will deliver GBP 225 million by fiscal 2023. I'm really pleased to say that we are on track. We've delivered GBP 140 million so far, with GBP24 million in the first half. I'm going to update you now on the work underway. Firstly, procurement. I'm pleased to say we expect to deliver the full GBP 100 million target by the end of this fiscal year. That's two years earlier than we originally planned. We're reinvesting some of this to drive growth. Of course, we're always looking for further savings in this area. We'll update you at the full year. The consolidation of our Clean Air manufacturing footprint will deliver GBP 30 million, with GBP 3 million in the first half.
The simplification of our business will reduce complexity and deliver GBP 50 million, with GBP 8 million in the first half. We've also been working to improve the efficiency of our balance sheet. As you know, metal working capital has been a big area of focus, and we've made fundamental changes to our metal operating model to structurally drive down the volume of precious metal working capital we have in our business. We've done this by focusing on three things. Firstly, we've reviewed every aspect of how metal flows through the group, and we've optimized it. Secondly, we're contracting with our customers more effectively. Lastly, we've improved throughput at our refineries. We've done a great job here, taking out a further GBP 400 million in the half, well ahead of the target we shared with you at the full year results of GBP 300 million for the year.
This means at today's prices, we've taken out over GBP 1 billion of volume of metal working capital over the last 2 .5 years, and we're now operating at a structurally lower level of working capital going forward. Moving to the right-hand chart, you can see that in the half, we've reduced metal working capital by nearly GBP 300 million. The drivers are the GBP 400 million structural benefit I just talked about, plus a further one-off benefit of around GBP 200 million due to the impact of COVID. That is then offset by increased demand, particularly in Clean Air and metal price increases. While we continue to look for further efficiencies, the big structural benefits for this year are largely delivered. Looking forward to the full year, we may see some unwind of the one-off benefit, and we will see working capital movements following demand.
I'm really proud of what we've achieved and the momentum that we have driving simplification and efficiency across the group. We've maintained a strong balance sheet and have access to GBP 1.8 billion of liquidity. Our net debt at the 13th of September was GBP 878 million, down from the GBP 1.1 billion at the full year. Net debt to EBITDA is 1.6 x, that is comfortably within our range of 1.5x - 2x. This is a strong performance given the impact of COVID on our earnings. As a result of the strong working capital performance, we saw a free cash inflow of GBP 256 million in the half, improving from a GBP 382 million outflow last year. I've taken you through how we're thinking about the performance of our sectors over the second half. Given the uncertainty, I won't be giving quantitative guidance for the year.
However, we currently expect a materially stronger second half compared to the first half. Efficiency savings will be about GBP 60 million in the year, and we continue to invest in our strategic projects that are critical for our future growth and efficiency. This includes the commercialization of our eLNO material and Battery Materials, the investment in the efficiency and resilience of our refineries with Efficient Natural Resources, and the completion of our new Clean Air plants. We expect to spend up to GBP 400 million in the year. With that, I'll pass back to Robert.
Thank you, Anna. You've seen our performance in the half. Let me now talk about our future growth opportunities, starting first of all, with our more established businesses. In Clean Air, we continue to benefit from tighter legislation, especially in Asia. This growth remains intact despite the dislocation caused by COVID. Asia is our next leg of growth. We're already seeing the benefit coming through, particularly in China, as new legislation comes in across light duty and heavy duty. This gives us a significant value uplift per vehicle. Our new plants in Poland and China are now rapidly scaling up. These will support our growth but will also allow us to drive further efficiency across the sector. As we said before, these should be the last of our big investments in Clean Air. Therefore going forward, Clean Air will have strong cash generation.
Efficient Natural Resources. Here we are targeting the highest growth sectors. We want to be an enabler of the energy transition, which includes our hydrogen technologies and the move to low carbon chemical processes. In the last six months, our new license wins demonstrate the effectiveness of our technology and provide a good leading indicator for future catalyst growth. In addition, the opportunity for our PGM recycling business continues to be attractive given its low cost and carbon footprint compared with primary sources. The investments that we're making in our refineries will enhance this, as well as enabling us to drive further metal efficiency. In Health, we secured a number of supply contracts across both generics and innovators. This is already starting to deliver results, and we've also launched two more products from our pipeline.
We've been talking about our new facilities in Poland and China for some time, and I'm delighted that we have them and that both are now ramping up. Poland came online first, shortly followed by China, and India will follow next year. We will soon have a truly global, highly efficient manufacturing footprint focused on five near identical world-class plants in the U.S., North Macedonia, Poland, China, and India when it's complete. We announced in June that we're starting to consolidate our older capacity, and we've been gradually moving production into these newer facilities, starting with our large volume products. As well as optimizing our footprint, we've also been transforming our business model, moving from one that's locally focused to one that's much more global.
This isn't just about how we manage our manufacturing assets, but also how we are managing, for example, our customer relationships, our technical quality and supply chain teams. Together, this is making a huge difference. Now looking at the world around us, there's no doubt that action around climate change has increased. Importantly, this remains true today despite all the uncertainty that we're seeing with COVID. The move to net zero is accelerating, and with this, we will all see significant change. We're ready for it and already have solutions, from Battery Materials to fuel cells and also technologies for hydrogen production. In these areas, we have competitive advantage. Let me take you through each of these, starting with Battery Materials. The Battery Materials market opportunity is very significant.
The market we are targeting, the automotive market for high energy cathode materials, is expected to be around 1.7 million tons by 2030. As we bring our business to scale, we're making progress across a number of key areas. Firstly, we're continuing to develop our technology as we're seeing considerable interest in our customized products. Secondly, I'm very pleased with how testing is going. We're making good progress, not only adding new customers to our pipeline, but also continuing to move existing ones through our development funnel. In the first half, two non-automotive customers moved into cell prototyping. This is a more advanced stage within full cell testing where we are working together on their specific cell format. This is a really positive development because we've now moved beyond the standard testing stage and are working more closely on their specific application.
The other thing to point out here is the time to market is usually faster for non-automotive applications. The advantage being that we'll be getting valuable learnings ahead of auto customers moving into this phase. This type of testing and customization is supported by our application centers. We know that our ability to customize is something that is really valued, and we recently opened our second application center in the U.K. for more advanced cell testing work. Of course, having a great product in the lab is not enough. We have to be able to manufacture at scale, and that's where our commercial plants come in. Our first commercial plant in Poland is progressing well. We have now completed piling, so very soon you'll see the building going up. The picture on the right here is a CAD drawing of what the plant will look like.
The build is on track, as a reminder, it will start production in 2022, and we will have commercial automotive production in 2024. Over recent months, we've continued to engage with customers, particularly those in the more advanced stages of testing. That deeper engagement has given us greater understanding of their requirements, this has meant that we've had to evolve the design of this first plant to ensure that we have the right flexibility to manufacture their products. At the same time, we don't want to compromise on speed to market, hence, the cost of this plant has increased. We therefore now expect that the full cost to commercialization of eLNO to be around GBP 550 million, compared with around GBP 350 million previously. It's important to remember that this is our total cost to commercialization.
That includes everything from the pilot plant to the commercial plant, but also the application centers, research and development, and of course, management costs. As I explained a minute ago, this is a really exciting and significant opportunity. With the way the market is evolving and our increased confidence from customer testing, we are accelerating our scale-up plans and have started engineering design for our second commercial plant, which will have 30,000 tons of capacity. We expect that this plant will have a substantially lower capital intensity towards a level that is similar to other European Battery Materials plants as we take our learnings forward. This will enable us to deliver a return on invested capital at scale at the upper end of the industry range of 10%-15%, reflecting the good performance and customization of our eLNO materials.
Finally, all of this has to be done in a sustainable way. As part of our commitment to our customers and the Global Battery Alliance, we are sourcing renewable energy from plant startup. Moving on now to hydrogen. Hopefully, many of you were able to join the hydrogen seminar that we hosted back in September. On that call, we went through a lot of detail. Today I wanted to give you the highlights and summarize why hydrogen is going to be a very significant opportunity for JM. Hydrogen is recognized to be part of the climate change solution, as it plays a key role in the decarbonization of many applications that are otherwise hard to decarbonize across transports and industry.
As many of you know, we've been a leader in hydrogen for many years, and our strong position across both hydrogen-powered fuel cells and the production of clean hydrogen is underpinned by years of science expertise from across the group. Today, the hydrogen opportunity is already taking shape. Now let me take you through these areas in turn. Our fuel cells business continues to grow strongly, with sales up 30% in the half. To remind you, we manufacture key components within the fuel cell stack, the catalyst-coated membrane, or for some customers, the membrane electrode assembly. The performance of these are absolutely critical to the performance of the fuel cell stack, but also the cost of the overall system too.
Today, we're seeing lots of activity and demand in the market, particularly in China, where the government has recently announced a new policy to encourage the development of the fuel cell value chain in various cities, which includes supply chain subsidies. We've been investing to meet that demand. Our new capacity in China is now complete, and our U.K. capacity expansion will be online by the end of this fiscal year. We're already planning our next phases of expansion, including a new fuel cell catalyst plant. On the customer front, we're already working with many of the leading fuel cell players in China, as well as major European and American truck and auto OEMs. We have several joint development agreements in place, which will see growth in our business as these platforms are launched.
Of course, on the technology side, we're continuing to make good advancements, particularly on improving membrane durability, a key performance metric for OEMs, which will also help on the cost-down roadmap. To help our efforts here, we've added to our headcount on both the technology and manufacturing side. Let's now move to hydrogen production. In blue hydrogen, being the production of hydrogen with carbon capture and storage, we have leading technology. I've talked before about our involvement with a couple of high-profile blue hydrogen projects here in the U.K., HyNet and Acorn. These are coming along nicely. In fact, we're already working on the second phase of HyNet. We also have a strong pipeline of opportunities in Europe, North America, and Asia at various stages of development, which we'll keep you updated on.
These new opportunities are several times larger than the initial HyNet and Acorn projects. In green hydrogen, being the electrolysis of water using renewable energy, our focus is at the proton exchange membrane, or PEM. This is a nascent market which is only really starting to develop now. It is clear that it plays to our strengths, given our expertise in fuel cells and strong competitive advantage in platinum group metal catalysis. We're significantly increasing our efforts here, and we are already currently testing with leading electrolyzer players and have significant manufacturing capacity which is ready to deliver products for megawatts of PEM electrolyzers. To wrap up, we saw a strong recovery in performance through the half, and we successfully navigated what has been a challenging period, outperforming in terms of both operating and cash flow performance.
In recent years, there's been a huge amount of work going on behind the scenes to create an organization that's more simple, agile, and efficient. It's because of these changes that we're in a stronger position today. Importantly, there are further benefits to come still. The drivers of our more established businesses remain intact despite the impact of COVID. Looking to the future, the impact of climate change is real, and in tackling this, the world is going to see significant change. We already have technologies across Battery Materials and our hydrogen solutions to enable this change, and we look forward to playing our part. That concludes our presentation. Thank you for your time and listening this morning. With that, we'll pause. I'm very happy to take any questions.
Thank you. If you wish to ask a question, please press star and one on your telephone keypad and wait for your name to be announced. If you wish to cancel your request, please press the hash. Once again if you wish to ask a question, please press star and one. Your first question comes from the line of Charlie Webb from Morgan Stanley.
Morning, everyone. Thank you for the presentation. Maybe just a few questions from me on a couple of topics. First off on eLNO, maybe a couple here. Firstly, perhaps you can just give us a bit more detail around what has led to the increased confidence to add additional 30,000 tons or plan to add additional 30,000 tons for 2024. What are you hearing from your customers that gives you that confidence that capacity will be utilized and needed? Then just also on the mention, you mentioned perhaps you're having more engagement with new customers. If I remember right, you're working with seven customers previously. Does this 30,000 tons additional capacity plan allow you to broaden the number of engagements you have with new customers?
Secondly, just on hydrogen, on the green hydrogen opportunity, it seems like green hydrogen is gaining a lot of momentum in Europe, in the U.K., perhaps kind of skipping over blue hydrogen. Can you just help us understand a little bit more what the engagement you have with the electrolyzer producers today is? What kind of CapEx capacity build-out would be required if your solutions were to be successful?
Sure, Charlie. Good morning, and thank you for your questions. Look, on what's given us the confidence to invest further in our next plant. It's fundamentally about two things, really. The market opportunity, which is accelerating, but also the customer testing that we are doing is going well. Together, the need to be able to be there to deliver for our customers is increasing. Because of that, we're happy and confident about investing further. We did say that a few years ago, we did talk about the number of customers. We're not going to give a commentary every day about the number of customers, but there are more than we had before as we continue to bring more people into the funnel.
I think when you look at the overall scale of the investment that we're putting in and the assets that we will have, we'll only need two or three decent-sized platforms to fully utilize that plant or that plant being the expanded plant. I think our level of confidence that we can fill that plant is growing and growing considerably and hence the reason why we're investing. On hydrogen, absolutely it's an exciting opportunity. We're working with a number of the key electrolyzer players in the market at the moment, where we've got development agreements and are testing our products in their systems. It's very early stage, as you said. We have, as I mentioned a few minutes ago, got capacity today to make tens of megawatts worth of PEM electrolyzers.
Expansion, if we need it, is going to be in the tens of millions of pounds rather than hundreds of millions of pounds to expand capacity considerably. We can do that pretty quickly if we need to do it as the market develops. Certainly here in the U.K., you heard it yesterday from the Prime Minister and their Ten Point Plan, carbon capture and storage is absolutely one of his 10 commandments. I was on the business round table last night and he talked about his 10 commandments, very sort of Boris Johnson-esque. One of them, of course, is carbon capture and storage. I think blue hydrogen here in the U.K. and in certain other geographies, I think has a key role to play. Absolutely, it will be a combination of green and blue.
Good news is we've got technology and leading technology in both.
Sorry. Well, maybe just one follow-up on eLNO. In the presentation, you mentioned, or I think it was a consultant data, that the returns of 10%-15%. How does that fit in with the group's kind of return target of pre-tax returns of 20%? Just trying to understand, has anything changed there, or do you still believe that for your product, that you'll be able to get up to those kind of returns?
I'll ask Anna to talk about the returns question, if that's okay. Anna, do you want to?
Yeah, sure. I think with respect to Battery Materials, what we're saying is at scale, I think we'll be nearer the 15% return on invested capital, in the context of that competitive set. We look at the 20% return on invested capital target as something for the group as a whole. Yes, it remains important to us. If I just sort of talk around the sectors, Clean Air prior to COVID and post the COVID disruption will be back at the 30%+ return on invested capital levels. Remember, we've done all the investment that we need to make for the most part. We're just finishing up the last plant, and it's really about delivering returns from Clean Air.
Efficient Natural Resources, you've seen the efforts that we've made to both grow the business but also drive the efficiency of the balance sheet. That business now is approaching a 20% return on invested capital. In Health, we've made the investment in the pipeline and the footprint, so it's now a question of bringing that pipeline to market to get the returns to where we would expect them to be. Of course, Battery Materials is early in its life cycle, so we are investing ahead. We have a number of businesses at different stages in their maturity with different return profiles, and we manage across the portfolio as a whole.
Okay. Thank you very much, guys.
Thanks, Charlie. Who's next?
Your next question comes from the line of Tom Wrigglesworth from Citi. Please ask your question.
Robert, Anna, thanks very much. Two questions, if I may. Firstly, obviously, in terms of the evolution, specifically in China of the value uplift, where do you think we are in that, in terms of the phasing of adoption of China VI? Could you just remind us how far through you think that is? Secondly, you obviously talked about the higher CapEx for eLNO. Could you just help us understand a little bit better what you mean by flexibility? I'm not sure I fully understand that. Is that a technical flexibility or is it a volume flexibility? How much of that GBP 200 million is actually on the, maybe not the plant itself, you talk about the total all-in cost for periphery components as well. Would be helpful. Thanks.
Thanks, Tom. Good morning. Why don't we just take the questions in that order. Anna, do you want to start with the value uplift in, I think you're referring to Clean Air China VI.
Yeah.
Yes.
Thanks, Tom. Yeah. In light duty, I think we would say that we're about three-quarters of the way through value uplift in light duty. In heavy duty, really, we started to see the benefit come through this half. That's the tripling of the value of a truck, as you know, and we're probably about a quarter of a way through that so far.
Hopefully that's clear. On the eLNO and what does it mean in the CapEx. Largely the increase in cost is in the commercial plant, if I'm honest. Some is outside the commercial plant increase, but it's largely in the commercial plant. As far as the what does flexibility mean, it's not around manufacturing as in sort of manufacturing flexibility. It's around being able to make different products for customers and customize those products. As I said, we've been working with the customers more recently, and they've talked about the different levels of customization they are looking for. With a first plant where we haven't run a plant like this in anger before, we've got to build in that flexibility so that we can make sure that we can deliver for the customers. That's where the cost increases come from.
Okay, great. Thank you very much.
Thanks, Tom.
Your next question comes from the line of Ranulf Orr from Redburn.
Hi. Morning. Well, thanks for the questions. Just going back to Clean Air, I suppose, could you help us understand the sort of development a bit more again, for the division, how should we think about the value uplift versus volume across the whole of the LDV and HDV segments? Secondly, I'd just like to ask about CapEx over the next couple of years. It looks like you're suggesting spending GBP 600 million eLNO plant. What's the timing of that? Fuel cell expansion there? Very quickly on flexibility point, are you suggesting with different products that you might be or is this just still within the sort of eLNO paradigm, I suppose? Thanks.
Ranulf, thanks for your questions. Apologies, you got a bit fuzzy at the end, so I think we heard you right. If I go back through the questions, the first question was around wanting to understand Clean Air, the dynamics of Clean Air, more specifically. The second one was wanting to understand more about our CapEx plan, and the third one was around flexibility. Is that moving away from eLNO or not? I'll just take the last question quickly and then hand over to Anna. Look, we want to be able to make eLNO. That's what this plant is all about, to be able to make eLNO. But eLNO is not a single product, and it's a bit like NMC 811 isn't a single product. I think people will tweak 811 just like we will tweak eLNO.
It's a family of products, but you need to be able to make the different products within that family. Also, I think our plant, as well as being able to make eLNO, will be able to make 811 as well if we needed it to do that. It's a pretty flexible plant that we're going to have from the start. Anna, do you want to talk about the other two questions of Ranulf?
Sure. Clean Air development. Maybe if I start with light duty in Europe and the Americas. There what we've said is we expect vehicle production to be down about 20% for our fiscal year. We're seeing some uplift in Europe still, but there's not significant uplift in light duty in Europe and the Americas. If we move to Asia, we're seeing a much stronger market there. We're in slight growth, but that's aided a little bit by the uplift that we're getting with the GPF adoptions, which we just said we're three-quarters of the way through. We expect to see Asia overall be in growth for the year. Looking at heavy duty. No content uplift in the Americas or Europe. Americas and Europe, we would expect to be down about 30% in vehicle production terms for the year.
What that means is that the Class 8 truck cycle, we've gone through the bottom end, and we're starting to come out the other side. In Asia, which is predominantly driven by China, we're seeing a much stronger performance. We think that will continue, and as I said, it's benefited by the regulatory uplift in terms of value of a truck, as I say, at the half year, we're about a quarter of the way through that. We'll continue to see that benefit in the second half. In terms of just how that plays through to profitability, as we said to you, 75% of our costs are variable. That should allow you to work it out, particularly if you strip out the one-off costs we experienced last year.
Do you want to say something on CapEx? That was his second question on capital.
Sorry, remind me what the question was?
I wrote CapEx plans. I can't remember exact Ranulf, do you want to help us again?
Sorry.
I wrote CapEx, but I can't remember the specifics.
Yeah
Of your CapEx question.
No, I was just wondering how we should think about CapEx spend over the next couple of years in light of the GBP 600 million on the new eLNO plant and the second expansion for fuel cells?
Got it. Thank you. In the year that we are in, we've guided to CapEx of around GBP 400 million. Really, what are the big drivers of that? We're finishing off our Poland and China and India Clean Air plants, which will be largely done this year. We're investing significantly to build our first commercial plant in Battery Materials. As you know, we're investing to improve the efficiency of our refineries. That GBP 400 million maintained our strategic investment but was cut back in the context of COVID. It was lower than perhaps we would have planned to spend pre-COVID. If I look forward to next year, where we're still building our Battery Materials plant, we're continuing to build the new refinery in PGMs. We'll have a level of catch-up capital as well.
I would expect it to be a little bit higher looking forward. I'm not going to go out ahead of that, but what I would say is I'm comfortable that our organic cash flow can fund the levels of CapEx that we need for our Battery Materials plant.
Just to be clear, Ranulf, on fuel cells, the level of investment there is relatively modest. The doubling of the capacity that we put in the ground just this year, last year, where we invested was about GBP 15 million. If we put a new fuel cell plant down, it's going to be tens of millions. It's not going to be anywhere close to GBP 100 million or anything like that.
Okay. Thanks. I guess when should we expect the next eLNO plant CapEx to start coming through? Does it sound like perhaps not next year or?
We're going to start with the engineering design. That's a six-month process. Come the summer next year, we'll have an accurate cost estimate, and then we'll be able to guide you more fully from there. We'll be starting to procure long lead time items, but the biggest spend will be in years two and three and four.
Got it. Thanks very much.
Thanks, Ranulf.
Your next question comes from the line of Alex Stewart from Barclays.
Hello. Good morning. Thanks for taking the questions. On eLNO, sorry, I know you've had a lot of questions on this. Can I just confirm two things? Firstly, that the 10%-15% return on invested capital number that you've been talking about, is that on the full 40,000 tons of both of the plants combined, or is it on some future larger capacity number? I'm interested to know what fully ramped up or fully scaled up means. Just doing a quick calculation, looks like about GBP 350 million upwards of CapEx for the 30,000 ton plant. How confident are you on that number? Obviously the first plant is very considerably higher than the original estimate back in 2017. I'm really interested to know to what extent you think that could be considerably higher than that.
Just finally, a technical point, you're guiding to D&A of GBP 200 million for the year. I think you did GBP 90 million in the first half. Can I assume, therefore, that GBP 150 odd million is the new run rate if I annualize it into 2022? Thank you so much.
Okay. Anna, do you want to go the returns and the D&A one, and then I'll talk about the cost of the plant if you want to.
Sure. Let me do the easy D&A one first. I'm not going to guide precisely on this, but it is, yeah, call it 10% up from GBP 200 million as we look forward to next year. With respect to returns on eLNO. Scale, i.e., beyond the second plant, we expect the entire business to get to the upper end of that return range. The second plant will be on a standalone basis, moving well towards that. Because of the investment that we've been making to commercialize this product with pace, which is important because we need to get it into the market, the aggregate business won't yet be at those levels.
As far as the question on confidence in the next plant spend, there are two things I would say. Look, we're learning a hell of a lot through the first plant and building the first plant. Our level of confidence in building the second plant and the capital spend there will be vastly greater than where we started doing our initial design for this first plant in Poland. We will be very much more confident about what that spend will be. We won't be able to give you an exact figure until we've done the engineering design. What we have said and what we can be confident on is it'll be much closer to the average capital cost like our competitors are seeing in the European market for battery materials.
Okay. Thank you. If I could just push you on that point. The 10%-15% on the upper end of that range is probably not going to be achieved with the first 40,000 tonnes because of the initial upfront investment that you had to put into Poland.
Yeah.
If I could push you on maybe what sort of capacity level you get to that point. Are we talking 50,000 tons or 100,000 tons? Some sort of idea of the sensitivity would be really useful, but equally I understand if you don't want to say that.
Sorry, Alex, I don't think we're going to answer that one. I think it depends partly on how the market evolves. I think we've answered it as much as we're going to answer it today.
Okay. Thank you so much.
Thank you.
Your next question comes from the line of Chetan Udeshi from JP Morgan.
Yeah. Hi. Thanks. Morning. Two questions, not on eLNO, but Clean Air. How do we tie the fact that the external consultants are talking about auto production down to low single digits in Q4 versus what you guys are seeing at the moment in terms of Clean Air sales growth? Clearly the delta is significant. Maybe to the extent you can help bridge that gap, it will be useful. Second question was, in a practical term, how should we think about the benefit of all the cost-cutting which is going on? Let's put it this way. Can we go back to the pre-COVID EBIT numbers in Clean Air with lower top line? In other words, let's say, is it 5%-10% lower top line can still make you achieve that EBIT you had, say, in Clean Air pre-COVID?
I'm just trying to understand how should we think about the real-world benefit of the ongoing cost cuts? Thanks.
Okay. Look, I'll try and answer the first question, and then maybe, Anna, if you happen to answer the second one. Look, what we're seeing at the moment is, and actually I think consistent with quite a few people, is quite strong growth in China for both light and heavy duty for auto production, driven partly by incentives. There are significant incentive programs in China. I think there's quite a lot of uncertainty about Q4, but normally what you would see in Q4 anyway is the ramp getting closer to Chinese New Year. There's always a reduction in China normally. Of course, at the same time, we'll be lapping last year, this year, where they were going into COVID. We should still see some relevant year-on-year growth because we'll be lapping the COVID impact.
The biggest question, I think, if I'm honest, is what's going on in Europe. I think people are more confident and the forecasts are more confident about North America. I think there's lots of uncertainty about what's going to happen in Europe with the second wave and what the implications are going to be on auto production generally from a second wave. Also between Europe and America, what's the impact of GDP going to be going into 2021 and 2022 and beyond? I think at the moment it's really hard to tell. Of course, we'll be lapping a tough year this year in March, April, May, et cetera. We'll be growth year on year. Whether the market and/or when the market will recover to pre-COVID levels is really impossible to say at the moment.
On your second question, Chetan, are you asking around Clean Air margins? Is that what you are asking, whether we will be able to maintain our margin post-COVID?
Yeah, I'm just trying to understand with all the ongoing cost-cutting, in theory, that should mean that we should be able to go back to the pre-COVID margins even with.
Yeah. Okay.
Somewhat lower top line. I'm just trying to understand how should we think about going back to the pre-COVID margin? Let's put it this way.
Sure.
Is it 10% lower sales will still get you to the pre-COVID margin or better, or some sort of feel about that number?
Chetan, I'm not going to give you all of the detail, but I'm comfortable that we will get back to pre-COVID margins. I'm also comfortable that we've modeled many scenarios around volume changes in Clean Air and how we would manage our footprint and cost base as those played out in such a way that we can protect our margins. I feel confident that we can manage our margins in Clean Air for some time to come.
Thank you.
Thanks, Chetan.
Your next question comes from the line of Charles Bentley from Credit Suisse.
Morning, Charles.
Thanks very much. Morning, Robert. Morning, Anna. Thanks very much for the presentation, taking my questions. Anna, I just want to say thanks for your help over the years and wish you the best. I had a few questions. On eLNO, both the existing plan and the follow-on, can I just confirm that both of these include working capital? Does the kind of $15,000 a ton include working capital? Just to check if this is included in all the kind of return on capital employed assumptions. A second question just on Clean Air. I can see that in Asia, you're kind of flagging light duty declines in share and heavy duty increases in share. Can you kind of indicate the levels this is from and to, and what this is a function of? Is it platforms won and lost?
Is it because of the fact the kind of timing of you bringing on your new capacities there? Thanks.
Thank you for your question, Charles. The first thing to say about eLNO, when we talk about the cost of building the plant, that is a capital cost only. This does not include working capital. When we talk about returns on capital, absolutely it includes working capital. Hopefully that's clear. Capital costs are capital costs, but return on invested capital includes the overall capital requirement for the business. On Clean Air, it's a mix of, in light duty, gasoline. We've lost a little bit of gasoline share, which I think we told you about a year or so ago through some platform losses. We've been increasing our investment in gasoline technology over recent years, and we would hope to see that to recover going forward. On heavy duty, we're really good at diesel, so we've been taking some share in heavy duty.
I'm afraid we're not going to go into the details of saying what from to but.
It's worth saying in absolute share point, I'm not giving you the share points, but the gain in heavy duty is greater than the small loss in light duty.
Brilliant. Thank you very much. Can I just ask, sorry, a follow-on on that working capital point. Could you give us any indication of what you're expecting per ton? I've kind of seen roughly 50% of CapEx is a rule that some of your competitors have used. Is that kind of the right number to use maybe on that kind of normalized CapEx number for the following capacities? Thanks.
Do you want to answer that, Anna?
Yeah. We're not going to guide on any of this at this stage. Beyond what we would say is there's no reason to believe we would be vastly different to other players in the high energy lithium nickel market.
Thank you very much.
Thanks, Charles.
Your next question comes from the line of Sebastian Bray from Berenberg Bank. Please ask your question.
Good morning, thank you for taking my questions. My first one is on the financials. Robert, you mentioned U.K. politics earlier. There is discussion for the potential of a rise in U.K. corporation tax. Could you give an idea of the sensitivity of the group effective tax rate to a 1 % pitch point rise in U.K. corporation tax? That's my first question. My second is on eLNO. Why is the location of the additional 30 kt of capacity not given? I assume it's going in Poland, I just wondered why it wasn't given in the press release. Is the 10%-15% ROIC target contingent on having this plant in the same place? How does Johnson Matthey view its Europe-only strategy at the moment in cathodes? Thank you.
Thank you, Sebastian, for those questions. U.K. corporation tax rate. Politics is interesting. I'm not sure I can predict politics. A week is a long time in politics, so they say. I'm not sure I can predict the implications on our corporate tax rate, but maybe Anna, can you predict that at all?
No, I can't. I can ask Martin to come back to you with the sensitivities. It's not something I've got in front of me, Sebastian. Sorry.
It's also quite dependent on the mix of profits in a particular year. How much profit per country. It's quite difficult.
We of course benefit from Patent Box, which is helpful.
Going back to the question on eLNO, part of the reason for not giving any guidance on the locations is because, of course, I think when we roll forward as a business as a whole, I don't imagine that we'll have a single plant location for all the manufacturing capacity that we will have across the world. So in order to maintain our best chance of getting grants, et cetera, it's better not to commit that too soon and keep a little bit of tension there. The answer to your question around do we need to have all the plants in the same place to deliver the returns that we have here, the answer to that is no. When we roll forward, we will not have all our plants in the same place.
Don't take that as a guidance that necessarily this one won't be in the same place, but at the moment, we want to maintain the best chance of getting the maximum grants available to us.
Thank you. If I follow up on an unrelated topic, the GBP 100 million of operating profit that has previously been guided for Health in growth terms, does that still stand for the next six years, or has the timeline changed?
Yes, it still stands, and no, the timeline hasn't changed. Yes and no.
Thank you.
Okay. Thanks, Sebastian.
Your next question comes from the line of Andrew Scott from UBS.
Morning, Robert. Morning, Anna.
Morning.
Actually, if you can hear me. The first one is a long-range question on legislation. I saw last week that the European Union is talking about Euro 7 for 2025, but the OEMs have pushed back saying that the target for emission standards are just wholly unrealistic, and I think in summary, it's seen as a political effort to get more EVs on the road. I just wonder what your technical viewpoint was on those OEM claims of unrealistic emission targets. That's the first question. Second question was, the Chester County contingent liability in the back of the report today. I think that's new. I haven't had time to double-check. The question is it you, and can you just maybe elaborate to the extent you're allowed by your lawyers? The third question is just coming back to CapEx again.
Just to understand it correctly, your preference would be brownfield, so staying with the site you have in Poland for the second stage, but you need to obviously work upon various items of detail. That was my takeaway, but maybe you just can't say for reasons to do with negotiation. If you can say something, can you respond to that comment? Thank you.
Thanks, Andrew. Thanks for your questions. Sort of on Euro 7. I think there's this balance between what's technically feasible or what's cost effectively feasible. Our view is that the technical feasibility to meet the European Euro 7 standards, we can do it, or it can be done. It fundamentally becomes a cost equation for the OEMs, not just for the cost of the actual kit or per car. I don't think there's going to be another unit, but it would be a lot of testing, a lot of work to qualify and make sure that we meet those tougher legislation targets. Of course, the legislation targets get tougher and tougher. Therefore, they've got to do lots and lots of testing to make sure that the cars will work and perform under those conditions.
That just becomes a cost equation. I think that's where the pushback is coming from, not so much a particular technical feasibility. I am going to ask Anna to answer the question on our potential issue in Chester County. The one thing I wanted to do is congratulate you to getting through page 19 of our statement by this time of day. Anna, do you want to?
I'll give you the bit of color I can. This is land that we occupied and we sold before I was born. What's triggered it to become an issue now is there's been, over recent years, an application for change in use of that land. That's caused the various bodies to look back at owners of that land over the intervening years around clean up claims. That's really all I can say. It just gives you some context as to what we're talking about.
Andrew, to answer your question, yes, it is new.
Sorry. Yes, it is new.
This is the first time it's been there. To answer your second question, I was alive, Anna just had to mention that just to rub it in. Anyway, I'm not going to rise to that. Probably already have. On the last question about the plant and location, I'd rather not say any more than I've already said, Andrew.
Okay. Well, can I just come back to me one thing? Bain have put together the benchmarking of European plants. I'm basically, obviously, trying to use that and other sources we've got here to come up with the costing. The problem is that nobody is up and running, right? Umicore hasn't started in Europe. The South Koreans have only just announced their intention. BASF, as far as I can tell, are not giving much information. I suppose my question is, how confident are you with the Bain numbers?
Well, they did quite a lot of work to come up with that analysis, and they know the market quite well, and they've done a lot of work behind it. Of course, they know what we can deliver as well. I think it's a triangulation of a number of data points, and that gets us to that sort of number. Now, it's hard to know for certain whether we're comparing apples and apples directly, but it's as good an estimate as we can make at this stage.
Okay. Thank you.
Thanks, Andrew.
Your next question comes from the line of Lacey Midgley from Panmure Gordon.
Hi. Morning, Robert, Anna. Can you hear me okay?
Yeah. Absolutely.
Brilliant. Thanks so much for the patience. A couple of questions from me, please. Firstly, you mentioned benefiting from the tightening legislation in China, light duty. I think even with the impact of COVID, I would have expected slightly better performance in light duty Asia in that case. Can you give a little bit more color on the moving parts there, if possible? Secondly, I might be wrong, but I think you have previously given rough targets for Asia, heavy duty in the medium term as a percentage of total there. That might be wrong, but if it is not, can you remind me of those, please? Thirdly, on eLNO again, may have missed it, but what is the estimated timing of commercial production of the second plant? I know quite early on, but any rough sort of timeline on that would be good.
Lastly, on the new fuel cell catalyst plant, do you have any views, at this point, where it will be? Again, estimated timeframe for commercial production and the initial capacity. Thank you.
A few sort of detailed questions there. Light duty Asia, I think as Anna said, we're sort of in light duty. We're probably 75% through on the fitment of GPFs in China. That's a little bit accelerated than was originally expected because Chinese OEMs tend to nowadays fit the fitment in early. As we mentioned already that we lost a little bit of share in light duty through platform losses a couple of years ago, and that's why you're seeing the impact in this year's numbers. Going back to heavy duty Asia, we haven't broken down relative proportion of the business going forward. What we have said is as you get tighter regulations in heavy duty, you're going to see a tripling of content per vehicle. That's both in China and in India. India is not so material, China is the more material one.
As Anna said earlier on, I think to an answer to a question, we're about a quarter of the way through the fitment of the new technology to meet Euro VI in heavy duty in China. On the eLNO second plant, we haven't given an operational date, but I think it's fair to just sort of say, and it'll be reasonably fair to say we're probably going to be two years or so, sorry, two years behind the first commercial plant. Therefore, you could probably add two years or so to when it's likely to start production from when the first commercial plant is likely to start production. Lastly, on fuel cells, we haven't decided for sure where the next expansion will be in fuel cells.
Where kind of almost means whether it's in one country only, because of course there's significant opportunity in China, but there's also significant opportunity in Europe and the U.S., and we've got to make sure that we invest at the right place at the right time as that market evolves. The exact capacity, well, we're still doing early plans, and I don't think I could give you the capacity at the moment.
Okay. Really helpful. Thank you very much.
Thanks, Lacey.
Cheers.
Our last question comes from the line of Jean-Baptiste Rolland from Bank of America.
Hi. Good morning. Good morning, Robert. Good morning, Anna.
Hey.
Just one question from me in relation to the change in business model that you have implemented in relation to metals. I understand that there are less volumes and that you lend some metals volumes on the market. I just wanted to check, can you elaborate on the potential risks related to this new business model? Would you say they are increased, or would you say there is just basically no change in that regard? Thank you.
Jean-Baptiste, thank you for your question. I'm delighted you've asked that question because I can give Anna the chance to answer it. She's desperate to answer it. Over to you, Anna.
Thank you. Look, I would say that the risks in the new business model are reduced in that what we've done is we've worked really hard to reduce the amount of working capital we need to have in our system to deliver our products. We've done that through how we contract, how we run our refineries, how we move metal around the group. The smaller amount of metal we have in our system, fundamentally, the lower the risk. All of the risks actually associated with metal. The less price risk we're exposed to on the balance sheet, the less risk we have of moving it around the group. Fundamentally, actually, this is more efficient and less risky in multiple ways and makes it much easier to run our business. It's been a real change.
The lending of metal into the market is a bit of a red herring. That's just how we fund metal, we either borrow or lend depending on our forecast versus what our view of those forecasts had been a year ago. Currently, we're lending the surplus metal that we don't need in our business into the market because COVID has reduced the demand and because our own efficiencies have reduced the demand for metal in our business.
Does that help answer your question, Jean-Baptiste ?
Yes, it does. Thanks very much.
Great. Thank you. Any further questions?
We have no further questions. I'll now hand the call back to Robert for his closing remarks.
Thank you very much indeed, everybody, for your questions. I hope you found it helpful and got what you needed. Of course, we're going to do the roadshow shortly, so we'll have the chance to talk to you again. I need to sign off by also saying thank you and acknowledging that this is Anna's last day at JM. As you all know, she's made a fabulous impact across the company over the last four years. She'll be missed by us. Our loss is LSEG's gain. I don't know how many of you analysts will see her again, because I'm not sure that the chemical analysts follow LSEG that closely. Maybe a number of the shareholders on the call will see Anna again. I'm sure she will make a tremendous contribution at LSEG too.
Her legacy at JM is multiple, but one, in particular, is the team that she's left around her. I'm really looking forward to working with Karen over the next few months. I'm sure some of you will get to see Karen shortly. It's not just the team that Anna's made a huge difference across the organization as a whole. Thank you very much, Anna. This is her last day at JM. She's going to hand back her computer and everything like that, so it's all a bit emotional. Thank you, Anna, for everything you've done. I want to publicly say that on behalf of shareholders. We'll see her again, I'm sure. Thank you very much, everybody. Take care, stay safe, and we'll see you soon, I hope, and see you next time if not before .
That does conclude our conference for today. Thank you for participating. You may all disconnect.