Earnings Call: H1 2021

Nov 19, 2020

Ladies and gentlemen, thank you for standing by and welcome to the 2020 Healthcare Results Conference Call. At this time all participants are in a listen only mode. After the speaker presentation, there will be a question and must advise you that this conference is being recorded today on Thursday, 19th November, 2020. I'd now like to turn the conference over to your first speaker today, Martin Danwudi. Please go ahead, sir. Great. Thank you, Yola, and to everyone for joining our first half results call this morning. I'm pleased to have our Chief Executive Robert McLeod with us on the call today. And without further ado, I will hand over to Robert. Thank you, Martin, and good morning and welcome everyone to our first half results presentation. Obviously, given the circumstances, still having to hold these remotely. So I'm very sorry that we can't do this in person, but 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 Hayden Smith, who will take over from Anna as interim CFO, from tomorrow. But 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 this. However, across J. M, 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. And both our operating performance and cash generation, I'm pleased that we've 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. But 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 periods, we achieved this while at the same time making significant changes to our group operating model. This will deliver substantial efficiency, which will benefit our P and L, and 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 with the business. We're therefore proceeding with the initial engineering work for our 2nd 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 always complete. These are just a few examples. We'll cover the details in the sectors as we go through the presentation today, but 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. We will summarize them here in 3 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 225,000,000 by the end of our fiscal year 3. 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 PTM 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. And 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. So before I hand over let me summarize. We've made good progress in the last 6 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. And with that, over to you, Anna. Thanks, Robert. Good morning. Today, I'll be covering 3 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. And as a result, sales were down 27%. Efficient natural resources and new markets were also impacted but less so than clean air. And 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 you a bit later, But 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 and our customers closed their plants at the start of the pandemic. Our performance has broadly followed vehicle production with our share largely unchanged. And 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. And 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. So it will be lumpy month on month, and 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. And I'll get into more detail on this in a minute, but 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 external data, we 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 is because of weaker demand and the usual cyclicality in catalyst demand. Catalyst Technology 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 a normal phasing of customer change outs. First Fills grew well as the number of new plants came on stream. And licensing was down in the period, but we signed 2 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 $24,000,000 benefit from higher average metal prices. For the full year, team. Our health business saw sales growth in both Innovative 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. And in generics, were benefiting from multiyear supply agreement 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 1 of the high margin innovative projects in the second half of last year. When it failed to get FDA approval. In new markets, sales declined 8% Fuel sales 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 $5,000,000 in the half as we lapped the $8,000,000 impairment of the EL and O demo class last year. We've also seen better sales mix in Life Science Technologies. For the full year, we would expect operating profit to be above last year. Looking further down the P and 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. So the finance costs 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. An underlying EPS was down materially. In balancing performance against the market backdrop, the board has approved an interim dividend of $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 rate charge in the half. And that's in line with the transformation we announced for the year. You can see the breakdown of the $78,000,000 in the notes that on the slide, GBP 62,000,000 is a cash restructuring cost, of which GBP 16,000,000 was a cash outflow in the half. And the other $16,000,000 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 225,000,000 by fiscal 'twenty three, and I'm really pleased to say that we're on track. We've delivered $140,000,000 so far to $24,000,000 in the first half. I'm going to update you now on the work underway. I'm pleased to say we expect to deliver the $400,000,000 target by the end of this fiscal year. That's 2 years earlier than we originally planned. And we're reinvesting some of it to drive growth. Of course, we're always looking for further savings in this area, and we'll update you at the full year. The consolidation of our Clean Air Manufacturing footprint will deliver 30,000,000 with $3,000,000 in the first half and the simplification of our business will reduce complexity and deliver $50,000,000 with $8,000,000 in the first half, And 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 3 things. Firstly, we've reviewed every aspect how metal flows through the group and we've optimized it. Secondly, we're contracting with our customer more effectively. And lastly, we've improved throughput at our refineries. We've done a great job here taking out a further $400,000,000 in the half, well ahead of the target we shared with you at the full year results of $300,000,000 for the year. This means at today's prices, we've taken out over $1,000,000,000 of volume of metal working capital over the last two and a half 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 $300,000,000. The drivers are the $400,000,000 structural benefit I just talked about, plus a further one off benefit of around $200,000,000 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. So looking forward to the full year, we may see some unwise 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 maintained a strong balance sheet and have access to 1,800,000,000 of liquidity. Our net debt was the 30th September with 878,000,000,000. Down from the $1,100,000,000 at the full year. Net debt to EBITDA is 1.6 times, and that is comfortably within our range of 1.5 to 2. 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 $256,000,000 in the half improving from a $382,000,000 outflow last year. I've taken you through how we're thinking about the performance of our sectors over the second half. And given the uncertainty, I won't be giving costs guidance for the year. However, we currently expect a materially stronger second half compared to the first half. Efficiency savings will be about $60,000,000 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 ELNA material and battery materials, the investments in the efficiency and resilience of our refineries within efficient natural resources and the completion of our new clean air plants. We expect to spend up to $400,000,000 in the year. With that, I'll pass back to Robert. Thank you, Anna. So you've seen our performance in the half. So let me now talk about our future growth opportunity. Starting, 1st of all, with our more established businesses. In Clean Air, we continue to benefit from tighter legislation especially in Asia, and this growth remains intact despite the dislocation caused by COVID. Asia is our next leg of growth, and we're already seeing the benefit coming through, particularly in China, as new legislation comes in across light and heavy duty. This gives us a significant value uplift per vehicle. Our new plants in Poland and China are now rapidly scaling up. And these will support our growth, but will also allow us to drive further efficiency across the sector. And as we said before, these should be the last of our big investments in Clean Air. And therefore, going forward, Clean Air will have strong cash generation. Now to efficient natural resources, here we're targeting the highest growth segment. We want to be an enabler of the energy transition includes our hydrogen technologies and the move to low carbon chemical process. 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 PTM 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 our well as enabling us to drive further metal efficiency. And in health, we've secured a number of supply contracts approach across both generics and innovators. This is already starting to deliver results, and we've also launched 2 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, both on 5 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 and we've been gradually moving production into these newer facilities, starting with our large volume products. And 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. And 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. And importantly, this remains true today despite all the uncertainty that we are seeing with COVID. The move to net 0 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 1,700,000 tons by 2030. And 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 pipe line and also continuing to move existing ones through our development funnel. In the first half, 2 non automated customers moved into cell prototyping. This is a more advanced stage within fuel's 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 center. We know that our ability to customize is something that is really valued and we recently opened our second application center in the UK for more advanced cell testing work. But of course, having a great product in the lab is not enough. We have to be able Our first commercial plant in Poland is progressing well and we have now completed piling. So very soon, you'll see the building going up. And the picture on the right here is a CAD drawing of what the plant will look like. The build is on track And 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, and 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. But at the same time, we don't want to compromise on speed to market, And hence, the cost of this plant has increased. We therefore now expect that the full cost to commercialization of ELNO be around 1,000,000 compared with around 1,000,000 previously. But it's important to remember that this is our total cost to commercialization So that includes everything from the pilot plant to the commercial plant, but also the application centers, research and developments 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 a start in engineering design for our 2nd 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 plant, as we take our learnings percent, reflecting the good performance and customization of our ELNO materials. Finally, all of this has to be done in a sustainable way. So as part of our commitment to our customers and the global battery lines, we are sourcing renewable energy from plant startup. Moving on now to hydrogen. Mostly 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, so today I wanted to give you the highlights and summarize why hydrogen going to be a very significant opportunity for J. M. 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 transport 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, So now let me take you through these areas in turn. Our fuel sales business continues to grow strongly with sales up 30% in the half, And 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 fuel cell stack, but also the cost of the overall system, too. Today, we're seeing lots of activity of 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. And we've been investing to meet that demand. Our new capacity in China is now complete, and our UK capacity expansion will be online by theendofthisfiscalyear. And 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. And 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. And to help our efforts here, we've added to our headcount on both the technology and manufacturing side. So 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 hutch in projects here in the UK. High net and acorn. These are coming along nicely, and in fact, we're already working on the 2nd phase of high net. We also have a strong pipeline of opportunities in Europe, North America and Asia at various stages development, which we'll keep you updated on. These new opportunities are several times larger than the initial high net and acorn projects. In green hydrogen, being the electrolysis of water using renewable energy, our focus is that the proton exchange membrane or pen. This is a nascent market, which is only really starting to develop now. However, 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 are significantly increasing our efforts here, And we're already currently testing with leading electrolyzer players and have significant manufacturing capacity, which is ready to deliver products for megawatts of P or PAM electrolyzer. So 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 as more simple, agile and efficient. It's because of these changes that we're in a stronger position today, but importantly, there are further benefits to come still. The drivers of our more established businesses remain intact despite the impact of COVID. And looking to the future, the impact of climate change is real, and it's tackling this, the world is going to see significant change. We already have technologies across that Materials and our hydrogen solutions to enable this change, and we look forward to playing our part. So that concludes our presentation. So thank you for your time and listening this morning. And with that, we'll pause. I'm very happy to take any questions. You. Your first question comes from the line of Charlie Webb from Morgan Shandy. Good morning, everyone, and thank you for the presentation. Maybe just a few questions from me on a couple of topics. First off on Illinois, 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 planned to add additional 30,000 tons for 2024. What are you hearing from your customers that gives you that confidence that that capacity will be utilized and needed? And then just also on the you mentioned perhaps you're having more engagement with new customers. If I remember right, you had kind of you're working with 7 customers. Previously, will this 30,000 tons additional capacity plan, does that allow you to broaden the number of engagements you have, with new customers? And then secondly, just on hydrogen, on the green hydrogen opportunity, it seems like green hydrogen is gaining a lot of momentum in Europe, in the UK. Perhaps 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 producer today is, and what kind of CapEx capacity build out would be required if your solutions would be successful? Good morning and thank you for your questions. 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. And together, that's, that the need to be able to be there to deliver for our customers is increasing. And because of that, we're happy and confident about investing further. We did say that we were a few years ago, we did talk about the number of customers. We haven't 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. But 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 2 or 3 decent sized platforms to, fully utilize that plant or that plant being the expanded plant. So 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. And we're working with a number of the key electrolyzer players in the market at the moment, where we've got, and development agreements and are testing our product 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 perm electrolyzers. And expansion If we need it, it's going to be in the tens of 1,000,000 of pounds rather than 100 of 1,000,000 of pounds to expand capacity considerably. And we can do that pretty quickly if we need to do it as the market develops. I mean, certainly here in the UK, and you heard it yes, from the prime minister in their 10 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. And one of them, of course, is carbon capture and storage. So I think blue hydrogen here in the UK and in certain other geographies, I think has a key role to play, but absolutely, it will be a combination of green and blue. And good news is we've got, technology and leading technology in both. Sorry, Helmut. Maybe just one follow-up on ELNO in the presentation, you mentioned, well, I think it was a consultant data, the returns of 10% to 15%. How does that fit in with the group's kind of return target of kind of pretax 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? Well, I'll ask Anna to talk about this as a returns question, if that's okay. Anna, do you want to? Yes, sure. So I think the respect to battery materials, what we're saying is at scale, I think will be near the 15% return on invested capital in the context of that competitive set. But we look at the 20 percent return on invested capital target as something for the group as a whole. And yes, it remains important to us. So if I just sort of talk around the sectors, clean air prior to COVID and post the COVID disruption, we'll be back at the 30 percent plus 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 plan. And it's really about delivering returns from cleaner. 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. And that business now is approaching a 20% return on invested capital. And 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. And of course, battery materials is early in its lifecycle, so we are investing ahead. So again, 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. Thanks very much guys. Thanks, Charlie. Who's next? Your next question comes from the line of Tom Wigglesworth 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 6? Could you just you remind us how far through we think you think that that is? Secondly, you're obviously talked about the higher CapEx for ELNO, could you just help us understand a little bit better what you mean by flex I'm not sure I fully understand that. Is there about is that a technical flexibility or is it a volume flexibility And how much of that GBP 200,000,000 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, Oliver. Good morning. So, I don't we just take the questions in that order. Ana, do you want to start with the value uplift in that? I think you're referring to Tina, China Yes. Thanks, Tom. Yes. So in light GC, I think we would say that we're about three quarters of the way through value uplift in light duty. And in heavy duty, really we started to see the benefit come through this half. That's the tripling of the value of the truck, as you know. And we're probably about a quarter of a way through that so far. So hopefully that's clear. On the, on the LNO and what does it mean in the CapEx? Largely the increase in costs is in the commercial plant, I'll have honest, some is outside the commercial plant increase, but is largely in the commercial plant. And as far as the what is flexibility mean, it's not around manufacturing as in sort of manufacturing flexibility? It's a round being able to make different products for customers and customize those products. And as we've, as I said, we've been working with the customers more recently and they're at they've talked about the different levels of customization they are looking for. And with a first plant, where you've 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. And that's why where the cost increases come from. Thanks, Tom. And your next question comes from the line of Ranulf Orch from Redburn. Hi. Good morning. Thanks for the questions. Just going back to Clean Air, I suppose 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 HDD segments And then secondly, I'd like to ask about sort of CapEx over the next couple of years. It looks like you're suggesting lending sort of $600,000,000 ELLN over plant. So what's the sort of timing of that expansion there. And then flexibility point, I mean, are you suggesting with different products that you might be, say, or you, is this still within the sort of EL and O paradigm, I suppose. Thanks. Ronald, thanks for your questions. Apologies. You've gone a bit fuzzy at the end. So I think what we heard you right. So if I go back through the questions, the first question was around, wanting to understand cleaner, the dynamics of cleaner, 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 me earlier or not? So I'll just take the last question quickly and then hand over to Anna. So look, we want to be able to make E LNO. That's what we, this plant is all about, to be able to make E LNO. And different. But Yale I know it's not a single product, and it's a bit like, NMC 811 isn't a single product. I think people where you will tweak 8, while it's just like we will tweak ELNO. And so, it's a family of products that you need to be able to make the different products within that family. And also, I think our plant, as well as being able to make Eli and I, we'll be able to make 811 as well if we needed it. To do that. So it's a pretty flexible plant that we're going to have, from the start. Ana, do you want to talk about the other two questions of Reynolds? Sure. So clean air development. Maybe if I start with light duty in Europe and the Americas, I know what we've said we expect vehicle production to be down about 20% for our fiscal year. We're seeing some uplift in Europe still, but it's not significant uplift in Biotech. 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 aided a little bit by the uplift that we're getting with the GPS adoptions, which just as we're three quarters of the way through. So we expect to see Asia overall be in growth for the full year. Looking at heavy duty, No content uplift in the Americas or Europe. And Americas and Europe, we would expect be down about 30% in vehicle production terms for the year. And what that means is that the Class 8 truck cycle, we've gone through the bottom and we're starting to come up the other side. In Asia, which is predominantly driven by China. We're seeing a much stronger performance. And we think that will continue. And as I said, it's benefited by the regulatory uplift that, it triples the value of a truck, let's just say, at the half year or about quarter to play through that. We'll continue to see that that benefit the second half. And in terms of just how that plays through to profitability, as we've said to you, 75% of our costs are variable. So that should allow you to work it out particularly if you strip out the one off costs we experienced last year. You want to say something on CapEx? That was the second question on capital. Sorry, remind me what the question was. I wrote CapEx plan. I can't remember exactly. Ranulf, do you want to help us again on I wrote CapEx, but I can't remember the specifics of your question. And I was just wondering how we should think about, CapEx spend over the next couple of years in light of the million on the new Yale and O plant and the second expansion for fuel cells. Got it. Thank you. So in the year that we are in, we've guided to, CapEx of around $400,000,000. And really what are the big drivers of that while we're finishing off Poland in China and India clean air plants, which will be largely done this year. We're investing significantly to build up our commercial plant in battery materials. And as you know, we're investing to improve the efficiency of our refineries. That GBP 400,000,000, maintained our strategic investment, but once cut back in the context of COVID, So it was lower than perhaps you would have planned to spend pre COVID. So if I look forward to next year, but we're still building our our Battery Materials plant, we're continuing to build the new refinery in PGMS. Will have a level of catch up capital as well. So 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 we need for our battery materials tomorrow. And just to be clear, Ralph, on fuel cells, the level of investment there is relatively modest. The doubling of the capacity that we put on the ground just, this year, last year, where we invested was about GBP 15,000,000. If we put a new fuel cell plant down, it's going to be tens of 1,000,000. It's not going to be anywhere close to 100 or anything like that. Okay, thanks. And when, I guess, when should we expect the next, E and L plant CapEx to start coming through? I mean, does it sound like that's not next year or So we're going to start with the engineering design. That's a 6 month process. And so come to summer next year, we'll have a accurate cost estimate and then we'll be able to guide you more fully from there. But you'll be starting to build we'll be starting to procure long lead time license, but the biggest spend will be in years 2 and 3 and 4. Got it. Thanks very much. Thanks, Raul. Your next question comes from the line of Alex Stewart from Barclays. Hello, good morning. Thanks for taking my questions. On EL and O, sorry, I know you've had a lot of questions on this. Can I just confirm 2 things? Firstly, the 10% to 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 just interested to know what fully ramped up or fully scaled up means. And then on the just doing a quick calculation, it looks like about GBP 350,000,000 upwards of CapEx the 30,000 compliance, how confident are you on that number? Because obviously the first plant is very considerably higher than the original asset back in 2017. Sorry, I'm really sure to what extent you think that could be going to be higher than that. And then just finally, a technical point. You're guiding to D and A of SEK 200,000,000 for the year. I think you did SEK 90,000,000 in the first half. Can I assume therefore that GBP 115 odd million is the new run rate if I annualize it into 2022? Thank you so much. Okay. So, Donna, do you want to go to the returns and the DNA 1? And then I'll talk about the the plants a few months ago. Sure. So let me do the easy G and A launch first. I'm not going to guide precisely on this, but it's, yeah, call it 10% up from 200s as we look forward to next year. With respect to returns on ELNO. So At scale, I. E. Beyond the 2nd class, the entire business, 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. But 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 rate yet be at those levels. And as far as the question of on confidence in the next plant spend. So two things I would say. Look, the first plant, we're learning a hell of a lot through the first plant. And that and building the first plant. So 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. So we will be very, very, very much more confident about what that spend will be. We won't know, I won't be able to give you an exact figure until we've done the engineering design. But what we have said and what we can be confident on is it will be a much lower, much closer to the average capital costs are like our competitors are seeing in the European market for battery materials. Okay, thank you. If I could just push you on that point. So the 10% to 15% on the upper end of that range is probably not going to be cheap. In with the first forty thousand tons because of the initial upfront investment that you had to put into Poland. 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 understandable if you don't want to say that. Sorry, Alex. I don't think we're going to ask that one. I think it will it depends on how the market evolves, but I think, I think we've answered it as much as we're going to announce it today. Okay. Thank you so much. Thank you. Your next question comes from the line of Chetan Udeshi from JP Morgan. Yes, hi. Thanks. Good morning. Two questions, not on the LNO, but free there. How do we tie the fact that, you know, the external consultants are talking about the production down still sort of low single digits in Q4 versus what you guys are seeing at the moment in terms of clean air sales growth. So I mean, clearly, the delta is significant. So maybe you need to the extent you can help bridge that gap. It will be useful. And second question was, I mean, in a practical mean, how should we think about the benefit of all the cost cutting which is going on? So let's put it this way. Can we go back to the 3 COVID EBIT numbers in clean air, with lower top line. So in other words, how much So let's say, is it 5%, 10% lower top line, can still make you achieve that EBITDA have same clean air free COVID? I'm just trying to understand how should we think about the sort of real world benefit of the ongoing cost cuts? Thanks. Okay. So look, I'll try and answer the first question. And then maybe, Anna, if you're happy to ask the second one, look. So 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. I mean, 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, and the ramp getting closer to Chinese New Year, there's always a reduction in China normally. But then of course, at the same time, we'll be lapping last year, this year, where they were going into COVID. So we should still see some, relevant year on year growth because we won't be lapping, because we'll be lapping sort of COVID impact. The biggest question, I think, if I'm honest, is what's going on in Europe. I think people are more confident in the forecast, more confident about North America. I think there's lots of uncertainty about what's going to happen in Europe with a second wave, and what the implications are going to be on auto generally, from a second wave. But then also between Europe and America, what's the impact of GDP going to be going into 20212022 and beyond. So I think at the moment, it's really, really hard to tell. I course, we will not be we'll be lapping a tough year this year in March, April, May, etcetera. So we'll be growth year on year. But whether the market and or when the market will recover to pre COVID levels, it's really, really impossible to say at the moment. As on your second question, Cheddar, are you asking around Clean Air Margins? Is that what you're asking whether we'll be able to maintain our margin post COVID? Yes, I'm just trying to understand with all the ongoing cost cutting, I mean, in theory, that should mean that we should be able to go back to the pre COVID margins even with probably somewhat lower top line. So I'm just trying to understand how should we think about going back to the BCO in margin So, let's say, is it 10% lower sales who still get you to the pre COVID margin or better or something some sort of feel about that number? So, Justin, I'm not going to give you all of the detail, but I'm comfortable that we will get back to pre COVID margins. And I'm also comfortable that we've modeled many scenarios around money 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. And so I feel confident that we can manage our margins in cleaner for some time to come. Thanks, Stefan. Your next question comes from the line of Charles Bendley from Credit Suisse. Good morning, Carl. Thanks very much. Good morning. Good morning, Robert, good morning, Anna. Thanks very much for the presentation, taking my questions. I just want to say thanks for your help over the years and wish you the best. I had to add a few questions. So on ELNO, both the existing plan and the follow on, can I just confirm that both of these include working capital? So 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. And then a second question just on clean air. So 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 and whether this is a function, what this is a function of? Is it platforms 1 and last? Is it because of the fact that the kind of timing of you bringing on your new capacities there? Thanks. Thank you for your question, Charles. So the first thing to say about Illinois, when we talk about the cost of building the plant. That is a capital cost only. So does not include working capital. But when we talk about returns on capital, absolutely, it includes working capital. So, hopefully that's clear. Capital costs or capital costs for return on invested capital includes the overall capital requirement for the business. And on Clean Air, So it's a mix of, in light duty, gasoline, we've lost a little bit of gasoline share, which I think we talked about that we told you about a year or so ago through some platform losses. We've been increasing our investment in gasoline technology over recent over recent years, and we would hope to see that to recover, going forward. And 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 2, but it's worth saying in absolute share point, I'm not doing share points, but the gain in heavy duty is greater than the small loss in light duty. Brilliant. Thank you very much. And can I just ask, sorry, a follow on on that working capital point? I mean, could you give us any indication of what you're expecting per ton? So I mean, I've kind of seen kind of roughly 50% of CapEx Mazette on is kind of a 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 capacity? Do you want to answer that, Alan? Yes, 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. And your next question comes from the line of Sebastian Bray from Berenberg Bank. Please ask your question. My first one is on the financials. Robert, you mentioned UK 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 percentage point rise in UK Corporation's tax? That's my first question. My second is on Why is the location of the additional 30 kilotons of capacity not given? I assume it's going in Poland, but I just wondered why it wasn't given in the press release. And is the 10% to 15% ROIC target contingent on having this plant in the same place? How does Johnson Matty view its Europe only strategy at the moment in cathodes? Thank you, Sebastian, for those questions. So, UK Corporation tax rate politics is interesting. I'm not sure I can predict politics that weak is a long time in politics, LSA. And I'm sure I'm not sure I can predict the implications on our 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 as a percentage it's not something I've got in front of me Sebastian. Sorry. But it's also quite dependent upon where the mix of profits in a particular year. So you know, how much profit per country. So it's quite difficult to And we of course benefit from parts of the box that Jim has helped on. I'm going back to the question on healing. Part of the reason for not giving any guidance on locations is because of course, there are I think when we roll forward as a business as a whole, we I don't imagine that we'll have a single plant location for all the manufacturing capacity that we will have across the world. And so in order to maintain our best chance of getting, getting, grants, etcetera, it's better not to commit that too soon and keep a little bit of tension there. But, 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, because and when we roll forward, we will not have all our plants in the same place. I 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 grant available to us. Thank you. If I and my follow-up on an unrelated topic, the $100,000,000 of operating profit that is previously being guided for health in growth terms. Does that still stand for the next 6 years or has the timeline changed? So yes, it still stands and no, the timeline hasn't changed. So yes or no. And your next question comes from the line of Andrew Scott from UBS. Actually, actually. If you can help me properly. So first one is a long range question on legislation. So 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 this, I think in summary, it seemed 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 commission targets. So that's the first question. 2nd 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. So the question is, is it you? And can you just maybe elaborate, to the extent you're allowed by your lawyers? And then the third question is just coming back to CapEx again. So just to understand it correctly, your preference would be brownfield. So staying with the site you have in Poland for the 2nd stage. But you need to obviously work upon various items of detail. That was my takeaway, but And maybe, maybe just can't say for reasons to do renegotiation, but, if you can say something, can you respond to that comment? Thanks, Andrew. Thanks for your questions. Firstly, sort of on Euro 7. So I think there's a balance between what's technically feasible or what's cost effectively feasible. Our view is that the technical feasibility to meet the European, sorry, Euro 7 standards, we can do it or it can be done. Then it fundamentally becomes a cost equation for the OEMs, not just for the cost of the actual kit or per car. And I don't think there's going to be a massive, you're not going to have another unit, but it's it would be a lot of testing, a lot of work to qualify and make sure that the, that we meet those tougher legislation target. And of course, the legislation targets get tougher and tougher. And so therefore, they've got to do lots and lots of testing to make sure that the cars will work and perform under those conditions. And that just becomes a cost equation. And I think that's where the pushback is coming from, not so much particular technical feasibility. I'm going to ask Ana to answer the question on our potential and Chester County. But other than, but the one thing I wanted to do is congratulate you to getting through page 19 of the, of the, of our statement by this time of day. But, Ana, do you want to? Yes, I'll give you the bit of color I can. This is land that we occupied and we solved 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. And that's caused the various bodies to look back at owners of that land over the intervening years, around cleanup claims. And that's really all I can say. Just gives you some context as to what we're talking about. So, Andrew, to answer your question, yes, it is new. Sorry, yes, it is new. It's the first time it's been there. And to answer your second question, I was alive, and Anna just had to mention that just to rub it in. But anyway, I'm not going to rise to that. On the or 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 then with one thing? So Bain has put together the benchmarking of European plants. So 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's up and running, right? Umicore hasn't started in Europe, the South Koreans have only just announced their intention BSF as far as I can tell, I'm not giving much information. So I suppose my question is how confident are you with with the Bain numbers? Well, we 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. And of course, they know what we can deliver as well. So 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 absolute certainty, whether we're comparing apples and apples directly. But it's as good an estimate as we can make at this stage. Your next question comes from the line of Lacey Midley from Panu Gordon. Hi, good morning Robert. Anna, can you hear me okay? Yes, yes, absolutely. Brilliant. Thanks very much for the question. A couple of questions from me, please. Firstly, you mentioned benefiting from the timing legislation in China, light duty. I think even with the impact of COVID, I'd have expected slightly better performance in light duty in 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've previously given rough targets for Asia heavy duty in the medium term as a percentage of total senior that might be wrong, but if it's not, can you remind me of those, please? Thirdly, on Illinois, again, most missed it, but what's the estimated timing of commercial production of the second plant. I know quite early on, but any rough sort of timing on that would be good. And then lastly, on the new fuel cell catalyst plant, Japanese views at this point where it will be, again, estimated time frame to commercial production and the initial capacity? Okay. A few sort of detailed questions there. So like GCE Asia, I mean, I think as Ana said, we're sort of in light duty, we're probably 75% through on the fitment of of GPS in China. That's a little bit accelerated than it was originally expected because Chinese OEMs tend to fit the, you know, nowadays fitments in early. And as we mentioned already, that we lost a little bit of share in light duty as we said through platform losses a couple of years ago, and that's why you're seeing the implication that impact in this year's numbers. We didn't go 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, so China is the more material one. And as Anna said earlier on, I think to an to a question, we're about a quarter of the way through, the fitment of, the new technology to meet Euro 6 in heavy duty in China. On the E and O 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 2 years also after sorry, 2 years behind the 1st commercial plant. So therefore, you could probably add 2 years or so to when it's likely to start production from when the first commercial plant is likely to start production. And lastly, on fuel cells, we haven't decided for sure where the next expansion will be in fuel cells. And where 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 in Europe and Asia 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. And the exact capacity, well, we're still the early plan. So we and I don't think I could give you the capacity at the moment. Okay. Really helpful. Thank you very much. Our last question comes from the line of Jean Baptiste Wallan from Bank of America. Hi, good morning. Good morning, Robert. Good morning, Anna. Just one question for me in relation to the change in business model that you have implemented in relation to metals. I just wanted to check if I mean, 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 risks, potential risks related to this new business model? Or do you would you say there are increased or would you say there is just basically no change in that regard? Soon, because I can give Anna the chance to answer. She's desperate to answer it. But, so over to you, Adam. Look, I would say that the risks in the new business model are reduced in that we have effectively what we've done is we've worked really hard to reduce the amount of working capital. We need to have in our systems to deliver our products. And we've done that through how we contract, how we run our refineries, how we move special around the group. And the smaller amount of metal we have in our system fundamentally the lower the risk, the lower you know, 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 into branded group, So fundamentally actually, this is more efficient than that theoretically in multiple ways and makes it much easier to run our business So it's been a it's been a real change. The lending of metal into the market is a bit of a front hearing. That's just how we fund that will be either borrow or lend depending on our forecast versus what our view of those forecast have been a year ago and currently, we're lending the surplus vessel that we don't need in our business into the market because COVID has reduced the demand and because our own in our own efficiencies have reduced the demand for metal in our business. Yes, it does. Thanks very much. Thank you. Any further questions? We have no further questions. I'll now hand the call back to Robert for his closing remark. So thank you very much indeed everybody for, for your questions. And I hope you find it helpful and got what needed. But of course, we're going to do the roadshow shortly, so we'll have the chance to talk to you again. But 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 4 years. She'll be missed by us. Our loss is LSAG'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 LSAG that closely. But maybe a number of the shareholders on the call will see Anna again. And, I'm sure she will make a tremendous contribution at LSAG too, but she has Her legacy at J. M. Is multiple, but what in particular is the team that she stepped around her, and I'm really looking forward to be working with Karen over the next few months. And I'm sure some of you will get to see Karen shortly. And it's not just the team that she's made, I just made use difference across the organization as a whole. So thank you very much, Anna. This is her last day at JMs. She's going to hand it back to her computer and everything like that. So it's all a bit emotional. And, but thank you, Anna, for everything you've done. I want to publicly say that on behalf of shareholders. And, we'll see her again, I'm sure. But thank you very much, everybody. Take care. Stay safe. And, we'll see you soon, I hope, and see you next time at.form. That concludes our conference for today. Thank you for participating. You may all disconnect.