Earnings Call: H2 2020

Jun 11, 2020

Ladies and gentlemen, thank you for standing by and welcome to the Full Year Results Call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer For your information, the conference is being recorded. Now, I would like to hand the conference over to your speaker today, Martin Downwoody, Director of Investor Relations. Please go ahead, sir. Thank you. Good morning and thank you to everyone for joining us for our results today. It's a little later than we had originally planned, but this was solely due to difficulties our officers had in completing the year end order remotely due to COVID-nineteen. We have today both the webcast and an audio call. The webcast is listen only. So if you want to ask questions following the presentation, please join the audio call. The presentation is available to download from the Johnson Matthews website. On the call today, I'm pleased to welcome our Chief Executive Robert McLeod, and our Chief Financial Officer, Anna Mans, who will take you through the presentation and then answer your questions afterwards. And with that, I'd like to hand over to Robert. Thanks Martin, and good morning, everybody. Obviously, we're in a very different world today since we last spoke. And I hope that you and all your families are keeping safe and well. Personally, I'd love to be doing this face to face But obviously, given the circumstances, we have to do this remotely, but hopefully it will still be a useful session for you. As usual, what we'll do is go through our presentation and then give you the chance to ask any questions you may have. This morning, as Martin's already said, it's, Anna and me here with the IR team, and you'll be pleased to know, we're appropriately social distancing, of course. So to start with, clearly, the COVID-nineteen pandemic is one of the biggest challenges that our society and business has faced in recent years. It is an uncertain time. But at JN, we remain focused on the things we can control, and I'm extremely proud of how everyone at JM has collectively worked together to support each other and try to balance the needs of all of our stakeholders. But the good news is that we're delivering on our strategy, and you'll hear from me on the progress we've made and how we're doing it. And you can see from our results that we delivered operating performance slightly ahead of expectations before towards the end of the year, we began to see the effects of COVID 19, and that impacted operating profit by around GBP 60,000,000. But our business is resilient. We have a strong balance sheet and are well positioned in this uncertain world. That's not just because of the strong foundation that we've built, but it's also because of our business model and the early and rapid actions that we took. We all know that the automotive market is evolving away from the internal combustion engine and it's likely that COVID-nineteen will only accelerate that. But no one yet knows how COVID-nineteen will impact the global economy. But we do expect that it will adversely impact demand across a number of our businesses. Probably for quite some time. In order to maintain our competitors and our ability to continue to invest in our long term growth drivers, We have to be more efficient. Therefore, today, we're announcing the acceleration of our drive for further efficiency across the business. These new actions will deliver annualized savings of at least 1,000,000 by the end of our fiscal year 20 2, 23. But looking beyond that, I'm confident in our medium term growth. Addressing climate change is a priority for all of us. And commitment to net 0 are accelerating across the world. These trends aren't going away and our strategy is all about applying our science. To provide solutions to address them. And all of this gives me confidence in the strength of our business. In a moment, Anna will talk you through our performance in the year in more detail. The first I wanted to give you some highlights, update you on how we're navigating through COVID-nineteen, and talk more about the actions we're taking to accelerate our strategy. So as I mentioned, Our underlying operating performance was slightly ahead of market expectations before the impact of COVID-nineteen. In Clean Air, It was obviously a challenging year for global auto production, even before COVID 19. But I was pleased that we strongly outperformed in light duty, particularly in Europe and Asia, where we're benefiting from tighter legislation. In efficient natural resources, The year's operating results obviously benefited from the high and volatile metal prices, but we also made great progress in reducing our refinery backlogs. In addition, we're also well underway with the development of new technologies, particularly those which will help pave the way to a low carbon future. In health, you'll remember that at the half year, we flagged a short term hiatus in the market for opioid addiction therapies. But given our strong position, we've now agreed multi year supply agreements for APIs used in these therapies. We also recently had the good news that one of our innovator customers has now received approval for their new cancer drug. And finally, in battery materials, we've continued to make good progress on customer testing and the building of our commercial assets, which I'll talk to you later. Those are some of the performance highlights from the year, but let me now turn to more recent developments. Since COVID nineteen started to impact us all, we've tried to balance the needs of all of our stakeholders. While it's difficult, balancing the needs of all of our stakeholder groups is absolutely consistent with our values. Health And Safety have to be our priority, and I want to say a heartfelt thank you to all of our people for their efforts and dedication during this challenging time. Thanks to their commitment, we've managed to keep the vast majority of our operations running, and we're still delivering for our customers. This, of course, hasn't been easy because we've had the balance keeping our operations open safely or even keeping them open at all. And I'm pleased to say that we've managed that well throughout, but as markets start to reopen, we'd like to see new and different challenges emerge. For our suppliers, we've maintained our payment terms, and we've even promised to support any smaller suppliers who may be facing difficulties. Across AM has been a huge desire to support our communities, whether it's supplying vital drugs to the healthcare industry, producing chemicals for food or energy supply chains, donating PPE to medical and care organizations. We're also supporting charities. And of course, we remain absolutely committed to doing the right thing for our shareholders. And we are grateful for the support we received. So notwithstanding the strong financial position of the group, But in light of the current uncertainty and recognizing the importance of balancing the needs of all of our stakeholders, the board is proposing the final dividend for the year that is half the level of last year's. Let me now give you a picture of what we're currently seeing across our sectors. In Clean Air, many of our auto OEM customers began to close their plants from the end of January. Firstly, in China, and then in Europe and the US from the middle of March. In the vast majority of these cases, this was due to a decline in consumer demand rather than any particular government requirement to shut down. What we're seeing now is a gradual recovery. First, in China, helped by the Chinese government, which has rolled out incentives to boost the industry. And in Europe and the U S, our production levels fell sharply in mid March with April and May sales down close to 80% compared with last year. Although demand remains in some areas, for example, in agricultural equipment and spare parts. So while demand from our customers is starting to recover, visibility remains low, which is making forecasting difficult for us all. The European governments are now starting to follow China's lead, with, for example, France announcing an automated incentive program. In efficient matter resources, The vast majority of our Catalyst Technologies plants have continued to operate close to normally throughout. And the same is true for our platinum group metal refineries. Although they're doing so with a lower capacity given new ways of working. For health, our operations have been relatively unaffected although we did see some small logistic delays around the year end. And finally, new markets are on track, and I'll get more into that later. So now looking at how we responded to this pandemic. Over the past few months, we've been focused on strengthening our financial position. Of course, in any crisis, it's critical to react quickly, and the J. M. Team did so really, really well. Taking immediate and decisive action to maintain our strong balance sheet and strengthen our liquidity. Firstly, we reduced our costs. We rapidly reduced our contractor numbers by more than 600. We restricted all discretionary spending And as demand flowed, we adjusted shift patterns and froze hiring across the group. 2nd, we tightly managed our working capital. In Clean Air, we reacted quickly. We anticipated the impact on our customers and that they would shut down, so we ran down our inventory and raw materials purchases. And in our PGM refinery, we controlled our intakes to recognize the fact that our refining capacity was reducing. Finally, we have recently postponed a number of non strategic capital projects. However, we continued with of course, remain committed to our strategic growth projects given how important these are in supporting our medium term growth. And it's partly because of all these actions that we're in a strong position today, and I'm confident that we're well placed to navigate the current uncertainty. And the next slide summarizes why. The first thing is that we have a robust balance sheet, and Anna will give you the detail on that shortly. But that's not all. The nature of our business model means that when the economic environment weakens, our balance sheet and liquidity strengthens. As we have significant working capital inflow when demand reduces. We also benefit from our flexible cost base. For example, around 75% of our costs in clean air are variable. So when demand turns sharply, we can flex things pretty quickly. And of course, this is something we're used to dealing with. For example, as we've managed through the regular peaks and troughs of the U. S. Truck cycle. And more broadly, the diversity of our portfolio reduces risks because we have exposure across multiple end markets and regions. And also don't forget our businesses run on different cycles too, even within the same sector. So while Clean Air Europe and Americas are still at low levels of production, China has recovered strongly. Taking a step back from the short term developments, let's now turn to our strategy and what we're doing to drive this forward. Our strategy is clear and a key element is focused is continued focused on efficiency. We've already delivered substantial savings from our existing initiatives, and today, we're announcing further efficiencies. The reason we can do this now is because of the investments that we've been making over the First, we're consolidating our Clean Air footprint. And second, we're driving organizational efficiency across the entire group. So that really means simplifying the organization and making it easier to get things done. Together, These actions will take run rate cost savings to around 1,000,000 by the end of fiscal year 20 2, 23. And over the next couple of slides, I'll take you through what this means. As many of you know, over the last couple of years, we've been investing in our Clean Air Manufacturing print. Our new world class plants in Europe and Asia are now almost complete. The first of these are plants in Poland, is now on stream. 2 lines are operating. We're running validation batches and expect production will ramp up over the rest of the year. China will follow shortly as we've already started commissioning and validation, and our plant in India will follow in a year or so. To take advantage of new title legislation. With our new clients nearing completion, we're now able take action to consolidate our footprint in Europe and remove inefficient capacity. And this will save us at least 1,000,000 per year. Our ability to operate efficiently is a key priority in Clean Air. More so as this business moves into the next phase of its maturity, Our new plants will enable us to do just that. They're very similar to our existing newer plants in North Macedonia, and the U. S. And together, they will give us an efficient global manufacturing network. In the current environment and as this market matures, efficiency and agility are absolutely critical. This greater operational efficiency will mean that we can drive out costs The plants are highly automated and that's of course an added benefit in the current environment as any social distancing requirements will not materially impact our productivity levels. And with our standardized manufacturing assets, we'll be able to move products all over the world. These plants can produce our entire product mix, heavy duty and light duty parts. And together, they give us a truly flexible agile and efficient manufacturing base, one where our customers know that wherever we manufacture their products, they will receive the same quality and the way their product is manufactured will be identical. And this is critical in helping us deliver for our customers and to enhancing their experience with us. Whether investments in Clean Air are nearly behind us, we're now focused on maximizing our returns from this business. And our drive for efficiencies broader than just clean air footprint, we're reviewing our manufacturing capacity across the whole company. Over the last few years, we've also been investing in the business and building our capability. This includes the setting up of a global procurement function. The centralization of our IT function to drive efficiency and rolling out our global ERP system, where we're now live in Four plants as well as the corporate center. All this is crucial to our long term success, and it's now allowing us to further simplify our organization. While having standardized systems and processes, we'll transform and simplify the way we work. But whenever you add capability, there comes a point in which need to remove areas of duplication and reduce complexity. So we're now removing areas of overlap between the corporate center and our sectors. For example, by consolidating our procurement activities. This will leave us with a simpler organization, enable faster decision making and allow more time for our business leaders to focus on serving our customers. In a world that's changing and increasingly challenging, This is more important slightly ahead of expectations. Through many of the swift actions we've taken, we are well positioned in an uncertain world and we're accelerating areas of our strategy to drive further efficiency and set us up for future success. Anna, Thanks, Robert. Good morning. Today I'm going to get into the detail of our performance. I'm going to tell you why our strong balance sheet means we're well positioned, and I'm going to unpack the impact of accelerating our strategy on our financials. But let's begin by looking at our performance in the year. Starting with group sales, we had 1% sales growth in the year, until the last quarter when we were impacted by COVID, and that reduced our sales by 105,000,000. Sales were higher in efficient natural resources and new markets, although that was offset by declines in Clean Air And Health. And it's in clear there, we saw the majority of the COVID impacts. Before the impact of COVID nineteen, our businesses were doing well and grew 5%. The slide gives you the drivers by sector. And I won't go through each sector here because I've got a slide coming up on each in a moment. The 5% growth was despite a couple of one offs, which happened in the first half and are called out in the text boxes. In the last couple of months of the year, COVID-nineteen impacted profit by about GBP 60,000,000. And I want to break that down a bit for you. Firstly, EUR 30,000,000 of this was lost demand in Clean Air. EUR 15,000,000 with higher trade debt to provisions. And that really reflects the greater risk we see in the macroeconomic environment. We've not actually seen much change in our cash payments. And nor have we seen any defaults. And finally, EUR 15,000,000 was delayed sales due to logistical challenges. And those have all since shipped to the month of April. As a result, operating profit declined 6% for the year. Now let's go through the sectors in a bit more detail. Clean Air sales were down 4%. Significantly outperforming auto production, which was down 10%. I'm not going to go through the bridge here. As that shows performance relative to prior year, and it's our performance relative to auto production that I want to focus on. The outperformance against auto production within light duty. This reduced tightening gasoline legislation in Europe and China increasing the value per vehicle Elsewhere, our performance broadly followed the market production. Globally, the heavy duty market was down 11%, and we followed the market. In the Americas, the Class 8 truck cycle peaked in September And as we expected, we saw a sharp decline in the second half. Operating profit declined significantly more than sales. While 75% of our costs are variable, there's a couple of specific items to call out this year, which meant the decline in profit was bigger than we might have expected. Firstly, we experienced a million impact from COVID. Only million of this was a volume decline, The remainder was the higher trade debt to provisions. We also had inefficiencies. And we've had higher infrastructure costs relating to the startup costs for our new plants. Looking forward, visibility on the recovery remains low, and external data shows a wide range of production assumptions for the next year. It currently suggests light duty vehicle production declines of about 25% for Europe and the U. S. With Asia stronger and in heavy duty, the declines in Europe and the U. S. Are even greater. But of course, the outcome could be materially different. And irrespective of that outcome, we will adapt our flexible cost base. Efficient Natural Resources performed strongly with sales up 8% In Catalysts Technologies, we saw good growth in licensing, and we benefited from recent methanol and formaldehyde wins. We saw good growth in 1st fills as new plants in Asia came on stream, refill catalysts performed well, but refill additives were weaker. Aditives were impacted by the lower oil price as when refineries are using lighter crude, they use less of our products. Copper zeolite sales into Clean Air Declined as auto demand was impacted by COVID. PGM services have all been about precious metal prices. They've been both higher and more volatile throughout the year. Driving double digit sales growth in our refinery and our trading business. Operating profit was up 40% as those higher precious metal prices benefited us by $47,000,000. We didn't see all the benefit of price as we had some additional costs associated with working down those backlogs and also associated with the investment that we're making in our refineries to increase their resilience and efficiency. Looking at 2021. The Catalyst Technologies business is later cycle. So we're not yet seeing the full COVID impact, but it will come through later on in the year. When it does the impact of reduced volume will be greater. And that's because of the higher operating leverage as this sector operates with a large number of sites and higher fixed costs. And in PGM Services, metal prices and volatility will, of course, influence operating profit. So we may not see all the price benefit we saw in the last year. In Health, sales declined 15%. Generics were impacted by the temporary disruption in the opioid addiction therapy market. In the second half, and we also saw lower sales of ADHD APIs. If you remember, and medication. That created temporary uncertainty in the market, and we saw our customers stop buying in the second half. But we have a strong position in this market. We've got multiyear supply agreements with generic partners for the APIs that go both into tablet and thin film opioid addiction products. And that will benefit us next year. Innovative grew slightly. And as Robert mentioned, since the year end, our customer in UniMedix got FDA approval for their triple negative breast cancer therapy. The weaker sales meant that operating profit was down 38%. Looking to fiscal 'twenty one, health is relatively unaffected by changes in the macroeconomic environment. And we'll have the benefit of the stronger market in opioid addiction therapies and the ramp up sales to immunomedics. In new markets, sales grew 7%. That was driven by the alternative powertrain, with strong demand for fuel cells and for non automated battery systems, things like ebikes. However, operating profit declined as a result of an 8,000,000 impairment of our ELLNO plant. Where we decided to go directly meant that our demo plant would rapidly become obsolete. We made significant investment in the LNO this year. And we're making good progress towards commercialization. Beside gives you the full P and L I just want to highlight a couple of lines here: finance charges and tax. As we flagged, finance charges have increased due to increased interest on our metal borrowings. This is due to the greater average value of our borrowings, driven by higher precious metal prices, and the fact that we pay higher interest on metal borrowings than on the rest of our net debt. The underlying tax charge was similar to last year at 15.7 percent and underlying earnings per share was down 13%. Here's a reconciliation to our reported results. The important number here is the $140,000,000 of impairment and restructuring charges. Robert shared with you the actions we're taking to restructure our business and this is a non cash impact in the year. I'll get into more detail of the restructuring and its financial implications in a couple of slides time. I am really pleased with our cash flow over the full year. We had a free cash flow inflow of 50 1,000,000. And you can see we had very little precious metal working capital outflow, and that is despite a 75% average increase in pre GM prices. And that's because we significantly reduced the volume precious metal working capital we used in our business, which I'll come on to shortly. Cash outflow on CapEx was significant in the year. And I'll talk more about this on the next slide. Our CapEx spend of $465,000,000 was focused on our strategic growth projects. Our new clean air plants in Poland and China are largely complete and they give us the capacity to deliver against the growth coming from new legislation. And they're far more flexible and efficient. In efficient natural resources, we're upgrading our PGM refineries for safety, efficiency and resilience. And that will further help us in managing and reducing levels of precious metal working capital. In Health, we continue to develop our new product pipeline. And in battery materials, we continue to commercialize ELNO building our first commercial plant and application centers. And we're investing to upgrade our IT systems to make our organization more efficient. Despite the external environment, we will continue to invest to deliver future growth and efficiency and in fiscal 2021, CapEx will be up to GBP 400,000,000. As Robert tells you, we've got a robust balance sheet. We've got good access to liquidity at around 1,000,000,000 and that's because we restructured and increased our bank facilities and we raised an additional $300,000,000 private placement in the year. Our balance sheet is robust with net debt to EBITDA of one 0.6 times and that's at the bottom end of our target range of 1.5% to 2%. It's a significant improvement in the second half. Despite the impact of COVID on EBITDA and higher PGM prices. Our debt maturity profile is balanced. And the majority of our facilities have covenant of 3.5 times net debt to EBITDA, against which we've got material headroom. Our covenants are tested annually in March. I'm really pleased with the progress we've made on Precious Metal Working Capital. We've reduced the volume of Precious Metal used in our business by SEK 345,000,000. There's 3 main drivers here: reducing our refinery backlogs, reducing other precious metal working capital, and managing our business volumes through COVID. Starting with backlogs. If you remember, we had an outage at one of our refineries, which led to an increase in our backlogs, and we've been working really hard to bring them down. In the year, we took out GBP 162,000,000 of volume, and that was more than we anticipated. We've also worked to reduce volumes across the group. We've optimized metal movement across the supply chain, and we've improved our commercial terms. And lastly, business volumes. We were quick to act and manage cash towards the end of the year. We saw the end market demand slowing and we actually quickly to reduce metal at every stage in our supply chain. So we weren't sitting on any excess inventory. Metal price increases in the year were huge. Palladium was up 56% and rhodium up 137%. Higher metal prices increased working capital by 1,000,000, and that is out of our control. Metall prices will continue to be volatile. So we're working really hard on what we can control. We are going to accelerate our working capital metal volume reduction. The biggest lever continues to be backlogs. We've already been really successful in reducing them. And because of the work we've done, we now believe we can take out at least another million in volume by the end of this financial year. Now that's based on metal prices at the end of March. But you can't plug that straight into your models as we would expect it to be offset by the ramp up in demand in clean air, increasing receivables. The timing and pace of that ramp up is currently hard to predict We have a strong track record of delivering efficiency. We've announced a number of initiatives since 2017. And we delivered 116,000,000 to date, with 145,000,000 annualized benefit by fiscal 23. The scale of the numbers here shows we know how to do this. And as you heard from Robert, accelerating our strategy will 1,000,000. This brings total benefits to 225,000,000 by fiscal 23. And we're not done. We'll go on looking for more opportunities. Let me give you some of the details you need for your modeling. Here are all the numbers. Looking first at the totals. We'll deliver at least 1,000,000 of annualized savings. The total cost of that will be GBP 240,000,000. And as it says in the footnote, GBP 80,000,000 of that is cash. Of the million cost, million noncash charge has been recognized this year. The consolidation of the Clean Air Manufacturing footprint in Europe will deliver a EUR 30,000,000 annualized benefit within 3 years. It will cost 1,000,000, of which 1,000,000 is cash. The simplification of our business will deliver 1,000,000 It will cost GBP 70,000,000 overall, of which GBP 50,000,000 is cash. In battery materials, we're impairing our lithium ion phosphate or LFP business. As we focus on the smaller higher value segment of the market, and that's where our ELN O customers play. In Health, we've done a review of our pipeline and our new product introduction approach, which has led to an impairment. And that's because we want greater Given the ongoing uncertainty, we're unable to provide financial guidance for next year. There will be a diverse impact across our sectors, and I've already taken you through the dynamics of what we expect to see. Saving to our efficiency initiatives will support performance in the year by 1,000,000. And we expect to see significant benefits from reducing our backlogs on our working capital. We'll continue to invest in our strategic projects, which are critical for our future growth and efficiency. And with that, I'll pass back to Robert. Thanks, Anna. So you've seen our performance and how we're taking action to accelerate our strategy. Now let me talk about some of the exciting opportunities that will drive our future growth. As you know, our strategy is to use our world class science to solve our customer's complex problems. This ultimately creates long term value for our shareholders and a cleaner healthier planet for everyone. I've already covered our established businesses, very quickly to recap. In Clean Earth, we'll continue to benefit from legislation globally, particularly in Europe and Asia, and we've maintained our strong leadership positions in our key markets. And as our capital projects are nearing completion, this will allow us to drive greater efficiency and save costs. In efficient natural resources, we're driving growth. Targeting our investment and resources into the highest growth segments and this focused approach is starting to deliver results. And in health, we continue to progress our new product pipeline. But when you look at the world around us, it's clear that action around key global trends has increased. We all know that in climate change is one of the biggest issues that we faced. And during the last year, awareness has grown more than ever. We will all need to work together to develop new solutions that will reduce our global carbon footprint and we're seeing increasing momentum and the pace of change is really accelerating. This trend will only get stronger and may even be accelerated in the post COVID world. We're already using our size to provide solutions for net 0, and these will drive our medium term growth. Our battery materials business will enable greater adoption of long range pure battery electric vehicles. And as hydrogen is increasingly recognized as an important part of the solution for Tener Energy, we are well placed there. With our leading hydrogen production technologies and of course fuel cells. We mentioned the good growth we've seen in our fuel cells business earlier, And this technology will also play a key part in the decarbonization of transportation, particularly in heavy duty applications. Now let me take you through our progress with each of these. In the last year, the opportunity for our Battery Materials business has improved. As the uptake and outlook for electric vehicles has increased. This is principally being driven by the timing regulatory environment, consumer acceptance and the development of the technology and infrastructure. And we've also confirmed that customers will require customized solutions. Each with differing requirements. And this plays to our technology strengths and the strength of ELN O, our family of high nickel cathode materials. It also means that the high nickel market will not only become will not become a commodity play anytime soon. And as a result of both trends, we remain convinced that this is a year, we've made significant progress in building our Battery Materials business. We've moved forward with our customer testing our commercial plant and our application centers. In the year, we have achieved an important milestone as 4 of our customers moved into full cell testing, 2 global automotive OEMs and 2 non automotive customers. Full cell testing essentially means that our customers have reduced their number of potential suppliers to around 3 to 4. It's also a more intensive and collaborative phase of testing where we work together to optimize EL and O within a specific application. And of course, it means that our customers are putting in more investment from their side. I'm very pleased to have 2 automotive OEMs in full cell testing. As well as a number of other OEMs and cell manufacturers in the earlier validation phase. And of course, This sector remains our priority. However, the shorter qualification path for the non automotive sector will give us additional detailed knowledge about Elon's performance and very valuable learnings, especially as we start to produce commercial volumes. Whilst we continue to develop our technology and enhance in building the infrastructure is required to bring ELLO to market at scale. This is a substantial endeavor but I'm pleased with the progress that we've made in the last 12 months. We've broken ground on our first commercial pilot in Poland and our application centers are up and running. As you can see from the photo. These application centers will play an important role in the success of our Battery Materials business. Because customization is crystal to our customers. And our new plant will start production in 2022, and ELNO will be on automated platforms in 2024. And as the world moves towards net 0, the opportunity in Hydro is significant. Today, hydrogen is a critical feedstock for chemical processes, but there is increasing recognition that he can play a much bigger picture of the clean energy solution. This is recognized in many countries, and we expect substantial investment in the rapid upscaling of clean hydrogen deduction and its use across Europe and the world. We span the hydrogen value chain and have strong established positions in both hydrogen production and fuel cells. We have the leading technology for blue hydrogen production. It uses natural gas as a feedstock, and we've devised a process that gives a high yield that makes decarbonization through carbon capture and storage, both easier and cheaper. Blue hydrogen is already starting to commercialize and our technology has been used in a number of high profile projects including high net low carbon hydrogen project here in the UK. This will use our blue hydrogen technology in a refinery for the first time. So this is a really exciting opportunity for us and with our established technology, we're well positioned to succeed. It's also clear that fuel cells will play a key role in the decarbonization of transportation as the powertrain evolves. In the near term, this will be in trucks and delivery vehicles. In fact, we've already supplied fuel cell components to several 100 commercial vehicles and buses in China. And the picture on the slide shows you a truck in China that's using our fuel cell system. So it's a growing market and a large opportunity for us. And we're already an established player here and are investing GBP 15,000,000 to double our manufacturing capacity across the UK and China. But it's also our unique position across the value chain that really differentiates us. Not only do we manufacture the PGM catalyst, but also the membrane too. And it's our ability to optimize the interaction of these components across the whole fuel cell system that gives us a strong competitive advantage. So as you can hear, there are a number of exciting opportunities to drive our medium term growth, and we hope to talk more about the broader hygiene opportunity in the near term, in the near future as we look to reschedule our hydrogen seminar. So let me now summarize for you. Overall, I'm pleased with the resilience of our performance and what we've delivered in the short term. We took rapid decisive action and are balancing the priorities of all of our stakeholders in some of the most challenging additions that we've ever seen. We continue to execute against our strategy and now that the right foundations are in place, we're taking the opportunity to accelerate this, driving further efficiency. And whilst the environment is tough at the moment, science remains at the heart of JN and we're well positioned for future success, with our science led solutions as the world drives towards net 0. So that concludes our presentation. Let's take a Thank We are taking our first question from the line of Tom Reagenswer from Citi. We can't hear you. Thank you. We are taking our next question from the line of Alex Stewart. Please ask your question. Hi, Alex. Hi there. I had a slightly longer term question. So your the PGM review that Johnson actually pushes out. Changed your assessment of the China 6 rollouts? And I think previously, you would have expected half the car has to move to China 6 in 2019 and then the other half in 2020. And it now looks like the China 6 rollout was pulled forward and the majority of China 6 platforms were actually launched in 2019 rather than 2020. Does that change your plans regarding growth in the Asian business? And do you think possibly it dilutes some of the value of having bought on a Grand New Catalysts plant in China this year. Would it be the next phase not until 2023? Are you really interested to know that makes a difference to the way that you think about the business? Thanks. Thanks, Alex for your question. No, it doesn't change anything about our prospects with excitement about the China opportunity. The people are already switching to China 6 And whilst light duty was delayed a little bit, but to starting in January 2021, that was a light duty thing only. Heavy duty hasn't changed. And we absolutely need our new plant in China and it's coming on absolutely the right time to enable us to take advantage of this growth over the next few years. Okay, that's easy. Thank you. We are taking our next question from the line of Adam Collins. Please ask your question. Hi. Good morning. Good morning. Can you hear me okay? Okay, good stuff. A couple of things from me, please. First of all, on the increase in E and R profits in the second half, very healthy jump there. How significant was PM services to that? And then a couple of related questions on that, are you hedging any of your price exposure And then secondly, what was the significance of PGM broking profits because of higher volatility in that area? That's my first question. I don't know. 3 questions in one. I think actually, those are probably all, if added on the mind, probably all best handled. And are you up there? Do you mind me the last one when I get there? Do you want me to do that, Simon, and then he'll ask you the next question. Would you like to? No, just maybe answer that first because it's a different area. Super. So yes, I mean, we quoted that we had a $47,000,000 benefit, from price. In our profitability in efficient natural resources. And so yes, a lot of the strength and growth in efficient natural resources was driven by PGM Services? Are we hedging PGM prices? That's a complicated question. Fundamental philosophy is we don't try and take price risk across the group. So if we have a position, we close it out. But the way our refining business works is that we effectively make a percentage of the volume And so as metal prices go up, that becomes a higher number. And so that business does better. So it's not a price exposure as such. It's more that the business becomes more valuable at higher precious metal prices. The last one. How important is trading? I think it was trading profit. Well, let's, Adam, with any PGM breaking volatility. Yes, the biggest driver is precious metals prices and you see that across everything and refining that trading profits were up some in the period, but we don't disclose that breakout, I'm afraid. Yes. Yes. On the hedging thing, what I meant there was using forward contracts to lock into 3 PGM prices. On a forward basis. Historically, you haven't done that. And I think what you're saying there is that you've remained with that policy. You haven't done any forward hedging of the P and L. Yes. Okay. Second area, which is different is on LFP, where you're saying that you're making some assets write downs. A couple of battery OEMs have been making some positive noises about LFP for the car market, claiming that they've found a higher energy in LFP. I'm just wanted to get your thoughts on why you don't think that's a market with potential in the EV market, whether that's bus or car? So thank you, and for that question. Look, we do still think that LFP has a role to play, and we're well aware of some of those comments from other OEMs or some OEMs, but the market is broken down into a sort of fairly commodity size element and a high end parts of the market, that higher end parts of the market is quite small. And some of the things you're talking about haven't yet been launched yet or haven't yet been committed. So when we look at the accounting and how we actually have to look at these assets, we've had stake in accounting impairment at the moment, but we are still in this business, particularly for the high end market of LFP and for our customers that also will sell the yellow note to them as well. Thanks Adam. Thank you. We are taking the next question from the line of Andrew Stock. Please ask your question. Yes, good morning, Robert. Good morning, Anna. Good morning. Thanks for the opportunity. So First one's around production on two fronts. So start with auto catalyst. So I think I'm right in thinking you've got 18 sites now globally. Is that right? Once you've brought on the Poland, China and India plan, Is that correct? I don't recognize it's quite as high as that number. I thought it was 13 or 14. 13 or 4. Okay. Let me ask you it other way. Whatever the absolute number is, what's the percentage increase in production volume And in the strategic appraisal you just outlined, you're obviously taking some on your existing production base. I couldn't tell whether that includes production, contraction, so an offset to some of the growth. Is that clear as a question? I'm not sure it is clear. Could you try it again, Andrew? Sorry. I think we're you're bringing on new production, which means you've got additional volume. Are you Are you actually reducing production in the rest of your autocatalyst sites? Production is dependent upon the number of actual cars, the production available, demand out there. So I think your comment is more about capacity than actual production. Now what we've said is as part of this piece of work we're doing, we're going to be consolidating our footprint in Clean Air, which will mean that we'll reduce capacity in our in our more inefficient plants and move that capacity into these new or highly efficient plants. And so have you communicated the net number? So you, the plus and the minus is what? It'll be a net increase, but no, we haven't given the net numbers. And the, but what we can say is the new cards are very, very efficient. Okay. Okay. But obviously the, the $80,000,000 captures the imprint from that lower production, correct? Yes. Yes. Okay. Secondly, on LFP following on from Adam's question, a slightly different question. So is there a chance to in effect retrofit some of the LFP production to ELNO or other chemistries if you get to that point? No, there isn't. Not from these plants. Sure, sure. Okay. And then the final question, one for Anna, actually. Anna, you made the point that you've got more positive inprints to common inventory on the working capital, maybe offset bit by receivables. You didn't mention payables, and the number on the balance sheet is dramatically different from last year. So I'm just wondering how you've managed to improve payables by 7 1,000,000,000 in cash flow terms of 1,000,000,000 on the balance sheet, how much of that's timing, how much of that's structural? Does this, Andrew, is a bit of an accounting complexity? Andrew, you should see the smile on her face. You've asked the question. She's desperate to give you the answer here. I like the accounting complexities. If you go to the notes at the bottom of the balance sheet page, What it references is the impact of our metal funding swaps. If you remember, we had the account we've taken a year ago, it changed the impact of those slots on our receivables and payables and effectively they gross them up and distort them. So what I would suggest you do is you back out the impact that's noted at the bottom and you'll see our underlying receivable comparable position and it's it's not materially moved. But if you want, one of the IR team or myself to just take you through that, we can do. Probably. Okay. I'll follow-up offline. Thank you. Yes, judging by Martin's face, you probably better phone, Anna, rather than Martin. We'll give Martin a chance to get this sorted up. Thank you. We are taking our next question from the line of Sebastian Bray. Please ask your question. Good morning, and thank you for taking my questions. I would have 2 please. The first is on the opportunity to Johnson Matti from Hydrogen. Most of the EU government's directives and intentions seem to be directed at green hydrogen. Is Johnson Matt involved in any way in the high in the water electrolysis chain and the production of membranes for this, I. E, is there any play on green hydrogen at the company? And my second question is on restructuring costs. As far as the distribution on a P and L and or cash basis is concerned, how do these fall into fiscal year 2021 20 22. Thank you. Thanks Sebastian and good morning to you. And I'll answer the first one and then Anna will give you the information on the second one. So they've got hydrogen. I think, you're right. Everybody wants to go to green hydrogen using electrolysis, but I still do believe we believe that many of the governments we're talking to believe that Blue Origin has a role and actually has a very significant role as a transition as a transitional technology. As the hydrogen market develops. But specifically to answer your question about green hydrogen, it is in a way the reverse of fuel cells. It's reverse of how a fuel cell works. And so there are technologies which use a PGM catalyst on to enable the electrolysis to react to occur, to generate green hydrogen. And we do have a role to play in some technology there. Albeit it's a little bit earlier stage of our existing fuel cell business, which is more advanced. Anna, do you want to I'm restructuring. Yes, look, I haven't given you all of the breakdown of, benefit and cost by year because if I'm honest in the context of our current outlook, that would be false precision, but I can give you some color to think about it. So as we said, the saving is 1,000,000. The cash cost of that is about 1,000,000 over a 3 year window. In year 1, so in the year we're in, we will see a 30,000,000 benefit. So you would think to realize the 30,000,000 benefit you probably would expect a good chunk of that cash cost at least half to be hitting at the year we're in. I'm not going to give you the phasing for the subsequent 2 years because it's perhaps how fast we can really move through this change. Thank you. And if I may squeeze in a follow-up, the press release makes reference to the upwards pressure or potential upwards pressure on the CapEx budget for the year. No facility in Poland. What are the main drivers behind this? So the main drivers, the driver behind that is, well, twofold. Firstly, we continue to see, as we talked about, our customers asking for more customization of their products and to enable us to make those particular products. Each individual product is requiring us to make increase the flexibility of our plant. That's putting a little bit more cost onto it. And also, COVID nineteen might have a bit of an impact on the overall cost too. So those two factors. Thank you very much. Thanks Sebastian. Thank you. We are taking our next question from the line of Charlie Webb. Please ask your question. Good morning, Anna, Robert, Martin, Thank you very much for your time this morning. Just a couple from me, I guess, following up a little bit on the last couple of questions. So firstly, on the million additional saving measures, should we see this as a net saving or like in the past or some of that be used to invest in growth. So first, is that a net saving, or will some of that be dilutive down? And then just secondly, coming back to the hydrogen opportunity, Can you help us just in terms of what kind of growth rates you saw in FY 'twenty and kind of help us a little bit understand the scale of this business today would be very helpful. And then just your thoughts in terms of do you expect kind of further hydrogen support subsidies and centers in the UK and in China? And in relation to that, are you having increased discussions with customers and how does that kind of backlog pipeline look for you in blue hydrogen and fuel cells, etcetera? Would be just helpful, a bit more color? I'll give you the color on hydrogen. Alan, do you want to go fast quickly? Yes, so that is a net saving. So a couple of system enablement factors which you've already got in your forecast around SAP. And so that's that capital cost continues, but the GBP 80,000,000 is a net saving on our current plan though. Okay. And on so is that all right, Charlie? Yes. No, that's great. Thank you. Okay. So on fuel cells, look, it's still currently is a relatively small business, but in the whole grand scheme of JN, It is profitable, as we've said before, and our sales in the last year went up maybe 25% in the year. And of course, on the hydrogen side, the hydrogen plus the fuel cell side, the hydrogen production side, it's a bit more of an early stage on some of these projects we talked I talked about the high net project here in the UK. There's also another one called Acorn in the UK, around hydrogen generation using, well, use the technical term. It's seen methane reforming and then ATR process, which is an auto thermal reacting process. I won't go through all the details with you, but that's where we've got some great technology on blue hydrogen generation. But and that I think is going to scale up over the next few years. These first plants that they're looking at are sort of quite big scale but they're still not the massive scale that's needed for the adoption of hydrogen production more generally. And on the on the how we're seeing the market evolve. I mean, our fuel cell business, going back to fuel cells, is talking to a number of OEMs. And about their plans for the future and start and we're scaling up our way. We're doubling our capacity in fuel cells at the moment. And we are looking to the future about how we would be able to scale that business up further as this market evolves. That's helpful. And just in terms of thinking about Europe is obviously also looking at hydrogen as a technology I'm sorry, blue hydrogen as an intermediate technology towards a kind of greater involvement for hydrogen more broadly. With Brexit and other things, is that still an opportunity given your position today, your technologies today, that you are engaged in, that you have access to and that you think you can grow into a market you can grow into? Absolutely, for sure. We're part of the Hydrogen Council. In fact, we're a board member of the Hydrogen Council, and, so there are key participants in that And I think, technologies, no, no boundaries. So if you've got the best technology, by the way, we do, had the best technology to enable blue hydrogen that people will want that regardless of where they're what geography they're based in. Okay. Thank you very much. Thanks, Charlie. Thank you. We are taking our next question from the line of your question. Good morning, Robert. Good morning, Anna, and thank you for taking my questions. Good morning. I would have 3, please. The first one on regulations and your anticipated impact on your Catalysis business. So regulations or let's say the incentives package in Germany was making the choice not to offer scrappage incentives for internal combustion engines, which sounds like a quite a strong political message sense to OEMs. I'm just curious to know if at your end, you're expecting, any strategic bonds is or whether you had already initial conversations with OEMs on this. That's point number 1. Question number 2 is, I heard your comments about shorter qualification time for a non auto applications. For ELNO. And so I was just wondering given your timeline for commercialization is fiscal year 2024, I was just wondering Should we expect, should we expect both applications to come, to be commercialized in the same year, or will they will there be a delay or any gaps between the 2. I'm just wondering if you could clarify that. And then final question on on fuel cells. Could you give us an indication on how profitability is evolving in fuel cells? I remember last November, you had, there had been a headline or a small article on Bloomberg saying that you had turned positive or at least profitable again in fuel sales and you hadn't been before for a couple of years if I'm not wrong. Just interested in knowing how this has evolved since then? Thank you. Thank you for your questions. Look, so on the stimulus package is, they're all starting to evolve. They're all starting to come out. And what is absolutely clear is in Europe where they're wanting to incentivize cleaner air and the move towards electrification. And lower emissions. So the support in France is scrapping it's a partly a scrappy scheme to scrap all vehicles with and replace them with lower emission models. That gives a certain amount of incentive but then if you go and buy a battery electric car, you get an additional incentive. In Germany, as well, as you referred to, there's a scrapping scheme, but it that the benefits partly go to into hybrid cars as well as pure electric cars. It's all emerging, but what is absolutely critical? What is absolutely clear is that they're trying to encourage and move into lower emitting vehicles. And of course, hybrids still remain a good opportunity for JM with the catalyst on, as you know. On the qualification timelines of the non automotive customers, you're absolutely right, as we said, they're shorter. But I don't think that means you should assume that any production from non auto will start in 2024. We'd anticipate that happening sooner than that. Because the qualification timelines are quicker, and that will give us good learnings on how to run the plant effectively ahead of full scale commercial production for automotive customers. So we would anticipate having the non automated commercial volumes a year or so earlier than automotive. And finally on field sales, I'm afraid we're not going to break down the new markets business into detail. I've given you the top line number. Well, I didn't give you the number. I didn't give you the sales growth. And we make a small profits, a small single digit profit number. Thank you. Thank you very much. Thank you. Thank you. We are taking our next question from the line of Tom Briggaswirth. Please ask your question. Good morning, everyone. Hopefully, this is working this time. Thanks for your patience. So first question is, the Asian light duty market performance from JMAT seemed to outstrip the underlying market very strongly. My understanding of our conversations with John Walker was that will likely defer more in the 22, 23 period. Is that just a, a platform development, or are we actually seeing early adoption come through in the Asian business for light duty? First question, Second question, just on the dividend, you've highlighted this is not a new dividend policy, today. Could you just help us understand what the gateposts are at the board level that would lead us back to the kind of the previous level of dividend payout? Thank you, Tom. I'm glad we finally got your questions. So on the agent like G And T side, I mean, it's good to be China. You're right. It's early adoption with some models, some customers have gone early. And we would expect that they'll obviously once you've adopted it, they'll keep going. You'll see greater, adoption across the customers. So it will be a gradual ramp up over the few years as more and more OEMs adopt the new technology. And on the dividends, yes, absolutely, this is this is not intended at all to be a rebasing of the dividend and we remain committed to our progressive dividend. It's hard to judge with an uncertain outlook, exactly when that when our dividend will recover to pre COVID times. It's the board intention to get there, but that will depend on how the market evolves and the economy evolves. Okay. That's it. Thank you. Thanks, Tom. Thank you. We are taking our next question from the line Chidan Udeshi. Please ask your question. Yes, hi. Good morning. Two questions. Three questions. First, it's Can you maybe just help us understand what is the impact of mild hybrid in general on the value of catalysts that you guys sell into the internal conversion. So I'm talking about essentially 48 volt technologies, does that have an impact on the value of the catalyst? The second question was, it seems you've be emphasized 21 generic molecules in the health business, but that doesn't seem to be impacting the £100,000,000 incremental profit contribution that is expected over the next 5 years. Why Have you not seen that number being adjusted downwards? That's the second question. And the third question was just around if I look at the numbers for fiscal year that has just ended. It seems there are significant write downs across most of the businesses. So in terms of how to evaluate investing for growth? Is there some in other words, is there more crutiny in terms of investments in the past? Thank you. Thanks, Chet, and thanks for your questions. So just on the first one for the mile hybrids, what's the catalyst value for a mile hybrid rather than a regular internal combustion engine car? And it's very similar. So there's not much value difference between a mild hybrid and a regular car because Of course, when the internal combustion engine is running, it needs to meet the emission standards that are required, at the best with a regular car. So, that's why the capital system needs to be, pretty much the same. So, Anna, do you want to have a go, the other 2? Yes, sure. So on the health business, we had 75 molecules in our pipeline. And what we've done is a review as our pipeline focus. And we've removed 21 molecules from our pipeline that were impacting further out, but that were reducing focus on the delivery of near end models. So really we're just sort of honing in the focus on how to deliver the value. And that's the impairment there. And then your last question about write downs. I mean, there's 2 big areas of write down in our numbers. 1 is around Clean Air and the other is around LFP. With respect to Clean Air, When we went to invest in those big new efficient plants, we said to you at the time that we needed the incremental capacity, but that we also were putting in additional capacity to allow us to consolidate what was an aging plant footprint and in some areas quite inefficient into these new more efficient plants. So that was absolutely always our strategy. What you've seen with COVID is volumes have in the short term fallen a little bit. That's allowing us to go faster to realize some of that costs and in going faster. Therefore, the impairment is slightly larger. With respect, the other big area that we had a write down is around LFT. And again, we went into LFT, I don't know what, 8 years or 9 years ago now. As part of our entry into battery materials, we're pleased with our entry into battery materials, and we're pleased with our position in E and I know. However, while we've learned a lot from LST, and we're staying focused on the higher end piece, We're not delivering value from all of those assets because the lower end part of the market is not delivering the value that we would have thought. And there we are making the write down as a result. Sorry, Catherine. No, I just wanted to follow-up, sorry, on LSP point. Are you at the moment, or is Are you working with any of the OEMs, car or battery OEMs on any of the higher end cars, maybe not the mass market, but somewhat higher end cars, including any of your LS B material in the batteries or is that not in the pipeline at the moment? So on our LSE business, we continue to have, we continue to have sales but go into high end vehicles, premium vehicles, and that's the high end value of the market that we're still remaining in. I thought it was, it's all been very quiet. Yes, we have another question coming from the line of Alex Stewart. Please ask your question. Hi, sorry. Thanks for taking another question. I know it's quite late, so I'll keep it very short. In health, you have taken effectively 30 percent of the pipeline molecules out and maintained your EBIT guidance for 202526. Have you just discussed which implies that either those 21 molecules, the future value you had perceived was gradually declining over time or the value for the remaining 55 odd molecules has been going up. Which of the two scenarios was it can you now see more value in the remaining pipeline, or were you actually seeing negligible value in that 21 molecules? I think it was neither. You in our pipeline than the 100s that we described externally. And also some of these molecules have launch dates that are beyond 2025, some of the molecules that we are taking out of the pipeline. So I guess that's a long way of saying, we're confident in the GBP 100,000,000 the molecules that we're taking out, many of them would have benefited beyond 2025, so it would have been subsequent growth. And there are not particularly large molecules in the first place, which is why they were a bit of a distraction to us and we focused on the higher value piece. That's really clear. Thank you. Thank you. There are no more questions on the line. Please continue. Okay. Well, look, I think if there are no more questions, thank you very much indeed for your time. And thank you very much for accommodating us in this way of doing the results presentation. I hope you are all well and your families are well and your work colleagues are well. And do please take care. And we look forward to seeing you as we go around seeing shareholders. Thanks very much indeed. This concludes the conference for today. Thank you for participating. You may all disconnect.