Everyone. Thank you very much for coming along this morning to Johnson Matthey's full year results. For those of you who do not know me, I am Martin Dunwoodie, the Director of Investor Relations here. We are going to have the usual format today. We are going to have a presentation followed by Q&A. Very pleased to welcome our CEO, Robert MacLeod, and our CFO, Anna Manz, this morning. Before we start, can I just ask that everyone turn off or turn on silent their mobile phones and other devices. We are webcast today, just to avoid interference with that. With that, I will hand over to Robert.
Thank you, Martin. Good morning, everybody. Welcome to our 2018/19 results presentation. As we have done previously, Anna and I are going to do this in three sections. I will start with the highlights. We had clear aims for the year, deliver a strong performance and progress our strategy. We delivered on these goals. These results are in line with our expectations, and as I will come on to after Anna has taken you through the financials, we continue to make progress with the changes and investments that will strengthen our platform for growth. In the year, we grew underlying earnings per share by 10%, led by Clean Air, which performed strongly as expected. Efficient Natural Resources saw good sales growth, and we delivered strong margin improvement from improved efficiency and higher PGM prices.
In Health, the changes we made have improved our footprint, positioning ourselves for growth. In Battery Materials, we continue to make significant progress. We have leading technology in eLNO and are now investing in its commercialization, which will deliver breakout growth over the medium term. Our return on invested capital was 16.4%, held back by the higher levels of metal inventory we've had over the course of this year, as Anna will explain. Given this strong performance and our confidence in the group's prospects, the full year dividend is up 7%. Now let me hand over to Anna to talk you through the financials, the progress we have made against our focus areas, and the outlook.
Thanks, Robert. Good morning, everyone. Overall, we've had a very good year. Despite challenges in some of our own markets, we are doing exactly what we said we would. At constant rates, our sales are up 10% and underlying operating profit was up 8%. Underlying earnings per share is up 10%. As Robert mentioned, we increased the final dividend by 7%. Firstly, looking at sales for the group. Sales were strong throughout the year, up 10%. We saw growth across all of our sectors, but particularly Clean Air, which grew double digit in both our light and heavy duty businesses. Operating profit was up 8%, towards the upper end of our mid to high single digit guidance for operating profit. This was a strong performance led by Clean Air and Efficient Natural Resources. In Health, operating profit declined slightly as expected, and New Markets was also lower.
Corporate costs increased due to our investment in various group initiatives, which will help drive further efficiencies across our business. Some of these costs are included in the sector's operating profit, while others sit in corporate. Overall, this was a good operating performance for the group. Progressing now to my three focus areas. As I go through this presentation, I'll be talking about those focus areas, to remind you what they are. Driving increasing business-wide efficiency, disciplined management of working capital, and rigorous and transparent resource allocation. Overall, we've made good progress. However, progress has been impacted by the increase we've seen in precious metal working capital, which was caused by unscheduled downtime in one of our refineries in the year. This will have a temporary impact on some aspects of our performance, including finance costs, return on invested capital, cash flow, and net debt.
I'll cover more about that later. We're delivering now as we invest for the future. The 8% growth in operating profit was achieved while we incurred costs as we invest to drive improvements across our business. We've invested in the rollout of a single global ERP system, building our procurement function, improving our commercial capability and in other areas, all of which will set us up for sustainable growth. Growth in our underlying business also includes both the GBP 15 million saving associated with the closure of our Health plant at Riverside and the investments that we're making to improve the efficiency of our footprint in this sector. This net cost in the year will deliver significant benefits in the future. Through driving business-wide efficiency, we're seeing tangible results and expect further benefits in the medium term. We've made good progress on a number of efficiency initiatives in the year.
In procurement, we've continued to invest in building our procurement capability, and we're on track to deliver the expected GBP 60 million of savings over three years. So far, we've delivered GBP 28 million and expect to deliver the remainder over the next two years. As I've said previously, roughly three quarters will directly benefit the P&L. Our group restructuring program that we started last year is now substantially complete, generating annualized cost savings of around GBP 25 million. In Health, we've optimized our manufacturing footprint by closing our Riverside plant and expect savings of GBP 20 million. This is just the start. We're continually identifying opportunities to run our business more efficiently, and this enables us to reinvest, driving further growth. All of this will strengthen our platform for the future. Moving on now to the sectors in more detail, I'll cover our performance in the year and strategic progress.
Robert will give you the forward-looking view and a sense of our priorities. Clean Air performed well, delivering sales growth of 11%, driven by double-digit growth in both light and heavy duty. This was in a year when we saw a decline in global auto production. Starting with light duty. As expected, growth was driven both by diesel and gasoline in our European business. Our diesel catalyst sales grew 22% in a market that declined 9%, driven by our expected market share gains. We achieved a 20 percentage point increase in our light-duty diesel market share in Europe, which increased from 45% at the start of the year to around 65% by the end. Our gasoline business in Europe grew 18%. This was ahead of the market and largely due to a positive sales mix, with more gasoline particulate filters being sold.
Our Asian light duty business grew ahead of the market production in most markets. Our Americas light duty business slightly underperformed the market. In heavy duty, we saw double-digit growth. We outperformed the truck market in Europe and the Americas. We were in line in Asia. Our growth was driven by the Americas, where we grew 19%. This reflects a strong performance in the U.S. Class 8 and 4-7 truck markets. We continue to expect high levels of activity in the U.S. Class 8 market, with production peaking in the middle of the 2019 calendar year. Our European heavy duty business grew 4% in a low-growth market driven by non-road. In Asia, heavy duty, our sales were broadly flat. Clean Air's operating profit grew 13% with a 20 basis point increase in margin, largely due to volume leverage, particularly in Europe.
Overall, this is a strong performance this year. In addition, I'm really pleased with our strategic progress. As expected, our European light duty business has driven growth in the short term. We achieved our planned share gains in light duty diesel, a significant milestone due to our technology leadership. To support this growth, we're taking steps to expand our manufacturing footprint. In the year, we broke ground and made good progress on our new manufacturing facilities in China and in Poland. We'll be ramping up both of these plants through 2020. We're also building a plant in India, which will cost around GBP 50 million, to meet the increasing demand in that region from Bharat VI, which comes into force in April 2020. Of course, we remain focused on maintaining a margin of around 14% through delivering planned efficiencies and optimizing our manufacturing footprint.
Looking forward to 19/20, we expect a year of more modest growth. Growth will be weighted to the first half as we realize the benefit of the annualized share gains, partly offset by reinvestment into R&D and the new manufacturing capacity. We anticipate that these investments for growth and efficiency will lead to a slightly lower margin than prior year. Beyond 19/20, we expect sales and operating profit growth to be increasingly driven by the introduction of newer legislation both in China and in India. Looking now at Efficient Natural Resources. Sales grew 4%, driven by the growth in our refill business in Catalyst Technologies and PGM Services. Overall, Catalyst Technologies was broadly flat. We saw double-digit sales growth in refill catalysts, offset by lower sales from first-fill catalysts, whilst licensing was flat. Refill catalysts and additives are reoccurring in nature.
These sales make up the majority of our Catalyst Technologies business. We outperformed our markets in aggregate. First-fill catalysts are one-off in nature and are driven by the timing and number of new plants being commissioned. As expected, licensing income was flat as activity around new builds, especially for the technologies we license, remained subdued. We signed five new licenses in the year. There were some signs of improvement, but as revenue is recognized over the period of plant construction, we won't see a material impact in the near term. In PGM Services, sales grew 10%, benefiting from higher and more volatile average precious metal prices, slightly offset by lower sales of industrial products. Moving now to operating profit. This was up 15%. The margin improved 1.8 percentage points. We benefited from higher PGM prices, a GBP 16 million impact in the year.
Additionally, we saw net benefits from improved efficiency due to initiatives across a number of areas, including procurement and restructuring. Most of these efficiency benefits are ongoing, although around GBP 5 million will not repeat. Whilst we've made good progress in running our business more efficiently, we are investing to improve the safety, resilience, and efficiency of our PGM refineries. Our PGM refineries are critical in ensuring that we have security of supply for Clean Air, as well as for our external customers, and that's why we're investing around GBP 100 million over the next three years. This investment is already included in our CapEx guidance. Overall in the year, ENR performed well. Taking a step back and looking at our strategic progress to date, we've taken some significant actions within this business to support the delivery of our strategy.
For example, a lot of work has gone on behind the scenes to simplify our product portfolio with the removal of a significant number of products. This will optimize our offering to the market and improve our cost to serve our customers. We're making good progress in commercializing newly developed sustainable technologies. For example, we've signed a large new license in the year for monoethylene glycol. At the same time, we're also seeing benefits from our focus on efficiency. I've talked about the restructuring savings that we've achieved in the year, and will continue to look for further improvement as we drive profit growth ahead of sales. Looking to 2019/2020, as we drive these efficiencies in our business and continue to focus on higher growth segments, we expect sales growth and with operating profit growth ahead of sales growth. This guidance assumes metal prices remain at current levels.
In Health, we saw sales growth of 3%. In our generics business, sales were broadly flat. Sales of controlled APIs, that's active pharmaceutical ingredients, grew slightly, with growth in bulk and specialty opiates, while sales of ADHD APIs were flat. Sales of non-controlled APIs declined. This was largely due to lower sales of dofetilide, an anti-arrhythmic drug, as new competitors for our customer entered the market. We expected this. Our innovative business has performed well, with sales up 14%. We had increased sales from APIs where our customers are moving into late-stage testing ahead of commercialization. Moving now to operating profit. As expected, this was slightly down, and the margin declined by 1.3 percentage points. This was primarily driven by the change in product mix as our current portfolio moves through its natural life cycle.
Additionally, we saw higher costs from our manufacturing footprint optimization as we restructure our business to support our future growth, which offset the GBP 15 million of savings achieved in the year from the closure of Riverside. As we execute our strategy, we've made significant progress in restructuring our assets. The closure of the Riverside plant in the U.S. is now complete, and we're ramping up our U.K. plant in Annan. This is in line with our focus on complex, high-value, low-volume APIs rather than bulk quantity manufacturing that Riverside was designed for. Over the medium term, this optimization will deliver annualized benefits of GBP 20 million and provide the efficient platform to deliver value for our global product portfolio. As you know, we've been investing in our new product pipeline across both generic and innovators.
We're also on track to deliver an additional GBP 100 million in operating profit from our pipeline by 2025. At the end of March 2019, we've got 46 products in our generic pipeline, and we've included a slide in the appendix showing our progress in the year. Our innovative pipeline is also progressing well, with three products in late-stage development and nearing commercial launch. Finally, looking to 19/20, we expect sales to be broadly stable whilst operating profit will grow double digit, driven by the cost savings that we've made from the closure of Riverside. In new markets, we saw strong sales growth, up 17%, driven by alternative powertrain, which includes battery systems, fuel cells, as well as the LFP and eLNO cathode materials businesses.
Alternative powertrain sales were driven by demand for non-automotive applications within battery systems, such as e-bikes, and growth in demand within our fuel cell business, which is now profitable. The development and commercialization of eLNO is on track having made good progress during the year. Robert will speak more about eLNO later in the presentation. In the year, operating profit declined, primarily due to further investments in our Battery Materials business, eLNO, and weaker profitability in medical device components. Looking forward to 19/20, we expect new markets to deliver both sales and operating profit growth. Moving down the income statement. As expected, finance charges increased in the year, primarily driven by the higher precious metal funding costs associated with the PGM refinery downtime. Next year, we anticipate that the finance charges will be significantly higher.
As guided, our underlying tax rate decreased to 15.9% following the lowering of the U.S. corporate tax rate and our mix of profits by country. In 19/20, we expect the underlying tax rate to remain about 16%. Underlying EPS was up 10% to GBP 2.288, benefiting from better operating profit and the lower tax charge. Our reported results were impacted by a number of one-off items, the largest of which was a legal settlement. We recognized a charge of GBP 17 million in respect of a settlement with one customer in relation to an issue we previously highlighted in our contingent liability note, with no admission of fault. Free cash flow was an outflow of GBP 13 million due to net working capital outflow of GBP 224 million, the bulk of which relates to precious metals, which I'll come to on the next slide.
Whilst the working capital outflow is disappointing, the business has strong cash generation characteristics. CapEx in the year was GBP 323 million, with a cash spend of GBP 300 million. Disciplined management of working capital is another of my focus areas, and over the next two slides, I'll talk through our precious metal and non-precious metal working capital progress. Starting with precious metal working capital. This has increased as a result of unscheduled downtime in one of our refineries in the year. Since the downtime occurred, we've worked hard to reduce the backlog in ounces. It's a complex process that takes time. Whilst there's been an improvement since the half year, our progress in reducing the value has been partially masked by higher PGM prices. We expect to make further progress through the course of 19/20, weighted to the second half, and anticipate a return to more normalized levels in 2021.
Looking at non-precious metal working capital. Our continued focus on improving working capital and running the business as efficiently as possible every day has again resulted in progress in the period. Average working capital days, excluding precious metal, improved by three to 59. The improvement has been delivered despite specific factors this year, including the preparations that we made ahead of the U.K.'s planned withdrawal from the EU. You can see, we've had an 11-day improvement since 2016. Overall, we're pleased with progress, and we will continue to drive an underlying improvement in working capital. Moving to the balance sheet. Our net debt increased by GBP 187 million since last year to GBP 866 million, reflecting the increase in precious metal working capital. Our balance sheet remains strong, with net debt to EBITDA of 1.3 times.
We target a net debt to EBITDA of 1.5 to two times, allowing us to invest in value-enhancing opportunities to accelerate future growth, in line with our disciplined capital allocation framework. I'm moving now to my final focus area, rigorous resource allocation. We continue to focus on ensuring spend is targeted to higher growth areas. Our annualized return on invested capital, excluding net pension assets, was 16.4% compared to 17 last year. We took the decision to remove the pension asset and related deferred tax liability from our calculation, as it isn't an operating asset and it masks the underlying performance. For transparency, we've given you return on invested capital using both our old and our new methodology. On this slide, I'll talk through the movements on the new basis.
Return on invested capital in the year was impacted by our increased precious metal working capital and higher recent metal prices. Over the near term, we will be investing and building assets for growth, therefore, you would expect a temporary reduction. However, following these near-term investments, we will begin to realize returns. We've already won the business required to fill our Clean Air plants and are working hard on our plans for eLNO commercialization. We have a clear path to achieve a 20% return on invested capital over the medium term. Turning to the outlook. We expect growth in operating performance at constant rates to be within our medium-term guidance of mid to high single-digit growth. Working capital continues to be a focus, we're targeting a further reduction in underlying average working capital days.
We expect CapEx to be up to GBP 500 million next year as we invest for future growth. For example, as we commercialize eLNO and we complete our two Clean Air plants in Poland and China, and our smaller plant in India. I'll now hand back to Robert, who will take you through our strategic progress.
Thank you, Anna. Johnson Matthey's strategy will deliver on our vision for a cleaner, healthier world. This year, we outlined a new Sustainable Business Framework which runs through to 2025. It's centered around the six UN Sustainable Development Goals where we can make the biggest impact. The changes and investments that I am continuing to drive will create an agile and efficient business for all our stakeholders. That is what I'm going to talk to you through in the next section. You've seen our results, which give you a picture of our performance. What you can't see is what goes on behind the scenes, is that every day, nearly 15,000 people are working to solve the challenges our customers face and deliver our strategy.
To do that, we're making fundamental changes across all aspects of our group, people, processes, and systems, to build a more sustainable business going forward. These changes are crucial to our long-term success and will enable us to strengthen our platform for growth. In a fast-changing world, we would not be able to deliver on our growth promise if we stayed as we were. The executive team and the board create the culture that drives success. As we move through different phases of our strategy, I'm building a management team with the right mix of skills, experience, and diversity to deliver on our ambitions. Most recently, we've agreed the appointment of a new CEO for Battery Materials who has strong business leadership skills. They will join us in September.
We've also changed a significant proportion of our broader senior management team, those that report into the Group Management Committee. These appointments are a combination of talent developed in-house and recruited from outside. In addition, we're building capability across the whole of JM and are investing in their development through ongoing leadership programs and other courses as we embed a greater performance culture across the organization. To enable our people to succeed, we are changing our processes. Standard transparent processes will transform the way that we work. It will substantially reduce complexity and increase our efficiency, allowing more time for our leaders to focus on delivering great products and services for our customers. Better processes, better data, improved visibility allows us to run our business more effectively and will create even more value across the group.
We have a number of group-wide initiatives. Of those, our procurement program probably has the biggest impact in the short term. Alongside this, our Commercial Excellence Program is about capturing a fair share of the value we create for our customers. It's also about gaining a deeper understanding of our customers' needs and ensuring that we have a clear view of our customer and product profitability. We do this, for example, through our recently established JM Sales Academy, where we've trained 350 colleagues so far to focus on creating a better awareness of customer needs and where we can apply our capabilities accordingly. Our systems investments are also key to delivering the efficiency targets we've set ourselves. The rollout of a single global ERP system will underpin everything that we do.
Although the pace and level of change is high, our world-class science remains at the heart of our business. We will continue to invest in our science and technology to maintain our competitive advantage. Around this core, we will have a business that's more agile and efficient, one that will enable us to deliver for our customers. We will be able to meet their requirements through standard ways of working across all our various plants, which enable us to scale up our business even further. The result will be a business that is better positioned to drive growth in a world that is constantly changing around us. I now have a broader senior leadership team that is committed to delivering on this promise to all of our stakeholders.
Of course, we will deliver our strategy through our sectors, I want to look at the impact our changes are having on each of them. In Clean Air, we've delivered exactly as planned and are on track to achieve the sustained growth and margin as we'd outlined. The growth drivers for this business are the global demand for improving air quality and the tighter emissions legislation which underpins that, especially in Asia. We'll deliver our strategy through our global leadership with the best technology, our competitive advantage in working with our customers to enable them to meet increasingly stringent legislation, and through an efficient manufacturing footprint. We have three priorities. First, to maintain our technology leadership through our research and development. In Europe, our technology leadership in light-duty diesel delivered our share gains this year.
Given market dynamics, we are now reallocating some research and development spend to gasoline to deliver future share gains. Second, further legislative change will be a key driver for growth in Clean Air, particularly in China and India, with the implementation of China VI and Bharat VI for light and heavy-duty vehicles. We will capture this growth to double our Asia business over the medium term. We'll support our growth through our new capacity, expanding our manufacturing footprint in Europe and Asia. As we progress through the year, a key priority will be ensuring the smooth ramp-up of our new manufacturing plants in Poland and China, as you can see on this slide. On the left, you can see our new plant in Gliwice, Poland, and on the right, our plant in Zhangjiagang, China.
Both of these plants will be highly flexible and extremely efficient, which helps us drive further operational efficiencies across the sector. Our ability to operate efficiently is a key priority in Clean Air, and indeed across the group, and this will enable us to keep margins broadly stable as planned. Almost two years ago, we outlined our medium-term projections for Clean Air to 2025. As you've seen from our results, we have delivered the strong growth we projected for the first two years. As we look forward to the next big opportunity, it is in Asia, particularly in China, where we'll see a similar transformation as we did in Europe with the Euro 6 legislation for both light and heavy duty. In China, on the light-duty side, we'll see the implementation of China VI from 2020.
In the short term, we expect some vehicles to be fitted with a coated filter, which could double the value per vehicle to us. From 2023, when China 6b comes into force, we will see a significant ramp-up in penetration of coated filters. Whilst in heavy duty, the implementation of China VI is earlier than expected, driven by the Chinese government's Blue Sky legislation, which requires early implementation in some provinces from July this year. The adoption of this legislation will ramp up over time and drive a tripling of value to us per vehicle. We'll also see this tripling of value in the India heavy-duty segment from April 2020. Therefore, our projections for sustained growth, which we laid out at our capital markets day two years ago over the period from 2017 to 2025, are absolutely unchanged.
Of course, this depends a little bit on the level of diesel decline in Europe and battery electric vehicle penetration. In Efficient Natural Resources, in the year, we continued to make solid progress. Building on this going forward, we will focus on our technology in higher growth segments and also look to improve our efficiency. The growth driver for Efficient Natural Resources is the need for a more sustainable world, one that makes the most efficient use of the world's natural critical resources. With the growth of population and increasing wealth, the demand for chemicals continues to increase. Our leading market positions in chemical catalyst technologies will benefit from these mega trends. We'll achieve our strategy through targeted investment in higher growth segments, a continued focus on efficiency, and by extending our capabilities into new technologies.
Those targeted investments in new technologies will start with an assessment of the potential for profitable growth. For example, we're assessing whether battery materials recycling is an opportunity for us. Given the development of the battery market, this could be significant from the mid-2020s, as there are a greater number of end-of-life batteries available. This closed-loop offering has the potential to be a key part of our customer proposition. We feel confident in our chemistry skills. Recycling and refining is part of our DNA, after all. Although the metals involved aren't PGMs, we know we have the expertise to succeed in this space. Another key focus for us will be to expand our newly developed licensed technologies. As well as the monoethylene glycol license that Anna mentioned, we're also looking at waste to aviation fuel, a fabulous example of how our technology enables a more sustainable future.
This is a really interesting opportunity for us. We have a licensing agreement with Fulcrum BioEnergy, a biofuel producer, to support them in converting household waste into diesel and jet fuels. This has the potential to be significant, particularly as Fulcrum looks to build more and larger plants, and we are seeing interest from customers who want to use this technology in other applications. Of course, we will drive efficiency across Efficient Natural Resources. Therefore, an important priority in the near term is continued investment in our refineries to ensure their safety and resilience. Overall, I'm confident that the sector will deliver sales growth ahead of the market and operating profit growth above this. Turning now to Health. In the year, Jason and his team have done a massive amount of work to improve our footprint, build the team, and increase our efficiency.
The business is now better structured to deliver the breakout growth we've outlined. The main growth driver for Health is increased healthcare costs, which are driving more targeted and potent APIs. Our strategy is all about enhancing the performance of our existing business, expanding our new product pipeline, and building capabilities to better support our customers. The team will now leverage the work we've done on optimizing our footprint. They will get an immediate operating cost benefit next year from these changes. The long-term benefit is that we now have production assets matched to our plans. Having built the team, we can now fully focus on our new product pipeline across both generic and innovators. Delivering our pipeline depends on our customers' time frames, our delivery, and the time it takes to get regulatory approval and launch.
In generics, our goal is an additional GBP 100 million in operating profit by 2025. In innovators, we do see significant potential in this business due to the nature of these APIs, which can be more complicated, requiring deeper expertise and advanced technology capabilities which play to our strengths. Our innovator pipeline is progressing well with three products in late-stage development and nearing commercial launch. This year, we announced a strategic partnership for the manufacture of a high-potent API used in the production of immuno-oncology treatment for triple-negative breast cancer. Of course, we're continuing to enhance our capabilities to better support our customers. For example, we're building our capability in particle technology, and we're also globalizing our development capabilities through our work with Solid Form Sciences in Cambridge. This year has seen a lot of change in our Health business.
I'm pleased with the progress that has been made, and I'm confident this will drive breakout growth in the medium term. In Battery Materials, we've made good progress in the development and commercialization of our portfolio of leading ultra-high energy density cathode battery materials, which we call eLNO. Our materials are next generation. They're designed to perform ahead of new products such as NMC811 and will suit a range of electric vehicle applications. In particular, eLNO has high performance capabilities enabling greater adoption of long-range battery electric vehicles with longer cycle life, higher safety, and higher energy density. The growth drivers for this business are all about improved air quality and increased battery electric vehicle penetration, which requires new technologies.
To deliver our strategy, we will maintain our technology leadership in an area of the market where we can add value. We will commercialize and scale up this business. To do that, our priorities are to start construction on our commercial plant and identify the opportunities for scale up. Our commercial plant in Konin, Poland, is close to major customers in the battery electric vehicle supply chain. At the time that we announced our plant location, we also secured our first supply agreement with Nemaska Lithium for raw materials. It is long-term and sustainable relationship and an important step in the road to commercialization. Building our first 10,000-ton plant is the quickest route to market and preserves our options. We are currently undertaking the preparatory work. The FEED, the front-end engineering design, work should be completed this summer. We are ordering the long lead time items.
We have submitted our environmental impact assessment, and we started some initial work on clearing the site. Of course, this isn't an exhaustive list. We've made really good progress so far. The site also gives us the potential to expand our eLNO manufacturing capacity to up to 100,000 tons per year, well beyond the capacity of our first 10,000-ton commercial plant. As you know, eLNO is a range of battery materials, all sharing the same high-performance attributes. In addition to these performance characteristics, our customers are increasingly looking for customized solutions to their problems, and this plays right to our strengths. Over the last year, we've been working hard to tailor eLNO to meet specific customer requirements. Our ability to customize is a key differentiator and puts us at the leading edge of technology.
As we work through the various stages of testing, we receive constant feedback from our customers. I'm pleased to say that this feedback remains positive. It's great to hear that we're adding value, which goes back to the core of our strategy. We help our customers solve complex problems. You can see some quotes on the left-hand side, which shows that our customers value our willingness and ability to customize, and our commitment to having the best technology. As we move to full-scale commercialization, we'll continue to work through customer qualification. We've moved from lab scale to our pilot plant, which is now complete, and our customers are now looking to test eLNO in their own applications to assess how our material performs against their specific requirements.
To support this, we are building three best-in-class customer application centers, two in the U.K. and one in Japan, with a plan for further expansion. The first U.K. center will be completed in 2019 and the remaining two in 2020. These centers will include a range of facilities, from laboratories to demonstration cell manufacturing capability, and are critical to delivering the tailored solutions our customers are asking for. In the last year, we have achieved some major milestones as we position ourselves for success in the global electric vehicle market. To conclude, we've delivered a strong performance this year. It's in line with our expectations, and we've done it while making fundamental changes across almost every aspect of our business. We're investing to strengthen the platform for the future, which will enable us to successfully execute on our strategy that we've laid out to you before.
As you've seen, Johnson Matthey has an exciting future ahead. I'm confident that we will deliver, and these results, and those over the past couple of years, provide you with clear evidence that we can and are. If I don't see you beforehand, I look forward to updating you all on our capital markets day in September. That concludes our presentation. Thank you for listening. With that, we'll pause and take any questions you may have. Okay, who wants to go first? Should we go just over there?
Thank you. Good morning. Sebastian Bray of Berenberg Bank. I would have three questions, please. The first is on corporate costs. What is the expected development for 2020? Do some of the one-off items recorded in that line potentially fall away, or is it a roughly flattish development that we should look for? The second is on the Health portfolio. Why is it that there is no top-line growth predicted for next year? There's quite an ambitious operating profit target, even against the backdrop of improving margins to 2025. Is the pipeline very heavily back-end loaded, or how should we think about this? A final question on long-term CapEx. Could you give us an idea of how much of the GBP 500 million is dedicated towards eLNO-related activities? And how to put this, if the Chinese and Polish facilities are effectively done after 2020? Thank you.
Okay. Anna, why don't you take the corporate cost ones? Do you want to take the CapEx ones as well, and then I'll come back to the Health one.
Corporate costs, specifically what is in corporate, I think, because don't confuse it with investment in group initiatives, because some of that investment sits in our sectors. Corporate costs has grown in the year. We would expect some further growth, but not at the same level as I look forward. Looking at CapEx, you asked how much of that is in eLNO. I'm not going to tell you that number exactly, but what I would say, and I would have told you already if I was going to, is that Clean Air and eLNO together are well more than half of it. I would think about it that way. In terms of the Clean Air plants, Poland and China should be substantially complete this year. We'll still have spend in India looking beyond that.
On the Health pipeline, I wouldn't get too worked up about the sort of sales number for next year because, of course, it all depends upon the mix of the overall portfolio. The new pipeline is coming through. We did talk about there's a few delays in a couple of projects, but the ramp up to the GBP 100 million that we've talked about some time, we're still positive about and confident about. It's all about the mix of the overall portfolio of products. Some come to the end of their lives and so drop off a bit, the sales line, and then some come through. It's a whole mix issue rather than anything else that we're concerned about. I wouldn't get too worked up about it.
Thank you.
Next question, should we go to Andrew? You put your hand up quickly.
Yeah, thanks. Andrew Stott, UBS. Question for John. I'd just appreciate an update on some of the timings of legislation. Start on Euro 6 in light duty in China. I think you'd said in November you might get some pull forward. Just wondered where we are with that. Also you said April 2020 for India on trucks. Can you just remind me of China on the phasing? Broadly, when you talk about the doubling and then the tripling, the timeframe you're thinking about, roughly. Thank you. Then I had a second question for Anna. On the interest costs, can you just remind me how that works? Is that all leasing costs and then is that just tied to palladium prices primarily? Is that the problem? Thank you.
Andrew. John, are you happy to take those to start with?
Yep. On the China 6 legislation, that has been kind of moving around, mostly moving forward. The Blue Sky initiative was announced in the 13 provinces in China. On light duty, what that means is that from July of 2019, they're introducing China 6b, as they call it, but there's no particle number specification and there's no real world driving. Even though they're calling it the second standard, they've excluded on the pull forward, the particle number spec, which drives filter fitment and the real world driving. Which is a more challenging target there, too. On the light duty side of things, that's not going to have a huge impact in our sales.
The real impact in China on the first legislation is in heavy duty and for the Blue Sky initiative there, that was pulled forward to July 2019 and now that's been limited to most of the city-type vehicles, sanitation vehicles, buses, postal service vehicles and things like that. There's a limit to that, but actually that's a little bit of an upside compared to what we had in our plan. We should see a benefit starting in 2019, 2020 in China from that legislation. The real doubling of our light duty business and tripling is when the China 6b legislation comes in. That's when we really get to those levels, and that's not until 2023. In China, just to finish that story, the translation through there is that more provinces will start adding the China 6b legislation without real world driving in January of 2020.
The full China 6b comes in in July of 2023. Okay. In India, it's the same kind of a thing. They have what they call a first stage and a second stage of the legislation. First stage comes in in April 2020. That's for everything. That's for gasoline, diesel, heavy duty, non-road and motorcycles. Okay. It affects the whole product mix. In there, again, the first stage of this legislation doesn't include any particle number specifications, so there's very little filter fitment on light duty. When the stage 2 comes in in 2023, that's when you add the particle number standard and the real world driving, and that's going to begin to put filters on light duty gasoline vehicles and will be the full system on heavy duty.
Sorry, that's a little bit of a complex story, but there's a lot going on there.
I know some of you like data. Hopefully that was enough data for you. I am sure you can get more data if you want. There is actually a chart on slide 34 of the presentation, which gives some of that legislation map and does tie in with those dates that John talked about. The key thing to understand is that real world driving and the tighter regulation of particle number things is in the sort of Bs, the 6Bs, is when that changes, drives the principal change. Some people are pulling forward. Whereas in the U.S., we tend to have a pre-buy of old technology. If you remember that happened in 2010 when we went to, can't remember what it was, it was, well, U.S. 2010 regulations, not very imaginatively named. They would pull forward old technology. In China, it happens the other way around.
They tend to want to try and pull forward new technology because they are particularly worried about resale value of the vehicle. It's a slightly different dynamics. You do get some of that pull forward. As John said, it's particularly going to come through as we get closer to 2023. Anna, interest costs.
Interest costs. We will be running with higher precious metal because of the backlogs that we are working down through a chunk of the fiscal year, and we have got to fund that metal. We do that through leases, and that hits the interest line. That's really what's going on. It's a factor of higher ounces and higher prices.
Okay. Shall we just pass the phone to Sorry, not phone. Just microphone.
This side of it then. Another question for John, actually. On the margin outlook in Clean Air, can you just run through some of the pluses and minuses in terms of the dynamic over the next 12 months, please, as you see them? The second question is on the ENR division. The first-fill catalyst drop of GBP 30 million in the year, can you give us some quantum of what is left in the full year sales figure in terms of first-fill catalyst? It continually seems to go south. I wonder if there's much left. Thank you.
John, do you want to answer the first one?
Yep. On the pluses on margin, we're consolidating our position in Europe on the share gains in diesel. That'll be continuing throughout the year. The real plus is going to be the increases in our sales value of the beginnings of what's happening in China. That's pretty much the two positives, I guess, that are going to come from that. On the things that are drawing us down, I think Anna alluded to all those in her talk. We have our increased R&D investment, which is adding more investment on the gasoline side. We have the beginnings of some of the systems that are coming out where Clean Air is one of the early adopters of those. Some of that stuff in terms of depreciation is starting to hit our P&L. We have two new big plants coming on stream.
We have all the start-up costs from the new plants.
Long-term guidance, no change. Right about 4%. We said that.
14.
Sorry, four? 14, sorry. Sorry, not four, 14%. No change there at all. There's always a little bit of oscillations. The big movement is, of course, the new plants that come on stream. Some of the benefit, John talked about the ERP system. We've got one plant, two plants, three plants. The benefits come as you start to roll out of multiple plants. You end up with a sort of depreciation in a way coming early and the benefits coming a little bit later. You'll see the benefits coming through. In the short run, you've got the sort of a cost coming into the. The same is true with the new plants. On Efficient Natural Resources, the first -fill numbers came down quite a bit, as you said.
It's principally due to a pretty large order, one very large order last year. It's driven by licensing in many ways. As we've got relatively steady licenses, depending on when those plants come on stream, we'll then have new first fills accordingly. We don't tend to split out the amount of first fills, the amount of refills. Although, as Anna said, the bulk of the sales in the Catalyst Technologies business are on refills.
Huge bulk.
Yeah, huge bulk. Okay? Right. Since the mic's just in front, don't worry, guys, we'll come back to you. We'll come to you.
Good morning. Thomas Faulhaber with Bank of America Merrill Lynch. 3 questions, please. The first one on North American Class 8 trucks. I can see that net order seems to be approaching trough levels, and I was wondering when would you expect this to filter through your P&L and also maybe what is baked into your guidance for next year? Second question on Clean Air in Asia. I was wondering if there is any development against Asian competitors. Finally, on Battery Materials, what's the current market dynamic in LFP? It seems that the switch to NMC in Chinese e-buses is sort of halting, and I'm just wondering if you're seeing any sort of renewed interest in the technology. Thank you.
Well, should we start with the Clean Air ones first? John, I think Class 8, we said we expect it to carry on through the summer this year.
Class 8 will carry on through the summer. The extension now is filling some of the backfill that some of the orders that have been building up, but we expect it to start to tail off this summer. That's been an extension of what the, I don't know what you'd call it, a normal cycle, but
That's what embedded in our plans and everything that the projections and guidance that we've been giving is based on that. I think.
The second question.
The second question was about Asia and any competitive dynamics changed? No, not really. It hasn't changed. We've won the business that we expected to win and was in our strategic plan and the guidance that we had. Everything's on track for where we expected it to be when we talked to you at the Capital Markets Day, what was it, two years ago in Asia. On the LFP dynamic, yeah, look, we had a tough time in the last year or so on LFP. There are areas and opportunities for us to continue to have LFP growth. It's not going to be a large part of the business. It's still relatively small, relatively contained.
Our plant in China is, we've got commitments from a customer there, and we're continuing to use the plant in Canada that we have for other technologies. There are some really interesting opportunities for us out there. It's never going to be a large part of the business, and I wouldn't expect to see a sudden massive growth in that portfolio.
Thank you.
Okay. Shall we go to the back? We've got a couple sitting next to each other. Where's the mic going to come from? I think it's coming from my right, your left.
Hi, it's Adam Collins from Liberum. I had three questions as well. First one is on R&D. Forgive me if you talked about that, what's the sort of direction of travel in terms of R&D spending? Will it increase from 5%? Could you talk a little bit about the capitalized R&D component? At GBP 19 million last year, not a big number, where was that? Will capitalized R&D develop too over time? On U.S. truck, I think you're being sensible in predicting a decline from mid-year. Historically, that's been quite a cyclical business where there have been volume declines, they've been sometimes quite significant. I have a sort of slight concern that the U.S. business doesn't have a light-duty opportunity like we see perhaps from Royston to fall back on.
In the event that we do see a significant volume decline, what would be the contingency planning there? To what extent are there offsets? Just finally on precious metals refining. It strikes me that industry is pretty tight today. We've seen some decommissions in Europe from BASF and Vale. The other two main players in that area have had outages in the last year, yourself and Umicore. It looks to me like market conditions are pretty benign there. Would you concur?
Good questions, Adam. Let me just make sure that we can have the mic so that Jane can answer the last question. We've got a mic here. We'll come back to you, Jane, in a second. On the first one on R&D. Look, we invested last year around about GBP 200 million in R&D. What was exactly?
190.
GBP 190 million. I expect it will grow a little bit this year, but it will be within the range of 5%-5.5% of sales, which is where we've guided for some time, and it will continue to grow at that sort of level. This year, the year we're now in, I suspect it will grow a little bit ahead of that, driven partly by the increased investment that John's talked about in gasoline, but partly around an eLNO as well, where I think we'll see a little bit more investment. On the capitalized development side, the largest part of capitalized development, I think, is in Health as we develop the pipeline. That's gone up over the last year. Of course, again, that's a bit of investment on that pipeline, ahead of the growth that will come through into the next few years.
eLNO.
We're putting some in, we're capitalizing some of eLNO's development, too. On the U.S. truck cycle, John, we're used to the truck cycle. It's alive and well and been there for decades.
We're quite experienced in that, we, I guess have a lot more flexibility in North America to scale up our business and scale down our business depending on what the demand is on the plants. We've got three manufacturing facilities there, and we're quite experienced in being able to use those efficiencies to be able to move the footprint around to optimize that. I don't disagree with everything that you said. I think we've got quite a lot of experience there.
Remember, of course, about 75% of our costs are variable. You never see great operational leverage on the upside, but on the other hand, you don't see much operational deleverage on the downside either. I've given you a bit of time to think, Jane, and I'm sure you didn't need it, but over to you, Jane.
I have to stand. Is that working?
No.
No. Is it working now?
Yes.
Okay. Thanks for the question. With respect to refining, the question was, is the market benign? I don't describe markets as benign, really. It's true that we've been very busy in our refinery, and our refinery has a very important strategic position for JM because we're making sure that we've got that secure availability of PGMs for the JM group. That's our fundamental purpose of having a refining activity. One of the reasons it's taken time to work off our backlogs is because we're optimized the whole time in demand and also our supply. We're full and we're busy all the time. It's also true, of course, the palladium market has seen quite a bit of change this year with increasing prices. We have managed to also increase our returns in the business, and that's been a positive dynamic for us.
It's been an interesting year with respect to the markets, and I'm sure it will continue to be very volatile going forward. An interesting period. I can't see. I don't know who asked the question. I couldn't see there. Thank you very much. An interesting period for us, but it just underlines the importance of having a refining business for JM. Thank you.
Thanks, Jane. Should we just pass the mic to your right? Yeah.
All right. Marc Elliott, Investec. Just a quick couple of questions. I noticed rare earths are being dragged into the trade dispute at the moment, and I think back in 2011 it was somewhat problematic for the autocat business because you use a bit of it. Is that something you're preparing for? Are you able to pass on the sort of costs that may come through or may not come through, or is there any sort of working capital that needs to be considered on that side? Also, just a little bit about raw material sourcing. I think Umicore signed up a deal with Glencore the other day on cobalt. You've got the deal with Nemaska. Are there any cost implications? Because Nemaska, I think, is struggling a little bit at the moment with financing and so forth. Is there any implication if they sort of don't get through?
Lastly, on eLNO, I was just curious to know, 811 struggles a little bit with charge rates. It has high energy density. Does eLNO have quite good charge rate characteristics that could give it a further advantage?
I thought for a minute you were going to have two questions, everybody else has had three. It feels like you were going to miss out on your third question, you threw one in there at the end. Well done. Just very briefly on eLNO, the answer is yes. It does have good charge characteristics, that's one of the things that our customers like about it. Not just its energy density and its safety, but it's some of the other characteristics that it has as well. Of course, they're looking at a whole suite of characteristics, not just one. It's not just about energy density or whatever metric. There's a wide range of things they look at, of which charging and capabilities is one. That's good for eLNO, which is one of the things the customers like.
Of course, one of the things we talked about as well is that customization piece, because every customer is different, every customer wants something separate. The ability to customize a product and give each individual customer what they particularly want is something that we think we can differentiate, eLNO enables us to do that. You talked about raw material sourcing, do you want to answer that one, Anna?
Yeah, sure.
Because you've been involved in the sourcing group.
I think we're in good place on sourcing. We've moved into the Nemaska Lithium to secure the lithium contract. I think we are quite confident we can see a route through that. In terms of the other metals, right now, we buy big quantities of nickel anyway, so we're well-sorted around that, and we have done for very many decades in Jane's business, so that's not a new thing for us. cobalt, our levels of acquisition of cobalt are relatively low. We're building all of the relationships at the moment. We don't want to move into long-term sourcing agreements too early. You need to have the volumes there to secure the best deal.
The point that we actually have a group that are looking at and thinking about sourcing and the tactics around that, I think is an important thing you should just be aware of, that we are monitoring and managing that and how we think about that going forward. Last but not least was the rare earth question, and yes, you're right. In 2011, we did have quite a big impact when the prices went up enormously. We always managed to access the rare earths we needed. I don't think there's any difference this time, although we've learned the lessons from that. We've now got within our arrangements, we've got multiple sourcing options, multiple sourcing routes, as well as if prices go up, we've got a price escalator in our contracts.
From a point of view of sourcing, we're quite content at the moment, and if the prices were to spike up again like they did previously, we've got the mechanism in the contracts to manage that risk, going forward. Would you add anything else, John?
No. I think we're in pretty good shape on the tariff side. Our rare earth usage as our total global spend, in North America is relatively small. As Robert said, we've got multiple options on some raw materials, which gives us change out ability if one is a China-sourced material, and we have supply chain options to be able to work around that. On the tariff side, we're in pretty good shape.
Okay. I saw a hand over here. Oh, the mic's Sorry. We'll come back. We'll give the time. Why don't we get over here, and then we'll go with the mic over there.
Yeah. Hi. Chetan from JPMorgan. A few questions. On U.S. truck, you said you expected to sort of peak at the middle of this year. For full year 2019-2020, can that business see sales growth? That's number 1. Number 2 question was to Anna maybe on CapEx. Is there a way to think about GBP 500 million up to GBP 500 million this year in terms of how much of that may be phasing related one-offs? In other words, what I'm trying to get to is looking beyond this year. Is that the sort of run rate number, or is that just impacted by some phasing of CapEx in different projects?
The last question is on the guidance for this year in terms of EBIT growth, where you've said you're comfortable with mid to high single-digit in terms of the range that you have forecasted for the full year. When I look at the second half constant currency EBIT growth, it was 5%. When second half sort of already incorporates bulk of the share gains in diesel, et cetera. Is there a reason to believe we see a big uplift from that run rate going into this year, or is 5% the right number to think about for 2019-2020?
Okay. Thank you for your questions. John, do you want to talk about U.S. truck phasing for this year?
U.S. truck. We had a full year of Class 8 strong sales last year. We're going to have the better part of a half year this year. I don't think there's growth in that Class 8 story for 2019-2020.
It's not going to fall off a cliff.
It's not going to fall off a cliff.
first of October or anything like that. It's a normal cycle. Of course, you've got to work through the sort of backlogs and stuff like that, truck orders. As we've said already, we can adjust our cost base very quickly. From a top-line point of view, there's nothing else we can do about it, obviously. From a bottom-line point of view, we're pretty, not immune, but pretty dampened to that volatility. Anna, on CapEx and EBIT, I think we're looking for a lot of precision here, and I'm not sure you're going to give it, but I'll
I'll try and help. On CapEx, maybe the way to think about it, Chetan, is that you've got GBP 250 million we're investing in plants in Clean Air. The two big ones, China and Poland, will be substantively complete this year. Yes, there'll be continued spend around India next year. If you look at eLNO, we are breaking ground this year. The spend on the commercial plant, not the demo plants or the application centers, which will be weighted to this year, the spend on the commercial plant will be continuing through next year. Those are the sort of really big chunky bits, and we talked about the needing to reinvest in the refineries to ensure their resilience. That will start this year and continue, be weighted towards next year. I would suspect that we continue to see higher CapEx growth. Will it be as high?
It sort of a little bit depends on the phasing. We were quite careful in our wording of up to GBP 500, in that these are really big and complex projects that go over the year-end. Based on the build schedule that we have today, which will almost certainly change as we continue to build these projects because it always does, the exact phasing of which year some of this sits in will become clearer as we move through.
This is, I would argue, good news because John's plants, his business is a 30% return on capital business. There's absolutely no reason why this won't be accretive to the group and deliver great ROIC. Of course, the investments in eLNO in particular, those are the two big investments, will all be about the long-term growth of the company, and it's about making sure we get it the right return rate. On-
EBIT.
EBIT.
Will it be 5%? I'm not going to answer that question explicitly. What I'd say is, there is a consensus out there, and we have not guided in a way to change consensus because we're broadly happy with it.
Okay. Get over to this side of the room, now.
Thank you. Hi, it's Nicola Tang from Exane BNP Paribas. I had two questions. First, on Clean Air, thanks for laying out your views on the regulatory drivers. Could you talk a little bit about your assumptions on the underlying market, particularly in light duty across the globe? How have things been tracking so far? Because the data doesn't necessarily look that great. On my second question, in Battery Materials or in eLNO, Robert, you hinted that you're doing preparatory work on stages beyond the current investment. Could you talk a little bit in terms of what options you're exploring there? And does the warning from Umicore on a delay in demand for cathode materials concern you at all?
Okay. John, do you want to talk a little bit about the underlying market, what you're seeing so far?
I just think in general, I would agree that we have a global outlook of a couple of percent growth in Asia. Much of that growth in China in particular is electric vehicles. The point of our business is that our growth is coming from legislation. I don't want to say that if car sales are zero growth for the rest of the lifetime that our business is going to fall apart. With very little growth in the market, our sales are going to grow. I think that has been our story, that the growth that's built into our plans is from legislation growth, and that's where the growth is coming from in our business.
On eLNO, I'm not obviously going to talk about Umicore's announcement. That's their announcement. That didn't change anything to do with our plans and our thinking. Our thinking is very much we need to be the best technology, at the technology leadership end of the market, where the market is looking at. When you look at all the data, it would suggest when you get into the middle of the decade, sorry, middle of the next decade, that's when the demand for ultra-high energy density material is really going to grow, and that's where our opportunity is, because that's where we play, at that high end of the market, and the customized solutions. Nothing's particularly changed. We need to make sure we scale up at the right pace, with the right pace of the market.
I'm not really going to go into the details of our scale-up strategy at this stage. I think that's probably something we talk a little bit more about maybe at the capital markets day, rather than the results day today. All I would say is we're thinking about it. We've got the plan. We're developing our plans about how we would scale up this business and move away from the sort of development phase of the business, which is where we were for the last couple of years, into very much the sort of commercialization and scale-up of the business. Are you going just to pass to the-
Straight here.
Pass to the left? Yep.
Thank you. Charlie Webb, Morgan Stanley. Just maybe a few on the new markets. Just following up on eLNO, when do you think you'll move to A sampling? Is that a 2019 event, or do you see that being a bit later? Because I think that's still ahead of you. Secondly, on the CapEx for eLNO that you originally guided to, is that still unchanged in the near medium term, or has that increased? Then on fuel cells, obviously you saw significant growth there. Can you perhaps tell us what the backlog looks for you in that business today versus last year? Or at least give a kind of idea of that change. That'd be very helpful. Then just a couple of others, really quick ones.
On restructuring costs, what should we expect as we look into next year versus the GBP 30 million that we had in FY 2019? Then just on working capital, given the kind of continued improvement, if we kind of strike at current pricing, would you expect an inflow in 2020, or is it still expected to be an outflow?
Okay. Anna, I'll ask you to answer the second two. You've got five questions in there. Look, the eLNO is sort of one, new markets is one. Look, A sampling, it's sometimes not very black and white with customers, whether you're going from A to B to C. We're really pleased with the progress we're making. We're moving very much into the next stage of testing with them, with the customers. That's one of the reasons why we're building our application centers, because that will give us the capability ourselves to do the testing and validation work, which they often will then rely on because they trust our data. The progress we're making is absolutely in line with what we expected. Was it A sample or not? It's quite hard to judge. Different customers have different terminologies.
Are we making the progress we expected to make? Yes, we are. On the CapEx question with eLNO, the guidance we said was really we talked about the demo plant and the commercial plant. We didn't talk about the application centers, which clearly are much, much smaller numbers.
I don't have numbers for that.
There is a bit more CapEx because that's right, we didn't talk about numbers for that. We talked about numbers for the main commercial plant. Until we finish the whole front-end engineering design, we don't know exactly what the CapEx spend is going to be. That's what you do with the design. When that work is finished, we'll be able to articulate it more. The overall spend, because we didn't talk about demo and we didn't talk about the application centers, will be a bit larger than we talked about before. On fuel cells, I'll keep going and then fuel cells. It's a tiny part of the business at the moment. It is a profitable part of the business.
For those of you who've been around for a while, followed JM for many years, you'll remember we used to have losses of about GBP 10 million a year from this business. It's now profitable. Not big numbers, but at least going in the right direction. With what's going on with the whole need for the hydrogen economy to grow and the opportunity for fuel cells, we are going to invest more in the fuel cell business over the next few years. Initially, probably for demand in China, then for opportunities in Europe, too. The backlog is much of our sales for this year are secured or at least very much on track. I don't think you're going to suddenly see it becoming meaningful for the whole group at this stage. I think the longer-term opportunity for fuel cells is absolutely quite exciting, actually.
The level of investment required for fuel cells versus the level of investment for our business versus batteries is quite different. It's a really exciting adjunct to the whole zero-emission vehicle opportunity for us. Restructuring and working capital.
I'm not going to be that helpful, I'm afraid. You're after what sits below underlying operating profit. There, were we to foresee anything, we would have explained it and announced it. At this point, I don't foresee anything. As we've had a legal settlement this year, there may be things that come up through the course of the year, and if and when they do, we will share those with you. With respect to cash flow, again, we don't guide on cash flow, but we do talk through the pieces. We will expect to see working capital return to a more normalized level on metal, so you should see that benefit through the year. Of course, there will be cash outflow associated with that CapEx cost. I'll let you work it through.
On the restructurings, what goes outside of underlying is, of course, the major restructurings. We're always doing things in the business all the time, but they're all above the line because just normal activity. It's only the sort of bigger ones that we would talk about outside of underlying. I would reiterate exactly what Anna said. We would have talked about it if there was one planned. How are we doing? Martin hasn't asked one yet, so should we go to the front to Martin and then Adam, I think you wanted Do you get another three? No, I'm not sure. You only get one when you're going for a second time around.
Thanks. Martin Evans, HSBC. I guess for Anna, just on these procurement savings of GBP 26 million in the year, which is a useful figure. Just remind me, are you at the end of that procurement sort of process now and how easy has it been to achieve those versus how the company functioned before? Secondly, in the press release, which I haven't got in front of me, I saw something about IT systems and SAP, which sent a shudder of sort of past recollections of how companies have come a little bit unstuck on implementing SAP. Can you say what you're aiming to do there and how far advanced that is? Thanks.
Anna, yeah. Do you want to take both of them?
Yep. We guided to there being an opportunity of GBP 60 million in procurement savings. We've delivered GBP 28 to date, of which about GBP 7 is in CapEx, the majority of the rest hitting the P&L. Look, we've gone from purchasing at a site level to purchasing globally, and that touches a vast number of our 15,000 people. They've all got to work differently. I'm hugely pleased with the progress that we've made to liberate these savings. I would say we're relatively early in our procurement journey. There is more opportunity here yet, and there will be yet further opportunity once we've got the group on SAP wall to wall. Because today, just to give you an example, I've got 44 ledger systems and multiple instances of those.
If I want to know how much we're procuring, for example, methanol, no idea, in that each system calls it something different. The only way to get at that data is to suck the data out of those systems and aggregate it, which is how we're delivering these procurement savings. Once we've got a single global way of doing things, we will have real time data and we'll be able to go faster. This is the beginning of a journey, and it's going to be consistent improvement year on year. In terms of SAP, it's right to send a shudder. It should send a shudder. I'm appropriately paranoid. We've got our first site live, though. We've got Clean Air and Royston live on our single global instance. Royston is a big and complex site. The number of users on that site is over 1,000.
We've been successful in that first go live. We've got eight more go lives coming in the next 12 to 18 months. We're well on track. I think we've already done, in some ways, our hardest site, which maybe wasn't the most sensible place to start, but we're in good shape. Now we just roll out from there. We remain appropriate paranoid, but therefore, you shouldn't be.
The good news is that we're doing it on a site-by-site basis, there's no big bang or anything like that. There are other companies doing a big bang, and of course, that's a very wary place to be. As you've done the first one, the first one's the hardest because people didn't know what they were looking, couldn't practice really on what it was they were going to use. The next site, everybody can come to Royston and actually see it and live with the people and talk to the people about what happened. It doesn't make it easy, but we should be getting quicker and quicker about how, we should be able to roll out these ledger across the overall organization. It's something that nobody really wants to do. But actually.
I quite like it.
It's a lot of hard work for an awful lot of people. It touches virtually the whole organization. It's a big change for the organization, and a lot of effort going in to do that. The benefits that come from it will. Really important that we drive those through, and we will do. Have you got a mic, Adam? Should we go over here since there's a mic just nearby, we'll come back to you?
Sorry, Adam.
No, that's all right.
Is this working? Tom Wrigglesworth at Citi. Just one question. On your calling out increasing R&D on gasoline. Is there something you're seeing in the outlook for gasoline that JM might be particularly well positioned to solve or a new hurdle, a new challenge there that's leading to that R&D? If you could elaborate, that'd be helpful. Thank you.
Sure. John, do you want to give a bit of color there?
I think our focus on gasoline is that, I guess we strive to be number one in everything. Right now, we feel that our gasoline is on par with our competitors. We want to be clearly the leader. When we put our mind to doing that, I think we've demonstrated that we succeed pretty much all the time. That's what we're trying to do.
Obviously.
As the market is shifting.
Yeah
With diesel to gasoline, more towards gasoline. I mean, it just makes sense that we shift some of our R&D.
Okay, Adam.
I had a question in relation to the leadership changes in the business. There's been a couple of things going on in the last year that I'd be interested in your views on. The first one is, of course, on the appointment of the CEO for Battery Materials and the standing down of their CTO role. On the business development director side, you've had a couple of changes in as many years. It strikes me the first one maybe is something to do with the transition from research to commercialization in Battery Materials. The second one sort of speaks to some dissatisfaction around the business development function. I wondered what your take was on what's happened here, and the rationale.
I'll look on the Battery Materials one. A year ago, I made the decision that we needed to move from technology development into business scale up. We wanted to bring in somebody into the organization who was a business leader. As I said already, they'll join in September. Can't announce who they are at the moment. They'll come in September. The previous incumbent, Alan, as you know, was going to go back to CTO. He decided he wanted to go and work at a bigger organization as CTO. Disappointed to lose him. The right thing for our business is to drive the Battery Materials successfully going forward. We are, of course, going to replace that CTO role, and we're well advanced in the process of doing that. On the other role, look, not every role works perfectly every time.
Maybe it does in your organization. Some you win, some you don't win. It's better to just sort of get the right people at the right time, and then move on and get the right team in place. I'm very happy with the team we have now. It's now a question of continuing to move forward from here. I thought for a minute we were done. Not quite yet. One more question over here.
Thank you. Charlie from Morgan Stanley. Just a quick couple on-
You did only ask two questions last time, so you get.
Yeah, no, just two.
You get a third.
On Clean Air, just thinking about diesel market share, do you think you can push on from 65% you have today further and continue to grow share in that market over time? Do you think that's kind of done for now? That's really the only one. Thank you.
Yeah. Don't worry, I'm not putting pressure on only three. If you had another one, please do ask. Nope? Okay. John, I know what you're going to say, but go on.
We're going to consolidate our position for now. We're working on some of the Euro 7 stuff. There are still diesel bids that are in Euro 7. I know the skeptics are saying diesel's going to die, but car companies are still offering requests for quotes for new business, and we'll see. I'm not going to commit to say we can go beyond 65%, because I don't think that's a long-term sustainable position. We're gonna hold onto it as long as we can.
I think the OEMs are very powerful procurement functions. Whilst it's a technology buy, there is still that, they don't want to be reliant on one company only. They always do try to make sure that they have multiple sources, particularly on the light duty side. Heavy duty side, it's more often that you can be a sole supplier. John's got 65. The challenge initially is to keep it for as long as we can. The numbers that we presented back two years ago assumed that that would decline back down to a more normalized level. If we can keep that at 65 for longer, that would be upside to where we are in our current plan. Great. Oh. Sorry. Martin, go on. You just sneaked up just as I was about to say call the time.
Yeah, this is the last question. Probably slightly unfair. I was just going to ask about how you're getting on with the new chairman. I'm sure he's watching this somewhere.
He's probably
Given his extensive experience in the chemical industry and with investors, do you feel he's brought a sort of new approach or a new dynamism to the board?
What do you expect me to say? Of course, we're getting on. Genuinely, we are getting on very well. Look, he's got tremendous experience, and very relevant experience. What we wanted was somebody as chairman who deeply understood the chemical industry and deeply had an affinity to it. I think all those of you who have met him would really deeply understand that he does. He brings that experience to bear to help us, to challenge us, to move us forward. Absolutely that's what he's doing. Look, he's only been chairman now for not even a year, so you'll start to see some of that coming through, I'm sure, in the future. We were pushing forward quite well anyway, but this is just another little bit of a gentle nudge and support, which I think is a good thing. Great.
Thank you very much. Thank you for your time. Very nice to see you all. We've got our capital markets day in the middle of September. You'll get more invitations about that sometime soon. Thanks very much, everybody.