Earnings Call: H2 2018

May 31, 2018

Hey. If everybody's ready, we'll get started. So good, morning, everybody, and welcome to, Johnston Matthews Full Year Results Presentation. Good. We had a good year this year, delivering what we promised a year ago for both sales and operating profit. Our return on invested capital was down slightly, which we will cover in a bit more detail shortly. We increased the final dividend by 7% reflecting our confidence in the prospects of the group for the medium and long term. And we've also made significant progress in executing our strategy. And I'll come in onto this shortly, but it's a very brief word for me now, but then I'll hand over to Anna to go through the financials in more detail. Anna. Thank you, Robert. Good morning everyone. We had a good year. We delivered results in line with our expectations at the start of the year. Sales were up 8% and underlying operating profit was up 2% with a slight translational FX benefit. At constant rates, sales were up 7%. Underlying operating profit at constant rates was flat, impacted by the comparison against last year's post retirement medical benefit credit. Excluding this, underlying operating profit was up 4%. Underlying EPS was flat as translational FX benefits were offset by higher net finance charges and higher underlying tax rate Sales grew 7%, which was slightly ahead of our full year guidance of 6% and an acceleration in the second half. It was led by strong growth in clean air, supported by continued growth in efficient natural resources and health. And for the group as a whole, I expect this strong momentum to continue into the next year. Now turning to operating profit. Operating profit was in line with guidance, flat at constant rates. We also benefited by 9,000,000 from translational As I've said to you already, we lacked a 17,000,000 credit on our US post retirement medical benefit plan and throughout this presentation I will refer to our performance excluding to improve the quality and efficiency of our business, which has delivered cost savings, but has also in some cases come with some additional costs in the short term. I'll go into these in more detail as I go through the sectors. But for example, in efficient natural resources, We've delivered cost savings through restructuring to simplify our organization whilst incurring costs through improving our inventory management and destocking. While in health, we started to optimize our manufacturing footprint. Also costs in relation to group initiatives have increased some of which are part of corporate costs, while others are within the sectors. We continue to invest in group efficiency initiatives such as our global procurement program and in addition had increased legal costs. So while these actions impacted profit this year, They are creating a platform for us to deliver the strategy that we laid out at our Capital Markets Day last year. Clean Air performed strongly, delivering sales growth of 9% out performing global vehicle production in both light and heavy duty in a year with minimal benefits from legislation. I'm pleased with the performance of our European light duty business, which was flat for the full year. Here we saw growth of 3% in the second half having been down 3% in the first half. Growth in gasoline was ahead of our expectations, up 23%. With increasing sales to customers with large and more complex platforms. It was offset by a 4% decline in diesel sales. The diesel market was flat year on year and our sales declined due to lower pass through substrate costs which we talked about at the half year. We did not see the half 2 growth we expected in diesel as one customer slightly delayed a platform launch from December to March, but we do remain on track to reach our 65% share of European light duty diesel vehicles by March 2019. Our light duty business in both Asia and the Americas outperform their respective markets. In heavy duty, we saw a continuation of the trends from the first half with continued double digit growth and we outperformed the truck production in every region. The recovery in the US class 8 trucks came through in the year with Class 8 truck production up 30%. And whilst we expect continued growth in 2018, 2019, it will moderate significantly. Our Chinese business continued to grow strongly from a low bay, supported by strong growth in the Asian truck market, the Chinese truck market, as it continues to adjust to the enforcement of the truck loading weight limits, though growth was lower in the second half. Our European heavy duty business also outperformed the 5% growth in the market, helped by the continued ramp up of our business wins. Margin in Clean Air was maintained and operating profit grew in line with sales. Turning to the outlook, sales growth in 2018, 2019 will continue to be strong led by the share gains in European light duty diesel, which will ramp up throughout the year. We have previously expected that the margin could be negatively impacted by up to one percentage point due to that quick ramp up of these share gains. However, to the ongoing efficiency initiatives, including procurement, margin is now expected to be broadly stable. Efficient natural resources. Sales here were up 4% with good growth across the majority of the business. As expected, within Catalyst Technologies, our licensing business was significantly down. Demand here is driven by new plant builds and that has been subdued. Licensing income has now reached the bottom and while there are early signs of improved activity in summer, kits in which we operate. We don't forecast a recovery in licensing income in the near term. Sales of refill catalysts and additives into existing plants was strong, and we outperformed our markets in aggregate. PGM services was also strong benefiting from higher precious metal prices. Operating profit was down 2% and margin was down 0.7 percentage points as guided the decline in high margin licensing business did impact our profitability. We also had various additional costs in the year associated with improving the efficiency of our business, principally in relation to destocking as we better manage our inventory. These more than offset the benefit of higher precious metal prices, transactional FX as well as the expected cost savings associated with the delayering across our business. Significant action has been taken this year to improve the quality of our business. Simplifying our organization and our investment and aligning it behind the customers and products which will deliver both higher growth for the future and improved margins. In 2018, 2019, we expect slight sales growth and operating profit will grow ahead of this. In addition, we will see a full year of cost savings in relation to the restructuring program. Sales in health were up 6% with most of the key trends from the first half continuing through the second half. In generics, sales were flat. Sales of controlled APIs were down as expected, driven by APIs for ADHD treatments, However, sales of non controlled APIs grew strongly as we continue to benefit from the increased contribution of Defetalide. The Innovator business also grew strongly with improvements in both pricing and volume. Operating profit was down 9% and margin declined 2.9 percentage points. Whilst sales of APIs increased margin, we saw a manufacturing cost increase in the period. These costs were driven by the optimization of our manufacturing footprint as we build a more efficient platform to support breakthrough growth. They include it starting to commission a new Anan plant and preparations for the closure of our Riverside plant in the US. This optimization had associated costs in the short term, but will deliver a significant saving once Anna is fully operational in in 2020, 2021. For 1819, as we guided previously, we're expecting operating profit to be down. Several API products with higher profitability move into decline in 1819, while launches of new API products only have a small contribution in the year. We expect performance to be weighted to the second half given the life cycle of current portfolio and existing APIs and the visibility we have on those customer launches. Looking at new markets, LFP battery materials sales continue to be lower, impacting new markets overall. This was principally due to changes in electric vehicle tax incentives in China, which has led to the in the development of our next generation ultra high density, battery material, ELN0. And Robert will talk more about this later. Other parts of the business performed well with sales from fuel sales growing more than 50% in the year and medical device components growing 8 Operating profit grew 60% as we lapped a 5,000,000 impairment charge last year. Excluding this, operating profit was broadly flat despite increased investment in ELNA. Looking to 18 19, new markets will deliver sales and operating profit growth. Moving down the income statement. As flagged, finance charges increased in the second half. With higher costs to fund metal across the group. This was led by higher metal prices and reduced liquidity in the palladium market which resulted in higher lease rates. Finance charges are also expected to be slightly higher again next year. Although metal funding costs will reduce this will be offset by higher interest rates. The underlying tax rate increased from 17% to 17.7% as we had guided. And for 'eighteen,'nineteen, the tax rate will reduce to around 16% following the lowering of the U. S. Corporate tax rate. Underlying EPS was broadly flat as the benefit of translational FX was offset by higher finance and tax charges. 58.25p. This brings a total dividend per share to 80p for the year, a 7% increase. This reflects our confidence in the strong future prospects for the group. Our reported results were impacted by some one off items. We've made great progress as we drive efficiency in the business and optimize our manufacturing footprint We incurred 19,000,000 of impairment and restructuring charges, of which 43,000,000 related to the program, which I announced to you this time last year. Additionally, as I mentioned, we're closing our Riverside plant which had a 36,000,000 charge associated with it. Cash costs associated with this impairment and restructuring with 13,000,000 in the year, and there'll be a further 10,000,000 in 18 19. We also had a legal settlement during the course of the year, of which around 2 thirds was cash paid during the year and made a small loss on disposal of our Automotive Battery Systems business. Free cash flow was 136,000,000 compared to 230,000,000 last year with the reduction reflecting higher working capital, which I'll explain to you in more detail on the next slide. Our focus on working capital this year has led to an improvement in our working capital days excluding precious metal from 54 days last year to 50 days this year. Sales grew strongly in the year, and although precious metal working non precious metal working capital was an outflow, disciplined working capital management constrained the increase. But what is really important is the ongoing levels of working capital in the business throughout the year. Here, we've also seen a significant improvement in the average working capital days by 7 days to 62. Whilst managing precious metals across the group is a core competence and a key competitive advantage. Movements in metal working capital can be volatile as they are a function of our customer's choices rather than our own. Precious metal working capital was higher throughout the year given the higher metal prices and reduced liquidity in the market. In this environment, we held greater safety stock and our customer was stored less metal with us, and we saw an increase in refinery backlogs as customers sought to refine more scrap. We've made improvements in our metal working capital cycle although this was not sufficient to offset the external as we faced. Overall, our focus here has enabled us to restrict growth in total working capital to below that of sales growth despite the movement in metal. We will continue to drive underlying improvement in working capital throughout the year. We continue our disciplined investment to support future growth. With CapEx of 217,000,000 in the year. This was below our previous guidance for 2 reasons. Firstly, lower than expected spend on our clean air plant in Poland due to permitting delays. And secondly, more rigorous capital allocation across the group. For 18, 19, I continue to expect a significant increase in CapEx up to 1,000,000 as we increase our CapEx on growth projects. In Clean Air, we will invest in Poland and China. We will continue to invest in the health pipeline and on our ELNO demonstration and commercial plants. Spend on improving business systems continues with the first go live of SAP scheduled for later this summer. This, of course, will be the trigger for us to start depreciating our investment. And overall, we expect the group depreciation charge to increase next year by around 7,000,000. Rigorous resource allocation and within that CapEx spend remains a key focus for me. Whilst CapEx to depreciation will be higher than two times in 18 19, this will average out to around one point eight times over the medium term. Moving to the balance sheet. Net debt has increased $37,000,000 since the prior year and a 212,000,000 decrease since the half year. Our balance sheet remains strong with net debt to EBITDA at one point one times. We target net debt to EBITDA of 1.5 to 2 times, allowing us to invest in value enhancing opportunities which accelerate our growth and meet our criteria whilst rigorous while currently below our target range. That it ensures that we have the flexibility to invest further for the future growth as I outlined earlier. Our return on invested capital declined to 16.4%. The higher UK pension asset and precious metal working capital were the key drivers. As I've already talked about, precious metal working capital has been volatile and was higher capital would have declined to 17.1%. Also, as I've mentioned, we're continuing to invest for the future. Both in terms of capital expenditure and additional costs relating to improving the quality of our business. The investments we are making drive growth in the future And so we will see our return on invested capital improve as these investments bear fruit. I outlined 3 focus areas when I started rigorous resource allocation, disciplined management of working capital, and increasing the efficiency of our business. These remain key and will support our ambition for sustained improvements in our return on invested capital. I'm really pleased with the significant progress across these areas in the year. Our focus on rigorous and transparent resource allocation will drive ROIC to 20% over the medium term. For example, we've accelerated R and D spend in areas of high potential such as ENNO, and we've taken a rigorous approach to stopping spend in areas where we're either failing to hit milestones or where the opportunity is not meeting our criteria. Discipline management of working capital As I talked to you about earlier, we've made significant improvements in this area, and I'm really pleased with our progress. Increasing business wide efficiency is something that is delivering results across a number of the sectors already and there's more to come over the medium term as we start to see the benefits of the manufacturing optimization, the procurement program, and the implementation of SAP. These will help us maintain our margins in clear clean air next year. The margin in efficient natural resources will improve and the health margin expansion will take a little longer, but we'll benefit from the actions that we've taken on our manufacturing footprint. On SAP, we're moving from over 40 ledger systems to 1 global system. We won't see the benefits of this for a few years, as SAP rolls out gradually, however we are incurring the costs now, but this is all part of investing for future growth. Specifically on procurement, we've identified new opportunities. This has increased our expected savings to around 1,000,000. Of which roughly three quarters will directly benefit the P and L over the next 3 years. We're progressing ahead of schedule having already secured our first 13,000,000 of savings to benefit 1819. We will be reinvesting some of these benefits in the early years as we catch up on a period of under investment in parts of the group. Over the longer term, this gives us a huge opportunity to create efficiency but we have to get the platform right first. So moving to the overall outlook for the next year, For 'eighteen-nineteen, we expect to deliver mid to high single digit growth at constant rates. This will be led by Clean Air, which will continue to be strong as diesel share comes through in light duty Europe. We will deliver this group performance despite an increase in costs associated with group efficiency programs. Some of which sit in corporate costs and some of which are within the sectors. We will see a stronger second half with our normal seasonality as well as health being weighted to the second half it from foreign exchange translation. I will continue to focus on working capital targeting a further reduction in average working capital days. And as mentioned, CapEx will be up to 390,000,000. I'm looking forward to another exciting year as we continue to deliver on the strategy that we set out at the Capital Markets Day. And I'll now hand back to Robert to take you through this in more detail. Thank you, Anna. Now to give you some further detail on how we're progressing, on our strategy. This slide sums up what Jam is all about. We're a world class technology company, and our core is our chemistry. Our world class chemist use their expertise to solve complex problems for our customers. Our skills in chemistry and our ability to scale it up to solve problems is our main competitive advantage, enabling us to build close collaborative relationships with current and future customers. We focus on high margin technology driven growth markets and in those markets where the combination of our chemistry and customer focus gives us leadership. We invest heavily in R&D and extend those leadership positions, which in turn keeps us close to our customers. All of this is underpinned by a relentless focus on operational efficiency. We deliver our strategy through our 4 sectors where we have clear visibility for sustained growth in clean air, where share gains in Europe and tighter legislation across the world will provide good growth while we navigate the changing powertrain landscape. Focused investment and an improved business will allow our efficient natural resource sector to grow ahead of its markets and our focus on efficiency will enable profit to grow ahead of sales. We are positioning ourselves for breakout growth in health taking action in the year to build a platform that will deliver the growth in our pipeline and around an additional 1,000,000 of operating profit by 2025. And we're progressing well with our exciting plan to deliver breakout growth in Battery Materials, through our next generation ELN O materials. I'll go into this in more detail shortly. Of course, All of this growth is supported through our focus on efficiency across the group, where Anna already talked you through some of the great progress we're making there. So now I'll move on to our progress by sector. And what we are showing here is how we are progressing against the milestones we set out last year. Not all agreeing, but on the whole, we're making huge strides in improving the company to deliver what we promised. In Clean Air, we deliver our strategy through our global leadership, working closely with our customers to meet tightening legislation. For example, our agility and technical leadership enabled us to move quickly to serve our customers at a key point in time when the market was going through a lot of change. This technical leadership and agility was a key driver for the share gains we have made in Europe and continues to be one of our key differentiators. And of course, we have to have a highly efficient manufacturing footprint behind this. Some specific milestones are laid out here in the slide and you can see that we're progressing well. As we've outlined, our growth in light duty Europe will be driven by a combination of share gains and increasing value per catalyst over the next few years. Firstly, on the share gains in European light duty diesel, We expect to gain around 20 percentage points of share over the next year to reach around 65% share by the end of 'eighteen,'nineteen. It's worth talking here to the assumes a decline in Western European light duty diesel sales to 25% in 2025. But looking at cars alone, that equates to 20% in 2025. In the last year, diesel sales of new cars in Western Europe declined from 49% to 42%. And in April, the 1st month of our new year diesel sales were just 37%. The current period of volatility has required the OEMs to rapidly adjust their platform mix. But it's important to note that these recent trends are consistent with our assumptions on diesel share. And you will have seen that we're also doing well in gasoline. We still expect to gain around 5 percentage points in gasoline as the adoption of Euro 6 C ramps up. The business we've won gives us confidence that we will deliver these gains though they come through over time by 2021. In China, we continue to help customers meet the upcoming China 6 Lead which is anticipated to come in from 2021 for both cars and trucks. We expect to maintain our share in light duty as China 6 comes in, and we're on track with the businesses business we have won to date. There may be some opportunity versus to grow share in the heavy duty segment but at the moment we're planning a consistent share. The final milestone shown here is to expand and enhance our capability and capacity to support this growth. We need a larger manufacturing footprint and we're building in more flexibility important for agility and also to support margins in the sector over the period. We started our investment in Poland, and while there's been a small delay due to permitting, we're on track to see a production ramp up in line with our business expansion. And we've approved the building of a plant in China to serve the mass expansion of our business from China 6. In addition to these, there are further value drivers, including good growth in heavy duty and significant growth in both light and the heavy segments in India. So good progress for Clean Air, reflecting the momentum for delivery we have in this business. All of this delivers mid single digit CAGR sales growth over the next 10 years while keeping margins broadly stable. Our margins I'm very pleased that the work that John and his team have done on efficiencies plus procurement benefits will enable us to keep margins broadly stable next year ahead of our original expectations In efficient natural resources, we deliver our strategy through our leadership positions in almost all of our subsegments. Our target investment by segment and region focused R and D in areas of high returns and a continued focus on efficiency. You can see here 4 key milestones that we're making good progress with more benefits to follow as the work Jane is doing continues to improve the business. Firstly, sales growth ahead of above our markets excluding PGMS where we expect low single digit growth. Next year, Sales growth will be modest and that's slightly behind our longer term plan, but broadly in line with the growth in our markets. This partly reflects the impact of our focus on quality business, which hits the short term but delivers greater value in the medium and long term. In addition to sales growth, we will deliver operating profit growth ahead of sales. We are on track to deliver this as the efficiencies we are driving in the business are helping us to expand our margin. Jane and the team have completed a detailed review of our product portfolio this year. The actions from that review will be implemented over the next 2 years as we focus on the higher quality parts of the business delivering improved value. And we continue to look at additional opportunities within this space, looking at new and adjacent areas that can benefit from our chemistry and technology. One example here is the work we've done on turning waste into aviation fuel. Early days, but this could be an interesting area for licensing catalyst income in future years. There are plenty of other examples and we look forward to providing more updates in time. So, mainly green as we continue to improve the quality of our business. Some of the benefits from our actions take a while to come through in fact some incur additional costs in the short run. But we're setting up the platform for the medium and long term. So we're on track in efficient natural resources to deliver the sales and operating growth we have promised. In Health, we deliver our strategy through driving value from our existing business, focusing on operating efficiencies and targeted high value products delivering growth from our new API product portfolio and enhancing through ongoing R and D investment, our position as a technology partner of choice to both innovator and generic customers alike. We recently appointed Jason Aptor to lead the sector and deliver this strategy, and Jason is here this morning to take any questions you may have. And of course, meet you all. There are a number of milestones for us in health, particularly in commercializing our pipeline. And we put on this slide the biggest 3 for the sector. Firstly, looking at our manufacturing footprint, we announced the closure of our Riverside plant. This is in line with our focus on complex high value low volume APIs rather than the bulk quantity manufacturing Riverside is designed for. Furthermore, we continue to develop our site in Annan, and this will provide the efficient platform to deliver value from our existing global product portfolio. At the Capital Markets Day, we also talked about delivering growth from our existing business. This year our sales of ADHD API and bulk opiates in Europe were lower although sales of specialty opiates grew strongly. The 3rd milestone is the continued development of our new product portfolio, which remains on track to deliver around £100,000,000 of additional operating profit by 2025. As I will show you on the next slide. This top chart is an update of the chart shown at our Capital Markets Day last September. As you can see, we're still on track to deliver around $100,000,000 of additional profit by 2425. This is based on the output of a detailed Monte Carlo model we continually run and is risk adjusted. Below this, we're giving some additional detail on how the pipeline is progressing. Our API products move from development to market through key stages. From the early stage to formulation development to filing and obtaining regulatory approval through to launch. All of this involves working closely with our customers, and so the timings are a function of our delivery, our customer's timings, and the time it takes to get regulatory approval and launch. So what about our progress in the year? As you can see, no launches yet, but that was what we expected. 3 have moved into the regulatory stage to bring this total to 5, and these are all expected to be launched in the next 3 years. There is no net movement in the formulation development stage, reflecting the 3 that are moved into the regulatory sorry, the 4 that are moved in sorry, 3 that are moved into the regulatory phase being replaced by those moving in from earlier stages. And a net reduction of 2 in the early stages, reflecting those products moving along the process. Some being stopped and some new ones being added. So on to Battery Materials and our progress in developing and commercializing our next generation ELNO materials. I'll spend some time on this topic as it's such an exciting opportunity for us. Will update you on our focus on the market for ultra high energy density materials that will help enable the mass adoption of pure battery electric vehicles. And I'll provide some further evidence of the leading qualities of ELN O. We're making good progress working with our customers and feedback continues to be excellent. We're also progressing well with our scale up plans. The board has approved the building of a 1000 ton demonstration plant in the UK, And this is larger than what we originally planned and should come on stream in late 2019. Our plans for our full scale commercial plant are also on track and we're working towards full board approval this summer as we previously outlined. And of course, we're already thinking about capacity beyond our first plant, above 10,000 tons, though the detail on that will follow in more in in in time. ELNO is the next generation material. It is beyond what's in the market today and will help enable the mass adoption of pure battery electric vehicles Most materials today end up in a mile to plug in hybrids, and we want to help customers move to the next stage. The chart on the left illustrates escape is dominated by NMC-five thirty two, six twenty two, and NCA. Elon competes against materials not yet available in their markets, including NMCA11 and advanced NCA. These form the ultra high energy density market. We've given on the right here some indication of the size of market. By 2030, we expect the ultra high energy density market to be around 500,000 to 1,800,000 tons per year, amounting to around a third to 2 thirds of the total cathode market. This is our focus We're not seeking entry into today's market. We could easily produce a copycat product and move faster, but we are doing what J. M. Does best. Maximizing the value of our chemistry. This should enable us to earn higher margins and returns ELNO offers a step change in energy density over current materials and lower cobalt content. I know many of you know many of you want more validation of its performance and obviously we're limited in how much we can give you for commercial reasons. So what we are showing you here today is the results of independent testing carried out for us by Kinetic. This shows the performance of ELNO compared with the current materials in the market and the next generation materials. ELNO's relative performance improves when we look at Cycle Life and how it performs over time, a key metric used by our customer So not only do we have the material with the high energy dent highest energy density today, but ELNO's performance continues for longer and helps enable a lower total cost over the useful life. It is this overall performance that is attractive We have firm plans to commercialize ELNO. Having a leading material, we're able to be thoughtful about which customers we work with first and we're working with large multinational Automotive and sell OEMs that will play an active role in specifying cathode materials and who will benefit most from ELN O. As I've mentioned previously, The customers we are working with have been very positive about the characteristics of ILN O. So here's a summary of the route to market. We are currently in the validation cycle and making great progress. Customer feedback as I said before remains excellent. The next stage is moving to providing a samples, typically up to 10 tons per platform, which we will start supplying in 2019. Then we progress up to B samples, typically up to 200 tons per platform and involving more extensive testing, and then C samples again with more material. This is the stage you bid for and win platforms. Now, throughout the sampling process, we will see sales as these are sizable quantities that we'll be providing to customers and they are prepared to pay for that. Supporting all of this is the scale up of our manufacturing capability, including completing the expansion of our pilot plant this summer and this will give us the capacity to make up to 10 metric tons per year Building our demonstration scale plant, which will be in the UK, and as I've said, have a 1000 tons capacity double the 500 tons that we originally intended, which should be completed by late 2019. We're also building our first customer application center here in the UK, and plans for our commercial plants were progressing well. We will build this plant in Europe in line with the development of the supply chain there. So, a very exciting area for JM and lots of good progress. The key point here is that we're moving as fast as we can. The timelines are partly a function of how fast our customers move and building our first plant to a size of 10,000 tons is the quickest route to market for us. As I said, we're all, of course, thinking about our plans beyond the next, the first 10,000 tons of capacity, and we'll be building our first plant with expansion plans in mind. So to recap on ELN O, we are focused on the ultra high energy density market a market that doesn't exist today, but one that will be a key enabler of growth in the BEV market in the future. Customer testing and early validation is progressing well, Our demonstration scale plan has been approved by the board and is on track. We are progressing the commercial plans and formal approval is expected by the board summer. And as I said, we're building that in Europe and we're developing our plans beyond 10,000 tons. So to conclude for the group, I'm pleased with our performance in the last year. Overall, we had a good year progressing our strategy while delivering results in line with our expectations. We are seeing a strong year ahead with mid to high single digit growth, further progress on operational efficiency and stepped up capital investment to deliver growth. And we're on track to deliver in the medium term too. Mid to high single digit EPS CAGR, expanding our return on invested capital to 20% and continuing our progressive dividend. So, thank you for your time this morning. I'll now invite, join to John, to join Anna and myself on stage. And we have Jane, Jason, and Alan in the front row all ready to take your questions. So who would like to go first, if anybody? Andrew, who's going to so I'm going to bring a mic, Victoria? Thank you. Yes, thanks. Andrew Stott, UBS. A couple of questions, both on health. The underlying performance of health in the second half, I I'm after, there was 2 impacts as I'm aware. There was inventory write down and then the impact of an NAN rollout. So can you give me an idea of the underlying EBIT number if you strip out those 2 things? And then if I look at the chart, you've repeated in effect on the pipeline. When you, it's hard to scale to the naked eye, but it looks like about 10,000,000 for 2020 FY. Do we take that as a net number, or are you still going to have contracts expiring on the original slate And, Anna, do the inventory write down and Alan, do you want to give the color on that? Yes, so if you look over the full year in health, we saw strong sales growth of 6 percent. If you exclude the manufacturing costs, we would have seen profit growth ahead of that because actually we saw some good pricing but we we had an inventory write down in the carcinoma, which is why you then see a profit decline. So operating profit growth would have been ahead of sales growth. I won't tell you exactly how Okay. And on the pipeline, you're right, it's, we're not trying to trick you by having the scale and making it difficult for you for the naked eye. There is some range in these things, so we can't be so precise. These numbers are net of the costs of taking the pipeline through to to the conclusion, the sort of £100,000,000 that we'll get to in 2025. There are, of course, as you know, some of the products that will the existing products will sort of decline a little bit, and so that is not factored into that chart. That chart is all about the sort of the non launched products that we have today that are in the pipeline. So the ones that are launched today, well, of course, they will fluctuate depending upon the performance of those products. Okay. And sorry, just to follow-up a separate question, but a similar theme. The licensing income, can I just check on process cuts? That is, year on year, we're now flat. Is that what you're saying? So we stop going down when you think about 2019 on 2018. Yeah. That's exactly right. Perfect. Thank you. Okay. Thanks, Andrew. And see if we can pass it over to Adam. Hi, it's Adam Collins from Liberumad. 3 disparate questions. So first of all, could you explain why you've decided to locate the 1st commercial plant in battery materials in Europe rather than in Asia. Secondly, one for John, perhaps, Very exciting regulations emerging in China, China 6 for truck and carf, which you say kicks in from 2020, 2021. I'm just interested in your view, John, as to whether there's a chance this time of pre fitment to the extent that there is now ultra low sulfur fuel available and, what appears to be quite a hawkish policy bias in China around clean air. And then the 3rd question, just a clarification on, the health area. In addition to saying that you expect 100,000,000 of incremental profits midterm from the pipeline. You also have talked about from 2019, 2020, double digit sales growth, and the margins starting to tick up towards the high 20s. Could you just confirm that that's your expectation for the 2nd fiscal year? Double digit sales growth in in house. Thank you, Alan, for those questions. I think that if I just take the first one, the last one first, yes. That clear answer. The first one, why are we locating in Europe? Well, that's where we see the development of the supply chain. Happening, and where our customers are looking for product. We don't think that we we can still export to other parts of the world if we need to. So that's where we see the sort of major development in the supply chain happening, so we're locating it there. And John, do you want to talk a little bit about? Yeah. And for China 6, we're obviously also very excited about the opportunity in both, cars and trucks in China, and we're fielding inquiries right now. And it's very likely there'll be some early adopters. That'll go ahead of the legislation. That'll probably be a 1920 fiscal year for us. I'm sorry if we can come to the front. Hi, Cheatham and Dacey, JP Morgan. Maybe a few questions for John. How much of the share gains in diesel have you already seen in the last fiscal year? And given that most of this will ramp through this year, will there be a sort of a carryover impact into the following years? And I 2020 fiscal year as well in terms of strong growth. And Robert, I think, you know, at CMD last year, you said you expect double digit growth. In the clean air business. Is that something which you continue to expect as well based on current trends for this year? John, do you want to answer the first question? Yep. So, you know, the, the, the proportion of the 20% gain that, you know, we had in 'seventeen-'eighteen was was not very much. So the majority of that gain is gonna come through this year. There will be some carryover. I wouldn't call it carryover. There will be a continuation of that through the next fiscal year. And yes, we're very comfortable that we're going to show double digit growth next year for the sector. And maybe how much of how much retention do you see in those share gains in any of the new platforms that you might be bidding for either on diesel or gasoline because clearly the lead time on platform design is long in autos. So Typical cycles are 3 years. You know, I think when you're talking about share versus what's going to happen to diesel sales, I mean, out into the future, we do expect expect diesel share to to, to stay roughly the same, but diesel sales will will drop, you know, out into the future years. The question is more like, is the 65 percent share in diesel sticking for any of the new platforms that you are winning, or would that over time come down? And same question for gasoline. So how much of the 5% share gains you might have won in the past design cycle is sort of sticking for the 2020 post-2020 design cycle. Well, you're asking that. We're asking that to predict the future of this. Look, we're talking about the sort of current wins and the current wins in the 65% is in the bag and we're on all platforms there. Some of that will ramp up through the years we talked about and we'll get to the 65% by the end of this year. So yes, from a from a pure market share point of view, of course, if you're going like this, there'll be a bit of a carryover into next year, but of course, it then depends on how many diesel cars are actually sold next year, what will come through in our numbers. And on the market share gains associated with gasoline, you know, those are not going to come into some of those aren't coming in until 2021, sort of 2021, that sort of timeframe sort of ramp up over time. And of course, the next generation of bids haven't really started yet. We're still finalizing all those bids. So that's sort of somewhere further into the distance. And just to be clear, around the sales growth for for cleaner. I don't think we actually did say double digit growth when we talked about the Capital Markets Day. We sort of talked about mid to high single digit growth. And that's still where we expect to be. Thank you. Good morning. Sebastian Brea of Berenberg Bank, and thank you for taking my questions. So I would say 3, please. The first is on the efficient natural resources business. I think it was mentioned earlier that the pace of sales growth in the fiscal year 2019 could be partly constrained by a desire for high quality sales. What is the difference between a high quality catalyst sale and a lower quality one? And then 21 batteries, please. The first one is on the guidance in the release today for 2019 sales growth in the battery technology or battery systems part of the business. I think it's alternative powertrain. Where does this come from, please? Is it incremental sales in the Illinois? Is it from a Battery Systems business. And finally, one on the capacity announcement, forthcoming capacity announcement in E. R. No. How long exactly how fast could you build this facility just in terms of pure build time as opposed to permitting or customer testing cycle? And would you expect number 1, the build time and number 2, the potentially the capital intensity of this expansion to drop once you have the main facility online. Thank you. Okay. So I think I got all those questions, but I'm going to start with Jane. Maybe you can give a bit more color. If we've got a microphone that Jane could use, Martin, perhaps you could give it to Jane. Just talk a little bit about what What's good quality, high quality business rather than? Excellent question. Of course, in this particular instance, you could define quality in many ways, of course. But in this particular instance, high quality business is business where we're bringing the most value to customers and also deriving the most value for JM. Okay? So I think from that you can infer. Thank you. Thanks, Jane. The second question before I hand over if you want to sort of give a little bit more color on the build program, but I think we didn't give guidance for battery materials on its own. We gave guidance for new markets in its totality. And we're not going to give guide, we're not going to break that down by subsector. We're talking about the new markets, sector as a Alan, did you catch the questions for Battery Materials? I think I did. The question was just generally around the timeline for the commercial build, the demonstration scale build, and how fast can we go in respect to both of them. And, and I guess what I'd say suffice to say, we're going as fast as we possibly can. There's a number of rate limiting steps for both the demonstration scale facility as well as the commercial scale facility. There's permitting, both environmental, there's build, etcetera. There's some long lead time items, pieces of equipment that you have to order that take a a fairly long time to actually get delivered. So we're doing all of these in parallel right now. Parallel work streams, but with an overarching EL and O program, capital management feel to it as well. But suffice to say we're going as quickly as we possibly can and in line with customer sampling and timeline needs as Robert articulated in terms of that overall qualification cycle. And the question about capital intensity, yes, the answer, we would expect the capital intensity to come down over time. The first plant, as you build a first large scale plant, always is going to take a little bit more. We're building as much flexibilities we can to make sure the app that we have the flexibility to make different materials and exactly how the material evolves the 1, once we get that first plant running, the second plant, the larger plant will be, a greater or less, which means we want to talk about a capital intensity more efficient. Thank you. Okay. Right, we now got a microphone problem if we could pass the microphone to the front here. Thanks, Victoria. Thanks, Martin Evans HSBC. Just a quick question for Ana. I think, well, two things, the legal settlement that you referred to the 50,000,000. Just, maybe clarify what what that was. And, and secondly, in the actual release, Page 20, I spotted a contingent liability. Is that new news or something that's been sort of bubbling away in the background? But who wants to do it? I'll take that. I mean, we're not afraid we're not going to give much more detail than or any more detail than it's already announcement. The note as you actually refer to on page 20 in the release, the contingent liability is a separate issue from the one that we settled last year. Last year, yes, last year. And, but, and that's not going to say any more about it other than we have in the release. And the 1,000,000 that has been settled, what did that relate to? Well, as we described, it was a product issue that we settled on an no fault basis with the customer. Nancy if I can come to the front. So if there's another Thank you. Charlie Webb, Morgan Stanley. Just a few. Maybe, John, for you, first up, the health of the HDD market clearly had a very strong performance into the end of the year and into the first half. How do you see that as we move into next year in regions like the U. S. And in Europe? And then on that as well, the China opportunity you talked hinted it that maybe there's an opportunity to take share there. So perhaps just walk us through what that means. On Eel, I know, we now obviously, you're gonna do a larger pilot plant. Does that mean you can onboard more, custom opportunities Or is that what you need to just go through those processes with the existing, I think, 7 that you have currently going through that process? And then finally, fuel cells. We haven't talked about it for a while, but there's a lot more noise around hydrogen, especially in Europe, and in other markets. So are you seeing more interest from an energy stationery perspective for fuel cells? Okay. Well, why don't we say those in the order in which you you asked them. So John, do you want to start off? Yes. So heavy duty, obviously a very strong year this year. In North America, that was driven by Class 8 trucks strength. We're seeing that trend will continue through the end of this calendar year. So again, you know, H1 to H2 probably going to be stronger on our U. S. Class 8 heavy duty in the first half compared to the second half. In Europe. The European growth story was all about the ramp up of new products. These are effectively the the 2nd generation of Euro 6 heavy duty products that are coming out in Europe right now. And, you know, we we haven't finished that full ramp up in the 'seventeen-'eighteen fiscal year. So that will continue for a bit. So there's a little bit of, of, of room of growth in European heavy duty. And then, as you say, in, in, in Asia, we're still bidding on platforms for for the Euro 6, truck platforms in in China. So the opportunity is that, you know, if we if we win some of those opportunities, we could exceed the targets of our plan, but that's still an unknown at this point. Okay. On ELN O, the larger pilot plant is principally around delivery for our customers and sort of to meet there, we talked a bit about the quantity required to go through B samples and C samples. It's you know, so having 1000 ton capacity rather than 500 ton capacity enables us to do have more run on more program. But it's, you know, the number of customers are not the key driver here. We're being, as I've said talked about, we've been quite choiceful about the customers that we go after. And we talk to rather than trying to get massive numbers of customers. It's more around those targeted customers and making sure that we deliver for them. So this will give us the greater capacity to deliver for those on those programs. And finally, on fuel cells, yes, we haven't talked about it for a while, it's good to say that it is making money. For those of you who have followed us for a while, you've known that fuel cells lost money for a number of years, actually quite a number of years. It's, it made money last year and so it is a sign that there is an opportunity in that market and we're looking we're looking at it and how it develops going forward. So yes, I'm wondering if I could ask a question about PGM content within the catalyst business, there's no secret that the South African PGM markets challenging Russian sanctions, whether that has an effect on you, what's the strategy around sourcing PGMs from places that you might be able to manage to get your growth projections. You're looking at, you're looking at John, but actually the person that's sort of more involved in the strategy for the PDM market is is Jane because it's, falls within the efficient natural resources sector. She's, she's her sector sort of sources metal on behalf of John's business and the group. A key supplier? I worked very hard for John. Yes. So, clearly what we do is to refine PGS and, we can source metal from a variety of sources and refrimes PGM is a part of our supply. For John's business, for example, and of course that gives some real assurance about being able to supply irrespective of what might happen in whatever economic environment or world geopolitical environment that's happening. And so that's that's very and that's why we're the world's largest refinery of secondary PGMs. Ask strategic raisondetures to make sure that we have a good secure supply for John. And we can therefore uplift us apply of secondary PGMs to John to make sure we have that assurance of supply all around the world, and we have refineries in all three regions of the world. Okay. And I'm pleased to say there's a very good relationship between our customer and supplier within John and Jake. Now, you've been very patient with your hand up there. Can we just try and get the microphone over I think there was another question over here. Shift in the, auto cat space. Are you guys looking at that market? Is there do you see growth coming through there? Heavy duty in China, if you did manage to to win, in incremental share, would that be something you could fulfill with your current CapEx plans or you'd need more on top of that. And also PGM refining in China, you've got the new plant there that's ramping up obviously low content on the, on older recycled catalysts. Is there any guidance on when that eventually might start contributing when you might start seeing some kind of uplift from that? I guess I could probably answer those questions, but do you want to do India and China? In India, in this year, we actually had a very, very strong year before the, their version of the Euro 6 led solution, but, yeah, there there is a a reasonable sized opportunity in India. You know, most of that opportunity in India is on the heavy duty side. And we have plans in place to progress to be able to deliver in that market as well. On heavy duty, China, yep, the plans that we have in place, we will have the capacity to be able to take on more than in our current plan. So if we win more, we're going to be able to deliver. So that's the new plan that I mentioned before that we've approved, we approved. So it's in the sort of early stage of the build at the moment and it will be ready for the time when the market picks up. And, you know, a new plant with all our sort of know how for many, many years, it will be a very efficient plant too. So we should have the capacity that we need if we were able to win additional market share. So on the PGM refining in China, it is early days, now, Pujane, you don't have a microphone again. We're not doing very well on microphones today. It it's not very much at the moment, it's not around the car market or the recycling of, of auto cats. But Jay, maybe you want to talk a little bit about the opportunity there. So, it is early days as yet in terms of refining auto cat in China. There's hardly any on the vehicles at the moment. And the refinery started. And we can't expect to see a significant contribution of that from that for a few years yet because I've described the market really right nascent in China, but we took the strategic decision to go in there partly to make sure that we could properly support John's business as he grows in China. And also because as that market develops, as the leading supplier here, we want to make sure that we're setting the right standards And so things are done in a proper way and we can do that by being early in there. So that's what we've done. So I'll make sure that what we're using while while we get the mic enough to Adam at the back. Oh, what are we doing? Okay, you're moving the mic right now, but basically at the moment we're doing refining for industrial customers at the moment and and that market will carry on, but the development of the auto market as Jane said will take some time to come. Sorry, Adam, you had a follow-up? Yeah, I had a couple, please. So, maybe one for Anna. On CapEx, guidance of up to 1,000,000 for this year. I wonder if you could give a bit more granularity around that. In the past, you talked about an investment of around $100,000,000 for the global ERP platform. Is that still a fair number? How big is the Poland investment? And could you help us understand the phasing of the 200,000,000 investment for the commercial scale battery plant? And then the second one was just on what we didn't discuss on batteries is the timing of a first, customer in the battery area. When do you expect at the earliest, one of the, travelers to qualify the materials? What would be a reasonable expectation for the earliest that you'll see, customer validation? Okay. Alice, since, he very politely asked you the question. Yeah. So the ERP system first It's still of a similar order for SAP alone, but of course actually that's just the center of a platform of systems and we're putting other systems around it. As we drive a consistent way of operating across the group, and we will continue investment there next year. The Polish plant is of the order of a 100,000,000, you know, give or take. And we're commencing bills on that in the year. Although it won't all be spent in the year, and the phasing of the battery material plant, we actually commence serious build kind of halfway through the year, I'm not gonna tell you exactly how it phases, but you can work from that given given the timeline to commissioning, you know, a sensible assumption of spend in the year. Okay. And on the qualification cycle, we we gave some information on slide 31 about the process that we gave that car companies go through and the rough timelines for the A, B, C samples. And of course, some that's a typical timelines, some car companies, some cell companies might be quicker, some might take a little bit longer. So it's hard to say exactly when we'll be on. But the key time when you actually sort of bid for and formally bid for is in the C sample stage. And but the reality is OEMs don't take many, many, many people through the B sample stage because it's quite a lot of testing and work for them. So when you're on that stage, you're sort of narrowing down to you've got more confidence that you're going to be on a platform, but the actual formal bid processes of the C sample stage. Look forward to the Monte Carlo analysis of the revenue opportunity in this area? Well, yes, well, we can oversize these things really, but, you know, we're better at the chemistry science than maybe some Monte Carlo. Any other questions? Yes, we've got another one from Andrew, is a microphone near you? Oh, we've had microphone clash in the middle. So Andrew? Yes, to follow-up question on it for John. You did the retrofit market in Germany, there's a lot of talk about 1,000,000 pre Euro5 cars that need to be recalled and retrofit. Is that an opportunity for JM? Could be. It's still kinda moving around a little bit, but it it is a possibility that there would be some opportunity there. And the sort of revenue per vehicle you might attach to that conversationally? The variety of solutions are pretty broad. So it's kind of hard to put on that right now. I heard that you mentioned that you saw the ultra high density segment of the cathode market to accounts for about 1 third to 2 thirds of the overall cathode markets. So on the midpoint, it sounds that you're seeing this segment to be around 50% of the cathode market and it's right now it's standing more as a as a it's more seen as a niche as a premium as a premium segment. And I remember from your CMD, you were mentioning that ELNO was more targeted as a premium product at the niches of of potentially luxury cars, etcetera. So I'm just wondering, have you seen the opportunity evolving in the, in the ultra high density market? And do you see the opportunity for LNO to be potentially big versus Advanced NCA and 811, or are you still focusing on niches? Well, we see, we see, the difference between the sort of, the lower density materials Alan, if you can get Mike and then you can give a bit more color in a second, but the lower density materials are sort of more useful for the hybrids and sort of low range vehicles, the sort of higher range vehicles, where you need the sort of higher energy density for longer, is something where E and L can play and that's where it will compete with the other materials in that market, the sort of advanced NCA, the 811s, as 811 improves as inevitably will and as an advanced NCA comes into play, those are the ones that we'll be competing against. We foresee This is very much around pure battery electric vehicles, rather than hybrids where you're going for longer range vehicles rather than short range vehicles. Is there any more color you'd like to add, Alan? Yes. Not much more color except to say when we were talking at Capital Markets Day, we gave some some very broad numbers, in terms of if the overall market would be full battery electric. I think we range it from 4 to 25% and And we said if if that 4 to 25 percent would be full battery electric, then we had, a range between 500,000 to 3,300,000 metric tons of cathode material. What we've done since then is we've we've done some refinement in terms of the market, where we see our customers going and in terms of their vehicle launches, their timelines, specific vehicle requirements to actually hone in on what we've defined as the ultra high energy density market, the market where we see ELNO being ideally suited, but all where we're going to see some competition from advanced, high energy materials, such as advanced NCA and advanced, NMC 811 as well. But we don't see we don't see LNO as the way you describe it as a complete niche product. I think it's the sort of high value it's the sort of product that enables the mass adoption or potentially a product that enables the mass adoption of BEVs because it gets that higher range and, and that sort of total cost of ownership because the energy density per cycle light and cycle light for the key determines here. To how material will be effective. Nancy, we've got another question here in the front. If you're allowed to move over from the middle, move over into this side. Thanks. Same follow-up question on high density. How many typically do you have a sense of how many competitors you think have the similar technology at this point. So when you're doing the testing phase, sampling phase with customers, do you have a view of who could be doing the same thing with their own product, just to gauge the competition in the higher energy density market? That's quite hard for us to judge. I mean, look, there are, you know, there are, a number of people out there talking as we know, talking about the higher end higher material, density materials, we don't think there's anybody else who's got an ELN O type material, we think that is, at this stage, unique, but there are other people looking at 811 or even 9xx, you know, people talking about higher, higher, and nickel content. And advanced NCA. So there's a number of people out there looking at it, but as far as we know today, none of it's commercialized yet, none of it's sort of because there are still issues around how you actually make that material work effectively in the, in the, to get the right level of stability, etcetera. So I think there's still work to do. There's a few people doing it, don't know exactly how many but it's hard for us to judge that. We done Well, look, thanks very much everybody for your time and for your attention. Look forward to seeing you again in 6 months' time. And for those of you who will see you on the road show, look forward to seeing that too. So thank you very much, everybody.