Good day. Welcome to the Johnson Matthey Half Year Results Conference Call. Today's conference is being recorded. At this time I would like to turn the conference over to Robert MacLeod, CEO. Please go ahead, sir.
Thank you very much. Good morning, everybody. Welcome to our conference call. I hope you had a chance to, A, read our press release that we put out at 8:00 A.M. this morning and watch our video at 8:00 A.M., the presentation video that we put out at 8:00 A.M. This is your time to ask and answer questions. I'm joined here by the leadership team, Anna, John, Jane, and Alan. We're very happy to take any questions that you may have. Over to you.
Thank you. Ladies and gentlemen, if you wish to ask a question at this time, please press *1 on your telephone keypad. If it happens your question has already been answered, you may remove yourself from the queue by pressing *2. Please make sure the mute function on your phone is switched off to allow your signal to reach our equipment. Again, please press *1 to ask a question. We will pause for just a moment to allow everyone to signal. The first question comes from Andrew Scott of UBS. Please go ahead.
Yeah. Morning, Robert. Morning, Anna.
Hello, Andrew.
A couple of questions from me. Number one, I just wonder if we can go back to the licensing and first-fill business in catalysts. I'm slightly surprised to see that still deteriorating. I don't know why. I think I had the impression that license income was now sort of flattening out. Just sort of expand upon what you're seeing in both license and first-fill and how much of each was in that -GBP 19. Second question is on Fine Chems. I've seen you reiterate the longer-term target and the high 20% margin target from 1920. How about next year? What are your thoughts as we look out over the next 18 months rather than the longer term? Thank you.
Okay. Thanks, Andrew. I will go first and answer the health question, and then Jane will answer the question on Efficient Natural Resources. Looking to health. We said in the statement that we expect the whole year to be broadly in line with last year. Next year, as Anna said, and we said at the Capital Markets Day, we expect to see a modest decline in profitability as some of the legacy products come off their high-value area before the new products come in place. A modest decline next year. We should be, for the full year this year, broadly in line with last year. Is that clear?
That's very clear. Thank you.
Okay. Jane, over to you.
Okay. On the licensing first-fill question, then basically, yes, of course, there has been a deterioration in the licensing business as we've discussed in the Capital Markets Day and so on. I guess this year we're seeing the bottom of that, and so that's why it's lower again in that first half. I hope that you also notice that the refill catalyst is doing rather well and has picked up in terms of the business there, which is also consistent with the message that we gave and actually saw a double-digit growth in revenue terms. I think it's consistent with the trends we gave, but unfortunately, we're at the bottom of that licensing curve now and bumping along.
Okay. That's clear as well. Thank you very much.
Thanks, Andrew.
The next question comes from Andrew Benson of Citi. Please go ahead.
Yes. Thanks very much. Just to take forward Andrew's other question, when do you anticipate, or is there any sign on the horizon that license income may improve? I'll ask a few if I may. Can you just give a shape for how you see the outlook for heavy duty in Asia, or 88%, whatever it was growth. It looks an enormous number. Secondly, net working capital. Can you give us a view of where you think you'll be in the full year, particularly for the bit that you can control less well on PGMs? On the eLNO, are you going to make patent filings? I think I just want clarity on your IP position there. Perhaps I'll leave it there.
Okay. Andrew, thanks very much for those questions. I think you neatly allowed me to pass it out to all my colleagues and not ask me one directly, which I think was very kind of you. Thank you. I'll just go in the order that you asked the questions. I'll start with Jane, if I may, on licensing.
Okay. Well, the question about when might licensing change, I don't anticipate any major turnaround soon in licensing because, of course, there is that overcapacity in the market. If you remember from the Capital Markets Day, I talked about the six subsegments, there are some subsegments which are still interesting. For example, ethanol remains an interesting subsegment where there is still some growth. Otherwise, as a general rule of thumb, it would be fair to say there won't be a big pickup in licensing. Our strategy does not depend on licensing in order to deliver. Obviously that's part of what we've priced into our forecast, our strategy is not built around that. It's built around looking at those subsegments that are going to grow, making sure that we're growing our refill catalysts and so on.
Hopefully that's clear. If you look back in time, the sort of oxo alcohols were the sort of big, high-value licenses, much more high value than, say, a methanol license. There was a huge amount of capacity built in China in particular, over the years. Until that capacity is utilized, I think that will take some time before that comes back. Hopefully that answers the first question. John, do you want to answer the question on the outlook for Asia heavy-duty diesel?
Yep. I think the big surge that we've seen in heavy-duty in Asia has been mostly related to this enforcement of the truck weight regulation in China. That's driven sales very strongly as people have had to upgrade the size of their trucks. That's kind of a one-off. That's not going to continue. We do expect that our Asian heavy-duty sales in China, in particular, will continue to lead the market.
Andrew, was that?
It is one-off. I mean, is it going to fall in the second half?
The rate of growth will slow down, we will still remain ahead of the truck growth in China.
Okay.
Yeah, thanks
guidance for you, Andrew. Anna, your turn. Working capital.
Yeah. Our working capital is somewhat phased through the year and as you know, having followed it for a few years, it's always a little bit higher at the end of half one in day terms as we make sure that we have the inventory we need in place to deliver a bigger H2. If you break it into what we can control, what we can control is the non-precious metal piece, and I'm confident that will be clearly in the 50-60-day range at the close of the year, and that there'll be some unwinding of the current position. With respect to precious metal, the debtors and creditors days, we will absolutely manage, and I would expect those to generally show a little bit of improvement through the second half.
The bit that is far harder for us to manage because it's a function of the liquidity in the precious metal market and our customers' choices around whether they look to us for metal, whether they leave their metal with us, is the precious metal piece. Here, I think we've seen the worst of the correction behind us with respect to the tightening in the market and the reduction in liquidity. It's always hard to know what choices our customers will make as we look forward, depending on what happens with metal prices. That is a long way of saying normal course, we generally see improvements through the second half. I don't have a crystal ball with respect to what's going to happen with the precious metal market. Does that answer it?
Yeah, no, that's great. Thanks.
Last but by no means least, Alan, do you want to just give a brief update on our patenting strategy?
Sure. Thanks, Robert. I guess what I'd start with is we always look to protect our information assets and of course, protecting our eLNO is a strategic concern for us. Today, just to confirm, we have filed for IP for eLNO, and we'll continue to file if possible and sensible as part of the business strategy.
I think we don't file everything, all our secrets, because I think, Alan, you need to get the mix right, isn't it? Between how much you keep inside. As soon as you file a patent, of course, then you tell everybody what your secret sauce is. Sometimes you keep some of it internally, don't we, Alan?
Absolutely. That's a sensibility piece. It's part of the broader intellectual information asset management strategy.
Okay.
Okay, thanks.
Thanks, Alan.
The next question comes from Chetan Udeshi of JP Morgan. Please go ahead.
Yeah. Hi. Thanks. Coming back to the metal inventory build, can you explain if customer were to request you to hold inventory on their behalf, does it change the competitive dynamics for you with that customer? In other words, how does it help in terms of competitive dynamics in the business in, say, mid long term in terms of customer relationship? The second question I have is on Efficient Natural Resources. The margin decline that we are seeing at this point, is any of that structural because maybe it's just a change as a business model, less licensing, more hard catalyst sales? Is it just a factor of cyclical weakness in some of the markets and so margin might recover at some point, say, in the midterm back to the levels you had previous [peak] points?
Sure. Thanks very much for your question. On metal management, we are well known for our PGM management and we are the PGM company of the world. I don't know, who wants to answer this one directly? I'm looking at Jane. Do you want to take this?
Why don't I have a go at both of those, too?
Go on.
With respect to metal management, this is all part of the regular service that we provide to the industry. Not only looking after metal, but of course we are also the world's leading secondary refiner of PGM. It's all part of that complete service that we provide, and it doesn't change in any way, particularly the relationship with any particular customer. It's all part of the overarching service that we provide in the market.
Well, it's fundamentally down, if you think about their cash flow as well, because when metal prices are very high, they need to look at their cash flow into the implications. We work with them through the cycle. Of course, having that refinery really is helping us too. It doesn't really give a massive competitive advantage versus, say, our emission control competitors, except that we have security of supply. That security of supply by having access to metal is absolutely vital. For John's business, the fact that we have the world's largest PGM refinery is absolutely fundamental to help us. The fact that there's been a squeeze in the market is not a big issue for us, but delivery to our customers, which of course is the biggest competitive advantage that we have.
Okay. Carrying on to the question on licensing and whether that was a change in business model. It's not really a change in business model. It is just part of the normal cycles. I think you could question if there's going to be a lot slightly longer cycle than we've seen in the past. There is a big amount of overcapacity in the market overall. How long it lasts, very difficult to predict. Maybe it's a slightly longer cycle than normal, but it is no different to a regular cycle in this whole chemical space.
If I can follow up on that question. Do you think the restructuring that you're doing in that business will help the margin curve in that business improve from sort of the weaker levels we are at this point in, say, first half 2018? Or is it more like you are trying to offset some of the pressures at the moment in the business, cyclical pressure with restructuring to just maintain the sort of margin structure at the current level?
To clarify where we are on margins, we are impacted by lapping the end of the licensing business. That is done this year, so we're not lapping it going forward. We are also impacted in the half and in the year by some destocking that we have chosen to do to manage our efficiency better. Both of those things impact our margins, and we see the normal movements in the market. Fundamentally, this business is exactly where we expected it to be and where we described it to be at the Capital Markets Day. This is just about managing through coming off the back of the licensing income, which has a set margin and some destocking that we have chosen to do as we run the business more efficiently.
The restructuring sets us up in a position to deliver on the growth that Jane described at the Capital Markets Day going forward.
If you remember, the growth that Jane talked about was that we would grow our sales faster than the market by a percentage point or so and continue to grow our margins as we drive efficiency. I think hopefully that answers your question and gives you the clarification you were looking for.
Thank you.
Thank you. Next up.
Adam Collins of Liberum, please go ahead.
Good morning. I have two, please. First of all, going back to HDD. John, I hear what you're saying about the upgrading cycle in China, but the statement also refers to strong growth in Japan and India, and I wondered if you could just walk us through what's driving that. Second related area is on the trajectory of the improvement in light- duty catalysts that you're talking about. Could you give us a sense of how the market share gains that you've talked about, the 1/3 increase by 2018-2019 in light duty diesel Europe, how that kicks in in the next few quarters? Finally, the statement on Efficient Natural Resources when talking about the margin decline, alluding to increased price competition as well as the impact of fewer licenses.
I wondered if you could just walk us through what the price competition you were referring to is about. Thanks very much.
Adam. Good questions. I think it's probably best because they're quite detailed questions if I hand them actually both John and Jane. I could answer them, but I think it's better to hear it from them. John, do you want to answer the couple of questions on your business?
Yep. On heavy duty in Asia, I guess you're right, Adam. There probably were a few more moving parts that I didn't talk about when I just zoned in on the truck weight limit. We're continuing to transition to some of the Euro 5 catalysts right now. As you'll see in Asia, the catalyst size is increasing, and substrate and sales is starting to have an impact in our sales as well. There's a couple of things that are driving our sales number in Asia. In India, as you say, they are also getting ready for this transition to be able to move from Euro 4 to Euro 6, and we continue to grow our diesel sales there. Japan. Japan has been very strong, and that's just the kind of winning with the customers thing.
The customers that we are with in our Japanese heavy duty business have been doing very well, the combination of all those factors has contributed to that strong sales growth number.
John, can I just add, the statement, Adam, just to be clear, when we talked about Japan and India, it was a light duty comment rather than a heavy duty comment. I think you asked the question in the context of heavy duty.
Okay. I thought otherwise. Okay.
Japan and India was very much a comment about light duty market rather than heavy duty. John's comments about Japan and India hold true nonetheless.
In Europe on the light-duty diesel side of things, we continue to hold to our guidance that we gave at the Capital Markets Day. We expect to have a strong second half in Europe. That will be the beginning of some of the new sales, the new business wins that we expect to see. That will continue through 2018. I think that will also carry over a little bit into 2019 as well. That's when we're going to start seeing that, in the second half of this year, and that'll continue for quite a number of quarters after that.
Is that clear on John's business, you know Adam?
I think so. Maybe just one follow-up on that. To what extent will the business benefit also from more advanced NOx control equipment as we move further into the regulatory phase for new drive emissions? Is there an additional critical time for that in the next few quarters?
I think there's still this transition where people are trying to get ready for the 6d-final legislation. Some people have already made their technology decisions. Some people are still in the process of making their technology decisions. I think there's still a little bit of a mixed effect that could happen when these final decisions are made for the Euro 6d-final.
Okay, shall we move on to Efficient Natural Resources? Jane, do you want to talk a little bit about price?
Okay. The question was around the increase in price competition. I think here we saw an increase in price competition in a couple of sub-segments, particularly hydrogen gas processing. In those segments, it depends a bit when the business comes up because catalyst business isn't something that you get every week, typically. It's discrete pieces of business. If they come up as some of the strategic pieces within a certain time, they're pieces of business that naturally we will ensure that we do win those. Generally, I would say that a trend towards significant increased price competition is not seen across the board. What we're seeing here isn't particularly out of the ordinary. We operate in competitive markets, and we usually win on the basis of the service we provide, the technology, et cetera.
In those couple of sub-segments, we did see some pricing pressures. Otherwise, there's nothing out of the ordinary, I would say.
Okay. Thank you very much.
Thanks, Adam. Good to speak to you.
Next question from Nicola Tang of Evercore ISI. Please go ahead.
Hi. Morning, everyone. Thanks for taking my questions. The first one is on LFP. I just wanted to clarify, when you talk about sort of shift to high energy material, is that to NMC or is that to something else? When you talk about sort of expanding alternative growth opportunities for LFP, can you give some examples of what that might be? Secondly, I saw some headlines yesterday about a patent case between BASF and JMAT being revised on US HDD. I was wondering whether you could just remind us about that and any update you can give on that. Thank you.
Okay. As far as the patent case is concerned, I'm afraid I'm not going to give you anything on that. It's not something we comment on, ongoing discussions. That will get sorted out one way or the other over time. We don't comment about active cases or ongoing cases.
Alan, do you want to talk a little bit about LFP and what's going on there? If you remember our Capital Markets Day, we did talk about having a portfolio of products, of which LFP is one and enhanced lithium nickel oxide another. Do you want to specifically talk about LFP?
Sure. Nicola, just back to your first question. What we've seen, what's changed predominantly out of China is the number of the tax incentives and subsidies and schemes there changed in December and January. Starting late last year and then early this year. It really rewarded a shift to NMC. What we've seen is that for plug-in hybrid systems as well as full battery electric vehicles, the market has shifted from LFP into the NMC. It's not any other material. It's principally NMC 532 and a little bit of 632, but most of what we're seeing today is primarily 532. When we talk about expanding growth opportunities, also what we said during Capital Markets Day is while we see the overall LFP market expanding, and we've certainly seen that hold true over the last few months as well.
There is a narrowing of the applications for LFP. We see that narrowing primarily focused on the smaller battery systems. The systems that would go into mild and micro hybrid applications, 12-volt applications, for example, as well as narrowing towards larger applications. Say, bus applications, where safety is of paramount importance. We're seeing the market change and shift to kind of each end, if you will, of those powertrain platforms moving forward. We continue to work with our customers and develop materials to supply those ends of the segments moving forward.
Okay, thanks. If I could quickly follow up with a question also on the powertrain. You talked about there was a boost in fuel cells because of a specific customer. Is that something that was one-off? In other words, how should I think about alternative powertrain for H2 with the sort of LFP impact and the fuel cells impact?
Yeah, I mean, fuel cells had a very strong start to the year to date. I think moving forward, we're still very optimistic on the business around fuel cells. Again, a lot of that was driven by growth in the stationary market. We're still not seeing much in the automotive market other than, say, a few small niche areas and applications.
We're continuing to broaden out that customer base so it's a bit more diverse than just one customer.
I think you just got to remember that the fuel cell business is still a pretty small part of the overall Johnson Matthey group.
Right.
For a change, which is something that we haven't had before, it is the profitable part of the group.
Yes
Whereas previously it was a loss-making part of the group. Small, but at least it's profitable.
Okay. Thank you.
Yes. Thank you.
The next question comes from Stephanie Nothnagel, Bank of America Merrill Lynch. Please go ahead.
Yes. Thank you. Good morning, everyone, and thanks for the presentation earlier. I have two questions, both on the Clean Air division. The first one is on the European heavy-duty business, where you had a very strong +16% constant currency growth in the half. In the release, you highlight that part of that was due to the ramp-up of new business wins in the last financial year. I was wondering if you could help us perhaps understand how much of that new business wins are now within the base number to get a sense of how the growth looks like into the second half. The other question was on the European light-duty business, specifically the European business where sales were down 5%.
In the release, you highlight that volumes were flat for diesel catalysts in the half, but with a negative platform mix and the negative effect of substrate pricing. Could you possibly split those two items for us so we can get a sense of what the negative platform mix contributed versus that of the pass-through on the substrate prices and get a sense of, again, of what the H2 trajectory looks like? Thank you.
Okay. Just very quickly on the John, the heavy duty one, I'll ask you to answer, but on the light duty side, more than half is to do with substrate pricing. As you know, the substrate price, substrates, sorry, are a straight pass-through for us, that doesn't impact our profitability at all. Those lower prices for the substrate flowed through into ultimately therefore lower sales. It didn't impact profitability at all. As we said, more than half of the impact of that sort of mix between volumes and sales was caused by substrate pricing. Does that answer your question?
That's very helpful. Thank you.
Okay. John, on the European heavy-duty diesel business.
The European heavy-duty diesel business, the business wins that we're talking about are in our extruded business. Those business wins, we started manufacturing some of those products a couple of months ago and that will continue. The ramp-up will continue through 2018-2019, then we expect some further wins. We do expect that growth to continue in that part of our heavy-duty business over the next year or so.
Just like a follow-up. Sorry, go ahead.
Yeah, go on. No, on you go.
I was just going to say in terms of the magnitude of the 16% versus the underlying European truck production in Europe, you would expect to be able to outperform to that degree as we go into the second half, given those business wins are still ramping up.
No, I don't think.
We will continue to out.
Go on, John.
Go ahead, man.
On you go.
We will continue to outperform the market. I'm not sure that we'll remain at the 16% level, but we'll continue to outperform the European heavy-duty market.
Sorry, there's a slight gap between John and me because John's out of the country at the moment seeing customers. I think what we're trying to say is that as we've ramped up, we should continue in the second half to outperform the growth of the underlying market, but it will be nothing like the 12% outperformance that we saw in the first half. The exact number, I'm not sure. It'll depend upon exactly what happens in the second half, but it will be some way lower, but more than four. Whatever the absolute underlying number is, it will be greater than the absolute underlying growth in the market.
Okay. That's very clear. Thank you very much.
Okay, next.
Sebastian Bray of Berenberg. Please go ahead.
Good morning, and thank you for taking my questions. I have two.
Morning
Please. The first would be on the Euro 6c opportunity emerging for Johnson Matthey and autocatalysts next year. Could you perhaps give some guidance of how much front-running of this aspect of legislation there has been, how much of this opportunity is still there to wash through numbers? As a quick follow-up to that, any indication of the sustainability of the growth rates in U.S. light duty in autocatalysts would be helpful. Do you expect to continue to outgrow the market? Second question is a simple one on restructuring costs. Are there going to be any running through the P&L next year? Finally, on the new market segment, could you perhaps give some guidance on how you expect profitability in this division to develop over the next two to three years given the forthcoming investment in battery materials? Thank you.
I'll take the second two questions and then let John answer the first one. Firstly, on restructurings in the P&L next year, unfortunately I can't give you an answer at this stage. We don't plan to have restructurings every year, we certainly plan to have a restructuring. This year we talked about, when did we talk about it? Six months ago at the full year. We continue to drive the business forward and look to take out costs where appropriate as we try to improve the efficiency of our business. We talked to the Capital Markets Day and I think the words we used was a relentless focus on operational efficiency. Sometimes with that relentless focus, you do take out costs for a good reason to drive future performance. That is what we will continue to do.
Whether that will end up with any restructurings next year, it's hard for me to say at this stage. On the profitability of new markets going forward and a projection for the next two to three years, I'm afraid I'm not going to give you that. Not because I try to be difficult, it's just that I think we need to see how this market evolves, particularly on batteries and the level of investment required in the market and how it evolves. You can be assured that we will continue to do the right level of investment to give ourselves the best long-term opportunity. We need to cut our cloth accordingly. We're not going to give guidance at this stage of exactly year on year on year what our profitability is going to be. Sorry, I'm not sure if I've answered either of your questions.
I'm sorry, everything is consistent that we said at the Capital Markets Day. I would go back to that. It sounds a bit like a stuck record that we keep going back to the Capital Markets Day, but we tried to be pretty clear about our guidance as to where we're going. We are continuing to drive the business forward, particularly in new markets based on milestones. Those milestones are as we drive the business forward, have we achieved certain things? Has the market developed in certain ways? If those things happen, then we'll continue to invest and invest strongly. That's the way we're driving that business.
Understood.
John, over to you on the two questions, if I may, on Euro 6C and I think North American light duty outperformance.
In Euro 6C, we haven't really seen much of that come through yet at all. That's good news for the future. We expect some of the filters on gasoline cars to start coming through in our next fiscal year in 2018, and that will continue over the next couple of years. As we've seen, we've talked a little bit about some of the filters that are out there right now are uncoated filters, so they don't have a catalyst coating on them. We do expect more and more customers to move to coated filters, again, to meet the 6d-final legislation as well. That will continue in 2018 and 2019.
As far as the light duty business in Europe, we've seen strong growth in our light duty diesel business related to diesel pickup truck sales in North America, and we continue to see that trend continuing. I think we'll stay on that trend line in North America for the upcoming period as well.
Thank you very much.
Okay, thank you.
Next question from Alex Stewart of Barclays. Please go ahead.
Hi there. Good morning. To go back to the Capital Markets Day guidance, which I know you've sort of noted in the past, apologies for covering old ground, you gave an indication that the margin in Clean Air would come down as a result of the investment you've made to grow your market share in European light duty. That hasn't really come through in the first half. It doesn't sound like you're necessarily suffering anything in the second half. Could you give us some idea of when that 100 basis point margin erosion we might see in P&L? The second question, it's a little bit left field, I apologize, but there's talk of a methanol build-out in Iran and downstream methanol.
Can you just tell us what your approach is to business in Iran and whether it's something you would consider that became available or whether it's off limits given the sanctions and all the other difficulties?
What we need to be really, really clear about is who our customer is or who our customers are, and understand that everything is done in an absolutely ethical and compliant way. Assuming we can satisfy ourselves on all of those issues, of course, we'll do business in Iran, and you would expect us to do that. The other challenge sometimes in Iran is access to cash and getting your cash out of the country in again, in an ethical and compliant way.
Not only do we do quite a lot of work in making sure we understand our customers, but then the banks require not only to see what we've done, but they often want to see maybe even more work. It's quite hard to do business in Iran today, unfortunately. We will only do business the right way and not chase it just because it is an opportunity and then end up regretting it later. Hope that answers your question. On the margin point, since it was Anna that very clearly gave the statement at the Capital Markets Day, I think it's Anna, do you want to give the color again?
What we said at the Capital Markets Day was that the 20 percentage points of share gain that we've made in European light duty does come with some margin erosion and up to a point of margin erosion as that starts to flow through. We start to see share gain come through in the second half. As we've guided in the context of our full year this year, we will see a slight deterioration in margin in the Clean Air in the second half as they were in the first half, but slight.
Is that okay?
Yes. Thank you.
Okay. Next.
Next question from Andrew Benson from Citi. Thank you.
Yeah. Thanks very much again. Just on the page seven of your release, you've given production and sales numbers for light duty and heavy duty. In both cases, the production is materially ahead of sales. I was just wondering how you see the outlook. Do you see any potential perhaps destocking at any point in your customer industries over the next six months to a year or so? Thanks.
Andrew, sorry. I'm not sure. When you say that, I mean, I'm looking at the data on page seven. If I look at global light duty, I'm seeing the changes one on one. I mean, are you talking about the absolute numbers?
Yeah. The sales, 42.7 million units and production 45.5 million. Is that just a normal thing, there's a normal delta there?
There's a normal delta there. There always is. They're able to record production in a much more accurate way than sales. Of course, there are other parts of the globe as well. It's been like that for many years.
Okay. Thanks. My sorry.
Thank you. As a reminder, to ask a question at this time, please press star one. Our next question comes from Mathew Hampshire at Credit Suisse . Please go ahead.
Hi, all. I just had a quick question on the note on contingent liabilities on page 15 of your report. I understand there's obviously legal constraints around it, but I was just wondering if you could give us a bit more detail on what that's about, what part of the business, sales exposure, any companies involved that you can mention? Any detail would be good. Thank you.
Well, I'm afraid you're probably not going to get too much detail from me. Of course, this is a situation that we've been added as a defendant to an existing contract lawsuit in the U.S. alongside a supplier to an OEM. It is in the Clean Air segment where we've supplied a coated substrate, which, as you know, is one of the components of the engine after treatment system. We're not the primary supplier here. The key point to note that I would again draw your attention to in the notes is that we don't believe we have any warranty liability here. Of course, we will, as a result, vigorously defend ourselves. I'm afraid, as you'd expect in this sort of situation with ongoing litigation, there's not much we can say.
Of course, we'll update you in the future if there's anything further that we can or should say.
Thank you very much.
There are no further questions in the queue at this time. As a final reminder, to ask a question, please press star one.
I should actually just go back and just reiterate on that last point. We haven't made any provision either in the accounts associated with that issue. Are there any other questions? Looking to the IR team. Nothing at the moment. Okay. Well, look, thanks very much indeed. Thank you very much for dialing in. Hopefully managed to answer all your questions. Look forward to seeing many of you on the roadshow that Anna and I will be doing with the IR team over the coming days. I think just one thing to remember, of course, when you look at our statement, that we've reaffirmed our full-year guidance. We do expect to see stronger sales in the second half and to deliver a full-year growth of around 6%.
Again, broadly flat operating profit on a constant currency basis as the operational momentum that we had in the second half of last year continues, and some of the cost savings that we've made will offset the non-cash pension charges, that post-retirement medical benefit credit last year, and that we're lapping, of course. We put the interim dividend up by 6% to reflect our confidence in the long-term future that we talked about at the Capital Markets Day. Anyway, look, thanks very much indeed for your attention and your questions, and look forward to seeing you again soon.
Thank you. That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.