Good morning, everyone, and thank you for coming along to the London Stock Exchange this morning. I'm Martin Dunwoodie, Director of Investor Relations at Johnson Matthey, and thank you, as I say, for coming along to everyone in the room and those on the webcast. A little bit of admin before we start. Could everyone turn off mobile devices or onto silent, please? We will follow the usual format this morning. Lots of news, obviously, but usual format. We'll have a presentation followed by Q&A, both from the room and the webcast. Very pleased to welcome today our CEO, Liam Condon, and our new CFO, Richard Pike. I will point you to the cautionary statement ahead of the presentation, and then the agenda today. We will go through—Liam will take you through an introduction. Then we'll run through the financial results with Richard before Liam takes us through a strategy update.
Obviously, very interesting given the news this morning, and then what that means in terms of financial outcomes from Richard, before Liam wraps up with a conclusion, and then we'll come back to Q&A from the room. With that, I'll hand over to Liam. Thank you.
Great. Thank you very much, Martin, and a warm welcome to everybody here in the London Stock Exchange, and of course, everybody joining us online. Three years ago, I presented for the first time here, and I have to say a lot can happen in three years, and I hope today is going to be the most exciting of the presentations I have held so far. I am very much looking forward to doing this together with our new CFO, Richard. Maybe just by way of intro, there is a lot of news today, particularly around the sale of Catalyst Technologies. Just a small backdrop to that, because I vividly recall three years ago being asked when I joined if I would be open and the company would be open to selling different parts of the business.
At the time I said, "I do firmly believe Johnson Matthey needs to focus a lot more. We need to do a better job of simplification, and we need to execute better." We had a divestment plan in place, which we've executed on diligently. You saw the returns from MDC last year—fantastic, shareholder returns there. Now we have a new situation today. What has changed versus three years ago, what I can tell you was there was interest even three years ago in somebody acquiring the Catalyst Technologies business, but the valuation that was on offer then was minuscule compared with today.
My answer three years ago was, "There's no point in selling other parts of the portfolio because we will not get the value for them," because in our core underlying business, the margins were actually too low, and the growth trajectory was not on the right pathway. We have invested a lot in the past three years in fundamentally reshaping Johnson Matthey. If I take Catalyst Technologies as an example, three years ago, this was a 7% operating profit business. 7%. We were losing market share. It had a GBP 30 million EBITDA. If we had sold Catalyst Technologies at that point in time, we would have been lucky to get GBP 400 million-GBP 500 million for it. Fast forward to today, our team, revamped team, has done an absolutely fantastic job improving operational efficiency in the business, driving the margin. We increased sales by 50%.
We doubled the margin from 7% to 14%. We trebled profitability. Now Honeywell has come and said, "We recognize that. We see the true potential of that business, and we're willing to pay full price for that." That is what we looked at with our board and with our advisors, and we concluded that is a good deal. That is the backdrop to the first announcement that we're making today, the Catalyst Technologies sale, which I'll talk a little bit more about in a minute. The second piece is, what about the rest of JM? We're gonna talk extensively about this. We are in much better shape than we were three years ago. Three years ago, the outlook for clean air wasn't so rosy.
Again, a business with 8% margins, around that ballpark, and concerns with the energy transition, electrification, that this business was going to fall off a cliff sooner rather than later. That has fundamentally changed. Our business is much stronger today, much higher margins, almost 12% margin this year. We will be mid-teens at the end of this year and going towards 16%-18%. Fundamentally different business. Three years ago in platinum group metals, we have—we were suffering from old refineries that were clogging up working capital, preventing us in our ability to generate cash. By the time this deal closes, we will be commissioning our new world-class refinery that will allow us a step change in cash generation. This is a fundamentally different JM going forward than it was three years ago. The rest of JM has a fantastic future, and we will talk about that as we go through.
The key point is we're incredibly value-focused now going forward, and now we're able to promise cash returns, which we couldn't in the past. Richard is going to expand on this extensively, what gives us the confidence in this and the confidence to be able to commit to delivering materially enhanced shareholder returns. Quick backdrop on the deal, as you've seen, very big deal. GBP 1.8 billion, if you looked at the market cap yesterday, this is about 80% of the market cap for less than 20% of the business. This is quite a compelling valuation. You can look at it from a multiple point of view in different ways. We look at it, originally from a reported EBITDA point of view. We come to 15x . We have agreed with Honeywell on a standalone basis.
If you add in additional cost, we'd say 13x , and Honeywell will have another multiple based on synergies and taxes as well. Either way, it's a great multiple for this business, particularly if you compare with the multiple of Johnson Matthey today. This is a tremendous valuation. Net sale proceeds. Of the GBP 1.8 billion, GBP 200 million will go in tax and horrendous advisory costs and other elements. Of that net GBP 1.6 billion, we will be returning GBP 1.4 billion to shareholders. Based on yesterday's share price of about GBP 14, that's GBP 8 a share will be going back to shareholders. We have a new—and Richard will expand on this—a new net leverage ratio or a debt leverage ratio of 1-1.5, within which we'll be comfortably within that. This is, of course, subject to regulatory approval.
There is almost no overlap between the two businesses, so we expect this to be relatively straightforward, but that is for the regulatory authorities to opine on. We expect it to close in the first half of the calendar year 2026. Until then, of course, Catalyst Technologies remains a part of Johnson Matthey, and Johnson Matthey and Honeywell remain competitors, so we run the businesses separately. We would expect to close and have that transition then completed in the first half of next year. The remainder of JM, as already outlined, the focus here is going to be on our core competencies.
Those of you who are around in 2022 will remember what I spoke extensively about, the need for Johnson Matthey to focus on where we're really good and do it really well and not get distracted by lots of other things. Where we're world champions, clearly platinum group metals. That's where we will remain world champions. With our new refinery coming on tap, this opens up entirely new possibilities for Johnson Matthey. Clean Air, as I already outlined, has made really tremendous progress in the past three years. It's a different business than it was three years ago. Going forward, we have a lot of confidence that it's going to be even stronger.
We'll talk a little bit about pockets of growth optionality that we have in the business, but my message is here we have a much stronger PGM and Clean Air business going forward, which will drive a tremendous step change in our ability to generate cash and to commit to cash returns for investors. Beyond, let's say, the GBP 1.4 billion that will go back to shareholders as a result of this deal, what we are committing to, and Richard will expand on this, is GBP 200 million in cash returns sustainably every year from 2026, 2027 onwards. That is a firm commitment going forward, and I think an important part of our overall JM narrative going forward. What can you expect by 2027, 2028? If we look at pro forma 2027, 2028, we won't have Catalyst Technologies.
What you can expect is mid-single-digit CAGR in the pro forma operating profit. What you can expect is that we'll be generating sustainable, free cash flow of at least GBP 250 million. As I just alluded to, we'll be returning GBP 200 million a year sustainably to shareholders from 2026, 2027 onwards. That is just kind of the headline news of what we want to announce today. Now Richard's going to take you through the past year, maybe got a little bit lost in the excitement of the announcement of the sale of Catalyst Technologies. Despite some concerns at half year, I'm really pleased how the team dug in and ensured that we achieved our guidance for the full year. We actually had a really strong second half, which gives us great momentum. To elaborate further on that, I'll hand over to Richard.
Richard, over to you.
Good morning, everybody. Thanks, Liam, for that. As Liam said, I'm sure you're much more excited about the going forward position rather than looking backwards. I think there's some really important points in here in terms of the year that we've just ended, and particularly the second half, in terms of our momentum as a business. I'll look to try and draw that out as I take you through the slides. Just touching the highlights, I mean, difficult backdrop, particularly in automotive. You know, that's sales down like for like 2%. Virtually all of that's in Clean Air. Despite that, our underlying operating profit was still up 5%, primarily as a result of self-help measures.
If you look at our free cash flow, strong free cash flow, but a lot of that came from the disposal of the medical devices business. Nevertheless, we actually did generate positive free cash flow for the year as a whole. I'll come back to the first half and second half, 'cause if you look at the swing from the first half to second half, we generated a GBP 400 million improvement in cash flow sequentially from half one to half two. We have got quite a lot of one-off items in our numbers this year, and I'll come back to that in a slide just to explain why and what they are. Our net debt's down to GBP 799 million, so pretty comfortable, 1.4 times leverage. That's after returning just under GBP 400 million to shareholders during the year.
I can confirm that we have now completed our GBP 250 million share buyback. Yesterday, as a board, we confirmed maintaining the dividend at GBP 0.77, which is GBP 130 million of dividends for the year as a whole. I am not gonna labour the P&L 'cause actually I will cover most of the things in the highlights or in the detail that we come back to in the next few slides. I will move us straight to sales. You can see here the detail. As I mentioned, you know, we have had an 8% decline in Clean Air. Most other areas of the business have moved forward. Clean Air basically, you know, that is a function of the global automotive production environment. I do not think there are any surprises there.
You can see in R&S a bit more of a breakdown between the various subsegments and geographies. On PGMs, we had a strong second half, as Liam said, particularly on the refining side, which has driven us forward in that regard. Catalyst Technologies, you know, under Maurits' leadership, you know, got a stellar record, as Liam said, in terms of the last three years. And this year is another continuum in that vein. Strong licensing revenue growth and actually strong catalyst growth as well as a result of new customer plants coming online. And hydrogen has gone backwards. I mean, we all know where the hydrogen market is. A lot of this was first half weighted as a result of destocking in the fuel cell area. Moving on to profit.
Again, I'm gonna focus quite a bit on the second half. Clean Air, as Liam said, it's both improved as we normally do, first half to second half because of seasonality. More importantly, 13.2% margin in Clean Air in the second half. You'll see from the R&S the sort of revenue breakdown by sector. Clean Air went backwards in the second half, similar to the first half, but obviously increased profits quite substantially. That's all about focusing on operational improvement, commercial excellence, getting our overheads down, all the things you'd expect in this type of business. I think we've got a real drumbeat of activity there that positions us well for going forward. PGM, you can see that we near doubled the profitability in the second half.
You know, I think as Liam said, I think there was a bit of nervousness at the half in terms of whether or not we can actually do that. I think there's been really good focus in the business in terms of delivery on that number. Catalyst Technologies, although slightly down in the second half, were actually up in the second half versus last year as a result of the sort of momentum in the business. And hydrogen, really important I think. You can see here a halving of the run rate of our losses in the second half. Against our pro-promise that we'll get to break-even position in the final quarter of this year, we're moving in the right direction.
If I then come to the profit bridge and sort of explain why and underneath those headlines by sector, what is it that's driving it? In very simple terms, you can see here if you go to the 381 number, our underlying profitability for last year when you strip out the divestments and compare it with 399, basically our outcome for this year before FX, basically you've had about GBP 60 million of headwinds, automotive volumes, a little bit of metal pricing pressure, mix overall, and obviously some degree of inflation. We have more than offset all of that through our cost reductions under the transformation programme. That, I think again, coming back to my point about reasons to believe, gives us that drumbeat of activity and the ability to build on this as we go forward is really important for us.
I said I'd come back to the non-underlying items. Firstly, you know, a large exceptional gain in terms of medical device components. You know, we sold that business for GBP 592 million, I think, and generated a GBP 491 million profit. Large elements of our items, large value creation from that area. Equally, we have, because of where the markets are, we've had to basically take some write-downs. For the reasons we've previously talked about in terms of hydrogen, our profitability forecasts have moved to the right. Basically, when you look at accounting standards, International Accounting Standard 36, if your profitability does not generate sufficient levels within a defined timeframe, you have to take impairment on the assets. That is what's going on here with hydrogen. We have a couple of hundred million tied up in hydrogen.
We've written off around just over half of that, of that balance in the year. That's in no way indicative of our actual belief in this business going forward. We think there is optionality here. There's, you know, great growth options. When the market comes back, we've now laid down the assets to actually take advantage of that. Unfortunately, that market isn't there today, and hence this impairment. We have then had other impairments. In China in particular, we've impaired our China refinery. I think that's partly because the market has changed over the last couple of years in terms of the competitive environment. Partly it's linked to hydrogen because a large part of that capacity was actually there to underpin the growth in the hydrogen market, which just isn't there today.
Clean Air, you know, as an ongoing, you know, not only have we been driving operational improvement, but we have also been looking at footprint. We have taken out nearly 20% of our lines over the recent past. Hence, there is a write-down on some of those assets. We have also had some degree of write-down on [audio distortion]. The restructuring, most of the restructuring charges, is linked to our transformation programme. GBP 70-odd million of that is people costs associated with the GBP 200 million run rate moving forward. Moving to cash, I think there are a couple of things to draw out here. Firstly, you know, there is an ongoing theme, you know, from shareholders with JM about, you know, you generate cash, but where does it go? There is a bit of that here if you look.
You know, we've generated GBP 572 million of EBITDA, and then we've driven another near GBP 90 million out of working capital in the year. Actually, it's been eaten up in CapEx, interest, and primarily restructuring costs and pension contributions. When I look forward, you'll hear me talking about these areas. How are we going to actually make sure that we're driving at least or more profit? How do we actually change this CapEx number? How do we actually get working capital moving to a different place so that actually we are generating positive cash flow year on year? CapEx in particular, we spent GBP 1.25 billion on CapEx over the last four years. If you look at our return on capital, it's not high enough. All these things are a real focus for the business.
Positives though, I mean, as I mentioned, the disposal of medical devices business, really, really positive for cash flow. And we've returned nearly GBP 400 million of that to shareholders during the year. This is the point I mentioned earlier in terms of the swinging terms of cash flow. I think this is a really important point as well as the drivers of profitability. That cash outflow in the first half, which in part was to do with our maintenance shutdowns in PGMs, but nevertheless, that swing I think is indicative of actually a shift in focusing the business towards cash. Actually, you're gonna see that as a continuing theme as we move forward. To actually then move on to sort of this year, where are we seeing things?
If I talk about like for like, put tariffs to one side for a second. Basically, we've delivered 120 basis points of improvement in Clean Air. That's moving us in the right direction. As Liam said, we see ourselves moving forward towards sort of mid-single digits or 14%-15% margins in the coming year. Actually, we've generated GBP 400 million of further free cash flow. That's now cumulatively GBP 2.4 billion. This ongoing drumbeat of improvement activity and underlying profitability is what gives us that belief to generate the GBP 4.5 billion that we've promised over the period to 2031. Key focus area in PGM, Louise coming relatively new into role, is getting this refinery built. It's fundamental. It's at the core of our business. It's at the core of our wider business, not just PGM.
We've got another 12 months or so of build, but, you know, we expect to sort of move into commissioning phase by the end of this year and then to get through commissioning during the first half of next year. We have real confidence in that as well. Liam will come back to our reasons to believe around that. Actually, I think we're in pretty good shape. What more can I say about Catalyst Technologies? I mean, at the end of the day, the performance we've had ultimately has led to a situation whereby, you know, it's become a really attractive asset. I think the value we've achieved for that business is very strong for JM, and we think that's a great home for the business going forward.
You know, it'll be part of a broader business in a similar space and a much bigger group. We think Maurits and the team are gonna enjoy that new home once we get there because it will be part of the group for most of this current year. And hydrogen, as I mentioned, the halving of losses during the second half puts us in the right shape to actually be moving forward towards the cash break-even position. I'm gonna now hand back to Liam. When Liam's sort of taking you through the key areas, I'll come back on actually what does that mean going forward in terms of the financial position for the group.
Great. Thanks a lot, Richard. It's hard to imagine that Richard's only been with us for a couple of months.
Feels like three years. And I'm, I'm not sure if Richard sleeps, but if he does, I'm convinced he dreams of costs, cash, and CapEx. And it's great to have him on board to help sharpen our financial profile. The question we come back to now is, is there a life for JM without Catalyst Technologies? What I'll put forward here now is we have a fantastic future for JM, again, built around our core competencies and where we are really strong as a company already today, leading market shares, big moat. I'll talk about our ability to further improve performance going forward. You've seen this, but what's important beyond our ability to improve performance is the step-changing cash generation that's going to be possible.
When Richard comes back, he'll elaborate on the levers and the proof points that we see to enable that. If we look at the new JM, this is pro forma, basically what you would get. It's about GBP 2.8 billion sales, roughly GBP 300 million in operating profit and an operating margin of 10.7%. As I mentioned, it's based around our core of PGMs and Clean Air, where we have absolute leading market positions in all the spaces that we play in today. That's the fundamental proposition. I'm gonna go through each one. First, take Clean Air, little bit of backdrop. I think the most important thing here is, if you look at our overall sales, the operating margin I mentioned started in 2022 at 8.7%.
We're now at 11.8, expecting teens this year, mid-teens this year and going forward even stronger again. We are the kings of diesel. It's about 80% of our portfolio. The area where we have the highest market shares by far is heavy duty, and that is the area, of course, that has the longest longevity in the market, regardless of whatever the pace of electrification is going to be. Our ambition is to maintain our really strong position today, but to significantly grow margin going forward. Now, if you step back and look at the overall market, yes, Clean Air is kind of looked at as a sunset industry. I gotta tell you, that sunset is a long, long, long way away.
If we look at the forecasts that have changed in the past three years, you can see there is incredible longevity in the business. If we compare the most recent automotive volume forecasts going forward versus 2022, you can see actually an additional 19 million light duty ICE, internal combustion engine vehicles, between 2027 and 2034. That is a huge uplift versus what the original forecast was. Great longevity. What we can see as well is that the winning segment in the market today is actually hybrids, as a kind of halfway between an ICE and a full electric vehicle. That is a space where we are winning market share. That is a space where, of course, you require an emission control system. This is good news for us. I already mentioned heavy duty, really strong position for us.
Legislation will continue to play an important role in different geographies. Everybody wants cleaner air, and that is going to help as well going forward. Overall, the market looks like it will have a lot more longevity than originally forecast, and this is an important backdrop for us. Now, our strategy within this is to maintain our really high market shares in heavy duty and light duty diesel and to selectively gain market share in light duty gasoline. Selectively means profitable market share, so this is a very specific target of our business. Our win rates are exceptionally high on the diesel side and have been significantly improving on the light duty gasoline side. We have a market share of about 20%. Our win rate today has gone up to about 50%.
This is very encouraging for the go forward profile of JM. We're prioritizing key long-term partnerships. We've done an extensive assessment about who we think the winners of the future will be and we're aligning with them and ensuring we have strategic partnerships in place, and whether that means helping them from a technology co-development point of view, because a lot of OEMs have actually outsourced or kind of downgraded their technology departments, and they actually need more support going forward. We can do that for them. Some of them are looking for manufacturing capacity commitments going forward. Security of supply is hugely important. We can make those for our long-term strategic partners.
This is a clear strategy going forward, where I think that the team has done a fantastic job, another proof point in the current environment, which is really ugly for automotive. We've been improving our margin, our profitability, and our customer, our net promoter score. The valuation of customers of us has jumped up significantly. This is a really strong proof point of how well we're doing on the commercialization side with Clean Air. We expect for this business, over GBP 2 billion by 2027-2028 in sales. Of that, 90% has already been won. This is a humming business versus where it was three years ago. I spoke about driving the margin further. We have multiple levers for that. On the operational excellence side, we're adjusting, particularly our overheads, SG&A.
We're also adjusting R&D. There, there's multiple areas where we can still improve further. We're optimizing the manufacturing footprint. We've come from 16 to 11 plants. We've halved the number of lines we have, and that journey will continue over time. That gives us great opportunity to continuously improve the margin. We're reducing CapEx further. This is going now down to a CapEx to depreciation ratio of about 0.5. All of this will contribute to a significant margin uplift. Again, look at the trajectory we've been on, 8.7% to 11.8% now towards mid-teens at the end of this year, up to 16%-18% by 2027-2028. This is new, this ambition. I'd say if we came out with this three years ago, people would've laughed if you start at 8.7%. Look at the proof points along the way.
This is something this team can deliver. This just breaks down that margin improvement, where it is happening, where it is coming from, the proof points of the past, and where it will come from in the future. There is a lot of room on the overhead side for us to squeeze out more here. If you think of the new JM, without CT, of course, we are going to have an even more efficient overall setup and Clean Air will benefit from that as well. What will this business give you by 2027, 2028? We will remain the kings of diesel and maintain our number one position. We will selectively grow our share in light duty gasoline with a strong focus on hybrids. We will continue on the efficiency path where we still have plenty of opportunity to improve further.
As mentioned, sales of over GBP 2 billion and a margin of 16-18% by 2027, 2028. That is again a commitment from our side. This will continue going forward. This business has incredible longevity. There will be enormous cash flows going into the future as well. This is just the outlook to 2027, 2028 to underline how strong this business is today versus actually an 8.7% margin business that was actually declining in 2022. Onto PGMs, which I have always classified as the foundational business of Johnson Matthey. If you go back the 200+ years of history, this is really where it started. There is nobody in the world who understands the chemistry and catalysis of platinum group metals like Johnson Matthey. We have a world-class research and development center in Sonning.
Every time we bring our customers there, they're blown away by the capabilities of our people, what we can do, the new applications we're constantly working on. This is really a treasure trove for JM. It is seen, this business has developed in multiple forms over many decades and literally hundreds of years and will continue to grow in the future. I'll outline that going forward. There are three parts to the business. We manufacture catalysts, we recycle, we're the world's biggest secondary recycler of platinum group metals. We have a trading business. We manage metals, precious metals on behalf of our customers. Very high operating margin in this business. If you step back and say, kind of what's gonna drive the top line for this business going forward, like why would this grow?
Because it has been dependent, to a large degree also on automotive, on ICEs. If ICEs over time, I said it'll take a long time, but over time, if they decline, will this business grow? We believe absolutely yes, it will. First, it'll take a long time for ICEs to decline. Second, there is a lot of new higher value applications for PGMs, for example, in the life science technology space, biocatalysts for pharmaceuticals, for agrochemicals. There is a multitude of areas, defense uses, aerospace, wind turbines for the production of sustainable aviation fuel. You can use PGMs. There is no limit to the possibilities for PGMs. The limiting factor has typically rather been supply as opposed to our ability to find new applications. Lots to look forward to here. On the recycling side, about 50% of the global PGMs supply comes from mines.
It's dug out of the earth every year. Most of what we do is actually recycled product. We are at the end of the day a sustainability company. What we do is constantly recycle precious metals. We're like an above-ground mine, actually located in the U.K., serving the world. We ensure that we have maximum efficiency with this recycled product. Of course, exceptionally low carbon footprint, much lower cost than primary mining. Over time, it is expected that supply will reduce from primary mines just due to cost, sometimes also environmental pressures, and demand for recycled product will increase. We expect, and I'll touch on this, sales just to give you a benchmark of about GBP 400 million by 2027-2028 for this business.
The recycling piece, which I just referred to, is really important for us because it is part of our overall circular business model. We manufacture product, we recycle it, we trade the metals, we manage the metals. That is a full value proposition for customers. That is what differentiates us from others because we have that full value proposition. Our issue is we have a really old, massive chemistry kit in Royston. It is a really old refinery, has served us very well for about 60 years, but it is at its end of life. It is prone to breakdowns and we get working capital backlogs, buildups, and that prevents us from churning out as much cash as we should. That has been a real issue for us as it has gotten older.
Of course, every year that goes by, it gets older and the propensity of the refinery to suffer from backlogs just increases with time. We have invested significantly. Our biggest CapEx investment ever has actually been in building a new world-class refinery to replace this asset. If I compare with three years ago, we were three years away from it. Now, we are looking at this going into commissioning end of the year, beginning of next year. As the CT, the catalyst technology deal closes, we will be commissioning this new world-class refinery, which is one of the key elements that will allow us a step change in cash generation. This is what I mean when I say JM is in a fundamentally different position than three years ago in a much stronger position going forward.
This new refinery, we've got the best of JM, is making sure that this commissioning is going to work in a very successful manner. It's a big CapEx project and there's always some teething issues with big CapEx projects. We have the current refinery ongoing until the new one is up and running. We're completely mitigated from a supply point of view. We have all our expert teams on it and we don't necessarily have new processes. It's just a new build. We're taking extensive care and not avoiding any necessary investment to make sure that the startup of this is as successful as possible. Huge effort going in here. It's on time and it's on budget, as we speak now. We would expect it then to be fully or to be operational by end of 2026, 2027.
The benefits of this new refinery are enormous. It's, of course, a much more efficient plant. We can take in higher volumes. We can deal much better with peak volumes. We'll have safety and sustainability benefits. Of course, we'll have clear working capital benefits as well. A lot to look forward to with this new plant. One thing that's not to be underestimated, this was our biggest CapEx investment ever. That CapEx is then done over the next 12 months. Our CapEx spend, and Richard will elaborate on this, our CapEx spend comes down significantly because we've made the investments we need to make. This is also part of the cash generation story, one of the key elements why you will see a significant uptick in cash generation going forward.
This just to briefly explain how we will be transitioning from the old to the new refinery. We wanna be clear about this. If you look at where we are today, the next one, two years, as we go into that commissioning phase, we will have, for a small portion of time, we will have some additional cost, of course, because we're running the old refinery and we're starting up the new refinery at the same time, which is absolutely in everyone's interest because we need to ensure supply security for the world, for our customers. We will have some additional cost for a period of time. We'll have lower metal recoveries in that period, and although we'll have lower operational costs, we will start to have depreciation kicking in from 2026, 2027, which of course you don't have in a 60-year-old plant.
We have a transition phase of one- two years, which will impact profit, the underlying profitability of PGMs. Then going forward, what you have is a new world-class refinery, complete new solid foundation for JM going forward, where we will be growing the refining volumes, as I said, as I alluded to earlier, based also on market growth. We will be growing our position in high value products. The mix will change over time. We have that full, fully circular business proposition that is really important for a lot of our customers and all the benefits that I alluded to with the new refinery. Ultimately, that will be driving growth over time.
There is a period in between where we just need to manage carefully, but that is already baked into the JM overall outlook that I gave you of mid-single digit underlying operating OP CAGR by 2027, 2028. Just to flag that openly where we see that. What can you expect from PGMs going forward? Actually, our position as the world champion in this space will only be strengthened with the new refinery. You can expect sales of around GBP 450 million and a margin of around 30% by 2027- 2028, and very strong cash conversion, which is not something we have seen due to the old refinery from PGMs. Now going forward, you will start to see that cash conversion. Very strong means close to 100% here. A lot to look forward to with the PGM business.
Now, I don't wanna hide this, because we believe we've got an incredibly strong core. It would also be remiss of me not to highlight that there are significant growth elements within Johnson Matthey, which I would argue are basically for free in the stock today because none of it is in the valuation of the stock. Within Clean Air Solutions, where basically our core competence is emission control systems, we do have new uses, new applications, whether it's hydrogen and internal combustion engine trucks that require an emissions control system, whether it's diesel generators powering as backup power for data centers, they all require an emissions control system. This is actually a really nicely growing business for us today. There's shipping. There are plenty of opportunities here that are embedded within Clean Air today beyond the pure automotive ICE business.
That's something that we're quietly driving. PGM products I already mentioned too, we see a shift towards higher value. Over time, towards higher value products and hydrogen technologies, as Richard already mentioned, we've made the investments. We have a production facility ready to go. We have signed new collaboration agreements, for example, very recently with Bosch. As the market picks up, we will grow. We don't need additional investment to grow. What these three areas have in common is they're all based on core competencies. They all leverage core technology of JM and they all use existing CapEx. These do not require new CapEx. This basically gives us great additional growth optionality, without necessarily having to put CapEx behind it.
There is, in addition to the very strong core that we have, this growth optionality baked into the portfolio already today. Just before I wrap up on milestones, one point, the overall organization as we go forward, the transition now with CT gives us another opportunity to sharpen the edge of the organization even more. I spoke a lot about improving the commercial muscle. You've seen that in Clean Air. You've seen it in CT, how we've been improving. If we take out CT out of the company, we'll have stranded costs. For sure we can afford then to right-size the organization further and make sure it's fit for purpose. There, I'm again very happy we have Richard on board, who's going to help us a lot with a zero-based budgeting approach, making sure we're best in cost.
And, basically, also aligning our incentives from a management point of view, where traditionally we've been focused on underlying OP as a key kind of KPI for us to measure performance. That will continue, but going forward, we'll have a much stronger emphasis on the cash component and on ROIC as well. We're aligning incentives there to make sure that this also fits exactly with shareholder interests. The final piece from me before I hand over to Richard to explain how this translates into financial outcomes: we have new milestones. Again, take the milestones as commitments from our side. Take them also as proof points along the journey beyond the pure financials that we'll be reporting every half year. This will tell you, are we strategically on track or not?
There are financial nature, operational nature, and of course of a sustainability nature as well, whether it's safety, or our own emissions or employee engagement, 'cause that's hugely important for us overall as a company, also particularly for all of our employees as well. You can take these as our milestones going forward that we'll report back on transparently, as we proceed through the year. With that, I'll now hand over to Richard, who's going to take you through the financial outcomes of the strategy that I've just presented. Over to you, Richard.
Thanks again, Liam. Just before I jump into the financials, I just thought I'd take a couple of minutes to sort of explain why I came here. If you look at my background, I've spent the majority of it in internationally diverse, primarily manufacturing underpinned businesses.
I enjoy this environment because in businesses that make lots of items of similar nature, there's always the opportunity to drive process improvement and underlying efficiency and help the business be better. When I looked at Johnson Matthey from the outside, before I spent quite a bit of time with Liam, I looked at him and thought, considering the market positions that we've got both in PGM and Clean Air, we do not seem to make the sort of margins I expect us to make. If I look at basically how we've deployed our capital, the return on capital level looks too low to me. When you unpick it further, I think, you know, Liam's talked about where we've come from over the last three years.
I think we've made some great strides, but we're still in sort of relative infancy of actually, you know, our improvement activity. I think that's interesting. That's where I came started. Inevitably, over the last three months, I've been reasonably busy, helping the team on this, on this deal. I have actually got myself out and about. I've not been distracting the CT business by being out and about 'cause they've been quite busy. I've been to pretty much most of our European plants, across all the other areas of the business. The reason I've done that is, one, I like to see where we are in terms of actually what's, what's our housekeeping like, what's our safety record like, what's our continuous improvement, you know, mindset like.
'Cause those things that actually drive profitability, you know, if you can see that mindset, how can we be better and are we doing it every day? Those are the things at the heart of a business. I see lots of reasons to believe here. We've got lots and lots of very bright, very inquisitive people who want to do a good job. We've got the assets laid down to actually position ourself well to face into the markets, but we've still got a lot of opportunity to improve. I'll come on and build on that in terms of where we see that improvement and why I believe that we've got a solid plan here for moving forward. Just capturing really the main areas of things that Liam talked to, you know, improving clean air margin is going to be important, first cornerstone.
Anish, as I said, he's got that drumbeat going. We're not only just driving operation improvement, but we've got some real commercial muscle in terms of how we face into sort of the inevitable price downs that you get from automotive customers. I see some real momentum there. Louise has got the team very, very focused on getting this refinery built. Fundamentally important, commissioned well, 'cause quite often in these large multi-year builds, what you see is that even though you've got all the right components, when you come to put it all together, it doesn't quite work just as you expect it to. Actually, as we've got, there's nothing in this refinery that hasn't been done before, but this is quite unique in terms of the way we're doing it.
Moving from batch plant operations to continuous is quite innovative and will actually step changes. We just gotta make sure it works. Liam's talked about, they have said the overhead side of things. Anish has already got a program underway and announced within the business that'll drive about GBP 35 million of overhead reduction in a year. That's actually one of the key things that'll help drive the further improvement this year. There'll be more to come beyond. Over and above that, if you notice the different multiples that Liam talked to about, you know, around the CT disposal and the run rate of EBITDA, there's about GBP 17 million of stranded costs, of costs that we charge from the group into the business today that isn't going with the business. That'll be an area of cost that we take out.
More broadly, as Liam said, as we right-size the organization for where we're going, there will be other areas of activity where we need to be more efficient. We're on with that activity now. I touched before on capital investment. I think there's a big opportunity here for us. Yes, we need to get the refinery built over the next 18 months, but then we've got huge opportunity to actually do the right things for the right amount at the right time. Working capital I'll come back to as well, because over and above the benefits we'll get from the refinery, there's quite a lot more opportunity in JM. CapEx first, this is just quite stark, you know, that I, as I said, we spent, including up to 2025, we spent GBP 1.25 billion.
Over GBP 300 million a year, we're spending slightly above that level at the moment because of the intensive amount of activity in Royston. As you move into next year, that starts to come down because as you move into the commissioning phase, then as you move into 2027 and 2028, we're really moving to a period whereby we've got brand new asset in PGM. Actually, we're moving back down towards depreciation levels. Clean Air actually has the footprint it needs. Yes, we need to maintain those assets, but we certainly do not need to be spending ridiculous amounts of money. We think around about half of depreciation is about the right level for that. We've already promised that we will not spend more than GBP 5 million a year in HT.
You're getting to levels that are really at or below depreciation. That will not just be maintenance spend. There's still quite a bit of opportunity here to actually spend money on process improvement. We'll be actually doing that in areas where there's short payback and operationally enhancing opportunities. That's the first area. Working capital, you might think, surely working capital's easy, you know, things. There's a lot of working capital in JM and partly as a structure piece, you know, to a certain extent, because we obviously trade metals, our actual sales are much higher than basically our sales excluding precious metals. That drives working capital to a degree. Hence, we need efficient refineries to actually work through that working capital. If you do not, it can build up quite quickly.
By getting that refinery built, we will actually drive that working capital down. Over and above that though, if you look at all areas of the working capital in the business, there's actually inefficiency in JM. I'll just give you some examples 'cause they're actually really quite simple examples which will bring it to life. There's some more complicated stuff as well. On the whole, you know, across Clean Air, much as we do great things across the piece, on average, we're paid 20 days later than terms across our customer base. Across the whole of the group, because we actually have standards to pay people on time and, you know, people want to do that. In a lot of cases, we pay people earlier than actually they're entitled to be paid. There's no need to do that.
That is partly to do with payment runs and just approach. If I look to the payable side, our top 200 indirect suppliers, the average terms are 31 days. That is very low. I would expect those to be 45-60 days in any business. On the inventory side, there is more complexity on inventory. You know, we have a lot of sites, we have various cross business things, but we do not have as solid a sales and operational planning process as I would expect us to have. By fixing that, we will actually drive a lot of reduction in inventory over time. There are just, I mean, there are lots of examples I would give you, but those are just some, some of these try and bring it to life a little bit as to why we see opportunity.
In this area, we've already driven down GBP 90 million during the current year. I see over and above that, another GBP 250 million or more of opportunity over the next couple of years. That is quite important, I think, because in a period where we're spending more on CapEx during the current year and into next year, we can actually offset that by working capital improvement so that more of the EBITDA that we generate turns into cash. This is where we are. We've just generated GBP 36 million. Yes, we haven't driven GBP 200 million yet, but hopefully I've given you the reasons around actually we can drive more cost out of the business. We can transition towards a much lower CapEx environment. In the meantime, we can also drive more working capital.
Those are the main areas of belief for me on top of the really strong base business that we have as to why we can actually start generating this cash flow going forward. You move on to, okay, if we generate this cash, what are we gonna do with it? I think our priorities at the moment are, number one, let's get the Royston refinery built. Fundamental to the business, we need a very consistent world-class facility there. That's gonna be front of mind. Then we drop down to the CapEx levels of at or below depreciation that I described. We expect to generate between now and 2027-2028, north of GBP 200 million to around about GBP 250 million in 2027-2028.
That gives me belief that actually we can today, with all the things we have seen improving in the second half and all the opportunities that are there for us going forward, commit to delivering GBP 200 million of shareholder returns from 2026- 2027 onwards. At the moment, we think that probably makes sense to be about half dividends, half capital returns. I mean, obviously some of this will depend on how we return the monies from the CT disposal. You know, that is likely to be in part special dividend with a share condensation and part capital returns just because of the liquidity in our stock. Actually, that, flowing from that, depends on how many shares in issue we have and what the level of dividend share is as to exactly what this mix is.
At the moment, I'm not gonna try and commit to an exact number because I want, Liam and I want to talk to our shareholders about what, what do they want here. We'll try and find the right mix that actually works for our owners in this context. That's sort of broadly where we're thinking. In organic investment, what I don't wanna do is give you the impression that we're gonna generate this cash and suddenly rush out and go and spend a load of money on new things. We're gonna focus on our core. For the next two years, we're very much gonna focus on what's within our control. There's a lot more we can get out of the assets that we have laid down.
If there is truly compelling opportunities, we would not wanna say we will never do it ever, but we are not thinking about anything meaningful. There is bolt-on opportunity here and things. The next two years are very much about focusing on getting the things that I have just described really working well and then giving ourself the opportunity to grow further from there. I skipped over the fact that we have brought our leverage ratio down to one to one and a half times. I think at this point in time, there is uncertainty in the market. We generally operate between one and one and a half times if you look back over time anyway. I think just right now that remains the right sort of level to be at. We will return the 1.4, that will leave us in that range.
will kick off the cash, return more monies to shareholders. If actually after a couple of years, that means that actually we feel confident that we can return more and stuff, but we will look at that then. For the next couple of years, I think this is the right leverage ratio for us. Coming back to the outlook. A few things. Firstly, we expect another year of progress in terms of underlying operating profit progression. Despite the ongoing challenging market environment, we expect the things that actually are within our control to offset the things that are coming at us from the outside in a negative manner. We are assuming a full year from CT.
We will not necessarily play out that, but basically because it is all reliant on regulatory clearances and we do not know when they will come through, this is our base starting point. As you will see from ours and Honeywell's announcement, we are guiding that we expect the deal to happen in the first half of 2026. Clean Air we have already talked about. Anish, in terms of the activities he is driving through with the team, will deliver between 14%-15% underlying operating profit margins this year. PGMs will go backwards. Basically, we have had quite a bit of metal recovery, as I mentioned, the second half of this year. We do not expect to have the same amount in the current financial year and therefore there will be a slight step down. Hydrogen, as I said, basically is moving in the right direction.
We'll still make a loss in this year, but as we exit the year, we'll be at profit break even in that business. And CT, basically we expect to actually continue in the same vein. You know, it's, you know, it's got some challenging targets, but, you know, for the last several years we've delivered on it and we're hoping it'll be second half weighted, but we're expecting another good year again from CT. And then over and above that, as we've touched on, there will be further overhead reduction to come out of the business. And that to the extent that we've got, you know, some external drivers that are putting us under pressure, we'll be using self-help measures to offset that. So what does it do for us over time? Comes back to what Liam said.
If we do all the things I've just talked about, we'll be looking at a business that's generating north of GBP 250 million of operating profit in three years' time. That basically, in terms of the pro forma, the term that Liam talked to before in terms of where if you strip CT out, where we are at the end of 2024-2025 is what we're looking at in terms of compound annual growth rate in profit. That flows through to around about GBP 250 million of free cash flow, underlying free cash flow, and on a sustainable basis. That gives us the real conviction about being able to increase those shareholder returns on a continuous basis going forward. On that, I'll hand back to Liam again. Thank you.
Great. Thanks a lot, Richard.
Appreciate that was an awful lot of information today, more than usual, of course, off the back of the CT sale agreement. I hope you've gotten a sense for the fact that we have a really strong core business and a really keen ability now to move into a situation where we have a step change in cash generation, and that's going to benefit all of our shareholders. I'll leave it there, and we will gladly then enter the Q& A session and look forward to further interaction on that. Thanks a lot for your attention. We can kick off now, Martin. Let's say dive straight in.
Great. Thank you, Liam. Thank you, Richard, for the presentation. We'll come to questions from the room if there's a first question coming in. Take the first question from Ken Rumph at Goodbody.
If you get a microphone, do we have the microphones? There we are. Brilliant. Thanks for listening.
Thank you. Thanks for the, the presentation and, and the outlook, obviously given a significant change. I'm gonna ask you a couple of questions kind of concerning the deal and, and the, the group going forwards. Firstly, just, you know, why the, the timescale to completion that you've given, you mentioned regulatory approvals. Are there any key ones that we should be aware of? Secondly, on central costs, you mentioned GBP 15 million of costs that are currently, I think it's GBP 15 million charged to Catalyst Technologies that you would aim to reduce. Where do you think the rest of the central cost figure, you know, ought to be and could go, you know, for the group going forwards?
And finally, just in terms of you had, I think, from a, at least from a management point of view, folded hydrogen within Catalyst Technologies, and yet it is not being sold as part of the deal. You know, what sort of drove that decision insofar as you can speak for Honeywell, obviously as well? Thanks.
Yeah. Thanks a lot, Ken. Let me take the first and the third one, and the question on central cost and CT and how we think about stranded costs. Maybe Richard, if you could take that, it would be great. Timescale to completion, the agreement with Honeywell is, the wording is first half, 2026. There is a possibility that we are done by the end of this calendar year. It might be the first quarter, might even slip into the second quarter. It is completely dependent on regulatory approval.
We expect the key regulatory authorities to be U.S., Europe, and China. Given the fact that there is almost no overlap between the two businesses, we think this should be very straightforward. We are just using what we think is kind of normal timelines for this type of a deal. There is nothing special to it, Ken. That is just the timeline, and it has been agreed with Honeywell as a reasonable timeframe. Maybe I will take your question on hydrogen as well and then hand over to Richard for the question on stranded costs. Hydrogen, we had basically restructured the business because the growth was not coming as originally forecast. Quite honestly, we had too much overhead.
What we did is we folded the business into Clean Air, particularly because there is quite a bit of customer overlap. For example, Bosch is a hugely important customer for us. We service Bosch primarily out of Clean Air. There is a strong customer interface there. Basically, what we did was put hydrogen technologies under the leadership of Clean Air. We run it as a separate business, but it benefits from the overheads of Clean Air. That is where it is in the business today.
Then coming on to cost, Ken, before recharges, the costs that we capture centrally are about GBP 260 million. In terms of finance, HR, R&D, IT, procurement, you name it, there are functions that go across business in terms of supporting the business.
GBP 15 million of that is part of that GBP 260 million that we currently charge into, into CT, as part of their overall recharge. Part of it, you know, and the rest of the cost, you know, we spread apart from the 80-some that we retain in the center. That basically there is opportunity across all the areas in the business. It will be about process improvement. Although we have PGMs in place and that has actually allowed us to consolidate process, there is still further activity to drive to improve the end-to-end processes across the group, which will actually take, you know, by driving efficiency, will take costs down. We are a smaller group and we should just be smaller in terms of overhead in simple terms.
You know, there's less activity and, and therefore we will be less people. But there isn't, it's not one area. It'll be across all areas of the business and it'll be about us actually being more efficient, more lean, and improving our systems and improving our processes and actually in doing it in a, in a more efficient way.
Okay. Great. Just check for any more questions in the room. We'll go to the web in that case. A couple of questions on PGM and the refinery. First one is from Matthew Yates, Bank of America. On the new PGM refinery, are you still in the construction phase or has commission started? How are you managing this process to ensure a smooth switchover between the old and the new plants?
Yeah. Thanks a lot, Matthew. So, we're still in the construction phase.
We expect to go into the commissioning phase at the end of this year, early next calendar year, early next year. We have pilot tested all the processes in another facility, refining facility we have in the U.S.. We have, as I mentioned earlier, the best of JM from an engineering point of view working on this project. All our top engineers are helping ensure that the commissioning will be successful. We also have external parties involved, of course. We have a strict assurance process in place to make sure that this startup is as clear and clean as possible. I think we're, I mentioned we're not reducing any cost or we're not trying to save any money on this part.
We're actually doing everything possible to ensure we can start up the new refinery as efficiently as possible. As I mentioned earlier, we will in parallel keep up the old refinery and we will transition metal by metal. We will not do everything from one day to the next in the new refinery. It will be a gradual startup. We'll start with one metal stream. When that's up and running, we'll then move to the second one, then the third one, then the fourth, then the fifth. There is an extensive plan in place to make sure that this startup process is as smooth as possible.
If I touch on this as well, I mean, certainly in other businesses I've been in, which a lot of the manufacturing businesses have been, you know, heavily capital-intensive businesses with similar types of assets to ours that you need to fill up in order to drive efficiency. Doing things over multi-years with these types of processes, one unique process is that they're proven. If you try and actually make a non-proven technology work, that's often where things go wrong. These are all proven technologies. It's about how we join them together. Secondly, it comes to actually, do we have the right people doing the build and the actual interface between the capability on our side and the actual general contractor that we have working for us? Does that work? I see a really strong relationship between Fluor, our general contractor, and our team.
The guy who's running our program used to work for a guy who used to work for me, one of our best guys. I think he's a really competent individual. You then gotta do the interface, you know, in terms of as you hand it over from engineering over the wall into operations, does that work? The commissioning phase is really, really important, and we're very focused in that area. Then there's operational readiness. Have we got the right people in place to do that? Liam talked about the dual running. We've actually brought a lot of people in. We're transitioning people from the existing site. We've got all the building blocks in place here. Doesn't mean anything, you know, nothing will possibly go wrong, but actually we have contingency in place for that.
I think certainly from what I'm seeing, we've got the building blocks in place to get this right.
Great. Thank you for that. The next one, again, as I say, PGMs, Geoff Haire from UBS. What is the cash impact of the new refinery in 2025-2026 to 2027-2028? And will there be any offset to the drag on EBIT?
I'll take that, Richard.
Yeah. If you think about it in simple terms, basically you've got a period from where we are today over a couple of years to come out the other side. Basically you've got increased depreciation, which will kick in from 2026-2027. We've got slightly lower anticipated metal recoveries, and we've got a relatively challenging market environment. Those are the things where we're looking to dip.
As we have it up and running, it offsets through basically the depreciation being in the run rate. You've got cost efficiency in terms of a much, much more efficient refinery going forward. We've got 50% additional capacity in this refinery to existing capability. Therefore, they've got the ability to exploit new markets that Liam talked about. We will also get some degree of benefit as we decommission the existing refinery in terms of the metals that are in there. There's a dip just from some of the things that come in. I meant to mention the dual running as well in terms of the old site, there's a new site. Then actually it's coming out the other side as we get the new site up and running.
Moving on to cash and current trading.
Question from Chetan Udesi from JP Morgan. Two questions. The first one, can you confirm if the GBP 250 million free cash flow ex CT target is clean equity free cash flow? That is after cash taxes, interest, and restructuring costs. Secondly, what are you seeing in your order book currently across the different businesses?
I'll take the first one. Yes. GBP 250 million is clean, clean free cash flow.
Thanks, Richard. On the order book, I'll maybe ask Anish to start on the Clean Air side because I think that's where typically we have the highest visibility and the most interest. Maybe Anish, if you could give some comments on what you are seeing from an order book point of view.
Yeah. Thank you, Liam. Good morning everyone also from my side.
On the order book for Clean Air, we had the biggest indicator that we can talk about already in the presentation. Liam showed that we are pretty closely looking for the commitments that we are giving. How much of that have you won already? For the 2027- 2028 number, we have already won around 90% of that volume, which is above the target that we have, because it leaves only a small gap left for something that we can win in the next one or two years or where you have fluctuation in the business. That looks quite well for Clean Air. Three years ago, Liam implemented the Group Commercial Council, which I am chairing since then. There we also have a lot of conversations with the other businesses, so CT, PGMs, and HT.
On the HT order book, I would say that's also in line with our expectation for the numbers that we have presented. On PGMs, for example, there's some strong activities going on on cross-selling right now. That's something that we've implemented. We've just recently had our very first one JM commercial conference where we brought all of our commercial people together. I can tell you the opportunity to cross-sell, hunt, and cross-fertilize between the businesses is huge. We even believe that we can drive the order book further upwards during the years to come until our 2027- 2028 commitments.
If we maybe hand over to Louise for the PGM side, who's just come back from Platinum Week this week.
It's been an exciting few days. For PGMs, on the refining side, we see some growth coming through next year.
We're, we were sort of soft on products this year. Product is gonna have a stronger growth next year. What we're trying to focus on, on the product side, is to focus on the products that are high margin. We saw a bit of softness this year, but the focus on the products business is really gonna be driving margins. As Anish said, cross-selling is something that we're focusing on a lot more. The biggest benefactor of cross-selling within Johnson Matthey is PGMs. We see a lot of growth coming from cross-selling next year as well.
Thanks a lot, Louise. I was just talking to some customers at Platinum Week this week, and particularly in the U.S..
I think many of you were, we, we've had kind of depressed recycling volumes for quite a while, basically since, since COVID. The sentiment was, and I don't have hard data and facts behind it, but there was a clear sentiment that recycling was starting to pick up. There was actually some optimism in some parties that there's a little known hidden bill in some of the Trump agenda that actually has a $10,000 tax credit if you purchase a new ICE vehicle, kind of a cash for clunkers program. That is then an incentive not just to buy a new vehicle, but then to also scrap the old one. I think we're starting to see some of that. Who knows how it'll play out?
It was a noticeable different sentiment than what we've had in the last couple of years at Platinum Week, as concerns U.S. recycling volumes. On the other businesses, CT is continuing on its trajectory, as we've continuously outlined. You've seen the successive progress there. HT, we're very much focused here really on getting to break even. What we're doing in parallel is ensuring that we sign new collaboration agreements. Again, I mentioned Bosch. These are important because they give us line of sight to the future growth opportunity. They tie us in and we don't see any impact in that in the P&L today, but these are agreements that then over time will kick in and benefit us.
It's again, it's more foundational work that's going on there, improving the cost base to make sure that we're at least break even at our run rate, break even at year end, but setting ourselves up for the future with new collaboration agreements. That's kind of a picture of where we are from an overall business point of view.
Okay. Next question is on shareholder returns. It's from Christopher Wright at Brock Milton Capital. Would you consider doing a B share scheme for the return of capital to avoid dividend withholding tax?
A good question, Chris. Yes, we'll consider it. I mean, obviously B share schemes are less usual today, but we'll consider all options from special dividends with share consolidation to share buybacks, things.
We're gonna spend the next few weeks talking to shareholders and that'll certainly help inform us as to what the right way forward is here. The next one is on Clean Air cash and PGMs working capital. It's from Jihad Jhaveri from Camissa Asset Management. First one, please, could we get an update on the cumulative expected free cash flow for Clean Air long term, which I think is the GBP 4.5 billion? The second one is previously it was said that cash CapEx for the new refinery would be largely financed by working capital reduction. There will also be ongoing better free cash flow conversion in the business. What will CapEx to depreciation be in PGM Services longer term and its free cash flow conversion percentage? So a few bits to that.
Basically if, if we look at Clean Air, I think we've sort of touched on it in the presentation, but we, we've delivered GBP 2.4 billion to date. We're not moving off our delivery target through to 2031 of GBP 4.5 billion. We are still confident around that. We also believe there will be much greater generation beyond 2031, but I think at the moment we'll focus on getting to 2031 first. I mean, if you look at the GBP 400 million again, we generated this year, all these things give us strong confidence in terms of those targets. In terms of the free cash flow conversion, PGMs basically is a very profitable business. I have not got the exact number of cash conversion PGMs in my head, but if you think about it, it's a highly profitable business.
If it's actually not spending much on CapEx, we're bringing it down to very much, sort of depreciation levels. We'll have strong cash conversion in PGMs as well as the other areas. That is a cash drag at the moment, but all areas of the business will be cash generative as we move forward. That is very much the focus of our bonus targets, of our operating targets, and our monthly annual review cadence.
Yeah. I think just to add, the key thing on PGMs really going forward is with the new refinery, we don't have those backlogs and working capital clog ups, which then end up in capturing cash. There is a big benefit there. As CapEx comes, it's that dual benefit.
You do not have the CapEx and you have a much more efficient refinery. That is really a key part of the puzzle that allows us a step change in cash generation going forward.
Okay. We have another question on PGMs. It has come from Alex Savvides at Jupiter. Two questions. The first one on the PGMs guidance for the next couple of years, could you split the revenues into the three subdivisions for us? Sorry, the three subdivisions for us and give a sense of the revenue growth profile for each. The second question is, do you have any comments on the demand supply profile of the key PGMs and therefore your price expectations for them?
Alex, I mean, there is a risk here of us actually having 15 reporting subsectors in the business.
I mean, certainly that, I don't think we'll be breaking everything down into subsector on subsector, but I think we can talk to basically the drivers. Maybe Louise, do you want to just talk to the refinery, the chemicals, to LST?
Yeah. That guidance before, I could maybe start, Louise, and then you chime in. I think what we would, we're not, we're not, Alex, breaking down now specifically the go forward guidance per segment that we outlined. We can gladly do a follow up on that. What we would expect is the product segment to be, over time, increasing. That's going to be an important growth driver for us. It's not just volume growth, it's mix. We'll have higher value products.
That's really a key component. And recycling, as demand for secondary recycling kicks in with this new refinery, we believe we'll be able to tap into that. Both of those will grow significantly. The third element, the trading business, is we trade, we buy and sell metals and manage metals on behalf of our customers. If there's volatility in pricing, we will benefit from that volatility. This is not a business where you would typically have a, let's say, a growth profile. This is a service that we provide for customers that is a very profitable service for us. What the trajectory will be will actually be very dependent on where metal prices are and what the volatility of those metal prices are.
That, that's kind of the way I'd classify it today. We just had Platinum Week this week. I think you're all aware, basically Johnson Matthey, because we're the global liquidity hub and have deeper insights than anybody in the world. Our market research team basically supplies market research for the entire industry. Everybody goes to Platinum Week, attends the JM lunch to learn from the JM market research team. Where is the industry going? Where is supply and demand going? Other companies actually pay for our market research reports. This is actually a profit center for us today. The essence of this year's report was, by and large, nearer term, the five PGM, the metals are largely in balance. There has been a bit of a squeeze on platinum.
Platinum has actually been in deficit for a while, and you've seen that the price pick up recently. Over time going forward, you would expect palladium and rhodium demand from a volume point of view to be declining longer term until new use cases beyond the ICE are found. Platinum, ruthenium, and iridium, we would actually expect demand to be increasing over time. You've got a mix effect in there, and that's all barring no new applications, but we do know there will be new applications. I think the main message is, in the near term, the metals are broadly in balance, and we do not foresee, let's say, significant pricing volatility in the near term, barring market shock type situations. Louise, do you want to add anything on that?
You covered the question pretty well. I think the additional guidance that I would give about the business itself is that if you think about growth, a lot of the growth in products is coming from the life science and market. You know, catalysts that are helping sort of progress cancer detection and treatment is where, if you think about it from a growth perspective, that's where it's coming from. In terms of margin in refining, for example, with the three CR refinery over the next few years, we're gonna process more capacity, but also we'll be able to process harder feeds. We'll be able to not just take in auto volume, but actually look at more complicated industrial feeds so that our margins are higher.
This is the kind of guidance that I can give for three years.
Thanks, Louise.
Okay, another question from Alex Savvides, Jupiter. It is on clean air. Couple of questions. The first one is the performance in HDD within clean air was disappointing this year. Can you please give us a little more color over the direction of travel over the next couple of years? And then secondly, overall for clean air, what is the revenue expectation that gets you to the 16%-18% margin target?
Do you wanna kick off, Anish, on that?
Yeah. On the HDD side, I would say it always depends in our business for two reasons. The first one is how is the market developing in the different regions in the world. The second one, how our customers are performing with their platforms and their products in that market.
Sometimes you have a market declining in some regions of the world. We had in HDD the market decline, but sometimes we are linked, especially with our huge share of market in HDD, we are sometimes confronted with customers who are losing on a platform, who are losing on a category. There are mixed reasons why we had the situation of this year. Generally, I would say looking forward on HDD, it is exactly what Liam presented. We have had in the last fiscal year a win rate of 100%. That means that we are going to remain with our very high share of market on HDD.
When the legislation gets more clear in some areas of the world, combined with the economic outlook being a bit better, where fleets are ready to invest again, we will benefit from that strong share of market and the 100% win rate when that market comes back up. That is definitely something I would have a rather positive outlook on. Generally for Clean Air looking forward, I think that was the second part of the question. If you can remind me again.
Second part is, looking forward, what is the revenue expectation that comes along with the 16%-18% margin?
Yeah. That is Anish, that is the above GBP 2 billion. By 2027-2028, above GBP 2 billion, and of which 90% you have already won.
Yeah, exactly. We had that in the presentation. The expectation is around GBP 2 billion.
I would say I'm pretty confident that this is the frame of where the business is going to remain. We have already won 90% of that business, so that's in the books. We have tenders out there that could technically take us above 100%, but even with our strength and commercial muscle, we're not gonna win everything. We win the most important ones and the profitable ones. I would say generally not only looking to the revenue outlook, but 'cause the margin outlook that we have given here and that we're committing to is depending on what we really have within our control. That's what we've said over the last three years. There has always been uncertainty in our business. There will be uncertainty in our business, but there are two things we can do.
We can manage what we have in our control and we can build an agile organization that is quick and fast enough to react to what's going on out there. I think that's what we've done. If I can just call out one thing, I mean, you've seen that we've reduced nearly 50% of our lines in the last three years. That is a huge transformation, but we've done that with the management team that we have in place now without any quality issue to any customer, with increasing our net promoter score heavily over the last three years by more than 20 points and driving employee engagement in clean air up at the same time over the three years.
I think you can see that this is a very good strategic approach where we have learned to execute rigorously against it, but also drive culture with the right mindset, spirit, and behavior so that in total we can have that outcome. That should be a good proof point that there are reasons to believe that we can deliver what we have called out today.
Thanks, Anish. That's great.
Thank you, Anish. Back to cash. Christopher Wrights from Brock Milton Capital. Is the GBP 250 million sustainable free cash flow target including any net working capital realization?
No. Let me try and bridge for you from where we are. I mean, not, not wanting to ignore Maurits, but Maurits will not be here in 2027- 2028. It is about everything else under Anish and Louise.
Basically, for the reasons that Louise, Anish, and Liam described, we believe from where we are today through self-help measures, so operational, commercial, drumbeat activity, further overhead reduction, we believe we can drive our profitability forward from where we are today in our core businesses. That's not relying on a lot of actually external help. I think we've been reasonably conservative in our expectations around, you know, the growth environment. So it's mainly about self-help. In the next two years, i.e., 2025-2026, 2026-2027, there will still be elevated level of CapEx that will then tail down by 2027-2028 to the sort of more of the GBP 100 million-GBP 120 million level. During 2025-2026, 2026-2027, I see a significant amount of working capital help during those periods that brings us down to more normalized levels. Beyond there, you are back at more normalized levels.
You have got working capital improvement of setting higher CapEx over the next couple of years, which underpins the cash flow for 2025- 2026, 2026- 2027, 2027- 2028, more normalized profitability with ongoing drumbeat, lower levels of CapEx, normalized levels of working capital, i.e., no benefit from that period. The 250 is clean, if you like, in those terms.
Thank you, Richard. Those are the questions from the web. We will come back into the room. I think we have got another question in the room if we can. I think Heather, are you able to? Sorry, that is all right. It is coming, it is coming from your left. Thank you.
Thank you. Maurizio Carulli from Quilter Cheviot Investment Management. First of all, congratulations for the very successful sale of the Catalyst Tech business. And, two, two questions, if I may.
First on refining, you gave very kindly some trends for the secondary refining volume growth. Is it possible to get a sense going forward of what difficulties or not you may have in the procurement of the raw material for the refinery, i.e., the scrap, either in terms of regulations or in terms of complexity of the raw material? The second question is regarding the process of the Catalyst Tech sale. Is it possible to get a sense, if you are allowed to say, of the amount of time that has been dedicated, a bit the timeline of the negotiation process, if possible again?
Sure. Maybe Louise will take the first one, Louise, that volume growth and procurement.
Sure. On the refining side, there is really no issue with finding the feeds.
Our AutoCat customers are long-term customers, so we have long-standing contracts with them. That just sort of runs through and, you know, some of our customers whom I met with this week at Platinum Week, we've had a relationship for 30, 30- 40 years. That's all in place. There's no issue there. We have also developed our commercial muscle a little bit more just to counter the auto scrap volume softness into going out and trying to find industrial feed. That's where we're really applying a muscle, and that's where we're actually proactively going and finding business. That business is higher volume, but it's also lumpy. If there's any issue in terms of refining input, it's that we have to go out and find that business and that it's lumpy.
It's less controllable than the stable, you know, AutoCAD refining business that comes to us.
Thanks, Louise. On the timeline, we can't get, I mean, maybe somebody will leak it to the Financial Times, but I wouldn't give any confidential information. What I can say is, I personally have been talking to Honeywell for several years, and Honeywell has always been interested in this business. They've always admired the work of Maurits and his team, but quite frankly, they originally weren't willing to pay what we thought it was worth. I could understand because the business wasn't performing well. The step change that's really happened is we've really stepped up performance. Maurits and the team has done a fantastic job.
With that, the willingness of Honeywell to recognize the true value has become clearer as we delivered better results over time. It has been, let's say, on and off. This is a discussion process that takes quite some time and needs to be trust built between parties. Honeywell and JM have collaborated for years. There is great trust on both sides, and we will continue to collaborate going forward. We will have supply agreements. JM will benefit from this deal beyond the GBP 1.8 billion proceeds. This is a good deal for JM. I think it will be great for the business, and I think it will be a good deal for Honeywell as well.
I think I would say as well, if it just sounds like we've only ever talked to Honeywell, we've been approached by lots of different parties over time. The Honeywell deal is the only time we've got to our value expectations. That's why we've done this deal. Great.
A good note to end on. Thank you very much, everyone in the room and on the web for your interest, and hopefully we'll see many of you over the coming days and weeks. Thank you very much.