Johnson Matthey PLC Johnson Matthey Q1 AGM trading update
RNS Number : 7906T
Johnson Matthey PLC
23 July 2020
AGM trading update
Johnson Matthey will hold its Annual General Meeting today at 11.00am
and has issued the following trading update ahead of the meeting.
Robert MacLeod, Chief Executive, commented
I am pleased with the progress we continue to make across our businesses
during this pandemic, despite the decline in first quarter sales. We
are seeing recovery in customer demand and automotive production across
Clean Air. Efficient Natural Resources was resilient and we signed a
large licence in China, whilst Health is benefiting from our new customer
contracts. We continue to make progress in commercialising eLNO and
anticipate soon having five customers in full cell testing. We have
also started to deliver the additional efficiency benefits we recently
outlined and expect initial benefits of at least GBP30 million this
Visibility on demand remains limited and we cannot provide financial
guidance for the current year. Having said that, we expect operating
performance will be heavily weighted to the second half with first half
operating performance materially below last year, largely due to weaker
activity in Clean Air.
We are busy on multiple fronts and I remain grateful to all our employees
for their hard work and dedication as we navigate through this difficult
period. Appointments in the last year have strengthened our senior executive
team and brought increased commercial focus to the group, enabling us
to execute at pace and focus on creating a simpler and more efficient
business. I am also excited about all of our strategic growth projects,
consistent with our vision for a world that's cleaner and healthier,
as well as the attractive returns they will deliver over the medium
term. We look forward to sharing more detail on our growth opportunities
in Fuel Cells and Hydrogen at an investor seminar in September.
Improving trend through the first quarter
In the first quarter, group sales were down materially at constant currency,
as expected, due to the effects of the COVID-19 pandemic. The decline
was driven by Clean Air as a result of lower consumer demand and temporary
customer shutdowns, although sales in this sector steadily improved
through the quarter. In aggregate, sales from our other sectors were
broadly flat compared with the prior year.
Clean Air performance improved sequentially through the first quarter
Clean Air sales were down c.50% in the quarter, primarily driven by
weaker consumer demand and temporary customer shutdowns in Europe and
the Americas. As the quarter progressed, we saw improvement with April,
May and June sales across Clean Air down 75%, 60% and 20% respectively.
All of our plants are now operating. By region, better consumer demand
drove a strong recovery in automotive production in China supported
by early implementation of China 6 legislation, and in Europe and the
US there was a steady ramp up in demand.
Looking forward we anticipate July sales to be down c.20%, with improvement
through the remainder of the second quarter. That said, the market remains
volatile with consumer demand, inventory through the chain and the extent
of automotive OEM summer shutdowns hard to forecast. External data continue
to suggest automotive production in Europe and the US will be down c.25%
in our fiscal year, better in China, but down slightly more in heavy
duty. However, visibility on the path of recovery remains low and the
outcome could be materially different. We have a flexible cost base
in Clean Air enabling us to manage different levels of activity, with
c.75% of costs being variable before mitigation.
Efficient Natural Resources affected by end market weakness and delayed
Sales in Efficient Natural Resources were slightly down in the first
quarter. Catalyst Technologies sales were lower due to weaker demand
in some of our end markets such as additives and formaldehyde, and as
we began to see some customers delaying orders. Whilst business has
been disrupted by COVID-19 in the short term, we are seeing medium term
decisions being made and we signed a new oxoalcohol licence in China
in the period, which will benefit future years. PGM Services (PGMS)
saw sales growth, benefiting from continued strength in precious metals
Looking ahead, we expect first half operating performance in Efficient
Natural Resources to be lower than the prior year driven by Catalyst
Technologies (weaker demand and delayed orders), Advanced Glass Technologies
(lower automotive production) and Diagnostic Services (lower oil price).
PGMS is expected to be broadly flat with the benefit from higher average
precious metal prices being offset by lower refining intakes.
Health started to benefit from new customer contracts
Health is relatively unaffected by changes in the macroeconomic environment.
Sales were up in the quarter as we started to benefit from new customer
contracts and orders delayed from March into April due to COVID-19.
For the full year, we expect to benefit from new customer contracts
for active pharmaceutical ingredients (APIs) used in generic opioid
addiction therapies as well as our continued work with innovator customers.
In the first half, these benefits will be offset by the cancellation
of an innovator project in the prior year. Consequently, we expect operating
performance in the half to be close to the first half of the prior year.
New Markets - further progress with commercialisation of eLNO
In Battery Materials, commercialisation of eLNO remains on track. We
made further progress with customer testing and anticipate soon having
five customers in full cell testing, comprising two automotive, two
non-automotive and one cell manufacturer for autos. We continue to expect
our first commercial plant in Konin, Poland, to be on stream in 2022
and supplying platforms in production in 2024. Fuel cells grew strongly
and our investment to double our manufacturing capacity is on track
and expected to be completed by the end of 2020/21.
Progress on efficiency measures in 2020/21
We are on track to deliver initial benefits of at least GBP30 million
in 2020/21 from our recently announced efficiency initiatives, weighted
to the second half. Over three years, these initiatives are expected
to result in a headcount reduction of c.2,500. We have begun some consultation
processes and anticipate completing around 50% of the targeted reduction
within the next 12 months. We expect to deliver total annualised cost
savings of c.GBP225 million by the end of 2022/23 and continue to evaluate
ways in which we can delayer, simplify and focus the group further.
Investing for our future
We continue to invest in our strategic growth projects, consistent with
our vision for a world that's cleaner and healthier, which are expected
to drive attractive returns for the group. As previously guided, we
expect capex for the year to be up to GBP400 million.
We have a number of exciting growth opportunities including battery
materials with our portfolio of eLNO cathode materials and hydrogen-based
technologies. We will host a hydrogen seminar, rescheduled for 18(th)
September, which will provide an insight into the market dynamics, our
capabilities and the attractive growth prospects in this area.
Maintained strong balance sheet and liquidity
We maintained a strong balance sheet and currently have good access
to liquidity of c.GBP1.3 billion. In the first half, we expect net debt
to be higher than at 31(st) March 2020 due to normal seasonality and
increasing activity in Clean Air. Despite the impact of COVID-19 on
EBITDA, we anticipate net debt to EBITDA being well within our debt
Outlook for 2020/21
Visibility on demand remains limited and we remain unable to provide
financial guidance for the year ending 31(st) March 2021. However, we
expect operating performance will be heavily weighted to the second
half with first half operating performance materially below last year,
largely due to weaker activity in Clean Air.
Martin Dunwoodie Director of Investor Relations 020 7269 8241
Louise Curran Senior Investor Relations Manager 020 7269 8235
Jane Crosby Investor Relations Manager 020 7269 8242
Sally Jones Director of Corporate Relations 020 7269 8407
Simon Pilkington Tulchan Communications 020 7353 4200
1. Unless otherwise stated, commentary in this statement is based on
sales for the quarter ended 30(th) June 2020 and compares this quarter
with the quarter ended 30(th) June 2019 at constant rates.
2. eLNO is a trademark of Johnson Matthey Public Limited Company.
3. Debt covenants are tested annually, with the next test based on
financials for the period ending 31(st) March 2021.
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