JMAT Johnson Matthey Plc

TIDMJMAT

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 
 year. 
 
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 
 customer orders 
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 
 prices. 
 
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 
 covenant(3) levels. 
 
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. 
 
                                        Ends 
 
Enquiries: 
Investor Relations 
 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 
 
 Media 
  Sally Jones            Director of Corporate Relations             020 7269 8407 
  Simon Pilkington        Tulchan Communications                      020 7353 4200 
 
 
Notes: 
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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