Good day and thank you for standing by. Welcome to the Johnson Matthey Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question -and- answer session. To ask a question during the session, you will need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand over the call to your first speaker today, Mr. Martin Dunwoodie, Head of Investor Relations. Please go ahead. Great. Thank you. Good morning, everyone. You've probably seen the announcements we've made this morning. I'll keep it very brief. I'm pleased to introduce Robert MacLeod, our Chief Executive, and Stephen Oxley, our Chief Financial Officer, who will give a short introduction and then take your questions. We have 45 minutes for the call. We've got a hard stop, I'm afraid, after that. With that, I will hand over to Robert MacLeod. Thank you, Martin, and good morning, everybody, and thank you for joining this call at such short notice. I appreciate this is a busy time, and you all have lots of other things going on. You should all have seen the release today outlining our intention to exit our battery materials business, and I thought that it was important to take you through the rationale and give you the opportunity to ask any questions you may have. First of all, if I look at the overall market for battery materials, it is growing rapidly as the demand for battery electric vehicles builds momentum and pace. It's as you know, it's for those reasons that we were attracted to this market. We believe that our high-quality technology capabilities could enable us to provide a better solutions to our customers, such as eLNO, and this could enable us to deliver appropriate returns for our shareholders. We've made good progress in testing eLNO with positive independent verification and feedback from customers that our technology is strong and competitive. However, despite this, what we've seen over the recent months is that our thesis has come under pressure given the changing market dynamics, which I'll talk through, and these have reduced the returns that we believe the business would be able to generate. There are two specific areas where we've seen considerable change: competition in the market and capital intensity. Firstly, cell manufacturers and OEMs are driving costs down rapidly. They're doing this in a number of ways. For example, by adopting different technologies such as mid-nickel and LFP for certain applications and looking to drive economies of scale across the whole battery supply chain. While they're still committed to high nickel materials, their cost down targets are accelerating the commoditization of the battery materials market. This is inevitably putting pressure on pricing, which is reducing the potential for us to achieve our anticipated higher returns. Secondly, through exploring strategic partnerships, it has become clear to us that our capital intensity is too high compared with other more established large scale, low-cost producers. The acceleration of the capacity required in the market is happening at a time when we are trying to scale up as rapidly as possible. We're doing this with the technology and scale of manufacturing which are not our core expertise. That would be difficult at any time for anyone, but we're doing this without the benefit of the learning and experience that other companies have who have been in the market for longer. This puts us at an inherent disadvantage with no time to catch up. Given the increasing pressure from these factors, that's why we announced earlier this year that we were looking for strategic partners to accelerate our way up the learning curve that I just mentioned. We've talked to a number of potential partners, but without an agreement in place, we've reluctantly come to the conclusion that we should not continue to invest in this business on our own. Fundamentally, there isn't a way for us to achieve a satisfactory return from this business, and we believe our capital is better deployed in our other higher returning growth businesses. These exciting other opportunities are accelerating towards us. For example, the decarbonization of the chemical value chain and creation of the circular economy, which will both benefit efficient natural resources and the numerous opportunities within Hydrogen Technologies. Freeing up resources that would otherwise have been invested into battery materials will enable us to invest faster to accelerate our progress in these areas. Lastly, in terms of timing, you might ask why we're making this decision now. Well, the answer is quite simple. In programs like this, you have various stage gates and go, no-go decision points, and we're at such a point now. We were facing some very big investment decisions with significant further costs in the near future, such as the ongoing ramp up of our plant in Poland, the commitment to build a larger plant in Finland, and the signing of long-term nickel and cobalt supply agreements. To summarize the factors that have led us to this point, our technology is good and well received by our customers, but the market is commoditizing quickly and is clearly moving towards a low return scale play. Capital intensity has increased, and we're too far behind on the experience curve to be able to catch up anytime soon. Finally, we're at a point now where if we were to continue, we would have to commit to further large-scale investments without adequate returns. While this is a difficult decision to take and painful for all those in the business who have worked hard to make it succeed, the board and I believe it is the right decision to make for our shareholders. What happens next? We've informed our teams of the decision that we have made today, and at the same time, we've stopped any significant capital spend. As mentioned in our release, we're looking at ways to sell all or parts of the business, and we'll pursue all options and hope to have an agreed way forward as soon as possible. You'll also see that we've provided a short trading update for our full year results, highlighting three factors affecting our business. You'll be well aware of the impact of microchip and other shortages on the automotive industry that are affecting volumes in our Clean Air business. These also have a knock-on consequence on precious metal pricing, particularly for rhodium and palladium, that is impacting our profits in efficient natural resources. In common with other U.S. healthcare businesses, we're also experiencing acute labor shortages in health that are impacting our ability to manufacture and ship product. As you know, this business is subject to a strategic review. Taken together, these mean that our full year trading will be towards the lower end of the consensus range. Lastly, we've also announced the appointment of Liam Condon as my successor from the first of March next year. After nearly eight years as Chief Executive, the time is right for me to move on, and I look forward to working with Liam to ensure a smooth handover. Hopefully that gives you some context for the decision on battery materials today, and we're now happy to take any questions on the line. Thank you. As a reminder, to ask a question, you will need to press star one on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Okay. Once again, if you would like to ask a question, press star one. Yes, sir. Just stand by as one of my colleagues will compile the Q&A queue to get the names. Okay. Thank you. Do I have it? Is the first question ready? Yes, sir, but we still don't have the name. There is one. It's from the line of Nicola Tang. Thank you. Please ask your question. Hi, everyone, and good morning. Thank you for taking my questions. I'd like to ask about. Well, actually, I saw the announcement that you have committed to spend GBP 1 billion on the hydrogen side, you announced earlier this week. In the context of the canceled spending on battery materials, can you talk a little bit about where you'll deploy that CapEx, which was initially intended for battery materials? That's the first question. Look, I think the two announcements are not entirely linked. Not linked at all. I mean, the announcement around battery materials is separate around our return expectations for the battery materials business. I think our announcement about hydrogen was a cumulative investment over the period through 2030 from capital and R&D. It's basically a long-term commitment and expectation about the opportunity for the whole industry. Obviously, this announcement around battery materials gives us the opportunity to further accelerate our investment in this area. This hydrogen investment was blue and green and fuel cells, so it's the entirety of the hydrogen opportunity. We absolutely have the opportunity to accelerate that. Okay, great. Then the second one was around you talked earlier with strategic partners around how you could develop eLNO. I was wondering if you could give a bit more details as to what kind of discussions you're having in terms of which route, you know, what potential options were on the table. Then when we think about your exit, you know, again, what kind of potential routes could you go down in terms of the exit? Sure. We had a number of good conversations with a number of parties, largely existing cathode active material players and cell manufacturers, because we believe that they could help us scale up more efficiently and more rapidly, and that was the learning curve I talked about. They would help us get up that learning curve more rapidly. They are interested in coming into Europe now, but in many cases, they wanted to leverage an existing manufacturing base with supply contracts to scale up in the region even quicker than we could offer. When they looked as well, they looked at our capital intensity, and they confirmed that it was too high and also the fact that we didn't have existing supply contracts in place. This wasn't a commentary about eLNO itself or our capabilities. It was more around where we are in the market and our position in the market. Looking at where we are and what's next, obviously we will. We've been talking to a few people already about a possible sale. Obviously, today's announcement will give us the opportunity to broaden this to a wider group of people. We need to move quickly, and as I mentioned already, and we'll move as quickly as we possibly can, and come back to you when we know more. Okay. Thank you. Thanks, Nicola. For our next question is from the line of Sebastian Bray from Berenberg. Thank you. Please ask your question. Hello, and thank you for taking my questions. My first one is on the growth profile for this business now ex battery materials. Is Johnson Matthey a company capable of growing its operating profit at the mid-single-digit percentages guided previously without the growth driver of battery materials? Aside from fuel cell components and blue hydrogen and electrolyzers, what are the growth areas towards which additional capital might be allocated? My second question is on the potential size of investment or impairment if the battery is written off. I think you've provided a guidance of GBP 340 million of net assets. Is that roughly the same as the total amount invested in the battery materials business since inception, or is it more than that? Thank you. Thank you for your questions, Sebastian, and good morning. I'll let Stephen answer the question about the balance sheet. Look, from day, looking forward, in some ways, and then over the next few years, we saw the battery materials business as actually a drag on profit growth because we were investing in that business, and as the business started to scale, the losses would have increased for a short period of time before, in the middle of the decade, it would start to become potentially profit generating. I think in the short run, from a profit point of view, this decision to exit the business will allow us to accelerate profit growth. Obviously, one of the biggest areas of growth potentially for us, you've already mentioned, is hydrogen. I think that's a really exciting opportunity, the hydrogen technology space where we have leadership positions. We shouldn't forget, though, about the potential growth that we have in Clean Air through Euro 7 and the tighter regulations in China that are coming through. But that's very much a strong cash flow generating business, that we're running that business for cash. But the whole decarbonization space, and the world's need for circularity, gives us growth opportunities that we will accelerate, and can further provide even more focus on as a result of this decision. Absolutely, I still think we have growth ahead of us for the business. Stephen, do you wanna just talk a little bit about the balance sheet? Yeah. Good morning, everybody. Morning, Sebastian. So you're right, we've set out a number of GBP 340 million, which of the outstanding assets on the balance sheet. Sebastian, I'd see that as clearly the worst case balance sheet exposure. But of course the question is what is that worth to somebody else? We'll see as we go through the sales process. Thank you. On a potential other strategic reviews for sales process, does this change your opinion of whether it's wise to potentially divest health or not, given that you might have more capital available? Or is that process independent of whatever decision you've made on battery materials? Yes, Sebastian, very much an independent decision. We are working through that strategic review, looking at that business in isolation. We'll of course come back to you with news on that as soon as we can. Thank you for taking my questions. Thanks, Sebastian. Our next question is from the line of Evan Sc ott from UBS. Thank you. Please ask your question. Yeah, morning. It's Andrew Stott from UBS. I have two questions, if I could. What will JM gain by way of savings? What's the OpEx that's running through the group now on a 2022 annualized basis from the battery materials assets? I'm just trying to think of, you know, the benefits in new markets, the benefits to corporate costs. Just trying to get a sense of sensitivity. That would be great. Just back to your comment, Stephen, on the GBP 340 million of net assets, and some of that being goodwill. Are you at liberty to share that number? I'm just trying to get a sense of what's the value of the physical assets as you see them. Thank you. I'll go with the first one. Morning, Andrew, by the way. Morning. First one. Look, I think it's on a full year annualized basis, it's several tens of millions. It would've gone up over the next three or four years. For a fiscal year 2022, the year we're in at the moment, several tens. Stephen, do you want to give a bit more breakdown at or on the balance sheet? I might just add to that actually, you know, clearly we'll see what happens with our Health strategic review, and you've seen our previous announcements and discussions around simplifying the portfolio. You know, if we do end up with a simpler route, then we'll obviously look at our wider cost base as well. Just on the specifics of the GBP 340, there isn't any goodwill. This is a business that we're building Rather than the business that we've acquired. The intangible assets that we have are all around the development of the product from the intellectual property. That number, Andrew, is about GBP 75 million of the GBP 340 million. The number that's gone into Poland is bigger. I'd say that's about GBP 200 million. The other assets that we've built, you can imagine we have pilot plants, we have the application center, that is the balance. I'm sorry, just to follow up on that. Where are you with the Finnish project? We are very, very early stages in the project in Finland. Very early stages. The amount of capital committed to Finland is immaterial or Absolutely immaterial. Yeah. Okay, perfect. Sorry, last question, and I know I'm stealing a few. The labor shortages in the healthcare business, I wasn't aware actually, I'll be honest, of. You mentioned that it was across the healthcare industry. Could you just describe those issues and how they become resolved? Look, I think there's a huge churn of people post-pandemic across many countries, but also in particular in the U.S. in the health sector. As I said, it isn't just affecting us, it's affecting a number of people. We operate in the northeast of the U.S., and there's a number of players that are setting up and then really trying to build businesses in there. That's created a bit of a rotation. It will settle down over time, but at the moment, it's impacting us. Now, one of the big things that impacts us is training. When you hire somebody, you've got to, because it's a regulated industry, you've got to make sure they're appropriately trained before you can let them loose, inverted commas, on the plant. That takes about three months to train somebody. Essentially, when somebody resigns, let's say somebody resigned on Monday and you hired somebody else on the Monday, the same day, you still lose three months worth of productivity. Of course, unfortunately, you never quite get the two things to hand over on exactly the same day. That three months loss of productivity at the same time as the significant churn of people is what's hurting us and hurting our ability to manufacture. It will, over time, we expect, normalize. Okay, thanks very much for taking all the questions. Okay, our next question is from the line of Mubasher Chaudhry from Citi. Thank you. Please ask your question. Morning. Hi. Morning. Morning. Hi. Thank you for taking my questions. I just wanted to touch a little bit on your comment around the commoditization. I think is that the commoditization that you're seeing in just generally kind of the NMC market, and that cost coming down much faster than you'd anticipated? Or is that because you're seeing the LFP take-up coming through in Europe much faster? Just wanted to get a bit of clarity around that, would be helpful. Then I think historically, we've talked about the fact that they did need scale for the returns to work. Is the case we heard that regardless of the kind of scale you were getting to, really the pace of commoditization is just meant that it's not. It's. You will never really catch up to that kind of returns profile. I guess what was the kind of the reason for not foreseeing this earlier, and then something that's kind of taken a little bit, a little while to kind of catch on to that, there will be commoditization in the market when the whole supply chain have to come down in cost. Just some comments around that would be helpful. Yeah, thank you for your questions. I think I picked them up. The line was not perfect, but I think I got them up. On commoditization. Look, this is very much in, as I said in my talk a second ago, it's very much in the recent periods, we're seeing a huge drive as this market scales and grows for the OEMs and cell manufacturers to really drive those costs down rapidly. It's a combination of factors. I talked before about the need to drive economies of scale, that whole scale play, driving. That's what the OEMs are pushing for across the whole battery supply chain, not just in the cathode active materials providers. Also the different technologies such as LFP, as we know, and mid-nickel. All of that is basically putting a squeeze on the high nickel space, where we thought we could achieve a higher premium than we now think we can achieve. That premium has been eroded because of all these other factors. Now, on the scale point, look, you have to have scale to compete in this business, as it commoditizes. I don't think we were uncomfortable about building scale. What's happened over the recent months is we got more evidence of the acceleration of the pace of activity of the buildup of this market. Therefore, we have to accelerate and continue to drive at pace the capital to move forward. We would have to continue to move forward with the capital investments at real pace, which would have meant that our ability to get the learnings to drive costs down in our whole capital infrastructure would have been significantly constrained. Therefore, we'd have locked in significant capital inefficiencies compared to our competitors. It was interesting in the whole discussions that we've had with some of our, some of the potential partners. One of the partners said to us, "You are where we were five years ago." It's not saying that eLNO is inherently uncompetitive, inherently has a higher capital intensity. It doesn't. It just means that these scale players, these people who've been into the market for longer than us, they've got the experience, they've moved forward, and they've got an embedded advantage that we can't catch up with. That's why this has changed rapidly over the last few months and year or so. Just as a follow-up, are you able to comment on the kind of players that you have been talking to? Is it kind of cell manufacturers, OEMs who are the interested parties or is it the kind of the cathode material companies? Well, I think I mentioned before, it's largely the people that would give us the opportunity to get up the learning curve, which are existing cathode active material players and cell manufacturers. Understood. Thank you very much. Thanks very much. Our next question is from the line of Chetan Udeshi from JP Morgan. Thank you, please ask your question. Yeah, hi. Morning. I was Go ahead. Hey, hi. Just thinking, should we think about any read across from what's happened with the battery materials business to the new hydrogen business? Do we see or do you guys see any risk that, you know, eventually we see the similar dynamics play out? I'm not talking here about the hydrogen catalyst business, which is, you know, fairly mature. You guys have an established position. I'm talking here about the hydrogen catalyst, both for fuel cells and the electrolyzer market. Can the market evolve in this way in the future when, you know, everybody tries to scale that business up? Or is there a reason to believe there are more barriers to entry in that business than is the case, say, with batteries? Stephen. Yeah, let me pick that one up. We don't think there is a read across for the reasons that Robert has described in relation to the characteristics of the battery materials market and that level of capital intensity. In the other growth areas that we have in front of us, of course, they're core to Johnson Matthey. They're core to Johnson Matthey's history. They're technologies and markets that we're already in. And they're just a lower scale of capital as well where we expect to make higher returns, hence the pivot that we're essentially talking about here. Understood. Apologies if this was sort of addressed previously, but you know, now with the capital sort of untied from the battery materials going forward, I think clearly the more obvious question then is how should we think about the capital allocation going forward? Is it going to be a case of higher capital coming to investors over the next few years? Or are you guys looking at some other opportunities to deploy the capital on growth overall? Chetan, it's an interesting question, and I think probably given the other announcement today about my departure, probably I'll hand that over to Stephen. Stephen, give a view. Yeah. Thank you. No, look, we clearly are excited about our other growth opportunities. You know, everything we're hearing at the moment, look at COP. The world is moving more quickly, hopefully, and that plays right into our strengths. We have considered opportunities that we think have attractive yields. We obviously will look at bolt-on acquisitions and infill acquisitions that we've talked about before. As you'd expect, you know, at any time, if we feel we have excess capital, then we'll be open-minded about returning that to investors. Thank you. For participants who would like to ask question, again, that is star and one. Sounds like there are no more questions. Any more questions? Two more questions. Sorry. Just a moment, sir. We will just compile the names, please. Thank you. Our next question is from the line of Sebastian Bray from Berenberg. Thank you. Please ask your question. Yeah, just a practical one for adjusting forecasts. I suspect that battery materials was about GBP 200-GBP 250 million of the underlying CapEx, 500-600 that analysts have in consensus for the next few years. Is the correct approach just to take that out and assume nothing replaces it? Or how should we be thinking about that? Hi, Sebastian. Look, I'll we announce the half year results in a couple of weeks' time. I'll come back to capital then. Unsurprisingly, the number will be lower than the amount that we guided to previously, but I'll come back to that in more detail. Okay, that's understood. Thank you. Okay, our next question is from the line of Rob Hales from Morningstar. Thank you. Please ask your question. Good morning. Thanks for taking my question. I was just curious, you know, I've read a few comments that maybe we're past the worst in terms of the microchip shortage in automotive. I'm just wondering if you would agree with that or where you kind of see us in that, how that plays out. Rob, thanks for your question. Look, I think we'll cover some of that in more detail at the results in two weeks time. Look, I think there are supply chain shortages throughout the whole automotive supply chain. You know, some of these things are getting a little bit better in places, but it's far too early to say whether we've got a trend of improvement yet. Okay. Thank you. Our next question is from the line of Lacie Midgley from Panmure Gordon. Thank you. Please ask your question. Hi. Thanks. Thanks, guys, for taking my question. I just wanted to confirm the CapEx spend in eLNO to date, if you can give that number. I've got a rough idea, but if you can give more color, please. Well, hi, Lacie. Well, the capital spend to date will be the amount that's on the balance sheet. GBP 340 million will be the total incurred to date. Okay. You've just said for the half year that you'll give guidance on CapEx, so you probably won't answer this. Robert pointed to the ramp up in Poland, new partners in Finland, supply agreements, that sort of thing, with significant costs coming in the future. Will that be deployed elsewhere or is that just going to come out of the budget for CapEx going forward? Well, we'll look independently obviously at all of our individual opportunities that we have. This decision obviously will mean that we can accelerate our investments in those other areas, those higher capital return and lower intensity opportunities that we're facing. Understood. Thanks, guys. Cheers. Very good. It looks like we don't have any further questions. I'll hand back over to Mr. Robert MacLeod. Thanks very much, everybody for joining. Apologies again for the short notice. We'll see you all again in a couple of weeks time where we'll be going through our half year results. That's actually just under a couple of weeks. It's a week on Wednesday. I look forward to talking to you then. Thanks very much, everybody. Goodbye. This concludes today's conference call. Thank you for participating. You may all disconnect.