Johnson Matthey’s Earnings Call: Strategic Moves and Challenges

Johnson Matthey ((JMPLY)) has held its Q4 earnings call. Read on for the main highlights of the call.

The recent earnings call of Johnson Matthey presented a balanced sentiment, highlighting both positive developments and challenges. The company expressed optimism with the profitable sale of Catalyst Technologies and improved Clean Air margins, alongside strong shareholder returns. However, these positives were tempered by difficulties in the hydrogen business and a decline in Clean Air sales.

Sale of Catalyst Technologies

Johnson Matthey announced the sale of its Catalyst Technologies division to Honeywell for £1.8 billion. This transaction values the division at 15 times its EBITDA, marking a significant increase in valuation compared to three years ago. The sale is a strategic move to streamline operations and focus on core business areas.

Improved Clean Air Margins

The Clean Air segment saw its operating margin increase from 8.7% in 2022 to 11.8%, with expectations to reach between 16% and 18% by 2027-2028. This improvement is attributed to strategic enhancements and operational efficiencies, positioning the segment for future growth.

Strong Cash Flow and Shareholder Returns

Johnson Matthey reported robust free cash flow of £572 million and plans to return £1.4 billion to shareholders from the Catalyst Technologies sale. Additionally, the company has committed to delivering £200 million in cash returns annually starting from 2026-2027, demonstrating a strong focus on rewarding shareholders.

World-Class Refinery Nearing Completion

The company’s new PGM refinery is on track for commissioning by the end of 2025. This facility is expected to enhance efficiency and significantly boost cash generation, marking a pivotal development in Johnson Matthey’s operational capabilities.

Decline in Clean Air Sales

Despite margin improvements, Clean Air sales declined by 8% due to global automotive production challenges. This decline has impacted overall performance, highlighting the need for strategic adjustments in response to market conditions.

Hydrogen Business Impairment

The slow growth in the hydrogen market led to a substantial impairment charge, with more than half of the business’s £200 million asset base being written off. This reflects the challenges faced in this emerging sector.

Challenges with PGM Refinery Transition

The transition to the new PGM refinery will incur additional costs and lower metal recoveries during the commissioning phase, affecting short-term profitability. However, this is seen as a necessary step towards long-term operational improvements.

Forward-Looking Guidance

Johnson Matthey outlined its strategic direction post-sale of Catalyst Technologies, with the transaction expected to close in the first half of 2026. The company plans to return £1.4 billion from the sale proceeds to shareholders and focus on its core businesses: Clean Air and Platinum Group Metal Services. Clean Air is projected to generate over £2 billion in sales by 2027-2028, while PGMS aims for £450 million in sales with a 30% margin. The new refinery is set to enhance cash flow, with sustainable free cash flow expected to reach at least £250 million by 2027-2028. The strategy emphasizes operational efficiencies and leveraging existing capabilities to drive profitability and cash generation.

In conclusion, Johnson Matthey’s earnings call highlighted a mix of optimism and challenges. The sale of Catalyst Technologies and improved Clean Air margins are significant positives, while the hydrogen business and Clean Air sales decline present hurdles. The company’s forward-looking guidance underscores a strategic focus on core businesses and shareholder returns, setting a clear path for future growth and profitability.