Johnson Matthey PLC: Boosting Cash Efficiency with Strategic Moves

Johnson Matthey PLC, a global leader in sustainable technologies, has been making significant strides in enhancing its cash efficiency. The company has implemented a series of strategic moves to improve its cash generation and capital deployment, ultimately driving higher returns for shareholders. Let's delve into the key initiatives and their expected impact on the company's cash conversion levels.

1. Cost reduction and capital discipline: Johnson Matthey has achieved cumulative cost savings of £155 million to date, with a target of £200 million by the end of FY2024/25. This annualises at over £250 million savings in FY2025/26, exceeding the target set in May 2022. Additionally, the company has reduced capex to a maximum of £0.9 billion for the three-year period to FY2026/27, compared to £1.1 billion over the preceding three-year period. This capital discipline ensures that the company is investing wisely and efficiently.



2. Portfolio rationalisation: Johnson Matthey has completed the sale of all Value Businesses, realising net proceeds of over £500 million. This has enabled the company to return £250 million in excess shareholder returns. By focusing on its core businesses, Johnson Matthey can allocate resources more effectively and drive growth in its key areas.

3. Growth initiatives: The company has secured growth opportunities across its portfolio, including contracts worth more than £350 million in sales in Catalyst Technologies over 5 years. These growth initiatives demonstrate Johnson Matthey's ability to identify and capitalise on new opportunities in the market.

4. Operating model changes: Johnson Matthey has introduced Global Business Services across Finance, IT, HR, and Procurement, and created Centres of Excellence, notably in Capital Projects. These changes drive greater effectiveness and efficiency, further enhancing the company's cash generation capabilities.

5. Investment Committee and executive remuneration review: The formation of an Investment Committee, chaired by the Group's Senior Independent Director, Barbara Jeremiah, reinforces cash generation and disciplined capital deployment. Additionally, the review of executive remuneration schemes to increase the weighting on cash generation targets aligns management compensation with the company's cash generation goals.

Johnson Matthey's expected cash conversion levels for the coming years are as follows:

* Around 20-30% in FY2024/25, including positive free cash flow in line with guidance.
* At least 50% in FY2025/26.
* Above 80% in FY2026/27 and beyond, following the completion of the refinery upgrade in FY2026/27 and assuming stable metal prices.

These expected cash conversion levels are higher than the industry average for specialty chemicals companies, which typically ranges between 15% to 30%. This indicates that Johnson Matthey is on track to significantly improve its cash generation efficiency and drive higher returns on capital for shareholders.

In conclusion, Johnson Matthey PLC has implemented a series of strategic moves to enhance its cash efficiency, including cost reduction, capital discipline, portfolio rationalisation, growth initiatives, and operating model changes. The formation of an Investment Committee and the review of executive remuneration schemes further reinforce the company's focus on cash generation and disciplined capital deployment. With expected cash conversion levels significantly higher than the industry average, Johnson Matthey is well-positioned to deliver attractive returns to shareholders while maintaining a strong financial position.