Johnson Matthey's (JMPLD) CEO Robert MacLeod on Q1 2017 Sales and Revenue Call (Transcript)

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Johnson Matthey Plc (OTCPK:JMPLD) Q1 2017 Sales and Revenue Conference Call July 20, 2016 3:00 AM ET

Executives

Robert MacLeod - Chief Executive, Executive Director

Analysts

Adam Collins - Liberum

Andrew Stott - UBS

Martin Dunwoodie - Deutsche Bank

Sebastian Bray - Berenberg Bank

Andrew Benson - Citi

Iain Armstrong - Brewin Dolphin

Lauren Furcht - Bank of America Merrill Lynch

Charles Pick - Numis

Martin Evans - JPMorgan

Operator

Hello and welcome to today's Johnson Matthey Q1 Trading Update Conference Call. Throughout this, all participants will be in listen-only mode. And afterwards, there will be a question-and-answer session. Just to remind you, this call is being recorded.

And now, I'm very pleased to pass you over to Rob MacLeod, Chief Executive. Please begin.

Robert MacLeod

Thank you, Hugh, and good morning, everybody, and welcome to call. I'm just going to go quickly through the trading update and give perhaps a little bit more color on some of the comments in the call. And I'd also give you the chance to ask any questions that you may have.

So, as we said in the statement, a solid start to the year with group sales, as you can see, up 6% on a continuing basis on actual rates, and that equates to 2% at constant rates. Strong growth continuing in ECT and further progress in new businesses, and stable sales in both Process Technologies and Precious Products. Although, it has to be said, in both of those markets, conditions remain fairly challenging. Demand in Fine Chemicals on an underlying basis is fairly - or so, I mean, underlying continuing basis, fairly steady.

In the quarter, at constant rates, underlying profit before tax was broadly in line with last year, which was itself a relatively weak quarter. But our outlook for the full year at constant rates remains in line with what we said just seven weeks ago at our results announcement. Obviously, we'll get some tailwinds associated with currency and more of that in a minute.

So, looking briefly at the divisions. First, ECT, sales up 9% to £521 million, which is 5% up at constant rates. In light duty, our sales have continued to outpace car production with good growth across all regions and, in particular, in Europe. And, obviously, at this stage, it's far too early to say what the impact of Brexit will have on car sales in Europe, but recent forecast would certainly suggest that people are expecting us rather to slow down in the UK, and that factored into our guidance.

On the heavy-duty, as expected, we saw a decline, but good growth overall, but good growth in Europe, but that wasn't enough to offset the slowdown in Class A trucks in North America, which is well flagged anyway. So, we expect that to stabilize later this year.

And underlying profit for ECT was broadly in line for the same period last year. In BT, the market continues to be challenging. Sales this year were up 3% on an actual basis but down 1% in constant rates. And whilst sales grew nicely in Chemicals in the first quarter, licensing activity remains very weak, none signed in the quarter, and we certainly expect licensing activities to remain very weak throughout this whole year.

In our Oil & Gas business, reduced demand in gas processing albeit after a strong quarter last year, and whilst the low oil price will continue to impact demand in the our diagnostics servicing business, if you recall it, lost money last year, this quarter it was breakeven. But we are seeing some growth in our hydrogen catalysts market.

In BT in the first quarter, underlying profit improved substantially over the year, but that's primarily as a result of the cost actions that we took last year, but we, the markets, as we say in the statement, continue to remain pretty challenging.

Precious Metals products, sales up 6% actual basis, 1% in constant rates. Ahead in Precious Metals Management and benefiting a bit from the volatility in PGM prices. And intake volumes at our refining and recycling businesses are relatively stable, albeit, at relatively low levels.

Sales in our manufacturing businesses were slightly down with a little bit weaker performance in Noble Metals partly offset by good demand across all regions in our Advanced Glass Technologies business.

And as a whole, the division's underlying operating profit was down compared to the first quarter last year mainly as a result of the lower average pgm prices comparing in this quarter with the first quarter last year.

Fine Chemicals, just to remind you of course, that we sold our Research Chemicals business in September last year so the comparatives still include the Research Chemicals business in the last year. But on a continuing basis, sales were flat in actual rate but down 5% at constant rate. And that was principally due to reduction in sales in our API business principally due to timing of orders. On the other hand, our Catalysts and Chiral Technologies business had a good start to the year with some strong demand.

And if you exclude the absence of income for Research Chemicals, whilst we continue to expect the divisions to make progress on an underlying basis this year, this will be substantially weighted towards the second half of the year in terms of operating profit.

On new business, we continue to make progress. Sales are up 14%. Good demand continuing in our battery materials business. I'm pleased with the progress we are making there. And some early contribution from our two Water Technologies acquisition that we completed on April and May this year. And the underlying operating loss of the division continues to fall in line with our expectations for the full-year. So again, pleased with that.

Finally, so I've looked - as I mentioned, we're confirming our guidance for this year that we made some weeks ago. And we continue to expect performance for this year to be ahead of last year, albeit quite weighted towards the second half this year in particular.

This quarter, obviously, is a result of the referendum last month. I'm seeing quite large movements in foreign exchange. And when we announced our results in early June, we talked about having a tailwind associated with currency of £15 million compared to the year before. That has now increased, if you use current rates, to around about £40 million. So, some sort of £25 million increase in profitability just to do with translational benefit, nothing that we particularly are doing.

So, that's using current rates. Who knows what rates are going to be for the full year? But we just thought it was useful to give you a guidance of where rates are, what the impacts is on rates today.

So, overall, solid start to the year and with our outlook unchanged. And with that, hopefully a relatively brief statement, I hand over to you to ask any questions if you have any.

Question-and-Answer Session

Operator

Thank you very much. [Operator Instructions] Our first question is from the line of Adam Collins at Liberum. Please go ahead. Your line is open.

Adam Collins

Yeah. Hello. Good morning, Robert. I had a couple of questions.

Robert MacLeod

Hey, Adam.

Adam Collins

First of all, on the precious metals recycling side, you said it was stable at low levels. Why do you think that business haven't seen an improvement in intake volume given the Pgm and steel prices have moved up this year which is usually quite an important economic signal for collectors.

And then the other question was on the truck catalyst side. John Walker was guiding to a £25 million negative revenue impact for the coming year at the June stage, maybe mid-single digit impact on EBIT. Is that still your thinking?

Robert MacLeod

So, the answer to the second question is yes.

Adam Collins

Yeah.

Robert MacLeod

And the answer to the first question is, I think, we've seen a little bit of an increase in underlying volumes from recyclers that is the minus of the reduced spread volumes in a little bit. So, these, too, are kind of offsetting a bit. So, it's lower intakes on the refining of the mining side rather than the recycling side. And the two things that sort of - as a result, sort of slightly offset each other.

Adam Collins

Right. Okay. Thanks, Robert.

Operator

We are now over to the line of Andrew Stott at UBS. Please go ahead, your line is open.

Andrew Stott

Yeah. Morning, Robert.

Robert MacLeod

Hi, Andrew.

Andrew Stott

Couple of questions. On Euro 6b, can you just point me towards when that impact sort of ebbs away because it's still, obviously, very strong double-digit performance in light duty. So, as we go through this year, is there a quarter where we start to see maybe a more normalized growth ex-Euro 6b? That's the first question.

And the second one is, coming on to Fine Chems, you're still expecting progress and yet you've done minus 5. So, is it all about the phasing of contracts or are there other things we need to think about?

Robert MacLeod

Okay. I think the question, 6b, I think really we're getting to the end of the sort of the relative comparator. I mean, there was a little bit of a tailwind associated with 6b in this quarter. But if you remember, 6b came into force officially - well, not officially - if at all, production from September last year. And so, of course, our supply chain is starting to really sort of fill up in sort of July, August, September last year.

So, the first quarter of last year had some old products, but mostly new products, by the time you got to the second quarter, you had pretty much all new products and, of course, that's what we've got mad. So, it's only - we're nearly the end. I mean, well, effectively, we are at the end of that relative tailwind because of 6b.

On Fine Chemicals, the issue here is around - partly around timing of orders and partly around release of new products. And we've got, as I think you mentioned, at the results last month, we talked about two new products. One was actually released right at the end of Q1. So, some of that benefit will start coming through this year and then the other products will start coming through in the - the other product will come through in the latter part of the year, too.

And at the same time, whilst some new products come through, some products that have waned a bit at the same time. And so, it's the timing of those. That's the relative performance - relative balance between the two. So we remain confident about the results for the whole year.

Andrew Stott

Thank you.

Operator

Our next question is from the line of Neil Tyler at Redburn Partners. Please go ahead. Your line is open.

Neil Tyler

Morning, Robert. Actually, following on from Andrew's question just now about the strength in light duty. Its impact from 6b was only sort of, I suppose, small in the quarter. Was there an additional impact you think from pre-buy from customers with regards to Real World Driving? Is that something you think you're already seeing? And in the second half of last year you seem to have enjoyed a fairly positive mix effect in North American light duty. I wonder if you'd be prepared to share whether that's something that's continued. Thanks.

Robert MacLeod

Yeah. On the 6b side, I mean, it is a little bit of pre-buy associated with Real Driving it really is a little bit. We talked before about the moves of more advanced SCR systems. You're seeing some of that happening, how much of that was in the Real World, how much of it is just to do with the complexity of the engine? I think it's a combination of the fact that it's not - I think Real World Driving and the attitudes of OEMs have probably to some extent gotten sort of merged to some extent and you'll see a gradual improve - gradual implementation of more advanced SCR systems as we move forward.

On the U.S. side, we did talk about seeing some further penetration of mixed benefits associated with the diesel, light - pick-up trucks and that is - we're starting to see that and we expect some of that to keep coming into - particularly into the second half of this year.

Neil Tyler

Okay. Thanks very much.

Robert MacLeod

Okay.

Operator

We're now over to the line of Martin Dunwoodie at Deutsche Bank. Please go ahead.

Martin Dunwoodie

Hi. Morning.

Robert MacLeod

Good morning.

Martin Dunwoodie

Just coming back on to this strength in light duty again. It's quite away above the quarterly production growth. And I know you've talked about Real World Driving. You talked about some trading benefits coming through on 6b. But I guess that's not everything that's coming through to push that level of growth. Can you just go through what's actually doing that? I presume there's some kind of geographic mix [indiscernible] (13:47) very strong, but is the whole an engine mix as well coming through? Do you see that strength continuing through the rest of the year? That's the first question.

And I guess the second one is, and I apologize, it's probably my ignorance here, but has there anything changed since the full year results? Because it sounds like your messaging is slightly different. That's a greater H2 weighting than we saw before. But as I said, maybe that's just my ignorance and not listening properly previously. But if you could say what's maybe changed, to give you more of an H2 weighting than I previously thought. Thanks.

Robert MacLeod

[Indiscernible] The line's a little bit fuzzy on my end. It's not your fault. I didn't quite get your second question. If you could...

Martin Dunwoodie

Sure. It's just whether - what has changed since the year-end to give you more of an H2 weighting than I previously thought.

Robert MacLeod

Okay, H1. H2. Okay.

Martin Dunwoodie

Yeah.

Robert MacLeod

So, to your first question, I think - look, really sorts of things. It's an element of product mix. There's an element of customer mix. There's an element of Euro 6b. There's an element of more complex [indiscernible] (14:50), which is a product mix point. There's a whole series of factors, so I don't think it's easy for us to point out one or the other, but it just feels like we've done - as you can see from the numbers, we've done quite well from the range of different factors. And I don't think I can point to one and say that's the one. There is a bit of [indiscernible] (15:10) already what covers the end of the tailwind associated with Euro 6b and then - but we have had some further benefits with customer mix, et cetera.

On the weighting, I don't think that is has particularly changed compared to what we thought about last time. I think perhaps the reason why we're emphasizing it a bit more is just to make sure the market gets the clarity so that when the results come out in, what is it, four months' time, we get no surprises. I think our full-year numbers are still exactly where we expect them to be. Obviously, [indiscernible] (15:50) change is exactly where we were expecting it to be. And the relative performance during first half, second half. We did talk to you about some of the things that we had in the first half of last fiscal year, I think like the one-off we had in ECT, things like the Research Chemicals no longer been part of the group. We always expected an element of the first half, second half buyout this year and I think the reason why we're a little bit emphasizing it more is just to try and make absolute, give that clarity for people in the street. So, there are no - there's no surprise for me coming unannounced in November. But nothing particularly changed.

Martin Dunwoodie

Great. That's perfect. Thank you.

Operator

We're now over to the line of Sebastian Bray of Berenberg Bank. Please go ahead.

Sebastian Bray

Good morning. Thank you for taking my question. I have two about the business development. You reported 11% organic growth in new business. Could you perhaps give me a feel for the growth differential between the Battery Materials and the Battery Systems business.

And secondly, would you see this growth potentially trending upwards attached towards H2? Are there any auto-timing effects in this? Thank you.

Robert MacLeod

So, when you say - so, and as far the relative performance of the Battery Materials, Battery Systems, I mean, we're dealing with relatively small numbers here. But growth - I wouldn't want you to go away thinking that 11% growth or that growth that we've got in the business areas have constant rates, as I say, the 11% was a constant rate. It's all to do with battery technology. Part of it has to do - we've now got the two new water businesses that we talked about before, partly to do with growth in some of the other businesses as well. But we have seen steady growth in battery materials.

And I think when we look at the year as a whole - sorry, battery technologies, we look at the year as a whole, we should see good growth in that whole market. I have to say the focus and the greater growth is on the materials side than it is on the systems side. So, when you look for the year as a whole, I think you'll see a much greater weighting towards materials versus systems, albeit in the first quarter, usually much more balanced between the two.

Sebastian Bray

So, am I understanding correctly you would expect to pick up in materials orders towards H2?

Robert MacLeod

Growth, yes.

Sebastian Bray

Yeah. Thank you.

Operator

We're now over to the line of Andrew Benson at Citi. Please go ahead. Your line is open.

Andrew Benson

Thanks very much. Is there any sort of [indiscernible] (18:48) or signs of life that you can point to prospectively for Process Technologies. So, you talked about the absence of licenses and the lack of [indiscernible] (19:00) this year. But are there any things that are bubbling away that could drive growth. You talked about restructuring of PVC in China historically and various other things that could support the growth.

And if you could just perhaps just go through all of the businesses just to give us a little bit of an update there, that'd be great. And on the Fine Chemicals, I wonder if you could just flesh out a little bit - but I didn't really understand where the growth is coming from. You talked about one or two new products, but you've also bought some [indiscernible] (19:31) up in Scotland, I believe, just to get to flesh out how that's likely to do this year, next year. Thanks.

Robert MacLeod

Okay. So, PT first. So, the way we describe it as we talk about PT Chemicals and we talk about our Oil and Gas business. And on the relative performance, I think the oil and gas business is performing a little bit more strongly than chemicals. And the outlook for the [indiscernible] (20:01) are perhaps a little bit better in the Oil and Gas business with some demand in the hygiene side for the refinery businesses. Of course, this is the emerging gas companies supplying hydrogen over the fence to the - principally, that's your customers or over the fence to the refinery businesses.

So, that business feels fairly stable and feels fairly predictable. I think it's the chemicals side where we're seeing the more challenge. I think licensing activity, whilst the talk is up for people about new licenses, I think it would appear, it would seem that the [indiscernible] (20:41) the capacity in the market already. And so, therefore, there is a question mark about how many plants need to be put on the ground anytime soon. So, I think licensing activity, whilst it's subdued at the moment, I think it will remain subdued for unfortunately some time to come, it would appear, albeit lots of people talking about things, but I think it's going to take time before those talks turn into action.

And on the catalyst side, one of the areas we're seeing is linked to the fact that there's a little bit of replacing capacity around. People are now sort of looking to hold on to their catalysts and not replace the catalysts as frequently as they once did. Catalyst orders are becoming a little bit fragile as well.

Now that marks a - that's not to make it sound like it's all going horribly wrong. It's just that on the margin, people are holding on to their catalysts and having their catalysts last that little bit longer. So, it's hard to say that there are any particular swallows coming in the chemical side, but the oil and gas side seems a little bit more predictable.

Hope that answers PT for you.

Andrew Benson

Yeah, that's fine.

Robert MacLeod

On the Fine Chemical side, it's really about product and product mix. And if you've got some new product launching this year and some product that we've had before, so they're tailing off. And whilst we've got some good - obviously I'm talking x research chemicals because the research chemicals, of course, when we talk about continuing businesses, we've got some new product launching in the second half, one of them which - and principally are going to our second half and third - and second quarter and beyond, [indiscernible] (22:28) one product we launched as I said already. It's the mix between those two things which are giving us confidence that we can grow because we've got predictability about those new launches. And that's why there's going to be a first half, second half buyers, because it's more weighted towards the second. But it's all about - it's principally about product mix.

And as far as the new site in Scotland is concerned, that is progressing well in terms of bringing it up to speed, and it should be in production this year, in the second of this year, or actually we're, I suppose, in the calendar year already, in the second half. But it will be in production soon. And then the issue for us is we're going to initially make some material that we're currently make in Edinburgh. And we'll make those products in Annan which is still in Scotland but it's just - the southwest of Scotland. We'll make those products in Annan rather in Edinburgh because it's more efficient. So, there it's about also then bringing new products to market and winning new business. And of course, with the customers, they're reluctant to give your new business until you've proved that you've got a plant that's up and running and capacity-available. So, we've got to get the CapEx done and all the regulatory approvals done at Annan before you can then actually start selling and manufacturing those products.

So, you'll see in the second half of this year, it should start to see Annan becoming - up and running and contributing towards the growth in the Fine Chemicals business here in Europe.

Andrew Benson

Okay. That was clear. Thanks very much.

Robert MacLeod

Okay.

Operator

We'll now go over to the line of Iain Armstrong of Brewin Dolphin. Please go ahead.

Iain Armstrong

Good morning. Robert. Just a couple of questions.

Robert MacLeod

Iain, how are you?

Iain Armstrong

I'm fine. Thank you. Just a couple of questions on the Process Technologies Oil and Gas business and when you're saying that the hydrogen catalysts business versus the Diagnostic, is that as a much smaller part of the Oil and Gas, wasn't it? And Diagnostic is more...

Robert MacLeod

Yeah. The Diagnostic Services business is relatively small part of the division - of the business, absolutely. But it was - last year, it was a loss-making part of the business. And this year, it was breakeven. So in terms of impact on profitability, it has improved quite well. I wouldn't say it's grown the sales line, but it certainly has improved the profitability line.

Iain Armstrong

And just in regards to the announcement yesterday about the fines for the European truck manufacturers, one of the points they were making was with a delayed introduction of the new emission rules. Is that something that you could benefit from? Is there a bit if a catch-up going on there or is that...

Robert MacLeod

I think that's all [indiscernible] (25:35) historic activity. I don't think it has anything to do with the current position. No.

Iain Armstrong

Okay. Thank you.

Robert MacLeod

Okay.

Operator

We now go to Lauren Furcht at Bank of America Merrill Lynch. Please go ahead. Your line is open.

Robert MacLeod

Good morning, Lauren.

Lauren Furcht

Yeah. Hi, Robert. Good morning. Last question for me on ECT margins. Your sales, up 5%; profits, flat, I was wondering if that was reflecting purely the mix of heavy duty versus light duty or if it was that the one-off last year was in Q1, not in Q2, or both or something else? Thanks a lot.

Robert MacLeod

It's a range of factors. This is a big business and lots of different factors. I believe, actually, the one-off was in the second quarter rather than the first quarter. So, it's not a function of that. It is a function of the slowdown in heavy duty in North America.

And, John, when he talked to you seven weeks ago, he talked about some of the industrialization issues around bringing new products to the European business and how that impacts the capacity and our capacity management in Europe.

So, it's a combination of factors, that capacity issue in Europe and also, the slowdown in North America to do with trucks, but it's not to do with a one-off back to the second quarter thing rather than a first quarter thing.

Lauren Furcht

Okay. Thank you.

Operator

We're now over the line of Charles Pick at Numis. Please go ahead.

Charles Pick

Thanks very much. Good morning, Robert.

Robert MacLeod

Good morning, Charles.

Charles Pick

Just a couple of points, please. It looks as though Research Chemicals probably contributed about £15 million in Q1 of last year. We knew it was £38 million for the first half overall last year. Can you just clarify that, please?

And then, secondly, with ECT, is it possible, please, to disentangle what the European LDV growth was at constant FX? And similarly, what the North American HDD decline was at constant FX, please?

Robert MacLeod

The answer to your question about Research Chemicals - what did you say you thought it was?

Lauren Furcht

About £15 million.

Robert MacLeod

Yeah. I think it's a little bit more than that. I think it's about £20 million.

Lauren Furcht

All right. Okay.

Robert MacLeod

They're not what I have in front of me. I have to verify this. But the number I have in front of me was £38 million for the first half.

Lauren Furcht

Yes. Yes.

Robert MacLeod

Call it £19 million in the first half, first quarter, second quarter. I mean, £19 million, £20 million [indiscernible] (28:09).

Lauren Furcht

Okay.

Robert MacLeod

As far as - your question on European light duty, North American heavy duty, I'm loathe to get into too much detail here because [indiscernible] ( 28:27) getting up and split between every region and every detail. I think what we've given you in the release is what we've given - what we've got the sort of constant currency as a totality for the heavy duty and light duty.

So, 12% growth in light duty for the group across the business. It's fair to say that the growth was ahead on a constant rate basis ahead in Europe versus the other region. So, Europe contributed more than 12%. And on the heavy duty side, we were down 5% at constant rate with growth in Europe but weakness in North America. And I'd rather not go into all the details. But frankly, they sort of balances up - they didn't quite balance each other up, but that's what we end up having. I'd rather not go because we're getting into - we'll be giving far too much detail if we do it on a quarterly-by-quarter basis. We'll give you that detail obviously when we get to the half year, but I'd rather not do it quarter by quarter.

Lauren Furcht

Okay. Thanks very much.

Operator

We are now over to the line of Martin Evans at JPMorgan. Please go ahead.

Martin Evans

Yeah. Good morning.

Robert MacLeod

Morning, Martin.

Martin Evans

Yeah. Morning. Just going back to the senses on the second half versus the first half, so I mean, what is the visibility that gives you the sort of level of confidence that you're going to essentially make up the ground that you need to in the second half because there's obviously one-offs in difficult comps, profits in Fine and Precious Metals are down in Q1, it tends to be flat in ECT and up a little bit because of cost cutting in BT. So, lots of pressure on you in the second half. Is the visibility there for - on these new products and the saving of orders now is sufficiently better than it used to be as it gives you that expectation that the second half would be materially strong within the first. Thanks.

Robert MacLeod

You're welcome. Coming on to your question, Martin, I mean, it's fair to say that we always have to [indiscernible] (30:43) things first half, second half. I mean, that's a normal Johnson Matthey profile. This year we're sort of more heavily weighted because of the one-offs in research chemicals, so that adds to the weighting.

And the second element is that we have quite strong visibility, but your point about new product launches, we've talked a little bit about Fine Chemicals, but we've also got new product launches in ECT, and we've talked a little bit about some of the things we've got going on in ECT in North America. We've got - we believe we got stabilization of the heavy-duty truck market in North America too.

So, the visibility is pretty good. And we wouldn't be saying these things if we didn't have that sort of degree of confidence for that visibility is there, which is showing - saying as we see it today, that's certainly what we believe and that's our level of confidence. And we wouldn't say it unless we thought that was there because of that visibility. But we don't know exactly how many cars are going to be sold in Europe, in America or in China. We don't know exactly how many trucks are going to be sold in Europe, in America, in China just thinking on ECT.

But we know what products are going to be launched. We know what cars and trucks are going to be available to the market. Similarly, we know what we - on Process Technologies, whilst our expectations for licensing is now very low, the catalyst orders, people tend to make the orders sometime ahead of when they actually want the catalyst. So, therefore, you've got some visibility there as well. And on Fine Chemicals, I've already mentioned the new product releases.

So, the confidence is there for all series of factors. But the world is an uncertain place, so things could still change tomorrow. But sitting where we are today, knowing what we know today, we feel that the outlook statement we've given is the right balance. And that gives us - and we've got that confidence that we can deliver that.

Martin Evans

Thanks very much.

Operator

Okay. [Operator Instructions] Okay. First of all, we are back to Adam Collins, Liberum. Please go ahead. Your line is open again.

Adam Collins

Yeah. Hi, Robert. I had a couple of further ones. The slower PM licensing, without PM licensing and higher pgm prices, both of those ordinarily would impact cash flow. So, wondered if you just could comment on that and maybe make a general comment on how cash flows developed in the quarter. And then, what about the impact on the pension charges from lower interest rates. Have you got an idea of how that might impact the business, the change in the interest rates environment?

Robert MacLeod

So [inaudible] (33:41) for the business. I mean I think we're still saying in the sort of 50 to 60 days level of working capital is where we still aim to be for the year-end as a whole. It always get not quite as high so not quite as good as the end of the first half is normally not as good. But I think [inaudible] (34:00) the cash flow should be any particularly weaker.

You're right. I think we - did you say PM licensing? I think you meant PC licensing. I mean, licensing is yes, tend to be fairly cash positive but that's basically we've had a relatively weak licensing business with sometimes so that's just taking time to - that's not going to have much of an impact this year.

On pgm prices, they picked up, that might impact working capital a bit but we haven't seen a huge impact so far. So cap still is pretty strong. On the pension side, clearly, the movement in this kind of rate - and bond rates have come down post Brexit that has no impact at all this year because the P&L for this year is set on discount rates after 31st of March. So that is now set. So we know what the P&L charge will be this year. That's a long time to wait until the 31st of March 2017 so it's far for me to predict what will happen to discount rates and head to the P&L charge for next year.

But as far as the balance sheet is concerned, as far as the funding position is concerned, clearly the deficit has slightly widened. I think we are actually running at a close - we were running surplus on an accounting basis at the year-end. That has, obviously, gone away a bit. I'm not exactly sure where we are now. But we've got quite a lot of - over the last few years, we've moved quite a long way away from equities into bonds. And not only do we have bonds, but we've also got quite a lot of interest rate and inflation swaps in place. So, our deficits on a funding basis is what really matters. It hasn't changed enormously because of all the actions we've taken in the past to keep to mitigate and minimize the risks associated with the pension fund.

But from an accounting basis, we'll just have to wait and see what the position is at the end of March, and that will drive the P&L. But of course, that's just purely an accounting. Nice to see. What really matters is the funding. And on the funding side, we're carrying on in line with what we originally said, which is pushing the £23 million a year into the scheme, and that is plenty to make sure that we will be, basically, a neutral position and fully funding position in the pension scheme in the not too distant future.

Operator

Okay. We have a further question from Iain Armstrong at Brewin Dolphin. Please go ahead.

Iain Armstrong

Oh. Thanks again, Robert. I just wanted to pick up on that point about order visibility and your confidence for the rest of the year. I mean, if you went division by division, I mean, which of the divisions has got the high sort of visibility, which you've got the lowest?

Robert MacLeod

You can argue that ECT has got the highest and the lowest. It's got the highest visibility in such that - that we know not just for this year but for about the next two or three years or maybe even longer in certain areas. We know which car we're on, which truck we're on. So we've got absolute certainty there. The only thing we don't know is how many cars are going to be sold or many trucks are going to be sold. So, does that give us visibility or non-visibility? You could decide that one way or the other.

In terms of absolute orders, in terms of absolute delivery, I think from a capitalist point of view, PT when they have the capitalist order, that tends to be several months ahead but that's probably the area of the business that we have greater visibility, in part of PT and there are other parts of PT which are fairly short.

So, I would say probably that a part of the business that has a greater visibility I would say is ECT because at a global level, car volumes, truck volumes don't change that quickly, that dramatically, I hope I didn't say that because it did change quite dramatically in 2008, 2009. But assuming we don't another one of those, the volumes tend to change more gradually and therefore, we have pretty good visibility,

Iain Armstrong

And in terms of Brexit, when you say that you've sort of - you've tried to meet some preparations for the impact on the UK market, what about the rest of Europe? I mean, something like Germany is going to be impacted by what's going on as well.

Robert MacLeod

So, most of the activity we have in Germany is servicing the German or European car or truck market. That's where our product is going to on a ECT basis and in our other parts of the business which are in Europe. Those businesses principally trade around the rest of the world, not with the UK. So, nothing much has really changed for those businesses.

Iain Armstrong

Right. Okay.

Operator

Okay. We have a final question from Charles Pick at Numis. Please go ahead. Your line is open.

Charles Pick

Thanks so much. Just a query. The flipside to sterling weakness is of course - it will inflate your debt cosmetically. Any sort of indications what impact there will be there on the dollar and euro debt?

Robert MacLeod

I'm going to walk more a bit to try to find a number. Can I get back to you on that one? I don't - I genuinely can't remember.

Charles Pick

Yeah. Fine. Thanks.

Robert MacLeod

Sorry.

Operator

Okay. As that was the final question for today's call, Robert, can I please pass it back to you for any closing comments?

Robert MacLeod

Thank you very much. Look, that was a fairly thorough group of questions. If you have any more, please get in touch with Simon or Tom back in the office. I look forward to speaking to you all again in November when we announced our interim results. In the meantime, have a very good summer.

And just to reiterate that for the group as a whole, solid start to the year, and our outlook for the full year remains unchanged at constant rates. And the only issue is obviously a bit of a tailwind associated with foreign exchange. But absent that, as I said already, our outlook remains unchanged, and we are confident that we can deliver that. And, hopefully, I said over the call and in answering the questions that have come across because we have pretty good visibility on why that first half second split will be as it is. Thank you very much, everybody.

Operator

This now concludes today's call. Thank you all very much for attending, and you may now disconnect.

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