Final Results
Johnson Matthey PLC
07 June 2007
For Release at 7.00 am Thursday 7th June 2007
Preliminary Results for the year ended 31st March 2007
Strong performance and encouraging future prospects
Summary Results
Year to 31st March %
2007 2006 change
Revenue £6,152m £4,574m +34
Sales excluding precious metals £1,454m £1,159m +25
Profit before tax £226.5m £191.5m +18
Total earnings per share 96.9p 70.8p +37
Before one-off items (including discontinued operations' results):
Profit before tax £242.6m £219.8m +10
Earnings per share 81.2p 72.7p +12
Dividend per share 33.6p 30.1p +12
• Sales excluding precious metals up 25% at £1,454 million
• Profit before tax and one-off items, including discontinued operations'
results, up 10% to £242.6 million
• Ceramics Division sold for £143.9 million on 28th February 2007, giving a
profit on sale of £33.3 million after tax
• Total earnings per share up 37% to 96.9 pence. Before one-off items
(which comprise the profit on sale of Ceramics Division and impairment
costs in 2005/06) earnings per share up 12% to 81.2 pence
• Dividend up 12% to 33.6 pence in line with earnings growth
Divisional Performance
Operating Profit for the continuing businesses (before one-off items)
Year to 31st March % 2007 at 2006 % change
£m 2007 2006 change exchange rates
Catalysts 148.8 134.2 +11 152.7 +14
Precious Metal Products 85.3 62.2 +37 87.1 +40
Pharmaceutical Materials 35.5 33.8 +5 36.2 +7
Corporate (17.2) (16.8) (17.2)
Operating Profit 252.4 213.4 +18 258.8 +21
• Operating profit for the continuing businesses, before
one-off items, up 18% to £252.4 million, despite adverse exchange translation of
£6.4 million
• Catalysts up 11%. Environmental Catalysts and
Technologies' (ECT's) sales were well ahead of last year with good growth in
autocatalyst sales in Asia, increased sales of catalysed soot filters (CSFs) in
Europe and the emergence of the new market for heavy duty diesel (HDD) catalysts
in both Europe and North America. Process Catalysts and Technologies (PCT) also
achieved good growth with strong sales of methanol catalysts and a good
contribution from Davy Process Technology
• Precious Metal Products up 37% benefiting from buoyant
trading conditions for platinum group metals, particularly in the second half of
the year, and good growth in its manufacturing businesses
• Pharmaceutical Materials up 5% with a recovery in its US
operations
Business Prospects
• ECT should generate good growth in sales and profits in
2007/08 with a full year of HDD catalyst sales, continued growth in CSFs and
further expansion in Asia. New plants in South Korea, Russia and the UK will
commence supply during the year
• Prospects for PCT are also very encouraging, driven by the
high oil price and the need to make more efficient use of hydrocarbon
feedstocks. In 2007/08 we will be investing in additional capacity in
Clitheroe, UK to manufacture the latest generation of synthesis gas catalysts
• Outlook for platinum group metals demand remains good.
However, following the very strong performance in 2006/07 we expect Precious
Metal Products Division to achieve more modest growth in 2007/08
• Pharmaceutical Materials is expected to perform well in
2007/08 with steady growth across the division
• Following the sale of Ceramics Division the group's
gearing (debt / equity) has fallen to 34% at 31st March 2007. In 2007/08 we
intend to continue to buy back shares and look for bolt-on acquisitions which
will improve balance sheet efficiency
Commenting on the results, Neil Carson, Chief Executive of Johnson Matthey said:
'Johnson Matthey performed very well last year. Sales excluding precious metals
increased by 25% and underlying earnings per share were up 12%. We continue to
invest in R&D and in new plants around the world to meet the increasing demand
for our high technology products. Prospects for all our businesses remain very
encouraging, particularly in catalysts where global concerns about pollution and
climate change will continue to drive current and future sales of our
autocatalyst and process catalyst products.'
Enquiries:
Ian Godwin Director, IR and Corporate Communications 020 7269 8410
John Sheldrick Group Finance Director 020 7269 8408
Howard Lee The HeadLand Consultancy 020 7367 5225
Laura Hickman The HeadLand Consultancy 020 7367 5227
www.matthey.com
Report to Shareholders
Introduction
Johnson Matthey achieved very good results in 2006/07 with sales, profit before
tax and earnings per share all well ahead of last year. Catalysts Division and
Precious Metal Products Division both achieved double digit growth in sales and
operating profit despite adverse exchange translation. Sales were boosted by
the significant rise in the prices of platinum group metals. Demand for
catalysts was also very strong with expanding sales of catalysed soot filters
for light duty diesel vehicles, the emergence of a new market for heavy duty
diesel catalysts to original equipment manufacturers and increased sales of
process catalysts.
We sold our Ceramics Division on 28th February 2007 for £143.9 million giving a
profit on sale of £33.3 million after tax. The sale of Ceramics Division
completes the process, announced in November 2003, of disposing of parts of the
former Colours & Coatings Division and focusing the group on its core
activities. Under International Financial Reporting Standards (IFRS) the
results of Ceramics Division are shown in discontinued operations on a post tax
basis. Profit before tax in the income statement comprises the results for the
continuing businesses only. The results for 2005/06 shown in the income
statement have been restated accordingly.
Review of Results
Revenue increased by 34% to £6,152 million. Precious metal prices grew strongly
over the year which boosted sales in both Catalysts Division and Precious Metal
Products Division. Sales excluding the value of precious metals rose by 25%
reflecting good underlying volume growth and increased non precious metal
material costs, some of which are a pass through for Johnson Matthey.
Operating profit before one-off items increased by 18% to £252.4 million,
despite adverse exchange translation of £6.4 million. There were no one-off
items in operating profit in 2006/07 whereas in 2005/06 a £6.0 million
impairment charge was included. After one-off items growth in operating profit
was 22%.
The group's interest charge rose by £11.1 million as a result of higher average
borrowings and higher interest rates. Profit before tax and one-off items for
the continuing businesses rose by 15% to £226.5 million. After one-off items
the rise was 18%. If the operating results for discontinued operations are
included in the total, profit before tax was £242.6 million which was 10% up on
last year's reported profit before tax and one-off items of £219.8 million.
Total earnings per share, including the profit on disposal of Ceramics, rose by
37% to 96.9 pence. Earnings per share before one-off items (profit on sale of
Ceramics Division and last year's impairment charge) were 12% up at 81.2 pence.
Dividend
The board is recommending to shareholders a final dividend of 23.7 pence, making
a total dividend for the year of 33.6 pence, an increase of 12%, which is in
line with the growth in earnings per share before one-off items.
Operations
Catalysts Division's sales rose by 48% to £2,193 million, partly as a result of
significantly higher prices for platinum, palladium and rhodium. Excluding the
value of precious metals, sales rose by 32% to £1,036 million. This increase
was driven by good volume growth and the impact of higher material costs, such
as the costs of substrates for catalysed soot filters, which are a pass through
for Johnson Matthey.
The division's operating profit increased by 11% to £148.8 million, with both
Environmental Catalysts and Technologies and Process Catalysts and Technologies
performing well. The results were adversely affected by exchange translation.
At last year's rates sales excluding precious metals would have increased by 35%
and operating profit would be 14% up.
Environmental Catalysts and Technologies (ECT) was well ahead of last year with
good growth in Europe, particularly for diesel oxidation catalysts and catalysed
soot filters (CSFs), increasing autocatalyst sales in Asia and a welcome upturn
in our North American business with the introduction of products to meet new
heavy duty diesel (HDD) legislation.
In Johnson Matthey's financial year to 31st March 2007 global light duty vehicle
sales increased by 2.8% to 66.3 million. Car production rose by 3.1% with a
small overall increase in inventories. Most of the growth in production again
came in Asia, which was 9.5% up on last year. Within Asia, sales grew 21% in
China and 23% in India. Total European sales were 3.4% up, with all the growth
coming in Eastern Europe (16%). Sales in Russia, where Johnson Matthey is
constructing a new plant, increased 30% during the year. In North America light
vehicle sales were 2.0% down and domestic production fell by 6.3% as imports
gained market share.
Estimated Light Vehicle Sales and Production
Year to 31st March
2007 2006 change
millions millions %
North America Sales 19.3 19.7 -2.0%
Production 14.9 15.9 -6.3%
Total Europe Sales 21.3 20.6 +3.4%
Production 21.1 20.7 +1.9%
Asia Sales 16.4 15.2 +7.9%
Production 25.4 23.2 +9.5%
Global Sales 66.3 64.5 +2.8%
Production 66.9 64.9 +3.1%
Source: Global Insight
We continue to see increasing demand from many of the leading car companies in
Europe for CSFs to remove particulates from diesel exhaust emissions. Although
legislation requiring such emission control devices does not come into full
force in Europe until 2010, most car manufacturers are starting to fit these
devices much earlier due to public awareness of the environmental and health
benefits that they provide. In 2006/07 we completed work on a new factory in
Royston, UK to manufacture CSFs and during 2007/08 we will complete an
additional facility which will double our capacity. In addition, we have added
CSF capacity at our South African facility, which also supplies the European
market.
During the year we commenced construction of a new autocatalyst manufacturing
facility in the Russian Federation. This plant will produce catalysts to meet
demand from both local and global car manufacturers following the introduction
of emissions legislation requiring autocatalyst fitment in Russia in the spring
of 2006.
Our business in Asia continues to perform very well. Over the next decade we
expect that most of the growth in world car production will take place in the
Asian region. In 2006/07 we have achieved strong volume growth in China and
Japan and our operations in India and Malaysia also continued to perform well.
During the year we again expanded our autocatalyst manufacturing facility in
Japan in order to serve growing demand for our products from Japanese car
companies. Further expansion is planned for the coming year.
Our new plant in South Korea (our fifth in the Asian region) is nearing
completion and will begin production during 2007/08. This new plant will
manufacture catalysts for both diesel and petrol powered vehicles and will carry
out research and development activities to support the rapidly growing Korean
motor industry.
The market for HDD catalysts for new vehicles grew rapidly in the second half of
the year. New emission control standards for HDD vehicles came into force in
October 2006 for all new vehicles sold in Europe. In the United States similar
legislation came into force at the beginning of January 2007. Johnson Matthey
has a leading market share of both these new markets. A major expansion
programme was completed in the year at our facility near Philadelphia, USA to
provide capacity to meet demand for catalysts for both heavy duty diesel
vehicles and diesel powered pick ups, which are also affected by this
legislation.
Johnson Matthey's sales, excluding precious metals, of HDD catalysts to original
equipment manufacturers (OEMs) increased to £46 million in the second half of
2006/07 from £7 million in the first half. Sales in the US, as expected,
started slowly as truck sales were impacted by pre-buying of trucks ahead of the
legislation. In 2007/08 we expect to see further rapid growth in our sales of
HDD catalysts as the legislation in Europe and the US will apply for the whole
of the year and as US truck sales return to more normal levels over the course
of the year.
Our HDD business in Asia continues to make good progress, gaining share of the
OEM market in Japan and achieving good sales into the large retrofit programme
underway in Seoul, South Korea. Both China and India are major manufacturers of
trucks and similar emission control legislation to Europe and the US is expected
to be introduced in those two countries by 2010.
On road HDD emissions legislation will undoubtedly continue to tighten beyond
2010. In addition there is also legislation in place in the European Union and
the United States that will take effect from 2011 requiring off road or 'non
road' vehicles such as construction, mining and agricultural equipment to meet
the same tight emissions standards. Although average engine sizes are smaller
than those for on road HDD vehicles, this is a significant additional new
opportunity for Johnson Matthey and will have similar technology requirements.
Process Catalysts and Technologies (PCT) also achieved good growth in sales and
profits in 2006/07. The Ammonia, Methanol, Oil and Gas (AMOG) business was well
ahead of last year with continued strong demand for catalysts and purification
materials for industries where hydrogen or synthesis gas are key intermediates.
Demand from methanol producers was particularly good in 2006/07.
Davy Process Technology (DPT), which we acquired in February 2006, had an
excellent year concluding several major contracts. The acquisition of DPT has
provided Johnson Matthey with additional opportunities to grow sales of
catalysts into new technology developments. DPT develops and licenses chemical
process technologies and is benefiting from growth in China as well as high
energy prices which have increased demand for new chemical processes. Tracerco,
PCT's oil services business, also achieved good growth in the year. In April
2006, Tracerco acquired the process diagnostics business of Quest TruTec which
has expanded Tracerco's market coverage, particularly in the USA.
PCT's fine chemicals and related catalysts businesses performed well in the
year. Demand for precious metal chemicals was strong and sales of homogeneous
and Sponge NickelTM catalysts showed good growth. Research Chemicals benefited
from a good contribution from its new joint venture in China and sales in Europe
were strong stimulated by the launch of the new catalogue.
Our Fuel Cells business achieved strong growth in sales, from a small base, with
significantly increased orders for membrane electrode assemblies for direct
methanol fuel cells (DMFCs). Most of these sales were for portable fuel cells
which are sold to European consumers. Other sectors where fuel cells have
applications, such as automotive and local power generation, have benefited from
growing interest in low carbon and low emission technologies. The annual cost
of our Fuel Cells business fell by £0.8 million to £7.3 million.
Precious Metal Products Division's sales increased by 29% to £3,824 million,
boosted by higher prices for platinum group metals (pgms). In sterling terms
the average price of platinum rose by 18%. Prices of the minor metals (rhodium,
iridium and ruthenium) increased dramatically. Operating profit (before last
year's impairment costs) rose by 37% to £85.3 million. At last year's exchange
rates operating profit would have been 40% higher. Both the marketing and
distribution business and the manufacturing businesses achieved strong growth in
the year.
The price of platinum was extremely volatile in 2006/07. With the physical
market tightly balanced, speculative interest and the volatility in other
commodities such as oil had a significant impact on the price. Platinum peaked
at a new all time high of $1,390/oz in November and was subject to a broadly
upward trend throughout the year. The average price for the year was $1,185/oz,
a 26% increase on 2005/06 (18% in sterling terms).
Total consumption of platinum increased once more in 2006/07, a pattern unbroken
since 1992. Demand for platinum in autocatalysts increased by 11% with much of
the growth generated in Europe, where diesel vehicles accounted for more than
50% of light duty vehicle registrations. The fitting of catalysed soot filters
to diesel vehicles and the emissions control equipment fitted to heavy duty
diesel vehicles made a substantial contribution to platinum demand. However,
demand from jewellery manufacturers fell again as the rising price of platinum
encouraged de-stocking and recycling of old jewellery.
Supplies of platinum increased in 2006/07, with new mines coming on stream and
the largest producer Anglo Platinum having a good year after unexpected problems
in 2005. Overall, the platinum market was close to balance in 2006/07, which,
following several years of deficits, ensured the price remained firm.
The palladium price reached its peak for 2006/07 in May, touching $398/oz.
Supply and demand fundamentals continued to be largely incidental as hedge funds
and institutional investors extended already substantial long positions in the
market. With their significant and consistent support, the average price for
the year was $336/oz, an increase of 47% on 2005/06.
The price of rhodium rose sharply in 2006/07, touching a peak of $6,275/oz in
May. The average price doubled for a second successive year to reach $5,166/oz.
Strong demand from the automotive and glass fabrication industries coupled
with speculative interest left little metal to be offered in the spot market, in
spite of modestly increased supply. This sustained pressure on a market which
was already tight and illiquid inevitably caused the price to rise sharply.
The past year has been notable for the dramatic increase in the price of
ruthenium, which rose from $160/oz to reach $870/oz before easing to $700/oz by
the end of our financial year. The price increase was attributable to a surge
in demand from the electronics industry for the coating of a new generation of
hard disk memory storage.
Profits from the division's marketing and distribution operations were
substantially higher than in 2005/06, benefiting from good growth in demand and
higher pgm prices. The results in the second half of the year also benefited
from some trading profits on the minor metals. Although we do not expect these
trading profits to be repeated at the same level in 2007/08, market conditions
remain favourable and we would expect the business to achieve further growth in
profits in the current year if market conditions remain the same.
The division's metal fabrication businesses achieved good growth in 2006/07.
The market for catalysts used in the abatement of nitrous oxide, a powerful
greenhouse gas produced as a by product in the manufacture of nitric acid, is
starting to develop. We have excellent products in this area and the contracts
currently being finalised will generate a new revenue stream in the coming
years. Our medical products business located at three sites in California had
another good year with strong growth in nitinol products and components for the
cardiovascular sector.
Pgm Refining maintained its good progress, benefiting from higher pgm prices
which stimulated the flow of secondary materials for refining, especially
autocatalyst scrap.
Colour Technologies achieved further good growth in operating profit, with our
products for automotive glass proving very successful. In this sector we
continue to invest heavily in product development to meet the increasingly
stringent requirements of our customers for improved enamels and conductive
inks.
The division's gold and silver business also enjoyed a good year, boosted by
very strong metal prices which stimulated good flows of secondary materials.
Our North American operations at Salt Lake City and Toronto were successful in
growing operating profit whilst reducing the amount of metal tied up in
processes.
Pharmaceutical Materials Division's sales rose by 1% to £135 million. Operating
profit was up 5% at £35.5 million. The division's US businesses showed a good
recovery in the year although their reported results were adversely affected by
exchange translation as a result of the weaker US dollar. At last year's
exchange rates the division's sales would have been 3% up and operating profit
7% higher than in 2005/06.
The recovery in the division's US operations reflected increased demand for both
active pharmaceutical ingredients (APIs) and contract research. The business
benefited from the purchase by Barr Pharmaceuticals, Inc. of ADDERALL(R), an
immediate release product used in the treatment of Attention Deficit
Hyperactivity Disorder, from Shire plc. Johnson Matthey has an exclusive
agreement to supply the API to Barr for this product as well as the API used in
Barr's existing generic version. Sales of APIs for generic methylphenidate and
several opiate products also showed good growth in the year.
A New Drug Application (NDA) was filed for Satraplatin, a potential new platinum
anticancer drug which was discovered by Johnson Matthey, licensed to Spectrum
Pharmaceuticals, Inc. and sub-licensed for development and commercialisation to
GPC Biotech. If this drug is successful Johnson Matthey will receive both
royalty and manufacturing income from the product.
Sales at Macfarlan Smith, based in Edinburgh, were down on last year. However,
operating profit was slightly ahead. The fall in sales resulted from an overall
reduction in selling prices for key bulk opiate products which was offset by
lower prices for the raw materials used to manufacture these products. Sales of
higher margin specialist opiates, particularly oxycodone and buprenorphine,
showed good growth offsetting a decline in some non opiate fine chemical
products.
The longer term outlook for our Pharmaceutical Materials business is
encouraging. We expect to see further steady growth in sales of APIs for
generic controlled drugs, particularly those used in the treatment of pain which
is a growing market, and in platinum based anticancer drugs. There is also the
opportunity for additional growth from the launch of new products, such as
Satraplatin if it should be approved, and the agreed launch in April 2009 of
Barr's generic version of ADDERALL XR(R).
Finance
Exchange Rates
The main impact of exchange rate movements on the group's results comes from the
translation of foreign subsidiaries' profits into sterling. A quarter of the
group's profits are made in North America, mainly in the USA. The average rate
for the US dollar was $1.896/£ compared with $1.785/£ for 2005/06. Each one
cent change in the average rate for the dollar has approximately a £0.4 million
effect on operating profit in a full year. The fall of over 11 cents in the
dollar in 2006/07 reduced reported group operating profit by £4.6 million.
Most major south east Asian currencies were weaker, adding a further £1.5
million to adverse exchange translation. The South African rand also weakened
substantially, from R11.4/£ to R13.4/£. However, the catalysts manufactured by
our South African business are ultimately for export and the benefit of a weaker
rand on margins more than offsets the translational effect. Overall, excluding
the rand, exchange translation reduced group profits by £6.4 million compared
with 2005/06.
Interest
The group's net finance costs rose by £11.1 million to £26.8 million. Average
borrowings were significantly higher than last year as a result of the major
investment in both capital expenditure and working capital to support the rapid
growth in Catalysts Division, and the acquisition of Davy Process Technology in
February 2006. However, with the sale of Ceramics Division at the end of
February 2007, net debt fell significantly in March to end the year at £364.8
million. Interest rates also rose, particularly for floating rate US dollars,
which on average were 1.3% up on 2005/06.
Taxation
The group's tax charge for the continuing businesses was £64.7 million, an
increase of £10.0 million on last year reflecting the growth in profit before
tax. The average tax rate for the continuing businesses was 28.6%. The £33.3
million profit on disposal of Ceramics Division was largely tax free as a result
of the substantial shareholdings exemption for tax on UK disposals.
Tax paid was £81.4 million which was much higher than in 2005/06. Some of the
difference related to timing with payments falling into the first quarter of
2006/07 rather than the final quarter of the previous year. In addition, in
2005/06 we reached agreement with HM Revenue & Customs in the UK on several
years' tax assessments which resulted in a repayment of tax and benefited that
year's first half cash flow.
Cash Flow
Johnson Matthey generated a net cash inflow of £13.8 million in 2006/07. Net
debt disposed of with the sale of Ceramics Division amounted to £19.1 million.
After taking into account the impact of exchange translation on foreign currency
borrowings the group's net debt fell by £47.2 million to £364.8 million.
The proceeds of sale of Ceramics Division amounted to £146.0 million (cash
received plus net debt disposed of on sale). The group spent £8.6 million on
acquisitions in the year and a net £50.4 million on share buy-backs. Excluding
these items the group had a free cash outflow of £54.3 million.
This outflow was the result of major investments in the year on capital
expenditure and working capital to support the future growth of Catalysts
Division, particularly ECT. In addition, working capital grew as a result of
the rise in precious metal prices which affected both inventories and
receivables. In total, the cash outflow on working capital was £114.4 million,
although the ratio of working capital to revenue fell.
Capital expenditure for the year was £119.8 million which was 1.5 times
depreciation. Most of the investment was focused on Catalysts Division where
capex was 2.0 times depreciation, with the other divisions spending at levels
close to or below depreciation. The cash outflow on capital expenditure in the
year was £121.5 million (net of asset sales) with a reduction in payments
accrued.
Environmental Catalysts and Technologies spent £63.9 million in 2006/07 with
major investments in new capacity. We have completed the new diesel products
facility in North America and are building a new CSF manufacturing facility in
Royston in the UK. Additional manufacturing capacity has been installed in our
production facilities in Japan and South Africa and we are building new
factories in Russia and South Korea which should be completed and commissioned
in 2007/08. In Process Catalysts and Technologies we have added capacity in
AMOG and in 2007/08 we will be investing in additional capacity in Clitheroe, UK
to manufacture the latest generation of synthesis gas catalysts.
Pensions
The surplus on the group's UK pension schemes fell by £23.2 million to £45.5
million on an IFRS basis at 31st March 2007. During the year the trustees
completed the triennial revaluation of the fund incorporating the latest
statistics on life expectancy and demographic experience. The revaluation
showed the fund was still in surplus as of 31st March 2006 but at a lower level
than previously estimated. Market conditions improved somewhat in 2006/07 with
a rise in the discount rate and a good return on equities although inflation
assumptions have also risen. The cost of providing future pensions has gone up
and both employee and employer contributions have been increased to help
maintain a satisfactory funding position.
Worldwide, including provisions for the group's post-retirement healthcare
schemes, the group had a net surplus of £0.9 million on employee benefit
obligations at 31st March 2007 compared with £18.8 million at 31st March 2006.
Capital Structure
In 2006/07 we invested heavily in capital expenditure and working capital to
support organic growth, particularly in ECT. We also purchased 3.6 million
shares into treasury at a total cost of £52.6 million. Proceeds of £2.2 million
were received from option exercises to give a net outflow on share transactions
of £50.4 million. However, these outflows were more than offset by the proceeds
from the sale of Ceramics Division of £146.0 million. Net debt at 31st March
2007 was £364.8 million, a reduction of £47.2 million on 31st March 2006.
Gearing (debt / equity) fell by 5.6% to 33.8%.
In 2007/08 we will continue to invest in organic growth, with capital
expenditure budgeted to be 1.5 times depreciation and further additional
investment in working capital. Despite this significant investment we expect to
maintain or improve the group's return on assets which rose by 0.4% to 17.4% in
2006/07. We plan to continue to buy back shares in 2007/08 and we are looking
at a number of possible bolt-on acquisitions. Together these investments will
increase gearing and make more efficient use of the group's balance sheet.
Divisional Structure
From 1st April 2007 we have reorganised our divisional structure, creating a new
Environmental Technologies Division which comprises ECT, the process
technologies businesses within PCT and Fuel Cells. The remaining businesses
within PCT, which serve the speciality chemicals and pharmaceutical markets,
have been merged with Pharmaceutical Materials to form a new Fine Chemicals &
Catalysts Division. Precious Metal Products Division is unchanged.
This new structure is designed to give greater focus on technologies concerned
with protecting the environment such as pollution control, cleaner fuel, more
efficient use of hydrocarbons and the hydrogen economy. Our new Environmental
Technologies Division, which combines our core skills in catalysts and process
technology, is well positioned to serve these emerging markets.
Johnson Matthey's Pharmaceutical Materials business is focused on the
manufacture of fine chemicals, particularly APIs, sold to pharmaceutical
companies which fits well with the group's other fine chemicals and catalysts
businesses which sell into the same or similar markets. Our new Fine Chemicals
& Catalysts Division, which combines the group's fine chemicals and related
catalysts businesses, will enable us to take advantage of the marketing and
technology synergies that exist between these businesses.
The segmental results for 2006/07, restated for the new divisions, are shown in
note 2 on page 23.
Outlook
The outlook for the group for the next few years continues to be very
encouraging. We expect to achieve further strong growth in sales excluding
precious metals, particularly in Environmental Technologies Division. In 2007/
08 growth in underlying earnings per share will be approximately 4 to 5% less
than the growth in profit before tax for the continuing businesses, because of
the dilutive effect of the sale of Ceramics. However, looking forward to 2008/
09 and beyond, growth in profit before tax and earnings will be stronger as a
result of the divestment.
In 2007/08 we should benefit from a full year of sales of HDD catalysts to meet
new emission standards introduced in Europe in October 2006 and in North America
in January 2007. Although industry experts are predicting a 25% fall in truck
sales in North America in 2007, all new trucks sold will need to meet the
emissions legislation, which will provide the opportunity for significant new
business for Johnson Matthey. In addition, ECT should achieve significant
growth in sales of CSFs for light duty diesel vehicles and grow its market share
of autocatalysts in Asia. Overall, we expect ECT to achieve double digit growth
in both sales and operating profit in 2007/08.
Our Process Technologies business is also experiencing strong demand,
particularly for catalysts for synthesis gas and hydrogen production. Prospects
for Process Technologies are encouraging, driven by the high oil price and the
need to make more efficient use of hydrocarbon feedstocks.
Precious Metal Products Division enjoyed very strong growth in 2006/07,
benefiting from buoyant trading conditions in platinum group metals and good
growth in its manufacturing businesses. In the second half of the year the
division benefited from some trading profits on the minor pgms which we do not
expect to be repeated at the same level in 2007/08, but overall, if current
market conditions continue, we would still expect the division to achieve
further growth in 2007/08, particularly in the first half of the year.
Our new Fine Chemicals & Catalysts Division is expected to achieve steady growth
in 2007/08, with a further recovery in the US Pharmaceutical Materials &
Services business and continued growth in catalysts and research chemicals.
Most of the division's growth in 2007/08 is likely to come in the second half of
the year.
Overall, the group should perform well in 2007/08. Prospects for all our
businesses are good, particularly for Environmental Technologies where global
concerns about pollution, climate change and making the most efficient use of
energy resources will create significant opportunities for future growth.
Consolidated Income Statement
for the year ended 31st March 2007
2007 2006
restated
Notes £ million £ million
Revenue 1 6,151.7 4,573.7
Cost of materials sold (5,300.0) (3,842.3)
Net revenues 851.7 731.4
Other cost of sales (413.7) (358.7)
Gross profit 438.0 372.7
Distribution costs (81.8) (75.3)
Administrative expenses (103.8) (84.0)
Impairment costs - (6.0)
Operating profit 1,3 252.4 207.4
Finance costs (36.0) (31.5)
Finance income 9.2 15.8
Share of profit / (loss) of associates 0.9 (0.2)
Profit before tax 226.5 191.5
Income tax expense 4 (64.7) (54.7)
Profit for the year from continuing operations 161.8 136.8
Profit for the year from discontinued operations 5 43.7 14.5
Profit for the year 205.5 151.3
Attributable to:
Equity holders of the parent company 206.5 152.1
Minority interests (1.0) (0.8)
205.5 151.3
pence pence
Earnings per ordinary share attributable to the equity holders of the parent
company
Continuing operations
Basic 6 76.5 64.2
Diluted 6 75.3 63.9
Total
Basic 6 96.9 70.8
Diluted 6 95.4 70.5
Consolidated Balance Sheet
as at 31st March 2007
2007 2006
restated
Notes £ million £ million
Assets
Non-current assets
Property, plant and equipment 600.7 661.1
Goodwill 399.2 403.1
Other intangible assets 40.1 41.3
Deferred income tax assets 8.9 4.4
Investments and other receivables 10.0 10.4
Post-employment benefits net assets 49.2 75.0
Total non-current assets 1,108.1 1,195.3
Current assets
Inventories 362.7 345.8
Current income tax assets 7.0 3.6
Trade and other receivables 527.3 478.5
Cash and deposits 8 73.2 133.0
Investments and other financial assets 3.4 3.3
Other current assets 7.1 7.1
Non-current assets classified as held for sale 0.4 -
Total current assets 981.1 971.3
Total assets 2,089.2 2,166.6
Liabilities
Current liabilities
Trade and other payables (416.0) (385.9)
Current income tax liabilities (52.7) (66.0)
Borrowings and finance leases 8 (27.5) (90.3)
Other financial liabilities (2.0) (4.2)
Provisions (7.7) (9.1)
Total current liabilities (505.9) (555.5)
Non-current liabilities
Borrowings, finance leases and related swaps 8 (410.5) (454.7)
Deferred income tax liabilities (36.5) (49.7)
Employee benefits obligations (48.3) (56.2)
Provisions (8.7) (5.2)
Trade and other payables (1.2) (0.8)
Total non-current liabilities (505.2) (566.6)
Total liabilities (1,011.1) (1,122.1)
Net assets 1,078.1 1,044.5
Equity
Share capital 220.5 220.2
Share premium account 146.3 144.4
Shares held in employee share ownership trusts (61.9) (63.0)
Other reserves (12.9) 28.5
Retained earnings 783.7 708.0
Total equity attributable to equity holders of the parent company 1,075.7 1,038.1
Minority interests 2.4 6.4
Total equity 10 1,078.1 1,044.5
Consolidated Cash Flow Statement
for the year ended 31st March 2007
2007 2006
restated
Notes £ million £ million
Cash flows from operating activities
Profit before tax 226.5 191.5
Adjustments for:
Share of (profit) / loss in associates (0.9) 0.2
Discontinued operations 15.9 21.3
Depreciation, amortisation and profit on sale of non-current assets and 77.7 76.7
investments
Share-based payments 6.9 3.2
Increase in inventories (82.5) (25.6)
Increase in receivables (136.5) (78.7)
Increase in payables 104.6 63.7
Increase / (decrease) in provisions 5.9 (18.1)
Employee benefits obligations charge less contributions (9.1) (9.3)
Changes in fair value of financial instruments 5.2 (12.4)
Net finance costs 26.8 15.7
Income tax paid (81.4) (15.9)
Net cash inflow from operating activities 159.1 212.3
Cash flows from investing activities
Dividends received from associates 0.5 0.1
Purchases of non-current assets and investments (125.0) (120.3)
Proceeds from sale of non-current assets and investments 3.5 5.7
Purchases of businesses and minority interests (8.6) (24.3)
Net proceeds from sale of businesses and minority interests 127.1 -
Net cash outflow from investing activities (2.5) (138.8)
Cash flows from financing activities
Net purchase of own shares (50.4) (25.9)
(Repayment of) / proceeds from borrowings and finance leases (71.8) 82.3
Dividends paid to equity holders of the parent company 7 (66.0) (60.4)
Dividends paid to minority shareholders - (0.2)
Interest paid (31.3) (30.6)
Interest received 4.9 16.6
Net cash outflow from financing activities (214.6) (18.2)
(Decrease) / increase in cash and cash equivalents in the year (58.0) 55.3
Exchange differences on cash and cash equivalents (7.1) 5.8
Cash and cash equivalents at beginning of year 125.1 64.0
Cash and cash equivalents at end of year 8 60.0 125.1
Reconciliation to net debt
(Decrease) / increase in cash and cash equivalents in the year (58.0) 55.3
Repayment of / (proceeds from) borrowings and finance leases 71.8 (82.3)
Change in net debt resulting from cash flows 13.8 (27.0)
Borrowings acquired with subsidiaries - (1.4)
Borrowings disposed of with subsidiaries 19.1 -
Exchange differences on net debt 14.3 (13.4)
Movement in net debt in year 47.2 (41.8)
Net debt at beginning of year (412.0) (370.2)
Net debt at end of year 8 (364.8) (412.0)
Consolidated Statement of Recognised Income and Expense
for the year ended 31st March 2007
2007 2006
Notes £ million £ million
Currency translation differences on foreign currency net investments and
related loans (67.3) 42.3
Currency translation differences - transferred to profit on sale of discontinued 5 (3.8) -
operations
Fair value gain on available-for-sale investments transferred to profit on sale - (0.8)
Cash flow hedges - gains / (losses) taken to equity 3.1 (3.6)
Cash flow hedges - transferred to income statement in the year 1.2 (2.6)
Fair value gains / (losses) on net investment hedges 23.3 (12.5)
Fair value gains on net investment hedges - transferred to profit on sale of
discontinued
operations 5 (2.0) -
Actuarial (loss) / gain on post-employment benefits assets and liabilities (32.3) 19.6
Tax on above items taken directly to or transferred from equity 13.5 (7.8)
Net (expense) / income recognised directly in equity (64.3) 34.6
Profit for the year 205.5 151.3
Total recognised income and expense relating to the year 141.2 185.9
IFRS transition adjustment for financial instruments - 2.7
141.2 188.6
Total recognised income and expense attributable to:
Equity holders of the parent company 142.2 186.7
Minority interests (1.0) (0.8)
141.2 185.9
IFRS transition adjustment for financial instruments attributable to:
Equity holders of the parent company - 2.7
Notes on the Preliminary Accounts
for the year ended 31st March 2007
1 Segmental information by business segment
The group sold its Ceramics Division during the year (note 5) and so its results are reported as discontinued
operations.
Precious
Metal Pharmaceutical
Catalysts Products Materials Eliminations Total
£ million £ million £ million £ million £ million
Year ended 31st March 2007
Sales to external customers 2,192.6 3,824.4 134.7 - 6,151.7
Inter-segment sales 21.9 1,162.6 0.3 (1,184.8) -
Total revenue 2,214.5 4,987.0 135.0 (1,184.8) 6,151.7
External sales excluding precious metals 1,035.6 290.0 128.6 - 1,454.2
Segment result 148.8 85.3 35.5 - 269.6
Unallocated corporate expenses (17.2)
Operating profit 252.4
Net finance costs (26.8)
Share of profit of associates 0.9 0.9
Profit before tax 226.5
Income tax expense (64.7)
Profit for the year from continuing operations 161.8
Profit for the year from discontinued operations 43.7
Profit for the year 205.5
Segment assets 1,308.1 298.4 324.2 (52.1) 1,878.6
Investments in associates - 4.8 - - 4.8
Cash and deposits 73.2
Current and deferred income tax assets 15.9
Post-employment benefits net assets 49.2
Unallocated corporate assets 67.5
Total assets 2,089.2
Segment liabilities 329.8 92.1 18.4 (52.1) 388.2
Borrowings, finance leases and related swaps 438.0
Current and deferred income tax liabilities 89.2
Employee benefits obligations 48.3
Unallocated corporate liabilities 47.4
Total liabilities 1,011.1
Segment capital expenditure 91.5 11.2 10.7 - 113.4
Capital expenditure on discontinued operations 4.5
Corporate capital expenditure 1.9
Total capital expenditure 119.8
Segment depreciation and amortisation 46.0 13.4 10.5 - 69.9
Depreciation on discontinued operations 5.5
Corporate depreciation 2.1
Total depreciation and amortisation 77.5
Significant non-cash expenses other than 1.5 1.3 - - 2.8
depreciation
Notes on the Preliminary Accounts
for the year ended 31st March 2007
1 Segmental information by business segment
(continued)
Precious
Metal Pharmaceutical
Catalysts Products Materials Ceramics Eliminations Total
£ million £ million £ million £ million £ million £ million
Year ended 31st March 2006 (restated)
Sales to external customers 1,477.4 2,962.4 133.9 - 4,573.7
Inter-segment sales 17.4 676.9 1.2 (695.5) -
Total revenue 1,494.8 3,639.3 135.1 (695.5) 4,573.7
External sales excluding precious 786.4 245.4 127.2 - 1,159.0
metals
Segment result before impairment costs 134.2 62.2 33.8 - 230.2
Impairment costs - (6.0) - - (6.0)
Segment result 134.2 56.2 33.8 - 224.2
Unallocated corporate expenses (16.8)
Operating profit 207.4
Net finance costs (15.7)
Share of loss of associates (0.2) (0.2)
Profit before tax 191.5
Income tax expense (54.7)
Profit for the year from continuing operations 136.8
Profit for the year from discontinued operations 14.5
Profit for the year 151.3
Segment assets 1,119.1 305.8 331.3 164.6 (26.7) 1,894.1
Investments in associates - 4.3 - - - 4.3
Cash and deposits 133.0
Current and deferred income tax assets 8.0
Post-employment benefits net assets 75.0
Unallocated corporate assets 52.2
Total assets 2,166.6
Segment liabilities 207.0 117.1 24.1 38.0 (26.7) 359.5
Borrowings, finance leases and related swaps 545.0
Current and deferred income tax 115.7
liabilities
Employee benefits obligations 56.2
Unallocated corporate liabilities 45.7
Total liabilities 1,122.1
Segment capital expenditure 89.2 13.7 9.9 6.5 - 119.3
Corporate capital expenditure 4.7
Total capital expenditure 124.0
Segment depreciation and amortisation 39.8 13.0 10.0 6.3 - 69.1
Corporate depreciation 1.7
Total depreciation and amortisation 70.8
Significant non-cash expenses other
than depreciation - 7.7 - - - 7.7
Notes on the Preliminary Accounts
for the year ended 31st March 2007
2 Segmental information by business segment restated for new divisions
On 1st April 2007 the group restructured its divisions (see page 14). The segmental results for the year ended
31st March 2007 restated for the new divisions were:
Precious Fine
Environmental Metal Chemicals
Technologies Products & Catalysts Total
£ million £ million £ million £ million
Sales to external customers 1,864.3 3,824.4 463.0 6,151.7
External sales excluding precious metals 896.2 290.0 268.0 1,454.2
Segment result 120.1 85.3 64.2 269.6
Unallocated corporate expenses (17.2)
Operating profit 252.4
3 Effect of exchange rate changes on translation of foreign subsidiaries' operating profits
Average exchange rates used for translation of results of foreign operations 2007 2006
US dollar / £ 1.90 1.79
Euro / £ 1.48 1.47
South African rand / £ 13.37 11.42
The main impact of exchange rate movements on the group's operating profit comes from the translation of foreign
subsidiaries' profits into sterling. The one significant exception is the South African rand where the translational
impact
is more than offset by the impact of movements in the rand on operating margins. Consequently the analysis below
excludes the translational impact of the rand.
Year ended 31st March
2007
At this At last
year's year's Effect
rates rates
£ million £ million £ million
Catalysts 148.8 152.7 (3.9)
Precious Metal Products 85.3 87.1 (1.8)
Pharmaceutical Materials 35.5 36.2 (0.7)
Unallocated corporate expenses (17.2) (17.2) -
Operating profit 252.4 258.8 (6.4)
4 Income tax expense
2007 2006
restated
£ million £ million
United Kingdom 24.3 27.0
Overseas 40.4 27.7
64.7 54.7
The group's share of associated undertakings' taxation for the year ended 31st March 2007 was £ nil (2006 £ nil).
Notes on the Preliminary Accounts
for the year ended 31st March 2007
5 Profit for the year from discontinued operations
On 28th February 2007 the group sold its Ceramics Division to the Endeka Ceramics group established by Pamplona
Capital Partners I, LP, a private equity investment
fund.
Ceramics Division's net assets disposed of were:
£ million
Property, plant and equipment 56.6
Goodwill 0.4
Inventories 43.4
Trade and other receivables 61.2
Cash and deposits 20.1
Bank overdrafts (5.7)
Current other borrowings (6.5)
Group loans (12.6)
Current trade and other payables (37.0)
Current income tax liabilities (2.0)
Non-current trade and other payables (0.7)
Employee benefits obligations (1.5)
Deferred income tax liabilities (2.7)
113.0
Minority interests (2.7)
110.3
The profit on disposal of Ceramics Division was:
£ million
Consideration - cash 143.9
Consideration - refund outstanding (0.6)
Costs incurred - cash (2.6)
Costs incurred - non-cash (0.4)
Costs incurred - accrued (2.3)
138.0
Less assets disposed of (110.3)
Pension curtailment gain 0.9
Cumulative exchange gains deferred in equity 5.8
Profit on disposal before tax 34.4
Tax (1.1)
Profit on disposal 33.3
The results of the discontinued operations included in the consolidated income statement
were:
2007 2006
£ million £ million
Ceramics Division
Sales to external customers 160.1 182.2
Inter-segment sales 3.4 4.4
Expenses (147.6) (165.3)
Operating profit 15.9 21.3
Net finance costs 0.4 1.0
Profit before tax 16.3 22.3
Income tax expense (5.7) (7.8)
Profit on disposal 33.3 -
Profit for the year from Ceramics Division 43.9 14.5
Additional environmental warranty obligations retained on sale of Pigments & Dispersions (0.2) -
Profit for the year from discontinued operations 43.7 14.5
Notes on the Preliminary Accounts
for the year ended 31st March 2007
6 Earnings per ordinary share
The calculation of earnings per ordinary share is based on a weighted average of 213,219,273 shares in
issue (2006 - 214,895,523 shares). The calculation of diluted earnings per ordinary share is based on the
weighted average number of shares in issue adjusted by the dilutive outstanding share options and long term
incentive plan. These adjustments give rise to an increase in the weighted average number of shares in issue of
3,312,043 shares (2006 - 967,320 shares).
Earnings per ordinary share before one-off items are calculated as follows:
2007 2006
£ million £ million
Profit for the year attributable to equity holders of the 206.5 152.1
parent company
Profit on disposal of discontinued operations (34.4) -
Impairment costs - 6.0
Tax thereon 1.1 (1.8)
Profit for the year before one-off items 173.2 156.3
pence pence
Basic EPS before one-off items 81.2 72.7
7 Dividends
A final dividend of 23.7 pence per ordinary share has been proposed by the board which will be paid on 7th August
2007 to shareholders on the register at the close of business on 15th June 2007. The estimated amount to be paid is
£50.0 million. In accordance with IFRS accounting requirements this dividend has not been recognised in these
accounts.
2007 2006
£ million £ million
2004/05 final ordinary dividend paid - 19.0 pence per share - 40.9
2005/06 interim ordinary dividend paid - 9.1 pence per share - 19.5
2005/06 final ordinary dividend paid - 21.0 pence per share 44.9 -
2006/07 interim ordinary dividend paid - 9.9 pence per share 21.1 -
66.0 60.4
8 Net debt
2007 2006
£ million £ million
Cash and deposits 73.2 133.0
Bank overdrafts (13.2) (7.9)
Cash and cash equivalents 60.0 125.1
Current other borrowings and finance leases (14.3) (82.4)
Non-current borrowings, finance leases and related swaps (410.5) (454.7)
Net debt (364.8) (412.0)
9 Share purchases
During the year the company purchased 3,600,000 shares at a cost of £52.6 million. These shares are being held
as treasury shares.
Notes on the Preliminary Accounts
for the year ended 31st March 2007
10 Changes in equity
2007 2006
£ million £ million
Equity at end of prior year 1,044.5 929.9
IFRS transition adjustment for financial instruments - 2.7
Equity at beginning of year 1,044.5 932.6
Total recognised income and expense relating to the year 141.2 185.9
Dividends paid to equity holders of the parent company (66.0) (60.4)
Dividends payable to minority interests (0.3) (0.3)
Minority interest arising on formation of subsidiary 0.3 -
Share capital reduction in minority interest (0.3) -
Disposal of minority interest (2.7) -
New share capital subscribed 2.2 5.3
Purchase of treasury shares (52.6) -
Purchase of shares for employee share ownership trusts - (25.3)
Share-based payments 11.8 7.6
Cost of shares transferred to employees (4.5) (4.4)
Tax on items taken directly to or transferred from equity 4.5 3.5
Equity at end of year 1,078.1 1,044.5
11 Precious metal operating leases
The group leases precious metals from banks for specified periods (typically a few months) and for which the
group pays a fee. These arrangements are classified as operating leases. The group holds sufficient
precious metal inventories to meet all the obligations under these lease arrangements as they fall due. At 31st
March 2007 precious metal leases were £93.2 million (2006 £93.2 million).
12 Basis of preparation
The financial information contained in this release does not constitute the company's statutory accounts for
the years ended 31st March 2007 or 31st March 2006 but is derived from those accounts. Statutory accounts for 2006
have been delivered to the Registrar of Companies and those for 2007 will be delivered following the company's
Annual General Meeting. The auditors' reports on those accounts were unqualified and did not contain any statement
under sections 237(2) and 237(3) of the Companies Act 1985. The accounts for the year ended 31st March
2007 were approved by the Board of Directors on 5th June 2007.
As described in note 5 the group sold its Ceramics Division during the year and so its results are
reported as discontinued operations and the income statement, cash flow statement and related notes for the year
ended 31st March 2006 have been restated accordingly.
Financial Calendar
13th June
Ex dividend date
15th June
Final ordinary dividend record date
24th July
116th Annual General Meeting (AGM)
7th August
Payment of final dividend subject to declaration at the AGM
28th November
Announcement of results for the six months ending 30th September
2007
5th December
Ex dividend date
7th December
Interim ordinary dividend record date
Cautionary Statement
This announcement contains forward looking statements that are subject to risk factors associated with, amongst
other things, the economic and business circumstances occurring from time to time in the countries and sectors in which
the group operates. It is believed that the expectations reflected in this announcement are reasonable but they may be
affected by a wide range of variables which could cause actual results to differ materially from those currently
anticipated.
Johnson Matthey Public Limited Company
Registered Office: 40-42 Hatton Garden, London EC1N 8EE
Telephone: 020 7269 8400
Internet address: www.matthey.com
E-mail: jmpr@matthey.com
Registered in England - Number 33774
Registrars
Lloyds TSB Registrars, The Causeway, Worthing, West Sussex BN99 6DA
Telephone: 0870 600 3970
Internet address: www.shareview.co.uk
This information is provided by RNS
The company news service from the London Stock Exchange
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