Interim Results - 6 Months to 30 September 1999
Johnson Matthey PLC
2 December 1999
Interim Results for the half year ended 30th September 1999
Strong performance from core businesses in first half. Prospects are
encouraging.
Results
* Strong operating performance with profits from continuing businesses up 17%
to £66.7 million on sales 10% up
* Electronic Materials sold for US$655 million in cash giving an exceptional
profit of £28.5 million after goodwill write back
* Profit before tax excluding exceptional items unchanged from last year at
£61.6 million (including exceptionals £90.0 million)
* Interim dividend increased by 7% to 6.1p
* Net cash at 30th September £172.6 million. Shareholders' funds up £170.9
million to £723.7 million
Strategy
* First stage of strategy announced last November successfully completed with
the sale of Electronic Materials
* All the group's continuing businesses are delivering good organic growth
* Rationalisation programme announced for Colours & Coatings will add £4
million to profits in the next financial year and £7 million per year
thereafter
* Cash released from the sale of Electronic Materials will enable the group to
undertake earnings enhancing acquisitions or return capital to shareholders
Commenting on the results, Chris Clark, Chief Executive of Johnson Matthey,
said:
'We have continued to make good progress in our strategy announced last
November to change the focus of the group's activities. Electronic Materials
Division has been sold for a good price. All the core businesses performed
strongly in the first half of the year and prospects are encouraging.'
Enquiries:
Chris Clark, Chief Executive, Johnson Matthey 020 7269 8435
John Sheldrick, Group Finance Director, Johnson Matthey 020 7269 8438
Howard Lee, Gavin Anderson & Co 020 7457 2345
Report to Shareholders
Introduction
Johnson Matthey had a good first half to 1999/00 with all of the continuing
divisions performing well. The sale of Electronic Materials Division (EMD) to
AlliedSignal Inc. was completed in August of this year. In line with our
strategy announced at last year's interim results, Johnson Matthey now has
three operating divisions that are focused on our core strengths in catalysts
and chemicals, precious metals and colours and coatings.
Review of Results
In the six months to 30th September 1999, operating profit from continuing
operations rose 17% to £66.7 million on sales that were 10% up at £1,696.0
million. EMD made a £0.1 million contribution to profits compared with £12.7
million in the first half of last year. Despite the shortfall in EMD, Johnson
Matthey earned profits before tax and exceptional items of £61.6 million, the
same as the first half of 1998/99. Sales including discontinued operations
rose by 1% to £1,787.6 million.
Earnings per share before exceptional items were slightly up on prior year at
20.5 pence. Including exceptional items, earnings per share were 12% up at
29.0 pence reflecting the gain on the sale of EMD.
The interim dividend has been increased by 7% to 6.1 pence.
Operations
Catalysts & Chemicals Division increased its sales by 14% over the first half
of last year to £376.6 million. Operating profits were up 12% at £39.3
million. The Autocatalyst business had a good first half benefiting from
strong vehicle markets; also tighter emission standards boosted sales of high
performance products and the continuing trend to more catalysts per car was
helpful to unit volumes.
On 23rd August 1999 we announced that we had agreed with General Motors
Corporation to settle a long-standing commercial dispute. As part of the
settlement agreement we have entered into collaboration with General Motors on
a significant research and development project on fuel cells for
transportation applications.
We have significantly increased our research and development effort in the
fuel cell arena. In addition to the General Motors collaboration, we have
entered into key customer programmes over the last year or so with dbb Fuel
Cell Engines, VW, Siemens, Ballard, IFC, Plug Power and Energy Partners. These
will place Johnson Matthey in a uniquely strong position in the mobile and
residential fuel cell markets, which are set to grow rapidly in the next
decade.
The Chemicals business had a good first half benefiting from strong demand for
platinum group metals refining and good sales of process catalysts.
Encouraging progress was made in sales of new homogeneous catalysts where we
are investing in new development and production facilities and in which we
have a strong market position.
As anticipated, profits in Pharmaceutical Materials were flat as a result of
increased competition in methylphenidate as new generic suppliers entered the
market. This was offset by strong sales of other organic pharmaceuticals
including a new product that is in late stage clinical trials. Sales of
platinum anticancer drugs were also strong with good demand for carboplatin.
Precious Metals Division's sales were 10% ahead of the first half of last year
at £1,198.0 million. Operating profits were up 22% at £20.2 million.
Our Platinum businesses enjoyed strong market conditions. Demand for platinum
manufactured products was buoyant in North America and Europe. Jewellery alloy
markets were particularly strong, stimulated by worldwide fashion trends
towards white metal. Palladium sales were boosted by the continuing surge in
new catalyst applications particularly in the automotive sector. Strong demand
fundamentals were not matched by mine output and, as a result, prices trended
upwards in the period.
Profits from our Gold and Silver operations were flat on the first half of
last year. Volumes of refining from both primary and secondary sources were
satisfactory in dull markets with gold prices continuing under pressure.
Colours & Coatings Division's operating profits were 17% up on last year at
£13.0 million. The division has continued to maintain a sharp focus on costs
and margins have continued to improve in all of its businesses. Sales were 5%
down on the first half of last year at £121.4 million. This was due to a
combination of adverse exchange translation and lower zircon sand prices. The
division is, however, beginning to see underlying growth in sales notably in
its Glass and Tile businesses.
The Structural Ceramics segment had a good first half led by a strong
performance from its Tile operations in Southern Europe and Asia. The Glass
business also performed well assisted by strong demand for automotive glass in
both Europe and North America. Pigments produced encouraging results with good
performances from inorganic pigments for woodstains, paints and plastics.
However results from its organic pigments businesses were disappointing.
The Tableware business continued to experience difficult conditions in the UK
market but close attention to costs enabled it to increase profits in the
first half. The Board has approved a rationalisation programme to streamline
production by closing one site, reducing administration costs and cutting
headcount by more than 200. The cost of this programme is approximately
£10 million, which will be accounted for as an exceptional charge in the
second half of this financial year. It will give rise to a saving of around
£4 million in the next financial year and £7 million in following years.
The group has also taken the decision to exit from the production of organic
pigments. This will mean the sale or closure of the division's organic pigment
businesses in Venezuela and the USA. These businesses made an operating loss
of £0.6 million in the first half of the current financial year. It is likely
that these disposals will result in an exceptional loss of around £6 million.
Finance
The sale of the group's Electronic Materials Division to AlliedSignal Inc. of
the United States for $655 million in cash was completed on 17th August 1999.
Some peripheral assets, mainly property, amounting to £13.7 million were
retained.
The sale generated a net gain of £152.2 million compared with book value.
After writing back £123.7 million of goodwill it gave rise to an exceptional
profit of £28.5 million in the results for the half year.
Cash Flow and Balance Sheet
The group had a net cash inflow of £394.2 million in the six months to 30th
September 1999 with the major item being the proceeds of sale of EMD. Despite
the disposal of EMD part way through the period, the cash inflow from
operating activities was higher than last year at £74.0 million.
At 30th September 1999 Johnson Matthey had net cash of £172.6 million.
Shareholders' funds rose by £170.9 million to £723.7 million. Following the
introduction of a new accounting standard for fixed assets (FRS 15) the group
has restated its property assets to historic cost, eliminating the revaluation
reserve of £9.0 million previously included in shareholders' funds.
Interest and Exchange Rates
The interest charge fell by £3.2 million in 1999 largely as a result of the
interest earned on the sale proceeds of EMD. The group also benefited from
slightly more favourable interest rates compared with the first half of last
year.
Exchange rates had a mixed impact on the group's results. The strength of
sterling against the euro and other foreign currencies had an adverse impact
on the group's businesses that export from the UK, particularly in Colours &
Coatings. However the US dollar was also stronger which benefited the
translation of our US subsidiaries' earnings. Overall, exchange translation
improved profits in the first half by £0.4 million compared with last year.
Taxation
The group's average tax charge, excluding exceptional items, was similar to
last year at 28.1%. Tax payable in the UK rose compared with the first half of
last year as a result of the change in the rules for Advance Corporation Tax.
Tax payable fell in the US following the disposal of EMD.
Strategy
Johnson Matthey has made considerable progress on the strategy announced in
November 1998 to change the focus of the group's activities. EMD was
established as a stand alone entity and sold for a good price. Our core
businesses achieved 17% growth in profits in the six months to 30th September
1999, following 20% growth in the previous financial year.
The prospects for future growth remain encouraging across the group. In
Catalysts & Chemicals new investment is planned for expanding capacity in
autocatalyst production in the USA, Europe and India. The expansion of our
Pharmaceutical Materials manufacturing facility in the USA is underway with
$10 million planned to be spent in the second half of this financial year. New
investment on the development and production of homogeneous catalysts is also
planned for the second half of the year.
As previously outlined, we are increasing our investment in fuel cell
technology and are pleased with our impressive list of partners in this field.
Fuel cells provide the prospect for Johnson Matthey to grow a brand new,
complementary and significant business in the medium term.
Our Colours & Coatings Division has made excellent progress since we acquired
full ownership in February 1998. Return on sales has risen to 11 % and the
Structural Ceramics and Glass businesses are achieving good growth. We are
planning further investment in production capacity in Spain to meet continuing
rapid growth in demand from the tile manufacturers. As detailed earlier, we
are rationalising our Tableware operations in the UK in response to a
contracting market.
The group is also looking at the opportunity to grow its core businesses by
strategic acquisitions, and is actively pursuing a number of opportunities.
Johnson Matthey already has sufficient cash and borrowing capacity to fund
these opportunities out of existing resources. Depending on the outcome of
these initiatives the group will also consider returning surplus capital to
shareholders.
Outlook
Prospects for the second half are encouraging and in line with our
expectations. We have made significant progress in the development of our
businesses. We are investing in capacity expansion across our core activities
and are actively pursuing a number of opportunities to add further to the
scale of the group.
Johnson Matthey
Consolidated Profit and Loss Account
for the six months ended 30th September 1999
Six months to Year to
30.9.99 30.9.98 31.3.99
restated restated
NOTE £ million £ million £ million
Turnover 2
Continuing operations 1,696.0 1,545.5 2,969.0
Discontinued operations 91.6 217.3 416.4
------- ------- -------
Group turnover 1,787.6 1,762.8 3,385.4
------- ------- -------
Operating profit 3
Continuing operations before exceptional items 66.6 56.6 124.4
Exceptional items - - (1.9)
Goodwill amortisation (0.1) - -
------- ------- -------
Total continuing operations 66.5 56.6 122.5
Discontinued operations 0.1 13.0 22.4
------- ------- -------
Group operating profit 66.6 69.6 144.9
Share of profit in associates 0.1 0.4 0.3
------- ------- -------
Total operating profit 66.7 70.0 145.2
Profit on sale - continuing operations
Profit on disposal of surplus properties - 6.4 7.2
Profit on sale - discontinued operations
Sale of Electronic Materials 9 28.5 - -
Sale of UK Minerals - 1.6 1.6
------- ------- -------
Profit on ordinary activities before interest 95.2 78.0 154.0
Net interest (5.2) (8.4) (15.9)
------- ------- -------
Profit on ordinary activities before taxation 90.0 69.6 138.1
Taxation 4 (27.2) (13.6) (31.9)
------- ------- -------
Profit after taxation 62.8 56.0 106.2
Equity minority interests 0.2 0.3 0.7
------- ------- -------
Profit attributable to shareholders 63.0 56.3 106.9
Dividends 5 (13.2) (12.4) (41.3)
------- ------- -------
Retained profit 49.8 43.9 65.6
------- ------- -------
pence pence pence
Earnings per ordinary share 6 29.0 25.9 49.3
Diluted earnings per ordinary share 6 29.0 25.9 49.3
Earnings per ordinary share excluding
exceptional items 6 20.5 20.4 44.3
Dividend per ordinary share 5 6.1 5.7 19.0
Consolidated Balance Sheet
as at 30th September 1999
30.9.99 31.3.99
restated
£ million £ million
Fixed assets
Goodwill 4.3 4.2
Tangible fixed assets 292.2 480.2
Investments 0.9 1.8
------- -------
297.4 486.2
------- -------
Current assets
Stocks 252.1 243.7
Debtors: due within one year 300.3 336.4
Debtors: due after one year 96.2 94.0
Short term investments 15.2 9.2
Cash at bank and in hand 273.1 58.6
------- -------
936.9 741.9
Creditors: Amounts falling due within one year
Borrowings and finance leases (32.6) (165.6)
Precious metal leases (60.4) (24.7)
Other creditors (291.5) (289.2)
------- -------
Net current assets 552.4 262.4
------- -------
Total assets less current liabilities 849.8 748.6
Creditors: Amounts falling due after more than one year
Borrowings and finance leases (67.9) (114.6)
Other creditors (0.5) (1.1)
Provisions for liabilities and charges (52.9) (74.3)
------- -------
Net assets 728.5 558.6
------- -------
Capital and reserves
Called up share capital 219.0 218.5
Share premium account 107.4 103.9
Associates' reserves - 0.1
Profit and loss account 397.3 230.3
------- -------
Shareholders' funds 723.7 552.8
Equity minority interests 4.8 5.8
------- -------
728.5 558.6
------- -------
Consolidated Cash Flow Statement
for the six months ended 30th September 1999
Six months to Year to
30.9.99 30.9.98 31.3.99
£ million £ million £ million
Reconciliation of operating profit to
net cash inflow from operating activities
Operating profit 66.6 69.6 144.9
Depreciation and amortisation charges 26.9 30.9 64.3
Loss / (profit) on sale of tangible fixed assets
and investments 0.1 0.2 (0.4)
(Increase) / decrease in owned stocks (25.6) 3.2 4.8
Increase in debtors (28.7) (18.2) (23.9)
Increase / (decrease) in creditors and provisions 34.7 (12.6) (13.7)
------- ------- -------
Net cash inflow from operating activities 74.0 73.1 176.0
------- ------- -------
Cash Flow Statement
Net cash inflow from operating activities 74.0 73.1 176.0
Dividends received from associates - - 0.1
Returns on investments and servicing of finance (5.5) (8.6) (16.5)
Taxation (16.0) (12.4) (32.4)
Capital expenditure and financial investment (35.0) (19.8) (61.4)
Acquisitions (2.8) (0.3) (8.7)
Disposals 396.8 3.3 4.4
Equity dividends paid (28.9) (27.6) (39.8)
------- ------- -------
Net cash flow before use of liquid resources
and financing 382.6 7.7 21.7
Management of liquid resources (221.1) 3.1 4.9
Financing
Issue and purchase of share capital (2.0) (2.1) (1.6)
Decrease in borrowings and finance leases due
within one year (128.6) (13.6) (9.4)
(Decrease) / increase in borrowings and finance
leases due after one year (37.1) 1.6 (13.0)
------- ------- -------
Net cash outflow from financing (167.7) (14.1) (24.0)
------- ------- -------
(Decrease) / increase in cash in the period (6.2) (3.3) 2.6
------- ------- -------
Reconciliation of net cash flow to movement in net debt
(Decrease) / increase in cash in the period (6.2) (3.3) 2.6
Cash outflow from movement in borrowings and
finance leases 165.7 12.0 22.4
Cash outflow / (inflow) from term deposits
included in liquid resources 221.1 (3.1) (4.9)
------- ------- -------
Change in net debt resulting from cash flows 380.6 5.6 20.1
Borrowings disposed of with subsidiaries 7.3 - -
Translation difference 6.3 4.8 (16.6)
------- ------- -------
Movement in net debt in the period 394.2 10.4 3.5
Net debt at the beginning of the period (221.6) (225.1) (225.1)
------- ------- -------
Net funds / (debt) at the end of the period 172.6 (214.7) (221.6)
------- ------- -------
Total Recognised Gains and Losses
for the six months ended 30th September 1999
Six months to Year to
30.9.99 30.9.98 31.3.99
restated restated
£ million £ million £ million
Profit attributable to shareholders 63.0 56.3 106.9
Currency translation differences on foreign
currency net investments (6.6) (2.4) 6.8
------- ------- -------
Total recognised gains and losses relating
to the period 56.4 53.9 113.7
------- -------
Prior year adjustment 6.9
Currency translation differences on
prior year adjustment (0.2)
-------
Total gains and losses recognised since
last annual report 63.1
-------
Movement in Shareholders' Funds
for the six months ended 30th September 1999
Six months to Year to
30.9.99 30.9.98 31.3.99
restated restated
£ million £ million £ million
Profit attributable to shareholders 63.0 56.3 106.9
Dividends (13.2) (12.4) (41.3)
------- ------- -------
Retained profit 49.8 43.9 65.6
Other recognised gains and losses relating
to the period (6.6) (2.4) 6.8
New share capital subscribed 4.3 1.6 2.8
Preference shares cancelled (0.3) - -
Goodwill written back on disposals 123.7 - -
------- ------- -------
Net addition to shareholders' funds 170.9 43.1 75.2
Opening shareholders' funds (originally
£561.8 million before deducting prior year
adjustment of £9.0 million) 552.8 477.6 477.6
------- ------- -------
Closing shareholders' funds 723.7 520.7 552.8
------- ------- -------
Notes on the Accounts
for the six months ended 30th September 1999
1 Basis of preparation
The interim accounts were approved by the Board of Directors on
30th November 1999, and are unaudited but have been reviewed by the auditor.
They do not constitute statutory accounts, but have been prepared on the basis
of the accounting policies set out in the annual report for the year ended
31st March 1999 with the exception of the implementation of Financial
Reporting Standard (FRS) 15 - 'Tangible Fixed Assets' as described in note 7.
Also, the group sold its Electronic Materials Division during the period, and
its results are reported as discontinued operations. Information in respect
of the year ended 31st March 1999 is derived from the company's statutory
accounts for that year which have been delivered to the Registrar of
Companies. The auditor's report on those accounts was unqualified and did
not contain any statement under section 237(2) and 237(3) of the
Companies Act 1985.
2 Total turnover
Six months to Year to
30.9.99 30.9.98 31.3.99
restated restated
Activity analysis £ million £ million £ million
Catalysts & Chemicals 376.6 331.2 677.2
Precious Metals 1,198.0 1,086.1 2,041.3
Colours & Coatings 121.4 128.2 250.5
------- ------- -------
1,696.0 1,545.5 2,969.0
Discontinued operations 91.6 217.3 416.4
------- ------- -------
1,787.6 1,762.8 3,385.4
------- ------- -------
Six months to Year to
30.9.99 30.9.98 31.3.99
restated restated
Geographical analysis by origin £ million £ million £ million
Europe 1,156.5 1,110.5 2,087.7
North America 474.8 387.1 790.6
Rest of the World 475.8 343.6 691.3
------- ------- -------
2,107.1 1,841.2 3,569.6
Discontinued operations 99.2 229.2 443.8
------- ------- -------
2,206.3 2,070.4 4,013.4
Less inter-segment sales (418.7) (307.6) (628.0)
------- ------- -------
1,787.6 1,762.8 3,385.4
------- ------- -------
3 Total operating profit
Six months to Year to
30.9.99 30.9.98 31.3.99
restated restated
Activity analysis £ million £ million £ million
Catalysts & Chemicals 39.3 35.1 74.2
Precious Metals 20.2 16.6 37.3
Colours & Coatings 13.0 11.1 24.8
Corporate (5.8) (5.8) (11.6)
------- ------- -------
66.7 57.0 124.7
Discontinued operations 0.1 13.0 22.4
Exceptional items and goodwill amortisation (0.1) - (1.9)
------- ------- -------
66.7 70.0 145.2
------- ------- -------
Six months to Year to
30.9.99 30.9.98 31.3.99
restated restated
Geographical analysis £ million £ million £ million
Europe 25.1 24.8 58.1
North America 31.1 25.3 50.9
Rest of the World 10.5 6.9 15.7
------- ------- -------
66.7 57.0 124.7
Discontinued operations 0.1 13.0 22.4
Exceptional items and goodwill amortisation (0.1) - (1.9)
------- ------- -------
66.7 70.0 145.2
------- ------- -------
4 Taxation
Six months to Year to
30.9.99 30.9.98 31.3.99
£ million £ million £ million
United Kingdom 8.2 7.1 12.3
Overseas 9.1 10.4 23.5
------- ------- -------
17.3 17.5 35.8
Tax on profit on sale of Electronic Materials 9.9 - -
ACT saving on foreign income dividends (FIDs) - (3.9) (3.9)
------- ------- -------
27.2 13.6 31.9
------- ------- -------
5 Dividends
An interim dividend of 6.1 pence per ordinary share will be paid on
7th February 2000 to shareholders on the register at the close of business
on 17th December 1999.
6 Earnings per ordinary share
The calculation of earnings per ordinary share is based on a weighted average
of 217,053,913 shares in issue (six months to 30th September 1998 -
217,011,509 shares, year to 31st March 1999 - 216,947,859). Excluding
exceptional items, the tax thereon, the benefit of the ACT saving on FIDs
and goodwill amortisation earnings per ordinary share were 20.5 pence
(six months to 30th September 1998 - 20.4 pence, year to 31st March 1999 -
44.3 pence). The calculation of diluted earnings per share is based on the
weighted average number of shares in issue adjusted by the dilutive
outstanding share options.
7 FRS 15 - 'Tangible Fixed Assets'
Under the provisions of FRS 15, which the group adopted on 1st April 1999,
the group has restated the carrying amount of tangible fixed assets to
depreciated historical cost as a change in accounting policy. Consequently
the group has restated its comparatives for the six months to 30th September
1998 and the year to 31st March 1999. The effect on operating profit is
immaterial, but the profit on disposal of surplus properties has been
increased by the difference between book value and historical cost at the
date of disposal (six months to 30th September 1998 - £6.4 million, year to
31st March 1999 - £6.9 million). Most of this gain (£6.4 million) related
to the disposal of the group's former head office site in Hatton Garden.
The revaluation reserve, which was £9.0 million at 31st March 1999, has been
eliminated.
8 Cumulative preference shares
On 17th September 1999 the group's outstanding cumulative preference shares
were cancelled and the nominal value (£0.3 million) repaid to the
shareholders.
9 Sale of Electronic Materials
On 9th July 1999 the group announced it had agreed to sell its Electronic
Materials Division to AlliedSignal Inc. and the sale was completed on
17th August 1999.
Net assets disposed of were:
£ million
Goodwill 2.3
Tangible fixed assets 191.3
Investments 1.2
Stocks 57.8
Debtors and prepayments 56.8
Cash and bank overdrafts 9.0
Borrowings (7.3)
Precious metal leases (6.5)
Creditors and provisions (56.8)
Minority interests (0.2)
Goodwill previously written off to reserves 123.7
-------
371.3
Profit on disposal 28.5
-------
399.8
-------
Satisfied by:
£ million
Cash 407.7
Cash - deferred 1.8
Costs incurred (1.9)
Costs incurred - accrued (7.8)
-------
399.8
-------
10 Year 2000 compliance
Johnson Matthey has made good progress with its Year 2000 compliance projects
which are now complete. Contingency plans have been developed for the group
to monitor and respond to any unforeseen issues - internal or external - in
support of the business before, on and after 31st December 1999.
Financial Calendar
1999
13th December
Ex dividend date
17th December
Interim ordinary dividend record date
2000
7th February
Payment of interim dividend on ordinary shares
8th June
Announcement of results for the year ending 31st March 2000
19th July
109th Annual General Meeting
Johnson Matthey Public Limited Company
Registered Office: 2-4 Cockspur Street, Trafalgar Square, London SW1Y 5BQ
Telephone: 020 7269 8400
Internet address: http://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: 01903 502541
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