Interim Results
Johnson Matthey PLC
23 November 2005
For Release at 7.00 am Wednesday
23rd November 2005
Interim Results for the six months ended 30th September 2005
On track for good growth for the year
Summary Results
Half Year to 30th September % %
2005 2004 change underlying
growth*
Revenue £2,283m £2,461m -7 -7
Sales excluding precious metals £637m £586m +9 +9
Profit before tax £106.4m £88.3m +20 +3
Total earnings per share 35.2p 25.8p +36 +5
Dividend per share 9.1p 8.7p +5 +5
* excluding restructuring and disposal costs in 2004
• Sales revenue down 7% reflecting lower precious metal trading volume.
Sales excluding precious metals up 9%
• Profit before tax up 20% at £106.4 million. Underlying growth of 3%
excluding restructuring costs in 2004
• Total earnings per share up 36% at 35.2 pence. Underlying growth of 5%
excluding restructuring and disposal costs in 2004. Interim dividend increased
by 5% to 9.1 pence
• Impact of exchange translation slightly favourable
• Strong operating cash flow. Net cash inflow of £18.5 million after
£11.9 million net cash cost of share purchases
Divisional Performance
Operating Profit
Half Year to 30th September %
£m 2005 2004* change
Catalysts 65.2 61.2 +7
Precious Metal Products 30.6 27.5 +11
Pharmaceutical Materials 16.2 21.1 -23
Ceramics 10.8 9.2 +17
Corporate (8.3) (8.2)
Operating Profit 114.5 110.8 +3
* excluding restructuring costs in 2004
Business Prospects
• Good growth in Environmental Catalysts and Technologies expected in the
second half of the year benefiting from the strength of the diesel catalyst
market in Europe and good growth in Asia
• Additional capital expenditure on new capacity to manufacture heavy
duty diesel (HDD) catalysts and catalysed soot filters (CSFs) planned for the
second half of 2005/06
• Further expansion planned in Asia including a new facility to
manufacture autocatalysts in Korea
• High oil price supports growth in Process Catalysts and Technologies
with increased demand for catalysts for hydrogen production and purification
• Precious Metal Products to benefit from continued good growth in
manufactured products and the firm platinum price
• Pharmaceutical Materials' profits expected to improve in the second
half of the year with stronger sales in the US
• Ceramics' encouraging performance should continue in the second half of
2005/06 with good cash generation
Commenting on the results, Neil Carson, Chief Executive of Johnson Matthey said:
"In the first half good growth in Catalysts, Precious Metal Products and
Ceramics has more than compensated for the shortfall in Pharmaceutical Materials
caused mainly by the expiry of the carboplatin patent. Our cash performance has
also been good.
The outlook for the second half is for increased top-line growth driven by the
launch of new products for heavy and light duty diesel vehicles, and growth in
Asia."
Enquiries:
Ian Godwin Director, IR and Corporate Communications 020 7269 8410
John Sheldrick Group Finance Director 020 7269 8438
Howard Lee The HeadLand Consultancy 020 7036 0369
Ella Tekdag The HeadLand Consultancy 020 7036 0316
www.matthey.com
Report to Shareholders
Introduction
Johnson Matthey's performance in the first half of 2005/06 was encouraging.
Total earnings per share were up 36%. Excluding restructuring and disposal
costs included in last year's figures the underlying growth in earnings per
share was 5%. The mix of profits in the first half was as expected at the time
of our results in June with good increases in Catalysts, Precious Metal Products
and Ceramics but a decline in Pharmaceutical Materials.
This is the first time Johnson Matthey has reported its results under
International Financial Reporting Standards (IFRS). The impact of the
transition from UK GAAP to IFRS was set out in our Report and Accounts for 2005,
and is shown in note 12 on the interim accounts included in this report.
Review of Results
Revenue fell by 7% in the half year to £2,283 million, largely as a result of
reduced activity on precious metal trading compared with the first half of 2004/
05. Sales excluding the value of precious metals rose by 9% reflecting good
underlying growth in Catalysts Division and increased non precious metal
material costs, some of which are a pass through for Johnson Matthey.
Operating profit increased by 3% (excluding restructuring costs in 2004) to
£114.5 million. Exchange translation was slightly favourable increasing profits
by £0.7 million compared with last year. Interest rose by £0.5 million, largely
as a result of the increase in short term interest rates in the US. Profit
before tax was 20% up on last year at £106.4 million. Excluding restructuring
costs in 2004 the underlying increase in profit before tax was 3%.
Underlying earnings per share rose by 5% to 35.2 pence benefiting from a
slightly more favourable average tax rate than last year and the accretive
effect of share buy-backs. Including restructuring and disposal costs in 2004
total earnings per share rose by 36%.
Dividend
The interim dividend has been increased by 5% to 9.1 pence, in line with the
growth in earnings per share excluding restructuring and disposal costs.
Operations
Catalysts Division's sales rose by 19% to £675 million, partly as a result of
higher prices for platinum and rhodium. Excluding the value of precious metals,
sales rose by 14% to £375 million. The division's operating profit increased by
7% to £65.2 million.
Environmental Catalysts and Technologies (ECT) was ahead of last year with good
growth in Europe and Asia more than offsetting a further decline in North
America. Results in Europe were boosted by early sales of heavy duty diesel
(HDD) catalysts to original equipment manufacturers and sales of catalysed soot
filters (CSFs) for light duty diesel vehicles.
In the six month period to 30th September 2005 global light duty vehicle sales
increased by 4.9%. Car production in this period rose by 2.9% as inventory
levels were reduced particularly in North America and Asia. Nearly all the
growth in production came in Asia, with Europe slightly ahead and North America
unchanged. Diesel vehicles continued to take an increasing share of the
European market.
Light Vehicle Sales and Production
Half year to 30th September
2005 2004 change
millions millions %
North America Sales 10.7 10.3 3.9%
Production 7.8 7.8 0.0%
Europe Sales 9.3 9.1 2.2%
Production 10.2 10.1 1.0%
Asia Sales 7.2 6.5 10.8%
Production 10.9 10.2 6.9%
Global Sales 32.3 30.8 4.9%
Production 31.7 30.8 2.9%
Source: Global Insight
New emission control standards for HDD vehicles came into force in Europe in
October 2005 for new models. Johnson Matthey is supplying several of the
leading original equipment manufacturers with products to meet this legislation.
The major growth in the market will occur in October 2006 when all new HDD
vehicles sold in Europe will need to meet the new standards. In North America
similar legislation comes into force in January 2007.
We are seeing increasing demand from many of the leading car companies in Europe
for CSFs to remove particles from diesel exhaust emissions. Although
legislation requiring such emission control devices does not come into force
until 2010 many manufacturers plan to fit these devices much earlier. We have
commissioned a new factory in Royston to manufacture these products and are
planning to put in additional capacity in the second half of the year.
We have brought forward investment at several of our major facilities around the
world to manufacture HDD catalysts given the high level of orders we are seeing.
Overall, we plan to spend an additional £30 million on capital expenditure in
the second half of this year compared with our original plans to create the
additional capacity required for HDD catalysts and CSFs.
Our business in Asia is performing 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 the current financial year we have achieved strong volume growth in
China and Japan. In early September we announced plans to build a new
autocatalyst factory in Gyeonggi province in Korea where we plan to manufacture
catalysts for both diesel and petrol powered vehicles.
Process Catalysts and Technologies (PCT) achieved good growth in sales and
profits in the half year. The Ammonia, Methanol, Oil and Gas (AMOG) business
was well ahead of 2004 with strong demand for catalysts for hydrogen production
and purification. Sales of edible oil catalysts were also ahead of last year
but catalyst sales to the polymer market declined. The high oil price is
encouraging development of synthetic liquid products from natural gas and coal,
which will underpin PCT's catalyst growth in the medium term.
The division's Research Chemicals business has successfully integrated the
operations of Lancaster Synthesis which was acquired last year. A new catalogue
has been issued in North America covering the whole range of products sold by
the business. The catalogue will be launched for the rest of the world later
this financial year which should provide a further boost to growth.
Our Fuel Cells business has continued to make good progress on developing
Membrane Electrode Assembly (MEA) technology for the automotive market. Rising
oil prices and fuel shortages together with concerns about the impact of global
warming have increased demand for fuel cell technology. One consequence has
been renewed interest in the use of phosphoric acid (PAFC) fuel cells for
stationary applications. Johnson Matthey has well established technology for
components for PAFC fuel cells and is collaborating with fuel cell manufacturers
on new product development in this area. Another recent development is the
emergence of prototype direct methanol fuel cells used as chargers for mobile
phones or power sources for laptops. The future development of this new market
is still uncertain but Johnson Matthey is collaborating with a number of major
electronics companies to supply catalysts and MEAs for their fuel cell
development programmes.
Precious Metal Products Division's sales fell by 16% to £1,460 million
reflecting more subdued precious metal trading activity. Sales excluding the
value of precious metals grew by 4%. Operating profit increased by 11% to £30.6
million.
Most of the growth in operating profit was generated by the manufacturing
businesses. Colour Technologies, which was transferred into the division
following the restructuring of the former Colours & Coatings Division, achieved
good growth in profits benefiting from cost reductions undertaken last year and
good sales of automotive glass enamels. Similarly the division's gold
businesses benefited from the closure of the UK bullion refinery (which had been
loss making) and the transfer of some of its business to our North American
refineries. The platinum group metal (pgm) fabrication businesses also achieved
good growth with increasing sales to the industrial sector and strong demand for
medical device components.
Pgm refining has been transferred from Catalysts into Precious Metal Products
Division. We are successfully implementing the plan announced last June to
restructure the business in the UK and reduce the quantity of precious metals
held in the refinery. Since inception of the programme more than £20 million
has been released which has been used to fund share buy-backs.
The platinum marketing businesses experienced mixed trading conditions. The
platinum market continued to expand and the price remained firm. Palladium was
very subdued whereas rhodium was buoyant, reflecting the different supply -
demand balances for these metals.
Demand for platinum is expected to rise by 2% in 2005. Increased purchases from
the automobile, glass and electronics industries have largely been offset by
lower sales of platinum jewellery, where the high platinum price dampened
demand. The average price of platinum in the first half of Johnson Matthey's
financial year rose to $883 per ounce, up 5% compared to the same period last
year.
In contrast, the price of palladium fell by 21% to $189 per ounce despite total
demand growing by an estimated 6% in 2005. The most significant increase in
usage has come from China where sales of palladium jewellery rose by 71% to 1.2
million ounces, capturing market share from gold and platinum. Demand from
other sectors, including the automobile market, has remained fairly stable.
Despite the strong growth in Chinese jewellery, supply will exceed demand in
2005, although the market will be much closer to balance than in recent years.
The price of rhodium rose sharply to average $1,901 per ounce in our first half,
almost double the price in the same period last year. Demand grew faster than
supplies and, with the market already in deficit from 2004, the price was both
buoyant and volatile.
Pharmaceutical Materials Division's sales fell by 13% to £58 million. The fall
in sales reflected reduced income from carboplatin, which went off patent in
October 2004, and lower revenues from contract research. Operating profit fell
by 23% to £16.2 million.
The division's European businesses performed well in the half year. The fall in
revenues and profits all occurred in the United States. Part of the drop
related to the phasing of sales over the year. Our active pharmaceutical
ingredient (API) manufacturing business in the US, which is based in West
Deptford, NJ, makes a number of high margin products which are sold in batches
and can cause profits to be "lumpy". With a number of sales falling into the
second half of the year, we expect the contribution from this business for the
second six months to be higher than the first. In addition, prospects for the
new product launches planned for calendar 2006 remain encouraging.
Macfarlan Smith, which is based in Edinburgh, UK and manufactures controlled
drugs for sale to generic pharmaceutical companies, performed well in the
period. Sales and profits were both ahead of last year with good growth in low
volume, high potency products (mainly analgesics) where new capacity has
recently been installed. A major expansion programme is also underway to
increase capacity to manufacture specialist opiates (oxycodone, hydromorphone
and buprenorphine) where demand is growing rapidly. This facility will be
completed by the end of the current financial year.
Ceramics Division is shown as a stand alone business for the first time
following the restructuring of our Colours & Coatings Division. That
restructuring included the sale of our Pigments and Dispersions business,
transfer of the Colour Technologies business to Precious Metal Products Division
and closure or consolidation of a number of smaller manufacturing units.
The net impact has been to significantly reduce the cost base which has improved
operating profit and margins. Ceramics Division has also successfully grown its
sales this year by 11% to £90 million. Operating profit rose by 17% to £10.8
million.
The division is headquartered in Spain and is a global supplier of decorative
materials to the ceramic industries, particularly tile manufacturing. Sales
were strong in China, where the tile market continues to grow rapidly. The
division is realising the benefits of the investments made in recent years to
position it as one of the lowest cost global producers. With capital
expenditure below depreciation in the half year the division was highly cash
generative.
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. The group's largest
overseas investment is in the USA. The average rate for the US dollar for the
six months to 30th September 2005 was $1.820/£ which was slightly worse than the
average rate for the first half of last year of $1.814/£. However, a number of
other currencies strengthened against sterling compared with the first half of
last year including the euro which averaged €1.468/£ compared with €1.494/£ last
year. The South African Rand was virtually unchanged at R11.74/£. Overall, the
impact of currency movements was slightly favourable increasing group operating
profit by £0.7 million compared with the first half of last year.
Interest
In the six months to 30th September 2005 the group's interest charge increased
by £0.5 million to £7.7 million. Average interest rates for floating rate US
dollars rose by about 2% compared with the first half of last year which more
than offset the benefit of lower average borrowings.
Taxation
The group's tax charge increased by £4.7 million to £31.1 million. The rise
reflects the tax relief on the restructuring costs included in last year's
results. On an underlying basis the average tax rate improved by 0.8% to 29.2%.
We also reached agreement with the Inland Revenue in the UK on several years'
tax assessments which resulted in a repayment of tax in the half year which
benefited the group's cash flow. That amount had already been recognised in
current tax so there was no impact on earnings.
Cash Flow
Johnson Matthey's net cash flow from operating activities was very strong at
£126.5 million which is an increase of £35.4 million compared with the first
half of last year. Under the new IFRS rules net cash flow from operating
activities includes taxation which benefited from the settlement in the UK.
Working capital increased by £28.7 million despite the inventory reduction in
pgm refining, largely as a result of the dramatic increase in the rhodium price
and the increased prices of some other materials.
The cash outflow on capital expenditure in the half year was £44.9 million which
was 1.3 times depreciation. Including capitalised development costs and
investments the cash outflow on capital investment was £48.4 million. We are
planning to invest more on capital expenditure in the second half of the year
including £30 million of additional expenditure on production capacity for CSFs
and HDD catalysts. For the year as a whole we now expect to spend at a rate of
1.8 times depreciation.
We purchased £8.0 million of Johnson Matthey shares in the first half. The net
cash outflow on share purchases was £11.9 million including the cash cost of
purchases made at the end of March 2005 where payment fell into the current
financial year. Despite this outflow the group still generated a net cash
inflow of £18.5 million. After taking into account the effect of exchange
translation on foreign currency borrowings net debt fell by £8.8 million to
£361.4 million and gearing (net debt / equity) fell by 2.7% to 37.0%.
In the second half of the year we plan to complete our previously announced
programme of share buy-backs by purchasing a further £17 million of shares. We
intend to use future cash generation either to fund share buy-backs or to
finance bolt on acquisitions.
Outlook
The outlook for the year as a whole remains very much the same as we set out in
our annual report. Following an encouraging first half we are expecting good
growth for the year.
Catalysts Division is well positioned to benefit from growth in diesel emission
control products including CSFs and HDD catalysts. We also expect to see
further growth in Asia so that overall ECT is expected to achieve about 10%
growth in operating profit in the second half of the year. PCT is also expected
to achieve good growth in the second half.
Precious Metal Products Division achieved good growth in operating profit in the
first half of the year. We do not expect the second half to be quite so strong
but the division is still expected to be ahead of last year for the second six
months.
Pharmaceutical Materials Division is expected to achieve higher profits in the
second half than the first with stronger sales in the US. Ceramics Division's
second half is expected to be similar to the first with continued good cash
generation.
The outlook for the group remains very encouraging. We are well positioned to
benefit from the emergence of a number of new markets driven by environmental
concerns and high energy prices. We are increasing our investment in R&D to
ensure we have leading technology to meet these new market opportunities.
Consolidated Income Statement
for the six months ended 30th September 2005
Six months ended Year ended
30.9.05 30.9.04 31.3.05
Notes £ million £ million £ million
Revenue 2 2,282.9 2,460.6 4,626.2
Cost of goods sold (2,088.2) (2,267.1) (4,246.4)
Gross profit 194.7 193.5 379.8
Operating expenses (80.2) (82.7) (163.2)
Restructuring costs - (15.4) (36.7)
Operating profit 2,3 114.5 95.4 179.9
Interest payable (15.7) (13.4) (32.2)
Interest receivable 8.0 6.2 19.2
Share of (loss) / profit of associates (0.4) 0.1 0.5
Profit before tax 106.4 88.3 167.4
Income tax expense 4 (31.1) (26.4) (46.5)
Profit for the period from continuing operations 75.3 61.9 120.9
Loss for the period from discontinued operations - (6.3) (6.4)
Profit for the period 75.3 55.6 114.5
Attributable to:
Equity holders of the parent company 75.7 56.0 115.5
Minority interest (0.4) (0.4) (1.0)
75.3 55.6 114.5
pence pence pence
Earnings per ordinary share attributable to the equity holders of the parent
company
Continuing operations
Basic 5 35.2 28.7 56.1
Diluted 5 35.1 28.6 56.0
Total
Basic 5 35.2 25.8 53.2
Diluted 5 35.1 25.7 53.1
Consolidated Balance Sheet
as at 30th September 2005
30.9.05 30.9.04 31.3.05
Notes £ million £ million £ million
Assets
Non-current assets
Property, plant and equipment 610.3 573.9 593.0
Goodwill 378.7 376.6 375.1
Other intangible assets 29.7 26.0 27.4
Investments in associates 4.4 4.4 4.8
Deferred income tax assets 2.2 11.0 2.0
Available-for-sale investments 2.2 1.9 1.9
Post-employment benefits net assets 49.6 47.2 45.2
Total non-current assets 1,077.1 1,041.0 1,049.4
Current assets
Inventories 344.2 327.9 307.3
Current income tax assets 0.5 1.4 2.2
Trade and other receivables 406.5 346.9 363.4
Available-for-sale investments 0.1 1.3 0.6
Cash and deposits 9 113.8 97.0 78.7
Other financial assets 4.0 - -
Other current assets 7.1 7.1 7.1
Total current assets 876.2 781.6 759.3
Total assets 1,953.3 1,822.6 1,808.7
Liabilities
Current liabilities
Trade and other payables (325.0) (286.2) (294.3)
Current income tax liabilities (51.5) (32.5) (12.3)
Borrowings and finance leases 9 (90.9) (32.5) (36.8)
Other financial liabilities (10.0) - -
Short term provisions (11.8) (22.5) (26.5)
Total current liabilities (489.2) (373.7) (369.9)
Non-current liabilities
Borrowings, finance leases and related swaps 9 (384.3) (427.7) (411.5)
Deferred income tax liabilities (45.1) (44.5) (44.6)
Employee benefits obligations (53.1) (43.7) (48.2)
Long term provisions (3.0) (5.1) (3.9)
Trade and other payables (0.8) (0.7) (0.7)
Total non-current liabilities (486.3) (521.7) (508.9)
Total liabilities (975.5) (895.4) (878.8)
Net assets 977.8 927.2 929.9
Equity
Share capital 219.8 220.8 219.5
Share premium 141.5 138.0 139.8
Shares held in employee share ownership trusts (45.7) (28.8) (37.7)
Other reserves 6.3 4.4 6.3
Retained earnings 648.9 584.3 594.5
970.8 918.7 922.4
Minority interest 7.0 8.5 7.5
Total equity 8 977.8 927.2 929.9
Consolidated Cash Flow Statement
for the six months ended 30th September 2005
Six months ended Year
ended
30.9.05 30.9.04 31.3.05
Notes £ million £ million £ million
Cash flows from operating activities
Profit before tax 106.4 88.3 167.4
Adjustments for:
Share of loss / (profit) in associates 0.4 (0.1) (0.5)
Discontinued operations - 0.4 0.4
Depreciation, amortisation and profit on sale of non-current assets and 33.2 32.7 66.1
investments
Share-based payments 2.1 1.4 2.8
Changes in working capital and provisions (28.7) (6.6) (12.5)
Changes in fair value of financial instruments (1.0) - -
Net interest 7.7 7.2 13.0
Income tax received / (paid) 6.4 (32.2) (52.9)
Net cash inflow from operating activities 126.5 91.1 183.8
Cash flows from investing activities
Dividends received from associates 0.1 0.1 0.2
Purchases of non-current assets and investments (48.4) (38.3) (96.3)
Proceeds from sale of non-current assets and investments 1.9 1.3 4.1
Purchases of businesses and minority interest (1.1) (3.1) (4.0)
Net proceeds from sale of business - 24.4 23.3
Net cash outflow from investing activities (47.5) (15.6) (72.7)
Cash flows from financing activities
Net purchase of own shares (11.9) 1.1 (16.1)
Proceeds from / (repayment of) borrowings and finance leases 14.0 (29.1) (50.6)
Dividends paid to equity holders of the parent company 6 (40.9) (39.5) (58.4)
Dividends paid to minority shareholders - - (0.2)
Interest paid (15.6) (12.3) (32.1)
Interest received 7.9 5.6 19.2
Net cash outflow from financing (46.5) (74.2) (138.2)
Increase / (decrease) in cash and cash equivalents in the period 32.5 1.3 (27.1)
Exchange differences on cash and cash equivalents 4.8 1.6 0.1
Cash and cash equivalents at beginning of period 64.0 91.0 91.0
Cash and cash equivalents at end of period 9 101.3 93.9 64.0
Reconciliation to net debt
Increase / (decrease) in cash and cash equivalents in the period 32.5 1.3 (27.1)
(Proceeds from) / repayment of borrowings and finance leases (14.0) 29.1 50.6
Change in net debt resulting from cash flows 18.5 30.4 23.5
Exchange differences on net debt (9.7) 0.9 1.4
Movement in net debt in period 8.8 31.3 24.9
Net debt at beginning of period (after adjustment to opening position 10 (370.2) (394.5) (394.5)
for IAS 39)
Net debt at end of period 9 (361.4) (363.2) (369.6)
Consolidated Statement of Recognised Income and Expense
for the six months ended 30th September 2005
Six months ended Year
ended
30.9.05 30.9.04 31.3.05
Notes £ million £ million £ million
Currency translation differences on foreign currency net investments and
related loans 19.6 4.3 (2.0)
Fair value gain on available-for-sale investments transferred to profit (0.8) - -
on sale
Cash flow hedges (1.8) - -
Actuarial loss on post-employment benefits assets and liabilities - - (16.1)
Tax on above items taken directly to or transferred from equity (4.3) (1.4) 5.8
Net income recognised directly in equity 12.7 2.9 (12.3)
Profit for the period 75.3 55.6 114.5
Total recognised income and expense relating to the period 88.0 58.5 102.2
IFRS transition adjustment for financial instruments 10 2.7 - -
Total recognised income and expense for the period 90.7 58.5 102.2
Attributable to:
Equity holders of the parent company 91.1 58.9 103.2
Minority interest (0.4) (0.4) (1.0)
90.7 58.5 102.2
Notes on the Accounts
for the six months ended 30th September 2005
1 Basis of preparation
Following a European Union Regulation issued in 2002, with effect from 1st April 2005 the group is reporting its
results in accordance with International Financial Reporting Standards (IFRS) as expected to be adopted by the
European Union and so in its annual report and accounts for the year ending 31st March 2006 all its financial
information will be presented under IFRS. Previous accounts were prepared under UK Generally Accepted Accounting
Principles (UK GAAP) and reconciliations converting the group's results from UK GAAP to IFRS for the six months ended
30th September 2004, the year ended 31st March 2005 and 1st April 2004 (the date of transition) balance sheet are
presented in note 12.
The interim accounts were approved by the Board of Directors on 22nd November 2005, and are unaudited but have been
reviewed by the auditors. They do not constitute statutory accounts, but have been prepared on a basis consistent with
the group's anticipated IFRS accounting policies which it expects to follow in its annual report and accounts for the
year ending 31st March 2006. These accounting policies are set out on pages 28 to 31.
These policies are consistent with all IFRS and Standing Interpretations Committee (SIC) and International Financial
Reporting Interpretations Committee (IFRIC) interpretations currently issued by the International Accounting Standards
Board (IASB) effective for 2005/06 reporting and adopted by the European Union. In addition, the IASB
has issued an amendment to International Accounting Standard (IAS) 19 - 'Employee Benefits' in December 2004 which
permits the full recognition of actuarial gains or losses that occur in the year outside the income statement in a
similar way to FRS 17 under UK GAAP. Johnson Matthey has assumed that this amendment will be endorsed by the European
Union and so has decided to adopt it in 2005/06 and has prepared these accounts on that basis. Johnson Matthey has
also taken advantage of the exemption allowed under IFRS 1 not to restate comparative information in its accounts
for the year ending 31st March 2006 to comply with IAS 32 - 'Financial Instruments: Disclosure and
Presentation', IAS 39 - 'Financial Instruments: Recognition and Measurement' and IFRS 4 - 'Insurance Contracts'. Note
10 details the adjustment to the balance sheet at 1st April 2005 for the implementation of these standards. Since 1st
April 2005, the group has used hedge accounting for interest rate and foreign currency instruments that meet the
relevant hedging relationship criteria.
The IASB is still issuing standards and interpretations which Johnson Matthey may decide to adopt in 2005/06 and so
there may be further adjustments to the accounting policies and comparative information.
Information in respect of the year ended 31st March 2005 is derived from the unaudited IFRS information
published in the annual report and accounts for that year updated for minor changes to deferred income tax. Statutory
accounts for the year ended 31st March 2005, which were prepared under UK GAAP, have been delivered to the Registrar
of Companies. The auditors' report on those statutory accounts was unqualified and did not contain any statement under
237(2) and 237(3) of the Companies Act 1985.
As described in the notes on the IFRS restatement (unaudited) in the annual report and accounts for the year ended
31st March 2005, when the group presents its segmental results for the year ending 31st March 2006 they will be
different to those shown in the statutory accounts for the year ended 31st March 2005. Colour Technologies, which
formed part of Colours & Coatings Division, will be transferred to Precious Metal Products Division. Ceramics, which
comprised the remaining part of Colours & Coatings Division still owned by Johnson Matthey, will be shown as a
separate segment. Platinum group metal refining, which was part of Catalysts Division, will also be transferred to
Precious Metal Products Division. The segmental information in note 2 reflects the new divisional structure.
Notes on the Accounts
for the six months ended 30th September 2005
2 Segmental information by business segment
Precious Pharmaceutical
Metal
Catalysts Products Materials Ceramics Total
£ million £ £ million £ £
million million million
Six months ended 30th September 2005
Sales to external customers 675.1 1,460.0 57.9 89.9 2,282.9
External sales excluding precious metals 375.2 117.4 54.8 89.9 637.3
Segment result 65.2 30.6 16.2 10.8 122.8
Unallocated corporate expenses (8.3)
Operating profit 114.5
Six months ended 30th September 2004
Sales to external customers 569.6 1,743.3 66.4 81.3 2,460.6
External sales excluding precious metals 328.7 113.3 62.8 81.3 586.1
Segment result before one-off items 61.2 27.5 21.1 9.2 119.0
Restructuring costs (3.0) (12.4) - - (15.4)
Segment result 58.2 15.1 21.1 9.2 103.6
Unallocated corporate expenses (8.2)
Operating profit 95.4
Year ended 31st March 2005
Sales to external customers 1,157.2 3,171.0 131.8 166.2 4,626.2
External sales excluding precious metals 672.1 224.8 124.6 166.2 1,187.7
Segment result before one-off items 122.5 52.0 39.8 18.8 233.1
Restructuring costs (3.0) (30.0) - (3.7) (36.7)
Segment result 119.5 22.0 39.8 15.1 196.4
Unallocated corporate expenses (16.5)
Operating profit 179.9
3 Effect of exchange rate changes on translation of foreign subsidiaries' operating profits
Six months ended Year
ended
Average exchange rates used for translation of results of foreign 30.9.05 30.9.04 31.3.05
operations
US dollar / £ 1.82 1.81 1.85
Euro / £ 1.47 1.49 1.47
South African rand / £ 11.74 11.75 11.53
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.
Six months ended 30.9.05
At this At last
year's year's
rates rates Effect
£ million £ million £ million
Catalysts 65.2 65.1 0.1
Precious Metal Products 30.6 30.3 0.3
Pharmaceutical Materials 16.2 16.2 -
Ceramics 10.8 10.5 0.3
Unallocated corporate expenses (8.3) (8.3) -
Operating profit 114.5 113.8 0.7
Notes on the Accounts
for the six months ended 30th September 2005
4 Income tax expense
Six months ended Year
ended
30.9.05 30.9.04 31.3.05
£ million £ million £ million
United Kingdom (14.3) (7.8) (9.0)
Overseas (16.8) (18.6) (37.5)
(31.1) (26.4) (46.5)
The group's share of associated undertakings' taxation for the six months ended 30th September 2005 was £ nil
(six months ended 30th September 2004 £ nil, year ended 31st March 2005 £ nil).
5 Earnings per ordinary share
The calculation of earnings per ordinary share is based on a weighted average of 215,043,409 shares in issue (six
months ended 30th September 2004 - 217,102,673 shares, year ended 31st March 2005 - 217,005,241 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 447,034 (six months ended 30th September 2004 - 365,583
shares, year ended 31st March 2005 - 497,097 shares).
Earnings per ordinary share before one-off items are calculated as follows:
Six months ended Year
ended
30.9.05 30.9.04 31.3.05
£ million £ million £ million
Profit for the period attributable to equity holders of the parent 75.7 56.0 115.5
company
Loss for the period from discontinued operations - 6.3 6.4
Restructuring costs - 15.4 36.7
Tax thereon - (4.7) (13.3)
Profit excluding one-off items 75.7 73.0 145.3
pence pence pence
Basic EPS before one-off items 35.2 33.6 67.0
6 Dividends
An interim dividend of 9.1 pence per ordinary share will be paid on 1st February 2006 to shareholders on the
register at the close of business on 2nd December 2005. In accordance with IFRS accounting requirements this
dividend has not been recognised in these accounts.
Six months ended Year
ended
30.9.05 30.9.04 31.3.05
£ million £ million £ million
2003/04 final ordinary dividend paid - 18.2 pence per share - 39.5 39.5
2004/05 interim ordinary dividend paid - 8.7 pence per share - - 18.9
2004/05 final ordinary dividend paid - 19.0 pence per share 40.9 - -
40.9 39.5 58.4
7 Share purchases
During September 2005 the employee share ownership trusts (ESOTs) purchased a further 693,000 shares at a cost of
£8.0 million. In April 2005 the ESOTs paid £5.9 million for 590,000 shares which had been purchased in the last
week of March 2005.
Notes on the Accounts
for the six months ended 30th September 2005
8 Changes in equity
Six months ended Year
ended
30.9.05 30.9.04 31.3.05
£ million £ million £ million
Equity at end of prior period 929.9 906.0 906.0
IFRS transition adjustment for financial instruments (note 10) 2.7 - -
Equity at beginning of period 932.6 906.0 906.0
Total recognised income and expense relating to the period 88.0 58.5 102.2
Dividends paid to equity holders of the parent company (40.9) (39.5) (58.4)
Dividends payable to minority interest (0.2) (0.2) (0.5)
Purchase of minority interest - (0.4) (0.4)
New share capital subscribed 2.0 1.1 3.2
Purchase of own shares - - (16.3)
Purchase of shares for ESOTs (8.0) - (8.9)
Share-based payments 2.1 1.4 2.8
Tax on items taken directly to or transferred from equity 2.2 0.3 0.2
Equity at end of period 977.8 927.2 929.9
9 Net debt
Six months ended Year
ended
30.9.05 30.9.04 31.3.05
£ million £ million £ million
Cash and deposits 113.8 97.0 78.7
Bank overdrafts (12.5) (3.1) (14.7)
Cash and cash equivalents 101.3 93.9 64.0
Current other borrowings and finance leases (78.4) (29.4) (22.1)
Non-current borrowings, finance leases and related swaps (384.3) (427.7) (411.5)
Net debt (361.4) (363.2) (369.6)
10 IFRS transition adjustment for financial instruments
The adjustment to the balance sheet at 1st April 2005 for the implementation of IAS 32, IAS 39 and IFRS 4 is as
follows:
£ million
Current available-for-sale investments 0.9
Other financial assets 4.4
Current trade and other payables (0.4)
Other financial liabilities (0.5)
Non-current borrowings, finance leases and related swaps (0.6)
Deferred income tax liabilities (1.1)
Net assets 2.7
Other reserves 2.1
Retained earnings 0.6
Total equity 2.7
Notes on the Accounts
for the six months ended 30th September 2005
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 30th September 2005
precious metal leases were £127.8 million (30th September 2004 £132.2 million, 31st March 2005 £102.1 million).
12 Reconciliations from UK GAAP to IFRS
Reconciliations of profit before tax and net assets
Six Year
months ended
ended
30.9.04 31.3.05
Explanation £ £
million million
Profit before tax under UK GAAP 62.0 131.0
Discontinued operations a 14.9 14.9
Goodwill amortisation b 10.6 20.9
Goodwill amortisation on associates b - 0.1
Development capitalised in the period c 2.4 5.4
Amortisation of capitalised development c (0.6) (1.1)
Share options and long term incentive plan d (1.9) (4.1)
Employee benefits e 0.9 0.3
Profit before tax under IFRS 88.3 167.4
30.9.04 31.3.05 01.04.04
£ £ £
million million million
Net assets under UK GAAP 901.2 868.7 871.6
Goodwill amortisation b 10.6 20.9 -
Goodwill amortisation on associates b - 0.1 -
Net capitalised development c 13.0 15.5 11.2
Bid value adjustment for post-employment schemes' assets e (1.4) (2.0) (1.4)
Additional accruals for other short term and long term e (3.1) (3.5) (3.8)
employee benefits
Deferred tax adjustments g (12.0) (10.7) (11.1)
Dividends h 18.9 40.9 39.5
Net assets under IFRS 927.2 929.9 906.0
Explanation of major differences between UK GAAP and IFRS
a) Under IFRS 5 - 'Non-current Assets Held for Sale and Discontinued Operations' the post tax profit of discontinued
operations and the post tax loss on disposal of those operations have been disclosed as a single amount towards
the bottom of the income statement. Also, under IFRS 1 - 'First-time Adoption of International Financial
Reporting Standards' goodwill recognised under previous GAAP as a deduction from equity is not transferred to the
income statement on disposal of the subsidiary.
b) Under IFRS 3 - 'Business Combinations' amortisation of goodwill is no longer required but instead annual
impairment reviews have to be performed. Johnson Matthey has elected to take advantage of the exemption allowed
under IFRS 1 not to recalculate goodwill for all business combinations. Therefore the group has not adjusted
its carrying amount of goodwill at 1st April 2004 (the group's date of transition) from that previously
disclosed under UK GAAP. The main adjustment to goodwill on the balance sheet is to reverse all amortisation
charged since 1st April 2004.
Notes on the Accounts
for the six months ended 30th September 2005
12 Reconciliations from UK GAAP to IFRS (continued)
Explanation of major differences between UK GAAP and IFRS
(continued)
c) Under IAS 38 - 'Intangible Assets' the group has to capitalise all development expenditure which meet
the recognition criteria laid down in the standard and then amortise the asset over its useful life once it is
available for use. Under K GAAP Johnson Matthey did not capitalise any development expenditure. Under IFRS,
assets have been recognised in Catalysts Division for some development expenditure on heavy duty diesel catalysts
and fuel cell components. The group believes that all other development expenditure is for incremental
improvements to existing processes or for projects in an early stage of development and so no assets have been
recognised.
In addition, under IAS 38 any capitalised software that is not an integral part of the related hardware is
reclassified from property, plant and equipment to intangible assets.
d) Under IFRS 2 - 'Share-based Payment' the group has to recognise a charge to income in respect of the fair value of
outstanding share options granted to employees and shares allocated to employees under the long term incentive
plan after 7th November 2002. The fair value has been calculated using an adjusted Black-Scholes options
valuation model and is charged to income over the relevant vesting periods, adjusted to reflect actual and
expected levels of vesting.
e) As Johnson Matthey had already adopted FRS 17, the recent UK GAAP standard for post-retirement benefits, the only
adjustments needed for post-employment benefits under IAS 19 - 'Employee Benefits' are to put the net return on
retirement benefits assets and liabilities into operating profit, to change the market value of the pension
schemes' assets from mid-market value to bid value on the balance sheet and to move the deferred tax balances
on the net post-employment assets / obligations to deferred tax.
The other adjustments under IAS 19 are to accrue for paid annual leave and other short and long term employee
benefits.
f) Under IAS 28 - 'Investments in Associates' the group's share of the profit of its associates is shown on a post
tax basis, unlike UK GAAP where the group's share of the operating profit of its associates was shown and the
group's share of its associates' interest and tax were shown in interest and income tax expense respectively.
g) Under IAS 12 - 'Income Taxes' the group is providing for deferred tax on capital gains rolled over, capital gains
on intra group loans and capital losses which it did not provide for under UK GAAP. Other adjustments are to
provide for deferred tax on the other IFRS accounting changes. Also, IAS 12 does not allow the offset of tax
assets and liabilities and so the group has grossed up its current tax assets and liabilities and its deferred tax
assets and liabilities.
h) Under IAS 10 - 'Events After the Balance Sheet Date' dividends declared after the balance sheet date are not
recognised as a liability on the balance sheet.
i) Under IAS 17 - 'Leases' the group's precious metal leases are categorised as operating leases and so
they, and the related inventory, are removed from the balance sheet and reported as a note on
the accounts.
j) There are a number of other reclassifications on the balance sheet mainly to separate out current and
non-current assets and liabilities in accordance with IAS 1 - 'Presentation of Financial Statements'.
Notes on the Accounts
for the six months ended 30th September 2005
12 Reconciliations from UK GAAP to IFRS (continued)
Reconciliation of consolidated balance sheet as at 1st April
2004
IFRS
UK GAAP adjustments IFRS
Explanation £ million £ million £
million
Assets
Non-current assets
Property, plant and equipment c 608.1 (11.9) 596.2
Goodwill 377.1 - 377.1
Other intangible assets c - 23.1 23.1
Investments in associates 4.6 - 4.6
Deferred income tax assets g 5.4 6.9 12.3
Available-for-sale investments 0.9 - 0.9
Post-employment benefits net assets e 31.5 11.6 43.1
Total non-current assets 1,027.6 29.7 1,057.3
Current assets
Inventories i, j 417.3 (134.5) 282.8
Current income tax assets g - 0.9 0.9
Trade and other receivables 382.0 - 382.0
Available-for-sale investments 1.6 - 1.6
Cash and deposits 106.5 - 106.5
Other current assets j - 7.1 7.1
Total current assets 907.4 (126.5) 780.9
Total assets 1,935.0 (96.8) 1,838.2
Liabilities
Current liabilities
Trade and other payables e, h (316.6) 36.7 (279.9)
Precious metal leases i (127.4) 127.4 -
Current income tax liabilities g (42.3) (0.9) (43.2)
Borrowings and finance leases (46.5) - (46.5)
Short term provisions j - (20.3) (20.3)
Total current liabilities (532.8) 142.9 (389.9)
Non-current liabilities
Borrowings and finance leases (454.5) - (454.5)
Deferred income tax liabilities e, g (20.4) (21.2) (41.6)
Employee benefits obligations e, j (28.0) (12.5) (40.5)
Long term provisions j (27.0) 22.0 (5.0)
Trade and other payables (0.7) - (0.7)
Total non-current liabilities (530.6) (11.7) (542.3)
Total liabilities (1,063.4) 131.2 (932.2)
Net assets 871.6 34.4 906.0
Equity
Share capital 220.6 - 220.6
Share premium 137.1 - 137.1
Shares held in employee share ownership trusts (28.8) - (28.8)
Other reserves 4.4 - 4.4
Retained earnings 528.9 34.4 563.3
862.2 34.4 896.6
Minority interest 9.4 - 9.4
Total equity 871.6 34.4 906.0
Notes on the Accounts
for the six months ended 30th September
2005
12 Reconciliations from UK GAAP to IFRS
(continued)
Reconciliation of consolidated income statement for the period ended 30th September 2004
IFRS adjustments
Discontinued
UK GAAP operations Associates Other IFRS
Explanation £ million £ million £ million £ £ million
million
Revenue 2,472.9 (12.3) - - 2,460.6
Cost of materials sold (2,084.9) 4.7 - - (2,080.2)
Net revenues 388.0 (7.6) - - 380.4
Other cost of sales c, e (197.6) 5.5 - 5.2 (186.9)
Gross profit 190.4 (2.1) - 5.2 193.5
Distribution costs e (42.0) 1.0 - 0.7 (40.3)
Administrative expenses d, e (42.6) 0.7 - (0.5) (42.4)
Goodwill amortisation b (10.6) 0.1 - 10.5 -
Restructuring costs (15.4) - - - (15.4)
Loss on sale of discontinued a (15.3) 15.3 - - -
operations
Operating profit 64.5 15.0 - 15.9 95.4
Net interest f (7.4) - 0.2 - (7.2)
Net return on retirement benefits e 4.6 - - (4.6) -
assets and liabilities
Share of profit of associates b, f 0.3 - (0.2) - 0.1
Profit before tax 62.0 15.0 - 11.3 88.3
Income tax expense g (22.3) (2.9) - (1.2) (26.4)
Profit for the period from continuing 39.7 12.1 - 10.1 61.9
operations
Loss for the period from discontinued a - (6.3) - - (6.3)
operations
Profit for the period 39.7 5.8 - 10.1 55.6
Attributable to:
Equity holders of the parent company 40.2 5.8 - 10.0 56.0
Minority interest c (0.5) - - 0.1 (0.4)
39.7 5.8 - 10.1 55.6
Notes on the Accounts
for the six months ended 30th September 2005
12 Reconciliations from UK GAAP to IFRS (continued)
Reconciliation of consolidated balance sheet as at 30th
September 2004
IFRS
UK GAAP adjustments IFRS
Explanation £ million £ million £
million
Assets
Non-current assets
Property, plant and equipment c 586.7 (12.8) 573.9
Goodwill b 366.2 10.4 376.6
Other intangible assets c - 26.0 26.0
Investments in associates 4.4 - 4.4
Deferred income tax assets g 3.6 7.4 11.0
Available-for-sale investments 1.9 - 1.9
Post-employment benefits net assets e 34.4 12.8 47.2
Total non-current assets 997.2 43.8 1,041.0
Current assets
Inventories i, j 467.2 (139.3) 327.9
Current income tax assets g - 1.4 1.4
Trade and other receivables 346.9 - 346.9
Available-for-sale investments 1.3 - 1.3
Cash and deposits 97.0 - 97.0
Other current assets j - 7.1 7.1
Total current assets 912.4 (130.8) 781.6
Total assets 1,909.6 (87.0) 1,822.6
Liabilities
Current liabilities
Trade and other payables e, h (303.2) 17.0 (286.2)
Precious metal leases i (132.2) 132.2 -
Current income tax liabilities g (31.1) (1.4) (32.5)
Borrowings and finance leases (32.5) - (32.5)
Short term provisions j - (22.5) (22.5)
Total current liabilities (499.0) 125.3 (373.7)
Non-current liabilities
Borrowings and finance leases (427.7) - (427.7)
Deferred income tax liabilities e, g (21.4) (23.1) (44.5)
Employee benefits obligations e, j (30.1) (13.6) (43.7)
Long term provisions j (29.5) 24.4 (5.1)
Trade and other payables (0.7) - (0.7)
Total non-current liabilities (509.4) (12.3) (521.7)
Total liabilities (1,008.4) 113.0 (895.4)
Net assets 901.2 26.0 927.2
Equity
Share capital 220.8 - 220.8
Share premium 138.0 - 138.0
Shares held in employee share ownership trusts (28.8) - (28.8)
Other reserves 4.4 - 4.4
Retained earnings 558.4 25.9 584.3
892.8 25.9 918.7
Minority interest c 8.4 0.1 8.5
Total equity 901.2 26.0 927.2
Notes on the Accounts
for the six months ended 30th September
2005
12 Reconciliations from UK GAAP to IFRS
(continued)
Reconciliation of consolidated income statement for the year ended 31st March 2005
IFRS adjustments
Discontinued
UK GAAP operations Associates Other IFRS
Explanation £ million £ million £ million £ £ million
million
Revenue 4,638.5 (12.3) - - 4,626.2
Cost of materials sold (3,878.5) 4.7 - - (3,873.8)
Net revenues 760.0 (7.6) - - 752.4
Other cost of sales c, e (389.0) 5.5 - 10.9 (372.6)
Gross profit 371.0 (2.1) - 10.9 379.8
Distribution costs e (84.1) 1.0 - 1.6 (81.5)
Administrative expenses d, e (79.6) 0.7 - (2.8) (81.7)
Goodwill amortisation b (21.0) 0.1 - 20.9 -
Restructuring costs (36.7) - - - (36.7)
Loss on sale of discontinued a (15.2) 15.2 - - -
operations
Operating profit 134.4 14.9 - 30.6 179.9
Net interest f (13.3) - 0.3 - (13.0)
Net return on retirement benefits e 9.2 - - (9.2) -
assets and liabilities
Share of profit of associates b, f 0.7 - (0.3) 0.1 0.5
Profit before tax 131.0 14.9 - 21.5 167.4
Income tax expense g (44.0) (2.7) - 0.2 (46.5)
Profit for the year from continuing 87.0 12.2 - 21.7 120.9
operations
Loss for the year from discontinued a - (6.4) - - (6.4)
operations
Profit for the year 87.0 5.8 - 21.7 114.5
Attributable to:
Equity holders of the parent company 88.2 5.8 - 21.5 115.5
Minority interest c (1.2) - - 0.2 (1.0)
87.0 5.8 - 21.7 114.5
Notes on the Accounts
for the six months ended 30th September 2005
12 Reconciliations from UK GAAP to IFRS (continued)
Reconciliation of consolidated balance sheet as at 31st March
2005
IFRS
UK GAAP adjustments IFRS
Explanation £ £ million £
million million
Assets
Non-current assets
Property, plant and equipment c 604.9 (11.9) 593.0
Goodwill b 354.2 20.9 375.1
Other intangible assets c - 27.4 27.4
Investments in associates b 4.7 0.1 4.8
Deferred income tax assets g 0.8 1.2 2.0
Available-for-sale investments 1.9 - 1.9
Post-employment benefits net assets e 33.5 11.7 45.2
Total non-current assets 1,000.0 49.4 1,049.4
Current assets
Inventories i, j 416.5 (109.2) 307.3
Current income tax assets g - 2.2 2.2
Trade and other receivables 363.4 - 363.4
Available-for-sale investments 0.6 - 0.6
Cash and deposits 78.7 - 78.7
Other current assets j - 7.1 7.1
Total current assets 859.2 (99.9) 759.3
Total assets 1,859.2 (50.5) 1,808.7
Liabilities
Current liabilities
Trade and other payables e, h (332.8) 38.5 (294.3)
Precious metal leases i (102.1) 102.1 -
Current income tax liabilities g (10.1) (2.2) (12.3)
Borrowings and finance leases (36.8) - (36.8)
Short term provisions j - (26.5) (26.5)
Total current liabilities (481.8) 111.9 (369.9)
Non-current liabilities
Borrowings and finance leases (411.5) - (411.5)
Deferred income tax liabilities e, g (29.7) (14.9) (44.6)
Employee benefits obligations e, j (34.6) (13.6) (48.2)
Long term provisions j (32.2) 28.3 (3.9)
Trade and other payables (0.7) - (0.7)
Total non-current liabilities (508.7) (0.2) (508.9)
Total liabilities (990.5) 111.7 (878.8)
Net assets 868.7 61.2 929.9
Equity
Share capital 219.5 - 219.5
Share premium 139.8 - 139.8
Shares held in employee share ownership trusts (37.7) - (37.7)
Other reserves 6.3 - 6.3
Retained earnings 533.5 61.0 594.5
861.4 61.0 922.4
Minority interest c 7.3 0.2 7.5
Total equity 868.7 61.2 929.9
Independent Review Report
by KPMG Audit Plc to Johnson Matthey Plc
Introduction
We have been engaged by the company to review the financial information set out on pages 12 to 26 and we have read
the other information contained in the interim report and considered whether it contains any apparent misstatements or
material inconsistencies with the financial information.
This report is made solely to the company in accordance with the terms of our engagement to assist the company in
meeting the requirements of the Listing Rules of the Financial Services Authority. Our review has been undertaken so
that we might state to the company those matters we are required to state to it in this report and for no other purpose.
To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company for
our review work, for this report, or for the conclusions we have reached.
Directors' responsibilities
The interim report, including the financial information contained therein, is the responsibility of and has been
approved by the directors. The directors are responsible for preparing the interim report in accordance with the Listing
Rules which require that the accounting policies and presentation applied to the interim figures should be
consistent with those applied in preparing the preceding annual accounts except where any changes, and the reasons for
them, are disclosed.
As disclosed in note 1 on the accounts, the next annual accounts of the group will be prepared in accordance with
IFRS as adopted for use by the European Union.
The accounting policies that have been adopted in preparing the financial information are consistent with those that the
directors currently intend to use in the next annual accounts. There is, however, a possibility that the directors
may determine that some changes to these policies are necessary when preparing the full annual accounts for the first
time in accordance with those IFRS as adopted for use by the European Union. This is because, as disclosed in note 1
the directors have anticipated that certain standards, which have yet to be formally adopted for use in the European
Union, will be so adopted in time to be applicable to the next annual accounts.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999/4 - 'Review of Interim
Financial Information', issued by the Auditing Practices Board for use in the United Kingdom. A review consists
principally of making enquiries of group management and applying analytical procedures to the financial information and
underlying financial data and, based thereon, assessing whether accounting policies and presentation have been
consistently applied unless otherwise disclosed. A review is substantially less in scope than an audit performed in
accordance with Auditing Standards and therefore provides a lower level of assurance than an audit. Accordingly, we do
not express an audit opinion on the financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications that should be made to the financial
information as presented for the six months ended 30th September 2005.
KPMG Audit Plc
Chartered Accountants
London
22nd November 2005
Accounting policies
for the year ending 31st March 2006
These accounting policies are expected to be applied by the group in its consolidated accounts for the year ending
31st March 2006 as described in note 1.
Basis of accounting
The accounts are prepared in accordance with International Financial Reporting Standards (IFRS) and
interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC) or the Standing
Interpretations Committee (SIC) and adopted by the European Union. They are prepared on the historical cost basis,
except for certain assets and liabilities which are measured at fair value as explained below.
Basis of consolidation
The consolidated accounts comprise the accounts of the parent company and its subsidiaries, including employee share
ownership trusts, and include the group's interest in associates.
Entities over which the group has the ability to exercise control are accounted for as subsidiaries. Entities that are
not subsidiaries or joint ventures but where the group has significant influence (i.e. the power to participate in the
financial and operating policy decisions) are accounted for as associates.
The results and assets and liabilities of associates are included in the consolidated accounts using the equity method
of accounting.
The results of businesses acquired or disposed of in the year are consolidated from or up to the effective date of
acquisition or disposal respectively. The net assets of businesses acquired are incorporated in the consolidated
accounts at their fair values at the date of acquisition.
Transactions and balances between subsidiaries are eliminated. No profit is taken on transactions between
subsidiaries and the group's share of profits on transactions with associates is also eliminated.
Revenue
Revenue comprises all sales of goods and rendering of services at the fair value of consideration received or
receivable after the deduction of any trade discounts and excluding sales taxes. Revenue is recognised when it can be
measured reliably and the significant risks and rewards of ownership are transferred to the customer. With the sale of
goods this generally occurs when the goods are despatched or made available to the customer, except for sale of
consignment products located at customers' premises where revenue is recognised on notification that the product has
been used. With the rendering of services revenue is generally recognised by reference to the stage of completion as
measured by the proportion that costs incurred to date bear to the estimated total costs.
Foreign currencies
Foreign currency transactions are recorded in local currency at the exchange rate at the date of transaction. Foreign
currency monetary assets and liabilities are retranslated into local currency at the exchange rate at the balance
sheet date.
Income statements and cash flows of overseas subsidiaries and associates are translated into sterling at
the average rates for the year. Balance sheets of overseas subsidiaries and associates, including related goodwill,
are translated into sterling at the exchange rates at the balance sheet date.
Exchange differences arising on the translation of the net investment in overseas subsidiaries and associates, less
exchange differences arising on related foreign currency financial instruments which hedge the group's net investment
in these operations, are taken to a separate component of equity. Other exchange differences are taken to operating
profit.
Research and development
Research expenditure is charged to the income statement in the year incurred.
Development expenditure is charged to the income statement in the year incurred unless it meets the recognition
criteria for capitalisation. When the recognition criteria have been met any further development expenditure is
capitalised as an intangible asset.
Accounting policies
for the year ending 31st March 2006
Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated depreciation and any provisions for impairment. Finance
costs are not capitalised.
Depreciation is provided using the straight line method to write off the cost less estimated residual value over the
useful life of the asset. The estimated useful lives vary according to the class of asset, but are typically: leasehold
property 30 years (or the life of the lease if shorter); freehold buildings 30 years; and plant and equipment 4 to 10
years. Freehold land is not depreciated.
Goodwill
Goodwill arises on the acquisition of a business when the fair value of the consideration given exceeds the fair value
attributed to the net assets acquired. It is subject to annual impairment reviews.
The group has taken advantage of the exemption allowed under IFRS 1 and so goodwill arising on acquisitions made before
1st April 2004 is included at the carrying amount at that date less any subsequent impairments. Up to 31st March 1998
goodwill was eliminated against reserves.
Intangible assets
Intangible assets are stated at cost less any accumulated amortisation and any provision for impairment. They are
amortised using the straight line method over their useful lives from the time they are first available for use. The
estimated useful lives are generally 3 to 8 years for capitalised software and 4 to 8 years for capitalised development
currently being amortised.
Intangible assets which are not yet being amortised are subject to annual impairment reviews.
Leases
Leases are classified as finance leases whenever they transfer substantially all the risks and rewards of ownership to
the group. The assets are included in property, plant and equipment or capitalised software and the capital
elements of the leasing commitments are shown as obligations under finance leases. The assets are depreciated on a basis
consistent with similar owned assets or the lease term if shorter. The interest element of the lease rental is included
in the income statement.
All other leases are classified as operating leases and the rentals payable are expensed on a straight line basis over
the lease term.
Grants
Grants related to assets are included in deferred income and released to the income statement in equal instalments over
the expected useful lives of the related assets.
Grants related to income are generally deducted in reporting the related expense.
Precious metal inventories
Inventories of gold, silver and platinum group metals are valued according to the source from which the metal is
obtained. Metal which has been purchased and committed to future sales to customers or hedged in metal markets is
valued at the price at which it is contractually committed or hedged, adjusted for unexpired contango or backwardation.
Other precious metal inventories owned by the group, which are unhedged, are valued at the lower of cost and net
realisable value using the weighted average cost formula.
Other inventories
Non precious metal inventories are valued at the lower of cost, including attributable overheads, and net realisable
value. Except where costs are specifically identified, the first-in, first-out or weighted average cost formulae
are used to value inventories.
Accounting policies
for the year ending 31st March 2006
Derivative financial instruments
The group uses derivative financial instruments, in particular forward currency contracts and currency swaps, to manage
the financial risks associated with the group's underlying business activities and the financing of those activities.
The group does not undertake any trading activity in derivative financial instruments.
Derivative financial instruments are measured at their fair value. Derivative financial instruments may be designated
at inception as fair value hedges, cash flow hedges or net investment hedges if appropriate.
Changes in the fair value of any derivative financial instruments that are not designated as or are not determined to
be effective hedges are recognised immediately in the income statement.
Changes in the fair value of derivative financial instruments designated as fair value hedges are recognised in the
income statement, together with the related changes in the fair value of the hedged asset or liability.
Changes in the fair value of derivative financial instruments designated as cash flow hedges are recognised in equity.
If the hedged item results in the recognition of a non-financial asset or liability, the amount recognised in equity is
transferred out of equity and included in the initial carrying amount of the asset or liability. Otherwise, the amount
recognised in equity is transferred to the income statement in the same period that the hedged item is recognised in the
income statement.
Hedges of net investments in foreign operations are accounted for in a similar way to cash flow hedges.
Other financial instruments
All other financial instruments are initially recognised at fair value plus transaction costs. Subsequent measurement
is as follows:
• Unhedged borrowings are measured at amortised cost.
• Available-for-sale investments are measured at fair value with changes in fair value recognised
directly in equity. On disposal of the investment the amount recognised in equity will be
transferred to
the income statement.
• All other financial assets and liabilities, including short term receivables and payables, are
measured at amortised cost less any impairment provision.
Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and in hand, including short term deposits with a maturity date of three
months or less from the date of acquisition. The group routinely utilises short term bank overdraft facilities, which
are repayable on demand, as an integral part of its cash management policy and so they are included as a component of
cash and cash equivalents in the cash flow statement. Offset arrangements across group businesses have been applied to
arrive at the net cash and overdraft figures.
Taxation
Current and deferred tax are recognised in the income statement, except when they relate to items recognised directly
in equity when the related tax is also recognised in equity.
Current tax is the amount of income tax expected to be paid in respect of the taxable profits using the tax rates that
have been enacted or substantively enacted at the balance sheet date.
Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases of
assets and liabilities and their carrying amount in the balance sheet. It is provided using the tax rates that are
expected to apply in the period when the asset or liability is settled, based on tax rates that have been enacted or
substantively enacted at the balance sheet date.
Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available
against which the temporary differences can be utilised. No deferred tax asset or liability is recognised in respect of
temporary differences associated with investments in subsidiaries, branches and associates where the group is able to
control the timing of the reversal of the temporary difference and it is probable that the temporary difference will not
reverse in the foreseeable future.
Accounting policies
for the year ending 31st March 2006
Pensions and other post-employment benefits
The group operates a number of contributory and non-contributory plans, mainly of the defined benefit type,
which require contributions to be made to separately administered funds.
The costs of the defined contribution plans are charged to the income statement as they fall due.
For defined benefit plans, the group recognises the net assets or liabilities of the schemes in the balance sheet.
Obligations are measured at present value using the projected unit credit method and a discount rate reflecting yields
on high quality corporate bonds. Assets are measured at their fair value at the balance sheet date. The changes in
scheme assets and liabilities, based on actuarial advice, are recognised as follows:
• The current service cost is spread over the period during which benefit is expected to be
derived from the employees' services based on the most recent actuarial valuation and is deducted
in arriving at operating profit.
• The interest cost, based on the discount rate at the beginning of the year and the present
value of the defined benefit obligation during the year, is included in operating profit.
• The expected return on plan assets, based on market expectations at the beginning of the year for
returns over the entire life of the related obligation and amended for changes in the fair value of
plan assets as a result of contributions paid in and benefits paid out, is included in operating
profit.
• Actuarial gains and losses, representing differences between the expected return and
actual return on plan assets, differences between actuarial assumptions underlying the plan
liabilities and actual experience during the year, and changes in actuarial assumptions, are
recognised in the statement of recognised income and expense in the year they occur.
• Past service costs are spread evenly over the period in which the increases in benefit
vest and are deducted in arriving at operating profit. If an increase in benefits vests
immediately, the cost is recognised immediately.
• Gains or losses arising from settlements or curtailments are included in operating profit.
Contingencies and provisions
Provisions are recognised when the group has a present obligation as a result of a past event and a reliable
estimate can be made of a probable adverse outcome, for example for warranties, environmental claims and
rationalisations.
Share-based payments and employee share ownership trusts (ESOTs)
The fair value of outstanding share options granted to employees and shares allocated to employees under the
long term incentive plan after 7th November 2002 is calculated using an adjusted Black-Scholes options valuation model
and the resulting cost is charged to the income statement over the relevant vesting periods, adjusted to reflect actual
and expected levels of vesting.
The group provides finance to the ESOTs to purchase company shares on the open market. Costs of running the
ESOTs are charged to the income statement. The cost of shares held by the ESOTs are deducted in arriving at equity until
they vest unconditionally in employees.
Financial Calendar
2005
30th November
Ex dividend date
2nd December
Interim ordinary dividend record date
2006
1st February
Payment of interim dividend on ordinary shares
1st June
Announcement of results for the year ending 31st March 2006
25th July
115th Annual General Meeting
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: 2-4 Cockspur Street, Trafalgar Square, London SW1Y 5BQ
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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