Earnings per share excluding exceptionals were 7% up at 47.5 pence. Including exceptionals earnings per share were 4% up at 51.4 pence. The board is recommending to shareholders a final dividend of 14.2 pence making a total dividend for the year of 20.3 pence, an increase of 7%.The dividend would be covered 2.3 times by earnings.

Sales and Margins
Johnson Matthey’s turnover is heavily impacted by the high value of precious metals sold by the group particularly in the Precious Metals Division.The total value of sales each year varies according to the mix of metals sold and level of trading activity. The value of the precious metals included in sales is generally separately invoiced and payment made within a few days. Consequently, although return on sales (operating profit / total external sales) for the precious metals businesses is low, profit growth has been relatively stable and return on investment is high.

To provide a more useful measure of return on sales, the adjacent table shows sales by division excluding the value of precious metals.Total sales for the continuing businesses excluding precious metals were £841.4 million which was 13% up on last year and return on sales averaged 17.4% compared with 16.8% in 1998/99.The group’s target for each of its divisions is to achieve a return on sales excluding precious metals in excess of 10%. In 1999/2000 Catalysts & Chemicals and Precious Metals were well above that target, Colours & Coatings showed a good improvement and also came in above the target.

Return on Investment
We set a target of 20% for the pre-tax return on assets (ROA) for all our businesses.This target is based on operating profit divided by average net operating assets (including goodwill). Catalysts & Chemicals and Precious Metals were both well ahead of the group target. Colours & Coatings improved its return but was still a little below the group target.

For the continuing businesses return on assets reached 24.2% in 2000. For the group as a whole (including EMD for part of the year), return on assets was 18.4% (see pages 68 and 69 in the PDF version of this document). On a post-tax basis this equates to a return of 13.2% which is comfortably above the group’s current average long run cost of capital of 10%. Economic value added, which measures earnings after charging the cost of capital, was £32 million including exceptionals compared with £16 million last year.

Exceptional Items
Overall, exceptional items gave rise to a net profit of £13.6 million on a pre-tax basis. Most of the gain arose from the sale of EMD for US$655 million in cash which was completed in 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.

At the end of the year the group sold its organic pigments businesses in Venezuela and the United States to Dominion Colour Corporation and Continuous Link Color Inc. respectively. The businesses were sold at a loss of £4.5 million compared with book value. After writing back £1.7 million of goodwill the disposals gave rise to an exceptional loss of £6.2 million.

An exceptional charge of £9.8 million has been included in operating profit to cover the cost of the rationalisation programme for the group’s Tableware business. An exceptional gain of £1.1 million arose in the year on disposal of surplus properties.

Interest and Exchange Rates
The interest charge fell by £13.5 million to £2.4 million as a result of the interest earned on the sale proceeds of EMD. In the second half of the year the group had net interest income of £2.8 million. Interest for the year includes £2.2 million of leasing costs for gold and silver which increased from £1.3 million last year.

Operating profit from continuing operations rose significantly in North America, Asia and in the rest of the world but fell slightly in Europe. The increase in the rest of the world included additional autocatalyst manufacturing in South Africa and Argentina for the European market.

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 by £0.2 million compared with last year.

Taxation
The group’s average tax rate, excluding exceptional items, was slightly higher than last year at 28.1%.Tax payable in the UK rose compared with 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 but increased in the rest of the world reflecting the higher level of profit earned in those countries.

Cash Flow
The group’s net cash flow for the year was very strong at £393.3 million as a result of the sale of EMD. Free cash flow (net cash flow from operating activities after interest, tax, dividends and capital expenditure) for the continuing businesses was slightly negative at £7.6 million after two years in which the group had generated £54.8 million at this level. The outflow was mainly the result of the sharp increase in platinum group metal prices which occurred towards the end of the year and which resulted in additional funding requirements for debtors and stocks in Catalysts & Chemicals Division.

The group ended the year with net cash of £165.8 million compared with net borrowings of £221.6 million last year. Shareholders’ funds rose by £202.6 million to £755.4 million.

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