It was recognised that Johnson Matthey has traditional strengths in the chemistry of precious metals and in catalysis. As a result we created a new Catalysts & Chemicals Division that has brought together all of our core chemicals operations under a single heading. This reflected our intention to build on the many opportunities offered by the technological strengths of these businesses. Over the previous five years growth in this segment has averaged some 13% per annum and returns on both assets and sales have been good. We plan to grow this business both organically and by acquisition.

Growth in Electronic Materials Division over the preceding five years had taken Johnson Matthey to a market leading position with the inevitable consequence that this division had become predominantly a North American business. We therefore judged that the time was right to establish the division as a separate entity under a US holding company. This has given the business the option of raising its own capital in the future and has led to other opportunities for enhancing shareholder value.

The second half has seen good progress in the development and implementation of this strategy.The Catalysts & Chemicals Division continued its record of double digit growth with profits for the year up 15%. Growth in the division was broadly based with good performances from autocatalysts, pharmaceutical materials, process catalysts and speciality chemicals. Over the next few years new opportunities will arise from the commercialisation of fuel cells. Johnson Matthey has a leading position in fuel cell technology and will benefit from the rapid expansion of this new market.

Good progress has also been made towards our goal of realising shareholder value from Electronic Materials. The process of creating a stand alone business under a separate, US based holding company was completed on schedule on 31st March 1999. Significant progress has been made in preparations for a potential initial public offering of stock in the new company. In parallel, we are pursuing discussions with a number of parties who have expressed an interest in acquiring the business. Along with our advisors we will evaluate the strategic alternatives and we expect to announce our conclusions within the next few months.

The group's two other divisions have also performed well. Precious Metals has maintained its world leadership positions in platinum group metals marketing and gold refining and delivered good profit growth in the year with strong cash generation. Ceramic Materials has achieved a major recovery in profits and margins and has been renamed the Colours & Coatings Division to provide a better description of the division's product range.

The new group structure reflects the change in the balance of Johnson Matthey's businesses which has taken place over the last few years. Over two thirds of the group's profits are now made from the manufacture of catalysts and other fine chemicals, a proportion which will increase when Electronic Materials is spun off. This development has been recognised by FTSE International which changed its industry classification of Johnson Matthey from Engineering to Chemicals Speciality in December 1998.

Given the considerable uncertainty which surrounds the world's economies we continue to place great emphasis on minimising costs to maintain margins and protect profits. Where markets declined last year, particularly in the tableware market and in certain parts of the semiconductor market, we responded rapidly by reducing costs to ensure our businesses remain profitable. Group headcount, which peaked at 13,200 in February 1998 has been reduced by 1,500 or 11%. The costs of the rationalisation in Colours & Coatings were provided for in last year's accounts. The costs for Electronic Materials Division amounted to £1.5 million and were charged against the division's operating profit for the year.

Financial highlights
In the year to 31st March 1999 Johnson Matthey earned profits before tax (excluding exceptional items) of £131.2 million, a £1.0 million increase over the prior year. Turnover rose by 4% to £3,385.4 million. Operating profit grew by 6% to £147.1 million despite an adverse exchange translation effect of £2.7 million.

Earnings per share excluding exceptional items were unchanged at 44.3 pence. Including exceptionals, earnings per share were 46.1 pence.

Cash flow from operations increased by 13% to £176.0 million. Free cash flow was strongly positive at £26.0 million for the year.

The board is recommending to shareholders a final dividend of 13.3 pence making a total dividend for the year of 19.0 pence, an increase of 7%. The dividend will be covered 2.3 times by earnings.