For Release at 7.00
am Thursday 3rd June 2004
Preliminary Results for the year ended 31st March 2004
Catalysts and Pharmaceutical Materials drive growth in profits
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Year to 31st March
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2004 |
20031 |
% change |
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Turnover Sales excluding precious
metals Operating profit Profit before tax Earnings per share |
£4,493 m £1,224 m £188.3 m £178.0 m 56.0 p |
£4,324 m £1,159 m £167.9 m £173.5 m 55.4 p |
+4 +6 +12 +3 +1 |
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Before Exceptional Items
and Goodwill Amortisation:
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Operating profit Profit before tax Earnings per share Dividend per share |
£206.0 m £195.7 m 64.0 p 26.4 p |
£189.2 m £189.9 m 61.8 p 25.5 p |
+9 +3 +4 +4 |
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Restated
for FRS 17
· Operating profit before exceptional items and goodwill amortisation up 9% to £206.0 million, despite impact of weak US dollar
· Earnings per share before exceptional items and goodwill amortisation up 4% to 64.0 pence. Dividend for the full year increased by 4% to 26.4 pence in line with earnings growth
· Strong operating cash flow. Net borrowings reduced by £8.0 million despite acquisition of AMC for $43 million
· UK pension fund surplus increased to £43.3 million
· Catalysts' profits up 15% to £109.2 million
· Environmental Catalysts and Technologies (ECT) achieves good growth in Asia and increased contribution from heavy duty diesel products
· Process Catalysts and Technologies (PCT) well up benefiting from a good contribution from the former Synetix businesses
· AMC, the leading supplier of Sponge NickelTM catalysts, acquired in March 2004
· Fuel Cells R&D to benefit from UK Government support
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Pharmaceutical Materials' profits up 15% to £42.3
million with strong growth in opiates and platinum pharmaceuticals
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Precious Metals' profits reduced by 8% to £44.2 million
reflecting weak trading conditions and impact of renewed Anglo Platinum
contracts. Trading conditions now
improving
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Colours &
Coatings' profits up 6% to £26.7 million with good growth in glass coating
products
Commenting on the
results, Chris Clark, Chief Executive of Johnson Matthey said:
"Johnson
Matthey has continued to make good progress in 2003/04 with strong growth in
both Catalysts and Pharmaceutical Materials.
The outlook for both these divisions remains encouraging, with growth
over the years ahead driven by investment in new technology.
We sense that our markets are generally improving. We are well positioned in the industries we
supply and we remain confident that this, together with our focus on
technology, will serve us well in the future."
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Report to Shareholders
Johnson Matthey made good progress in 2003/04. Operating profit before exceptional items and goodwill amortisation was 9% up on prior year despite the fall in the value of the US dollar. Both Catalysts and Pharmaceutical Materials divisions achieved 15% profit growth. We continue to see excellent prospects for both these divisions and we have increased our investment in research and development to take full advantage of anticipated market growth over the next few years.
Total sales for the financial year ending 31st March 2004 rose by 4% to £4.5 billion. Sales excluding the value of precious metals rose by 6% to £1.2 billion.
Operating profit before exceptional items and goodwill amortisation increased by 9% to £206.0 million, despite the effects of adverse exchange translation. The group has adopted FRS 17, the new accounting standard for pensions, and last year's results have been restated accordingly.
Interest also rose, partly reflecting higher average borrowings following the acquisition of Synetix, but also as a consequence of the change to FRS 17 and the reduction in pension fund surplus at 31st March 2003. Profit before tax, exceptional items and goodwill amortisation rose by 3% to £195.7 million.
Earnings per share before exceptional items and goodwill amortisation increased by 4% to 64.0 pence.
Exceptional items gave rise to a net credit of £2.1 million before tax, compared with a £2.7 million charge last year. Goodwill amortisation increased by £6.1 million to £19.8 million reflecting the full year's ownership of Synetix which was acquired in November 2002. After exceptional items and goodwill amortisation, profit before tax rose by 3% to £178.0 million. Earnings per share on the same basis increased by 1% to 56.0 pence.
The board is recommending to shareholders a final dividend of 18.2 pence, making a total dividend for the year of 26.4 pence, an increase of 4%. The proposed dividend would be covered 2.4 times by earnings before exceptional items and goodwill amortisation.
Catalysts Division's sales
rose by 5% to £1,143 million despite the fall in the average palladium price
and the weaker US dollar. Sales
excluding the value of precious metals rose by 10% to £720 million. The division's operating profit increased by
15% to £109.2 million benefiting from a full year's contribution from the
former Synetix businesses.
Environmental Catalysts and Technologies (ECT), which encompasses Johnson Matthey's
worldwide autocatalyst, heavy duty diesel (HDD) and stationary source emission
control businesses, achieved strong profit growth in Asia and good growth in
Europe, but profits declined in the US.
Our autocatalyst business in Asia benefited from strong growth in the
Chinese market where sales of light duty vehicles (cars and vans) rose by 37%
in 2003. Car sales in Europe were flat
but demand for diesel cars continues to grow and now represents 46% of all cars
sold. Johnson Matthey has leading
technology in diesel emission control and we increased our share of this
growing market. In North America our
domestic customers' share of the NAFTA market declined and inventories were
trimmed by lowering production, reducing demand for autocatalysts.
Sales of heavy duty diesel products were ahead of prior year in all three
regions with particularly strong sales in Japan in the first half of the year
supported by an incentive programme from the Tokyo Metropolitan Government. Sales of HDD catalysts to original equipment
manufacturers continued to grow in the USA and we increased our investment in
joint development programmes with the major manufacturers worldwide, gaining
several programmes that will enter commercial production from 2005/06.
Process Catalysts and Technologies (PCT), which sells catalysts to the chemicals, pharmaceutical, oil and gas and
other markets, was well ahead benefiting from the contribution from the former
Synetix businesses. The integration of
those businesses into Johnson Matthey has progressed very well and results are
in line with our expectations at the time of the acquisition. Sales and profits from process catalysts
were well up on prior year, despite weakness in some parts of the market. Platinum group metal (pgm) refining was
adversely affected by the weak palladium and rhodium prices and profits were
down. Research Chemicals, our catalogue
business, continued to achieve good growth.
Our Fuel Cells business made encouraging progress. Revenues showed significant growth on prior year, reducing the net expense for the year to £11.5 million (down 12%). Much of the growth this year has come from sales to the automotive sector as more prototype fuel cell powered vehicles have been developed for durability testing.
Precious Metals Division's
sales grew by 3% to £2,956 million with a recovery in the second half of the
year reflecting strong demand and higher prices for platinum. Operating profit for the year fell by 8% to
£44.2 million, as a result of subdued trading conditions for palladium and
rhodium for most of the year, and the impact of the renewed contracts with
Anglo Platinum in the final quarter.
Demand for platinum remained strong and the average price of the metal
for Johnson Matthey's financial year 2003/04 was $744 per ounce, an increase of
27% over 2002/03. Purchases for use in
autocatalysts increased robustly in response to further growth in diesel car
sales in Europe. In addition, North
American car companies stepped up their purchases of platinum having largely
depleted inventories of the metal the year before. However, platinum demand from the Chinese jewellery market
dropped after almost a decade of rapid growth, as the rise in the platinum
price reduced profit margins throughout the industry.
In contrast with platinum, the average price of palladium was $200 per
ounce, 34% below the average in 2002/03, and trading conditions remained
subdued for most of the year. Physical
demand for palladium began to recover from the fall in the previous year, with
purchases by the auto and electronics industries increasing significantly. The surplus between supply and demand,
however, widened considerably as Russian sales of palladium recovered and South
African production was expanded.
The division's platinum fabrication businesses achieved further growth
with good demand for both medical components and industrial products. Operating profit for the gold refining
businesses was down on last year with the stronger gold price having little
immediate impact on mine output.
Colours & Coatings Division's sales were very similar to last year at £254 million. Operating profit rose by 6% to £26.7 million
with an improvement in margins.
The glass coatings business achieved good growth in sales and profits benefiting
from new product introductions and market share gains. The Structural Ceramics sector, which sells
largely to the tile industry, experienced weaker demand for most of the year
and profits were down, but demand picked up in the final quarter and the
outlook is now much stronger. Profits
for Speciality Coatings were well up on prior year, benefiting from the
rationalisation programme undertaken in 2002/03.
Pharmaceutical Materials Division's sales rose by 9% to £140 million despite the impact of the weaker US
dollar. The division's operating profit
increased by 15% to £42.3 million.
The division's US business at West Deptford, NJ achieved strong growth in
the year, benefiting from an expanded range of platinum based anticancer
compounds. One new product has recently
been launched and another is in phase three clinical trials. The new opiate extraction facility was
completed in the year and is now operational.
Macfarlan Smith also achieved excellent growth in profits benefiting
from increasing sales of high margin specialist opiates. Additional capacity is being installed to
meet future growth. Pharm-Eco
experienced the industry-wide drop in demand for contract research in the first
quarter of the year but was able to respond by gaining new business and its
performance in the second half of the year was much stronger.
Exceptional Items and Goodwill Amortisation
Exceptional items included in operating
profit gave rise to a net credit of £2.1 million.
The group benefited by £14.8 million from the
settlement of litigation with Research Corporation and Research Corporation
Technologies, Inc. relating to royalties earned under a licence agreement with
Bristol-Myers Squibb Company in respect of carboplatin.
This exceptional credit was partly offset by
a charge of £12.7 million for the rationalisation of Catalysts Division. The rationalisation costs relate to the
reorganisation of PCT's pgm refining business and the final phasing out of
ECT's older autocatalyst process technology now that precision coating
technology has been fully installed across the group. This rationalisation is expected to improve the division's
profits by £8 million in 2005/06.
Goodwill amortisation increased by £6.1
million to £19.8 million, reflecting the full year's ownership of the former
Synetix businesses, which were acquired in November 2002.
Finance
Interest
The group's net interest charge rose by £3.1
million to £16.3 million as a result of the increase in average net borrowings
following the acquisition of Synetix.
The average interest rate was lower than last year benefiting from lower
US dollar interest rates and reduced rates on gold leases.
The group has adopted FRS 17, the new
accounting standard for pensions. Under
FRS 17 the net return on retirement benefits assets and liabilities fell
by £7.9 million to £6.0 million.
The drop reflected the fall in the value of the pension fund surplus in
2002/03 as measured on 31st March 2003, when the world equity
markets were particularly depressed.
Equity markets recovered somewhat in 2003/04 and the group's UK pension
fund surplus has increased. The net
return on retirement benefits assets and liabilities is likely to be roughly £3
million higher in 2004/05.
Exchange Rates
Over a third of the group's profits were made
in North America, mainly in the USA.
The average rate for the US dollar weakened significantly, from $1.55/£
in 2002/03 to $1.69/£ in 2003/04, which reduced reported group profit before
tax by £6.7 million.
The group has significant operations in
several euro-zone countries and in South Africa whose currencies have
strengthened against sterling. The
group benefited by £2.4 million from the translation of profits made in euros,
of which £1.7 million related to Colours & Coatings, but the euro's strength
also had a negative impact on demand for that division's products. The overall impact of the appreciation of
the South African Rand was negative. The products the group manufactures in
South Africa are generally for export with pricing mainly related to euros and
US dollars, whereas costs are in rands, and margins were adversely affected by
currency movements.
Taxation
The group's tax charge increased by £4.2 million to £57.9 million. The increase largely reflected higher profits. The group's average tax rate on profit before tax, exceptional items and goodwill amortisation rose slightly from 29.7% to 29.8%.
Cash Flow
Johnson Matthey's net cash flow from operations increased by 13% to £259.7 million. Capital expenditure was £13.4 million lower than prior year at £113.1 million and represented 1.8 times depreciation. We are planning to spend at a lower rate in 2004/05 although still maintaining investment to support future growth opportunities. Free cash flow for the group (after dividends, but before acquisitions and share purchases) was strong at £29.9 million.
The group spent £18.4 million on acquisitions (mainly AMC) and made a net purchase of shares (for the employee share ownership trusts) which cost £8.5 million, leaving a net cash inflow of £3.0 million.
After taking into account favourable exchange translation of £6.1 million on the group's foreign currency borrowings (mainly US dollars), and £1.1 million of loan notes issued to acquire subsidiaries, net borrowings fell by £8.0 million to £394.5 million. Johnson Matthey's balance sheet remains strong with shareholders' funds rising by £74.9 million to £862.2 million and gearing (net borrowings / shareholders' funds and minority interests) of 45%. The comparative figures for last year have been restated for FRS 17 and UITF 38, under which shares held in employee share ownership trusts are accounted for in the same way as treasury shares. Restated for these new accounting standards, last year's gearing was 50%.
Pensions
For the financial year 2003/04 the group has adopted FRS 17, and the figures for 2002/03 have been restated accordingly. The value of the assets in the group's pension funds increased significantly in 2003/04, partly reflecting the recovery in equity prices from their depressed levels at 31st March 2003. The surplus on the group's UK scheme increased by £42.6 million to £43.3 million at 31st March 2004 after taking into account the results of the triennial actuarial revaluation.
Worldwide, including provisions for the group's post-retirement healthcare schemes and pension related deferred tax assets and liabilities, the group had a net surplus of £3.5 million on retirement benefits net assets compared with a net deficit of £25.4 million at 31st March 2003.
Business Developments
Johnson Matthey's Catalysts Division is performing well, and has leading positions in market segments which will expand rapidly in the next few years. These include catalysts for heavy duty diesel emission control, where legislation is due to take full effect in 2007 in the USA and 2008 in Europe, and catalysts for the gas to liquids process which uses a series of different catalytic steps to convert stranded natural gas to sulphur free diesel fuel.
We are increasing our investment in R&D to support these opportunities, and are also selectively looking at possible acquisitions to expand our range of catalyst products. We are pleased to have concluded the acquisition of AMC in March 2004, which strengthens our position in the pharmaceutical and speciality chemicals catalyst markets.
As well as growing revenues we are also focusing on improving efficiency. In these results we have taken a £12.7 million exceptional provision to improve efficiency across the Catalysts Division. One element of this relates to restructuring our pgm refining business, which has been adversely affected by the downturn in the palladium market. In addition, we will be phasing out our older autocatalyst manufacturing process technology now that precision coating technology has been fully installed in all our worldwide autocatalyst manufacturing plants. We expect this rationalisation programme to reduce costs in the division by £8 million in 2005/06.
Diesel emission control continues to be a focus for environmentalists and regulators worldwide and remains a key priority for us. The market for diesel cars is mainly in Europe where we have increased our market share. Whilst oxidation catalysts remain the key current product, there is growing interest in the use of soot filter technology for particulate emission control and we have been nominated for several important customer programmes.
Worldwide, Johnson Matthey's award winning Continuously Regenerating Trap (CRT®) technology is the most widely used method of controlling particulate emissions from heavy duty diesel vehicles already on the road. New regulations in both Europe and the USA will drive the need for engine makers to fit catalyst technologies to new HDD vehicles starting in 2005. In the last few years we have increased the resource needed to support these customers and the benefits of this strategy are now coming through in contracts for future business.
The acquisition of Synetix from ICI in 2002 has led to a major expansion of PCT. The former Synetix businesses are now fully integrated and we are building on the opportunities presented by merging Johnson Matthey's leading precious metals catalysis technology with Synetix's leading base metals catalyst technology. One example of this is the opening in May 2004 of a new precious metals catalyst manufacturing facility at Taloja in India. The acquisition of ICI India's catalyst business provided Johnson Matthey with a strong presence in base metal catalysts in the region, to which we have now been able to add precious metals catalyst manufacturing.
The acquisition of AMC for $43 million in March 2004 was another important step in strengthening our position in the worldwide catalyst market. AMC is based in Tennessee, USA and is the global market leader in Sponge NickelTM catalysts. These nickel catalysts are extensively used in hydrogenation and reductive alkylation reactions throughout the pharmaceutical industry as well as in a wide range of other chemical processes. They are often the first catalyst to be evaluated when designing a new process and the acquisition widens our catalyst product offering to this important market.
The Fuel Cells business continues to make encouraging progress both in the scale up of membrane electrode assembly (MEA) manufacturing at its facility in Swindon, UK and in collaborative programmes with key customers and suppliers. Johnson Matthey Fuel Cells has been awarded £3.2 million in funding by the Department of Trade and Industry as part of the Government's commitment to the development of renewable energy and to the building of a world class fuel cell industry in the United Kingdom. This grant has been given for a major three year programme to develop the next generation of MEAs for automotive applications and will see the Fuel Cells business working in collaboration with a number of key suppliers as well as leading global automobile manufacturers.
We announced in November 2003 that we had renewed our long term contracts with Anglo Platinum which extends the relationship well into the next decade. The revised terms of these renewed contracts came into effect on 1st January 2004 and resulted in a reduction in Precious Metals Division's income in the final quarter of roughly £1.5 million. As demand for platinum grows this shortfall will be more than offset by increased volumes, and the renewed contracts with Anglo Platinum firmly underpin the longer term growth of the division.
The fundamentals for platinum remain very robust. Demand will continue to be driven by its use in autocatalysts, particularly as diesels continue to take a growing share of the light duty vehicle market in Europe and as heavy duty diesel legislation begins to take effect around the world. While jewellery demand has been impacted by the high price of platinum, it remains remarkably resilient and we are seeing signs of improved demand from the manufacturers. The platinum producers are increasing their output to meet this growing demand and move the market closer to equilibrium.
Palladium demand is also expected to increase, benefiting from growth in consumption by the auto manufacturers. However, supplies are expected to rise substantially as South African producers expand their output and the palladium market is expected to continue to remain in surplus.
As we also announced in November, the Board has reviewed the group's strategy for the Structural Ceramics and Speciality Coatings businesses which form the majority of Colours & Coatings Division. A process is now underway to consider offers for those two businesses. We expect to make a further announcement in the next few months.
Pharmaceutical Materials Division enjoyed another very successful year. At West Deptford in the USA we have expanded the product range with two new platinum anticancer products performing well in 2003/04. The patent for carboplatin which we manufacture for Bristol-Myers Squibb will expire this year and we anticipate the contribution from this product will fall. However, we expect to see an increased contribution from other products, including semi-synthetic opiates where we will benefit from the new morphine and codeine extraction facility at West Deptford. Our Edinburgh based business, Macfarlan Smith, has achieved excellent growth over the last three years and we are continuing to invest in new capacity there to meet anticipated future growth. We have completed a new facility to produce a range of specialist products (mainly highly potent analgesics) which we expect to make a useful contribution this year. At Pharm-Eco we have commissioned the new small scale manufacturing suites at Devens in Massachusetts, USA which are being used to manufacture products for clinical trials.
Outlook
In 2004/05 we expect to see further growth in Catalysts and Pharmaceutical Materials. However, exchange translation may be adverse if the US dollar remains at its current level.
In the next few years we should start to see significant benefits from Johnson Matthey's investment in new product areas, including heavy duty diesel catalysts which represents a major opportunity once legislation comes into force in 2007 and 2008. In Pharmaceutical Materials we have a strong worldwide position in the manufacture of controlled drugs and complex molecules, such as prostaglandins, where the generic market should see significant growth. Excellent progress is also being made in other long term growth markets, such as gas to liquids catalysts and fuel cells, where revenues are expected to grow in the years ahead.
Overall, supported by a strong balance sheet, the group is very well positioned to deliver good long term growth.
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for the
year ended 31st March 2004 |
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