For Release at 7.00 am
Thursday 2nd June 2005
Preliminary Results for the year ended 31st March 2005
Encouraging prospects for future growth
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Year to 31st
March
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%
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2005 |
2004 |
change |
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Statutory
Basis: Turnover Profit before tax Earnings per share |
£4,639 m £131.0 m 40.6 p |
£4,493 m £178.0 m 56.0 p |
+3 -26 -28 |
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Before Exceptional Items
and Goodwill Amortisation:
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Profit before tax Earnings per share Dividend per share |
£204.0 m 67.1 p 27.7 p |
£195.7 m 64.0 p 26.4 p |
+4 +5 +5 |
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· Profit before tax, exceptional items and goodwill amortisation up 4% at £204.0 million despite adverse exchange translation
· Earnings per share before exceptional items and goodwill amortisation up 5% at 67.1 pence. Dividend for the full year increased by 5% to 27.7 pence
· Strong cash flow. Net borrowings reduced by £24.9 million to £369.6 million despite £16.1 million net expenditure on share buy back
· Exceptional costs of £51.9 million. The cash generated from disposals and rationalisation of underperforming assets is being used to buy back shares
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£m |
Year to 31st
March 2005 2004 |
% change |
2005 at
2004 exchange
rates |
% change |
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Catalysts Precious Metal Products Pharmaceutical Materials Colours & Coatings Corporate |
111.5 45.4 40.0 27.4 (16.6) |
109.2 44.2 42.3 24.2 (16.4) |
+2 +3 -5 +13 |
115.8 46.8 41.5 28.4 (16.8) |
+6 +6 -2 +17 |
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Continuing operations Discontinued operations |
207.7 0.4 |
203.5 2.5 |
+2 |
215.7 0.4 |
+6 |
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Operating profit |
208.1 |
206.0 |
+1 |
216.1 |
+5 |
· At constant exchange rates operating profit before exceptional items and goodwill amortisation up 5%. Steady growth in Catalysts and Precious Metal Products, Pharmaceutical Materials slightly down following expiry of carboplatin patent, continued recovery in Colours & Coatings
Business prospects
· Excellent outlook for heavy duty diesel (HDD) catalysts. Increased investment in product development and in new programmes in partnership with leading original equipment manufacturers
· European autocatalyst market continues to grow driven by strong sales of light duty diesel (LDD) vehicles. Johnson Matthey very well positioned in LDD market and investing in new manufacturing capacity for catalysed soot filters
· Asian autocatalyst business performing well. Investment in expanding production capacity in both Japan and China
· Platinum group metal trading conditions remain good. Improved market conditions combined with volume growth has more than offset the impact of revised Anglo Platinum contract terms which began on 1st January 2004
· In Pharmaceutical Materials our pipeline of new products is strong. New generic drugs will significantly add to revenues from early 2006 onwards
· Plan to release cash from underperforming assets underway. Share buy back programme commenced. A further £25 million to be purchased in the first half of 2005/06
Commenting on the
results, Neil Carson, Chief Executive of Johnson Matthey said:
“In 2004/05 we made good progress.
Earnings per share before goodwill amortisation and exceptional items
were 5% up, despite adverse exchange translation. We have taken action to improve the returns on
underperforming assets and are using the cash generated to buy back shares.
The outlook for the next few years
is good. We expect to see the rate of growth
in earnings increase in the second half of 2005/06 with additional revenues
from diesel emission control products and new generic pharmaceuticals coming
through in 2006.”
Enquiries:
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Ian Godwin, Group Communications Manager |
020 7269 8410 |
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Howard Lee, The HeadLand Consultancy |
020 7036 0369 |
|
Laura Hickman, Gavin Anderson & Co |
020 7554 1400 |
Report to Shareholders
Johnson Matthey made good progress in 2004/05 with profit before tax, exceptional items and goodwill amortisation up 4% despite adverse exchange translation. Earnings per share before exceptional items and goodwill amortisation increased by 5%.
On a constant currency basis both Catalysts and Precious Metal Products Divisions achieved 6% growth in operating profit. Pharmaceutical Materials was 2% down as a result of the expiry of the carboplatin patent while Colours & Coatings continued its good recovery with profits 17% up.
Cash generation was good with a net £16.1 million used to buy back shares and net borrowings reduced by £24.9 million. The group is well positioned to benefit from organic growth over the next few years and we have also taken action to improve the returns on underperforming assets.
Total sales grew by 3% to £4,639 million. At constant exchange rates sales grew by 7% with most of the increase coming from more buoyant trading conditions for platinum group metals and higher average prices. Sales excluding the value of precious metals fell by 2% to £1,200 million. This fall partly reflected the impact of exchange translation but also lower pass through costs for autocatalyst substrates.
Operating profit before exceptional items and goodwill amortisation rose by 1% to £208.1 million. Adverse exchange translation reduced profits by £8.0 million compared with 2003/04 mainly because of the fall in the value of the US dollar which averaged $1.85/£ compared with $1.69/£ for the last financial year. Translated at last year's exchange rates, operating profit before exceptional items and goodwill amortisation increased by 5%.
Interest was £3.0 million lower than last year as a result of lower average borrowings and more favourable average interest rates, particularly for platinum. The return on retirement benefits assets and liabilities improved by £3.2 million reflecting the increased funding surplus at 31st March 2004.
Profit before tax, exceptional items and goodwill amortisation increased by 4% to £204.0 million. Earnings per share before exceptional items and goodwill amortisation rose by 5% to 67.1 pence benefiting from a more favourable average tax rate.
Total exceptional items amounted to £51.9 million. Most of this charge related to the loss on disposal of Pigments & Dispersions and the restructuring of underperforming assets. We expect that this process will ultimately generate £50 million of additional cash which we are using to buy back shares. We have completed our review of underperforming assets and do not expect any further exceptional rationalisation costs in 2005/06.
Taking into account exceptional costs and goodwill amortisation, profit before tax on a statutory basis fell by £47.0 million to £131.0 million and earnings per share were 15.4 pence lower at 40.6 pence.
The board is recommending to shareholders a final dividend of 19.0 pence, making a total dividend for the year of 27.7 pence, an increase of 5%, which is in line with the growth in earnings per share before exceptional items and goodwill amortisation.
Catalysts Division's sales
rose by 4% to £1,184 million. At
constant exchange rates the increase was 7%.
Sales excluding the value of precious metals fell by 3% to £698 million. At constant exchange rates sales excluding
the value of precious metals rose slightly.
Sales growth was held back by lower pass through substrate costs
associated with the increasing proportion of diesel catalysts sold.
The division's operating profit increased by 2% to £111.5 million. At constant exchange rates operating profit
grew by 6%.
Environmental Catalysts and Technologies (ECT) achieved good growth in profits in
autocatalysts with all the growth coming in Europe and Asia. Profits were lower in North America. In Johnson Matthey's financial year global
light duty vehicle sales grew by 3%, with most of the growth arising in Asia
where sales rose by 4%. Sales in Europe
increased by 2% with most of the growth coming in Eastern Europe. In North America light duty vehicle sales
were slightly up but domestic production fell by 2% with an increased number of
imports mainly from Asia.
ECT's strong performance in Europe reflected the continued growth in
diesel car sales where Johnson Matthey has leading technology. For the year to 31st March 2005
diesel car sales in Western Europe accounted for nearly half the market for
cars. There is increasing focus on
reducing particulate emissions from diesel vehicles in Europe and Johnson
Matthey has been working closely with many of the leading car companies to
develop catalysed soot filters (CSFs) which remove particles from diesel
exhaust emissions. CSFs are likely to
be required on all diesel cars in Europe from 2010, but many car manufacturers
plan to fit these devices much earlier.
We are investing in new production capacity to manufacture CSFs and
expect sales to grow in 2005/06.
Our autocatalyst businesses in Asia benefited from strong demand. In India, where Johnson Matthey has a strong
market position, car sales grew by 25% while the growth rate in car sales slowed
in China but was still 12.5% up on prior year.
We are expanding our factory in Shanghai and we have also put in a new
production facility next to our technical centre in Japan. This has been well received by customers and
we expect to see additional sales in Japan in 2005/06. In North America car production fell,
particularly in the final quarter of our financial year when domestic
production was down by 4.5%. Autocatalyst
volumes were also down and Johnson Matthey's profits in the region were lower
than last year. In South America
vehicle production showed a strong recovery and our facility in Argentina was
well ahead of prior year.
In 2003/04 ECT benefited from strong sales of heavy duty diesel (HDD)
retrofit products in Japan supported by an incentive programme from the Tokyo
Metropolitan Government. There were no
similar sized programmes in 2004/05 and consequently revenues from HDD retrofit
products were down. The outlook for HDD
sales to original equipment makers is very encouraging. New legislation on HDD vehicle emissions
will come into effect in Europe for new models in October 2005 and for all new
vehicles in October 2006. New
legislation in the US starts in January 2007.
The great majority of truck and bus manufacturers will be using
aftertreatment devices to meet this legislation and Johnson Matthey has leading
technology to meet the new standards.
Process Catalysts and Technologies (PCT) performed well in 2004/05 with sales and profits comfortably ahead of the previous year. At the end of last year we announced the acquisition of the AMC group of companies (AMC), the market leading supplier of Sponge Nickel™ catalysts located in Tennessee, USA. Sponge Nickel™ catalysts are extensively used in the pharmaceutical and speciality chemicals industries and are often the first catalysts to be evaluated when designing a new chemical process. The former AMC business, now Johnson Matthey Catalysts, Tennessee, performed in line with our expectations and made a welcome contribution in its first full year of ownership.
Our other catalyst businesses also had a good year, nowhere more so than the Ammonia, Methanol, Oil and Gas (AMOG) business which saw strong growth in income from both licensing and catalyst sales and another excellent performance from its gas processing and purification segments. The development of a new class leading methanol flowsheet came a stage closer with the formation of OneSynergy™, a partnership with Davy Process Engineering and Aker Kvaerner to take advantage of Johnson Matthey's new catalyst and process technologies for both methanol synthesis and reforming chemistry.
The platinum group metal refining business continued to be adversely affected by the weak palladium price and overcapacity in the market. After an extensive review we decided to restructure the business in the UK and reduce the intake of low grade materials which had left us with large quantities of residues which are difficult to process. An exceptional charge of £10.2 million has been taken to cover the cost of this rationalisation. One objective of the restructuring will be to reduce the quantity of precious metals held in the refinery and thereby release over £20 million of cash from inventory reduction.
Our Research Chemicals business continued its recent record of strong growth in 2004/05. During the course of the year we acquired the operations of Lancaster Synthesis from Clariant AG. The acquisition was temporarily delayed as a result of a serious fire at Lancaster's UK premises in late July. However the deal was completed at the end of September at a significantly reduced cost. The Lancaster business represents a good fit with our Research Chemicals business and excellent progress has been made in integrating stock and order management systems while maintaining the value of the Lancaster brand with its strong market franchise.
The annual cost of our Fuel Cells business reduced by £1.1 million to £10.4 million. The market for stationary fuel cells has not grown as quickly as our customers had expected but developments in automotive fuel cells continue to be very encouraging. During the year we transferred most of our UK fuel cell activities including product development to our facility at Swindon, while longer term research remains at our technology centre at Sonning Common.
The first fuel cell vehicles to be manufactured in any quantity will be powered by hydrogen. In California, the State government is taking action to develop a network of filling stations for hydrogen powered vehicles. The success of hybrid cars has shown that customers are prepared to pay a premium for environmentally friendly vehicles. Most of the world's major car companies are continuing to invest heavily in the development of fuel cell vehicles as concerns over fuel security, global warming and air quality become more pressing.
Precious Metal Products
Division's sales grew by 4% to £3,069 million, reflecting more buoyant trading
conditions for platinum group metals and higher average prices. At constant exchange rates sales grew by
8%. Operating profit increased by 3% to
£45.4 million, despite the revised terms of the renewed contracts with
Anglo Platinum and adverse exchange translation. At constant exchange rates operating profit was 6% up.
The price of platinum reached its peak for 2004/05 of $937/oz in April,
a 24 year high, driven by good physical demand and substantial speculative
interest. After a sharp correction in
late April and early May, which saw the price fall back to $783/oz, the price
of platinum followed an upward trend for the rest of the year. The average price was $848/oz, a 14% increase
on 2003/04. Total consumption of
platinum edged up marginally in 2004/05, with the autocatalyst sector
underpinning demand. The increase in
market share of diesel cars in Europe and tightening emission controls for
diesel powered trucks in Japan were key drivers. However, purchases of platinum for jewellery manufacture fell in
2004/05 as a result of the strength and volatility of the platinum price.
The palladium price also reached its peak for 2004/05 in April,
touching $333/oz as investors extended their already substantial long
positions. However, production and
stocks were more than adequate to meet demand and the price fell back to a low
of $178/oz in December. The average
price for the year was $219/oz, an increase of 9% on 2003/04. Physical demand for palladium climbed
steeply in 2004/05. Most of this
increase came from the jewellery sector, led by the rapid development of
palladium jewellery manufacturing in China. Demand in the autocatalyst sector was also up as US car companies
increased their market purchases, having run down their stocks in 2003. Growth in demand was almost exactly matched
by a rise in supplies, particularly from Russia where a considerable volume of
metal was sold from government stocks. Total
supplies exceeded demand by a significant margin, leaving palladium in surplus
for the fourth consecutive year.
The division's platinum group
metal (pgm) manufacturing business continued its profitable growth, benefiting
from good customer service and technical leadership. Demand for our pgm
catalyst, sheet and wire products for industrial applications was strong
throughout the year. Our medical parts business,
based in California, also recorded excellent growth. Increased usage of nitinol in medical device applications in both
Europe and the US, resulted in a strong demand for products from our San Jose
factory.
In September 2004 the board took the decision to close the group's UK
gold and silver refinery. Tight
refining margins and the weaker US dollar resulted in a loss in 2003/04 of £1.6
million after metal interest and a similar performance in the first five months
of 2004/05. The closure was completed on schedule, by the
end of March 2005, at a cost of £13.2 million. As part of the closure programme a significant proportion of the
customers from our UK refinery were successfully transferred to our refineries
in Salt Lake City and Toronto, where spare capacity existed. This boosted profits in North America which
finished ahead of 2003/04.
Pharmaceutical Materials Division's sales fell by 6% to £132 million.
Adjusting for exchange translation the drop in sales was 2%. The fall in sales reflected lower selling
prices for carboplatin, which went off patent in October 2004, and lower
revenues from contract research, partly offset by increasing sales of
controlled drugs. Operating profit fell
by 5% to £40.0 million partly as a result of adverse exchange translation. At constant exchange rates the fall in
operating profit was 2%, in line with the drop in sales.
Macfarlan Smith, which is based in Edinburgh, UK and manufactures controlled drugs for sale to generic pharmaceutical companies, performed well in the year. Sales and profits were both ahead of last year with most of the growth coming from high margin specialist opiate products. The world market for drugs to manage severe pain is growing at around 6% per annum as medicine is able to treat more acute conditions; the world's population ages; and people are generally less tolerant of pain. Overall growth of the opiates market is driven primarily by the introduction of new applications and new dosage forms for specialist opiates such as oxycodone, hydromorphone and buprenorphine, the markets for some of which are growing at double digit rates.
Macfarlan Smith's new
facility to manufacture low volume, high potency products (mainly analgesics),
which we announced last year, has made a valuable contribution to profits in
its first year of operation and we expect to achieve further growth in this
specialist market in 2005/06.
As anticipated, our active pharmaceutical ingredient (API) manufacturing
business in the US, which is based in West Deptford, NJ, saw its profits fall
in the second half of 2004/05 as the contribution from carboplatin was reduced
following the expiry of the patent in October 2004. Now that the patent has expired we expect to supply to both
Bristol-Myers Squibb and generic producers but at lower margins. Sales of other products grew, including
opiates where we have successfully transferred manufacturing technology from
Macfarlan Smith. Growth in sales of
opiate drugs will continue as an increasing number of customers obtain
regulatory approvals to market products containing APIs manufactured at West
Deptford. Sales of non-opiate
controlled drugs also improved during the year and significant progress was
made on the development of several attractive generic products which will reach
commercialisation over the next few years.
During the year we changed the name of Pharm-Eco to Pharma Services to
better reflect its market segment.
Pharma Services provides contract research and development and
manufacturing services to pharmaceutical companies from pre-clinical through to
commercial launch. Although
manufacturing continued to grow, contract research revenues were down in the
second half of the year and profits were below last year.
During 2004/05 Cascade Biochem, which we acquired in 2002, was consolidated
into its Cork, Ireland facility and renamed Pharmaceutical Materials
Ireland. The business has continued to
expand its customer base and geographic coverage during the year. Regulatory filings of new generic products
containing our prostaglandin APIs have been made by our customers and are
currently in review stages. Our
products are also being qualified for new generic drug dosage forms targeted
for sale in major world markets.
We restructured Colours
& Coatings Division during the
year following the sale of Pigments & Dispersions in September 2004 for
£22.2 million (after costs). Several
other sites are in the process of being closed, the largest of which is the
division's decal factory in Stoke-on-Trent.
An exceptional charge of £10.3 million has been taken to cover the cost
of these closures. The decorative
precious metals, glass coatings and tableware businesses have been renamed
Colour Technologies and will be transferred to Precious Metal Products Division
and included in that division's results next year. The remaining business, Structural Ceramics, has been renamed
Ceramics and will be shown as a stand alone division in 2005/06.
Sales for the division, excluding Pigments & Dispersions, rose by 8%
in 2004/05 to £242 million. At constant
exchange rates sales grew by 12%.
Operating profit increased by 13% to £27.4 million. At constant exchange rates profits grew by
17%.
Our Ceramics business had sales of £166 million and contributed about two
thirds of the profits of the division.
It supplies decorative materials for ceramic products, mainly to the
tile industry. The business achieved
good growth in sales and profits in 2004/05.
Demand for tiles in the Western European market was flat and the
strength of the euro adversely impacted European tile producers who are major
exporters to other parts of the world.
However there was good growth in China, India and Brazil where Johnson
Matthey has production facilities and is well represented. Our sales into Eastern Europe also showed good
growth.
Colour Technologies performed well in 2004/05. Sales to the automotive sector increased, particularly sales of both black obscuration enamels and conductive silver paste. Demand for decorative products for other glass applications was also up benefiting from new product introductions which are helping the business to consolidate its market leading position in this segment.
Exceptional
Items
Exceptional items for the year amounted to £51.9 million which included a rationalisation charge of £10.2 million to restructure our underperforming UK platinum group metal refining business and a £10.3 million charge for closing a number of former Colours & Coatings' sites following the sale of Pigments & Dispersions and the restructuring of that division. The remaining items were announced in the first half of the year and include a loss of £15.2 million on sale of the Pigments & Dispersions business, of which £5.8 million related to goodwill previously written off to reserves; the closure of the UK gold and silver bullion refinery at a cost of £13.2 million and £3.0 million of acquisition integration costs.
The main impact of exchange rate movements on the group's results comes from the translation of foreign subsidiaries' profits into sterling. Around 30% of the group's profits were made in North America, mainly in the USA. The US dollar weakened significantly from an average rate of $1.69/£ in 2003/04 to an average of $1.85/£ in 2004/05. The average rate for the euro also weakened from €1.44/£ to €1.47/£. The South African rand strengthened from R12.11/£ to R11.53/£ but the translational benefit of that rise was more than offset by the adverse impact of the stronger rand on operating margins. Excluding the rand, exchange translation reduced operating profit by £8.0 million, which is equivalent to 4% of operating profit before exceptional items and goodwill amortisation.
The group's net interest charge fell by £3.0 million to £13.3 million, benefiting from lower average borrowings, particularly in the second half of the year. Metal financing costs were also favourable with interest rates for platinum below the high levels experienced in 2003/04. Average precious metal leases were reduced following the closure of the UK gold and silver refinery in September 2004.
The return on retirement benefits assets and liabilities improved by £3.2 million. This credit is shown separately under FRS 17 (the pension accounting standard adopted by the group last year). The rise reflected the increase in the pension fund surplus at 31st March 2004.
Taxation
The group's tax charge fell by £13.9 million to £44.0 million. The reduction largely related to tax relief on the exceptional costs incurred in the year. Before exceptional items and goodwill amortisation the average tax rate for the year fell slightly from 29.8% to 29.2% with an increase in tax credits received on research and development expenditure.
Cash
Flow
Johnson Matthey's net cash flow for the year was strong at £23.5 million. After taking into account £1.4 million of exchange translation, net borrowings fell by £24.9 million to £369.6 million. Gearing (net borrowings / shareholders' funds and minority interests) fell by 2.8% from 45.3% at 31st March 2004 to 42.5% at 31st March 2005.
The group received £23.3 million from disposals and paid £4.0 million for acquisitions. The proceeds received from the disposals have been used to buy back shares. During the year we purchased 2.5 million of Johnson Matthey shares at an average price of £10.06. This included 0.9 million of shares for the group's employee share ownership trust. The cash outflow on share purchases in the year was £19.3 million, with a further £5.9 million paid in April 2005. The group received £3.2 million of proceeds from the exercise of share options by employees to give an overall net outflow on shares bought / issued in the year of £16.1 million. Excluding acquisitions, disposals and share transactions the group generated a free cash flow of £20.3 million.
Net cash flow from operations was £28.4 million lower than last year at £231.3 million. Capital expenditure incurred was £17.6 million lower than last year at £95.5 million which represented 1.4 times depreciation, down from 1.8 times last year. The net cash outflow on capital expenditure and financial investment in the year was £86.8 million, which was less than the level of capital expenditure incurred, reflecting the timing of the expenditure and the inclusion of £4.1 million received from the sale of assets. Major projects included expansion of ECT's production facilities in the UK, South Africa, Japan and China; investment in catalyst manufacturing for PCT at Clitheroe, UK; and further investment in new capacity at Macfarlan Smith in Edinburgh.
The surplus on the group's UK pension scheme increased by £2.5 million to £45.8 million at 31st March 2005. The investment performance of the fund for the year was good but the benefit of this was largely offset by changes in the discount rate and the inflation assumption used in valuing liabilities.
Worldwide, including provisions for the group's post-retirement healthcare schemes and pension related deferred tax assets and liabilities, the group had a net deficit of £1.1 million on retirement benefits net assets compared with a net surplus of £3.5 million at 31st March 2004.
International Financial Reporting Standards (IFRS)
For the financial year ending 31st March 2006 we will be reporting our results under International Financial Reporting Standards (IFRS). We have issued a separate announcement today setting out how the group's income statement, balance sheet and segmental results for the financial year to 31st March 2005 would look under the new standards.
Outlook
The outlook for the next few years is very encouraging. We expect the group to achieve good top line growth from the introduction of new products and also generate cash.
The group's profits were higher in the first half of 2004/05 than in the second half, partly as a result of exchange translation. In 2005/06 we expect this trend to be reversed, with most of the growth coming in the second half of the year.
The much publicised problems in the US car industry are likely to have some impact on Johnson Matthey's results in the first half of 2005/06. We expect car production to be down in the US in our first half which will reduce demand for autocatalysts in that region. However, both Europe and Asia are now bigger car producing regions than the US and Johnson Matthey's businesses in those regions are continuing to see good demand which should more than offset the shortfall in the US. In the first half of 2005/06 we expect profits in our Pharmaceutical Materials Division will be down on the equivalent period in 2004/05 when we were still benefiting from the carboplatin patent, which expired in October 2004.
Despite these factors the underlying growth trend is favourable. HDD legislation in Europe will begin to have an impact in October 2005 and we expect to see demand for aftertreatment devices from original equipment manufacturers start to grow in the second half of the year. We also expect sales of catalysed soot filters for light duty diesel vehicles to grow during the year. Pharmaceutical Materials should benefit from new product launches in early 2006.
Earnings per share will also benefit from the share buy-backs we have undertaken using the proceeds generated by our programme to improve the returns on underperforming assets. We expect to purchase an additional £25 million of shares in the first half of 2005/06. We have completed our review of underperforming assets and do not expect any further exceptional rationalisation costs in 2005/06.
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for the year ended 31st March 2005 |
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