Report of the Directors
Business Review

Financial Review of Operations
Precious Metal Products

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Performance in 2012/13

Precious Metal Products Division had a difficult year with revenue down 14% at £8.5 billion, sales 6% lower at £548 million and underlying operating profit 27% below last year at £147.1 million. Whilst sales in the division’s Manufacturing businesses were only slightly down, its Services businesses were adversely impacted by the effect of lower average precious metal prices, lower volumes across its activities and by previously reported operational issues in the first half in the gold and silver refining business.

Services Businesses

Sales in the division’s Services businesses, which represent 31% of PMPD’s sales, fell by 15% to £168 million. These businesses have a high level of fixed costs and a significant proportion of their sales is influenced by precious metal prices. As a consequence of both of these factors, operating profit was substantially down on prior year.

Platinum Marketing and Distribution

Our Platinum Marketing and Distribution business had a poor year with sales of £58 million (2011/12 £80 million). Operating profit reduced sharply. Its performance was significantly impacted by lower average precious metal prices, with average platinum and palladium prices at $1,560/oz and $659/oz respectively, both 7% lower than in 2011/12. Lower production volumes at Anglo American Platinum Limited (Anglo Platinum) also reduced our sales and profit from our distribution activities was down due to a continued lack of price volatility throughout the year.

Johnson Matthey has, for many years, had contracts with Anglo Platinum relating to the supply, market research and market development of the pgms and the existing contracts will expire on 31st December 2013.

On 15th February 2013 we announced an extension to our metal supply agreement with Anglo Platinum and a separate contract to provide it with pgm market research services. However, unlike the previous arrangements, there will be no market development agreement between the two parties. These new arrangements will take effect from 1st January 2014. In contrast to our existing contracts, where income was related both to Anglo Platinum’s production volumes and pgm prices, the new metal supply agreement will attract no discounts and we will be paid a fixed fee for market research. The change in our contracts with Anglo Platinum will affect earnings in the fourth quarter of 2013/14 onwards and based upon sales in 2012/13, the full year impact on the group will be a loss of commission income of approximately £35 million. Any consequential restructuring to Precious Metal Products Division will not occur until the end of 2013 at the earliest and the likely cost savings associated with any restructuring are expected to be relatively modest.

Refining

The performance of our Refining businesses this year was poor, with sales down 7% at £110 million.

Sales in the Pgm Refining and Recycling business were 2% down on 2011/12 and volumes were lower across all types of refining feed. Operating profit was ahead as a result of operational improvements. The slowdown in demand experienced in the latter part of 2011/12 continued in the first half of 2012/13. However, volumes began to recover in the second half of the year and have continued to improve into 2013/14.

In particular, intakes of end of life autocatalyst scrap, a key part of the business which accounted for around 35% of its refining volumes, increased in the second half of the year as collector networks and part processors, encouraged by more favourable pgm prices, began to release material into the refining circuit. Sales from our mining customers for primary refining services were also down, due to both the lower metal prices and the well publicised supply issues in South Africa.

Our Gold and Silver Refining business had a very difficult year with sales down 13%. As we have previously reported, we had some operational issues at our Salt Lake City refinery in the first half of the year which, after mitigating actions, had an adverse impact on our results of some £10 million. Action has been taken to address the root causes of these issues and to improve the operational efficiency of the refinery. As a result of these additional costs, together with lower volumes and slightly lower average metal prices, the business generated a small operating loss in the year. A stagnant gold price and lower silver prices impacted demand for refining services and bullion products at both our US and Canadian refineries although intakes of primary material did increase towards the end of the year. The average price of gold was flat, down $7/oz at $1,654/oz in 2012/13, whilst silver was down 14% year on year at $31/oz. Intakes of primary materials were slightly down on prior year, however, volumes of secondary scrap, where our margins are higher, were significantly lower after several years of high activity and more attractive metal prices. Work is underway to increase silver refining capacity at our Brampton, Canada facility primarily to support demand from a new primary refining contract which is due to start in 2014/15.

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