Environmental Technologies


 

 

Half Year to 30th September

 

%
change

 

%
at constant
rates

 

 

2010

 

2009

   

 

 

£ million

 

£ million

   

Revenue

 

1,261

 

919

 

+37

 

+34

Sales excl. precious metals

 

724

 

564

 

+29

 

+26

Underlying operating profit

 

76.6

 

54.5

 

+41

 

+37

Return on sales (ex pms)

 

10.6%

 

9.7%

 

 

 

 

Environmental Technologies Division, which comprises our Emission Control Technologies (ECT), Process Technologies and Fuel Cells businesses, performed well in the first half benefiting from continued recovery in automotive markets and a good performance from Process Technologies. The division’s revenue was up 37% to £1,261 million. Its sales were 29% ahead at £724 million and underlying operating profit was 41% up at £76.6 million.

Emission Control Technologies’ sales grew by 29% to £567 million. This reflects good volume growth in both our light duty and heavy duty diesel (HDD) catalyst businesses worldwide. Despite the ramp up of production at our new facilities in Smithfield, USA and Macedonia, ECT’s return on sales saw continued improvement in the first half.

In the six months to 30th September 2010, global light duty vehicle sales were 8.9% higher than those in the first half of last year. Vehicle sales in North America were 7.4% ahead. In Europe, sovereign debt issues undoubtedly had an effect on consumer confidence in many of its vehicle markets. However, with fleet buyers returning to the market and an increase in the proportion of larger vehicles being purchased, vehicle sales in Europe were only 3.2% down on the first half of 2009/10. Sales of diesel powered cars grew more rapidly than those of petrol vehicles and represented 52% of Western European light duty vehicle sales in the first half. This reversed the trend seen in 2009/10 where government scrappage schemes encouraged the sale of smaller engined vehicles, where the economic benefits of diesel are less attractive. Light duty vehicle sales in Asia during the period were 19% up on the first half of last year with continued strong growth in China and India, up 18% and 33% respectively, and a good recovery in Japan, where sales were 17% ahead of the first half of last year.

Global light duty vehicle production was 20.6% up in our first half, with all regions strongly ahead of the same period last year. Global vehicle production in the first half was ahead of global sales as there was a modest element of restocking as economies emerged from recession. In North America, production was 46.3% up and in Europe it was 10.5% ahead, partly assisted by strong exports of premium vehicles to Asia, particularly China. Production in Asia was 22.1% up on the first half of last year with continued strong growth in China and India, up 19% and 33% respectively. Production was also well ahead of the first half of last year in Japan and Korea, both 20% up, benefiting from recovery of demand in their key export markets in North America and Europe.

Estimated Light Duty Vehicle Sales and Production

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Half Year to 30th September

 

 

 

 

 

 

2010

 

2009

 

Change

 

 

 

 

millions

 

millions

 

 

Source: IHS Global Insight

North America

 

Sales

 

7.3

 

6.8

 

+7.4%

 

 

Production

 

6.0

 

4.1

 

+46.3%

 

 

 

 

 

 

 

 

 

Europe

 

Sales

 

9.1

 

9.4

 

-3.2%

 

 

Production

 

9.5

 

8.6

 

+10.5%

 

 

 

 

 

 

 

 

 

Asia

 

Sales

 

14.4

 

12.1

 

+19.0%

 

 

Production

 

17.7

 

14.5

 

+22.1%

 

 

 

 

 

 

 

 

 

Global

 

Sales

 

35.5

 

32.6

 

+8.9%

 

 

Production

 

36.3

 

30.1

 

+20.6%

Sales in our light duty emission control catalyst business were up 22% in the first half at £419 million, benefiting from good growth in vehicle production during the period, and in line with sales in the second half of last year. These represented 74% of ECT’s sales. Sales in Europe of £256 million, some 61% of light duty catalyst sales, were up 12%, ahead of growth in vehicle production as sales of filters grew disproportionately reflecting increased fitment and diesel taking a higher share of total vehicles produced. Sales in North America were up by 41% at £84 million, slightly lower than growth in vehicle production in the region due to a change in our customer mix. Sales in Asia were up 45% at £79 million as our sales throughout the region continued to grow strongly and we improved our market share.

On 30th September 2010, our new, highly efficient emission control catalyst manufacturing facility in Skopje, Macedonia manufactured its millionth catalyst, having commenced shipments less than a year earlier. We are making good progress with ramping up production at this new facility and it is currently operating at close to 50% of its initial design capacity.

Quotas imposed by the Chinese Government on exports of rare earth materials in recent months have resulted in significant increases in their prices as China has been the dominant producer since the 1990s. Certain rare earth oxides are used in three way gasoline catalysts, chiefly for oxygen storage. While significant amounts of these materials are used by the autocatalyst industry, their use is comparatively low compared with other industrial applications of rare earths. We are having no difficulty in obtaining supplies of these materials but there has been some impact on our costs. With further restrictions on Chinese exports expected next year, prices are likely to continue to rise. We are mitigating the situation by working on thrifting and substitution of these materials in our latest products.

Our HDD catalyst business also had a good first half compared with the same period in 2009/10 when the business was severely impacted by recession. Sales of HDD vehicles are historically more volatile than those of light duty vehicles as haulage and construction companies respond more rapidly to changes in the economic environment and adjust levels of investment accordingly. Our unit sales of HDD catalysts in the first half were almost double those in the same period last year. Growth was particularly strong in North America where the much tighter US 2010 HDD emission standards came into force at the beginning of this year requiring the use of more catalysts per vehicle. Sales for our HDD catalyst business grew by 72% in the first half to £128 million, of which £41 million was in Europe and £83 million was in North America. In the first half of last year, our HDD business was loss making but in the first half of this year it generated a modest profit benefiting from the expected operational leverage as its markets began to recover.

Estimated HDD Truck Sales and Production

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Half Year to 30th September

 

 

 

 

 

 

2010

 

2009

 

Change

 

 

 

 

thousands

 

thousands

 

 

Source: JD Power

North America

 

Sales

 

137.6

 

117.2

 

+17.4%

 

 

Production

 

132.4

 

105.9

 

+25.0%

 

 

 

 

 

 

 

 

 

EU

 

Sales

 

110.5

 

104.9

 

+5.3%

 

 

Production

 

151.1

 

89.6

 

+68.6%

Currently we maintain a greater than 65% share of the HDD catalyst market and are in a strong position to benefit from continued recovery in HDD vehicle production and sales. The market for HDD catalysts is expected to show substantial growth over the next decade driven by tightening legislation in the developed markets of North America, Europe and Japan, the spread of legislation to developing markets, such as China, India and Brazil, and legislation covering non-road vehicles in Europe and North America which starts to be phased in from next year. It is still our expectation that the market for HDD catalysts will grow from around US $600 million today to about US $2.5 billion in sales excluding the value of precious metals by the end of our 2014/15 financial year.

Our Stationary Emissions Control (SEC) business, which manufactures catalysts and systems for reducing emissions in a wide range of applications including power generation, industrial processes and marine applications, had a difficult first half. It continues to be impacted by the deferral of major projects, particularly in the US and Europe, and by price competition. As a result the business made a small operating loss in the period. Its Powerplants business, which manufactures catalysts used to reduce emissions of oxides of nitrogen (NOx) from power stations, commissioned and opened its new manufacturing facility in Shanghai during the first half and has shipped its first orders of catalysts to coal fired power stations in China.

Process Technologies’ sales were 25% ahead of those in the first half of the last financial year at £153 million. The first half has seen continued improvement in the business’ major markets, some of which were impacted in the first half of last year by delays in projects due to the recession.

The Ammonia, Methanol, Oil and Gas (AMOG) business has had a good first half with sales 28% up on prior year at £86 million. It has seen particularly good demand for its methanol catalysts, especially in China where a number of new methanol plants using technology licensed by Davy Process Technology are coming on stream. One of these is the Shenhua Baotou methanol plant near Baotou City, Inner Mongolia which recently started production. This is currently the largest methanol plant in the world and uses coal feed gas. Demand for ammonia catalysts has also been strong, particularly in the Middle East where there has been continued expansion of ammonia production capacity to meet demand for fertiliser manufacturing. Sales of catalysts to generate hydrogen, primarily used in oil refineries to remove sulphur and to improve the quality of gasoline and diesel, were also ahead of those in the first half of last year as demand for transportation fuels and other refinery products began to recover from the recession.

The first half also saw the first commercial sales of Apico, our new patented methanol synthesis catalyst, which delivers a number of substantial performance benefits to customers. These included sales to a world scale methanol production plant in the Middle East.

Davy Process Technology, which develops and licenses chemical processes, had a strong first half with good licensing income, particularly from the substantial flow of projects won in China over the last few years. During the first six months of 2010/11 we have agreed two new licensing contracts in China, a further substitute natural gas (SNG) plant and a speciality chemicals plant for Sinopec Yizheng Fibres. A third licence was agreed for a natural detergent alcohols (NDA) plant in Indonesia.

During the first half we announced that, following consultation with employees on the future of our Vertec business which has been loss making for several years, subject to regulatory clearance we had agreed to sell the business’ order book to Dorf Ketal Chemicals AG, a subsidiary of Dorf Ketal Chemicals (India) Pvt Limited for £4.6 million. As a consequence, our Haverton manufacturing site would close on 31st March 2011. On 19th November the Office of Fair Trading announced that it proposed to refer the transaction to the UK Competition Commission for further review. As a result we have terminated our agreement with Dorf Ketal and will now begin a structured closure of the Haverton site, which should be completed by the end of the financial year. The closure of the site gives rise to a loss of £15.8 million.

At the beginning of October we announced that we had agreed to acquire Intercat, Inc. and its subsidiaries from its private stockholders for approximately £34 million in cash plus acquired debt of approximately £20 million. Intercat is a leading supplier of fluid catalytic cracking (FCC) additives and addition systems, specialising in the development, manufacture, sale and technical support of both additives and addition systems for the refinery industry. This acquisition will strengthen Johnson Matthey's position in the refinery catalysts sector, which continues to grow strongly driven by increasing demand for transportation fuels, the technical requirements resulting from the use of dirtier feedstocks and tightening environmental legislation. The acquisition of Intercat was completed on 1st November.

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