7th Jun 2007 07:02
Johnson Matthey PLC07 June 2007 For Release at 7.00 am Thursday 7th June 2007 Preliminary Results for the year ended 31st March 2007 Strong performance and encouraging future prospects Summary Results Year to 31st March % 2007 2006 change Revenue £6,152m £4,574m +34Sales excluding precious metals £1,454m £1,159m +25Profit before tax £226.5m £191.5m +18Total earnings per share 96.9p 70.8p +37 Before one-off items (including discontinued operations' results):Profit before tax £242.6m £219.8m +10Earnings per share 81.2p 72.7p +12 Dividend per share 33.6p 30.1p +12 • Sales excluding precious metals up 25% at £1,454 million• Profit before tax and one-off items, including discontinued operations' results, up 10% to £242.6 million• Ceramics Division sold for £143.9 million on 28th February 2007, giving a profit on sale of £33.3 million after tax• Total earnings per share up 37% to 96.9 pence. Before one-off items (which comprise the profit on sale of Ceramics Division and impairment costs in 2005/06) earnings per share up 12% to 81.2 pence• Dividend up 12% to 33.6 pence in line with earnings growth Divisional Performance Operating Profit for the continuing businesses (before one-off items) Year to 31st March % 2007 at 2006 % change£m 2007 2006 change exchange rates Catalysts 148.8 134.2 +11 152.7 +14 Precious Metal Products 85.3 62.2 +37 87.1 +40 Pharmaceutical Materials 35.5 33.8 +5 36.2 +7 Corporate (17.2) (16.8) (17.2)Operating Profit 252.4 213.4 +18 258.8 +21 • Operating profit for the continuing businesses, beforeone-off items, up 18% to £252.4 million, despite adverse exchange translation of£6.4 million • Catalysts up 11%. Environmental Catalysts andTechnologies' (ECT's) sales were well ahead of last year with good growth inautocatalyst sales in Asia, increased sales of catalysed soot filters (CSFs) inEurope and the emergence of the new market for heavy duty diesel (HDD) catalystsin both Europe and North America. Process Catalysts and Technologies (PCT) alsoachieved good growth with strong sales of methanol catalysts and a goodcontribution from Davy Process Technology • Precious Metal Products up 37% benefiting from buoyanttrading conditions for platinum group metals, particularly in the second half ofthe year, and good growth in its manufacturing businesses • Pharmaceutical Materials up 5% with a recovery in its USoperations Business Prospects • ECT should generate good growth in sales and profits in2007/08 with a full year of HDD catalyst sales, continued growth in CSFs andfurther expansion in Asia. New plants in South Korea, Russia and the UK willcommence supply during the year • Prospects for PCT are also very encouraging, driven by thehigh oil price and the need to make more efficient use of hydrocarbonfeedstocks. In 2007/08 we will be investing in additional capacity inClitheroe, UK to manufacture the latest generation of synthesis gas catalysts • Outlook for platinum group metals demand remains good.However, following the very strong performance in 2006/07 we expect PreciousMetal Products Division to achieve more modest growth in 2007/08 • Pharmaceutical Materials is expected to perform well in2007/08 with steady growth across the division • Following the sale of Ceramics Division the group'sgearing (debt / equity) has fallen to 34% at 31st March 2007. In 2007/08 weintend to continue to buy back shares and look for bolt-on acquisitions whichwill improve balance sheet efficiency Commenting on the results, Neil Carson, Chief Executive of Johnson Matthey said: "Johnson Matthey performed very well last year. Sales excluding precious metalsincreased by 25% and underlying earnings per share were up 12%. We continue toinvest in R&D and in new plants around the world to meet the increasing demandfor our high technology products. Prospects for all our businesses remain veryencouraging, particularly in catalysts where global concerns about pollution andclimate change will continue to drive current and future sales of ourautocatalyst and process catalyst products." Enquiries: Ian Godwin Director, IR and Corporate Communications 020 7269 8410John Sheldrick Group Finance Director 020 7269 8408Howard Lee The HeadLand Consultancy 020 7367 5225Laura Hickman The HeadLand Consultancy 020 7367 5227 www.matthey.com Report to Shareholders Introduction Johnson Matthey achieved very good results in 2006/07 with sales, profit beforetax and earnings per share all well ahead of last year. Catalysts Division andPrecious Metal Products Division both achieved double digit growth in sales andoperating profit despite adverse exchange translation. Sales were boosted bythe significant rise in the prices of platinum group metals. Demand forcatalysts was also very strong with expanding sales of catalysed soot filtersfor light duty diesel vehicles, the emergence of a new market for heavy dutydiesel catalysts to original equipment manufacturers and increased sales ofprocess catalysts. We sold our Ceramics Division on 28th February 2007 for £143.9 million giving aprofit on sale of £33.3 million after tax. The sale of Ceramics Divisioncompletes the process, announced in November 2003, of disposing of parts of theformer Colours & Coatings Division and focusing the group on its coreactivities. Under International Financial Reporting Standards (IFRS) theresults of Ceramics Division are shown in discontinued operations on a post taxbasis. Profit before tax in the income statement comprises the results for thecontinuing businesses only. The results for 2005/06 shown in the incomestatement have been restated accordingly. Review of Results Revenue increased by 34% to £6,152 million. Precious metal prices grew stronglyover the year which boosted sales in both Catalysts Division and Precious MetalProducts Division. Sales excluding the value of precious metals rose by 25%reflecting good underlying volume growth and increased non precious metalmaterial costs, some of which are a pass through for Johnson Matthey. Operating profit before one-off items increased by 18% to £252.4 million,despite adverse exchange translation of £6.4 million. There were no one-offitems in operating profit in 2006/07 whereas in 2005/06 a £6.0 millionimpairment charge was included. After one-off items growth in operating profitwas 22%. The group's interest charge rose by £11.1 million as a result of higher averageborrowings and higher interest rates. Profit before tax and one-off items forthe continuing businesses rose by 15% to £226.5 million. After one-off itemsthe rise was 18%. If the operating results for discontinued operations areincluded in the total, profit before tax was £242.6 million which was 10% up onlast year's reported profit before tax and one-off items of £219.8 million. Total earnings per share, including the profit on disposal of Ceramics, rose by37% to 96.9 pence. Earnings per share before one-off items (profit on sale ofCeramics Division and last year's impairment charge) were 12% up at 81.2 pence. Dividend The board is recommending to shareholders a final dividend of 23.7 pence, makinga total dividend for the year of 33.6 pence, an increase of 12%, which is inline with the growth in earnings per share before one-off items. Operations Catalysts Division's sales rose by 48% to £2,193 million, partly as a result ofsignificantly higher prices for platinum, palladium and rhodium. Excluding thevalue of precious metals, sales rose by 32% to £1,036 million. This increasewas driven by good volume growth and the impact of higher material costs, suchas the costs of substrates for catalysed soot filters, which are a pass throughfor Johnson Matthey. The division's operating profit increased by 11% to £148.8 million, with bothEnvironmental Catalysts and Technologies and Process Catalysts and Technologiesperforming well. The results were adversely affected by exchange translation.At last year's rates sales excluding precious metals would have increased by 35%and operating profit would be 14% up. Environmental Catalysts and Technologies (ECT) was well ahead of last year withgood growth in Europe, particularly for diesel oxidation catalysts and catalysedsoot filters (CSFs), increasing autocatalyst sales in Asia and a welcome upturnin our North American business with the introduction of products to meet newheavy duty diesel (HDD) legislation. In Johnson Matthey's financial year to 31st March 2007 global light duty vehiclesales increased by 2.8% to 66.3 million. Car production rose by 3.1% with asmall overall increase in inventories. Most of the growth in production againcame in Asia, which was 9.5% up on last year. Within Asia, sales grew 21% inChina and 23% in India. Total European sales were 3.4% up, with all the growthcoming in Eastern Europe (16%). Sales in Russia, where Johnson Matthey isconstructing a new plant, increased 30% during the year. In North America lightvehicle sales were 2.0% down and domestic production fell by 6.3% as importsgained market share. Estimated Light Vehicle Sales and Production Year to 31st March 2007 2006 change millions millions % North America Sales 19.3 19.7 -2.0% Production 14.9 15.9 -6.3% Total Europe Sales 21.3 20.6 +3.4% Production 21.1 20.7 +1.9% Asia Sales 16.4 15.2 +7.9% Production 25.4 23.2 +9.5% Global Sales 66.3 64.5 +2.8% Production 66.9 64.9 +3.1% Source: Global Insight We continue to see increasing demand from many of the leading car companies inEurope for CSFs to remove particulates from diesel exhaust emissions. Althoughlegislation requiring such emission control devices does not come into fullforce in Europe until 2010, most car manufacturers are starting to fit thesedevices much earlier due to public awareness of the environmental and healthbenefits that they provide. In 2006/07 we completed work on a new factory inRoyston, UK to manufacture CSFs and during 2007/08 we will complete anadditional facility which will double our capacity. In addition, we have addedCSF capacity at our South African facility, which also supplies the Europeanmarket. During the year we commenced construction of a new autocatalyst manufacturingfacility in the Russian Federation. This plant will produce catalysts to meetdemand from both local and global car manufacturers following the introductionof emissions legislation requiring autocatalyst fitment in Russia in the springof 2006. Our business in Asia continues to perform very well. Over the next decade weexpect that most of the growth in world car production will take place in theAsian region. In 2006/07 we have achieved strong volume growth in China andJapan and our operations in India and Malaysia also continued to perform well.During the year we again expanded our autocatalyst manufacturing facility inJapan in order to serve growing demand for our products from Japanese carcompanies. Further expansion is planned for the coming year. Our new plant in South Korea (our fifth in the Asian region) is nearingcompletion and will begin production during 2007/08. This new plant willmanufacture catalysts for both diesel and petrol powered vehicles and will carryout research and development activities to support the rapidly growing Koreanmotor industry. The market for HDD catalysts for new vehicles grew rapidly in the second half ofthe year. New emission control standards for HDD vehicles came into force inOctober 2006 for all new vehicles sold in Europe. In the United States similarlegislation came into force at the beginning of January 2007. Johnson Mattheyhas a leading market share of both these new markets. A major expansionprogramme was completed in the year at our facility near Philadelphia, USA toprovide capacity to meet demand for catalysts for both heavy duty dieselvehicles and diesel powered pick ups, which are also affected by thislegislation. Johnson Matthey's sales, excluding precious metals, of HDD catalysts to originalequipment manufacturers (OEMs) increased to £46 million in the second half of2006/07 from £7 million in the first half. Sales in the US, as expected,started slowly as truck sales were impacted by pre-buying of trucks ahead of thelegislation. In 2007/08 we expect to see further rapid growth in our sales ofHDD catalysts as the legislation in Europe and the US will apply for the wholeof the year and as US truck sales return to more normal levels over the courseof the year. Our HDD business in Asia continues to make good progress, gaining share of theOEM market in Japan and achieving good sales into the large retrofit programmeunderway in Seoul, South Korea. Both China and India are major manufacturers oftrucks and similar emission control legislation to Europe and the US is expectedto be introduced in those two countries by 2010. On road HDD emissions legislation will undoubtedly continue to tighten beyond2010. In addition there is also legislation in place in the European Union andthe United States that will take effect from 2011 requiring off road or 'nonroad' vehicles such as construction, mining and agricultural equipment to meetthe same tight emissions standards. Although average engine sizes are smallerthan those for on road HDD vehicles, this is a significant additional newopportunity for Johnson Matthey and will have similar technology requirements. Process Catalysts and Technologies (PCT) also achieved good growth in sales andprofits in 2006/07. The Ammonia, Methanol, Oil and Gas (AMOG) business was wellahead of last year with continued strong demand for catalysts and purificationmaterials for industries where hydrogen or synthesis gas are key intermediates.Demand from methanol producers was particularly good in 2006/07. Davy Process Technology (DPT), which we acquired in February 2006, had anexcellent year concluding several major contracts. The acquisition of DPT hasprovided Johnson Matthey with additional opportunities to grow sales ofcatalysts into new technology developments. DPT develops and licenses chemicalprocess technologies and is benefiting from growth in China as well as highenergy prices which have increased demand for new chemical processes. Tracerco,PCT's oil services business, also achieved good growth in the year. In April2006, Tracerco acquired the process diagnostics business of Quest TruTec whichhas expanded Tracerco's market coverage, particularly in the USA. PCT's fine chemicals and related catalysts businesses performed well in theyear. Demand for precious metal chemicals was strong and sales of homogeneousand Sponge NickelTM catalysts showed good growth. Research Chemicals benefitedfrom a good contribution from its new joint venture in China and sales in Europewere strong stimulated by the launch of the new catalogue. Our Fuel Cells business achieved strong growth in sales, from a small base, withsignificantly increased orders for membrane electrode assemblies for directmethanol fuel cells (DMFCs). Most of these sales were for portable fuel cellswhich are sold to European consumers. Other sectors where fuel cells haveapplications, such as automotive and local power generation, have benefited fromgrowing interest in low carbon and low emission technologies. The annual costof our Fuel Cells business fell by £0.8 million to £7.3 million. Precious Metal Products Division's sales increased by 29% to £3,824 million,boosted by higher prices for platinum group metals (pgms). In sterling termsthe average price of platinum rose by 18%. Prices of the minor metals (rhodium,iridium and ruthenium) increased dramatically. Operating profit (before lastyear's impairment costs) rose by 37% to £85.3 million. At last year's exchangerates operating profit would have been 40% higher. Both the marketing anddistribution business and the manufacturing businesses achieved strong growth inthe year. The price of platinum was extremely volatile in 2006/07. With the physicalmarket tightly balanced, speculative interest and the volatility in othercommodities such as oil had a significant impact on the price. Platinum peakedat a new all time high of $1,390/oz in November and was subject to a broadlyupward trend throughout the year. The average price for the year was $1,185/oz,a 26% increase on 2005/06 (18% in sterling terms). Total consumption of platinum increased once more in 2006/07, a pattern unbrokensince 1992. Demand for platinum in autocatalysts increased by 11% with much ofthe growth generated in Europe, where diesel vehicles accounted for more than50% of light duty vehicle registrations. The fitting of catalysed soot filtersto diesel vehicles and the emissions control equipment fitted to heavy dutydiesel vehicles made a substantial contribution to platinum demand. However,demand from jewellery manufacturers fell again as the rising price of platinumencouraged de-stocking and recycling of old jewellery. Supplies of platinum increased in 2006/07, with new mines coming on stream andthe largest producer Anglo Platinum having a good year after unexpected problemsin 2005. Overall, the platinum market was close to balance in 2006/07, which,following several years of deficits, ensured the price remained firm. The palladium price reached its peak for 2006/07 in May, touching $398/oz.Supply and demand fundamentals continued to be largely incidental as hedge fundsand institutional investors extended already substantial long positions in themarket. With their significant and consistent support, the average price forthe year was $336/oz, an increase of 47% on 2005/06. The price of rhodium rose sharply in 2006/07, touching a peak of $6,275/oz inMay. The average price doubled for a second successive year to reach $5,166/oz.Strong demand from the automotive and glass fabrication industries coupledwith speculative interest left little metal to be offered in the spot market, inspite of modestly increased supply. This sustained pressure on a market whichwas already tight and illiquid inevitably caused the price to rise sharply. The past year has been notable for the dramatic increase in the price ofruthenium, which rose from $160/oz to reach $870/oz before easing to $700/oz bythe end of our financial year. The price increase was attributable to a surgein demand from the electronics industry for the coating of a new generation ofhard disk memory storage. Profits from the division's marketing and distribution operations weresubstantially higher than in 2005/06, benefiting from good growth in demand andhigher pgm prices. The results in the second half of the year also benefitedfrom some trading profits on the minor metals. Although we do not expect thesetrading profits to be repeated at the same level in 2007/08, market conditionsremain favourable and we would expect the business to achieve further growth inprofits in the current year if market conditions remain the same. The division's metal fabrication businesses achieved good growth in 2006/07.The market for catalysts used in the abatement of nitrous oxide, a powerfulgreenhouse gas produced as a by product in the manufacture of nitric acid, isstarting to develop. We have excellent products in this area and the contractscurrently being finalised will generate a new revenue stream in the comingyears. Our medical products business located at three sites in California hadanother good year with strong growth in nitinol products and components for thecardiovascular sector. Pgm Refining maintained its good progress, benefiting from higher pgm priceswhich stimulated the flow of secondary materials for refining, especiallyautocatalyst scrap. Colour Technologies achieved further good growth in operating profit, with ourproducts for automotive glass proving very successful. In this sector wecontinue to invest heavily in product development to meet the increasinglystringent requirements of our customers for improved enamels and conductiveinks. The division's gold and silver business also enjoyed a good year, boosted byvery strong metal prices which stimulated good flows of secondary materials.Our North American operations at Salt Lake City and Toronto were successful ingrowing operating profit whilst reducing the amount of metal tied up inprocesses. Pharmaceutical Materials Division's sales rose by 1% to £135 million. Operatingprofit was up 5% at £35.5 million. The division's US businesses showed a goodrecovery in the year although their reported results were adversely affected byexchange translation as a result of the weaker US dollar. At last year'sexchange rates the division's sales would have been 3% up and operating profit7% higher than in 2005/06. The recovery in the division's US operations reflected increased demand for bothactive pharmaceutical ingredients (APIs) and contract research. The businessbenefited from the purchase by Barr Pharmaceuticals, Inc. of ADDERALL(R), animmediate release product used in the treatment of Attention DeficitHyperactivity Disorder, from Shire plc. Johnson Matthey has an exclusiveagreement to supply the API to Barr for this product as well as the API used inBarr's existing generic version. Sales of APIs for generic methylphenidate andseveral opiate products also showed good growth in the year. A New Drug Application (NDA) was filed for Satraplatin, a potential new platinumanticancer drug which was discovered by Johnson Matthey, licensed to SpectrumPharmaceuticals, Inc. and sub-licensed for development and commercialisation toGPC Biotech. If this drug is successful Johnson Matthey will receive bothroyalty and manufacturing income from the product. Sales at Macfarlan Smith, based in Edinburgh, were down on last year. However,operating profit was slightly ahead. The fall in sales resulted from an overallreduction in selling prices for key bulk opiate products which was offset bylower prices for the raw materials used to manufacture these products. Sales ofhigher margin specialist opiates, particularly oxycodone and buprenorphine,showed good growth offsetting a decline in some non opiate fine chemicalproducts. The longer term outlook for our Pharmaceutical Materials business isencouraging. We expect to see further steady growth in sales of APIs forgeneric controlled drugs, particularly those used in the treatment of pain whichis a growing market, and in platinum based anticancer drugs. There is also theopportunity for additional growth from the launch of new products, such asSatraplatin if it should be approved, and the agreed launch in April 2009 ofBarr's generic version of ADDERALL XR(R). Finance Exchange Rates The main impact of exchange rate movements on the group's results comes from thetranslation of foreign subsidiaries' profits into sterling. A quarter of thegroup's profits are made in North America, mainly in the USA. The average ratefor the US dollar was $1.896/£ compared with $1.785/£ for 2005/06. Each onecent change in the average rate for the dollar has approximately a £0.4 millioneffect on operating profit in a full year. The fall of over 11 cents in thedollar in 2006/07 reduced reported group operating profit by £4.6 million. Most major south east Asian currencies were weaker, adding a further £1.5million to adverse exchange translation. The South African rand also weakenedsubstantially, from R11.4/£ to R13.4/£. However, the catalysts manufactured byour South African business are ultimately for export and the benefit of a weakerrand on margins more than offsets the translational effect. Overall, excludingthe rand, exchange translation reduced group profits by £6.4 million comparedwith 2005/06. Interest The group's net finance costs rose by £11.1 million to £26.8 million. Averageborrowings were significantly higher than last year as a result of the majorinvestment in both capital expenditure and working capital to support the rapidgrowth in Catalysts Division, and the acquisition of Davy Process Technology inFebruary 2006. However, with the sale of Ceramics Division at the end ofFebruary 2007, net debt fell significantly in March to end the year at £364.8million. Interest rates also rose, particularly for floating rate US dollars,which on average were 1.3% up on 2005/06. Taxation The group's tax charge for the continuing businesses was £64.7 million, anincrease of £10.0 million on last year reflecting the growth in profit beforetax. The average tax rate for the continuing businesses was 28.6%. The £33.3million profit on disposal of Ceramics Division was largely tax free as a resultof the substantial shareholdings exemption for tax on UK disposals. Tax paid was £81.4 million which was much higher than in 2005/06. Some of thedifference related to timing with payments falling into the first quarter of2006/07 rather than the final quarter of the previous year. In addition, in2005/06 we reached agreement with HM Revenue & Customs in the UK on severalyears' tax assessments which resulted in a repayment of tax and benefited thatyear's first half cash flow. Cash Flow Johnson Matthey generated a net cash inflow of £13.8 million in 2006/07. Netdebt disposed of with the sale of Ceramics Division amounted to £19.1 million.After taking into account the impact of exchange translation on foreign currencyborrowings the group's net debt fell by £47.2 million to £364.8 million. The proceeds of sale of Ceramics Division amounted to £146.0 million (cashreceived plus net debt disposed of on sale). The group spent £8.6 million onacquisitions in the year and a net £50.4 million on share buy-backs. Excludingthese items the group had a free cash outflow of £54.3 million. This outflow was the result of major investments in the year on capitalexpenditure and working capital to support the future growth of CatalystsDivision, particularly ECT. In addition, working capital grew as a result ofthe rise in precious metal prices which affected both inventories andreceivables. In total, the cash outflow on working capital was £114.4 million,although the ratio of working capital to revenue fell. Capital expenditure for the year was £119.8 million which was 1.5 timesdepreciation. Most of the investment was focused on Catalysts Division wherecapex was 2.0 times depreciation, with the other divisions spending at levelsclose to or below depreciation. The cash outflow on capital expenditure in theyear was £121.5 million (net of asset sales) with a reduction in paymentsaccrued. Environmental Catalysts and Technologies spent £63.9 million in 2006/07 withmajor investments in new capacity. We have completed the new diesel productsfacility in North America and are building a new CSF manufacturing facility inRoyston in the UK. Additional manufacturing capacity has been installed in ourproduction facilities in Japan and South Africa and we are building newfactories in Russia and South Korea which should be completed and commissionedin 2007/08. In Process Catalysts and Technologies we have added capacity inAMOG and in 2007/08 we will be investing in additional capacity in Clitheroe, UKto manufacture the latest generation of synthesis gas catalysts. Pensions The surplus on the group's UK pension schemes fell by £23.2 million to £45.5million on an IFRS basis at 31st March 2007. During the year the trusteescompleted the triennial revaluation of the fund incorporating the lateststatistics on life expectancy and demographic experience. The revaluationshowed the fund was still in surplus as of 31st March 2006 but at a lower levelthan previously estimated. Market conditions improved somewhat in 2006/07 witha rise in the discount rate and a good return on equities although inflationassumptions have also risen. The cost of providing future pensions has gone upand both employee and employer contributions have been increased to helpmaintain a satisfactory funding position. Worldwide, including provisions for the group's post-retirement healthcareschemes, the group had a net surplus of £0.9 million on employee benefitobligations at 31st March 2007 compared with £18.8 million at 31st March 2006. Capital Structure In 2006/07 we invested heavily in capital expenditure and working capital tosupport organic growth, particularly in ECT. We also purchased 3.6 millionshares into treasury at a total cost of £52.6 million. Proceeds of £2.2 millionwere received from option exercises to give a net outflow on share transactionsof £50.4 million. However, these outflows were more than offset by the proceedsfrom the sale of Ceramics Division of £146.0 million. Net debt at 31st March2007 was £364.8 million, a reduction of £47.2 million on 31st March 2006.Gearing (debt / equity) fell by 5.6% to 33.8%. In 2007/08 we will continue to invest in organic growth, with capitalexpenditure budgeted to be 1.5 times depreciation and further additionalinvestment in working capital. Despite this significant investment we expect tomaintain or improve the group's return on assets which rose by 0.4% to 17.4% in2006/07. We plan to continue to buy back shares in 2007/08 and we are lookingat a number of possible bolt-on acquisitions. Together these investments willincrease gearing and make more efficient use of the group's balance sheet. Divisional Structure From 1st April 2007 we have reorganised our divisional structure, creating a newEnvironmental Technologies Division which comprises ECT, the processtechnologies businesses within PCT and Fuel Cells. The remaining businesseswithin PCT, which serve the speciality chemicals and pharmaceutical markets,have been merged with Pharmaceutical Materials to form a new Fine Chemicals &Catalysts Division. Precious Metal Products Division is unchanged. This new structure is designed to give greater focus on technologies concernedwith protecting the environment such as pollution control, cleaner fuel, moreefficient use of hydrocarbons and the hydrogen economy. Our new EnvironmentalTechnologies Division, which combines our core skills in catalysts and processtechnology, is well positioned to serve these emerging markets. Johnson Matthey's Pharmaceutical Materials business is focused on themanufacture of fine chemicals, particularly APIs, sold to pharmaceuticalcompanies which fits well with the group's other fine chemicals and catalystsbusinesses which sell into the same or similar markets. Our new Fine Chemicals& Catalysts Division, which combines the group's fine chemicals and relatedcatalysts businesses, will enable us to take advantage of the marketing andtechnology synergies that exist between these businesses. The segmental results for 2006/07, restated for the new divisions, are shown innote 2 on page 23. Outlook The outlook for the group for the next few years continues to be veryencouraging. We expect to achieve further strong growth in sales excludingprecious metals, particularly in Environmental Technologies Division. In 2007/08 growth in underlying earnings per share will be approximately 4 to 5% lessthan the growth in profit before tax for the continuing businesses, because ofthe dilutive effect of the sale of Ceramics. However, looking forward to 2008/09 and beyond, growth in profit before tax and earnings will be stronger as aresult of the divestment. In 2007/08 we should benefit from a full year of sales of HDD catalysts to meetnew emission standards introduced in Europe in October 2006 and in North Americain January 2007. Although industry experts are predicting a 25% fall in trucksales in North America in 2007, all new trucks sold will need to meet theemissions legislation, which will provide the opportunity for significant newbusiness for Johnson Matthey. In addition, ECT should achieve significantgrowth in sales of CSFs for light duty diesel vehicles and grow its market shareof autocatalysts in Asia. Overall, we expect ECT to achieve double digit growthin both sales and operating profit in 2007/08. Our Process Technologies business is also experiencing strong demand,particularly for catalysts for synthesis gas and hydrogen production. Prospectsfor Process Technologies are encouraging, driven by the high oil price and theneed to make more efficient use of hydrocarbon feedstocks. Precious Metal Products Division enjoyed very strong growth in 2006/07,benefiting from buoyant trading conditions in platinum group metals and goodgrowth in its manufacturing businesses. In the second half of the year thedivision benefited from some trading profits on the minor pgms which we do notexpect to be repeated at the same level in 2007/08, but overall, if currentmarket conditions continue, we would still expect the division to achievefurther growth in 2007/08, particularly in the first half of the year. Our new Fine Chemicals & Catalysts Division is expected to achieve steady growthin 2007/08, with a further recovery in the US Pharmaceutical Materials &Services business and continued growth in catalysts and research chemicals.Most of the division's growth in 2007/08 is likely to come in the second half ofthe year. Overall, the group should perform well in 2007/08. Prospects for all ourbusinesses are good, particularly for Environmental Technologies where globalconcerns about pollution, climate change and making the most efficient use ofenergy resources will create significant opportunities for future growth. Consolidated Income Statementfor the year ended 31st March 2007 2007 2006 restated Notes £ million £ million Revenue 1 6,151.7 4,573.7Cost of materials sold (5,300.0) (3,842.3)Net revenues 851.7 731.4Other cost of sales (413.7) (358.7)Gross profit 438.0 372.7Distribution costs (81.8) (75.3)Administrative expenses (103.8) (84.0)Impairment costs - (6.0)Operating profit 1,3 252.4 207.4Finance costs (36.0) (31.5)Finance income 9.2 15.8Share of profit / (loss) of associates 0.9 (0.2)Profit before tax 226.5 191.5Income tax expense 4 (64.7) (54.7)Profit for the year from continuing operations 161.8 136.8Profit for the year from discontinued operations 5 43.7 14.5Profit for the year 205.5 151.3 Attributable to:Equity holders of the parent company 206.5 152.1Minority interests (1.0) (0.8) 205.5 151.3 pence penceEarnings per ordinary share attributable to the equity holders of the parentcompany Continuing operations Basic 6 76.5 64.2 Diluted 6 75.3 63.9 Total Basic 6 96.9 70.8 Diluted 6 95.4 70.5 Consolidated Balance Sheetas at 31st March 2007 2007 2006 restated Notes £ million £ million AssetsNon-current assetsProperty, plant and equipment 600.7 661.1Goodwill 399.2 403.1Other intangible assets 40.1 41.3Deferred income tax assets 8.9 4.4Investments and other receivables 10.0 10.4Post-employment benefits net assets 49.2 75.0Total non-current assets 1,108.1 1,195.3 Current assetsInventories 362.7 345.8Current income tax assets 7.0 3.6Trade and other receivables 527.3 478.5Cash and deposits 8 73.2 133.0Investments and other financial assets 3.4 3.3Other current assets 7.1 7.1Non-current assets classified as held for sale 0.4 -Total current assets 981.1 971.3Total assets 2,089.2 2,166.6 LiabilitiesCurrent liabilitiesTrade and other payables (416.0) (385.9)Current income tax liabilities (52.7) (66.0)Borrowings and finance leases 8 (27.5) (90.3)Other financial liabilities (2.0) (4.2)Provisions (7.7) (9.1)Total current liabilities (505.9) (555.5) Non-current liabilitiesBorrowings, finance leases and related swaps 8 (410.5) (454.7)Deferred income tax liabilities (36.5) (49.7)Employee benefits obligations (48.3) (56.2)Provisions (8.7) (5.2)Trade and other payables (1.2) (0.8)Total non-current liabilities (505.2) (566.6)Total liabilities (1,011.1) (1,122.1)Net assets 1,078.1 1,044.5 EquityShare capital 220.5 220.2Share premium account 146.3 144.4Shares held in employee share ownership trusts (61.9) (63.0)Other reserves (12.9) 28.5Retained earnings 783.7 708.0Total equity attributable to equity holders of the parent company 1,075.7 1,038.1Minority interests 2.4 6.4Total equity 10 1,078.1 1,044.5 Consolidated Cash Flow Statementfor the year ended 31st March 2007 2007 2006 restated Notes £ million £ million Cash flows from operating activitiesProfit before tax 226.5 191.5Adjustments for: Share of (profit) / loss in associates (0.9) 0.2 Discontinued operations 15.9 21.3 Depreciation, amortisation and profit on sale of non-current assets and 77.7 76.7 investments Share-based payments 6.9 3.2 Increase in inventories (82.5) (25.6) Increase in receivables (136.5) (78.7) Increase in payables 104.6 63.7 Increase / (decrease) in provisions 5.9 (18.1) Employee benefits obligations charge less contributions (9.1) (9.3) Changes in fair value of financial instruments 5.2 (12.4) Net finance costs 26.8 15.7Income tax paid (81.4) (15.9)Net cash inflow from operating activities 159.1 212.3 Cash flows from investing activitiesDividends received from associates 0.5 0.1Purchases of non-current assets and investments (125.0) (120.3)Proceeds from sale of non-current assets and investments 3.5 5.7Purchases of businesses and minority interests (8.6) (24.3)Net proceeds from sale of businesses and minority interests 127.1 -Net cash outflow from investing activities (2.5) (138.8) Cash flows from financing activitiesNet purchase of own shares (50.4) (25.9)(Repayment of) / proceeds from borrowings and finance leases (71.8) 82.3Dividends paid to equity holders of the parent company 7 (66.0) (60.4)Dividends paid to minority shareholders - (0.2)Interest paid (31.3) (30.6)Interest received 4.9 16.6Net cash outflow from financing activities (214.6) (18.2) (Decrease) / increase in cash and cash equivalents in the year (58.0) 55.3Exchange differences on cash and cash equivalents (7.1) 5.8Cash and cash equivalents at beginning of year 125.1 64.0Cash and cash equivalents at end of year 8 60.0 125.1 Reconciliation to net debt(Decrease) / increase in cash and cash equivalents in the year (58.0) 55.3Repayment of / (proceeds from) borrowings and finance leases 71.8 (82.3)Change in net debt resulting from cash flows 13.8 (27.0)Borrowings acquired with subsidiaries - (1.4)Borrowings disposed of with subsidiaries 19.1 -Exchange differences on net debt 14.3 (13.4)Movement in net debt in year 47.2 (41.8)Net debt at beginning of year (412.0) (370.2)Net debt at end of year 8 (364.8) (412.0) Consolidated Statement of Recognised Income and Expensefor the year ended 31st March 2007 2007 2006 Notes £ million £ million Currency translation differences on foreign currency net investments and related loans (67.3) 42.3Currency translation differences - transferred to profit on sale of discontinued 5 (3.8) -operationsFair value gain on available-for-sale investments transferred to profit on sale - (0.8)Cash flow hedges - gains / (losses) taken to equity 3.1 (3.6)Cash flow hedges - transferred to income statement in the year 1.2 (2.6)Fair value gains / (losses) on net investment hedges 23.3 (12.5)Fair value gains on net investment hedges - transferred to profit on sale ofdiscontinued operations 5 (2.0) -Actuarial (loss) / gain on post-employment benefits assets and liabilities (32.3) 19.6Tax on above items taken directly to or transferred from equity 13.5 (7.8)Net (expense) / income recognised directly in equity (64.3) 34.6Profit for the year 205.5 151.3Total recognised income and expense relating to the year 141.2 185.9IFRS transition adjustment for financial instruments - 2.7 141.2 188.6 Total recognised income and expense attributable to:Equity holders of the parent company 142.2 186.7Minority interests (1.0) (0.8) 141.2 185.9 IFRS transition adjustment for financial instruments attributable to:Equity holders of the parent company - 2.7 Notes on the Preliminary Accountsfor the year ended 31st March 2007 1 Segmental information by business segment The group sold its Ceramics Division during the year (note 5) and so its results are reported as discontinued operations. Precious Metal Pharmaceutical Catalysts Products Materials Eliminations Total £ million £ million £ million £ million £ million Year ended 31st March 2007 Sales to external customers 2,192.6 3,824.4 134.7 - 6,151.7 Inter-segment sales 21.9 1,162.6 0.3 (1,184.8) - Total revenue 2,214.5 4,987.0 135.0 (1,184.8) 6,151.7 External sales excluding precious metals 1,035.6 290.0 128.6 - 1,454.2 Segment result 148.8 85.3 35.5 - 269.6 Unallocated corporate expenses (17.2) Operating profit 252.4 Net finance costs (26.8) Share of profit of associates 0.9 0.9 Profit before tax 226.5 Income tax expense (64.7) Profit for the year from continuing operations 161.8 Profit for the year from discontinued operations 43.7 Profit for the year 205.5 Segment assets 1,308.1 298.4 324.2 (52.1) 1,878.6 Investments in associates - 4.8 - - 4.8 Cash and deposits 73.2 Current and deferred income tax assets 15.9 Post-employment benefits net assets 49.2 Unallocated corporate assets 67.5 Total assets 2,089.2 Segment liabilities 329.8 92.1 18.4 (52.1) 388.2 Borrowings, finance leases and related swaps 438.0 Current and deferred income tax liabilities 89.2 Employee benefits obligations 48.3 Unallocated corporate liabilities 47.4 Total liabilities 1,011.1 Segment capital expenditure 91.5 11.2 10.7 - 113.4 Capital expenditure on discontinued operations 4.5 Corporate capital expenditure 1.9 Total capital expenditure 119.8 Segment depreciation and amortisation 46.0 13.4 10.5 - 69.9 Depreciation on discontinued operations 5.5 Corporate depreciation 2.1 Total depreciation and amortisation 77.5 Significant non-cash expenses other than 1.5 1.3 - - 2.8 depreciation Notes on the Preliminary Accountsfor the year ended 31st March 2007 1 Segmental information by business segment (continued) Precious Metal Pharmaceutical Catalysts Products Materials Ceramics Eliminations Total £ million £ million £ million £ million £ million £ million Year ended 31st March 2006 (restated) Sales to external customers 1,477.4 2,962.4 133.9 - 4,573.7 Inter-segment sales 17.4 676.9 1.2 (695.5) - Total revenue 1,494.8 3,639.3 135.1 (695.5) 4,573.7 External sales excluding precious 786.4 245.4 127.2 - 1,159.0 metals Segment result before impairment costs 134.2 62.2 33.8 - 230.2 Impairment costs - (6.0) - - (6.0) Segment result 134.2 56.2 33.8 - 224.2 Unallocated corporate expenses (16.8) Operating profit 207.4 Net finance costs (15.7) Share of loss of associates (0.2) (0.2) Profit before tax 191.5 Income tax expense (54.7) Profit for the year from continuing operations 136.8 Profit for the year from discontinued operations 14.5 Profit for the year 151.3 Segment assets 1,119.1 305.8 331.3 164.6 (26.7) 1,894.1 Investments in associates - 4.3 - - - 4.3 Cash and deposits 133.0 Current and deferred income tax assets 8.0 Post-employment benefits net assets 75.0 Unallocated corporate assets 52.2 Total assets 2,166.6 Segment liabilities 207.0 117.1 24.1 38.0 (26.7) 359.5 Borrowings, finance leases and related swaps 545.0 Current and deferred income tax 115.7 liabilities Employee benefits obligations 56.2 Unallocated corporate liabilities 45.7 Total liabilities 1,122.1 Segment capital expenditure 89.2 13.7 9.9 6.5 - 119.3 Corporate capital expenditure 4.7 Total capital expenditure 124.0 Segment depreciation and amortisation 39.8 13.0 10.0 6.3 - 69.1 Corporate depreciation 1.7 Total depreciation and amortisation 70.8 Significant non-cash expenses other than depreciation - 7.7 - - - 7.7 Notes on the Preliminary Accounts for the year ended 31st March 2007 2 Segmental information by business segment restated for new divisions On 1st April 2007 the group restructured its divisions (see page 14). The segmental results for the year ended 31st March 2007 restated for the new divisions were: Precious Fine Environmental Metal Chemicals Technologies Products & Catalysts Total £ million £ million £ million £ million Sales to external customers 1,864.3 3,824.4 463.0 6,151.7 External sales excluding precious metals 896.2 290.0 268.0 1,454.2 Segment result 120.1 85.3 64.2 269.6 Unallocated corporate expenses (17.2) Operating profit 252.4 3 Effect of exchange rate changes on translation of foreign subsidiaries' operating profits Average exchange rates used for translation of results of foreign operations 2007 2006 US dollar / £ 1.90 1.79 Euro / £ 1.48 1.47 South African rand / £ 13.37 11.42 The main impact of exchange rate movements on the group's operating profit comes from the translation of foreign subsidiaries' profits into sterling. The one significant exception is the South African rand where the translational impact is more than offset by the impact of movements in the rand on operating margins. Consequently the analysis below excludes the translational impact of the rand. Year ended 31st March 2007 At this At last year's year's Effect rates rates £ million £ million £ million Catalysts 148.8 152.7 (3.9) Precious Metal Products 85.3 87.1 (1.8) Pharmaceutical Materials 35.5 36.2 (0.7) Unallocated corporate expenses (17.2) (17.2) - Operating profit 252.4 258.8 (6.4) 4 Income tax expense 2007 2006 restated £ million £ million United Kingdom 24.3 27.0 Overseas 40.4 27.7 64.7 54.7 The group's share of associated undertakings' taxation for the year ended 31st March 2007 was £ nil (2006 £ nil). Notes on the Preliminary Accountsfor the year ended 31st March 2007 5 Profit for the year from discontinued operations On 28th February 2007 the group sold its Ceramics Division to the Endeka Ceramics group established by Pamplona Capital Partners I, LP, a private equity investment fund. Ceramics Division's net assets disposed of were: £ million Property, plant and equipment 56.6 Goodwill 0.4 Inventories 43.4 Trade and other receivables 61.2 Cash and deposits 20.1 Bank overdrafts (5.7) Current other borrowings (6.5) Group loans (12.6) Current trade and other payables (37.0) Current income tax liabilities (2.0) Non-current trade and other payables (0.7) Employee benefits obligations (1.5) Deferred income tax liabilities (2.7) 113.0 Minority interests (2.7) 110.3 The profit on disposal of Ceramics Division was: £ million Consideration - cash 143.9 Consideration - refund outstanding (0.6) Costs incurred - cash (2.6) Costs incurred - non-cash (0.4) Costs incurred - accrued (2.3) 138.0 Less assets disposed of (110.3) Pension curtailment gain 0.9 Cumulative exchange gains deferred in equity 5.8 Profit on disposal before tax 34.4 Tax (1.1) Profit on disposal 33.3 The results of the discontinued operations included in the consolidated income statement were: 2007 2006 £ million £ million Ceramics Division Sales to external customers 160.1 182.2 Inter-segment sales 3.4 4.4 Expenses (147.6) (165.3) Operating profit 15.9 21.3 Net finance costs 0.4 1.0 Profit before tax 16.3 22.3 Income tax expense (5.7) (7.8) Profit on disposal 33.3 - Profit for the year from Ceramics Division 43.9 14.5 Additional environmental warranty obligations retained on sale of Pigments & Dispersions (0.2) - Profit for the year from discontinued operations 43.7 14.5 Notes on the Preliminary Accountsfor the year ended 31st March 2007 6 Earnings per ordinary share The calculation of earnings per ordinary share is based on a weighted average of 213,219,273 shares in issue (2006 - 214,895,523 shares). The calculation of diluted earnings per ordinary share is based on the weighted average number of shares in issue adjusted by the dilutive outstanding share options and long term incentive plan. These adjustments give rise to an increase in the weighted average number of shares in issue of 3,312,043 shares (2006 - 967,320 shares). Earnings per ordinary share before one-off items are calculated as follows: 2007 2006 £ million £ million Profit for the year attributable to equity holders of the 206.5 152.1 parent company Profit on disposal of discontinued operations (34.4) - Impairment costs - 6.0 Tax thereon 1.1 (1.8) Profit for the year before one-off items 173.2 156.3 pence pence Basic EPS before one-off items 81.2 72.7 7 Dividends A final dividend of 23.7 pence per ordinary share has been proposed by the board which will be paid on 7th August 2007 to shareholders on the register at the close of business on 15th June 2007. The estimated amount to be paid is £50.0 million. In accordance with IFRS accounting requirements this dividend has not been recognised in these accounts. 2007 2006 £ million £ million 2004/05 final ordinary dividend paid - 19.0 pence per share - 40.9 2005/06 interim ordinary dividend paid - 9.1 pence per share - 19.5 2005/06 final ordinary dividend paid - 21.0 pence per share 44.9 - 2006/07 interim ordinary dividend paid - 9.9 pence per share 21.1 - 66.0 60.4 8 Net debt 2007 2006 £ million £ million Cash and deposits 73.2 133.0 Bank overdrafts (13.2) (7.9) Cash and cash equivalents 60.0 125.1 Current other borrowings and finance leases (14.3) (82.4) Non-current borrowings, finance leases and related swaps (410.5) (454.7) Net debt (364.8) (412.0) 9 Share purchases During the year the company purchased 3,600,000 shares at a cost of £52.6 million. These shares are being held as treasury shares. Notes on the Preliminary Accountsfor the year ended 31st March 2007 10 Changes in equity 2007 2006 £ million £ million Equity at end of prior year 1,044.5 929.9 IFRS transition adjustment for financial instruments - 2.7 Equity at beginning of year 1,044.5 932.6 Total recognised income and expense relating to the year 141.2 185.9 Dividends paid to equity holders of the parent company (66.0) (60.4) Dividends payable to minority interests (0.3) (0.3) Minority interest arising on formation of subsidiary 0.3 - Share capital reduction in minority interest (0.3) - Disposal of minority interest (2.7) - New share capital subscribed 2.2 5.3 Purchase of treasury shares (52.6) - Purchase of shares for employee share ownership trusts - (25.3) Share-based payments 11.8 7.6 Cost of shares transferred to employees (4.5) (4.4) Tax on items taken directly to or transferred from equity 4.5 3.5 Equity at end of year 1,078.1 1,044.5 11 Precious metal operating leases The group leases precious metals from banks for specified periods (typically a few months) and for which the group pays a fee. These arrangements are classified as operating leases. The group holds sufficient precious metal inventories to meet all the obligations under these lease arrangements as they fall due. At 31st March 2007 precious metal leases were £93.2 million (2006 £93.2 million). 12 Basis of preparation The financial information contained in this release does not constitute the company's statutory accounts for the years ended 31st March 2007 or 31st March 2006 but is derived from those accounts. Statutory accounts for 2006 have been delivered to the Registrar of Companies and those for 2007 will be delivered following the company's Annual General Meeting. The auditors' reports on those accounts were unqualified and did not contain any statement under sections 237(2) and 237(3) of the Companies Act 1985. The accounts for the year ended 31st March 2007 were approved by the Board of Directors on 5th June 2007. As described in note 5 the group sold its Ceramics Division during the year and so its results are reported as discontinued operations and the income statement, cash flow statement and related notes for the year ended 31st March 2006 have been restated accordingly. Financial Calendar 13th JuneEx dividend date 15th JuneFinal ordinary dividend record date 24th July116th Annual General Meeting (AGM) 7th AugustPayment of final dividend subject to declaration at the AGM 28th NovemberAnnouncement of results for the six months ending 30th September2007 5th DecemberEx dividend date 7th DecemberInterim ordinary dividend record date Cautionary StatementThis announcement contains forward looking statements that are subject to risk factors associated with, amongstother things, the economic and business circumstances occurring from time to time in the countries and sectors in which the group operates. It is believed that the expectations reflected in this announcement are reasonable but they may be affected by a wide range of variables which could cause actual results to differ materially from those currently anticipated. Johnson Matthey Public Limited CompanyRegistered Office: 40-42 Hatton Garden, London EC1N 8EETelephone: 020 7269 8400Internet address: www.matthey.comE-mail: [email protected] Registered in England - Number 33774 RegistrarsLloyds TSB Registrars, The Causeway, Worthing, West Sussex BN99 6DATelephone: 0870 600 3970Internet address: www.shareview.co.uk This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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