2nd Jun 2005 07:02
Johnson Matthey PLC02 June 2005 For Release at 7.00 am Thursday 2nd June 2005 Preliminary Results for the year ended 31st March 2005 Encouraging prospects for future growth Summary Results Year to 31st March % 2005 2004 changeStatutory Basis:Turnover £4,639 m £4,493 m +3Profit before tax £131.0 m £178.0 m -26Earnings per share 40.6 p 56.0 p -28 Before Exceptional Items and Goodwill Amortisation: Profit before tax £204.0 m £195.7 m +4Earnings per share 67.1 p 64.0 p +5 Dividend per share 27.7 p 26.4 p +5 • 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 Divisional Performance Operating Profit (before exceptional items and goodwill amortisation) Year to 31st March % 2005 at 2004 % change£m 2005 2004 change exchange ratesCatalysts 111.5 109.2 +2 115.8 +6Precious Metal Products 45.4 44.2 +3 46.8 +6Pharmaceutical Materials 40.0 42.3 -5 41.5 -2Colours & Coatings 27.4 24.2 +13 28.4 +17Corporate (16.6) (16.4) (16.8)Continuing operations 207.7 203.5 +2 215.7 +6Discontinued operations 0.4 2.5 0.4Operating 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 goodwillamortisation and exceptional items were 5% up, despite adverse exchangetranslation. We have taken action to improve the returns on underperformingassets 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 growthin earnings increase in the second half of 2005/06 with additional revenues fromdiesel emission control products and new generic pharmaceuticals coming throughin 2006." Enquiries: Ian Godwin, Group Communications Manager 020 7269 8410Howard Lee, The HeadLand Consultancy 020 7036 0369Laura Hickman, Gavin Anderson & Co 020 7554 1400www.matthey.com Report to Shareholders Introduction Johnson Matthey made good progress in 2004/05 with profit before tax,exceptional items and goodwill amortisation up 4% despite adverse exchangetranslation. Earnings per share before exceptional items and goodwillamortisation increased by 5%. On a constant currency basis both Catalysts and Precious Metal ProductsDivisions achieved 6% growth in operating profit. Pharmaceutical Materials was2% 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 andnet borrowings reduced by £24.9 million. The group is well positioned tobenefit from organic growth over the next few years and we have also takenaction to improve the returns on underperforming assets. Review of Results Total sales grew by 3% to £4,639 million. At constant exchange rates sales grewby 7% with most of the increase coming from more buoyant trading conditions forplatinum group metals and higher average prices. Sales excluding the value ofprecious metals fell by 2% to £1,200 million. This fall partly reflected theimpact of exchange translation but also lower pass through costs forautocatalyst substrates. Operating profit before exceptional items and goodwill amortisation rose by 1%to £208.1 million. Adverse exchange translation reduced profits by £8.0 millioncompared with 2003/04 mainly because of the fall in the value of the US dollarwhich averaged $1.85/£ compared with $1.69/£ for the last financial year.Translated at last year's exchange rates, operating profit before exceptionalitems and goodwill amortisation increased by 5%. Interest was £3.0 million lower than last year as a result of lower averageborrowings and more favourable average interest rates, particularly forplatinum. 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 goodwillamortisation rose by 5% to 67.1 pence benefiting from a more favourable averagetax rate. Total exceptional items amounted to £51.9 million. Most of this charge relatedto the loss on disposal of Pigments & Dispersions and the restructuring ofunderperforming assets. We expect that this process will ultimately generate£50 million of additional cash which we are using to buy back shares. We havecompleted our review of underperforming assets and do not expect any furtherexceptional rationalisation costs in 2005/06. Taking into account exceptional costs and goodwill amortisation, profit beforetax on a statutory basis fell by £47.0 million to £131.0 million and earningsper share were 15.4 pence lower at 40.6 pence. Dividend The board is recommending to shareholders a final dividend of 19.0 pence, makinga total dividend for the year of 27.7 pence, an increase of 5%, which is in linewith the growth in earnings per share before exceptional items and goodwillamortisation. Operations Catalysts Division's sales rose by 4% to £1,184 million. At constant exchangerates the increase was 7%. Sales excluding the value of precious metals fell by3% to £698 million. At constant exchange rates sales excluding the value ofprecious metals rose slightly. Sales growth was held back by lower pass throughsubstrate costs associated with the increasing proportion of diesel catalystssold. The division's operating profit increased by 2% to £111.5 million. At constantexchange rates operating profit grew by 6%. Environmental Catalysts and Technologies (ECT) achieved good growth in profitsin autocatalysts with all the growth coming in Europe and Asia. Profits werelower in North America. In Johnson Matthey's financial year global light dutyvehicle sales grew by 3%, with most of the growth arising in Asia where salesrose by 4%. Sales in Europe increased by 2% with most of the growth coming inEastern Europe. In North America light duty vehicle sales were slightly up butdomestic production fell by 2% with an increased number of imports mainly fromAsia. ECT's strong performance in Europe reflected the continued growth in diesel carsales where Johnson Matthey has leading technology. For the year to 31st March2005 diesel car sales in Western Europe accounted for nearly half the market forcars. There is increasing focus on reducing particulate emissions from dieselvehicles in Europe and Johnson Matthey has been working closely with many of theleading car companies to develop catalysed soot filters (CSFs) which removeparticles from diesel exhaust emissions. CSFs are likely to be required on alldiesel cars in Europe from 2010, but many car manufacturers plan to fit thesedevices much earlier. We are investing in new production capacity tomanufacture 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% whilethe growth rate in car sales slowed in China but was still 12.5% up on prioryear. We are expanding our factory in Shanghai and we have also put in a newproduction facility next to our technical centre in Japan. This has been wellreceived 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 ourfinancial year when domestic production was down by 4.5%. Autocatalyst volumeswere also down and Johnson Matthey's profits in the region were lower than lastyear. In South America vehicle production showed a strong recovery and ourfacility in Argentina was well ahead of prior year. In 2003/04 ECT benefited from strong sales of heavy duty diesel (HDD) retrofitproducts in Japan supported by an incentive programme from the TokyoMetropolitan Government. There were no similar sized programmes in 2004/05 andconsequently revenues from HDD retrofit products were down. The outlook for HDDsales to original equipment makers is very encouraging. New legislation on HDDvehicle emissions will come into effect in Europe for new models in October 2005and for all new vehicles in October 2006. New legislation in the US starts inJanuary 2007. The great majority of truck and bus manufacturers will be usingaftertreatment devices to meet this legislation and Johnson Matthey has leadingtechnology to meet the new standards. Process Catalysts and Technologies (PCT) performed well in 2004/05 with salesand profits comfortably ahead of the previous year. At the end of last year weannounced the acquisition of the AMC group of companies (AMC), the marketleading supplier of Sponge Nickel(TM) catalysts located in Tennessee, USA. SpongeNickel(TM) catalysts are extensively used in the pharmaceutical and specialitychemicals industries and are often the first catalysts to be evaluated whendesigning a new chemical process. The former AMC business, now Johnson MattheyCatalysts, Tennessee, performed in line with our expectations and made a welcomecontribution in its first full year of ownership. Our other catalyst businesses also had a good year, nowhere more so than theAmmonia, Methanol, Oil and Gas (AMOG) business which saw strong growth in incomefrom both licensing and catalyst sales and another excellent performance fromits gas processing and purification segments. The development of a new classleading methanol flowsheet came a stage closer with the formation of OneSynergy(TM), a partnership with Davy Process Engineering and Aker Kvaerner totake advantage of Johnson Matthey's new catalyst and process technologies forboth methanol synthesis and reforming chemistry. The platinum group metal refining business continued to be adversely affected bythe weak palladium price and overcapacity in the market. After an extensivereview we decided to restructure the business in the UK and reduce the intake oflow grade materials which had left us with large quantities of residues whichare difficult to process. An exceptional charge of £10.2 million has been takento cover the cost of this rationalisation. One objective of the restructuringwill be to reduce the quantity of precious metals held in the refinery andthereby release over £20 million of cash from inventory reduction. Our Research Chemicals business continued its recent record of strong growth in2004/05. During the course of the year we acquired the operations of LancasterSynthesis from Clariant AG. The acquisition was temporarily delayed as a resultof a serious fire at Lancaster's UK premises in late July. However the deal wascompleted at the end of September at a significantly reduced cost. TheLancaster business represents a good fit with our Research Chemicals businessand excellent progress has been made in integrating stock and order managementsystems while maintaining the value of the Lancaster brand with its strongmarket franchise. The annual cost of our Fuel Cells business reduced by £1.1 million to £10.4million. The market for stationary fuel cells has not grown as quickly as ourcustomers had expected but developments in automotive fuel cells continue to bevery encouraging. During the year we transferred most of our UK fuel cellactivities including product development to our facility at Swindon, whilelonger term research remains at our technology centre at Sonning Common. The first fuel cell vehicles to be manufactured in any quantity will be poweredby hydrogen. In California, the State government is taking action to develop anetwork of filling stations for hydrogen powered vehicles. The success ofhybrid cars has shown that customers are prepared to pay a premium forenvironmentally friendly vehicles. Most of the world's major car companies arecontinuing to invest heavily in the development of fuel cell vehicles asconcerns over fuel security, global warming and air quality become morepressing. Precious Metal Products Division's sales grew by 4% to £3,069 million,reflecting more buoyant trading conditions for platinum group metals and higheraverage prices. At constant exchange rates sales grew by 8%. Operating profitincreased by 3% to £45.4 million, despite the revised terms of the renewedcontracts with Anglo Platinum and adverse exchange translation. At constantexchange rates operating profit was 6% up. The price of platinum reached its peak for 2004/05 of $937/oz in April, a 24year high, driven by good physical demand and substantial speculative interest.After a sharp correction in late April and early May, which saw the price fallback to $783/oz, the price of platinum followed an upward trend for the rest ofthe year. The average price was $848/oz, a 14% increase on 2003/04. Totalconsumption of platinum edged up marginally in 2004/05, with the autocatalystsector underpinning demand. The increase in market share of diesel cars inEurope and tightening emission controls for diesel powered trucks in Japan werekey drivers. However, purchases of platinum for jewellery manufacture fell in2004/05 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/ozas investors extended their already substantial long positions. However,production and stocks were more than adequate to meet demand and the price fellback 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 steeplyin 2004/05. Most of this increase came from the jewellery sector, led by therapid development of palladium jewellery manufacturing in China. Demand in theautocatalyst sector was also up as US car companies increased their marketpurchases, having run down their stocks in 2003. Growth in demand was almostexactly matched by a rise in supplies, particularly from Russia where aconsiderable volume of metal was sold from government stocks. Total suppliesexceeded demand by a significant margin, leaving palladium in surplus for thefourth consecutive year. The division's platinum group metal (pgm) manufacturing business continued itsprofitable growth, benefiting from good customer service and technicalleadership. Demand for our pgm catalyst, sheet and wire products for industrialapplications was strong throughout the year. Our medical parts business, basedin California, also recorded excellent growth. Increased usage of nitinol inmedical device applications in both Europe and the US, resulted in a strongdemand for products from our San Jose factory. In September 2004 the board took the decision to close the group's UK gold andsilver refinery. Tight refining margins and the weaker US dollar resulted in aloss in 2003/04 of £1.6 million after metal interest and a similar performancein the first five months of 2004/05. The closure was completed on schedule, bythe end of March 2005, at a cost of £13.2 million. As part of the closureprogramme a significant proportion of the customers from our UK refinery weresuccessfully transferred to our refineries in Salt Lake City and Toronto, wherespare capacity existed. This boosted profits in North America which finishedahead of 2003/04. Pharmaceutical Materials Division's sales fell by 6% to £132 million. Adjustingfor exchange translation the drop in sales was 2%. The fall in sales reflectedlower selling prices for carboplatin, which went off patent in October 2004, andlower revenues from contract research, partly offset by increasing sales ofcontrolled drugs. Operating profit fell by 5% to £40.0 million partly as aresult of adverse exchange translation. At constant exchange rates the fall inoperating profit was 2%, in line with the drop in sales. Macfarlan Smith, which is based in Edinburgh, UK and manufactures controlleddrugs 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 comingfrom high margin specialist opiate products. The world market for drugs tomanage severe pain is growing at around 6% per annum as medicine is able totreat more acute conditions; the world's population ages; and people aregenerally less tolerant of pain. Overall growth of the opiates market is drivenprimarily by the introduction of new applications and new dosage forms forspecialist opiates such as oxycodone, hydromorphone and buprenorphine, themarkets 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 valuablecontribution to profits in its first year of operation and we expect to achievefurther growth in this specialist market in 2005/06. As anticipated, our active pharmaceutical ingredient (API) manufacturingbusiness in the US, which is based in West Deptford, NJ, saw its profits fall inthe second half of 2004/05 as the contribution from carboplatin was reducedfollowing the expiry of the patent in October 2004. Now that the patent hasexpired we expect to supply to both Bristol-Myers Squibb and generic producersbut at lower margins. Sales of other products grew, including opiates where wehave successfully transferred manufacturing technology from Macfarlan Smith.Growth in sales of opiate drugs will continue as an increasing number ofcustomers obtain regulatory approvals to market products containing APIsmanufactured at West Deptford. Sales of non-opiate controlled drugs alsoimproved during the year and significant progress was made on the development ofseveral attractive generic products which will reach commercialisation over thenext few years. During the year we changed the name of Pharm-Eco to Pharma Services to betterreflect its market segment. Pharma Services provides contract research anddevelopment and manufacturing services to pharmaceutical companies frompre-clinical through to commercial launch. Although manufacturing continued togrow, contract research revenues were down in the second half of the year andprofits were below last year. During 2004/05 Cascade Biochem, which we acquired in 2002, was consolidated intoits Cork, Ireland facility and renamed Pharmaceutical Materials Ireland. Thebusiness has continued to expand its customer base and geographic coverageduring the year. Regulatory filings of new generic products containing ourprostaglandin APIs have been made by our customers and are currently in reviewstages. Our products are also being qualified for new generic drug dosage formstargeted for sale in major world markets. We restructured Colours & Coatings Division during the year following the saleof 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 isthe division's decal factory in Stoke-on-Trent. An exceptional charge of £10.3million has been taken to cover the cost of these closures. The decorativeprecious metals, glass coatings and tableware businesses have been renamedColour Technologies and will be transferred to Precious Metal Products Divisionand included in that division's results next year. The remaining business,Structural Ceramics, has been renamed Ceramics and will be shown as a standalone division in 2005/06. Sales for the division, excluding Pigments & Dispersions, rose by 8% in 2004/05to £242 million. At constant exchange rates sales grew by 12%. Operatingprofit increased by 13% to £27.4 million. At constant exchange rates profitsgrew by 17%. Our Ceramics business had sales of £166 million and contributed about two thirdsof the profits of the division. It supplies decorative materials for ceramicproducts, mainly to the tile industry. The business achieved good growth insales and profits in 2004/05. Demand for tiles in the Western European marketwas flat and the strength of the euro adversely impacted European tile producerswho are major exporters to other parts of the world. However there was goodgrowth in China, India and Brazil where Johnson Matthey has productionfacilities and is well represented. Our sales into Eastern Europe also showedgood growth. Colour Technologies performed well in 2004/05. Sales to the automotive sectorincreased, particularly sales of both black obscuration enamels and conductivesilver paste. Demand for decorative products for other glass applications wasalso up benefiting from new product introductions which are helping the businessto consolidate its market leading position in this segment. Exceptional Items Exceptional items for the year amounted to £51.9 million which included arationalisation charge of £10.2 million to restructure our underperforming UKplatinum group metal refining business and a £10.3 million charge for closing anumber of former Colours & Coatings' sites following the sale of Pigments &Dispersions and the restructuring of that division. The remaining items wereannounced in the first half of the year and include a loss of £15.2 million onsale of the Pigments & Dispersions business, of which £5.8 million related togoodwill previously written off to reserves; the closure of the UK gold andsilver bullion refinery at a cost of £13.2 million and £3.0 million ofacquisition integration costs. Finance Exchange Rates The main impact of exchange rate movements on the group's results comes from thetranslation of foreign subsidiaries' profits into sterling. Around 30% of thegroup's profits were made in North America, mainly in the USA. The US dollarweakened significantly from an average rate of $1.69/£ in 2003/04 to an averageof $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/£ butthe translational benefit of that rise was more than offset by the adverseimpact of the stronger rand on operating margins. Excluding the rand, exchangetranslation reduced operating profit by £8.0 million, which is equivalent to 4%of operating profit before exceptional items and goodwill amortisation. Interest 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 theyear. Metal financing costs were also favourable with interest rates forplatinum below the high levels experienced in 2003/04. Average precious metalleases were reduced following the closure of the UK gold and silver refinery inSeptember 2004. The return on retirement benefits assets and liabilities improved by £3.2million. This credit is shown separately under FRS 17 (the pension accountingstandard adopted by the group last year). The rise reflected the increase inthe pension fund surplus at 31st March 2004. Taxation The group's tax charge fell by £13.9 million to £44.0 million. The reductionlargely related to tax relief on the exceptional costs incurred in the year.Before exceptional items and goodwill amortisation the average tax rate for theyear fell slightly from 29.8% to 29.2% with an increase in tax credits receivedon research and development expenditure. Cash Flow Johnson Matthey's net cash flow for the year was strong at £23.5 million. Aftertaking into account £1.4 million of exchange translation, net borrowings fell by£24.9 million to £369.6 million. Gearing (net borrowings / shareholders' fundsand minority interests) fell by 2.8% from 45.3% at 31st March 2004 to 42.5% at31st March 2005. The group received £23.3 million from disposals and paid £4.0 million foracquisitions. The proceeds received from the disposals have been used to buyback shares. During the year we purchased 2.5 million of Johnson Matthey sharesat an average price of £10.06. This included 0.9 million of shares for thegroup's employee share ownership trust. The cash outflow on share purchases inthe year was £19.3 million, with a further £5.9 million paid in April 2005. Thegroup received £3.2 million of proceeds from the exercise of share options byemployees to give an overall net outflow on shares bought / issued in the yearof £16.1 million. Excluding acquisitions, disposals and share transactions thegroup generated a free cash flow of £20.3 million. Net cash flow from operations was £28.4 million lower than last year at £231.3million. 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 lastyear. The net cash outflow on capital expenditure and financial investment inthe year was £86.8 million, which was less than the level of capital expenditureincurred, reflecting the timing of the expenditure and the inclusion of £4.1million received from the sale of assets. Major projects included expansion ofECT's production facilities in the UK, South Africa, Japan and China; investmentin catalyst manufacturing for PCT at Clitheroe, UK; and further investment innew capacity at Macfarlan Smith in Edinburgh. Pensions The surplus on the group's UK pension scheme increased by £2.5 million to £45.8million at 31st March 2005. The investment performance of the fund for the yearwas good but the benefit of this was largely offset by changes in the discountrate and the inflation assumption used in valuing liabilities. Worldwide, including provisions for the group's post-retirement healthcareschemes and pension related deferred tax assets and liabilities, the group had anet deficit of £1.1 million on retirement benefits net assets compared with anet 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 resultsunder International Financial Reporting Standards (IFRS). We have issued aseparate announcement today setting out how the group's income statement,balance sheet and segmental results for the financial year to 31st March 2005would look under the new standards. Outlook The outlook for the next few years is very encouraging. We expect the group toachieve good top line growth from the introduction of new products and alsogenerate cash. The group's profits were higher in the first half of 2004/05 than in the secondhalf, partly as a result of exchange translation. In 2005/06 we expect thistrend to be reversed, with most of the growth coming in the second half of theyear. The much publicised problems in the US car industry are likely to have someimpact on Johnson Matthey's results in the first half of 2005/06. We expect carproduction to be down in the US in our first half which will reduce demand forautocatalysts in that region. However, both Europe and Asia are now bigger carproducing regions than the US and Johnson Matthey's businesses in those regionsare continuing to see good demand which should more than offset the shortfall inthe US. In the first half of 2005/06 we expect profits in our PharmaceuticalMaterials Division will be down on the equivalent period in 2004/05 when we werestill benefiting from the carboplatin patent, which expired in October 2004. Despite these factors the underlying growth trend is favourable. HDDlegislation in Europe will begin to have an impact in October 2005 and we expectto see demand for aftertreatment devices from original equipment manufacturersstart to grow in the second half of the year. We also expect sales of catalysedsoot 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 undertakenusing the proceeds generated by our programme to improve the returns onunderperforming assets. We expect to purchase an additional £25 million ofshares in the first half of 2005/06. We have completed our review ofunderperforming assets and do not expect any further exceptional rationalisationcosts in 2005/06. Consolidated Profit and Loss Accountfor the year ended 31st March 2005 2005 2005 2005 2004 2004 Before Before exceptional Exceptional exceptional items and items and items and goodwill goodwill goodwill amortisation amortisation Total amortisation Total restated restated Notes £ million £ million £ million £ million £ millionTurnover 1 Continuing operations 4,626.2 - 4,626.2 4,463.0 4,463.0 Discontinued operations 12.3 - 12.3 29.9 29.9 Group turnover 4,638.5 - 4,638.5 4,492.9 4,492.9 Operating profit 1 Continuing operations before goodwill 206.9 - 206.9 202.8 202.8 amortisation Goodwill amortisation - (20.9) (20.9) - (19.5) Continuing operations before exceptional 206.9 (20.9) 186.0 202.8 183.3 items Exceptional items 2 - (23.5) (23.5) - 2.1 Total continuing operations 206.9 (44.4) 162.5 202.8 185.4 Discontinued operations 0.4 - 0.4 2.5 2.5 Goodwill amortisation on discontinued - (0.1) (0.1) - (0.2) operations Group operating profit 207.3 (44.5) 162.8 205.3 187.7 Share of profit in associates 0.8 - 0.8 0.7 0.7 Goodwill amortisation on associates - (0.1) (0.1) - (0.1) Total operating profit 208.1 (44.6) 163.5 206.0 188.3Loss on closure of continuing operations 2 - (13.2) (13.2) - -Loss on sale of discontinued operations 2 - (15.2) (15.2) - -Profit on ordinary activities before interest 208.1 (73.0) 135.1 206.0 188.3Net interest (13.3) - (13.3) (16.3) (16.3)Net return on retirement benefits assets and 3 9.2 - 9.2 6.0 6.0liabilitiesProfit on ordinary activities before taxation 204.0 (73.0) 131.0 195.7 178.0Taxation 4 (59.6) 15.6 (44.0) (58.3) (57.9)Profit after taxation 144.4 (57.4) 87.0 137.4 120.1Minority interests 1.2 - 1.2 1.7 1.7Profit attributable to shareholders 145.6 (57.4) 88.2 139.1 121.8Dividends 5 (59.8) - (59.8) (57.4) (57.4)Retained profit for the year 85.8 (57.4) 28.4 81.7 64.4 pence pence pence penceEarnings per ordinary share Basic 6 67.1 40.6 64.0 56.0 Diluted 6 66.9 40.5 63.7 55.8 Dividend per ordinary share 5 27.7 27.7 26.4 26.4 Consolidated Balance Sheetas at 31st March 2005 2005 2004 Notes £ million £ millionFixed assetsGoodwill 354.2 377.1Tangible fixed assets 604.9 608.1Investments 6.6 5.5 965.7 990.7 Current assetsStocks 416.5 417.3Debtors 364.2 387.4Short term investments 0.6 1.6Cash at bank and in hand 78.7 106.5 860.0 912.8 Creditors: amounts falling due within one year Borrowings and finance leases (36.8) (46.5) Precious metal leases (102.1) (127.4) Other creditors (342.9) (358.9)Net current assets 378.2 380.0 Total assets less current liabilities 1,343.9 1,370.7 Creditors: amounts falling due after more than one year Borrowings and finance leases (411.5) (454.5) Other creditors (0.7) (0.7)Provisions for liabilities and charges (61.9) (47.4)Net assets excluding retirement benefits assets and liabilities 869.8 868.1 Retirement benefits net assets 3 33.5 31.5 Retirement benefits net liabilities 3 (34.6) (28.0)Net assets including retirement benefits assets and liabilities 868.7 871.6 Capital and reservesCalled up share capital 219.5 220.6Share premium account 139.8 137.1Capital redemption reserve 6.5 4.9Shares held in employee share ownership trusts (37.7) (28.8)Associates' reserves (0.2) (0.5)Profit and loss account 533.5 528.9Shareholders' funds 861.4 862.2Minority interests 7.3 9.4 868.7 871.6 Consolidated Cash Flow Statementfor the year ended 31st March 2005 2005 2004 £ million £ millionReconciliation of operating profit tonet cash inflow from operating activities Operating profit 162.8 187.7Depreciation, amortisation and net profit on disposal of fixed assets and 86.0 83.5investmentsNet retirement benefits charge less contributions 1.2 1.0(Increase) / decrease in owned stocks (38.2) 17.3Decrease / (increase) in debtors 9.1 (41.7)Increase in creditors and provisions 10.4 11.9Net cash inflow from operating activities 231.3 259.7 Cash Flow Statement Net cash inflow from operating activities 231.3 259.7Dividends received from associates 0.2 0.5Returns on investments and servicing of finance (13.1) (16.4)Taxation (52.9) (43.1)Capital expenditure and financial investment (86.8) (114.4)Acquisitions (4.0) (18.4)Disposals 23.3 -Equity dividends paid (58.4) (56.4)Net cash flow before use of liquid resources and financing 39.6 11.5Management of liquid resources 9.9 1.1 Financing Issue and purchase of share capital (16.1) (8.5) (Decrease) / increase in borrowings and finance leases (50.6) 6.3Net cash outflow from financing (66.7) (2.2)(Decrease) / increase in cash in the period (17.2) 10.4 Reconciliation of net cash flow to movement in net debt (Decrease) / increase in cash in the period (17.2) 10.4Cash outflow / (inflow) from movement in borrowings and finance leases 50.6 (6.3)Cash inflow from movement in liquid resources (9.9) (1.1)Change in net debt resulting from cash flows 23.5 3.0Loan notes (issued) / cancelled to acquire subsidiaries - (1.1)Translation difference 1.4 6.1Movement in net debt in year 24.9 8.0Net debt at beginning of year (394.5) (402.5)Net debt at end of year (369.6) (394.5) Total Recognised Gains and Lossesfor the year ended 31st March 2005 2005 2004 £ million £ million Profit attributable to shareholders 88.2 121.8Currency translation differences on foreign currency net investments and (1.9) (23.8)related loansTaxation on translation differences on foreign currency loans 2.0 16.8Actuarial (loss) / gain on retirement benefits assets and liabilities (15.5) 36.1Taxation on actuarial loss / gain on retirement benefits assets and liabilities 3.6 (11.0)Total recognised gains and losses relating to the year 76.4 139.9Prior year adjustment - (108.3)Total recognised gains and losses recognised since previous annual report 76.4 31.6 There were no material differences between reported profits and losses and historical cost profits and losses onordinary activities before tax for 2005 and 2004. Movement in Shareholders' Fundsfor the year ended 31st March 2005 2005 2004 £ million £ million Profit attributable to shareholders 88.2 121.8Dividends (59.8) (57.4)Retained profit for the year 28.4 64.4Other recognised gains and losses relating to the year (11.8) 18.1New share capital subscribed 3.2 6.4Purchase of own shares (16.3) -Purchase of shares for employee share ownership trusts (ESOTs) (8.9) (14.9)Shares in ESOTs utilised for long term incentive plan - 0.9Movement in long term incentive plan (1.2) -Goodwill written back on sale of Pigments & Dispersions business 5.8 -Net movement in shareholders' funds (0.8) 74.9Opening shareholders' funds 862.2 787.3Closing shareholders' funds 861.4 862.2 Notes to the Preliminary Financial Statementsfor the year ended 31st March 2005 1 Segmental information Turnover Sales excluding Operating profit Net operating assets precious metals 2005 2004 2005 2004 2005 2004 2005 2004 restated restated restated restatedActivity analysis £ million £ million £ million £ million £ million £ million £ million £ million Catalysts 1,183.6 1,142.7 698.5 720.3 111.5 109.2 818.7 819.7Precious Metal Products 3,068.7 2,956.4 124.0 120.6 45.4 44.2 25.7 19.0Pharmaceutical Materials 131.8 139.7 124.6 131.5 40.0 42.3 282.5 281.4Colours & Coatings 242.1 224.2 240.6 222.1 27.4 24.2 168.5 174.2Corporate - - - - (16.6) (16.4) (56.0) (62.2) 4,626.2 4,463.0 1,187.7 1,194.5 207.7 203.5 1,239.4 1,232.1Discontinued operations 12.3 29.9 12.3 29.9 0.4 2.5 - 30.5 4,638.5 4,492.9 1,200.0 1,224.4 208.1 206.0 1,239.4 1,262.6Goodwill amortisation (21.1) (19.8)Exceptional items included in total operating profit (note 2) (23.5) 2.1 163.5 188.3 1,239.4 1,262.6Loss on closure of continuing operations (note 2) (13.2) -Loss on sale of discontinued operations (note 2) (15.2) -Net interest (13.3) (16.3)Net return on retirement benefits assets and 9.2 6.0liabilitiesProfit on ordinary activities before taxation 131.0 178.0Net borrowings and finance leases (369.6) (394.5)Net assets excluding retirement benefits assets and 869.8 868.1liabilitiesRetirement benefits net (liabilities) / assets (1.1) 3.5Net assets including retirement benefits assets and 868.7 871.6liabilities Turnover Operating profit Net operating assets 2005 2004 2005 2004 2005 2004 restated restated restatedGeographical analysis by origin £ million £ million £ million £ million £ million £ million Europe 3,269.1 3,209.5 91.0 79.0 862.3 890.5North America 1,041.7 961.9 62.1 72.0 253.1 227.4Asia 999.7 837.6 19.0 19.4 68.4 55.2Rest of the World 257.0 272.2 35.6 33.1 55.6 59.0 5,567.5 5,281.2 207.7 203.5 1,239.4 1,232.1Discontinued operations 14.2 33.4 0.4 2.5 - 30.5 5,581.7 5,314.6 208.1 206.0 1,239.4 1,262.6Less inter-segment sales (943.2) (821.7)Total turnover 4,638.5 4,492.9Goodwill amortisation (21.1) (19.8)Exceptional items included in total operating profit (note 2) (23.5) 2.1 163.5 188.3 1,239.4 1,262.6Loss on closure of continuing operations (note 2) (13.2) -Loss on sale of discontinued operations (note 2) (15.2) -Net interest (13.3) (16.3)Net return on retirement benefits assets and 9.2 6.0liabilitiesProfit on ordinary activities before taxation 131.0 178.0Net borrowings and finance leases (369.6) (394.5)Net assets excluding retirement benefits assets and 869.8 868.1liabilitiesRetirement benefits net (liabilities) / assets (1.1) 3.5Net assets including retirement benefits assets and 868.7 871.6liabilities The group sold its Pigments & Dispersions business (part of Colours & Coatings) during the year (note 8) and so itsresults are reported as discontinued operations. Notes to the Preliminary Financial Statementsfor the year ended 31st March 2005 2 Exceptional items An exceptional charge of £23.5 million (2004 credit of £2.1 million) has been included in total operatingprofit. This comprises: 2005 2004 £ million £ million Cost of integrating the business of Activated Metals and Chemicals, Inc. (1.0) -Cost of integrating the business of Lancaster Synthesis Limited (2.0) -Colours & Coatings rationalisation costs (10.3) -UK pgm refining rationalisation (10.2) -Litigation settlement (Pharmaceutical Materials) - 14.8Other Catalysts' rationalisation costs - (12.7)Exceptional items in total operating profit (23.5) 2.1 The loss on closure of continuing operations of £13.2 million relates to the closure of the gold and silverbullion refinery in Royston, UK. The loss on sale of discontinued operations of £15.2 million relates to the sale of the Pigments & Dispersionsbusiness (note 8). 3 Retirement benefits assets and liabilities 2005 2004Net return £ million £ million Expected return on scheme assets 45.2 37.5Interest on scheme liabilities (36.0) (31.5) 9.2 6.0 Pension fund assets and liabilitiesThe net assets of the group's retirement benefits schemes which are in surplus and the net liabilities of theschemes which are in deficit are shown separately in the balance sheet. At 31st March 2005 the group's UK definedbenefit pension scheme held assets with a market value of £659.4 million and had a net surplus, before tax, of £45.8 million. The group's other main pension schemes are in the USA. At 31st March 2005 these schemes held assets with a market value of £64.1 million and had a net deficit, before tax, of £11.6 million. The group also operates schemes forpost-retirement medical benefits (now closed to new members) which are unfunded and had net liabilities of £26.5 millionat 31st March 2005. 4 Taxation 2005 2004 £ million £ million United Kingdom 22.5 27.4Overseas 37.1 30.8Associates - 0.1Tax on ordinary activities before exceptional items and goodwill amortisation 59.6 58.3Tax on goodwill amortisation (1.9) (2.0)Tax on exceptional items included in total operating profit (7.0) 1.6Tax on loss on closure of continuing operations (3.9) -Tax on loss on sale of discontinued operations (2.8) - 44.0 57.9 5 Dividends A final dividend of 19.0 pence (2004 18.2 pence) per ordinary share is proposed for payment on 2ndAugust 2005 to shareholders on the register at 10th June 2005. Together with the interim dividend of 8.7 pence (2004 8.2pence) this would make a total dividend of 27.7 pence (2004 26.4 pence) giving a total payment of £59.8 million (2004 £57.4 million). Notes to the Preliminary Financial Statementsfor the year ended 31st March 2005 6 Earnings per ordinary share Profit for the year attributable to shareholders is £88.2 million (2004 £121.8 million). This isdivided by the weighted average number of shares in issue calculated as 217,005,241 (2004 217,629,033) to give basic earnings per share of 40.6 pence (2004 56.0 pence). The calculation of diluted earnings per share is based on the weighted average number of shares in issueadjusted 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 497,097 (2004 778,267), giving diluted earnings per share of 40.5 pence (2004 55.8 pence). Before exceptional items, goodwill amortisation and the tax thereon, basic earnings per share were 67.1 pence(2004 64.0 pence) and diluted earnings per share were 66.9 pence (2004 63.7 pence). 2005 2004 £ million £ million Attributable profit 88.2 121.8Goodwill amortisation 21.1 19.8Exceptional items 51.9 (2.1)Tax thereon (15.6) (0.4)Adjusted profit 145.6 139.1 Earnings per share before exceptional items and goodwill amortisation Basic 67.1p 64.0p Diluted 66.9p 63.7p 7 Acquisition of the business of Lancaster Synthesis LimitedRelated Shares:
Johnson Matthey