22nd Nov 2006 07:01
Johnson Matthey PLC22 November 2006 For Release at 7.00 am Wednesday 22nd November 2006 Interim Results for the six months ended 30th September 2006 On track to deliver good growth Summary Results Half Year to 30th September % 2006 2005 change Revenue £3,012m £2,283m +32Sales excluding precious metals £744m £637m +17 Operating profit £126.8m £114.5m +11Profit before tax £115.1m £106.4m +8 Total earnings per share 38.3p 35.2p +9Dividend per share 9.9p 9.1p +9 • Sales revenue up 32% reflecting good underlying volume growth and higher precious metal prices• Operating profit up 11% with most of the growth generated by Catalysts and Precious Metal Products Divisions• Profit before tax up 8% at £115.1 million• Total earnings per share up 9% at 38.3 pence. Interim dividend increased in line with earnings growth to 9.9 pence Divisional Performance Operating Profit Half Year to 30th September %£m 2006 2005 changeCatalysts 70.8 65.2 +9Precious Metal Products 37.2 30.6 +22Pharmaceutical Materials 17.0 16.2 +5Ceramics 10.2 10.8 -6Corporate (8.4) (8.3)Operating profit 126.8) 114.5) +11 • Catalysts Division's profit growth reflects increased sales of catalysed soot filters (CSFs) for diesel cars in Europe, strong autocatalyst sales in Asia and good demand for process catalysts• Precious Metal Products Division has benefited from buoyant prices for platinum group metals and good growth in its manufacturing businesses Business Prospects • Environmental Catalysts and Technologies (ECT) should achieve double digit growth in sales and profits this year with additional revenue from sales of heavy duty diesel (HDD) catalysts in the second half• Pre-buying of trucks ahead of the introduction of the new emission standards will limit catalyst sales in 2006/07 but create further growth as truck sales recover in 2007/08 and 2008/09• Additional investment is planned to expand capacity in ECT and to provide increased working capital to support the emergence of the new diesel catalyst markets• High oil price supports growth in Process Catalysts and Technologies with increased demand for catalysts for synthesis gas production and good prospects for Davy Process Technology• Precious Metal Products Division should continue to benefit from favourable market conditions for platinum group metals and growth in its manufacturing businesses• Pharmaceutical Materials Division's recovery is expected to continue in the second half of the year with stronger sales in the US• Ceramics Division's performance in the second half is likely to be below last year but the division should remain highly cash generative Commenting on the results, Neil Carson, Chief Executive of Johnson Matthey said: "Johnson Matthey has achieved good growth in the first half of 2006/07 withsales, excluding precious metals, up 17% and an 11% increase in operatingprofit. The outlook for the second half is for continued top-line growth, driven byadditional sales of emission control products for trucks and buses following theintroduction of the new heavy duty diesel emission standards in Europe inOctober 2006 and North America in January 2007." 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 performed well in the first half of 2006/07 with good growth insales and operating profit. Catalysts Division and Precious Metal ProductsDivision generated most of the growth. Sales were boosted by a significant risein the prices of platinum group metals with platinum averaging just over $1,200per ounce (37% up on the first half of last year). Demand for catalysts wasalso strong with expanding sales of catalysed soot filters, good autocatalystdemand in Asia and increased sales of process catalysts. Our US PharmaceuticalMaterials business improved after a downturn last year and its recovery shouldcontinue in the second half. The outlook for the group for the second half remains encouraging, with furthergrowth generated by the new market for heavy duty diesel catalysts. Review of Results Revenue rose by 32% in the half year to £3,012 million, partly as a result ofhigher prices for platinum, palladium and rhodium. Sales excluding the value ofprecious metals rose by 17%, reflecting good underlying volume growth andincreased non precious metal material costs, some of which are a pass throughfor Johnson Matthey. Operating profit increased by 11% to £126.8 million. Exchange translation wasslightly adverse, reducing profits by £0.8 million compared with the first halfof last year. Interest rose by £4.5 million as a result of higher averageborrowings and an increase in short term interest rates, particularly in the US.Profit before tax was 8% up on last year at £115.1 million. Total earnings per share (eps) increased by 9% to 38.3 pence. The growth ratein eps was slightly stronger than growth in profit before tax mainly as a resultof the accretive effect of share buy-backs. Dividend The interim dividend has been increased by 9% to 9.9 pence, in line with thegrowth in earnings per share. Operations Catalysts Division's sales grew by 48% to £996 million, boosted by significantlyhigher prices for platinum, palladium and rhodium. Excluding the value ofprecious metals, sales increased by 22% to £458 million. This increase wasdriven by good volume growth and the impact of higher material costs,particularly the cost of substrates for catalysed soot filters (CSFs), which isa pass through for Johnson Matthey. The division's operating profit rose by 9% to £70.8 million, despite a weaker USdollar exchange rate. Translated at last year's exchange rates operating profitwould have been 10% up. Environmental Catalysts and Technologies (ECT) had a good first half with salesand operating profit well ahead of last year. The division achieved stronggrowth in Europe and Asia which more than offset further weakness in the NorthAmerican market. Results for Europe benefited from a significant increase insales of CSFs for light duty diesel vehicles as well as some initial sales ofheavy duty diesel (HDD) catalysts to original equipment manufacturers. ECT's growth was achieved despite a relatively weak global car market. In thesix month period to 30th September 2006 total global light duty vehicle saleswere unchanged compared with last year. Vehicle production was 1.6% up with anincrease in inventories. Light duty vehicle sales and production fell in bothNorth America and Europe but continued to grow strongly in Asia. Estimated Light Vehicle Sales and Production Half year to 30th September 2006 2005 change millions millions % North America Sales 10.2 10.7 -4.7 Production 7.5 7.8 -3.8 Europe Sales 9.2 9.3 -1.1 Production 9.2 9.3 -1.1 Asia Sales 7.6 7.2 +5.6 Production 11.9 10.9 +9.2 Global Sales 32.1 32.1 - Production 32.0 31.5 +1.6 Source: Global Insight We are seeing increasing demand from many of the leading car companies in Europefor CSFs to remove particles from diesel exhaust emissions. Althoughlegislation requiring such emission control devices does not come into forceuntil 2010 many manufacturers are fitting these devices much earlier. The newfactory we commissioned last year in Royston, UK to manufacture CSFs is alreadyclose to capacity and we are in the process of building a major extension tothis facility. Autocatalyst sales have grown strongly in Asia with good growth in China,reflecting continued growth in the underlying car market, and increased sales inJapan where we have put in additional capacity and are gaining market share. The first half of this year included some sales of heavy duty diesel catalystsin Europe to original equipment manufacturers (OEMs) for new vehicles launchedsince October 2005. Not many such vehicles have been produced and total salesexcluding precious metals of HDD catalysts to OEMs were £6.5 million in thefirst half. Sales have ramped up in the second half of the year as all newvehicles sold now have to meet the new standards. In the United States similarlegislation comes into force at the beginning of January 2007. Our customersexpect to see a significant drop in truck sales in 2007, as a result of theadditional cost of fitting emission control systems to meet the new legislation,but we still expect the global market for HDD catalysts to be worthapproximately US $700 million (excluding precious metals) by the end of 2008when vehicle sales are expected to have returned to normal levels. Process Catalysts and Technologies (PCT) delivered good growth in sales andprofits in the half year. The Ammonia, Methanol, Oil and Gas (AMOG) businesswas well ahead of last year with continued strong demand for catalysts andpurification materials for industries where hydrogen or synthesis gas are keyintermediates. Our Catalysts & Chemicals business performed well with increasedsales of sponge nickel catalysts. Sales of catalysts into the pharmaceuticaland fine chemicals sector also continued to grow. Research Chemicals benefited from the contribution from its new joint venture inChina which was established in 2005/06. Demand in Europe was also well up withthe new catalogue stimulating increased orders. Davy Process Technology (DPT), which was acquired in February 2006, performedwell in the first six months. DPT develops and licenses chemical processtechnologies and successfully concluded two major contracts in the first half of2006/07. Tracerco, PCT's oil services business, acquired the processdiagnostics business of Quest TruTec in April 2006 for £3.8 million which hasexpanded Tracerco's coverage principally in the USA. 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. We are continuing to work with a numberof major electronics companies who are developing small DMFC units for use inmobile phone chargers and laptop computers. Precious Metal Products Division's sales rose by 27% to £1,861 million boostedby significantly higher prices for platinum group metals (pgms). Operatingprofit increased by 22% to £37.2 million with good growth in both its marketing& distribution business and its manufacturing operations. The platinum marketing & distribution business achieved good profit growth withgood demand for platinum and higher pgm prices. Demand for platinum is expectedto show a rise of 5% for calendar 2006. Tightening emissions legislation andgrowing production of diesel vehicles has increased demand for autocatalysts,outweighing a fall in demand for jewellery manufacturing caused by the risingprice. The average price of platinum in the first half of Johnson Matthey'sfinancial year rose to $1,206 per ounce, up 37% compared to the same period lastyear. The price of palladium rose significantly in the same period, up 78% to $337 perounce, supported by significant purchasing by investment funds. However,industrial demand for palladium is expected to fall by 6% in calendar 2006.Increasing autocatalyst consumption is being outweighed by a reduction in demandfrom jewellery manufacturers in China, where recycling of old jewellery stockhas limited the requirement for new metal. The price of rhodium has also moved sharply higher, more than doubling incomparison with the same period last year to average $4,853 per ounce. Strongdemand from the automobile market coupled with interest from speculatorscontributed to the increase in what is traditionally a tight and often volatilemarket. The division's pgm fabrication business, Noble Metals, achieved good growth inthe half year with most of the growth coming in the USA. Sales were well up onprior year with strong demand for medical device components and industrialproducts. Demand for pgm refining was also strong benefiting from increasedmetal prices. We have focused the Pgm Refining business on recycling high gradematerial and supporting other group companies and its performance in the firstsix months was much improved. The Colour Technologies business achieved goodgrowth in operating profit with higher sales of automotive glass enamels anddecorative products. Pharmaceutical Materials Division's sales rose by 13% to £65 million. Operatingprofit grew by 5% to £17.0 million. Most of the growth came in the division'sUS businesses which had seen a downturn in 2005/06. The recovery in the US operations reflected increased demand for both activepharmaceutical ingredients (APIs) and contract research. Demand for platinumAPIs was particularly strong and included good sales of Oxaliplatin and somevalidation lots of Satraplatin(R). The outlook for Satraplatin(R), whichJohnson Matthey has licensed to GPC Biotech, is encouraging with some goodresults in phase III clinical trials. The outlook for sales of controlled drug APIs has also improved with theannouncement by Barr Pharmaceuticals, Inc. of its purchase from Shire plc ofADDERALL(R) (an immediate release product used in the treatment of AttentionDeficit Hyperactivity Disorder). Johnson Matthey has an exclusive agreement tosupply the API to Barr for this product and already supplies the API used inBarr's existing generic version. The division will generate additional incomefrom sales of the branded product in the second half of this year. In addition,Barr has reached agreement with Shire to launch its generic version of ADDERALLXR(R) (an extended release product) in April 2009. Johnson Matthey will alsosupply the API for this product which could generate significant additionalrevenue at that time. The division's European businesses' profits were slightly ahead of last yearwith good sales of specialist opiates offsetting weaker sales of bulk opiates,particularly codeine. Sales of bulk opiates are expected to recover in thesecond half of the year which should improve the overall growth rate. Ceramics Division's sales were unchanged from last year at £90 million.Operating profit was 6% lower at £10.2 million. Margins weakened a little in the first half of 2006/07 and the division gaveback some of the gains it had made last year when both sales and profits werewell ahead. Energy costs increased significantly, particularly in Spain wherethe division has its largest manufacturing facility and this eroded some of thebenefits of cost reductions achieved elsewhere in the division. Nevertheless,the division's margins remained in double figures at 11.3% and the businesscontinued to be highly cash generative. Finance Exchange Rates The main impact of exchange rates on the group's results comes from thetranslation of foreign subsidiaries' profits into sterling. The group's largestoverseas investment is in the USA. The average rate for the US dollar for thesix months to 30th September 2006 was $1.855/£ compared with $1.820/£ for thefirst half of last year. The South African rand also weakened from R11.74/£ toR12.69/£. However, the catalysts manufactured by our South African business areultimately for export and the benefit of a weaker rand on margins more thanoffsets the translation effect. Excluding the rand, exchange translationreduced group profits by £0.8 million compared with the first half of last year,with nearly all the adverse impact attributable to the weaker US dollar. Interest In the six months to 30th September 2006 the group's interest charge increasedby £4.5 million to £12.2 million. Average borrowings were significantly higherthan the same period last year, reflecting the impact on borrowings of theacquisition of DPT, share purchases and higher precious metal prices. Interestrates also rose significantly, particularly short term rates in the USA.Despite the increase in the interest charge, interest cover (operating profit /interest) for the half year remained strong at 10.4 times. Taxation The group's tax charge rose by £2.4 million to £33.5 million reflecting thehigher profits made in the period. The average rate was very similar to thefirst half of last year at 29.1%. Tax paid of £41.9 million was greater thantax payable following a below average payment in the second half of last year.In the first half of last year the group had a cash inflow on tax reflecting thebenefit of a favourable settlement with the UK Revenue. Cash Flow In the six months to 30th September 2006 the group had a net cash outflow of£83.8 million. This included expenditure of £7.5 million on acquisitions and anet £12.2 million on share buy-backs. Free cash flow, before acquisitions andshare purchases, was an outflow of £64.1 million. Working capital increased by £73.0 million in the period. The biggest factor inthis rise was significantly higher precious metal prices which impacted bothinventories and receivables. Physical metal stocks were actually lower than on30th September 2005 and average customer payment terms were unchanged.Additional working capital was also taken on to support the growth of ourcatalyst business. The cash outflow on capital expenditure in the half year was £56.0 million whichwas 1.5 times depreciation. We are planning to spend more on capitalexpenditure in the second half with most of the investment in CatalystsDivision. For the year as a whole we expect to spend at a rate of 1.6 timesdepreciation with most of the investment in new capacity to meet expected volumegrowth. Major projects include: expansion of our diesel products factory atRoyston, UK; completion of the investment at our new factory in Philadelphia,USA to make similar products for the US market; construction of our newautocatalyst factories in South Korea and the Russian Federation; and additionalproduction facilities for AMOG. Net borrowings rose by £66.3 million to £478.3 million at 30th September 2006.Equity was £1,041.4 million taking gearing (net debt / equity) to 45.9%. Withcontinued investment in organic growth, bolt-on acquisitions and some furthershare purchases we expect gearing to rise to 50% over the next eighteen months. Outlook The group has made a good start to the year with operating profit up 11% andearnings per share 9% higher in the first six months. In the second half of the year we expect increased sales of catalysts for heavyduty diesel vehicles, as the new legislation on emissions now applies to all newvehicles sold in Europe and similar legislation will come into operation inNorth America from 1st January 2007. Although we expect that pre-buying oftrucks in 2006 ahead of the introduction of the new emission standards willreduce truck sales in 2007, this new market will still generate significantincremental sales for Johnson Matthey. We should then benefit from furthergrowth in 2008 as truck sales return to normal levels. Overall we expectEnvironmental Catalysts and Technologies to achieve double digit growth in salesand profits this year. The high oil price creates favourable market conditions for Process Catalystsand Technologies. This, in conjunction with economic development in Asia, isgenerating increased demand for synthesis gas catalysts and good prospects forDavy Process Technology. Demand for platinum group metals also remains strongwhich should benefit Precious Metal Products Division. Pharmaceutical MaterialsDivision should continue its recovery in the second half of the year withfurther sales growth in the USA. Ceramics Division's performance in the secondhalf of the year is likely to be below last year but the division should remainhighly cash generative. Compared with the second half of last year exchange translation is likely to benegative. The average rate for the US dollar for the second half of last yearwas $1.75/£. Each one cent movement in the rate impacts the group's results by£0.4 million in a full year. Overall, despite adverse exchange translation, we expect the group to achieveslightly higher earnings growth in the second half of the year than in thefirst. Consolidated Income Statementfor the six months ended 30th September 2006 Six months ended Year ended 30.9.06 30.9.05 31.3.06 Notes £ million £ million £ million Revenue 2 3,012.1 2,282.9 4,755.9Cost of goods sold (2,792.1) (2,088.2) (4,343.7)Gross profit 220.0 194.7 412.2Operating expenses (93.2) (80.2) (177.5)Impairment costs - - (6.0)Operating profit 2,3 126.8 114.5 228.7Interest payable (17.2) (15.7) (31.7)Interest receivable 5.0 8.0 17.0Share of profit / (loss) of associates 0.5 (0.4) (0.2)Profit before tax 115.1 106.4 213.8Income tax expense 4 (33.5) (31.1) (62.5)Profit for the period 81.6 75.3 151.3 Attributable to:Equity holders of the parent company 81.9 75.7 152.1Minority interests (0.3) (0.4) (0.8) 81.6 75.3 151.3 pence pence pence Earnings per ordinary share attributable to the equity holders of the parentcompany Total and continuing operations Basic 5 38.3 35.2 70.8 Diluted 5 38.0 35.1 70.5 Consolidated Balance Sheetas at 30th September 2006 30.9.06 30.9.05 31.3.06 Notes £ million £ million £ million AssetsNon-current assetsProperty, plant and equipment 643.0 610.3 661.1Goodwill 401.0 378.7 402.4Other intangible assets 40.9 29.7 41.3Deferred income tax assets 8.8 2.2 4.4Investments and other receivables 11.0 6.6 10.4Post-employment benefits net assets 78.4 49.6 75.0Total non-current assets 1,183.1 1,077.1 1,194.6 Current assetsInventories 362.6 344.2 345.8Current income tax assets - 0.5 3.6Trade and other receivables 539.7 406.5 478.5Cash and deposits 9 99.2 113.8 133.0Investments and other financial assets 22.3 4.1 3.3Other current assets 7.1 7.1 7.1Total current assets 1,030.9 876.2 971.3Total assets 2,214.0 1,953.3 2,165.9 LiabilitiesCurrent liabilitiesTrade and other payables (417.3) (325.0) (385.2)Current income tax liabilities (53.7) (51.5) (66.0)Borrowings and finance leases 9 (27.9) (90.9) (90.3)Other financial liabilities (2.3) (10.0) (4.2)Provisions (8.4) (11.8) (9.1)Total current liabilities (509.6) (489.2) (554.8) Non-current liabilitiesBorrowings, finance leases and related swaps 9 (549.6) (384.3) (454.7)Deferred income tax liabilities (51.5) (45.1) (49.7)Employee benefits obligations (56.6) (53.1) (56.2)Provisions (4.5) (3.0) (5.2)Trade and other payables (0.8) (0.8) (0.8)Total non-current liabilities (663.0) (486.3) (566.6)Total liabilities (1,172.6) (975.5) (1,121.4)Net assets 1,041.4 977.8 1,044.5 EquityShare capital 220.4 219.8 220.2Share premium account 145.7 141.5 144.4Treasury shares 7 (13.7) - -Shares held in employee share ownership trusts (61.9) (45.7) (63.0)Other reserves (1.7) 6.3 28.5Retained earnings 746.4 648.9 708.0 1,035.2 970.8 1,038.1Minority interests 6.2 7.0 6.4Total equity 8 1,041.4 977.8 1,044.5 Consolidated Cash Flow Statementfor the six months ended 30th September 2006 Six months ended Year ended 30.9.06 30.9.05 31.3.06 Notes £ million £ million £ million Cash flows from operating activitiesProfit before tax 115.1 106.4 213.8Adjustments for: Share of (profit) / loss in associates (0.5) 0.4 0.2 Depreciation, amortisation and profit on sale of non-current assets and 37.5 33.2 76.7 investments Share-based payments 2.6 2.1 3.2 Changes in working capital and provisions (73.0) (28.7) (68.0) Changes in fair value of financial instruments (1.1) (1.0) (12.4) Net interest 12.2 7.7 14.7Income tax (paid) / received (41.9) 6.4 (15.9)Net cash inflow from operating activities 50.9 126.5 212.3 Cash flows from investing activitiesDividends received from associates 0.1 0.1 0.1Purchases of non-current assets and investments (56.0) (48.4) (120.3)Proceeds from sale of non-current assets and investments 0.1 1.9 5.7Purchases of businesses (7.5) (1.1) (24.3)Net cash outflow from investing activities (63.3) (47.5) (138.8) Cash flows from financing activitiesNet purchase of own shares (12.2) (11.9) (25.9)Proceeds from borrowings and finance leases 54.8 14.0 82.3Dividends paid to equity holders of the parent company 6 (44.9) (40.9) (60.4)Dividends paid to minority shareholders - - (0.2)Interest paid (19.2) (15.6) (30.6)Interest received 4.9 7.9 16.6Net cash outflow from financing (16.6) (46.5) (18.2) (Decrease) / increase in cash and cash equivalents in period (29.0) 32.5 55.3Exchange differences on cash and cash equivalents (5.9) 4.8 5.8Cash and cash equivalents at beginning of period 125.1 64.0 64.0Cash and cash equivalents at end of period 9 90.2 101.3 125.1 Reconciliation to net debt(Decrease) / increase in cash and cash equivalents in period (29.0) 32.5 55.3Proceeds from borrowings and finance leases (54.8) (14.0) (82.3)Change in net debt resulting from cash flows (83.8) 18.5 (27.0)Borrowings acquired with subsidiaries - - (1.4)Exchange differences on net debt 17.5 (9.7) (13.4)Movement in net debt in period (66.3) 8.8 (41.8)Net debt at beginning of period (412.0) (370.2) (370.2)Net debt at end of period 9 (478.3) (361.4) (412.0) Consolidated Statement of Recognised Income and Expensefor the six months ended 30th September 2006 Six months ended Year ended 30.9.06 30.9.05 31.3.06 £ million £ million £ million Currency translation differences on foreign currency netinvestments and related loans (51.7) 19.6 42.3Fair value gain on available-for-sale investments transferred - (0.8) (0.8)to profit on saleCash flow hedges 5.4 3.6 (6.2)Fair value gains / (losses) on net investment hedges 15.8 (5.4) (12.5)Actuarial gain on post-employment benefits assets and - - 19.6liabilitiesTax on above items taken directly to or transferred from 0.2 (4.3) (7.8)equityNet (expense) / income recognised directly in equity (30.3) 12.7 34.6Profit for the period 81.6 75.3 151.3Total recognised income and expense relating to the period 51.3 88.0 185.9IFRS transition adjustment for financial instruments - 2.7 2.7 51.3 90.7 188.6 Total recognised income and expense attributable to:Equity holders of the parent company 51.7 88.4 186.7Minority interests (0.4) (0.4) (0.8) 51.3 88.0 185.9 IFRS transition adjustment for financial instrumentsattributable to:Equity holders of the parent company - 2.7 2.7 Notes on the Accountsfor the six months ended 30th September 2006 1 Basis of preparation The interim accounts were approved by the Board of Directors on 21st November 2006, and are unaudited but have been reviewed by the auditors. They do not constitute statutory accounts within the meaning of section 240 of the Companies Act 1985, but have been prepared on the basis of the accounting policies set out in the annual report and accounts for the year ended 31st March 2006. Information in respect of the year ended 31st March 2006 is derived from the company's statutory accounts for that year which have been delivered to the Registrar of Companies. The auditors' report on those statutory accounts was unqualified and did not contain any statement under sections 237(2) and 237(3) of the Companies Act 1985. 2 Segmental information by business segment Precious Metal Pharmaceutical Catalysts Products Materials Ceramics Total £ million £ million £ million £ million £ million Six months ended 30th September 2006 Sales to external customers 996.1 1,860.5 65.4 90.1 3,012.1 External sales excluding precious metals 458.0 134.3 61.2 90.1 743.6 Segment result 70.8 37.2 17.0 10.2 135.2 Unallocated corporate expenses (8.4) Operating profit 126.8 Six months ended 30th September 2005 Sales to external customers 675.1 1,460.0 57.9 89.9 2,282.9 External sales excluding precious metals 375.2 117.4 54.8 89.9 637.3 Segment result 65.2 30.6 16.2 10.8 122.8 Unallocated corporate expenses (8.3) Operating profit 114.5 Year ended 31st March 2006 Sales to external customers 1,477.4 2,962.4 133.9 182.2 4,755.9 External sales excluding precious metals 786.4 245.4 127.2 182.2 1,341.2 Segment result before impairment costs 134.2 62.2 33.8 21.3 251.5 Impairment costs - (6.0) - - (6.0) Segment result 134.2 56.2 33.8 21.3 245.5 Unallocated corporate expenses (16.8) Operating profit 228.7 Notes on the Accountsfor the six months ended 30th September 2006 3 Effect of exchange rate changes on translation of foreign subsidiaries' operating profits Six months ended Year ended Average exchange rates used for translation of results of foreign 30.9.06 30.9.05 31.3.06 operations US dollar / £ 1.855 1.820 1.785 Euro / £ 1.463 1.468 1.466 South African rand / £ 12.69 11.74 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. Six months ended 30.9.06 At this At last year's year's Effect rates rates £ million £ million £ million Catalysts 70.8 71.5 (0.7) Precious Metal Products 37.2 37.3 (0.1) Pharmaceutical Materials 17.0 17.1 (0.1) Ceramics 10.2 10.1 0.1 Unallocated corporate expenses (8.4) (8.4) - Operating profit 126.8 127.6 (0.8) 4 Income tax expense Six months ended Year ended 30.9.06 30.9.05 31.3.06 £ million £ million £ million United Kingdom 13.3 14.3 27.1 Overseas 20.2 16.8 35.4 33.5 31.1 62.5 The group's share of associated undertakings' taxation for the six months ended 30th September 2006 was £ nil (six months ended 30th September 2005 £ nil, year ended 31st March 2006 £ nil). Notes on the Accountsfor the six months ended 30th September 2006 5 Earnings per ordinary share The calculation of earnings per ordinary share is based on a weighted average of 213,642,055 shares in issue (six months ended 30th September 2005 - 215,043,409 shares, year ended 31st March 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 1,915,624 (six months ended 30th September 2005 - 447,034 shares, year ended 31st March 2006 - 967,320 shares). Earnings per ordinary share before impairment costs are calculated as follows: Six months ended Year ended 30.9.06 30.9.05 31.3.06 £ million £ million £ million Profit for the period attributable to equity holders of the 81.9 75.7 152.1 parent company Impairment costs - - 6.0 Tax thereon - - (1.8) Profit before impairment and restructuring costs 81.9 75.7 156.3 pence pence pence Basic earnings per share before impairment costs 38.3 35.2 72.7 6 Dividends An interim dividend of 9.9 pence per ordinary share will be paid on 6th February 2007 to shareholders on the register at the close of business on 1st December 2006. The estimated amount to be paid is £21.1 million. In accordance with IFRS accounting requirements this dividend has not been recognised in these accounts. Six months ended Year ended 30.9.06 30.9.05 31.3.06 £ million £ million £ million 2004/05 final ordinary dividend paid - 19.0 pence per share - 40.9 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 - - 44.9 40.9 60.4 7 Share purchases During the six months ended 30th September 2006 the company purchased 1,060,000 of its own shares at a cost of £13.7 million. These shares are being held as treasury shares. Notes on the Accountsfor the six months ended 30th September 2006 8 Changes in equity Six months ended Year ended 30.9.06 30.9.05 31.3.06 £ million £ million £ million Equity at end of prior period 1,044.5 929.9 929.9 IFRS transition adjustment for financial instruments - 2.7 2.7 Equity at beginning of period 1,044.5 932.6 932.6 Total recognised income and expense relating to the period 51.3 88.0 185.9 Dividends paid to equity holders of the parent company (44.9) (40.9) (60.4) Dividends payable to minority interests (0.2) (0.2) (0.3) Minority interest arising on formation of subsidiary 0.3 - - New share capital subscribed 1.5 2.0 5.3 Purchase of own shares (13.7) - - Purchase of shares for employee share ownership trusts - (8.0) (25.3) Share-based payments (net of shares transferred to employees) 2.6 2.1 3.2 Tax on items taken directly to or transferred from equity - 2.2 3.5 Equity at end of period 1,041.4 977.8 1,044.5 9 Net debt Six months ended Year ended 30.9.06 30.9.05 31.3.06 £ million £ million £ million Cash and deposits 99.2 113.8 133.0 Bank overdrafts (9.0) (12.5) (7.9) Cash and cash equivalents 90.2 101.3 125.1 Current other borrowings and finance leases (18.9) (78.4) (82.4) Non-current borrowings, finance leases and related swaps (549.6) (384.3) (454.7) Net debt (478.3) (361.4) (412.0) 10 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 30th September 2006 precious metal leases were £121.6 million (30th September 2005 £127.8 million, 31st March 2006 £93.2 million). 11 Acquisitions On 13th April 2006 the group purchased most of the business of United Farmaceuticals Limited for £1.9 million plus costs of £0.1 million. The estimated fair value of the assets acquired was £0.9 million giving goodwill of £1.1 million. On 21st April 2006 the group purchased the process diagnostics business of Quest TruTec for £3.8 million plus costs of £0.1 million. The estimated fair value of the assets acquired was £0.7 million giving goodwill of £3.2 million. £0.1 million of the consideration is deferred. Independent Review Reportby KPMG Audit Plc to Johnson Matthey Plc Introduction We have been engaged by the company to review the financial information for the six months ended 30th September2006 which comprises the Consolidated Income Statement, the Consolidated Balance Sheet, the Consolidated Cash FlowStatement, the Consolidated Statement of Recognised Income and Expense and the related notes. We have read theother information contained in the interim report and considered whether it contains any apparent misstatements ormaterial inconsistencies with the financial information. This report is made solely to the company in accordance with the terms of our engagement to assist the company inmeeting the requirements of the Listing Rules of the Financial Services Authority. Our review has been undertakenso that we might state to the company those matters we are required to state to it in this report and for no otherpurpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other thanthe company for our review work, for this report, or for the conclusions we have reached. Directors' responsibilities The interim report, including the financial information contained therein, is the responsibility of, and has beenapproved by, the directors. The directors are responsible for preparing the interim report in accordance with the Listing Rules which require that the accounting policies and presentation applied to the interim figures should be consistent with those applied in preparing the preceding annual accounts except where they are to be changed in the nextannual accounts in which case any changes, and the reasons for them, are to be disclosed. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4 - 'Review of Interim FinancialInformation' issued by the Auditing Practices Board for use in the United Kingdom. A review consists principallyof making enquiries of group management and applying analytical procedures to the financial information and underlyingfinancial data and, based thereon, assessing whether accounting policies and presentation have been consistently appliedunless otherwise disclosed. A review is substantially less in scope than an audit performed in accordance with AuditingStandards and therefore provides a lower level of assurance than an audit. Accordingly we do not express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications that should be made to the financialinformation as presented for the six months ended 30th September 2006. KPMG Audit PlcChartered AccountantsLondon21st November 2006 Financial Calendar 2006 29th NovemberEx dividend date 1st DecemberInterim ordinary dividend record date 2007 6th FebruaryPayment of interim dividend on ordinary shares 7th JuneAnnouncement of results for the year ending 31st March 2007 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 Cautionary Statement This 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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