TIDMJMAT
RNS Number : 7793G
Johnson Matthey PLC
01 June 2017
Preliminary results for the year ended 31(st) March 2017
Improving performance with stronger second half and full year
results in line with expectations
Financial information Year ended 31(st) % change
March
-------------------------------------------- ---------
2017 2016
----------------------------- ------------- --------- --------- ---------
Revenue GBP million 12,031 10,714 +12
Operating profit GBP million 493.2 418.9 +18
Profit before tax (PBT) GBP million 461.6 386.3 +19
Earnings per share (EPS) pence 201.2 166.2 +21
Ordinary dividend per share pence 75.0 71.5 +5
----------------------------- ------------- --------- --------- ---------
Underlying(1) performance Year ended 31(st) % change,
March continuing
businesses(2)
at constant
rates(3)
----------------------------------------- --------- ---------------
2017 2016 % change
-------------------------- ------------- --------- --------- --------- ---------------
Sales excluding precious
metals (Sales) GBP million 3,578 3,177 +13 +3
Operating profit GBP million 513.3 450.8 +14 -
Profit before tax GBP million 481.7 418.2 +15 +1
Earnings per share pence 209.1 178.7 +17
-------------------------- ------------- --------- --------- --------- ---------------
For notes see page 2
Highlights of the year ended 31(st) March 2017
-- Revenue up 12% to GBP12,031 million and operating profit up
18% to GBP493.2 million including translational FX benefit of
GBP721 million and GBP69 million respectively
-- At constant rates(3) , sales for continuing businesses(2)
grew 3% with underlying(1) PBT up 1%
-- In H2, at constant rates, sales for continuing businesses
grew 6% and underlying operating profit grew 4%
-- As a result of the restructuring programme announced in
2015/16, costs were reduced by GBP26 million, primarily in Process
Technologies and Fuel Cells
-- EPS up 21% at 201.2 pence and underlying EPS up 17% at 209.1 pence
-- Cash flow from operating activities of GBP523 million and
free cash flow of GBP230 million. Working capital days(4) reduced
from 56 to 54 days
-- Capex and R&D spend to drive future growth: capex was
GBP265 million, 1.7 times depreciation, with gross R&D GBP201
million(5) , 5.6% of sales
-- Return on invested capital increased to 18.2% from 17.3%
-- Strong balance sheet with net debt to EBITDA of 1.1 times (2015/16: 1.2 times)
-- Recommended final dividend per share of 54.5 pence, up 5%
reflecting confidence in group's medium term prospects. Full year
dividend per share 75.0p.
Robert MacLeod, Chief Executive, commented:
"This has been a year of further progress; strengthening our
business, implementing our strategy and delivering financial
results in line with our expectations. Across each of our
businesses we are applying our world class science and technology
strengths to help customers solve problems, enabling Johnson
Matthey to contribute to a cleaner, healthier world.
Underlying sales growth has come from the application of our
leading technologies. We have invested over GBP440 million in capex
and R&D combined, underpinning our commitment to science in the
UK and internationally. In ECT in Europe, our technology strengths
delivered strong sales growth by providing customer focused
solutions to meet increasing emissions standards. We have broadened
our platforms, especially in our pipeline of new active
pharmaceutical ingredients and in high energy battery materials.
Our cost saving programme has increased efficiency, primarily in
Process Technologies and Fuel Cells, and we have improved our
agility and are capturing greater synergy across the divisions.
Cash generation has improved through our disciplined management of
working capital.
For the full year 2017/18, sales growth, at constant rates, is
expected to be broadly in line with the 6% growth delivered in the
second half of this year. Improving operating performance at
constant rates, with stronger sales growth and further efficiency
savings, is expected to be offset as there will be no US
post-retirement medical benefit credit and there are higher non
cash pension charges in 2017/18. At current exchange rates,
reported results in 2017/18 will benefit from the positive impact
of translational foreign exchange.
Beyond 2017/18, our stronger business platform and operational
momentum will deliver sustained sales growth and margin
expansion."
Ends
Enquiries:
Investor Relations Head of Investor Relations 020 7269 8235
Simon McGough Head of Investor Relations 020 7269 8426
Sarah Armstrong Investor Relations Analyst 020 7269 8444
Katharine Burrow
Media Director of Corporate Relations 020 7269 8407
Sally Jones Tulchan Communications 020 7353 4200
David Allchurch/Latika
Shah
www.matthey.com
Notes:
1. Underlying is before amortisation of acquired intangibles,
major impairment and restructuring charges, profit or loss on
disposal of businesses, significant tax rate changes and, where
relevant, related tax effects. For reconciliation see note 5 on
page 26
2. Growth for continuing businesses excludes the contribution
from the Research Chemicals business in 2015/16
3. Growth at constant rates excludes the translation impact of
foreign exchange movements, with 2015/16 results converted at
2016/17 average exchange rates
4. Working capital days are calculated as non-precious metal
related inventories, trade and other receivables and trade and
other payables (including any classified as held for sale) divided
by sales excluding precious metals for the last three months
multiplied by 90 days
5. Gross R&D includes capitalised development of GBP19
million which is also included in capex
6. For definitions and reconciliations of other non-GAAP
measures see page 29
Additional Information
Group structure: On 20(th) April 2017, Johnson Matthey announced
a new group structure, effective 1(st) April 2017. The group has
moved to managing and reporting as four sectors aligned on the
global priorities of cleaner air, the efficient use of natural
resources and improved health: Clean Air, Efficient Natural
Resources, Health and New Markets. Restated results for year ended
31(st) March 2017 will be issued prior to the Capital Markets Day
which Johnson Matthey will hold in London on 21(st) September
2017.
Quarterly reporting: For the year ending 31(st) March 2018 and
subsequent years, Johnson Matthey will not issue quarterly trading
updates in line with current thinking from investment associations.
A trading update will be issued at the time of the AGM on 28(th)
July 2017.
Other financial information
Outlook for the year ending 31(st) March 2018
-- Sales growth, at constant rates, is expected to be broadly in
line with the 6% growth delivered in the second half of the year
ended 31(st) March 2017
-- The combination of stronger sales growth together with
additional cost savings is expected to be offset by comparison
against the 2016/17 US post-retirement medical benefit credit and
by higher non cash pension charges in 2017/18 (see post-employment
benefits note below)
2017/18 restructuring charge
-- In the year ending 31(st) March 2018 Johnson Matthey expects
to take a restructuring charge as part of the further changes it
will make to improve efficiency. The charge is expected to be in
the range of GBP50 million to GBP65 million, of which over half
will be cash. It is expected to generate savings of around GBP25
million in a full year and benefit 2017/18 by approximately GBP10
million
Future capital expenditure
Capital expenditure for the year ending 31(st) March 2018 is
expected to be around GBP285 million (1.8 times depreciation).
Proposed projects include:
-- Construction of a new manufacturing plant in Poland to
provide capacity to satisfy the anticipated requirements of
European emissions legislation and enhance our efficiency and
operating flexibility
-- Capitalised development costs as we continue work on
expanding our pipeline of new active pharmaceutical ingredient
products
-- Continued investment in our core IT business systems
Research and development
-- Johnson Matthey spent GBP201 million on R&D in the year,
an increase of 7% and 5.6% of sales. Investment in R&D supports
our growth agenda, especially in Emission Control Technologies
(ECT) and Fine Chemicals
Foreign exchange
-- Translational foreign exchange movements in the year
benefited revenue by GBP721 million, sales by GBP351 million and
operating profit by GBP69 million
-- At current exchange rates (GBP:$ 1.289; GBP:Euro 1.149;
GBP:RMB 8.84) translational foreign exchange movements are expected
to increase revenue by GBP133 million, sales by GBP66 million and
operating profit by GBP13 million in the year ending 31(st) March
2018
Post-employment benefits
-- In the six months ended 30(th) September 2016 a one-off gain
of GBP16 million was recognised in operating profit and for the
full year the gain was GBP17 million mainly following the
implementation of an inflation cap in the US post-retirement
medical plan. ECT and Precious Metal Products both received a
credit of GBP6 million
-- For the year ending 31(st) March 2018 the cost of providing
post-employment benefits will increase due to lower discount rates.
The service cost, accounted for in operating profit, is expected to
increase by GBP12 million
Share-based payments
-- In the year ended 31(st) March 2017 the charge to operating
profit relating to the group's share-based payments increased by
GBP15 million. No material change is expected for 2017/18
Taxation
-- The effective tax rate on reported profit was 16.7% and on
underlying profit it was 17.0%, an increase from 15.7% and 16.1%
respectively in the year ended 31(st) March 2016. In the year
ending 31(st) March 2018 we currently expect the tax rate on
underlying profit to be around 18%
Additional financial analysis
Unless otherwise stated, commentary refers to performance of
continuing businesses at constant rates. Percentage changes in the
tables are calculated on unrounded numbers
Sales (GBP million) Year ended 31(st)
March
------------------------------- --------- ---------------------
% change, continuing
businesses* at
2017 2016 % change constant rates
------------------------------- --------- --------- --------- ---------------------
Emission Control Technologies 2,224 1,913 +16 +4
Process Technologies 587 541 +8 -
Precious Metal Products 403 343 +18 +6
Fine Chemicals 284 296 -4 +1
New Businesses 191 157 +22 +10
Eliminations (111) (73)
Sales 3,578 3,177 +13 +3
------------------------------- --------- --------- --------- ---------------------
*Sales for year ended 31(st) March 2016 includes GBP38 million
from the Research Chemicals business sold in September 2015
Sales grew 6% in the second half of the year, following a
decline of 1% in the first half. The anticipated improvement in
sales growth in Process Technologies, which saw orders phased into
the second half was the main driver of the improvement. In
addition, stronger sales growth in Precious Metal Products
reflected higher average platinum group metal (pgm) prices and
improved refinery intakes.
Underlying operating profit Year ended 31(st)
(GBP million) March
------------------------------- --------- ---------------------
% change, continuing
businesses* at
2017 2016 % change constant rates
------------------------------- --------- --------- --------- ---------------------
Emission Control Technologies 318.2 272.2 +17 +2
Process Technologies 90.4 73.6 +23 +9
Precious Metal Products 86.4 66.3 +30 +17
Fine Chemicals 64.5 82.3 -22 -23
New Businesses (14.4) (17.9) +20 +12
Corporate (31.8) (25.7) -24 -24
Underlying Operating Profit 513.3 450.8 +14 -
------------------------------- --------- --------- --------- ---------------------
*Underlying operating profit for year ended 31(st) March 2016
includes GBP7.5 million from the Research Chemicals business
Underlying operating profit was flat for the full year.
Following a decline of 3% in the first half operating profit grew
4% in the second half. This is the result of the higher second half
sales. In addition, Fine Chemicals benefited from the increased
contribution of the API for dofetilide in the second half.
Reconciliation of underlying operating Year ended 31st March
profit to operating profit (GBP million) 2017 2016
-------------------------------------------- ----------- -----------
Underlying operating profit 513.3 450.8
Amortisation of acquired intangibles (20.1) (20.9)
Profit on sale of Research Chemicals - 130.0
Major impairment and restructuring charges - (141.0)
Operating profit 493.2 418.9
-------------------------------------------- ----------- -----------
Reported operating profit was up 18%, benefiting from foreign
exchange movements of GBP69 million. In the year ended 31(st) March
2016 there were two large one-off items namely the profit on the
sale of Research Chemicals and the major impairment and
restructuring charge. In the year ended 31(st) March 2017 there
were no similar charges.
Operating results by division
Emission Control Technologies
Sales outperformed vehicle production in almost every market
despite a year of limited changes in legislation
-- Very strong growth in our European Light Duty Vehicle
Catalyst business driven by sales of higher value catalysts across
diesel and gasoline, and share gains in diesel catalysts
-- In our Heavy Duty Diesel Catalyst business, sales
outperformed in every region, driven by new business wins in North
America and Asia, and sales of higher value catalysts in Europe
-- The global focus on clean air will drive growth for our
business over the medium to long term as tighter emissions
legislation continues to be introduced, particularly in Europe and
Asia
Year ended 31(st)
March
2017 2016
GBP million GBP million % change,
% change constant rates
Sales
LDV Europe 847 698 +21 +13
LDV Asia 339 282 +20 +6
LDV North America 214 202 +6 -8
Total Light Duty Vehicle Catalysts 1,400 1,182 +18 +7
HDD North America 397 405 -2 -15
HDD Europe 249 196 +27 +15
HDD Asia 85 44 +95 +64
Other - non-road and stationary 93 86 +8 -3
Total Heavy Duty Diesel Catalysts 824 731 +13 -1
Total sales 2,224 1,913 +16 +4
Underlying operating profit 318.2 272.2 +17 +2
Return on sales 14.3% 14.2%
Return on invested capital 30.7% 28.3%
------------------------------------ ------------ ------------ --------- ----------------
Estimated LDV sales and production (number of light duty
vehicles)*
Year ended 31(st) March
2017 2016 %
millions millions change
--------------- ------------ ------------- ------------ -------
North America Sales 21.1 20.9 +1
Production 18.0 17.6 +2
Total Europe Sales 20.2 19.3 +5
Production 21.8 21.0 +4
Asia Sales 43.8 39.9 +10
Production 49.3 45.6 +8
Global Sales 93.9 89.1 +5
Production 94.4 89.0 +6
---------------------------- ------------- ------------ -------
Estimated HDD truck sales and production (number of trucks)*
Year ended 31(st) March
2017 2016 %
thousands thousands change
--------------- ------------ ------------ ------------ -------
North America Sales 478 550 -13
Production 456 558 -18
Total Europe Sales 445 413 +8
Production 569 534 +7
Asia Sales 1,628 1,263 +29
Production 1,788 1,424 +26
Global Sales 2,646 2,344 +13
Production 2,879 2,592 +11
---------------------------- ------------ ------------ -------
*Source: LMC Automotive
Light Duty Vehicle (LDV) Catalysts
Our LDV Catalyst business provides catalysts for cars and other
light duty vehicles powered by both gasoline and diesel. The
business delivered a good performance in which it outperformed the
growth in global vehicle production.
Our European LDV Catalyst business performed strongly and sales
grew 13%, well ahead of the 4% growth in vehicle production.
Sales of catalysts for diesel powered vehicles, which account
for approximately 80% of our European LDV catalyst sales, grew
strongly in the year. This was in part driven by the full year
effect of the sale of higher value catalysts to meet Euro 6b, which
applied to all car production from September 2015 and which imposed
tighter emissions standards on oxides of nitrogen (NOx) from diesel
vehicles. However, sales growth, and Johnson Matthey's
outperformance, was primarily due to new business for higher value
products. This is the result of our strength in the technology
required to meet Euro 6b and the tougher real world driving
emission standards (RDE). While RDE will not be applicable to new
models of cars until September 2017, with the increased public
focus and scrutiny on emissions, we have seen our customers
increasingly shift towards more advanced NOx control systems for
diesel vehicles. As a result, there was increased demand for our
advanced selective catalytic reduction (SCR) catalysts which have a
higher value. The move to advanced SCR catalysts will benefit sales
in 2017/18 and through the medium term.
Sales of catalysts for gasoline powered vehicles showed good
growth on the back of a shift in mix to some larger engine
platforms for luxury vehicles and increased demand from some of our
customers as a result of sales growth of their vehicles.
While in the year, diesel vehicles as a proportion of total
vehicles produced in Western Europe only declined one percentage
point to 51%, we expect the decline in diesel's share in Western
Europe to accelerate over time, with demand for smaller diesel cars
initially being most impacted. However, diesel engines continue to
offer greater fuel efficiency and lower CO(2) emissions compared to
their gasoline counterparts, particularly for larger vehicles. They
enable car manufacturers to meet the significant reduction in fleet
average CO(2) limits which will apply in 2020 and, therefore, we
expect diesel to remain an important powertrain technology.
Consequently, with the tighter RDE legislation and the business
wins Johnson Matthey has already secured, we expect to see
continued strong sales growth in our European LDV diesel catalyst
business over the short to medium term.
We are also well positioned in our technology for catalysts for
gasoline engines and will benefit from growth in gasoline vehicle
production and tighter legislation. Euro 6c legislation, which
requires a reduction in particulate emissions from gasoline
vehicles, will apply to new models from September 2017 and to all
production from September 2018. Certain gasoline cars, such as
those with direct injection, are expected to require additional
advanced coated particulate filter catalysts to meet the new
standard and we estimate this will initially apply to up to a
quarter of gasoline cars sold in the European Union. The addition
of a coated particulate filter catalyst will significantly increase
our average sales value per vehicle for these cars. During the
year, we secured contracts with customers to supply Euro 6c
platforms and these will begin to phase in from September 2017.
In order to provide sufficient capacity to satisfy anticipated
requirements for tighter European emissions legislation in the
medium term, and also to enhance our global efficiency and
operating flexibility, we plan to invest approximately GBP90
million in the construction of a new manufacturing plant in Poland.
This plant will commence production in summer 2019.
In Asia, our LDV Catalyst business performed well with sales up
6%. In China, while our volumes outperformed the strong 14% growth
in Chinese vehicle production, our sales growth was lower. This was
due to a change in customer mix as we increased the number of
platforms supplied to local car manufacturers but reduced sales to
global car manufacturers. Although this change in mix negatively
impacted sales, margins were maintained as the associated
manufacturing costs were also lower. We continued to work with
customers ahead of the introduction of China 6 legislation from
2020 and completed the expansion of our research and development
facilities there. Our businesses in Japan and South East Asia grew
slightly ahead of flat markets.
Sales in our North American LDV Catalyst business declined 8%,
underperforming vehicle production which was up 2% in the year.
This was expected as a number of sales agreements came to an end.
However, sales in the second half benefited from new platform wins
which will drive sales growth next year.
Heavy Duty Diesel (HDD) Catalysts - on road
Our on road HDD Catalyst business, which provides catalysts for
trucks and buses, outperformed truck production across all
regions.
Our US HDD Catalyst business outperformed a weak US market,
where total truck production was down 18%, driven by a 30% decline
in production of the larger Class 8 trucks. Our sales declined by
15% as we benefited from the launch of a new Class 8 platform and
strong demand for catalysts for smaller trucks. We expect Class 8
truck production to stabilise in the first half of 2017/18 given
our improving order book.
Sales in our European HDD Catalyst business were up 15%,
supported by 7% growth in truck production and positive mix as an
increasing proportion of our sales related to higher value
products, both coated and extruded.
Our HDD Catalyst business in Asia grew very strongly from a low
base. Truck production in China was up 47% following enforcement of
truck loading limits from September 2016. Johnson Matthey's strong
reputation for working with customers in a rapidly changing
legislative environment resulted in new business with local truck
manufacturers. Our sales to China more than doubled. We expanded
capacity in the year ahead of the move from nationwide China IV
legislation to China VI in 2020.
Heavy Duty Diesel Catalysts - other
Sales of catalysts for non-road and stationary applications fell
slightly, mainly due to continued lower demand from the
agricultural sector.
Operating profit
Underlying operating profit was up 2% and return on sales at
constant rates declined only slightly in spite of higher initial
manufacturing costs associated with producing more advanced
catalyst systems. Return on sales is expected to be broadly
maintained in the year ending 31(st) March 2018 as we balance
continued investment in China with improvements in the
manufacturing efficiency of our advanced catalyst systems.
Return on invested capital
ROIC improved to 30.7% from 28.3% driven primarily by the
benefit of translational foreign exchange.
Process Technologies
A good second half performance as the business maintained its
strong position in a challenging market
-- With fewer new chemical plants constructed in the year,
licence income in our Chemicals businesses was lower impacting
sales and profitability
-- New business gains benefited catalyst sales with a good second half
-- Operating profit grew strongly, up 9%, benefiting from
efficiency gains from last year's restructuring programme
Year ended 31(st)
March
2017 2016
GBP million GBP million % change,
% change constant rates
Sales
Syngas 141 158 -11 -17
Oleo/biochemicals 53 48 +9 -2
Petrochemicals 133 103 +30 +19
Chemicals 327 309 +6 -3
Refineries 161 127 +27 +14
Gas Processing 41 42 -2 -5
Diagnostic Services 58 63 -8 -15
Oil and Gas 260 232 +12 +3
Total sales 587 541 +8 -
Underlying operating profit 90.4 73.6 +23 +9
Return on sales 15.4% 13.6%
Return on invested capital (ROIC) 11.4% 9.6%
----------------------------------- ------------ ------------ --------- ----------------
Process Technologies sells licences, catalysts and services to
help our customers operate their processes at optimum efficiency
with reduced environmental impact.
Chemicals
Across all our Chemicals businesses (Syngas, Oleo/biochemicals
and Petrochemicals), we supply licences to our customers. There is
excess manufacturing capacity which has negatively impacted new
plant construction and consequently demand from our customers for
new licences remains depressed. In addition, we saw lower sales of
equipment to customers for use in the construction of their
formaldehyde plants. We addressed these market challenges through
restructuring the organisation improving both profitability and our
flexibility to respond to demand.
We also supply a portfolio of catalysts. In our Syngas business,
these are primarily to customers who manufacture ammonia,
formaldehyde and methanol. Sales of first fills of catalysts for
new ammonia plants were down year on year as a result of excess
ammonia manufacturing capacity. Methanol first fill catalyst sales
benefited from the supply to an Iranian customer. Ammonia and
methanol catalyst replacements are typically every four to six
years and those for formaldehyde are annual. Given there is excess
manufacturing capacity for ammonia and methanol, our customers
delayed the purchase of refill catalysts and sales of these
catalysts were down year on year. Formaldehyde refill catalyst
sales were up 9%. Sales of catalysts in our Oleo/biochemical
business were steady.
The Petrochemicals business produces catalysts for a range of
different processes. Since the summer of 2015 it has supplied
speciality zeolites to ECT for use in its SCR catalyst
technologies. Growth in ECT's demand for zeolites and the full year
impact of this was the main driver of the year on year sales
growth.
Across our Chemicals business, the second half showed stronger
sales benefiting from the purchase of catalysts by our customers as
they prepare for plant shutdowns in the summer.
Oil and Gas
Sales in our Refineries business, where we supply catalysts and
additives, were up significantly as we outperformed a broadly flat
market with sales growth of 14%. We won a large first fill by
providing a customer specific solution based on our world class
catalyst technology. In addition we increased sales to an existing
customer through our ability to respond quickly to an urgent order.
In the increasingly competitive additives market, we developed new
products and manufacturing processes and sales were up 1% in a flat
market.
In Gas Processing, which supplies purification products used to
remove mercury and sulphur impurities from natural gas, sales were
down due to our introduction of more cost competitive products but
this increased margins and profitability.
We have recently commenced a detailed strategic review to assess
the alignment of our Diagnostic Services business with the rest of
the group.
Operating profit
Underlying operating profit was up by 9%. Lower income from
licencing and Diagnostic Services impacted operating profit and
return on sales but this was more than offset by the GBP18 million
of cost savings from the restructuring programme announced last
year.
We expect ongoing tough end markets for our catalyst customers
and do not expect a significant recovery in investment in plant
construction. We will continue to review our cost base and deliver
supply chain and manufacturing efficiencies in the year ending
31(st) March 2018. However, we expect licencing activity to remain
subdued and this will negatively impact operating profit.
ROIC
ROIC increased from 9.6% to 11.4%, reflecting efficiency gains
in the period and foreign exchange.
Precious Metal Products
Stronger second half, reflecting higher pgm prices and actions
taken to drive efficiency
-- PGM Refining and Recycling benefited from improving intakes and higher average pgm prices
-- We have improved the operational efficiency of our refineries
which benefited working capital
-- Our Manufacturing businesses continued to grow steadily based
on our strong market positions
Year ended 31(st)
March
2017 2016
GBP million GBP million % change,
% change constant rates
Sales
PGM Refining and Recycling 95 77 +24 +13
Precious Metals Management 19 17 +12 +8
Services 114 94 +22 +13
Noble Metals 152 130 +16 +4
Advanced Glass Technologies 85 71 +20 +5
Chemical Products 52 48 +9 +1
Manufacturing 289 249 +16 +4
Total sales 403 343 +18 +6
Underlying operating profit 86.4 66.3 +30 +17
Return on sales 21.4% 19.4%
Return on invested capital (ROIC) 19.8% 16.5%
----------------------------------- ------------ ------------ --------- ----------------
Services
Sales in our PGM Refining and Recycling business grew by 13%
helped by improving intake volumes and higher average prices of
platinum and palladium, which rose by 2% and 8% respectively over
the year. These drivers particularly benefited the second half. The
business also benefited from a focus on an improved mix of intakes
and actions taken to improve the operational efficiency of our
refineries.
In order to position us for future demand in China, we opened a
new pgm recycling facility in Zhangjiagang in October 2016. The
site is now processing small quantities of material consistent with
a phased start up.
Sales in Precious Metals Management increased as the business
benefited from volatility in pgm prices over the year.
Manufacturing
Sales across our Manufacturing businesses grew by 4% with good
growth in Advanced Glass Technologies and Noble Metals.
Sales growth in Noble Metals reflects slightly higher sales of
medical device components and increased sales of pgm products for a
range of industrial applications. Sales of pgm gauzes, used in the
production of nitric acid, were slightly down in the year.
Sales growth in our Advanced Glass Technologies business was
driven by higher automotive production, particularly in China,
leading to increased demand for our black obscuration enamels used
in car windscreens. Sales of other glass products for a range of
functional and decorative applications were broadly steady.
Sales across Chemical Products were slightly up, helped by a
small increase in sales of materials for autocatalysts to ECT.
Operating profit
Underlying operating profit grew strongly in the year, up 17%.
The first half benefited from the US post-retirement medical
benefit credit. The second half was particularly strong, benefiting
from sales growth across manufacturing products, higher pgm prices
and improved operational efficiency helped by an improved mix of
intakes.
While some of these improved trends are expected to continue,
there will be no US
post-retirement medical benefit credit in 2017/18.
ROIC
ROIC improved to 19.8%, reflecting operating profit growth and
foreign exchange.
Fine Chemicals
Strong sales from active pharmaceutical ingredients (APIs) for
two newly approved drugs offset lower sales of ADHD APIs
-- Underlying operating profit was significantly down due to
lower sales of the higher margin ADHD APIs
-- Investment to drive medium term growth through the continued
development of our pipeline of new APIs
Year ended 31(st)
March
2017 2016
% change,
continuing
businesses*
at constant
GBP million GBP million % change rates
Sales
API Manufacturing 236 217 +9 -1
Catalysis and Chiral Technologies 48 41 +17 +9
Research Chemicals - 38
Total sales 284 296 -4 +1
Underlying operating profit 64.5 82.3 -22 -23
Return on sales 22.8% 27.8%
Return on invested capital (ROIC) 12.3% 16.9%
----------------------------------- ------------ ------------ --------- -------------
* Continuing businesses excludes sales and underlying operating
profit for the year ended 31(st) March 2016 of GBP38 million and
GBP7.5 million respectively in relation to the Research Chemicals
business sold in September 2015
API Manufacturing
Our API Manufacturing business develops and manufactures APIs
for a variety of treatments, with over half of our sales coming
from opiate-based painkillers and ADHD treatments. While our API
portfolio is currently relatively small, there is great opportunity
for Johnson Matthey to increase its share of a $650 billion global
pharmaceutical market growing at mid to high single digits per
year.
The performance in the year reflects lower sales from ADHD
treatments in the US and lower sales of opiate-based APIs, broadly
offset by sales of new APIs for drugs which have been in
development and have now been successfully launched.
Increased competition in the US market for ADHD treatments had a
significant impact on the business' results. While the market for
ADHD treatments grew in the year, consolidation of distributors and
increased competition amongst ADHD drug product manufacturers led
to significant pricing pressures. The impact of this on our main
customer led to a reduction in our sales.
Sales of opiate-based APIs were lower this year, partly
reflecting increased competition in the market for bulk opiates,
principally codeine and morphine. Sales were also impacted by the
conclusion of a contract with one customer for a specialist
opiate.
The US Drug Enforcement Agency has introduced tighter
manufacturing quotas for the 2017 calendar year for certain
controlled substances. This had no material impact on sales in the
year, although the tighter quotas may impact future periods.
Sales of other APIs grew strongly. We benefited from a
significant contribution from dofetilide, an anti-arrhythmic drug
and which is currently the only true generic alternative to
Tikosyn(R). We worked to develop dofetilide with the generic
manufacturer and we now supply the API. Following its launch in
June 2016 it has had strong sales, particularly in the second half
of the year. We also saw increased sales of an API for the
treatment of muscular dystrophy, as approval was granted for a
customer's new product in September 2016.
Our API Manufacturing business also includes our contract
development business. This had an excellent year of sales. The
business benefited from capacity expansion in North America and a
full year's contribution of Pharmorphix, a solid state research
services provider acquired last year, which has broadened our
product and service offering.
Catalysis and Chiral Technologies (CCT)
CCT saw increased sales across its range of catalysts, with
particular growth in catalysts used in the production of drugs to
treat Hepatitis C.
Operating profit
The reduced contribution from ADHD-related sales had a
significant impact on underlying operating profit at a time when we
were investing in the business to develop future growth. This was
partially offset by the strong contribution of dofetilide for the
first time this year.
In the year we have continued to develop our API product
portfolio and now have over 40 products in development. This will
reduce the volatility of sales and profit trends, improving
performance as our portfolio builds scale in the medium term. In
2017/18, sales growth will improve and operating profit is expected
to grow.
ROIC
The reduction in operating profit, partly as a result of
investing in future growth, was the primary driver of the reduction
in ROIC to 12.3%.
New Businesses
Through our New Businesses division we access additional areas
of potential growth
-- Widened our portfolio of battery materials, developing high energy materials
-- Sales growth and improving productivity in Fuel Cells
Year ended 31(st)
March
2017 2016
GBP million GBP million % change,
% change constant rates
Sales
Battery Technologies 148 130 +14 +2
Fuel Cells 12 10 +25 +23
Water Technologies 11 1 n/m n/m
Atmosphere Control Technologies 20 16 +27 +11
Total sales 191 157 +22 +10
Underlying operating loss* (14.4) (17.9) +20 +12
--------------------------------- ------------ ------------ --------- ----------------
*In the year ended 31(st) March 2017, our long term investments
in two venture funds were impaired and this resulted in a charge of
GBP5 million
Battery Technologies is the biggest element of New Businesses
and has two parts, Battery Systems and Battery Materials.
Battery Materials, which sells battery materials for automotive
applications, saw sales down 2% with a significantly weaker second
half as changes to electric vehicle tax incentives in China
impacted the market for lithium iron phosphate (LFP) battery
materials. Drawing on our expertise in nickel based chemistry we
have moved at pace to extend our battery technology platforms. We
have already entered into two new licensing agreements and are
developing nickel rich high energy battery materials.
Battery Systems is a cell assembly business and delivered single
digit growth mainly from increasing demand for e-bikes in
Europe.
In our other new businesses, growth in the stationary back up
power market benefited Fuel Cells, with sales 23% ahead of last
year. We increased our expertise in water technology with small
acquisitions of MIOX Corporation and Finex in 2016. Atmosphere
Control Technologies, acquired in May 2015, delivered modest sales
growth in North America.
Operating profit
The underlying operating loss reduced by GBP3.5 million despite
taking a GBP5 million impairment charge. The underlying improvement
resulted from a significant reduction in the operating loss in Fuel
Cells, helped by the prior year restructuring, and improved
profitability within Battery Technologies. We will continue to make
progress in the underlying profitability of New Businesses.
Corporate
Corporate costs increased in the year from GBP25.7 million to
GBP31.8 million, primarily driven by an increased charge in
relation to performance related pay and benefits due to the
improving business performance compared to the year ended 31(st)
March 2016.
Corporate costs for the year ending 31(st) March 2018 are
expected to be around 1% of sales.
Financial review
Foreign exchange
The calculation of growth at constant rates excludes the impact
of foreign exchange movements arising from the translation of
overseas subsidiaries' profit into sterling. The group does not
hedge the income statement impact of these translation effects.
The principal overseas currencies, which represented 82% of the
non-sterling denominated underlying operating profit in the year
ended 31(st) March 2017, were:
Share of 2016/17
non-sterling denominated
underlying operating Average exchange rate
profit Year ended 31(st) March
--------------------------
2017 2016 % change
------------------ -------------------------- ------------- ------------ ---------
US dollar 36% 1.308 1.510 -13
Euro 33% 1.191 1.367 -13
Chinese renminbi 13% 8.79 9.60 -8
------------------ -------------------------- ------------- ------------ ---------
There was a significant decrease in the value of sterling
against most major currencies during the year. The impact of
exchange rates increased sales and underlying operating profit for
the year by GBP351 million and GBP69 million respectively.
If current exchange rates are maintained throughout the year
ending 31(st) March 2018, foreign currency translation will have a
positive impact of approximately GBP13 million on underlying
operating profit. A one cent change in the average US dollar and
euro exchange rates each has an impact of approximately GBP1.6
million on full year underlying operating profit and a ten fen
change in the average rate of the Chinese renminbi has an impact of
approximately GBP0.9 million.
Research and development
Johnson Matthey spent GBP200.7 million on R&D in the year,
an increase of 7% and 5.6% of sales. This included GBP18.9 million
of capitalised development costs. Investment in R&D supports
our growth agenda, especially in ECT and Fine Chemicals.
Major impairment and restructuring costs
In the financial year ending 31(st) March 2018 Johnson Matthey
expects to take a restructuring charge as part of our continued
focus on operational efficiency. The charge is expected to be in
the range of GBP50 million to GBP65 million, of which over half
will be cash. It is expected to generate savings of around GBP25
million in a full year and benefit 2017/18 by approximately GBP10
million.
In the year ended 31(st) March 2016, a major impairment and
restructuring charge of GBP141 million was taken. It identified
annual cost savings of GBP34 million of which GBP8 million were
achieved in 2015/16 and a further GBP26 million were realised in
2016/17. In the year ended 31(st) March 2017 cash costs relating to
the restructuring charge were around GBP16 million.
Finance charges
Net finance charges were GBP31.8 million, down from GBP32.6
million in 2015/16. Interest increased by GBP5.8 million mainly due
to the negative impact from foreign exchange on interest on our US
dollar and euro denominated debt and the higher average net debt,
as excess cash from disposals was held during the year ended 31(st)
March 2016 prior to payment of the special dividend in February
2016. 99% of the group's net debt at 31(st) March 2017 has fixed
interest rates averaging approximately 3.1%. The group's interest
charge on its post-employment benefit plans decreased by GBP6.6
million.
Taxation
The tax charge for the year was GBP77.0 million, a tax rate of
16.7% on profit before tax (2015/16: 15.7%). The tax charge on
underlying profit before tax was GBP82.0 million, which represents
an effective tax rate of 17.0%, up from 16.1% last year due to the
change in UK tax legislation during the year which adversely
impacted the tax outcome of certain intra group financing
arrangements.
Going forward, we expect that the current upward pressure on
corporate tax rates will continue and the tax rate on underlying
profit to be around 18%.
Post-employment benefits
IFRS - accounting basis
At the year end the group's net post-employment benefit
position, after taking account of the bonds held to fund the UK
pension scheme deficit, was a surplus of GBP63.3 million, up from a
surplus of GBP47.3 million at 31(st) March 2016. This increase in
the surplus results from changes in the assumptions made relating
to inflation and mortality, partly offset by the lower discount
rates at 31(st) March 2017.
The cost of providing post-employment benefits in the year was
GBP45.9 million, a reduction of GBP24.6 million, as a result of the
higher discount rate at 31(st) March 2016 compared to 31(st) March
2015. This reduction included the impact of the GBP16.8 million
one-off credit which was mainly the result of the implementation of
an inflation cap in the US post-retirement medical plan.
For the year ending 31(st) March 2018 the cost of providing
post-employment benefits is expected to increase, due to the
absence of the one-off credit in the US post-retirement medical
plan and due to the reduction in discount rates at 31(st) March
2017. The service cost, accounted for in operating profit, is
expected to increase by GBP12 million.
Actuarial - funding basis
The latest triennial actuarial valuation of the UK scheme as at
1(st) April 2015 revealed a deficit of GBP69 million in the legacy
defined benefit career average section, or GBP28 million after
taking account of the future additional deficit funding
contributions from the special purpose vehicle set up in January
2013. The latest valuation update as at 1(st) April 2016, showed
the UK pension scheme to be in deficit, GBP109 million in the
legacy defined benefit career average section. The deficit for this
section of the scheme is GBP69 million after taking account of the
special purpose vehicle. The increase in the deficit from 1(st)
April 2015 was due to a reduction in gilt yields which increased
the value of liabilities combined with lower than assumed asset
returns. The 2016 valuation showed a surplus of GBP2 million in the
defined benefit cash balance section of the scheme, which was
opened on 1(st) October 2012 when the defined benefit career
average section was closed to new entrants. The latest actuarial
valuations of our two US pension schemes showed a surplus of GBP2
million at 30(th) June 2016 down from a GBP3 million surplus at
30(th) June 2015.
Capital expenditure
Capital expenditure was GBP264.7 million (of which GBP259.5
million was cash spent in the year) which equated to 1.7 times
depreciation. The principal investments were:
-- to increase ECT manufacturing capacity and technology in
Europe and China to meet demand from business wins, vehicle
production growth and new legislation;
-- improvements to API development and manufacturing facilities
and capitalised development costs as we work on expanding our
pipeline of new APIs; and
-- to upgrade core IT business systems
Depreciation was GBP151.7 million (2015/16: GBP139.3
million).
Capital expenditure for the year ending 31(st) March 2018 is
expected to be around GBP285 million (1.8 times depreciation).
Free cash flow
Free cash flow was GBP230 million. While working capital days
(excluding precious metals) reduced, the strong sales in the fourth
quarter increased receivables at the year end.
Dividend
The board has recommended a 5% increase in the final dividend to
54.5 pence per share. Together with the interim dividend of 20.5
pence per share this gives a total ordinary dividend for the year
ended 31(st) March 2017 of 75.0 pence per share (2015/16: 71.5
pence per share). At this level the dividend would be covered 2.8
times by underlying earnings per share. Subject to approval by
shareholders, the final dividend will be paid to shareholders on
1(st) August 2017, with an ex-dividend date of 8(th) June 2017.
Return on invested capital
Return on invested capital (ROIC) increased to 18.2% from 17.3%.
Underlying operating profit for the group was 14% ahead of last
year at GBP513.3 million, and average invested capital increased
GBP215 million to GBP2,816 million, primarily due to the impact of
foreign exchange translation.
Our long term ROIC target is 20%. We continue to invest
organically in our businesses across the world to improve returns
and we target appropriate acquisitions that accelerate the delivery
of the group's strategy. Acquisitions may depress ROIC in the short
term, but create long term value.
Capital structure
Net debt at 31(st) March 2017 was GBP715.7 million. This is down
GBP181.1 million from 30(th) September 2016 and is an increase of
GBP40.8 million from 31(st) March 2016. Net debt increases to
GBP758.5 million when adjusted for the post-tax pension deficits.
The group's underlying EBITDA increased to GBP665 million (2015/16:
GBP590.1 million). As a result, the group's net debt (including
post tax pension deficits) to EBITDA was 1.1 times (2015/16: 1.2
times). Our target range is 1.5 to 2.0 times.
Corporate responsibility
Health and safety
We continue to build a world class health and safety culture
across Johnson Matthey. However, this year saw a deterioration in
performance in some safety areas; the lost time injury and illness
rate was 0.49, and the total recordable injury and illness rate was
1.05, per 200,000 hours worked in a rolling year. Actions have been
taken and new measures put in place to ensure that we reach our
target of being in the top 10% of our industry peers.
People
As we grow and work towards our vision for a cleaner, healthier
world, we rely on our talented and committed workforce to achieve
it. We are working to enhance the engagement of our people to
enable them to reach their full potential, so they can do their
best work with us. In November 2016 we ran our first ever global
employee survey, designed to gain a greater understanding of
strategically and culturally important themes across the group and
highlight opportunities to create a better working environment for
employees to develop and contribute. We received a 75% response
rate and in 2017/18 we will act on the results of the survey to
drive higher levels of engagement to enable higher levels of
performance.
Sustainability 2017
In 2007, we launched Sustainability 2017, our ten year programme
to support growth by running our business in a more sustainable
way. Over the last decade this has transformed the efficiency of
our operations, reduced their environmental impact, delivered
improved solutions for our customers and created significant value
for our shareholders. Through the programme we have more than
doubled our earnings per share while reducing our carbon intensity
and use of key resources (electricity, natural gas and water) by
almost half, relative to sales. We have also made significant
progress in reducing waste to landfill across our global
operations, our health and safety performance has improved over the
ten year period and occupational illness cases have reduced to just
one case for every 1,000 employees. The most important outcome of
Sustainability 2017 has been the successful embedding of
sustainability across Johnson Matthey which has been achieved
through engaging employees and making sustainability the way we do
business.
Consolidated Income Statement
for the year ended 31(st) March 2017
2017 2016
Notes GBP million GBP million
Revenue 3 12,031.0 10,713.9
Cost of sales (11,188.0) (9,947.1)
----------- -----------
Gross profit 843.0 766.8
Distribution costs (126.5) (126.1)
Administrative expenses (203.2) (189.9)
Profit on sale or liquidation of businesses - 130.0
Amortisation of acquired intangibles 2 (20.1) (20.9)
Major impairment and restructuring charges - (141.0)
----------- -----------
Operating profit 3 493.2 418.9
Finance costs (38.7) (40.2)
Finance income 6.9 7.6
Share of profit of joint venture and associate 0.2 -
Profit before tax 461.6 386.3
Income tax expense (77.0) (60.6)
----------- -----------
Profit for the year 384.6 325.7
----------- -----------
Attributable to:
Owners of the parent company 386.0 333.1
Non-controlling interests (1.4) (7.4)
----------- -----------
384.6 325.7
----------- -----------
pence pence
Earnings per ordinary share attributable to the equity holders
of the parent company
Basic 201.2 166.2
Diluted 200.8 165.9
Consolidated Statement of Total Comprehensive Income
for the year ended 31(st) March 2017
2017 2016
Notes GBP million GBP million
Profit for the year 384.6 325.7
----------- -----------
Other comprehensive income:
Items that will not be reclassified to profit or
loss:
Remeasurements of post-employment benefit assets
and liabilities 10 (18.4) 180.1
Tax on above items taken directly to or transferred
from equity 2.0 (39.1)
----------- -----------
(16.4) 141.0
----------- -----------
Items that may be reclassified subsequently to
profit or loss:
Currency translation differences 163.9 23.8
Share of currency translation differences of joint
venture and associate 1.3 0.3
Cash flow hedges (1.4) 5.6
Fair value losses on net investment hedges (21.0) (1.2)
Fair value gains / (losses) on available-for-sale
investments 7.0 (5.5)
Tax on above items taken directly to or transferred
from equity (0.4) (4.7)
----------- -----------
149.4 18.3
----------- -----------
Other comprehensive income for the year 133.0 159.3
----------- -----------
Total comprehensive income for the year 517.6 485.0
----------- -----------
Attributable to:
Owners of the parent company 518.5 492.8
Non-controlling interests (0.9) (7.8)
----------- -----------
517.6 485.0
----------- -----------
Consolidated Balance Sheet
as at 31(st) March 2017
2017 2016
Notes GBP million GBP million
Assets
Non-current assets
Property, plant and equipment 1,235.1 1,086.3
Goodwill 607.1 570.0
Other intangible assets 288.3 225.0
Deferred income tax assets 25.6 22.2
Investments and other receivables 107.3 92.3
Interest rate swaps 7 17.4 11.1
Post-employment benefit net assets 10 116.6 109.1
----------- -----------
Total non-current assets 2,397.4 2,116.0
----------- -----------
Current assets
Inventories 772.3 653.7
Current income tax assets 20.4 21.9
Trade and other receivables 1,139.4 948.0
Cash and cash equivalents -- cash and deposits 7 330.4 304.5
Interest rate swaps 7 - 4.6
Other financial assets 7.5 8.5
Total current assets 2,270.0 1,941.2
----------- -----------
Total assets 4,667.4 4,057.2
----------- -----------
Liabilities
Current liabilities
Trade and other payables (968.3) (812.3)
Current income tax liabilities (133.5) (115.0)
Cash and cash equivalents -- bank overdrafts 7 (31.8) (20.7)
Other borrowings, finance leases and related swaps 7 (20.2) (138.5)
Other financial liabilities (14.9) (17.9)
Provisions (21.0) (41.3)
Total current liabilities (1,189.7) (1,145.7)
----------- -----------
Non-current liabilities
Borrowings, finance leases and related swaps 7 (1,011.5) (835.9)
Deferred income tax liabilities (113.0) (99.4)
Employee benefit obligations 10 (111.8) (115.1)
Provisions (18.4) (20.6)
Other payables (5.9) (5.9)
----------- -----------
Total non-current liabilities (1,260.6) (1,076.9)
----------- -----------
Total liabilities (2,450.3) (2,222.6)
----------- -----------
Net assets 2,217.1 1,834.6
----------- -----------
Equity
Share capital 220.7 220.7
Share premium account 148.3 148.3
Shares held in employee share ownership trust (ESOT) (55.5) (54.9)
Other reserves 146.6 (2.3)
Retained earnings 1,776.5 1,541.3
----------- -----------
Total equity attributable to owners of the parent
company 2,236.6 1,853.1
Non-controlling interests (19.5) (18.5)
----------- -----------
Total equity 2,217.1 1,834.6
----------- -----------
Consolidated Cash Flow Statement
for the year ended 31(st) March 2017
2017 2016
Notes GBP million GBP million
Cash flows from operating activities
Profit before tax 461.6 386.3
Adjustments for:
Share of profit of joint venture and associate (0.2) -
Profit on sale of continuing activities - (130.0)
Depreciation, amortisation, impairment losses and loss
on sale of non-current assets 176.6 252.0
Share-based payments 10.6 (2.8)
(Increase) / decrease in inventories (36.7) 211.6
(Increase) / decrease in receivables (111.1) 153.2
Increase in payables 120.7 47.1
Decrease in provisions (27.5) (0.7)
Contributions in excess of employee benefit obligations
charge (40.8) (21.0)
Changes in fair value of financial instruments (3.2) 4.0
Net finance costs 31.8 32.6
Income tax paid (58.9) (65.8)
----------- -----------
Net cash inflow from operating activities 522.9 866.5
----------- -----------
Cash flows from investing activities
Dividends received from joint venture - 0.3
Interest received 4.8 5.2
Purchases of non-current assets and investments (259.5) (253.5)
Proceeds from sale of non-current assets and investments 3.9 4.0
Purchase of interest in associate - (16.2)
Purchases of businesses (19.7) (16.6)
Net proceeds from sale of businesses - 244.6
----------- -----------
Net cash outflow from investing activities (270.5) (32.2)
----------- -----------
Cash flows from financing activities
Net cost of ESOT transactions in own shares (6.1) (3.1)
Proceeds from additional borrowings 80.8 134.4
Repayment of borrowings and finance leases (133.2) (211.6)
Dividends paid to equity holders of the parent company 6 (139.0) (444.6)
Settlement of currency swaps for net investment
hedging (7.3) (4.8)
Interest paid (42.1) (33.9)
----------- -----------
Net cash outflow from financing activities (246.9) (563.6)
----------- -----------
Increase in cash and cash equivalents in the year 5.5 270.7
Exchange differences on cash and cash equivalents 9.3 9.2
Cash and cash equivalents at beginning of year 283.8 3.9
Cash and cash equivalents at end of year 7 298.6 283.8
----------- -----------
Reconciliation to net debt
Increase in cash and cash equivalents in the year 5.5 270.7
Decrease in borrowings and finance leases 52.4 77.2
----------- -----------
Change in net debt resulting from cash flows 57.9 347.9
Borrowings acquired with subsidiaries (4.8) -
New finance leases (0.1) -
Exchange differences on net debt (93.8) (28.4)
----------- -----------
Movement in net debt in year (40.8) 319.5
Net debt at beginning of year (674.9) (994.4)
----------- -----------
Net debt at end of year 7 (715.7) (674.9)
----------- -----------
Consolidated Statement of Changes in Equity
for the year ended 31(st) March 2017
Share Shares Non-
held
Share premium in Other Retained controlling Total
capital account ESOT reserves earnings interests equity
GBP
million GBP million GBP million GBP million GBP million GBP million GBP million
At 1st April
2015 220.7 148.3 (54.7) (21.0) 1,517.3 (10.5) 1,800.1
Total
comprehensive
income - - - 18.7 474.1 (7.8) 485.0
Dividends paid
(note 6) - - - - (444.6) (0.2) (444.8)
Purchase of
shares by
ESOT - - (3.3) - - - (3.3)
Share-based
payments - - - - 4.3 - 4.3
Cost of shares
transferred
to employees - - 3.1 - (10.1) - (7.0)
Tax on
share-based
payments - - - - 0.3 - 0.3
---------- ----------- ----------- ----------- ----------- ----------- -----------
At 31st March
2016 220.7 148.3 (54.9) (2.3) 1,541.3 (18.5) 1,834.6
Total
comprehensive
income - - - 148.9 369.6 (0.9) 517.6
Dividends paid
(note 6) - - - - (139.0) (0.1) (139.1)
Purchase of
shares by
ESOT - - (6.1) - - - (6.1)
Share-based
payments - - - - 17.1 - 17.1
Cost of shares
transferred
to employees - - 5.5 - (11.9) - (6.4)
Tax on
share-based
payments - - - - (0.6) - (0.6)
---------- ----------- ----------- ----------- ----------- ----------- -----------
At 31st March
2017 220.7 148.3 (55.5) 146.6 1,776.5 (19.5) 2,217.1
---------- ----------- ----------- ----------- ----------- ----------- -----------
Notes on the Preliminary Accounts
for the year ended 31(st) March 2017
1 Basis of preparation
The financial information contained in this release does not
constitute the company's statutory accounts for the years ended
31(st) March 2017 or 31(st) March 2016 within the meaning of
section 435 of the Companies Act 2006, but is derived from those
accounts. The accounts are prepared in accordance with
International Financial Reporting Standards (IFRS) and
interpretations issued by the International Financial Reporting
Interpretations Committee (IFRIC) or the Standing Interpretations
Committee (SIC) as adopted by the European Union. For Johnson
Matthey, there are no differences between IFRS as adopted by the
European Union and full IFRS as published by the International
Accounting Standards Board and so the accounts comply with IFRS.
The accounting policies applied are set out in the Annual Report
and Accounts for the year ended 31(st) March 2016. None of the new
standards or amendments to standards and interpretations which the
group has adopted during the year has had a material effect on the
reported results or financial position of the group. Statutory
accounts for 2016 have been delivered to the Registrar of Companies
and those for 2017 will be delivered following the company's Annual
General Meeting. The auditors have reported on both of these sets
of accounts. Their reports were unqualified, did not include a
reference to any matters to which the auditors drew attention by
way of emphasis without qualifying their report and did not contain
any statement under sections 498(2) or 498(3) of the Companies Act
2006. The accounts for the year ended 31(st) March 2017 were
approved by the Board of Directors on 31(st) May 2017.
2 Amortisation of acquired intangibles
The amortisation of intangible assets which arise on the
acquisition of businesses, together with any subsequent impairment
of these intangible assets, is shown separately on the face of the
income statement. It is excluded from underlying operating
profit.
3 Segmental information by business segment
Emission Precious
Control Process Metal Fine New
Technologies Technologies Products Chemicals Businesses Eliminations Total
GBP million GBP million GBP million GBP million GBP million GBP million GBP million
Year ended 31(st)
March
2017
Revenue from external
customers 3,779.5 537.8 7,206.1 308.9 198.7 - 12,031.0
Inter-segment revenue 175.0 63.7 1,688.0 6.0 2.5 (1,935.2) -
------------ ------------ ----------- ----------- ----------- ------------ -----------
Total revenue 3,954.5 601.5 8,894.1 314.9 201.2 (1,935.2) 12,031.0
------------ ------------ ----------- ----------- ----------- ------------ -----------
External sales
excluding
precious metals 2,223.1 523.4 363.4 278.7 188.9 - 3,577.5
Inter-segment sales 0.4 63.4 39.7 4.8 2.4 (110.7) -
------------ ------------ ----------- ----------- ----------- ------------ -----------
Sales excluding
precious
metals 2,223.5 586.8 403.1 283.5 191.3 (110.7) 3,577.5
------------ ------------ ----------- ----------- ----------- ------------ -----------
Segment underlying
operating
profit / (loss) 318.2 90.4 86.4 64.5 (14.4) - 545.1
------------ ------------ ----------- ----------- ----------- ------------
Unallocated corporate
expenses (31.8)
-----------
Underlying operating
profit 513.3
Amortisation of acquired
intangibles
(note 2) (20.1)
Operating profit 493.2
Net finance costs (31.8)
Share of profit of
joint
venture 0.2
Profit before tax 461.6
-----------
Segment net assets 1,090.2 802.4 347.9 554.1 162.4 - 2,957.0
------------ ------------ ----------- ----------- ----------- ------------ -----------
Year ended 31(st) March
2016
Revenue from external customers 3,262.8 519.4 6,454.1 318.5 159.1 - 10,713.9
Inter-segment revenue 221.0 31.3 1,213.3 6.4 1.6 (1,473.6) -
------- ----- ------- ----- ------ --------- --------
Total revenue 3,483.8 550.7 7,667.4 324.9 160.7 (1,473.6) 10,713.9
------- ----- ------- ----- ------ --------- --------
External sales excluding
precious metals 1,912.7 510.0 307.9 291.4 155.0 - 3,177.0
Inter-segment sales 0.4 31.2 34.6 4.8 1.5 (72.5) -
------- ----- ------- ----- ------ --------- --------
Sales excluding precious
metals 1,913.1 541.2 342.5 296.2 156.5 (72.5) 3,177.0
------- ----- ------- ----- ------ --------- --------
Segment underlying operating
profit / (loss) 272.2 73.6 66.3 82.3 (17.9) - 476.5
------- ----- ------- ----- ------ ---------
Unallocated corporate expenses (25.7)
--------
Underlying operating profit 450.8
Profit on sale or liquidation
of businesses 130.0
Amortisation of acquired intangibles
(note 2) (20.9)
Major impairment and restructuring
charges (141.0)
--------
Operating profit 418.9
Net finance costs (32.6)
Profit before tax 386.3
--------
Segment net assets 903.2 756.2 313.5 457.3 100.8 - 2,531.0
------- ----- ------- ----- ------ --------- --------
Effect of exchange rate changes on translation of foreign subsidiaries'
4 sales excluding precious metals and operating profit
Average exchange rates used for translation of results
of foreign operations 2017 2016
US dollar / GBP 1.308 1.510
Euro / GBP 1.191 1.367
Chinese renminbi / GBP 8.79 9.60
The main impact of exchange rate movements on the group's sales
and operating profit comes from the translation of foreign
subsidiaries' results into sterling.
Year ended 31st Change
Year ended March 2016 at
31(st)
March At last At this this year's
year's year's
2017 rates rates rates
GBP million GBP million GBP million %
Sales excluding precious metals
Emission Control Technologies 2,223.5 1,913.1 2,139.1 +4
Process Technologies 586.8 541.2 588.6 -
Precious Metal Products 403.1 342.5 380.5 +6
Fine Chemicals 283.5 296.2 325.6 -13
New Businesses 191.3 156.5 173.8 +10
Elimination of inter-segment sales (110.7) (72.5) (79.9)
----------- ----------- -----------
Sales excluding precious metals 3,577.5 3,177.0 3,527.7 +1
Less Research Chemicals - (38.3) (43.9)
----------- ----------- -----------
Sales excluding precious metals for continuing
businesses 3,577.5 3,138.7 3,483.8 +3
----------- ----------- -----------
Underlying operating profit
Emission Control Technologies 318.2 272.2 313.2 +2
Process Technologies 90.4 73.6 83.0 +9
Precious Metal Products 86.4 66.3 74.1 +17
Fine Chemicals 64.5 82.3 91.6 -30
New Businesses (14.4) (17.9) (16.3) +12
Unallocated corporate expenses (31.8) (25.7) (25.7)
----------- ----------- -----------
Underlying operating profit 513.3 450.8 519.9 -1
Less Research Chemicals - (7.5) (8.3)
----------- ----------- -----------
Underlying operating profit for continuing
businesses 513.3 443.3 511.6 -
----------- ----------- -----------
Fine Chemicals' Research Chemicals business was sold on 30(th)
September 2015.
5 Underlying profit reconciliation
2017 2016
GBP million GBP million
Underlying operating profit, continuing businesses
at constant rates (note 4) 513.3 511.6
Underlying operating profit of Research Chemicals
(note 4) - 8.3
Translation exchange effect to this year's rates - (69.1)
----------- -----------
Underlying operating profit (note 4) 513.3 450.8
Profit on sale or liquidation of businesses - 130.0
Amortisation of acquired intangibles (note 2) (20.1) (20.9)
Major impairment and restructuring charges - (141.0)
----------- -----------
Operating profit 493.2 418.9
----------- -----------
Underlying profit before tax 481.7 418.2
Profit on sale or liquidation of businesses - 130.0
Amortisation of acquired intangibles (note 2) (20.1) (20.9)
Major impairment and restructuring charges - (141.0)
----------- -----------
Profit before tax 461.6 386.3
----------- -----------
Tax on underlying profit before tax (82.0) (67.4)
Tax on profit on sale or liquidation of businesses - (15.5)
Tax on amortisation of acquired intangibles
(note 2) 5.0 4.9
Tax on major impairment and restructuring charges - 17.4
----------- -----------
Income tax expense (77.0) (60.6)
----------- -----------
Underlying profit for the period 401.1 358.2
Profit on sale or liquidation of businesses - 130.0
Amortisation of acquired intangibles (note 2) (20.1) (20.9)
Major impairment and restructuring charges - (141.0)
Tax thereon 5.0 6.8
----------- -----------
Profit for the period attributable to owners of the
parent company 386.0 333.1
----------- -----------
million million
Weighted average number of shares in issue 191.9 200.5
----------- -----------
pence pence
Underlying earnings per share 209.1 178.7
----------- -----------
6 Dividends
A final dividend of 54.5 pence per ordinary share has been
proposed by the board which will be paid on 1(st) August 2017 to
shareholders on the register at the close of business on 9(th) June
2017, subject to shareholders' approval. The estimated amount to be
paid is GBP104.5 million and has not been recognised in these
accounts.
2017 2016
GBP million GBP million
2014/15 final ordinary dividend paid - 49.5 pence
per share - 100.5
Special dividend paid - 150.0 pence per share - 304.5
2015/16 interim ordinary dividend paid - 19.5 pence
per share - 39.6
2015/16 final ordinary dividend paid - 52.0 pence
per share 99.7 -
2016/17 interim ordinary dividend paid - 20.5 pence
per share 39.3 -
----------- -----------
Total dividends 139.0 444.6
----------- -----------
7 Net debt
2017 2016
GBP million GBP million
Cash and deposits 330.4 304.5
Bank overdrafts (31.8) (20.7)
----------- -----------
Cash and cash equivalents 298.6 283.8
Other current borrowings, finance leases and related
swaps (20.2) (138.5)
Current interest rate swaps - 4.6
Non-current borrowings, finance leases and related
swaps (1,011.5) (835.9)
Non-current interest rate swaps 17.4 11.1
----------- -----------
Net debt (715.7) (674.9)
----------- -----------
8 Precious metal operating leases
The group leases, rather than purchases, precious metals to fund
temporary peaks in metal requirements provided market conditions
allow. These leases are 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 31(st) March
2017 precious metal leases were GBP77.0 million (2016: GBP70.3
million).
9 Transactions with related parties
There were no material changes in related party relationships in
the year ended 31(st) March 2017 and no other related party
transactions have taken place which have materially affected the
financial position or performance of the group during the year.
10 Post-employment benefits
The group operates a number of post-employment benefit plans
around the world, the forms and benefits of which vary with
conditions and practices in the countries concerned. The major
defined benefit plans are pension plans and post-retirement medical
plans in the UK and the US.
Movements in the net post-employment benefit assets and liabilities,
including reimbursement rights, were:
UK post- US post-
retirement retirement
UK medical US medical
pension benefits pensions benefits Other Total
GBP million GBP million GBP million GBP million GBP million GBP million
At 1(st) April 2016 100.8 (10.5) (21.4) (41.9) (29.6) (2.6)
Current service cost - in
operating profit (28.5) - (10.0) (0.8) (2.2) (41.5)
Current service cost -
capitalised (1.0) - (0.1) - - (1.1)
Net interest 3.6 (0.4) (1.1) (1.5) (0.6) -
Past service cost (2.5) - - 16.8 - 14.3
Remeasurements (22.2) 0.9 6.1 (2.0) (1.2) (18.4)
Company contributions 56.2 0.4 9.6 1.1 2.4 69.7
Exchange adjustments - - (3.2) (5.6) (2.4) (11.2)
----------- ----------- ----------- ----------- ----------- -----------
At 31(st) March 2017 106.4 (9.6) (20.1) (33.9) (33.6) 9.2
----------- ----------- ----------- ----------- ----------- -----------
These are included in the balance sheet as:
2017 2017 2017 2016 2016 2016
Post- Post-
employment Employee employment Employee
benefit benefit benefit benefit
net assets obligations Total net assets obligations Total
GBP million GBP million GBP million GBP million GBP million GBP million
UK pension plan 106.4 - 106.4 100.8 - 100.8
UK post-retirement
medical
benefits plan - (9.6) (9.6) - (10.5) (10.5)
US pension plans - (20.1) (20.1) - (21.4) (21.4)
US post-retirement
medical
benefits plan 8.3 (42.2) (33.9) 6.7 (48.6) (41.9)
Other plans 1.9 (35.5) (33.6) 1.6 (31.2) (29.6)
----------- ----------- ----------- ----------- ----------- -----------
Total post-employment
plans 116.6 (107.4) 9.2 109.1 (111.7) (2.6)
----------- ----------- ----------- -----------
Other long term employee
benefits (4.4) (3.4)
----------- -----------
Total long term employee benefit
obligations (111.8) (115.1)
----------- -----------
Definition and reconciliation of non-GAAP measures to GAAP
measures
for the year ended 31(st) March 2017
The group uses various measures to manage its business which are
not defined by generally accepted accounting principles (GAAP). The
group's management believes these measures provide valuable
additional information to users of the accounts in understanding
the group's performance.
Sales excluding precious metals (sales)
The group believes that sales excluding precious metals is a
better measure of the growth of the group than revenue. Total
revenue can be heavily distorted by year on year fluctuations in
the market prices of precious metals. In addition, in many cases,
the value of precious metals is passed directly on to our
customers.
Underlying profit and earnings
These are the equivalent GAAP measures adjusted to exclude
amortisation of acquired intangibles (note 2), major impairment and
restructuring charges, profit or loss on disposal of businesses,
significant tax rate changes and, where relevant, related tax
effects. The group believes that these measures provide a better
guide to the underlying performance of the group. These are
reconciled in note 5.
Working capital days
Non-precious metal related inventories, trade and other
receivables and trade and other payables (including any classified
as held for sale) divided by sales excluding precious metals for
the last three months multiplied by 90 days.
Free cash flow
Net cash flow from operating activities, after net interest
paid, net purchases of non-current assets and investments and
dividends received from joint venture.
Capex
Additions of property, plant and equipment plus additions of
other intangible assets.
Capex to depreciation ratio
Capex divided by depreciation. Depreciation is the depreciation
charge of property, plant and equipment plus the amortisation
charge of other intangible assets excluding amortisation of
acquired intangibles (note 2).
Return on invested capital (ROIC)
Annualised underlying operating profit divided by the monthly
average of equity plus net debt for the same period.
2017 2016
GBP million GBP million
Average net debt 878.5 691.0
Average equity 1,937.1 1,909.2
----------- -----------
Average capital employed 2,815.6 2,600.2
----------- -----------
Annualised underlying operating profit 513.3 450.8
----------- -----------
ROIC 18.2% 17.3%
----------- -----------
Inventories 772.3 653.7
Trade and other receivables 1,139.4 948.0
Trade and other payables (968.3) (812.3)
----------- -----------
Total working capital 943.4 789.4
Less precious metal working capital (335.5) (256.5)
----------- -----------
Working capital (excluding precious metals) 607.9 532.9
----------- -----------
2017 2016
GBP million GBP million
Earnings before interest, tax, depreciation and
amortisation (EBITDA) 665.0 590.1
Depreciation and amortisation (171.8) (157.6)
Impairment of acquired intangibles - (2.6)
Profit on sale or liquidation of businesses - 130.0
Major impairment and restructuring charges - (141.0)
----------- -----------
Operating profit 493.2 418.9
----------- -----------
Net debt (715.7) (674.9)
Pension deficits (55.6) (52.6)
Bonds purchased to fund pensions (excluded when
UK pension plan in surplus) - -
Related deferred tax 12.8 28.4
----------- -----------
Net debt (including post tax pension deficits) (758.5) (699.1)
----------- -----------
Net debt (including post tax pension deficits)
to EBITDA 1.1 1.2
----------- -----------
Adjusted operating cash flow 352.8 709.4
Income tax paid (58.9) (65.8)
Pension deficit funding contributions (26.6) (26.6)
Less net purchases of non-current assets and investments 255.6 249.5
----------- -----------
Net cash flow from operations 522.9 866.5
----------- -----------
Adjusted operating cash flow 352.8 709.4
Precious metal working capital increase / (decrease) 78.9 (341.9)
----------- -----------
Adjusted operating cash flow (excluding precious
metal) 431.7 367.5
----------- -----------
Cash flow conversion 84% 82%
----------- -----------
Financial Calendar
2017
8(th) June
Ex dividend date
9(th) June
Final dividend record date
28(th) July
126(th) Annual General Meeting (AGM)
1(st) August
Payment of final dividend subject to declaration at the AGM
21(st) November
Announcement of results for the six months ending 30(th) September 2017
30(th) November
Ex dividend date
1(st) December
Interim dividend record date
Cautionary Statement
This announcement contains forward looking statements that are subject
to risk factors associated with, amongst other 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 Company
Registered Office: 5(th) Floor, 25 Farringdon Street, London EC4A 4AB
Telephone: 020 7269 8400
Internet address: www.matthey.com
E-mail: jmpr@matthey.com
Registered in England - Number 33774
Registrars
Equiniti, Aspect House, Spencer Road, Lancing, West Sussex BN99 6DA
Telephone: 0871 384 2344
Internet address: www.shareview.co.uk
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR OKDDPBBKBBPN
(END) Dow Jones Newswires
June 01, 2017 02:00 ET (06:00 GMT)
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