TIDMJMAT
RNS Number : 0359X
Johnson Matthey PLC
21 November 2017
Half year results for the six months ended 30(th) September
2017
Strong operational momentum continued and full year outlook
confirmed
Financial information Half year ended % change
30(th) September
----------------------------------------------------- --------------
2017 2016
--------------------------------- ------------------ ------------ ----------- --------------
Revenue GBP million 6,478 5,625 +15
Operating profit GBP million 221.9 226.5 -2
Profit before tax (PBT) GBP million 204.7 210.0 -3
Earnings per share (EPS) pence 87.9 92.7 -5
Interim dividend per share pence 21.75 20.5 +6
--------------------------------- ------------------ ------------ ----------- --------------
Underlying(1) performance Half year ended % change % change,
30(th) September constant
rates(2)
2017 2016
Sales excluding precious
metals (Sales) GBP million 1,853 1,676 +11 +5
Operating profit GBP million 250.3 236.1 +6 -1
Profit before tax GBP million 233.1 219.6 +6 -
Earnings per share pence 99.8 96.4 +4
-------------------------------- ------------------- ----------- ----------- -------------- ---------------
For notes see page 2
Financial highlights
-- Reported revenue up 15%, driven by higher pgm prices and a
GBP179 million translational FX benefit
-- Reported operating profit down 2%, with GBP18 million
translational FX benefit offset by one-off charges related to our
restructuring programme
-- Reported EPS down 5% to 87.9 pence
-- Underlying sales growth 5% at constant rates(2) and full year
sales growth guidance is unchanged
-- Underlying operating profit down 1% at constant rates,
impacted by the US post-retirement medical plan credit in the prior
period. Excluding this, operating profit grew in line with sales
growth. Full year outlook confirmed
-- Underlying EPS up 4% to 99.8 pence
-- Interim dividend up 6% to 21.75 pence reflecting confidence in medium term outlook
-- Cash inflow from operating activities of GBP7.8 million. In
September, we guided to an outflow of precious metal working
capital due to higher metal prices and lower liquidity. This
amounted to GBP156 million in the half and negative free cash flow
was GBP90.4 million
-- Return on invested capital (ROIC) was maintained at 17.5%
-- Strong balance sheet with net debt to EBITDA of 1.4 times
Operational highlights
-- Strong sales growth was sustained in Clean Air led by double
digit growth of Heavy Duty Diesel catalysts in every region. Sales
of Light Duty Vehicle catalysts were in line with global
production
-- Good sales growth in Efficient Natural Resources, ahead of
the average medium term growth rates of our markets, with higher
sales of refill catalysts and continued strong performance in PGM
Services, although operating profit declined, primarily driven by
negative sales mix in Catalyst Technologies
-- Good growth in Health and continued investment in the
development of our pipeline of new generic and innovator products
to drive future break out growth
-- Significant progress in the development of our high energy
battery material, enhanced lithium nickel oxide (eLNO). Our
material is in qualification cycles with six customers and
investment in a pilot plant is ongoing
Robert MacLeod, Chief Executive, commented:
"We had a strong start to the year with sales growth of 5% and
guidance for the full year is unchanged. We made further
investments in line with the strategy we outlined at our recent
capital markets day which continues to strengthen our business.
We will grow our Clean Air business over the next ten years with
growth in Europe, through share gains supported by our technology
leadership, and by meeting the challenges of tighter legislation
across the world, particularly in China and Europe. Our growing
pipeline in Health will deliver significant growth over the medium
term. We will deliver outperformance through targeted investment in
Efficient Natural Resources and build our New Markets business
primarily through our presence in battery materials.
We are building a stronger platform from which we will achieve
our goal of attractive returns to shareholders over the medium
term: mid to high single digit EPS growth, expanding ROIC to 20%
and a progressive dividend."
Ends
Enquiries:
Investor Relations Head of Investor Relations 020 7269 8235
Simon McGough Investor Relations Analyst 020 7269 8444
Katharine Burrow
Media 020 7269 8407
Sally Jones Director of Corporate Relations 020 7353 4200
David Allchurch/Latika Tulchan Communications
Shah
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 4 on
page 26
2. Growth at constant rates excludes the translation impact of
foreign exchange movements, with H1 2016/17 results converted at H1
2017/18 average exchange rates
3. For definitions and reconciliations of other non-GAAP
measures see page 30
Other financial information
Outlook for the year ending 31(st) March 2018
-- Sales growth, at constant rates, is still expected to be around 6%
-- Operating profit outlook is unchanged
-- The combination of stronger sales growth and additional cost
savings will be offset by comparison against the 2016/17 US
post-retirement medical benefit credit
-- For the full year, the increase in pension service costs is
now expected to be small. This reduction in the expected increase
in pension costs will be reinvested in the business to drive
efficiency across the group, including procurement benefits, core
IT improvements and to fund destocking in Efficient Natural
Resources
Post-employment benefits
-- Performance in the half was impacted by the comparison
against a one-off gain of GBP16 million, mainly following the
implementation of an inflation cap in the US post-retirement
medical benefit plan, which was recognised in operating profit in
the six months ended 30(th) September 2016 (see page 5 for a
breakdown by Sector). For the full year the gain was GBP17
million
-- For the year ending 31(st) March 2018 the cost of providing
post-employment benefits will increase due to lower discount rates
compared to the year ended 31(st) March 2017. However, we no longer
expect there to be a significant increase in non-cash pension costs
in the year as we have mitigated the impact of the change in
discount rates
2017/18 restructuring programme
-- We have started our restructuring programme to drive
efficiencies and a restructuring and impairment charge of GBP18.5
million relating to this was recognised in the period, of which
cash costs totalled GBP4.2 million
-- The total restructuring and impairment charge for the full
year is expected to be between GBP50 and GBP65 million, of which
over half will be cash
-- The programme is expected to generate annual savings of
around GBP25 million and we are on track to benefit from GBP10
million of savings this financial year, with GBP3 million already
achieved in the first half
Corporate costs
-- Corporate costs in the period were GBP17.8 million, an
increase of GBP3.4m from the first half of last year. This was
driven by additional costs relating to central programmes that will
deliver operational excellence and efficiency across the group,
including upgrading our core IT business systems and rolling out a
global procurement programme
-- Corporate costs for the full year are expected to increase by
over a third primarily driven by implementation of these central
programmes
Capital expenditure
Capital expenditure was GBP81 million in the first half and is
expected to be around GBP285 million (1.8 times depreciation) for
the full year as we invest to deliver our strategy. In the period,
projects included:
-- A new Clean Air manufacturing plant in Poland to support
tightening legislation and the significant share gains made in
European Light Duty diesel while also enhancing our efficiency and
operating flexibility
-- Continuing to invest to improve the operational efficiency of our pgm refineries
-- Improvement in our Health manufacturing and development
facilities and continued investment in our Health API product
pipeline
-- A pilot plant to enable further development of our eLNO battery material
-- Upgrading our core IT business systems to drive efficiency across the group
Research and development (R&D)
-- We invested GBP99 million on R&D in the period, including
GBP9 million of capitalised R&D, representing 5% of sales.
Investment in R&D to maintain our market leading technology
positions underpins our growth agenda, especially in next
generation technologies in Clean Air, our Health API product
pipeline and the development of battery materials
Platinum group metal (pgm) prices
-- Higher average pgm prices benefited operating profit by
around GBP5 million in the half in Efficient Natural Resources
Foreign exchange
-- Translational foreign exchange movements in the half year
ended 30(th) September 2017 benefited revenue by GBP179 million,
sales by GBP86 million and operating profit by GBP18 million
-- Based on current exchange rates, our expected average
exchange rates for the year are GBP:$ 1.303, GBP:Euro 1.131, and
GBP:RMB 8.73. At these rates, translational foreign exchange
movements for the year ending 31(st) March 2018 are expected to
increase revenue by GBP94 million, sales by GBP56 million and
operating profit by GBP14 million
Taxation
-- The effective tax rate on reported profit for the period was
17.7% and on underlying profit it was 17.9%, an increase from 15.7%
and 16.1% respectively from the prior period
-- We currently expect the tax rate on underlying profit for the
full year to remain around 18%
Additional financial analysis
Unless otherwise stated, commentary refers to performance at
constant rates. Percentage changes in the tables are calculated on
unrounded numbers
Sales Half year ended
(GBP million) 30(th) September
----------------------------- --------- ----------------
2017 % change,
2016 restated % change constant rates
----------------------------- --------- ------------------ --------- ----------------
Clean Air 1,194 1,054 +13 +7
Efficient Natural Resources 458 420 +9 +5
Health 119 110 +9 +5
New Markets 143 144 -1 -7
Eliminations (61) (52)
Sales 1,853 1,676 +11 +5
----------------------------- --------- ------------------ --------- ----------------
Underlying Operating Profit Half year ended
(GBP million) 30(th) September
----------------------------- --------- ----------------
2017 % change,
2016 restated % change constant rates
----------------------------- --------- ------------------ --------- ----------------
Clean Air 167.9 151.9 +11 +3
Efficient Natural Resources 69.8 73.4 -5 -10
Health 21.7 20.7 +4 -
New Markets 8.7 4.5 +93 +55
Corporate (17.8) (14.4) -24 -30
Underlying Operating Profit 250.3 236.1 +6 -1
----------------------------- --------- ------------------ --------- ----------------
Profit growth for the period is impacted by the comparison
against a one-off gain of GBP15.6 million mainly following the
implementation of an inflation cap on the US post-retirement
medical benefit (PRMB) plan. There was no material impact from
changes in pension service costs in the period. The table below
shows the impact of these items by Sector:
(GBP million) Half year ended
30(th) September 2016
US PRMB gain
-----------------------------
Clean Air 5.8
Efficient Natural Resources 4.7
Health 2.4
New Markets 1.9
Corporate 0.8
Total 15.6
----------------------------- -----------------------
The table below shows the performance excluding the impact of
the PRMB:
Adjusted underlying operating profit % change, at constant rates,
growth excl. PRMB(1)
-------------------------------------- -----------------------------
Clean Air +7
Efficient Natural Resources -4
Health +12
New Markets +135
Corporate -23
Group +5
-------------------------------------- -----------------------------
(1) Excludes the translational FX impact on the PRMB as the
impact is immaterial
Reconciliation of underlying operating Half year ended 30(th) September
profit to operating profit 2017 2016
(GBP million)
-------------------------------------------- ------------------ ---------------
Underlying operating profit 250.3 236.1
Amortisation of acquired intangibles (9.9) (9.6)
Major impairment and restructuring charges (18.5) -
Operating profit 221.9 226.5
-------------------------------------------- ------------------ ---------------
Additional Information
Group structure: Johnson Matthey announced changes to the group
structure on 20(th) April 2017. These results are shown on the new
basis.
Presentation and conference call: A video presentation of the
results, with Robert MacLeod (Chief Executive) and Anna Manz (Chief
Financial Officer), will be available to watch on our website from
8:00am today, Tuesday 21(st) November 2017. This will be followed
by a conference call with our senior management, chaired by Robert
MacLeod, at 9:00am. The dial in number is 020 3427 1904 followed by
passcode 7259496#.
Sector conference call: We will hold our first in an ongoing
series of sector conference calls on 11(th) December 2017 with Alan
Nelson, Chief Technology Officer and Sector Chief Executive, New
Markets, to discuss our strategy for growth in our New Markets
sector.
Operating results by sector
Clean Air
Strong sales growth led by double digit growth in HDD Catalysts
in every region
-- Sales growth in Light Duty was in line with global vehicle
production growth and sales growth in Heavy Duty was significantly
ahead of truck production growth in every region
-- Sales in our European LDV Catalyst business fell in the half
despite strong growth in gasoline catalysts. While volume of diesel
catalysts was flat, sales were down. The benefit of our recent
platform wins is phased into the second half and into 2018/19
-- Sales growth in Light Duty in Asia and in North America was
ahead of vehicle production growth
-- Excluding the US post-retirement medical benefit plan credit
in the prior period, operating profit grew by 7% and margin
improved by 0.2 percentage points
-- In the second half, recent platform wins in European Light
Duty diesel are expected to deliver sales growth in European Light
Duty
Half year ended % change % change,
30(th) September constant rates
2017 2016 restated
GBP million GBP million
Sales
LDV Europe 414 401 +3 -3
LDV Asia 167 157 +6 +3
LDV Americas 183 159 +16 +9
Total Light Duty Vehicle Catalysts 764 717 +7 +1
HDD Americas 195 159 +23 +15
HDD Europe 152 125 +21 +16
HDD Asia 63 34 +88 +84
Total Heavy Duty Diesel Catalysts 410 318 +29 +22
Other - stationary 20 19 +2 -4
Total sales 1,194 1,054 +13 +7
Underlying operating profit 167.9 151.9 +11 +3
Margin 14.1% 14.4%
Return on invested capital (ROIC)(1) 30.6%
-------------------------------------- ------------ -------------- --------- ----------------
(1) Due to the changes to the group structure that were
announced on the 20(th) April 2017 there is no H1 2016/17
comparator for ROIC
Estimated LDV sales and production (number of light duty
vehicles)*
Half year ended 30(th) September
2017 2016 %
millions millions change
--------------- ------------ ----------------- ----------------- -------
North America Sales 10.6 10.9 -3
Production 8.5 9.0 -5
Total Europe Sales 10.0 9.8 +2
Production 10.6 10.6 -
Asia Sales 20.5 20.2 +2
Production 23.5 22.8 +3
Global Sales 42.7 42.2 +1
Production 45.5 44.9 +1
---------------------------- ----------------- ----------------- -------
Estimated HDD truck sales and production (number of trucks)*
Year ended 31(st) March
2017 2016 %
thousands thousands change
--------------- ------------ ------------ ------------ -------
North America Sales 260 250 +4
Production 265 236 +12
Total Europe Sales 224 214 +4
Production 281 270 +4
Asia Sales 955 702 +36
Production 996 766 +30
Global Sales 1,483 1,208 +23
Production 1,587 1,307 +21
---------------------------- ------------ ------------ -------
*Source: LMC Automotive
Our Clean Air business is a global leader, providing catalysts
to reduce harmful emissions from vehicles. This business will
deliver mid single digit sales growth over the next ten years
through share gains in Europe, supported by our technology
leadership, and by meeting the challenges of tighter legislation
across the world, particularly in China and Europe. Over the period
margins will be maintained.
Light Duty Vehicle (LDV) Catalysts
Our LDV Catalyst business provides catalysts for cars and other
light duty vehicles powered by gasoline and diesel. The business
grew in line with global vehicle production.
In Europe, sales of catalysts for diesel powered vehicles
account for approximately 80% of our LDV catalyst business. While
diesel catalyst volume was held flat, despite a 3% decline in total
vehicle production and the fall in the proportion of diesel
vehicles produced in Western Europe to 50% (H1 2016/17: 52%), sales
were down 5% due to a negative platform mix and the impact of lower
substrate costs which are passed through directly to customers.
Our technology leadership in NOx control and fast response to
customers has enabled us to win platforms and this is expected to
increase our share of Light Duty diesel in Europe by around 20
percentage points in 2018/19. Our European LDV diesel business is
expected to grow in the second half and be flat for the full year
as a result of the impact of platform wins in the second half of
this year.
Sales of catalysts for gasoline powered vehicles were
significantly ahead of production driven by an improved platform
mix helped by a continued shift to larger and more complex engine
platforms for luxury vehicles.
Sales in our Asia LDV Catalyst business grew above the market.
Sales in China were down, partly reflecting weaker vehicle
production following a very strong period of growth last year,
however this was offset by strong trading in our businesses in
Japan and India in the half with sales above production.
In the Americas region, our LDV catalyst business grew by 9%,
well ahead of production as the benefit of new diesel platform wins
more than offset the impact of business lost in the prior year.
Heavy Duty Diesel (HDD) Catalysts
Our HDD Catalyst business, which provides catalysts for trucks,
buses and non-road equipment, outperformed truck production in
every region.
Our Americas HDD Catalyst business saw strong sales growth with
the recovery of the Class 8 truck market in North America. Our
sales of catalysts for Class 8 trucks grew above market production
growth of 15%, helped by outperformance by our customers and
business wins in the prior year. We expect the recovery in Class 8
trucks to continue, although the pace of growth in the first half
was supported by customer restocking. Catalyst sales to smaller
Class 4-7 trucks grew broadly in line with market production
levels.
Sales in our European HDD Catalyst business were up 16%,
significantly outpacing the 4% growth in truck production. This
outperformance was due to the ramp up of production from business
wins in the last financial year and a continued increase in the
proportion of our sales related to higher value products, both
coated and extruded.
Our Asian HDD Catalyst business continues to grow very strongly
from a low base, significantly outpacing truck production growth.
Our sales in China more than doubled in the period, helped by the
increasing proportion of China V catalysts which have higher sales
values, including higher substrate content.
Operating profit
Operating profit grew in the period and margin was down 0.3
percentage points. Excluding the US post-retirement medical benefit
plan credit in the prior period, margin improved by 0.2 percentage
points. Margin benefited from operational gearing in our Americas
HDD business given the strong sales growth. Margin also benefited
from transactional FX but was negatively impacted by a number of
factors, mainly our platform mix in Light Duty diesel in
Europe.
Operating profit is expected to grow in the second half with
stronger sales growth led by business wins in European Light Duty
diesel. Margin for the sector is expected to be slightly lower in
the second half.
ROIC
Return on invested capital of 30.6% was in line with the 30.7%
reported for the year ended 31(st) March 2017.
Efficient Natural Resources
Good sales growth, margin was impacted by weaker operating
profit in Catalyst Technologies
-- Sales growth of 5% driven by higher sales of refill catalyst
and continued strong performance in PGM Services, despite the
significant decline in licensing income and sales of catalyst first
fills
-- Excluding the US post-retirement medical benefit plan credit
in the prior period, operating profit declined 4% and margin was
1.1 percentage points lower primarily driven by Catalyst
Technologies
-- Restructuring programme will deliver around GBP5 million of
savings from efficiencies in the second half
Half year ended % change % change,
30(th) September constant rates
2017 2016 restated
GBP million GBP million
Sales
Catalyst Technologies 260 243 +7 +3
PGM Services 128 109 +17 +13
Advanced Glass Technologies 41 40 +1 -5
Diagnostic Services 29 28 +3 -1
Total sales 458 420 +9 +5
Underlying operating profit 69.8 73.4 -5 -10
Margin 15.3% 17.5%
Return on invested capital (ROIC)(1) 12.3%
-------------------------------------- ------------ -------------- --------- ----------------
(1) Due to the changes to the group structure that were
announced on the 20(th) April 2017 there is no H1 2016/17
comparator for ROIC
Our Efficient Natural Resources sector creates value from the
efficient transformation and use of natural resources. Through our
chemistry and technology expertise, highly selective investment
choices and focus on efficiency, we will deliver sales growth one
percentage point ahead of our markets and grow operating profit one
percentage point ahead of sales, over the medium term.
Catalyst Technologies
Catalyst Technologies' sales grew 3% driven by sales growth in
refill catalysts and additives above growth levels in our market
segments.
Sales in our Chemicals business were flat. Challenging end
markets faced by our customers continue to limit new plant
construction, impacting both licensing activity and demand for
first fill catalysts. The weakness in these parts of our business
offset double-digit growth in refill catalysts as we outperformed
our market segments in sales of refill catalysts in aggregate. This
was led by significant growth in ammonia catalysts.
Our Oil and Gas business had a strong start to the year, with
sales of catalysts and additives to refineries both up. First fills
increased significantly including completion of a large order won
at the end of last year while hydrogen refills were steady as we
maintained our position in an increasingly competitive market.
Sales of additives grew well, slightly outperforming a strong
market, helped by new customers for our performance additives, and
increased demand for environmental additives.
PGM Services
Sales in our PGM Services business grew 13%. Our PGM Refining
and Recycling business benefited from higher average precious metal
prices and our continued strategic focus on higher quality intakes.
Average palladium and rhodium prices rose 28% and 38% respectively,
while platinum prices decreased 6%, compared to the first half last
year. Sales were also helped by good demand for refining of
autocatalyst scrap in North America. Precious metal management
activities generated strong sales growth driven by volatility in
platinum group metal (pgm) prices over the period.
Sales of industrial products containing platinum group metals
was slightly down in the period while good sales growth of chemical
products was supported by growth in our Clean Air sector, which
uses pgm materials in its catalyst products.
Advanced Glass Technologies
Sales in our Advanced Glass Technologies business, which
primarily provides black obscuration enamels and silver paste for
automotive glass applications, declined despite a slight increase
in global car production. This was principally due to destocking in
the supply chain in China following a build-up of inventory at the
end of the last calendar year.
Diagnostic Services
Sales in Diagnostic Services were steady. A detailed strategic
review of our Diagnostic Services business to assess the alignment
with the rest of the group is ongoing.
Operating profit
Operating profit and margin declined. Excluding the US
post-retirement medical benefit plan credit in the prior period,
margin declined by 1.1 percentage points. This was primarily driven
by Catalyst Technologies, with lower licensing income, increased
price competition, a weaker catalyst mix and as we destock the
business to improve efficiency. These more than offset a GBP5
million benefit from higher average pgm prices.
We expect operating profit for the full year to be lower than
last year although margin in the second half will be higher than in
the first half. The benefits of restructuring savings,
stabilisation of catalyst pricing and higher pgm prices will be
offset by weakness in licensing income, continued destocking, as
well as some targeted increases in fixed cost to improve the safety
and resilience of our plants.
ROIC
Return on invested capital decreased to 12.3% from 13.5%
reported for the year ended 31(st) March 2017. This was primarily
due to an increase in precious metal working capital due to higher
metal prices and lower liquidity.
Health
Good first half as we continue to benefit from pipeline
investment
-- Good sales growth, including sales of dofetilide throughout
the half, despite the expected lower ADHD active pharmaceutical
ingredient (API) sales
-- Excluding the US post-retirement medical benefit plan credit
in the prior period, operating profit grew by 12% and margin
improved by 1.5 percentage points
Half year ended % change % change,
30(th) September constant rates
2017 2016 restated
GBP million GBP million
Sales
Generics 82 81 +2 -1
Innovators 37 29 +27 +21
Total sales 119 110 +9 +5
Underlying operating profit 21.7 20.7 +4 -
Margin 18.2% 18.9%
Return on invested capital (ROIC)(1) 10.0%
-------------------------------------- ------------ -------------- --------- ----------------
(1) Due to the changes to the group structure that were
announced on the 20(th) April 2017 there is no H1 2016/17
comparator for ROIC
Our Health sector develops and manufactures APIs for a variety
of treatments. We operate in the large and growing outsourced small
molecule API market, within the global pharmaceutical market, where
we create value by providing solutions to the complex problems of
both innovator and generic companies. This will enable us to
deliver significant growth over the medium term, with double digit
sales growth and significant margin expansion expected from
2019/20.
Generics
Performance in our Generics business was mixed with sales steady
overall. Sales of APIs for the treatment of ADHD reduced, as the
increased competition we saw in the US market in the second half of
2016/17 continued. We saw increased demand for speciality opiates,
led by customer orders ahead of an anticipated product launch,
while sales of bulk opiates were slightly lower. In our new
portfolio of other APIs, the contribution from dofetilide, launched
in June 2016, led to strong sales growth.
Development of a broader, deeper product portfolio continues in
line with our plans and we invested GBP8 million in the period
developing our API product pipeline.
Innovators
Sales in our Innovators business grew strongly. This was driven
by increased sales of APIs for branded drugs in commercial
production where we benefited from improved pricing as well as
increased volumes.
Operating profit
Operating profit, excluding the US post-retirement medical
benefit plan credit in the prior period, grew by 12% and margin
improved by 1.5 percentage points, as improved pricing in the half
more than offset lower sales of higher margin ADHD APIs. We
continue to expect improved sales growth although operating profit
for the full year is expected to be broadly in line with last
year.
ROIC
Return on invested capital decreased slightly to 10.0% from the
10.4% reported for the year ended 31(st) March 2017.
New Markets
Significant progress in developing eLNO; anticipated decline in
LFP led to lower H1 sales
-- The significant decline in sales of lithium iron phosphate
(LFP) battery material was partially offset by strong sales growth
of Fuel Cells and Medical Device Components
-- Excluding the US post-retirement medical benefit plan credit
in the prior period, operating profit increased by 135%, despite
the decline in LFP battery materials, due to the very strong
performance in Fuel Cells and Medical Device Components
-- Significant progress in the development of our high energy
battery material, enhanced lithium nickel oxide (eLNO). Our
material is in qualification cycles with six customers and
investment in a pilot plant is ongoing
Half year ended % change % change,
30(th) September constant rates
2017 2016 restated
GBP million GBP million
Sales
Alternative Powertrain 65 75 -14 -21
Medical Device Components 39 33 +20 +13
Life Science Technologies 23 24 -3 -7
Other 16 12 +30 +23
Total sales 143 144 -1 -7
Underlying operating profit 8.7 4.5 +93 +55
Margin 6.1% 3.1%
Return on invested capital (ROIC)(1) 7.9%
-------------------------------------- ------------ -------------- --------- ----------------
(1) Due to the changes to the group structure that were
announced on the 20(th) April 2017 there is no H1 2016/17
comparator for ROIC
Our New Markets sector accesses additional areas of potential
growth for Johnson Matthey where our core chemistry competencies
can solve challenges in emerging and fast growing markets.
Alternative Powertrain
Our Alternative Powertrain business provides battery materials
for automotive applications, battery systems for a range of
applications and fuel cell technologies. Sales were down 21% as the
decline in LFP battery material sales more than offset the
significant growth in fuel cell products.
Sales of our LFP battery materials fell significantly,
principally due to changes in electric vehicle tax incentives in
China which has led to increased substitution of LFP by high energy
materials. This has severely impacted our sales as certain
platforms no longer use our LFP materials. We continue to develop
next generation LFP products and explore growth opportunities in
this market.
In the period, we made significant progress expanding our
portfolio of battery materials with the development of our high
energy nickel rich material, eLNO. This material provides a
step-change increase in energy density and improvements in all
other key metrics compared to other materials available today. We
have validated the benefits of this material with customers,
including cell manufacturers and car makers, and our product is in
qualification cycles with six customers with positive feedback.
During the period, we started our investment in our pilot plant and
have commenced work on the front end engineering and design of our
commercial scale production plant.
In our other Alternative Powertrain businesses, sales of fuel
cell products more than doubled in the period, helped by increased
volumes of sales to one customer as they launched new stationary
power products in a new market. Sales of battery systems were down
slightly reflecting increased phasing of orders into the second
half of the year.
Medical Device Components
Our Medical Device Components business leverages our science and
technology to develop products found in devices used in medical
procedures. Sales were up significantly in the period led by strong
market growth and our customers' growth within those markets,
particularly for cochlear implants to aid hearing.
Life Science Technologies
Our Life Science Technologies business, formerly Catalysis and
Chiral Technologies, provides advanced catalysts and processes to
the pharmaceutical and agricultural chemicals markets. Sales were
lower in the period reflecting lower sales to two large
customers.
Operating profit
Operating profit grew by 55%, benefiting from higher sales of
fuel cell products and strong sales growth and an improved product
mix in our Medical Device Components business. Further improvement
in profitability is expected for the remainder of this year helped
by stronger sales growth and comparison against a GBP5 million
impairment charge in the second half of last year.
ROIC
Return on invested capital increased to 7.9% from the 6.2%
reported for the year ended 31(st) March 2017, reflecting the
improved operating profit performance.
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 impact of translation effects on the income
statement.
The principal overseas currencies, which represented 82% of
non-sterling denominated underlying operating profit in the half
year ended 30(th) September 2017, were:
Share of H1 2017/18
non-sterling denominated Average exchange rate
underlying operating Half year ended
profit 30(th) September
--------------------------
2017 2016 % change
------------------ -------------------------- ----------- ----------- ---------
US dollar 37% 1.295 1.374 -6
Euro 33% 1.138 1.223 -7
Chinese renminbi 12% 8.76 9.06 -3
------------------ -------------------------- ----------- ----------- ---------
There was a decrease in the value of sterling against most major
currencies compared to the half year ended 30(th) September 2016.
The impact of exchange rates increased sales and underlying
operating profit for the period by GBP86 million and GBP18 million
respectively.
If current exchange rates are maintained throughout the
remainder of the year ending 31(st) March 2018, foreign currency
translation will have a positive impact of approximately GBP14
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 and GBP1.8 million respectively 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.
Major impairment and restructuring costs
We have started our restructuring programme to drive
efficiencies and a restructuring and impairment charge of GBP18.5
million relating to this was recognised in the period, including
GBP4.2 million of cash costs. The total restructuring and
impairment charge for the full year is expected to be between GBP50
and GBP65 million, of which over half will be cash. The programme
is expected to generate savings of around GBP25 million and we are
on track to benefit from GBP10 million of savings this financial
year, with GBP3 million already achieved in the first half.
Finance charges
Net finance charges were in line with last year at GBP16.4
million.
Taxation
The tax charge for the half year ended 30(th) September 2017 was
GBP36.2 million, an effective tax rate of 17.7% (H1 2016/17:
15.7%). The tax charge on underlying profit before tax was GBP41.7
million, an effective tax rate of 17.9%, up from 16.1% in the half
year ended 30(th) September 2016. This increase was due to the
change in UK tax legislation during the second half of last year
which adversely impacted the tax outcome of certain intra group
financing arrangements.
We currently expect the tax rate on underlying profit for the
full year to remain around 18%.
Post-employment benefits: IFRS - accounting basis
At 30(th) September 2017, 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 GBP21.5
million.
The cost of providing post-employment benefits in the period was
GBP22 million, up from GBP6 million last year. This increase is
predominantly due to the one-off gain of GBP15.6 million on the
implementation of an inflation cap in the US post-retirement
medical benefit plan in the prior period.
Free cash flow and working capital
Negative free cash flow of GBP90.4 million was primarily driven
by an GBP156 million increase in precious metal working capital due
to higher metal prices and lower liquidity. Non precious metal
working capital increased by GBP91 million.
Working capital days, excluding precious metals, increased 10
days from the year end to 64 days. This is a decrease of 5 days
from the first half of last year as we continue to focus on working
capital management. Our target is for working capital days
excluding precious metals to be in the range of 50 to 60 days.
Interim dividend
The board has increased the interim dividend by 6% to 21.75
pence, reflecting confidence in the medium term outlook. The
interim dividend will be paid on 6(th) February 2018 to ordinary
shareholders on the register as at 1(st) December 2017, with an
ex-dividend date of 30(th) November 2017.
Return on invested capital
The group's return on invested capital was held in line with
last year at 17.5%.
Capital structure
Net debt at 30(th) September 2017 was GBP890.9 million. This is
an increase of GBP175.2 million from 31(st) March 2017,
predominantly due to the higher precious metal working capital. Net
debt increases to GBP935.8 million when adjusted for the post-tax
pension deficits. The group's net debt (including post tax pension
deficits) to EBITDA for the 12 months to 30(th) September 2017 was
1.4 times (31(st) March 2017: 1.1 times). Our target range is 1.5
to 2.0 times.
Contingent Liability
A group company, Johnson Matthey Inc, has been made a defendant
to a contract dispute lawsuit alongside a supplier to an automotive
OEM in the United States. The dispute relates to engine emission
after treatment systems for which the group supplied coated
substrate as a component. The group does not believe it has
warranty liability in respect of its supplies of coated substrate
for the after treatment systems in the affected engines and will
vigorously defend its position in the litigation. With respect to
these legal proceedings, the group is currently unable to make a
reliable estimate of the expected nancial effect, if any.
Going concern
The directors have assessed the future funding requirements of
the group and are of the opinion that the group has adequate
resources to fund its operations for the foreseeable future.
Therefore they believe that it is appropriate to prepare the
accounts on a going concern basis.
Risks and Uncertainties
The principal risks and uncertainties to which the group is
exposed are identified in our 2017 annual report. As part of our
ongoing review we are adding a further risk: Applications, systems
and cyber-risk and amending the risk rating of security of metal
and highly regulated substances.
The external cyber-threat is increasing with attacks on a wide
range of organisations becoming increasingly frequent and
sophisticated. Against this backdrop we are investing in our IT
infrastructure to support a more efficient business, and in doing
so increasing the global consistency and connectivity of our
applications and infrastructure. As such, we have decided to
elevate the risk of cyber-attack from within the risk of failure of
a critical site to a principal risk in its own right to ensure
greater board visibility.
We are increasing the risk for security of metal and highly
regulated substances from low to medium to reflect the increase in
metal value held on our balance sheet, principally as a result of
higher metal prices.
The other principal risks and uncertainties, together with the
group's strategies to manage them, are set out on pages 16 to 21 of
the 2017 annual report and these are unchanged. They are:
* Existing market outlook - The risk of a change to the * Sourcing of strategic materials - Any breakdown in
outlook for our key markets is either unplanned or the supply of certain strategic raw materials would
unforeseen and as a result we are poorly positioned lead to an inability to manufacture and satisfy
to respond customer demand
* Future revenue growth - Failure to grow through new * People - Effective recruitment and retention
opportunities either as a result of failing to
identify the opportunity, fund or execute
successfully * Security of metal and highly regulated substances
* Maintaining our competitive advantage - Failure to * Intellectual capital management
maintain our competitive advantage in existing
markets
* Failure of significant sites
* Environment, health and safety - Operating safely in
line with changes to environmental, health and safety * Ethics and compliance - Doing the right thing
legislation standards
* Business transition - Failure to manage major
programmes and transition from a big small company to
a small big company
* Product quality
Responsibility Statement of the Directors in respect of the
Half-Yearly Report
The Half-Yearly Report is the responsibility of the directors.
Each of the directors as at the date of this responsibility
statement, whose names and functions are set out below, confirms
that to the best of their knowledge:
-- the condensed consolidated accounts have been prepared in
accordance with International Accounting Standard (IAS) 34 -
'Interim Financial Reporting'; and
-- the interim management report included in the Half-Yearly
Report includes a fair review of the information required by:
a) DTR 4.2.7R of the Financial Conduct Authority's Disclosure
Guidance and Transparency Rules, being an indication of important
events that have occurred during the first six months of the
financial year and their impact on the condensed consolidated
accounts; and a description of the principal risks and
uncertainties for the remaining six months of the financial year;
and
b) DTR 4.2.8R of the Financial Conduct Authority's Disclosure
Guidance and Transparency Rules, being related party transactions
that have taken place in the first six months of the current
financial year and that have materially affected the financial
position or performance of the company during that period; and any
changes in the related party transactions described in the last
annual report that could do so.
The names and functions of the directors of Johnson Matthey Plc
are as follows:
Tim Stevenson Chairman
Odile Desforges Non-Executive Director
Alan Ferguson Non-Executive Director, Senior Independent Director and
Chairman of the Audit Committee
Jane Griffiths Non-Executive Director
Robert MacLeod Chief Executive
Anna Manz Chief Financial Officer
Chris Mottershead Non-Executive Director and Chairman of the Remuneration
Committee
John O'Higgins Non-Executive Director
John Walker Sector Chief Executive, Clean Air
The responsibility statement was approved by the Board of
Directors on 20(th) November 2017 and is signed on its behalf
by:
Tim Stevenson
Chairman
Independent Review Report
to Johnson Matthey Plc
Conclusion
We have been engaged by the company to review the condensed
consolidated accounts in the Half-Yearly Report for the six months
ended 30(th) September 2017 which comprise the Condensed
Consolidated Income Statement, the Condensed Consolidated Statement
of Total Comprehensive Income, the Condensed Consolidated Balance
Sheet, the Condensed Consolidated Cash Flow Statement, the
Condensed Consolidated Statement of Changes in Equity and the
related explanatory notes.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed consolidated accounts in
the Half-Yearly Report for the six months ended 30(th) September
2017 are not prepared, in all material respects, in accordance with
IAS 34 - 'Interim Financial Reporting' as adopted by the EU and the
Disclosure Guidance and Transparency rules (the DTR) of the UK's
Financial Conduct Authority (the UK FCA).
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 -- 'Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity' issued by the Auditing Practices Board for use in
the UK. A review of interim financial information consists of
making enquiries, primarily of persons responsible for financial
and accounting matters, and applying analytical and other review
procedures. We read the other information contained in the
Half-Yearly Report and consider whether it contains any apparent
misstatements or material inconsistencies with the information in
the condensed consolidated accounts.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK and
Ireland) and consequently does not enable us to obtain assurance
that we would become aware of all significant matters that might be
identified in an audit. Accordingly, we do not express an audit
opinion.
Directors' responsibilities
The Half-Yearly Report is the responsibility of, and has been
approved by, the directors. The directors are responsible for
preparing the Half-Yearly Report in accordance with the DTR of the
UK FCA.
The annual accounts of the group are prepared in accordance with
International Financial Reporting Standards as adopted by the
European Union (EU). The condensed consolidated accounts included
in this Half-Yearly Report have been prepared in accordance with
IAS 34 -- 'Interim Financial Reporting' as adopted by the EU.
Our responsibility
Our responsibility is to express to the company a conclusion on
the condensed consolidated accounts in the Half-Yearly Report based
on our review.
The purpose of our review work and to whom we owe our
responsibilities
This report is made solely to the company in accordance with the
terms of our engagement to assist the company in meeting the
requirements of the DTR of the UK FCA. Our review has been
undertaken so that we might state to the company those matters we
are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the company for our
review work, for this report, or for the conclusions we have
reached.
Stephen Oxley
for and on behalf of KPMG LLP
Chartered Accountants
15 Canada Square, London E14 5GL
20(th) November 2017
Condensed Consolidated Income Statement
for the six months ended 30(th) September 2017
Six months ended Year ended
30.9.17 30.9.16 31.3.17
Notes GBP million GBP million GBP million
Revenue 2 6,478.3 5,624.9 12,031.0
Cost of sales (6,045.1) (5,228.9) (11,188.0)
----------- ----------- -----------
Gross profit 433.2 396.0 843.0
Operating expenses (182.9) (159.9) (329.7)
Amortisation of acquired intangibles 5 (9.9) (9.6) (20.1)
Major impairment and restructuring charges 6 (18.5) - -
----------- ----------- -----------
Operating profit 221.9 226.5 493.2
Finance costs (19.9) (18.9) (38.7)
Finance income 3.5 2.5 6.9
Share of (loss) / profit of joint venture
and associate (0.8) (0.1) 0.2
----------- ----------- -----------
Profit before tax 204.7 210.0 461.6
Income tax expense (36.2) (32.9) (77.0)
----------- ----------- -----------
Profit for the period 168.5 177.1 384.6
----------- ----------- -----------
Attributable to:
Owners of the parent company 168.7 177.7 386.0
Non-controlling interests (0.2) (0.6) (1.4)
----------- ----------- -----------
168.5 177.1 384.6
----------- ----------- -----------
pence pence pence
Earnings per ordinary share attributable to the equity
holders of the parent company
Basic 87.9 92.7 201.2
Diluted 87.8 92.6 200.8
Condensed Consolidated Statement of Total Comprehensive
Income
for the six months ended 30(th) September 2017
Six months ended Year ended
30.9.17 30.9.16 31.3.17
Notes GBP million GBP million GBP million
Profit for the period 168.5 177.1 384.6
----------- ----------- -----------
Other comprehensive income:
Items that will not be reclassified to profit
or loss:
Remeasurements of post-employment benefits
assets and liabilities 11 (0.9) (243.0) (18.4)
Tax on above items taken directly to or
transferred from equity 1.5 38.0 2.0
----------- ----------- -----------
0.6 (205.0) (16.4)
----------- ----------- -----------
Items that may be reclassified subsequently
to profit or loss:
Currency translation differences (59.3) 136.1 165.2
Cash flow hedges 4.5 (7.6) (1.4)
Fair value gain / (loss) on net investment
hedges 2.5 (19.7) (21.0)
Fair value gain on available-for-sale investments 0.4 7.0 7.0
Tax on above items taken directly to or
transferred from equity - 1.2 (0.4)
----------- ----------- -----------
(51.9) 117.0 149.4
----------- ----------- -----------
Other comprehensive (expense) / income for
the period (51.3) (88.0) 133.0
----------- ----------- -----------
Total comprehensive income for the period 117.2 89.1 517.6
----------- ----------- -----------
Attributable to:
Owners of the parent company 117.5 89.7 518.5
Non-controlling interests (0.3) (0.6) (0.9)
----------- ----------- -----------
117.2 89.1 517.6
----------- ----------- -----------
Condensed Consolidated Balance Sheet
as at 30(th) September 2017
30.9.17 30.9.16 31.3.17
Notes GBP million GBP million GBP million
Assets
Non-current assets
Property, plant and equipment 1,189.2 1,153.4 1,235.1
Goodwill 598.8 600.5 607.1
Other intangible assets 287.6 279.0 288.3
Deferred income tax assets 24.1 47.7 25.6
Investments and other receivables 109.3 106.9 107.3
Interest rate swaps 8 9.1 17.3 17.4
Post-employment benefit net assets 11 132.7 10.0 116.6
----------- ----------- -----------
Total non-current assets 2,350.8 2,214.8 2,397.4
----------- ----------- -----------
Current assets
Inventories 911.7 855.0 772.3
Current income tax assets 25.8 47.4 20.4
Trade and other receivables 1,140.8 1,039.3 1,139.4
Cash and cash equivalents -- cash and deposits 8 132.9 171.2 330.4
Interest rate swaps 8 - 2.5 -
Other financial assets 12.7 10.7 7.5
Total current assets 2,223.9 2,126.1 2,270.0
----------- ----------- -----------
Total assets 4,574.7 4,340.9 4,667.4
----------- ----------- -----------
Liabilities
Current liabilities
Trade and other payables (899.1) (868.2) (968.3)
Current income tax liabilities (129.1) (144.5) (133.5)
Cash and cash equivalents -- bank overdrafts 8 (21.0) (19.0) (31.8)
Other borrowings, finance leases and related
swaps 8 (34.3) (150.5) (20.2)
Other financial liabilities (12.0) (24.8) (14.9)
Provisions (24.8) (28.5) (21.0)
Total current liabilities (1,120.3) (1,235.5) (1,189.7)
----------- ----------- -----------
Non-current liabilities
Borrowings, finance leases and related swaps 8 (977.6) (918.3) (1,011.5)
Deferred income tax liabilities (107.7) (93.8) (113.0)
Employee benefit obligations 11 (115.8) (243.2) (111.8)
Provisions (14.8) (19.2) (18.4)
Other payables (4.8) (5.9) (5.9)
----------- ----------- -----------
Total non-current liabilities (1,220.7) (1,280.4) (1,260.6)
----------- ----------- -----------
Total liabilities (2,341.0) (2,515.9) (2,450.3)
----------- ----------- -----------
Net assets 2,233.7 1,825.0 2,217.1
----------- ----------- -----------
Equity
Share capital 220.7 220.7 220.7
Share premium account 148.3 148.3 148.3
Shares held in employee share ownership trust
(ESOT) (50.6) (55.5) (55.5)
Other reserves 94.8 114.7 146.6
Retained earnings 1,840.4 1,416.0 1,776.5
----------- ----------- -----------
Total equity attributable to owners of the
parent company 2,253.6 1,844.2 2,236.6
Non-controlling interests (19.9) (19.2) (19.5)
----------- ----------- -----------
Total equity 2,233.7 1,825.0 2,217.1
----------- ----------- -----------
Condensed Consolidated Cash Flow Statement
for the six months ended 30(th) September 2017
Six months ended Year ended
30.9.17 30.9.16 31.3.17
Notes GBP million GBP million GBP million
Cash flows from operating activities
Profit before tax 204.7 210.0 461.6
Adjustments for:
Share of loss / (profit) of joint venture
and associate 0.8 0.1 (0.2)
Depreciation, amortisation, impairment losses
and (profit) / loss on
sale of non-current assets and investments 94.7 84.4 176.6
Share-based payments 3.5 7.1 10.6
Changes in working capital and provisions (264.1) (158.6) (95.4)
Changes in fair value of financial instruments (3.5) (2.5) (3.2)
Net finance costs 16.4 16.4 31.8
Income tax paid (44.7) (33.0) (58.9)
----------- ----------- -----------
Net cash inflow from operating activities 7.8 123.9 522.9
----------- ----------- -----------
Cash flows from investing activities
Dividends received from joint venture 0.6 - -
Interest received 1.4 1.5 4.8
Purchases of non-current assets and investments (81.2) (108.1) (259.5)
Proceeds from sale of non-current assets
and investments 0.5 0.2 3.9
Purchases of businesses - (19.5) (19.7)
Net cash outflow from investing activities (78.7) (125.9) (270.5)
----------- ----------- -----------
Cash flows from financing activities
Net cost of ESOT transactions in own shares - (6.0) (6.1)
Proceeds from / (repayment of) borrowings
and finance leases 14.9 (5.8) (52.4)
Dividends paid to equity owners of the parent
company 7 (104.5) (99.7) (139.0)
Settlement of currency swaps for net investment
hedging (2.7) (6.2) (7.3)
Interest paid (19.5) (19.9) (42.1)
----------- ----------- -----------
Net cash outflow from financing activities (111.8) (137.6) (246.9)
----------- ----------- -----------
(Decrease) / increase in cash and cash equivalents
in period (182.7) (139.6) 5.5
Exchange differences on cash and cash equivalents (4.0) 8.0 9.3
Cash and cash equivalents at beginning of
period 298.6 283.8 283.8
Cash and cash equivalents at end of period 8 111.9 152.2 298.6
----------- ----------- -----------
Reconciliation to net debt
(Decrease) / increase in cash and cash equivalents
in period (182.7) (139.6) 5.5
(Proceeds from) / repayment of borrowings
and finance leases (14.9) 5.8 52.4
----------- ----------- -----------
Change in net debt resulting from cash flows (197.6) (133.8) 57.9
Borrowings acquired with subsidiaries - (4.6) (4.8)
New finance leases - - (0.1)
Exchange differences on net debt 22.4 (83.5) (93.8)
----------- ----------- -----------
Movement in net debt in period (175.2) (221.9) (40.8)
Net debt at beginning of period (715.7) (674.9) (674.9)
----------- ----------- -----------
Net debt at end of period 8 (890.9) (896.8) (715.7)
----------- ----------- -----------
Condensed Consolidated Statement of Changes in Equity
for the six months ended 30(th) September 2017
Share Shares Non-
held
Share premium in Other Retained controlling Total
capital account ESOT reserves earnings interests equity
GBP GBP
GBP million million million GBP million GBP million GBP million GBP million
At 1(st) April
2016 220.7 148.3 (54.9) (2.3) 1,541.3 (18.5) 1,834.6
Total
comprehensive
income
for the period - - - 117.0 (27.3) (0.6) 89.1
Dividends paid
(note 7) - - - - (99.7) (0.1) (99.8)
Purchase of
shares by ESOT - - (6.1) - - - (6.1)
Share-based
payments - - - - 10.5 - 10.5
Cost of shares
transferred
to employees - - 5.5 - (8.8) - (3.3)
At 30(th)
September 2016 220.7 148.3 (55.5) 114.7 1,416.0 (19.2) 1,825.0
Total
comprehensive
income
for the period - - - 31.9 396.9 (0.3) 428.5
Dividends paid
(note 7) - - - - (39.3) - (39.3)
Share-based
payments - - - - 6.6 - 6.6
Cost of shares
transferred
to employees - - - - (3.1) - (3.1)
Tax on
share-based
payments - - - - (0.6) - (0.6)
----------- ---------- ---------- ----------- ----------- ----------- -----------
At 31(st) March
2017 220.7 148.3 (55.5) 146.6 1,776.5 (19.5) 2,217.1
Total
comprehensive
income
for the period - - - (51.8) 169.3 (0.3) 117.2
Dividends paid
(note 7) - - - - (104.5) (0.1) (104.6)
Share-based
payments - - - - 6.7 - 6.7
Cost of shares
transferred
to employees - - 4.9 - (8.2) - (3.3)
Tax on
share-based
payments - - - - 0.6 - 0.6
----------- ---------- ---------- ----------- ----------- ----------- -----------
At 30(th)
September 2017 220.7 148.3 (50.6) 94.8 1,840.4 (19.9) 2,233.7
----------- ---------- ---------- ----------- ----------- ----------- -----------
Notes on the Accounts for the six months ended 30(th) September 2017
Basis of
1 preparation
The half-yearly accounts were approved by the Board of Directors
on 20(th) November 2017, and are unaudited but have been reviewed
by the auditors. These condensed consolidated accounts do not
constitute statutory accounts within the meaning of section 435 of
the Companies Act 2006, but have been prepared in accordance with
International Accounting Standard (IAS) 34 -- 'Interim Financial
Reporting' and the Disclosure and Transparency Rules of the UK's
Financial Conduct Authority. The accounting policies applied are
set out in the Annual Report and Accounts for the year ended 31(st)
March 2017. None of the amendments to standards and interpretations
which the group has adopted during the period has had a material
effect on the reported results or financial position of the group.
Information in respect of the year ended 31(st) March 2017 is
derived from the company's statutory accounts for that year which
have been delivered to the Registrar of Companies. The auditor's
report on those statutory accounts was unqualified, did not include
a reference to any matters to which the auditor drew attention by
way of emphasis without qualifying its report and did not contain
any statement under sections 498(2) or 498(3) of the Companies Act
2006.
IFRS 9 - 'Financial Instruments' will be adopted from 1(st)
April 2018. The group's evaluation of the effect of this standard
is still ongoing but it is not currently anticipated that it will
have a material effect on the reported results and financial
position of the group.
IFRS 15 - 'Revenue from Contracts with Customers' will be
adopted from 1(st) April 2018. In the current period, further work
has been carried out through a detailed review of contracts
generating revenue. The review continues to support the conclusion
reached initially that IFRS 15 will not have a significant impact
on the timing and amount of revenue recognised. Some impact is
expected as a result of allocating revenue to various performance
obligations and also as a result of meeting IFRS 15's over time
revenue recognition criteria. Due to the insignificant impact of
adopting IFRS 15, the group has concluded that the modified
retrospective transition option will be chosen. An adjustment will
be made to equity to reflect the IFRS 15 impact on contracts which
are open at the date of adoption.
IFRS 16 - 'Leases' will be adopted from 1(st) April 2019. The
effect on the reported results and financial position of the group
is still being evaluated.
2 Segmental information
Efficient
Clean Natural New
Air Resources Health Markets Eliminations Total
GBP million GBP million GBP million GBP million GBP million GBP million
Six months ended 30(th) September
2017
Revenue from external customers 2,006.4 4,168.9 122.3 180.7 - 6,478.3
Inter-segment revenue 127.6 1,033.8 - 9.6 (1,171.0) -
----------- ----------- ----------- ----------- ------------ -----------
Total revenue 2,134.0 5,202.7 122.3 190.3 (1,171.0) 6,478.3
----------- ----------- ----------- ----------- ------------ -----------
External sales excluding precious
metals 1,194.1 402.8 119.3 137.1 - 1,853.3
Inter-segment sales 0.1 55.1 - 5.4 (60.6) -
----------- ----------- ----------- ----------- ------------ -----------
Sales excluding precious metals 1,194.2 457.9 119.3 142.5 (60.6) 1,853.3
----------- ----------- ----------- ----------- ------------ -----------
Segmental underlying operating profit 167.9 69.8 21.7 8.7 - 268.1
----------- ----------- ----------- ----------- ------------
Unallocated corporate expenses (17.8)
-----------
Underlying operating profit (note 4) 250.3
-----------
Segmental net assets 1,084.6 1,272.7 534.2 218.4 - 3,109.9
----------- ----------- ----------- ----------- ------------ -----------
Six months ended 30(th) September
2016 (restated)
Revenue from external customers 1,763.7 3,578.7 112.5 170.0 - 5,624.9
Inter-segment revenue 85.6 778.4 0.1 8.1 (872.2) -
----------- ----------- ----------- ----------- ------------ -----------
Total revenue 1,849.3 4,357.1 112.6 178.1 (872.2) 5,624.9
----------- ----------- ----------- ----------- ------------ -----------
External sales excluding precious
metals 1,053.9 375.4 109.4 137.3 - 1,676.0
Inter-segment sales 0.1 44.7 0.1 6.6 (51.5) -
----------- ----------- ----------- ----------- ------------ -----------
Sales excluding precious metals 1,054.0 420.1 109.5 143.9 (51.5) 1,676.0
----------- ----------- ----------- ----------- ------------ -----------
Segmental underlying operating profit 151.9 73.4 20.7 4.5 - 250.5
----------- ----------- ----------- ----------- ------------
Unallocated corporate expenses (14.4)
-----------
Underlying operating profit (note 4) 236.1
-----------
Segmental net assets 1,015.4 1,235.5 494.1 203.9 - 2,948.9
----------- ----------- ----------- ----------- ------------ -----------
Year ended 31(st) March 2017
(restated)
Revenue from external customers 3,779.5 7,643.2 240.5 367.8 - 12,031.0
Inter-segment revenue 175.0 1,724.0 0.3 17.9 (1,917.2) -
----------- ----------- ----------- ----------- ------------ -----------
Total revenue 3,954.5 9,367.2 240.8 385.7 (1,917.2) 12,031.0
----------- ----------- ----------- ----------- ------------ -----------
External sales excluding precious
metals 2,223.1 826.0 236.0 292.4 - 3,577.5
Inter-segment sales 0.4 92.8 0.3 15.4 (108.9) -
----------- ----------- ----------- ----------- ------------ -----------
Sales excluding precious metals 2,223.5 918.8 236.3 307.8 (108.9) 3,577.5
----------- ----------- ----------- ----------- ------------ -----------
Segmental underlying operating profit 318.2 163.0 51.7 12.2 - 545.1
----------- ----------- ----------- ----------- ------------
Unallocated corporate expenses (31.8)
-----------
Underlying operating profit (note 4) 513.3
-----------
Segmental net assets 1,090.2 1,132.2 525.6 209.0 - 2,957.0
----------- ----------- ----------- ----------- ------------ -----------
Segmental information has been restated for the six months ended
30(th) September 2016 and year ended 31(st) March 2017 to reflect a
change in group structure.
Effect of exchange rate changes on translation of foreign subsidiaries
3 sales excluding precious
metals and operating profits
Six months ended Year ended
Average exchange rates used for translation
of results of foreign operations 30.9.17 30.9.16 31.3.17
US dollar / GBP 1.295 1.374 1.308
Euro / GBP 1.138 1.223 1.191
Chinese renminbi / GBP 8.76 9.06 8.79
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.
Restated six months Change
Six months ended 30.9.16 at
ended At last At this this year's
year's year's
30.9.17 rates rates rates
GBP million GBP million GBP million %
Sales excluding precious metals
Clean Air 1,194.2 1,054.0 1,112.3 +7
Efficient Natural Resources 457.9 420.1 437.3 +5
Health 119.3 109.5 113.8 +5
New Markets 142.5 143.9 153.4 -7
Elimination of inter-segment sales (60.6) (51.5) (54.5)
----------- -------------------- -----------
Sales excluding precious metals 1,853.3 1,676.0 1,762.3 +5
----------- -------------------- -----------
Underlying operating profit
Clean Air 167.9 151.9 163.0 +3
Efficient Natural Resources 69.8 73.4 77.5 -10
Health 21.7 20.7 21.7 -
New Markets 8.7 4.5 5.6 +55
Unallocated corporate expenses (17.8) (14.4) (13.7)
----------- -------------------- -----------
Underlying operating profit 250.3 236.1 254.1 -1
----------- -------------------- -----------
4 Underlying profit reconciliation
30.9.17 30.9.16 31.3.17
GBP million GBP million GBP million
Underlying operating profit 250.3 236.1 513.3
Amortisation of acquired intangibles (note 5) (9.9) (9.6) (20.1)
Major impairment and restructuring charges (note
6) (18.5) - -
-------------------- ----------- -----------
Operating profit 221.9 226.5 493.2
-------------------- ----------- -----------
Underlying profit before tax 233.1 219.6 481.7
Amortisation of acquired intangibles (note 5) (9.9) (9.6) (20.1)
Major impairment and restructuring charges (note
6) (18.5) - -
-------------------- ----------- -----------
Profit before tax 204.7 210.0 461.6
-------------------- ----------- -----------
Tax on underlying profit before tax (41.7) (35.3) (82.0)
Tax on amortisation of acquired intangibles
(note 5) 2.4 2.4 5.0
Tax on major impairment and restructuring charges
(note 6) 3.1 - -
-------------------- ----------- -----------
Income tax expense (36.2) (32.9) (77.0)
-------------------- ----------- -----------
Underlying profit for the period 191.6 184.9 401.1
Amortisation of acquired intangibles (note 5) (9.9) (9.6) (20.1)
Major impairment and restructuring charges (note
6) (18.5) - -
Tax thereon 5.5 2.4 5.0
-------------------- ----------- -----------
Profit for the period attributable to owners
of the parent company 168.7 177.7 386.0
-------------------- ----------- -----------
million million million
Weighted average number of shares in issue 191.9 191.8 191.9
-------------------- ----------- -----------
pence pence pence
Underlying earnings per share 99.8 96.4 209.1
-------------------- ----------- -----------
5 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.
6 Major impairment and restructuring charges
As part of the group's operational efficiency program announced
at 31(st) March 2017 a restructuring charge of GBP18.5 million has
been incurred in the period (nil in the six months ended 30(th)
September 2016 and year ended 31(st) March 2017). This primarily
relates to redundancies and business closures and can be split out
by sector as follows: Efficient Natural Resources GBP7.3 million,
Health GBP1.7 million and New Markets GBP9.5 million. Of the total
GBP7.8 million relates to asset write offs, GBP6.5 million to
provisions and GBP4.2 million to cash costs incurred.
7 Dividends
An interim dividend of 21.75 pence per ordinary share has been
proposed by the board which will be paid on 6(th) February 2018 to
shareholders on the register at the close of business on 30(th)
November 2017. The estimated amount to be paid is GBP41.8 million
and has not been recognised in these accounts.
Six months ended Year ended
30.9.17 30.9.16 31.3.17
GBP million GBP million GBP million
2015/16 final ordinary dividend paid -- 52.0
pence per share - 99.7 99.7
2016/17 interim ordinary dividend paid -- 20.5
pence per share - - 39.3
2016/17 final ordinary dividend paid -- 54.5
pence per share 104.5 - -
Total dividends 104.5 99.7 139.0
----------- ----------- -----------
8 Net debt
30.9.17 30.9.16 31.3.17
GBP million GBP million GBP million
Cash and deposits 132.9 171.2 330.4
Bank overdrafts (21.0) (19.0) (31.8)
----------- ----------- -----------
Cash and cash equivalents 111.9 152.2 298.6
Other current borrowings, finance leases and
related swaps (34.3) (150.5) (20.2)
Current interest rate swaps - 2.5 -
Non-current borrowings, finance leases and related
swaps (977.6) (918.3) (1,011.5)
Non-current interest rate swaps 9.1 17.3 17.4
----------- ----------- -----------
Net debt (890.9) (896.8) (715.7)
----------- ----------- -----------
9 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 30(th)
September 2017 precious metal leases were GBP222.8 million (30(th)
September 2016 GBP79.8 million, 31(st) March 2017 GBP77.0
million).
10 Contingent liabilities
A group company, Johnson Matthey Inc, has been made a defendant
to a contract dispute lawsuit alongside a supplier to an automotive
OEM in the United States. The dispute relates to engine emission
after treatment systems for which the group supplied coated
substrate as a component. The group does not believe it has
warranty liability in respect of its supplies of coated substrate
for the after treatment systems in the affected engines and will
vigorously defend its position in the litigation. With respect to
these legal proceedings, the group is currently unable to make a
reliable estimate of the expected nancial effect, if any.
11 Post-employment benefits
The group has updated the valuation of its main post-employment
benefit plans, which are its UK and US pension plans and US
post-retirement medical benefits plan, at 30(th) September
2017.
Movements in the net post-employment benefits 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 2017 106.4 (9.6) (20.1) (33.9) (33.6) 9.2
Current service cost (20.7) - (4.7) (0.2) (1.5) (27.1)
Net interest 1.2 (0.1) (0.4) (0.6) (0.3) (0.2)
Past service credit 5.1 - - - - 5.1
Remeasurements 5.6 - (4.3) (2.2) - (0.9)
Company contributions 25.6 - 5.0 0.7 1.2 32.5
Exchange adjustments - - 1.5 2.4 (1.0) 2.9
----------- ----------- ----------- ----------- ----------- -----------
At 30(th) September 2017 123.2 (9.7) (23.0) (33.8) (35.2) 21.5
----------- ----------- ----------- ----------- ----------- -----------
These are included in the balance sheet
as:
30.9.17 30.9.17 30.9.16 30.9.16 31.3.17 31.3.17
Post- Post- Post-
employment Employee employment Employee employment Employee
benefits benefits benefits benefits benefits benefits
net assets obligations net assets obligations net assets obligations
GBP million GBP million GBP million GBP million GBP million GBP million
UK pension plan 123.2 - - (141.0) 106.4 -
UK post-retirement
medical
benefits plan - (9.7) - (10.7) - (9.6)
US pension plans - (23.0) 0.7 (15.3) - (20.1)
US post-retirement
medical
benefits plan 7.7 (41.5) 7.4 (37.8) 8.3 (42.2)
Other plans 1.8 (37.0) 1.9 (34.6) 1.9 (35.5)
----------- ----------- ----------- ----------- ----------- -----------
Total post-employment
plans 132.7 (111.2) 10.0 (239.4) 116.6 (107.4)
----------- ----------- -----------
Other long term employee
benefits (4.6) (3.8) (4.4)
----------- ----------- -----------
Total long term employee benefits
obligations (115.8) (243.2) (111.8)
----------- ----------- -----------
12 Transactions with related parties
There have been no material changes in related party
relationships in the six months ended 30(th) September 2017 and no
other related party transactions have taken place which have
materially affected the financial position or performance of the
group during that period.
13 Financial Instruments
Fair values are measured using a hierarchy where the inputs
are:
-- Level 1 -- quoted prices in active markets for identical assets or liabilities.
-- Level 2 -- not level 1 but are observable for that asset or
liability either directly or indirectly. The fair values are
estimated by discounting the future contractual cash flows using
appropriate market sourced data at the balance sheet date.
-- Level 3 -- not based on observable market data (unobservable).
Financial instruments measured at fair
value are:
30.9.17 30.9.17 30.9.16 30.9.16 31.3.17 31.3.17
Level Level Level Level Level Level
1 2 1 2 1 2
GBP million GBP million GBP million GBP million GBP million GBP million
Quoted bonds purchased to fund pension deficit
included in:
Non-current investments 55.7 - 58.1 - 54.1 -
----------- ----------- ----------- ----------- ----------- -----------
Quoted available-for-sale investments included
in:
Non-current investments 0.2 - 0.8 - 0.3 -
----------- ----------- ----------- ----------- ----------- -----------
Interest rate swaps included
in:
Non-current assets - 9.1 - 17.3 - 17.4
Current assets - - - 2.5 - -
Current liabilities - - - (0.1) - -
Non-current liabilities - (8.4) - (7.3) - (6.8)
----------- ----------- ----------- ----------- ----------- -----------
Forward foreign exchange and precious metal price
contracts and currency swaps
included in:
Current other financial assets - 12.7 - 10.6 - 7.5
Current other financial
liabilities - (12.0) - (24.8) - (14.9)
----------- ----------- ----------- ----------- ----------- -----------
The fair value of financial instruments is approximately
equal to book value except for:
30.9.17 30.9.17 30.9.16 30.9.16 31.3.17 31.3.17
Carrying Fair Carrying Fair Carrying Fair
amount value amount value amount value
GBP million GBP million GBP million GBP million GBP million GBP million
US Dollar Bonds 2016, 2022, 2023,
2025 and 2028 (469.0) (467.0) (606.7) (613.2) (507.8) (503.2)
Euro Bonds 2021 and 2023 (105.6) (121.2) (103.6) (121.6) (103.0) (119.6)
Euro EIB loans 2019 (109.1) (114.0) (107.1) (112.8) (106.4) (111.8)
Sterling Bonds 2024 (65.0) (71.9) (65.0) (72.6) (65.0) (73.8)
KfW US dollar loan 2024 (37.3) (38.6) - - (40.1) (41.7)
Other bank loans (1.8) (1.8) (4.0) (3.9) (2.0) (2.0)
----------- ----------- ----------- ----------- ----------- -----------
Unquoted investments included in non-current available-for-sale
investments have a carrying amount of GBP3.4 million at 30(th)
September 2017 (30(th) September 2016 GBP5.9 million, 31(st) March
2017 GBP3.6 million). There is no active market for these
investments since they are investments in a company that is in the
start up phase and in investment vehicles that invest in start up
companies and are categorised as level 3. The investment vehicles
hold some investments in quoted companies and so the fair value
technique is based on the percentage ownership of the value of the
underlying assets.
Definition and reconciliation of non-GAAP measures to GAAP
measures for the six months ended 30(th) September 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 half-yearly 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 5), major impairment and
restructuring charges (note 6), 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 4.
Margin
Underlying operating profit divided by sales excluding precious
metals.
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 5).
Net debt (including post tax pension deficits) to EBITDA
Net debt, including post tax pension deficits and bonds
purchased to fund UK pensions (excluded when the UK pension plan is
in surplus), divided by profit for the period before net finance
costs, tax, share of (loss) / profit of joint venture and
associate, major impairment and restructuring charges (note 6),
depreciation and amortisation (EBITDA) for the same period.
Return on invested capital (ROIC)
Annualised underlying operating profit divided by the monthly
average of equity plus net debt for the same period.
30.9.17 30.9.16 31.3.17
GBP million GBP million GBP million
Average net debt 921.8 685.1 878.5
Average equity 2,093.3 1,946.0 1,937.1
----------- ----------- -----------
Average capital employed 3,015.1 2,631.1 2,815.6
----------- ----------- -----------
Underlying operating profit for this period (note
4) 250.3 236.1 513.3
Underlying operating profit for prior year (note
4) 513.3 450.8
Underlying operating profit for prior first half
(note 4) (236.1) (225.0)
----------- ----------- -----------
Annualised underlying operating profit 527.5 461.9 513.3
----------- ----------- -----------
ROIC 17.5% 17.6% 18.2%
----------- ----------- -----------
30.9.17 30.9.16 31.3.17
GBP million GBP million GBP million
Inventories 911.7 855.0 772.3
Trade and other receivables 1,140.8 1,039.3 1,139.4
Trade and other payables (899.1) (868.2) (968.3)
----------- ----------- -----------
Total working capital 1,153.4 1,026.1 943.4
Less precious metal working capital (477.4) (367.5) (335.5)
----------- ----------- -----------
Working capital (excluding precious metals) 676.0 658.6 607.9
----------- ----------- -----------
Six months ended Year ended
30.9.17 30.9.16 31.3.17
GBP million GBP million GBP million
EBITDA 327.1 310.8 665.0
Depreciation and amortisation (86.7) (84.3) (171.8)
Major impairment and restructuring charges (note
6) (18.5) - -
Finance costs (19.9) (18.9) (38.7)
Finance income 3.5 2.5 6.9
Share of (loss) / profit of joint venture and
associate (0.8) (0.1) 0.2
Income tax expense (36.2) (32.9) (77.0)
----------- ----------- -----------
Profit for the period 168.5 177.1 384.6
----------- ----------- -----------
EBITDA for this period 327.1 310.8 665.0
EBITDA for prior year 665.0 590.1
less EBITDA for prior first half (310.8) (292.6)
----------- ----------- -----------
Annualised EBITDA 681.3 608.3 665.0
----------- ----------- -----------
Net debt (890.9) (896.8) (715.7)
Pension deficits (60.0) (190.9) (55.6)
Bonds purchased to fund pensions (excluded when
UK pension plan is in surplus) - 58.1 -
Related deferred tax 15.1 28.0 12.8
----------- ----------- -----------
Net debt (including post tax pension deficits) (935.8) (1,001.6) (758.5)
----------- ----------- -----------
Net debt (including post tax pension deficits)
to EBITDA 1.4 1.6 1.1
----------- ----------- -----------
Net cash flow from operating activities 7.8 123.9 522.9
Dividends received from joint venture 0.6 - -
Interest received 1.4 1.5 4.8
Interest paid (19.5) (19.9) (42.1)
Purchases of non-current assets and investments (81.2) (108.1) (259.5)
Proceeds from sale of non-current assets and investments 0.5 0.2 3.9
----------- ----------- -----------
Free cash flow (90.4) (2.4) 230.0
----------- ----------- -----------
Financial Calendar
2017
30(th) November
Ex dividend date
1(st) December
Interim dividend record date
2018
6(th) February
Payment of interim dividend
31(st) May
Announcement of results for the year ending 31(st) March 2018
7(th) June
Ex dividend date
8(th) June
Final dividend record date
26(th) July
127(th) Annual General Meeting (AGM)
7(th) August
Payment 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, 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 Plc
Registered Office: 5th Floor, 25 Farringdon Street, London EC4A 4AB
Telephone: +44 (0) 20 7269 8400
Fax: +44 (0) 20 7269 8433
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: 0371 384 2344 (in the UK) *
+44 (0) 121 415 7047 (outside the UK)
Internet address: www.shareview.co.uk
* Lines are open 8.30am to 5.30pm Monday to Friday excluding public
holidays in England and Wales.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR DGBDBLDDBGRG
(END) Dow Jones Newswires
November 21, 2017 02:01 ET (07:01 GMT)
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