TIDMJMAT
RNS Number : 6003P
Johnson Matthey PLC
11 June 2020
Preliminary results for the year ended 31(st) March 2020
Confident in the strength of our business
Robert MacLeod, Chief Executive, commented:
COVID-19 has brought unprecedented challenges to the world and Johnson
Matthey. During this pandemic, we have tried to balance the needs of
all of our stakeholders but our first priority remains the health and
safety of our people, customers, suppliers and communities where we
operate. I would like to say a heartfelt thank you to all of our employees
for their dedication and efforts over the past few months.
Our business is resilient and diverse, serving a range of end markets
and geographies. We made good progress in 2019/20 and delivered operating
performance slightly ahead of market expectations, excluding the effects
of COVID-19 which adversely impacted underlying operating profit by
around
GBP60 million. We took immediate and decisive action to protect our
business, and to maintain good liquidity and a strong balance sheet.
Looking forward, we are accelerating our strategy to drive greater efficiency
across the business, building upon the investments we have made in new
manufacturing facilities and in our systems and processes. We have delivered
nearly GBP120 million of our previously announced cost savings. However,
we recognise the need to be even more efficient in order to maintain
our competitiveness and in addition some of our end markets have been
affected by COVID-19. Therefore, we are targeting additional annualised
cost savings of at least GBP80 million by the end of 2022/23. We regret
that this will lead to some job losses, which we estimate to be around
2,500 globally over the three year period.
Given the ongoing uncertainty, we are unable to provide financial guidance
for 2020/21. In Clean Air, our customers are gradually ramping up their
plants but visibility on the path of recovery remains low. Efficient
Natural Resources is later cycle and we anticipate an impact as lower
demand begins to affect the industries it serves. Health is relatively
unaffected by the macroeconomic environment and should benefit from
new customer contracts. In Battery Materials, the commercialisation
of eLNO remains on track. Notwithstanding the strong financial position
of the group, in light of the current uncertainty and to balance the
needs of all stakeholders, the board is proposing a final dividend for
the year of
31.125 pence, representing half the level of the 2018/19 final dividend.
These developments do not change the global trends that will drive our
longer term growth. Addressing climate change remains a priority and
commitments to net zero are gathering pace across the world. Our continued
investment in strategic growth projects and leading sustainable technologies
uniquely positions us to address this and other key global trends, delivering
significant value for our shareholders and society.
Reported results Year ended % change
31(st) March
--------
2020 2019
------ --------
Revenue GBP million 14,577 10,745 +36
Operating profit GBP million 388 531 -27
Profit before tax (PBT) GBP million 305 488 -38
Earnings per share (EPS) pence 132.3 215.2 -39
Ordinary dividend per share pence 55.625 85.5 -35
---------------------------- ------------ ------- ------ --------
Underlying performance(1) Year ended % change % change,
31(st) March constant rates(2)
---------------------------------------------- -------- ------------------
2020 2019
-------------------------------- ------------ ------- ------ -------- ------------------
Sales excluding precious metals
(sales)(3) GBP million 4,170 4,214 -1 -2
Operating profit GBP million 539 566 -5 -6
Profit before tax GBP million 455 523 -13 -14
Earnings per share pence 199.2 228.8 -13
-------------------------------- ------------ ------- ------ -------- ------------------
Reported results
-- Reported revenue increased 36% driven by higher average precious metal
prices
-- Reported operating profit declined 27% driven by a restructuring and
impairment charge of GBP140 million and a c.GBP60 million impact related
to COVID-19
-- Reported EPS declined 39%, reflecting lower operating profit and higher
net finance charges
-- Cash inflow from operating activities was GBP598 million
Underlying performance(1)
-- Sales declined 2% driven by Clean Air and Health, partly offset by
higher sales in Efficient Natural Resources and New Markets
-- Underlying operating profit declined 6% primarily driven by a c.GBP60
million impact related to
COVID-19. Excluding COVID-19, underlying operating profit grew 5%
-- Of the c.GBP60 million, c.GBP30 million reflected lower demand
in Clean Air, and the remainder was due to higher trade debtor
provisions across the group and delayed sales due to logistical
challenges in our other businesses
-- Underlying EPS declined 13% reflecting lower underlying operating
profit and higher net finance charges. Net finance charges grew primarily
driven by increased average precious metal borrowings due to higher
precious metal prices, on which we pay higher interest on average
than the rest of our borrowings
-- Strong balance sheet with net debt of GBP1.1 billion; net debt to
EBITDA of 1.6 times
-- Return on invested capital (ROIC) decreased from 16.4% to 13.3% mainly
due to increased capital expenditure, higher average precious metal
working capital through the year and lower underlying operating profit
Dividend
The group has a strong balance sheet, good cash generation and liquidity
headroom. However, given the heightened degree of current uncertainty
and to balance the needs of all stakeholders, the board will propose
a final ordinary dividend for the year of 31.125 pence at the Annual
General Meeting on 23(rd) July 2020, representing half the level of
the 2018/19 final dividend. This is not intended to be a rebasing; the
board remains committed to a progressive dividend and anticipates restoring
future dividend payments to levels seen prior to the COVID-19 pandemic
when circumstances permit.
Subject to approval by shareholders, the final dividend will be paid
to shareholders on 4(th) August 2020, with an ex dividend date of 18(th)
June 2020.
Outlook for the year ending 31(st) March 2021
Given the ongoing uncertainty, we are unable to provide financial guidance
for the year ending
31(st) March 2021. Looking at each of our sectors:
-- Clean Air has a direct link to consumer demand. Following automotive
OEM shutdowns earlier in the year, we are now seeing our customers
gradually reopen their plants. Production in China is recovering towards
prior year levels, and Europe and the US are now also gradually ramping
up. However, visibility on the path of recovery remains low. This
significant uncertainty has led to a wide range of forecasts for automotive
and truck production for the coming year. External data currently
suggests a decline of c.25% in light duty for Europe and the US, but
better in Asia , while for heavy duty the declines are slightly more.
Although the actual outcomes could be materially different. We have
a flexible cost base in Clean Air, enabling us to manage different
levels of activity, with c.75% of costs before mitigation being variable
-- Efficient Natural Resources serves a diverse range of end markets
and is subject to a broader range of variables. It is later cycle
than Clean Air, so while we have seen little impact so far on the
business from macroeconomic weakness, we expect this will come through
as lower demand begins to affect the industries it serves and because
of volatile feedstock dynamics. Pgm prices will also influence operating
performance. Operating leverage is greater here as the sector operates
with a larger number of sites and higher fixed costs
-- Health is relatively unaffected by changes in the macroeconomic environment.
We expect to benefit from new supply agreements for APIs used in generic
opioid addiction therapies as well as our continued work with innovator
customers
-- In Battery Materials, commercialisation of eLNO remains on track
Our newly announced efficiency initiatives will deliver additional annualised
savings of at least
GBP80 million by 2022/23 for a cash cost of c.GBP80 million, with initial
savings of at least GBP30 million supporting operating performance in
2020/21. We have a strong balance sheet and liquidity position and expect
to generate further cash through precious metal working capital improvements
as we continue to reduce refinery backlogs. We remain committed to our
investment in our strategic growth projects which will support our medium
term growth.
Enquiries:
Investor Relations Director of Investor Relations 020 7269 8241
Senior Investor Relations
Martin Dunwoodie Manager 020 7269 8235
Louise Curran Investor Relations Manager 020 7269 8242
Jane Crosby
Media 020 7269 8407
Sally Jones Director of Corporate Relations 020 7353 4200
Simon Pilkington Tulchan Communications
Notes:
In our pre-close trading update (30(th) March 2020) we guided to an
impact of around GBP50 million on our trading performance from COVID-19.
Vara consensus for full year underlying operating profit in 2019/20
was GBP581 million (range: GBP562 million to GBP593 million) as at 29(th)
March 2020.
1. Underlying is before profit or loss on disposal of businesses, gain
or loss on significant legal proceedings together with associated
legal costs, amortisation of acquired intangibles, major impairment
and restructuring charges and, where relevant, related tax effects.
For definitions and reconciliations of other non-GAAP measures, see
pages 43 to 47.
2. Unless otherwise stated, sales and operating profit commentary refers
to performance at constant rates. Growth at constant rates excludes
the translation impact of foreign exchange movements, with 2018/19
results converted at 2019/20 average exchange rates
3. Revenue excluding sales of precious metals to customers and the precious
metal content of products sold to customers
eLNO is a trademark of Johnson Matthey Public Limited Company
Strategy update
The COVID-19 pandemic has led to significant challenges across the world.
We continue to work hard to respond to these unprecedented circumstances
and actively manage the ongoing risks to our people, operations and customers.
To maintain the health, safety and wellbeing of our people we have implemented
working from home arrangements where possible and ensured the highest
standards of safety in all working practices.
Immediate and decisive action in response to COVID-19
In the year, we made good strategic progress and delivered operating
performance, excluding the effects of COVID-19, slightly ahead of market
expectations. Due to COVID-19, we experienced an adverse impact of c.GBP60
million to underlying operating profit in the year ended 31(st) March
2020, of which c.GBP30 million reflected lower demand in Clean Air, and
the remainder was due to higher trade debtor provisions across the group
of c.GBP15 million, and delayed sales due to logistical challenges in
our other businesses.
Our immediate response to COVID-19 was to take decisive action to maintain
our strong balance sheet and strengthen our liquidity through cost reduction,
tightly managing our operations to optimise working capital and postponing
non-strategic capex. Our cost reduction measures included adjusting working
patterns, reducing contractor spend and restricting travel costs and
we optimised working capital by reacting quickly and temporarily stopping
production at our Clean Air plants, managing our raw materials purchases
and controlling pgm refinery intakes.
Following the temporary closure of numerous automotive OEM production
plants due to government mandated closures and lower consumer demand,
our Clean Air plants are now gradually resuming production across all
regions. Across the remainder of our business, the vast majority of our
plants are operational and we have adopted new working practices in line
with local guidelines. Alongside maintaining our operations where it
is safe to do so, we are balancing obligations to our stakeholders through
maintaining payment terms with suppliers and offering support to small
suppliers who may be facing hardship.
Resilient business portfolio with a strong balance sheet
We are well positioned in an uncertain world. We have a resilient and
diverse business portfolio which is exposed to a range of end markets
and geographies and our flexible cost base, particularly in Clean Air
where c.75% of our costs are variable, enables us to adapt quickly to
changes in demand, reduce our costs and preserve cash. When the macroeconomic
environment weakens, our business model provides a natural hedge which
strengthens our balance sheet and liquidity as we have significant precious
metal working capital inflows when demand is lower. The strength of our
position means that we decided not to take any support from the UK government
for furloughed staff, or draw down on the Bank of England's COVID Corporate
Financing Facility (CCFF) despite qualifying for the loan.
We have a strong balance sheet with good access to liquidity of c.GBP1.3
billion. Earlier in the year we concluded a GBP1 billion five year committed
revolving credit facility and more recently we issued US$300 million
of private placement notes.
Net debt at 31(st) March 2020 was GBP1.1 billion (31(st) March 2019:
GBP866 million) and our leverage ratio (net debt to EBITDA) was 1.6 times
(31(st) March 2019: 1.3 times). This was at the bottom end of our target
range of 1.5 to 2.0 times, benefiting from a GBP345 million reduction
in precious metal working capital volumes. This progress was despite
the impact of COVID-19 on EBITDA and reflects our focus on the effective
management of our precious metal working capital. The actions we have
taken include strong progress in reducing our refining backlogs where
we have made faster progress than expected, optimising our precious metal
working capital across our businesses and reviewing commercial terms
with pgm collectors as well as our Clean Air customers.
We maintain a balanced debt maturity profile across different lenders.
Committed facilities are renewed regularly and there is no material refinancing
due in 2020 or 2021. There is material headroom in relation to debt covenants
(1) of 3.5 times net debt to EBITDA which are tested annually, with the
next test based on financials for the period ending 31(st) March 2021.
Notes:
1. The majority of our facilities contain a net debt to EBITDA covenant
of 3.5 times. Two legacy loans (GBP41 million and
GBP148 million maturing after 31(st) March 2021) contain a 3.0 times
covenant and are expected to be amended. Our headroom assumes
repayment
of these legacy loans.
Accelerating our strategy to drive efficiency
Across the group, we have been investing to drive efficiency across our
manufacturing footprint and operations. We are now able to accelerate
a number of these initiatives. We are consolidating our Clean Air footprint
and optimising our group operating model to create further organisational
efficiency across the group.
In total, the acceleration of our strategic initiatives will deliver
annualised savings of at least
GBP80 million over the next three years, of which at least GBP30 million
will benefit 2020/21. Together with the GBP145 million of cost savings
previously announced, of which we have already delivered
GBP116 million, this will take total annualised cost savings to c.GBP225
million by the end of 2022/23. There will be associated one off costs
of c.GBP240 million related to these new savings which will be taken
outside of underlying operating profit, of which the cash element will
be c.GBP80 million. Over three years, this is expected to result in a
reduction in staff numbers of c.2,500 subject to consultation. For further
detail on these costs, please see page 19. The key actions include:
-- Consolidating Clean Air footprint
In Clean Air, we have been investing in new world class plants in
Europe and Asia. These plants are identical and highly flexible,
allowing
us to drive efficiency and increase agility across our global
footprint
by consolidating some of our existing older capacity in Europe into
this new capacity. This will deliver c.GBP30 million of annualised
cost benefits by the end of 2022/23.
-- Driving organisational efficiency
In recent years we have been investing into our corporate functions.
For example we are rolling out our single global ERP (enterprise
resource
planning) system, and have invested into our global procurement and
IT functions to increase our capability and standardise our processes.
This is allowing us to review our group operating model to remove
duplication of activities between the corporate centre and the sectors
and reduce complexity across the organisation. A simplified
organisation
will enable faster decision making and reduce costs. Overall, these
measures are expected to deliver c.GBP50 million of annualised cost
benefits by the end of 2022/23.
Summary of efficiency initiatives
Initiative Delivered Annualised benefits
GBP million to date by 2022/23
--------------------------------------------- ------------------------ -------------------------------------------
Procurement(1) 71 100
Restructuring 25 25
Health footprint optimisation 20 20
--------------------------------------------- ------------------------ -------------------------------------------
Previous initiatives beginning 2017 116 145
--------------------------------------------- ------------------------ -------------------------------------------
Clean Air footprint - 30
Group wide organisational efficiency - 50
--------------------------------------------- ------------------------ -------------------------------------------
New initiatives - 80
--------------------------------------------- ------------------------ -------------------------------------------
Total efficiency initiatives 116 225
--------------------------------------------- ------------------------ -------------------------------------------
(1) Around three quarters of procurement initiatives will
benefit the income statement, of which around two thirds will be
reinvested to drive growth.
Addressing climate change continues to drive our medium term growth
Our vision is for a world that is cleaner and healthier, today and for
future generations. Our strategy for sustained growth and value creation
is driven by the application of our world class science to solve the
challenges arising from key global trends including climate change as
well as increasing population and longevity, and resource challenges.
In collaboration with our customers, we use our science to solve their
most complex problems and in doing so we are creating long term value
for our shareholders and society.
Through our leading positions in high margin, technology driven growth
markets, we will deliver growth over the medium term. In the year, we
made good strategic progress across our sectors and further developed
in key areas:
-- In Clean Air , we continued to benefit from tightening legislation
globally, especially in Europe and Asia and maintained our strong
market shares in our key light duty diesel and heavy duty segments.
With the construction of our new plants in Europe and Asia largely
complete, our global, efficient and flexible manufacturing footprint
is enabling us to drive efficiency across the sector.
-- In Efficient Natural Resources , we continue to focus our resource
on selected, higher growth segments; target our R&D investment for
future growth; and drive operational efficiency. Our refinery upgrade
programme, which will ensure our assets operate effectively and reliably,
is progressing well. We made good progress in developing and commercialising
new technologies which includes our mono ethylene glycol technology
as we began work on the first project and our Fischer Tropsch waste
to aviation fuel technology as we produced the first catalyst. Across
the sector, we continued to help our customers optimise their operations,
for example our formaldehyde team launched a new digital portal for
enhanced interaction with customers. To support our longer term growth,
we progressed our business development projects including battery
materials recycling and our work with various partners to drive the
acceleration of adoption of hydrogen as a more significant part of
the energy mix.
-- In Health , we have agreed new multi-year supply agreements with generic
partners for the supply of APIs used in generic opioid addiction therapies.
We made further progress towards delivering an additional c.GBP100
million operating profit from our pipeline of generic and innovators
APIs by 2025 although it may be delayed a year given the inherent
uncertainty around the timing of individual drug launches. On the
innovator side, we saw recent success with our customer - Immunomedics
- who recently received regulatory approval for production of an immuno-oncology
treatment for triple negative breast cancer. Immunomedics is now increasing
volumes in support of the commercial launch.
-- In Battery Materials , we are making significant progress in commercialising
eLNO, our portfolio of leading ultra-high energy density cathode materials
which will compete with materials such as NMC 811. eLNO will suit
a broad range of applications, particularly in enabling greater adoption
of long range, pure battery electric vehicles.
Feedback from testing with customers remains positive, specifically
our ability to provide tailored solutions. In the year, we moved to
full cell testing with four customers - two global automotive OEMs
and two non-automotive customers. Our progress with non-automotive
customers is another important validation of eLNO in commercial applications
and offers a faster route to qualification. Full cell testing means
we are collaborating more intensively with customers to further develop,
formulate and test eLNO and they have reduced their number of potential
suppliers. This gives us increased confidence that our materials provide
the performance our customers seek. Alongside this full cell testing,
we continue to work in the validation phase with a number of global
automotive OEMs and cell manufacturers.
We broke ground on our first commercial plant in Konin, Poland, which
is expected to be on stream in 2022 and supplying platforms in production
in 2024. Our total investment to first commercial production will
amount to c.GBP350 million, although we are seeing some upward pressure
as we finalise the design and build in more flexibility to meet our
customers' requirements. Beyond this, scale up is likely to be phased
as we match capacity to market demand. As part of the commercialisation
process, we are also securing sources of renewable energy for the
site in Poland.
-- There is increasing momentum around the significant role that hydrogen
will play in enabling the energy transition to a clean, low carbon
economy. We have a unique competitive advantage for this transition,
with a number of market leading solutions across the hydrogen value
chain including hydrogen production technologies and fuel cells:
-- Hydrogen production technologies: As the market evolves, we are
well positioned due to our development of a new, market leading
process to produce low carbon hydrogen (LCH(TM)) or "blue" hydrogen.
Carbon capture and storage is easier and cheaper using our process
and we are already starting to commercialise this technology. We
are collaborating on one of the UK's leading low carbon hydrogen
projects - HyNet North West - which will use our LCH hydrogen technology
in a refinery for the first time.
-- Fuel cell technologies: Fuel cells will play a key role in the
decarbonisation of transportation. With our expertise in precious
metals, ability to provide customised solutions and established
manufacturing footprint, we are well positioned for this market.
Today, we supply fuel cells for non-automotive and automotive applications
including commercial vehicles in China, and we are working with
a number of customers, including major automotive OEMs, on a variety
of applications as this market develops. We continue to invest
in our technology and have committed GBP15 million to double our
manufacturing capacity across the UK and China.
Summary of operating results
Unless otherwise stated, commentary refers to performance at constant
rates. Percentage changes in the tables are calculated on unrounded
numbers
Sales Year ended % change % change,
(GBP million) 31(st) March constant
rates
---------------------------- -------- ---------
2020 2019
---------------------------- ------- ------ -------- ---------
Clean Air 2,618 2,720 -4 -4
Efficient Natural Resources 1,079 991 +9 +8
Health 223 257 -13 -15
New Markets 389 362 +7 +7
Eliminations (139) (116)
Sales 4,170 4,214 -1 -2
---------------------------- ------- ------ -------- ---------
Underlying operating profit Year ended % change % change,
(GBP million) 31(st) March constant
rates
---------------------------- -------- ---------
2020 2019
---------------------------- ------- ------ -------- ---------
Clean Air 295 393 -25 -25
Efficient Natural Resources 256 181 +41 +40
Health 27 43 -37 -38
New Markets (1) 2 n/a n/a
Corporate (38) (53)
Underlying operating profit 539 566 -5 -6
---------------------------- ------- ------ -------- ---------
Reconciliation of underlying operating profit to Year ended
operating profit 31(st) March
(GBP million)
-------------------------------------------------
2020 2019
------------------------------------------------- -------- -----
Underlying operating profit 539 566
Profit / (loss) on disposal of businesses(1) 2 (12)
Loss on significant legal proceedings - (17)
Amortisation of acquired intangibles (13) (14)
Major impairment and restructuring charges(1) (140) 8
Operating profit 388 531
------------------------------------------------- -------- -----
(1) For further detail on these items please see pages 18 and
19
Second half performance
Sales H2 % change
(GBP million)
---------------------------- -------- ---------------
2019/20 2018/19 % change,
constant rates
---------------------------- -------- ------- -------- ---------------
Clean Air 1,226 1,408 -13 -12
Efficient Natural Resources 583 528 +10 +10
Health 112 139 -19 -20
New Markets 203 189 +8 +8
Eliminations (78) (59)
Sales 2,046 2,205 -7 -7
----------------------------- ------- ------- -------- ---------------
Sales declined 7% in H2 2019/20. Clean Air was impacted by COVID-19
and lower heavy duty production globally. In Efficient Natural Resources,
sales were higher due to a strong performance in PGM Services. There
was weaker business performance in Health due to the temporary disruption
in the opioid addiction therapy market. Sales in New Markets were strong
as we continued to see good demand for non-automotive battery systems
and fuel cells.
Underlying operating profit H2 % change
(GBP million)
---------------------------- -------- ---------------
2019/20 2018/19 % change,
constant rates
---------------------------- ------- ------- -------- -----------------
Clean Air 116 202 -43 -42
Efficient Natural Resources 162 96 +70 +71
Health 9 28 -69 -69
New Markets 7 (1) n/a n/a
Corporate (20) (30)
Underlying operating profit 274 295 -7 -6
---------------------------- ------- ------- -------- ---------------
Operating profit was down 6% in the second half, primarily due
to COVID-19 which impacted operating profit by c.GBP60 million,
mostly in Clean Air. Efficient Natural Resources grew materially
due to a strong performance in PGM Services. In Health, there was
weaker performance due to the temporary disruption in the opioid
addiction therapy market. New Markets operating profit grew
strongly driven by better performances in Life Science Technologies
and Medical Device Components. Corporate costs were lower due to
lower legal costs and share based payments.
Operating results by sector
Clean Air
Sales outperformed in a weak market
-- In light duty, Europe sales grew 2% and Asia sales grew 4%, both
well ahead of markets that declined, as we benefited from tightening
legislation which increased the value per vehicle
-- Globally, heavy duty sales declined 13% which was broadly in line
with the market
-- Strong market shares were maintained in our key light duty diesel
and heavy duty segments
-- Operating profit was down as guided, primarily driven by a weak global
heavy duty market, COVID-19 related costs, infrastructure investment
and one-off costs in the first half associated with manufacturing
inefficiencies
Year ended 31(st) % change % change, constant
March rates
2020 2019
GBP million GBP million
Sales
LDV Europe 1,046 1,031 +1 +2
LDV Asia 381 361 +5 +4
LDV Americas 315 346 -9 -11
Total Light Duty Vehicle Catalysts 1,742 1,738 - -
HDD Americas 443 476 -7 -10
HDD Europe 277 334 -17 -16
HDD Asia 111 128 -13 -14
Total Heavy Duty Diesel Catalysts 831 938 -11 -13
Other - stationary 45 44 +1 -
Total sales 2,618 2,720 -4 -4
Underlying operating profit 295 393 -25 -25
Margin 11.3% 14.4%
Return on invested capital (ROIC) 18.4% 30.0%
Reported operating profit 236 390 -40
----------------------------------- ----------- ----------- -------- ------------------
Light Duty Vehicle (LDV) catalysts
In LDV catalysts, we provide catalysts for emission control after-treatment
systems for cars and other light duty vehicles powered by diesel and
gasoline. Global sales were flat year on year, but well ahead of the
decline in global light duty vehicle production of 10%, which was more
pronounced in the second half as COVID-19 affected the global automotive
market. Our customers first began to close their plants in China towards
the end of January and then in Europe and the US from the middle of
March.
In Europe, diesel accounts for around 80% of our LDV business. Sales
of diesel catalysts were flat as we outperformed a market that declined,
driven by the annualisation of our diesel market share gains. We maintained
a market share of c.65% in light duty diesel vehicles.
In Western Europe, diesel accounted for 31% of new passenger car sales
in 2019/20, compared with 35% in the last financial year. Light duty
commercial vehicles remain largely diesel today. When these are included,
the overall share of diesel sales in Western Europe was 39% for 2019/20,
compared with 42% in 2018/19.
Sales of gasoline catalysts were up in both Europe and Asia, significantly
ahead of markets that declined 7% and 13% respectively. Growth was primarily
driven by increased value per vehicle with the implementation of tighter
legislative standards.
Americas LDV declined, driven by weaker performance in diesel largely
due to the ramp down of a platform.
Heavy Duty Diesel (HDD) catalysts
In HDD catalysts, we provide catalysts for emission control after-treatment
systems for trucks, buses and non-road equipment. Global sales were
down 13%, broadly in line with the decline in market production of
11%.
In Americas, the high value Class 8 truck cycle peaked in September,
then declined sharply in the second half. Our Class 8 sales declined
as expected, slightly behind the market due to product mix.
Our European and Asian HDD businesses also declined broadly in line
with their respective markets. Over the medium term, tightening legislation
in China and India will drive a significant uplift in value.
Consolidating Clean Air footprint
We have been investing in our world class plants in Europe and Asia
and this is enabling us to drive further efficiency and agility across
the sector by consolidating some of our existing older capacity in
Europe into these new, more efficient plants. In the year, this gave
rise to an impairment charge of GBP61 million on our older manufacturing
assets, taken outside of underlying operating profit.
Underlying operating profit
Operating profit declined 25% and margin declined 3.1 percentage points.
This was primarily driven by a weak global heavy duty market, c.GBP40
million of COVID-19 related costs (including
c.GBP10 million higher trade debtor provisions) and higher costs of
c.GBP20 million from investment in infrastructure and start up costs
for new plants. There were also one-off costs of c.GBP15 million which
included additional freight costs and inefficiencies within our manufacturing
footprint due to phasing of the completion of our new plant in Poland.
ROIC
ROIC was down 11.6 percentage points to 18.4% reflecting lower operating
profit and higher invested capital from our new plants which are not
yet yielding returns.
Efficient Natural Resources
Significant growth in operating profit and margin expansion
-- Sales grew 8% primarily driven by strong performance in PGM Services
-- Significant operating profit growth and margin expanded 5.5 percentage
points. This reflected higher average pgm prices and strength in
our PGM Services trading business in a more volatile price environment,
partly offset by higher refining operating costs and further investment
in our refineries
Year ended 31(st) % change % change, constant
March rates
2020 2019
GBP million GBP million
----------- -----------
Sales
Catalyst Technologies 556 567 -2 -3
PGM Services 389 281 +38 +36
Advanced Glass Technologies 70 75 -7 -7
Diagnostic Services 64 68 -6 -7
Total sales 1,079 991 +9 +8
Underlying operating profit 256 181 +41 +40
Margin 23.8% 18.3%
Return on invested capital (ROIC
) 17.2% 12.6%
Reported operating profit 250 175 +43
---------------------------------- ----------- ----------- -------- ------------------
Catalyst Technologies
Our Catalyst Technologies business licenses key process technology and
manufactures high value speciality catalysts and additives for the chemical
and oil and gas industries. We saw a small impact from COVID-19 in the
year, with the vast majority of our Catalyst Technology plants maintaining
operations. Sales were slightly down driven by refill additives and
copper zeolites to Clean Air, partly offset by strong growth in first
fill catalysts and licensing.
Refill catalysts and additives sales were slightly lower
This is recurring business which makes up the majority of sales within
Catalyst Technologies. Refill additives declined due to feedstock dynamics
driving lower volumes. In refill catalysts, sales were stable. We saw
good performance in ammonia and formaldehyde, ahead of the market. However,
we saw lower sales in methanol following strong demand in the prior
period and in hydrogen refill catalysts due to the lower oil price.
First fill catalysts almost doubled
First fill catalysts are lumpy in nature and driven by the start-up
of new plants. They are a lead indicator of future refill catalyst demand.
In the year, we saw strong sales growth driven by methanol and ammonia
catalysts with new plants in Asia coming onstream.
Licensing saw good growth
Our licensing business is dependent on new plant builds and revenue
is recognised over the period of construction. We saw good performance
in the period driven by formaldehyde and methanol following recent license
wins in these segments. We also began to recognise income from our newly
developed mono ethylene glycol technology as we started work on the
first project following the license win last year. In the year, we signed
four new licenses and are pleased with the progress we are making in
developing and commercialising technologies.
PGM Services
PGM Services is the world's leading secondary refiner of platinum group
metals and provides a strategic service to the group, mainly supporting
Clean Air with security of metal supply in a volatile market. It comprises
our pgm refining, recycling and trading activities and produces chemical
compounds and industrial products containing pgms. Towards the end of
the year, our pgm refineries continued to operate albeit at lower capacity
due to compliance with local guidelines and new working practices in
light of COVID-19.
PGM Services sales grew strongly, up 36%
In the year, sales grew 36%. We saw strong growth in our refinery and
trading businesses due to higher and more volatile average pgm prices.
Average palladium and rhodium prices were up 56% and 137% respectively,
whilst the platinum price increased 5%, compared to the same period
last year. Sales of chemical products grew driven by Clean Air which
uses pgm materials in its catalyst products, however, sales of industrial
products containing pgms were down.
Refinery backlog volumes improved
Following unscheduled downtime in one of our pgm refineries in 2018/19
which resulted in higher precious metal working capital, we made strong
progress this year in reducing the volume of precious metal working
capital in our refineries whilst ensuring continued supply to our Clean
Air business and external customers. Our progress has been faster than
expected and, as a result of the work we have done to improve our precious
metal working capital efficiency, we now expect to remove at least a
further GBP300 million(1) of precious metal working capital volume from
our backlogs by the end of 2020/21.
As previously announced, the GBP100 million investment in our new refinery
is underway. This will further reduce precious metal working capital,
ensure our assets operate effectively and reliably, and strengthen our
position as a long term supplier to our customers.
Advanced Glass Technologies
Advanced Glass Technologies mainly provides black obscuration enamels
and silver paste for automotive glass applications. Sales were lower
largely driven by the automotive segment as a result of the slowdown
in global car production, impacted by COVID-19.
Diagnostic Services
Diagnostic Services provides specialised detection, diagnostic and measurement
solutions for our customers in the petroleum industry. Sales were down
as we saw an impact from the declining oil price and COVID-19.
Underlying operating profit
Operating profit grew significantly, up 40%, and margin expanded 5.5
percentage points. This was primarily driven by a GBP47 million benefit
from higher average pgm prices and strength in our PGM Services trading
business in a more volatile price environment, partly offset by higher
refinery operating costs as we continue to work down our backlogs and
further investment in our refineries.
ROIC
ROIC increased 4.6 percentage points to 17.2% reflecting higher operating
profit.
Notes:
1. Based on 31(st) March 2020 prices.
Health
Performance affected by temporary disruption in the opioid addiction
therapy market
-- Generics declined as expected, affected by temporary disruption in
the opioid addiction therapy market and lower sales of ADHD APIs.
We have now agreed new multi-year supply agreements for opioid addiction
therapies with generic partners from which we will begin to see the
benefit in 2020/21
-- Innovators grew driven by a customer who received regulatory approval
for a novel
immuno-oncology treatment
-- Operating profit declined materially driven by weaker sales performance,
partly offset by stock build to meet higher customer demand in 2020/21
and a net benefit from footprint optimisation
-- We made further progress towards delivering an additional c.GBP100
million of operating profit from our pipeline of generic and innovator
APIs by 2025 although this may be delayed a year given the inherent
uncertainty around the timing of individual drug launches.
Year ended 31(st) % change % change, constant
March rates
2020 2019
GBP million GBP million
--------------------------------- ----------- ----------- -------- ------------------
Sales
Generics 134 171 -22 -23
Innovators 89 86 +5 +2
Total sales 223 257 -13 -15
Underlying operating profit 27 43 -37 -38
Margin 12.1% 16.7%
Return on invested capital (ROIC
) 5.3% 9.0%
Reported operating profit 10 50 -80
--------------------------------- ----------- ----------- -------- ------------------
Health
Given the nature of our Health business in providing critical products
and services into the pharmaceutical sector, COVID-19 had limited impact
in the year. We maintained the vast majority of our operations although
we experienced some delays to shipment of orders following increased
border controls.
Generics
Our Generics business develops and manufactures generic active pharmaceutical
ingredients (APIs) for a variety of treatments. Sales were down significantly,
with a mixed performance across the business.
Agreed new multi-year supply agreements for opioid addiction therapies
Sales of controlled APIs were lower. Speciality opiates were broadly
flat in the year. Following a strong first half, sales declined in
the second half due to developments in the opioid addiction therapy
market which drove lower demand in the short term for APIs used in
generic opioid addiction therapies. Although these developments affected
our performance in the year, we have now agreed new multi-year supply
agreements with generic partners and we will start to see the benefit
from these in 2020/21. Sales of APIs for ADHD treatments declined as
one of our customers moved to dual sourcing for some high margin APIs.
Sales of bulk opiates in Europe were stable.
Our non-controlled APIs declined as expected. This primarily reflected
a continued reduction in sales of dofetilide as new competitors for
our customer entered the market.
Innovators
Our Innovators business provides custom development and manufacturing
services for active ingredients of new drugs during their lifecycle,
including for initial clinical evaluation and subsequently for commercial
supply post regulatory approval.
Recent regulatory approval for our customer's novel immuno-oncology
treatment
Our Innovators business grew slightly. This was primarily driven by
higher sales in relation to our strategic partnership with Immunomedics
for the manufacture of a drug linker used in the production of an immuno-oncology
treatment for triple negative breast cancer. Immunomedics has recently
received approval for this therapy from the FDA (Food and Drug Administration)
and is now increasing volumes to support commercial demand.
API product pipeline
In the year, we continued to develop our new product pipeline across
both our Generics and Innovators businesses. We made further progress
towards delivering an additional c.GBP100 million of operating profit
from this by 2025 although it may be delayed a year given the inherent
uncertainty around the timing of individual drug launches.
We recently undertook a strategic review of our new product introduction
process. Following this review, we made organisational changes, improved
the new product introduction process and took the decision to deprioritise
21 generic molecules and refocus our resources on the most attractive
opportunities. This gave rise to an impairment charge of GBP20 million
in relation to previously capitalised development expenditure, taken
outside of underlying operating profit.
Overall, our pipeline now comprises 54 molecules which includes generic
APIs, innovator APIs and new applications. This includes four launched
molecules and eight generics which are awaiting regulatory approval.
Specifically within Innovators, at the start of the year, we had four
projects in late stage testing programmes. Of these, two projects -
including Immunomedics - have now been approved, one project did not
receive approval and has been cancelled and the remaining opportunity
is still in late stage testing.
Underlying operating profit
Operating profit declined 38% driven by weaker business performance
including temporary disruption in the opioid addiction therapy market
and lower ADHD sales. This was partly offset by stock build to meet
higher demand from customers in 2020/21 which led to a greater absorption
of fixed costs into inventory on the balance sheet and a net benefit
from footprint optimisation.
ROIC
ROIC declined 3.7 percentage points to 5.3% mainly driven by lower
operating profit.
New Markets
Strong sales growth and continued progress in commercialising eLNO
-- Sales up 7% driven by strong demand for fuel cells and non-automotive
battery systems
-- Operating profit declined as we invested in the development of our
Battery Materials business and recognised an GBP8 million one-off
impairment in the first half in relation to our demo plant
-- Significant progress in commercialising eLNO as we broke ground on
our first commercial plant and now have four customers in full cell
testing
Year ended 31(st) % change % change, constant
March rates
2020 2019
GBP million GBP million
Sales
Alternative Powertrain 237 206 +15 +16
Medical Device Components 72 70 +2 -
Life Science Technologies 50 49 +1 -
Other 30 37 -19 -20
Total sales 389 362 +7 +7
Underlying operating (loss) /
profit (1) 2 n/a n/a
Margin -0.2% 0.7%
Return on invested capital (ROIC) -0.3% 1.1%
Reported operating loss (62) (15) n/a
---------------------------------- ----------- ----------- -------- ------------------
Alternative Powertrain
Our Alternative Powertrain business provides battery systems for a range
of applications, fuel cell technologies and battery materials for automotive
applications. Our Battery Materials business comprises lithium iron
phosphate (LFP) materials as well as eLNO, our portfolio of leading
ultra-high energy density materials. Sales grew 16%, with continued
momentum in Fuel Cells and Battery Systems for e-bikes.
Significant progress in commercialising eLNO
We are making significant progress with the development and commercialisation
of our portfolio of eLNO materials, which will compete with future ultra-high
energy density materials such as NMC 811. Feedback from testing with
customers remains positive, specifically our ability to provide tailored
solutions. In the year, we moved to full cell testing with four customers
- two global automotive OEMs and two non-automotive customers. Alongside
this full cell testing, we continue to work with a number of automotive
OEMs and cell manufacturers in the validation phase.
We broke ground on our first commercial plant in Konin, Poland, which
is expected to be on stream in 2022 and supplying platforms in production
in 2024. Our total investment to first commercial production will amount
to c.GBP350 million, although we are seeing some upward pressure as
we finalise the design and build in more flexibility to meet our customers'
requirements. Beyond this, scale up is likely to be phased as we match
capacity to market demand. As part of the commercialisation process,
we are also securing sources of renewable energy for the site in Poland.
Refocusing Lithium Iron Phosphate to support eLNO
We are focusing our science and innovative solutions on cathode materials
that are truly market leading, principally eLNO our ultra-high energy
density cathode material and our higher performing lithium iron phosphate
(LFP). S ales of LFP grades for lower performance requirements declined
in the year and we are now refocusing our LFP business to the high value
segment, exiting the much larger lower value segment of the market,
to better support our eLNO customers and the development of this business.
These changes gave rise to an impairment charge of GBP57 million in
the year, taken outside of underlying operating profit.
Fuel Cells saw significant growth in sales as we invest for growth
Sales in Fuel Cells grew 23% to GBP33 million and we delivered good
operating profit growth driven by increased demand for both non-automotive
and automotive applications in Asia. Today, our fuel cells are now powering
several hundred commercial vehicles and buses in China. We continue
to invest in line with market demand and have committed c.GBP15 million
to double our capacity in the UK and China.
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 flat in the year. At the end of the year, we saw a small increase
in sales as some of our products are vital components used within ventilators.
Life Science Technologies
Our Life Science Technologies business provides advanced catalysts to
the pharmaceutical and agricultural chemicals markets. Sales were flat
in the year.
Underlying operating profit
Operating profit declined as we invested in the development of our Battery
Materials business and recognised an GBP8 million one-off impairment
in the first half in relation to our demo plant.
ROIC
ROIC decreased to -0.3% reflecting the operating loss as we invest
in Battery Materials.
Corporate
Corporate costs in the period were GBP38 million, a decrease of GBP15
million from 2018/19 due to lower legal costs and share based payments.
Financial review
Research and development (R&D)
We invested GBP199 million in R&D in the year, including GBP23 million
of capitalised R&D, around 5% of sales. Spend increased 5% as we invested
in next generation technologies in Clean Air, the efficiency and resiliency
of our refineries in Efficient Natural Resources, our Health API product
pipeline and our eLNO cathode material.
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 85% of the non-sterling
denominated underlying operating profit in the year ended 31(st) March
2020, were:
Share of 2019/20 Average exchange rate % change
non-sterling denominated Year ended 31(st) March
underlying operating
profit
------------------------- --------
2020 2019
----------------- ------------------------- ------------ ------------ --------
US dollar 40% 1.271 1.310 -3
Euro 33% 1.143 1.134 +1
Chinese renminbi 12% 8.85 8.81 -
----------------- ------------------------- ------------ ------------ --------
Overall for the year, the impact of exchange rates increased sales by
GBP36 million and increased underlying operating profit by GBP5 million,
following a GBP47 million and an GBP8 million increase respectively
in our first half.
If current exchange rates (GBP:$ 1.233, GBP:EUR 1.110, GBP:RMB 8.81)
are maintained throughout the year ending 31(st) March 2021, foreign
currency translation will have a positive impact of approximately GBP11
million on underlying operating profit. A one cent change in the average
US dollar and euro exchange rates each have an impact of approximately
GBP2 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 GBP1 million.
Major impairment and restructuring charges
As we accelerate our strategy to drive efficiency, we will deliver annualised
savings of at least
GBP80 million over the next three years to 2022/23. Related to these
new savings, we will be taking total impairment and restructuring charges
of around GBP240 million by 2022/23. Of this, around GBP80 million is
expected to be cash.
During the year we recognised impairment and restructuring charges of
GBP140 million. These comprised the consolidation of our Clean Air footprint,
our Lithium Iron Phosphate (LFP) business in Battery Materials and our
Health product pipeline.
In Clean Air, we will consolidate some of our existing older capacity
in Europe into our new, more efficient plants. In the year, this resulted
in an impairment charge of GBP61 million on our older manufacturing
assets.
We impaired our Lithium Iron Phosphate (LFP) business in Battery Materials,
which gave rise to an impairment charge of GBP57 million in the period.
A strategic review of Health's new product introduction process was
undertaken during the year which resulted in organisational changes
and the deprioritisation of the development of 21 molecules. Development
expenditure which had been capitalised in respect of the terminated
molecules totalling GBP20 million has been written off during the year.
Future restructuring costs of around GBP100 million relate to the simplification
of our organisation and consolidation of our Clean Air footprint.
See the table for a breakdown showing the impairment and restructuring
charge and cash costs:
GBP million Annualised Total Restructuring Future
benefits by restructuring costs restructuring
2022/23(1) costs 2019/20 costs(2)
---------------- ---------------- ---------------- ---------------- ----------------
Clean Air
footprint 30 (91) (61) (30)
Group wide
organisational
efficiency 50 (70) - (70)
Battery
Materials LFP - (57) (57) -
Health product
pipeline - (20) (20) -
Other
restructuring
costs - (2) (2) -
---------------- ---------------- ---------------- ---------------- ----------------
Total 80 (240) (140) (100)
---------------- ---------------- ---------------- ---------------- ----------------
(1) Annualised benefits from 2020/21 of at least GBP30 million.
(2) Includes cash costs of c.GBP80 million.
Profit / (loss) on disposal of businesses
Profit / (loss) on disposal of businesses is shown separately on the
face of the income statement and excluded from underlying operating
profit. In the year, we released a GBP2 million provision in relation
to the disposal of Johnson Matthey Gold and Silver Refining Holdings
in March 2015. In the year ended 31(st) March 2019, the group sold its
water disinfection business, Miox. After costs, the net proceeds were
GBP2 million which resulted in a loss on sale of GBP12 million.
Finance charges
Net finance charges in the year amounted to GBP86 million, up from GBP43
million in 2018/19. This was primarily driven by increased average precious
metal borrowings due to higher precious metal prices, on which we pay
higher interest on average than the rest of our borrowings.
Taxation
The effective tax rate on reported profit for the year ended 31(st)
March 2020 was 16.4%, up from 15.3% in the prior year.
The tax charge on underlying profit before tax for the year ended 31(st)
March 2020 was GBP72 million, an effective underlying tax rate of 15.7%,
broadly unchanged from 15.9% in the prior year. This was around 2% lower
than expected due to profit mix across different tax jurisdictions following
the impact of COVID-19. The current year tax charge includes increases
in provisions for uncertain tax positions, GBP12 million of which was
recognised in the first half and relates to reassessments of prior years.
Post-employment benefits
IFRS - accounting basis
At 31(st) March 2020, 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 GBP262 million.
The cost of providing post-employment benefits in the year was GBP49
million, down from GBP56 million last year. The post-employment benefits
cost also included a past service credit of GBP20 million, which compared
to a GBP9 million credit in the prior period.
Actuarial - funding basis
The UK pension scheme has a legacy defined benefit career average section
which was closed to new entrants on 1(st) October 2012 when a new defined
benefit cash balance section was opened.
The last triennial actuarial valuation of the career average section
as at 1(st) April 2018 revealed a deficit of GBP34 million, or a surplus
of GBP9 million after taking account of the future additional deficit
funding contributions from the special purpose vehicle set up in January
2013. The valuation results as at 1(st) April 2018 allowed for the equalisation
of Guaranteed Minimum Pension.
The last triennial actuarial valuation of the cash balance section as
at 1(st) April 2018 revealed a surplus of GBP0.2 million.
In order to reduce the group's long term pension risk exposure a number
of changes to the UK pension scheme became effective from 1(st) July
2018, including:
-- Contributions from those employees who remain in the career average
section increased and will further rise over the next few years to
help fund the increased cost of providing these benefits
-- The accrual rate in the career average section reduced from 1/80th
to 1/100th for each year of future service after this date
-- New benefit levels with varying employee contribution rates were
introduced in the cash balance section
-- Employees in the career average section were given the option of
switching to the cash balance section.
The latest actuarial valuations of our two US pension schemes showed
a surplus of GBP1 million at 1(st) July 2019, an improvement from a
GBP2 million deficit at 1(st) July 2018.
Capital expenditure
Capital expenditure was GBP465 million in the year, 3.1 times depreciation
and amortisation (excluding amortisation of acquired intangibles). In
the period, projects included:
-- Clean Air manufacturing plants in Europe and Asia. This increased
capacity will enable us to consolidate our manufacturing footprint
to drive efficiency and improve flexibility, and support demand from
tightening legislation in these regions
-- Investment in the development and commercialisation of eLNO. We broke
ground on our first commercial plant in Konin, Poland for the first
10,000 metric tonnes which has the potential for expansion to 100,000
metric tonnes. We are on track to start production in 2022 and supply
platforms in production in 2024
-- Upgrade to our core IT business systems
-- Investment in our Health manufacturing facilities and continued investment
in our API product pipeline
-- Investment in the efficiency and resilience of our refineries within
Efficient Natural Resources
Capital expenditure for 2020/21 is expected to be up to GBP400 million
as our investment into strategic growth projects continues. Key projects
include:
-- Investment in eLNO as we continue to commercialise our ultra-high
energy battery cathode material
-- Completion of our new Clean Air plants in China and India
-- Investment in the efficiency and resilience of our refineries within
Efficient Natural Resources
-- Upgrade to our IT systems as we continue to roll out our single global
ERP system
Depreciation and amortisation (excluding amortisation of acquired intangibles)
is expected to increase to around GBP200 million in 2020/21. This increase
is largely due to the depreciation of our new Clean Air plants and our
investment to upgrade our core IT systems.
Accelerating reduction of precious metal working capital
We have a disciplined approach to managing precious metal working capital
and have accelerated our actions in this area. In the year, we made
substantial progress in reducing precious metal volumes amounting to
GBP345 million(1) which was achieved through:
-- Progressing backlog reduction, with GBP162 million of precious
metal volume removed
-- Optimising precious metal volumes across our businesses, particularly
between Clean Air and Efficient Natural Resources, and reviewing
commercial terms with pgm collectors as well as our Clean Air customers.
This removed GBP49 million of precious metal volume
-- Substantial inflows of GBP134 million as a result of supply chain
management in Clean Air, reducing metal at every stage so we were
not sitting on excess inventory, as demand slowed due to the impact
of COVID-19
We are focused on further reducing precious metal working capital. We
are now targeting at least a further GBP300 million(2) reduction in
precious metal backlogs by 31(st) March 2021, although we expect this
to be offset by higher demand in Clean Air depending on the path of
recovery.
Notes:
1. Based on 2019/20 blended prices.
2. Based on 31(st) March 2020 prices.
Free cash flow and working capital
Free cash flow was an inflow of GBP52 million, an improvement on the
prior year. This was primarily due to better net working capital where
we saw an outflow of GBP1 million compared to an outflow of GBP224 million
in the prior year.
Excluding precious metal, working capital days increased to 52 days
at 31(st) March 2020 compared to 48 days in the prior year.
Average working capital days excluding precious metals increased by
4 days to 63 days. We are targeting an improvement in average non precious
metal working capital to between 50 and 60 days over the medium term.
Dividend
The group has a strong balance sheet, good cash generation and liquidity
headroom. However, given the heightened degree of current uncertainty
and to balance the needs of all stakeholders, the board will propose
a final ordinary dividend for the year of 31.125 pence at the Annual
General Meeting on 23(rd) July 2020, representing half the level of
the 2018/19 final dividend. This is not intended to be a rebasing; the
board remains committed to a progressive dividend and anticipates restoring
future dividend payments to levels seen prior to the COVID-19 pandemic
when circumstances permit. Subject to approval by shareholders, the
final dividend will be paid to shareholders on 4(th) August 2020, with
an ex dividend date of 18(th) June 2020.
Return on invested capital (ROIC)
ROIC declined to 13.3% at 31 (st) March 2020 from 16.4% in the prior
year mainly due to higher capital expenditure, increased average precious
metal working capital through the year and lower operating profit.
Capital structure
Net debt at 31(st) March 2020 was GBP1.1 billion. This is a decrease
of GBP394 million from
30(th) September 2019 and an increase of GBP228 million from 31(st)
March 2019. Net debt increased by GBP43 million to GBP1.1 billion when
adjusted for the post tax pension deficits. The group's net debt (including
post tax pension deficits) to EBITDA was 1.6 times (31(st) March 2019:
1.3 times), at the bottom end of our target range of 1.5 to 2.0 times.
Contingent liabilities
The group is involved in various disputes and claims which arise from
time to time in the course of its business including, for example, in
relation to commercial matters, product quality or liability, employee
matters and tax audits. The group is also involved from time to time
in the course of its business in legal proceedings and actions, engagement
with regulatory authorities and in dispute resolution processes. These
are reviewed on a regular basis and, where possible, an estimate is
made of the potential financial impact on the group. In appropriate
cases a provision is recognised based on advice, best estimates and
management judgement. Where it is too early to determine the likely
outcome of these matters, no provision is made. Whilst the group cannot
predict the outcome of any current or future such matters with any certainty,
it currently believes the likelihood of any material liabilities to
be low, and that such liabilities, if any, will not have a material
adverse effect on its consolidated income, financial position or cash
flows.
On a specific matter, the group previously disclosed that it had been
informed by two customers of failures in certain engine systems for
which the group supplied a particular coated substrate as a component
for their customers' emissions after-treatment systems. The particular
coated substrate was sold to only these two customers. The group has
not been contacted by any regulatory authority about these engine system
failures. The reported failures have not been demonstrated to be due
to the coated substrate supplied by the group. As previously disclosed,
we settled with one of these customers on mutually acceptable terms
with no admission of fault.
Having reviewed its contractual obligations and the information currently
available to it, the group believes it has defensible warranty positions
in respect of its supplies of coated substrate for the after-treatment
systems in the affected engines remaining at issue. If required, it
will vigorously assert its available contractual protections and defences.
The outcome of any discussions relating to the matters raised is not
certain, nor is the group able to make a reliable estimate of the possible
financial impact at this stage, if any. The group works with all its
customers to ensure appropriate
product quality and we have not received claims in respect of our emissions
after-treatment components from this or any other customer. Our vision
is for a world that's cleaner and healthier; today and for future generations.
We are committed to enabling improving air quality and we work constructively
with our customers to achieve this.
UK's withdrawal from European Union
JM is continuing to monitor and assess the potential impact of the UK's
withdrawal from the European Union on current operations and strategy.
Plans are well developed and JM is confident that the acute demands
of managing the COVID-19 response will not reduce its ability to respond
to changes caused by the withdrawal.
Going concern
The group has a strong balance sheet with c.GBP1.3 billion of available
cash and undrawn committed facilities at 31(st) March 2020. Leverage,
measured by net debt (including post tax pension deficits) to EBITDA,
was at the bottom of our target range at 1.6 times. COVID-19 has introduced
unprecedented uncertainty to the market outlook and in response to this
we have undertaken extensive reviews of our businesses and projections
under a range of potential outcomes.
Our review used a number of external sources to identify a range of
potential economic scenarios and assessed our headroom under each scenario
against committed facilities and key financial covenants over the going
concern period.
At a macro-level we have used the GDP forecasts from a range of external
parties for these scenarios, which are: (1) a deep recession base case
which models an extended shutdown followed by an extended recovery period,
and (2) a downside of a very deep recession comprising of a deeper shutdown
with a challenging, stuttering recovery. The key macro assumptions for
our financial year 2020/21 are shown below:
2020/21 GDP growth projections aligned with the scenarios
Deep recession Very deep recession
----------------- --------------------------------- -----------------------------------------
Description Extended shutdown followed Deeper shutdown impact with
by challenging, stuttering recovery
extended recovery period
Global (1.0%) to (2.0%) (3.5%) to (4.5%)
US (0.6%) (2.7%)
China 1.2% (3.0%)
Europe (6.5%) (c.10%)
----------------- --------------------------------- -----------------------------------------
Source: JM analysis; Oxford Economics; McKinsey; IMF (International
Monetary Fund); IEA (Institute of Economic Affairs); OBR (Office for
Budget Responsibility) (UK); JPM Cazenove and Citi
Clean Air
With the legislative frameworks in place and assumed to remain for vehicle
emissions in the markets in which we operate, our key market variable
is the level of automotive production. Our scenarios utilise a range
of external forecasts and our deep recession scenario assumes a decline
of c.25% in light duty production for Europe and the US, but better
in Asia, while for heavy duty the declines are slightly more. In our
very deep recession scenario, we assume a c.35% decline in light duty
production for Europe and the US, but better in Asia, while for heavy
duty the declines are again slightly more. For US truck sales, we assume
that the bottom of the cycle will occur in 2021/22 in both scenarios
and we keep our assumptions on battery electric vehicles consistent
at 2% of all vehicles globally.
Within these market assumptions, we have planned for a much greater
impact in the early part of 2020/21 and an increase in production over
the year, with slower recovery in the very deep scenario. With a high
proportion of variable costs, we expect to mitigate a significant portion
of the decline in sales. Working capital drops significantly in the
short term before building again to support the growth to normalise
by the end of the year. We also assume that we will continue with our
strategic investments in the new facilities in China and India in the
period.
Efficient Natural Resources
The impact on our Efficient Natural Resources sector varies by sub-sector.
The Catalyst Technologies businesses have seen little impact from the
COVID-19 slowdown to date, but we do expect an impact as lower demand
begins to impact the industries they serve. The key drivers for our
businesses are diverse and will depend upon the specific markets they
address as well as feedstock prices. At a market level we have assumed
an oil price of $25-35/bbl for our deep scenario and $20-30/bbl for
the very deep scenario together with an overall decline in investment
in the oil and gas sector of 35% and 50% respectively. In these businesses
we have a higher proportion of fixed costs so the impact of lower demand
on profitability will be greater.
Platinum Group Metal (PGM) Services is most impacted by pgm prices and
for the purpose of our scenarios we assume lower prices, which adversely
impacts profitability. The lower demand on our refineries in the short
term in part due to lower Clean Air volumes under these scenarios will
allow us to accelerate our progress on backlog reduction as well as
meeting planned shutdowns for maintenance and stock counts. This in
turn reduces the sensitivity of our working capital to pgm prices.
Health and New Markets
Health is relatively unaffected by COVID-19 with demand for many products
unaffected.
Most of our businesses in New Markets see only short term impacts from
disruption to manufacturing and supply chains while the underlying market
demand remains e.g. fuel cells and medical devices. We assume that our
strategic focus and investment in Battery Materials is maintained throughout
the period.
Funding and available liquidity
The group has a robust funding position. JM signed a GBP1 billion five
year committed revolving credit facility in March this year which secures
liquidity for the next five years and was entirely undrawn at 31(st)
March 2020. Our longer term funding comes from the US private placement
market and other regional lenders including the European Investment
Bank and KfW. The maturity profile at
31(st) March 2020 is excellent with only GBP130 million of term debt
maturing before June 2021. In April 2020, we secured a further US$300
million of funding from the US private placement market for the next
five to seven years. JM has also secured access to the Bank of England's
COVID Corporate Financing Facility (CCFF) which would provide additional
back-stop liquidity for the next year if needed.
In addition, as a long-time, highly rated issuer in the US private placement
market, JM expects to be able to access additional funding in its existing
markets should it need to. The group also has a number of additional
sources of funding available including uncommitted lease facilities
that can provide precious metal funding.
At 31(st) March 2020 the group had metal lease facilities of c.GBP800
million, of which GBP451 million
(31(st) March 2019: GBP372 million) was drawn. As these metal leases
are for periods of less than 12 months they have been excluded from
our going concern assessment, with the assumption that when these leases
mature they are replaced with our other existing committed credit facilities.
The metal leasing market remains active and there is no indication that
renewing these lease facilities when they mature will not be possible.
Similarly, we have also excluded from our modelling the funding facilities
obtained under the CCFF. While metal leasing facilities and the CCFF
are excluded from our modelling under a normal situation, we would expect
to have access to facilities such as these.
Conclusion
The group has a robust funding position and has tested its performance
under a deep recession scenario and stress tested with a more extreme
very deep scenario. In both scenarios, we have sufficient headroom against
committed facilities and key financial covenants in the going concern
period (15 months following 31(st) March 2020). There remain risks to
the group including more extreme economic outcomes and our delivery
of refinery backlog reductions. Against these the group still has a
range of levers which it could utilise to protect headroom including
delaying inventory builds, reducing capital expenditure and reducing
future dividend distributions.
The directors are therefore of the opinion that the group has adequate
resources to fund its operations for the period of 15 months following
31(st) March 2020 and so determine that it is appropriate to prepare
the accounts on a going concern basis.
Responsible business
Health and safety
We continue to build a world class health and safety culture across
Johnson Matthey. We are making good progress against our targets to
reduce significant risk in our major hazard processes and on improving
overall health and safety performance. Our LTIIR of 0.35 and TRIIR of
0.78 both significantly improved relative to last year (2018/19: LTIIR
0.57, TRIIR 1.01).
Protecting our people as the COVID-19 pandemic has developed has been
a major priority and we acted quickly based on our learnings from our
sites in China to put in place guidance globally on the implementation
of the necessary controls that met local state and government requirements
and JM standards. Recognising that the impact of COVID-19 on people's
daily lives may also take its toll on their personal wellbeing, we have
been providing employees with more regular communications, tips and
resources to support them through these more challenging times.
People
Our people are at the heart our business strategy. For us to deliver
solutions from our world class science and realise our vision we are
developing our culture further, where our people can be successful;
a culture which attracts, retains and develops the very best talent.
As JM executes its strategy, we are driving a period of transformative
change to build an organisation which is more market focused, lean and
agile, and a fulfilling place for our employees to work. Our people
investments over the past few years have laid the foundations and we
are now in a strong position to leverage these to accelerate change
and reshape the way we work, in line with our strategy and vision.
With the appropriate culture we can accelerate the change required to
execute our strategy. Over the past 18 months we have engaged all levels
of our organisation and external stakeholders to shape our culture ambition,
aligning it to our vision and values and setting ourselves up for the
future.
We regularly conduct an employee survey, known as yourSay, to know whether
our employees are engaged with what we are doing and feel enabled to
do their job well. Following a mixed outcome when we remeasured in 2018
we have invested significant energy to start to address the key issues.
Our most recent 2019 pulse survey shows significant improvement on engagement
(up 4 points to 63) with step change improvements in trust in leadership
and pride in the organisation. We have also seen engagement of our longer
serving employees increase significantly. Our efforts to cascade clear
priorities, recognise employees' efforts, prioritise wellbeing and maintain
efforts on career and personal development conversations have all had
a positive impact. However, enablement in our 2019 survey remained flat
at 63. While the survey reveals that employees feel their work is more
challenging, stimulating and fulfilling, there are employees at some
of our sites who feel barriers are getting in the way of their productivity.
This is valuable feedback that we are factoring into how we organise
our operating models, aiming for a leaner and less complex organisation.
Sustainable business framework to 2025
The route to a more sustainable future brings many challenges that must
be tackled - challenges driven by global trends. In setting our vision
for a cleaner, healthier world, we have made it our business to use
our leading edge science for the creation of sustainable technologies
that address these challenges.
Sustainability is therefore an integral part of our company, our strategy,
and the decisions we take. Our sustainable business framework embeds
our vision for a cleaner, healthier world through all aspects of our
business and supply chains so that as we execute our strategy, we do
so with a full understanding of the impact on people and planet. We
have six challenging goals to 2025 against which we measure progress
towards our vision. Through these goals, we continue our sustainability
commitment internally and externally towards our customers, communities
and supply chains. Goals 1, 2 and 3 are internal measures to: improve
health and safety performance; support employee engagement and inclusivity;
and reduce the environmental impact of our operations. Goals 4, 5 and
6 are externally facing and cover: responsible sourcing; increasing
the impact of our products on a cleaner healthier world; and community
engagement through employee volunteering. Further details of this framework,
goals and their associated targets will be outlined in our 2020 Annual
Report and Accounts which will be published on 23(rd) June 2020.
Consolidated Income Statement
for the year ended 31(st) March 2020
2020 2019
Notes GBP million GBP million
Revenue 3 14,577 10,745
Cost of sales (13,576) (9,729)
----------- -----------
Gross profit 1,001 1,016
Distribution costs (126) (126)
Administrative expenses (313) (316)
Net impairment losses on trade and contract receivables (23) (8)
Profit / (loss) on disposal of businesses 4 2 (12)
Loss on significant legal proceedings 4 - (17)
Amortisation of acquired intangibles 4 (13) (14)
Major impairment and restructuring charges 4 (140) 8
----------- -----------
Operating profit 4 388 531
Finance costs (195) (107)
Finance income 109 64
Share of profit of joint venture and associate 3 -
Profit before tax 305 488
Tax expense (50) (75)
----------- -----------
Profit for the year 255 413
----------- -----------
pence pence
Earnings per ordinary share
Basic 132.3 215.2
Diluted 132.1 214.6
Consolidated Statement of Total Comprehensive Income
for the year ended 31(st) March 2020
2020 2019
Notes GBP million GBP million
Profit for the year 255 413
----------- -----------
Other comprehensive income
Items that will not be reclassified to the income
statement
Remeasurements of post-employment benefit assets
and liabilities 6 87 (69)
Fair value losses on equity investments at fair
value through other
comprehensive income (2) (3)
Tax on items that will not be reclassified to the
income statement (21) 13
----------- -----------
64 (59)
----------- -----------
Items that may be reclassified to the income statement
Exchange differences on translation of foreign
operations 65 22
Fair value losses on other investments at fair
value through other
comprehensive income - (1)
Amounts credited to hedging reserve - 4
Fair value losses on net investment hedges (8) (1)
57 24
----------- -----------
Other comprehensive income for the year 121 (35)
----------- -----------
Total comprehensive income for the year 376 378
----------- -----------
Consolidated Balance Sheet
as at 31(st) March 2020
2020 2019
Notes GBP million GBP million
Assets
Non-current assets
Property, plant and equipment 1,403 1,271
Right-of-use assets 88 -
Goodwill 580 578
Other intangible assets 396 336
Investments in joint venture and associate 23 20
Investments at fair value through other comprehensive
income 49 52
Other receivables 63 39
Interest rate swaps 34 13
Deferred tax assets 66 58
Post-employment benefit net assets 6 317 209
----------- -----------
Total non-current assets 3,019 2,576
----------- -----------
Current assets
Inventories 1,902 1,316
Current tax assets 31 37
Trade and other receivables 2,077 1,553
Cash and cash equivalents -- cash and deposits 112 90
Cash and cash equivalents -- money market funds 192 347
Other financial assets 28 22
Assets held for sale - 7
----------- -----------
Total current assets 4,342 3,372
----------- -----------
Total assets 7,361 5,948
----------- -----------
Liabilities
Current liabilities
Trade and other payables (2,745) (1,647)
Lease liabilities (12) -
Current tax liabilities (106) (130)
Cash and cash equivalents -- bank overdrafts (31) (59)
Borrowings and related swaps (331) (184)
Other financial liabilities (50) (13)
Provisions (11) (20)
Total current liabilities (3,286) (2,053)
----------- -----------
Non-current liabilities
Borrowings and related swaps (994) (1,073)
Lease liabilities (64) -
Deferred tax liabilities (74) (91)
Employee benefit obligations 6 (104) (106)
Provisions (9) (9)
Other payables (6) (5)
----------- -----------
Total non-current liabilities (1,251) (1,284)
----------- -----------
Total liabilities (4,537) (3,337)
----------- -----------
Net assets 2,824 2,611
----------- -----------
Equity
Share capital 221 221
Share premium 148 148
Shares held in employee share ownership trust
(ESOT) (32) (45)
Other reserves 142 87
Retained earnings 2,345 2,200
----------- -----------
Total equity 2,824 2,611
----------- -----------
Note: GBP0.5 billion increase in precious metal inventories on
higher volumes and metal price increases; GBP0.4 billion increase
in amounts receivable under precious metal sale and repurchase
agreements; GBP1.0 billion increase in amounts payable under
precious metal sale and repurchase agreements.
The accounts were approved by the Board of Directors on 11(th)
June 2020 and signed on its behalf by:
R J MacLeod
A O Manz
Consolidated Cash Flow Statement
for the year ended 31(st) March 2020
2020 2019
Notes GBP million GBP million
Cash flows from operating activities
Profit before tax 305 488
Adjustments for:
Share of profit of joint venture and associate (3) -
(Profit) / loss on disposal of businesses (2) 12
Depreciation 154 142
Amortisation 24 29
Impairment losses / (reversals) 146 (7)
Loss on sale of non-current assets 5 2
Share-based payments (1) 10
Increase in inventories (1) (575) (394)
Increase in receivables (2) (541) (246)
Increase in payables (3) 1,115 416
Decrease in provisions (6) (24)
Contributions in excess of employee benefit obligations
charge (24) (40)
Changes in fair value of financial instruments 24 (2)
Net finance costs 86 43
Income tax paid (109) (95)
----------- -----------
Net cash inflow from operating activities 598 334
----------- -----------
Cash flows from investing activities
Interest received 104 61
Purchases of property, plant and equipment (332) (215)
Purchases of intangible assets (111) (86)
Proceeds from sale of assets held for sale 7 -
Proceeds from sale of non-current assets 1 1
Proceeds from sale of businesses - 2
----------- -----------
Net cash outflow from investing activities (331) (237)
----------- -----------
Cash flows from financing activities
Proceeds from borrowings 135 245
Repayment of borrowings (123) (2)
Dividends paid to equity shareholders 5 (167) (156)
Settlement of currency swaps - (2)
Interest paid (202) (108)
Principal element of lease payments (13) -
----------- -----------
Net cash outflow from financing activities (370) (23)
----------- -----------
(Decrease) / increase in cash and cash equivalents (103) 74
Exchange differences on cash and cash equivalents (2) -
Cash and cash equivalents at beginning of year 378 304
Cash and cash equivalents at end of year 273 378
----------- -----------
Cash and deposits 112 90
Money market funds 192 347
Bank overdrafts (31) (59)
----------- -----------
Cash and cash equivalents 273 378
----------- -----------
(1) GBP0.5 billion increase in precious metal inventories on higher
volumes and metal price increases.
(2) GBP0.4 billion increase in amounts receivable under precious metal
sale and repurchase agreements.
(3) GBP1.0 billion increase in amounts payable under precious metal
sale and repurchase agreements.
Consolidated Statement of Changes in Equity
for the year ended 31(st) March 2020
Share Shares
held
Share premium in Other Retained Total
capital account ESOT reserves earnings equity
GBP million GBP million GBP million GBP million GBP million GBP million
At 1(st) April 2018 221 148 (48) 62 1,995 2,378
Total comprehensive income - - - 21 357 378
Dividends paid (note 5) - - - - (156) (156)
Share-based payments - - - - 17 17
Cost of shares transferred
to employees - - 3 - (10) (7)
Tax on share-based payments - - - - 1 1
Reclassification - - - 4 (4) -
----------- ----------- ----------- ----------- ----------- -----------
At 31(st) March 2019 221 148 (45) 87 2,200 2,611
Impact of adoption of IFRIC
23 - - - - 5 5
----------- ----------- ----------- ----------- ----------- -----------
At 31(st) March 2019
(restated) 221 148 (45) 87 2,205 2,616
Total comprehensive income - - - 55 321 376
Dividends paid (note 5) - - - - (167) (167)
Share-based payments - - - - 5 5
Cost of shares transferred
to employees - - 13 - (19) (6)
At 31(st) March 2020 221 148 (32) 142 2,345 2,824
----------- ----------- ----------- ----------- ----------- -----------
Notes on the Preliminary Accounts
for the year ended 31(st) March 2020
1 Preparation
Basis of preparation and statement of compliance
The financial information contained in this release does not
constitute the company's statutory accounts for the years ended
31(st) March 2020 or 31(st) March 2019 within the meaning of
section 435 of the Companies Act 2006, but is derived from those
accounts. The accounts are prepared on a going concern basis in
accordance with International Financial Reporting Standards (IFRS)
issued by the International Accounting Standards Board (IASB) and
interpretations issued by the IFRS Interpretations Committee or the
Standing Interpretations Committee (SIC) as adopted by the European
Union (EU) and the Companies Act 2006 applicable to companies
reporting under IFRS. Except for the changes noted below, the
accounting policies applied are set out in the Annual Report and
Accounts for the year ended 31(st) March 2019.
COVID-19 has introduced unprecedented uncertainty to the market
outlook and, in response to this, we have undertaken extensive
reviews of our businesses and projections under a range of
potential outcomes. The group has a robust funding position and has
tested its performance under a deep recession scenario and stress
tested with a more extreme very deep recession scenario. In both
scenarios, we have sufficient headroom against committed facilities
and key financial covenants in the going concern period.
Statutory accounts for 2019 have been delivered to the Registrar
of Companies and those for 2020 will be delivered following the
company's Annual General Meeting. The auditors, PwC, have reported
on both 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 2020 were approved by the Board of Directors on 11(th) June
2020.
Changes in accounting policies
IFRS 16, Leases
IFRS 16 became applicable to the group on 1(st) April 2019 and
the group changed its accounting policy as a result of adopting the
new standard. The impact of the adoption of IFRS 16 and the group's
new accounting policy in respect of leases are disclosed in note
11.
IFRIC 23, Uncertainty over Income Tax Treatments
IFRIC 23 became applicable to the group on 1(st) April 2019. The
interpretation clarifies how to recognise and measure current and
deferred income tax assets and liabilities where there is
uncertainty over a tax treatment. The group has adopted IFRIC 23
retrospectively, with the cumulative effect of adoption, a GBP5
million decrease in tax provisions (including interest), recognised
in reserves at 1(st) April 2019.
Amendments to IFRS 9, IAS 39 and IFRS 7 - Interest rate
benchmark reform
The group has early adopted the amendments to IFRS 9, Financial
Instruments, IAS 39, Financial Instruments: Recognition and
Measurement, and IFRS 7, Financial Instruments: Disclosures, which
relate to interbank offered rates (IBOR) reform and were endorsed
by the EU on 6(th) January 2020. The replacement of benchmark
interest rates, such as LIBOR and other IBOR, is a priority for
global regulators. The amendments provide relief from applying
specific hedge accounting requirements to hedge relationships
directly affected by IBOR reform and have the effect that IBOR
reform should generally not cause hedge accounting to terminate.
There is no financial impact from the early adoption of these
amendments.
The group has one IFRS 9 designated hedge relationship that is
potentially impacted by IBOR reform: the 3.26% $150 million Bonds
2022 which have been swapped into floating rate US dollars. This
swap references six-month US dollar LIBOR and uncertainty arising
from the group's exposure to IBOR reform will cease when the swap
matures in 2022. The implications on the wider business of IBOR
reform will be assessed during the year.
Other amendments to accounting standards
The following amendments to existing standards were applicable
to the group from 1(st) April 2019, but did not have a significant
effect on its reported results or net assets:
-- Amendments to IFRS 9: Prepayment Features with Negative Compensation;
-- Amendments to IAS 28: Long-term Interests in Associates and Joint Ventures;
-- Amendments to IAS 19: Plan Amendment, Curtailment or Settlement; and
-- Annual Improvements to IFRS Standards 2015-2017 Cycle.
Amendments to accounting standards that have been issued, but
are not yet effective
The following amendments to existing standards are applicable to
the group from 1(st) April 2020, but are not expected to have a
significant effect on its reported results or net assets:
-- Amendments to References to the Conceptual Framework in IFRS Standards; and
-- Amendments to IAS 1 and IAS 8: Definition of Material.
Non-GAAP measures
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. The group's non-GAAP measures are defined
and reconciled to GAAP measures in note 12.
2 Segmental information
Revenue, sales, underlying operating profit and net assets by
sector
Year ended
31(st) March
2020
Efficient
Clean Natural New
Air Resources Health Markets Corporate Eliminations Total
GBP million GBP million GBP million GBP million GBP million GBP million GBP million
Revenue from
external
customers 6,172 7,670 229 506 - - 14,577
Inter-segment
revenue 1 4,291 - 6 - (4,298) -
----------- ----------- ----------- ----------- ----------- ------------ -----------
Revenue 6,173 11,961 229 512 - (4,298) 14,577
----------- ----------- ----------- ----------- ----------- ------------ -----------
External sales 2,617 945 223 385 - - 4,170
Inter-segment
sales 1 134 - 4 - (139) -
----------- ----------- ----------- ----------- ----------- ------------ -----------
Sales(1) 2,618 1,079 223 389 - (139) 4,170
----------- ----------- ----------- ----------- ----------- ------------ -----------
Underlying
operating
profit(1) 295 256 27 (1) (38) - 539
----------- ----------- ----------- ----------- ----------- ------------ -----------
Segmental net
assets 1,361 1,267 520 236 332 - 3,716
----------- ----------- ----------- ----------- ----------- ------------
Net debt (note 12) (1,094)
Post-employment benefit net
assets
and liabilities 213
Deferred tax net liabilities (8)
Provisions and non-current other payables (26)
Investments in
joint venture
and associate 23
Net assets 2,824
------------
Year ended 31(st) March 2019
Efficient
Clean Natural New
Air Resources Health Markets Corporate Eliminations Total
GBP
GBP million GBP million GBP million GBP million GBP million GBP million million
Revenue from
external customers 4,948 5,074 259 464 - - 10,745
Inter-segment
revenue 210 2,608 - 9 - (2,827) -
----------- ----------- ----------- ----------- ----------- ------------ ----------
Revenue 5,158 7,682 259 473 - (2,827) 10,745
----------- ----------- ----------- ----------- ----------- ------------ ----------
External sales 2,719 880 256 359 - - 4,214
Inter-segment sales 1 111 1 3 - (116) -
----------- ----------- ----------- ----------- ----------- ------------ ----------
Sales(1) 2,720 991 257 362 - (116) 4,214
----------- ----------- ----------- ----------- ----------- ------------ ----------
Underlying operating
profit(1) 393 181 43 2 (53) - 566
----------- ----------- ----------- ----------- ----------- ------------ ----------
Segmental net assets 1,339 1,243 496 235 108 - 3,421
----------- ----------- ----------- ----------- ----------- ------------
Net debt (note 12) (866)
Post-employment benefit net
assets
and liabilities 103
Deferred tax net
liabilities (33)
Provisions and
non-current
other payables (34)
Investments in joint
venture
and associate 20
Net assets 2,611
----------
(1) Sales and underlying operating profit are non-GAAP measures (see
note 12). Underlying operating profit excludes profit or loss on disposal
of businesses, gain or loss on significant legal proceedings, together
with associated legal costs, amortisation of acquired intangibles and
major impairment and restructuring charges.
Impact of exchange rate movements on sales and underlying operating
profit by sector
The main impact of exchange rate movements on sales and underlying
operating profit is from the translation of the results of foreign
operations into sterling.
Average exchange rates
2020 2019
US dollar / GBP 1.271 1.310
Euro / GBP 1.143 1.134
Chinese renminbi / GBP 8.85 8.81
------------ --------
Year ended 31(st) Change
Year ended March 2019 at
31(st) At last At this this
March year's year's year's
2020 rates rates rates
GBP million GBP million GBP million %
Clean Air 2,618 2,720 2,739 -4
Efficient Natural Resources 1,079 991 1,002 +8
Health 223 257 262 -15
New Markets 389 362 363 +7
Inter-segment sales (139) (116) (116)
--------------- ------------------- -----------
Sales(1) 4,170 4,214 4,250 -2
--------------- ------------------- -----------
Clean Air 295 393 395 -25
Efficient Natural Resources 256 181 183 +40
Health 27 43 44 -38
New Markets (1) 2 3 n/a
Corporate (38) (53) (54)
--------------- ------------------- -----------
Underlying operating profit(1) 539 566 571 -6
--------------- ------------------- -----------
(1) Sales and underlying operating profit are non-GAAP measures
(see note 12). Underlying operating profit excludes profit or loss
on disposal
of businesses, gain or loss on significant legal proceedings, together
with associated legal costs, amortisation of acquired intangibles
and
major impairment and restructuring charges.
3 Revenue
Revenue from external customers by principal
products and services
Year ended 31(st) March 2020
Efficient
Clean Natural
Air Resources Health New Markets Total
GBP million GBP million GBP million GBP million GBP million
Metal 3,555 6,725 6 121 10,407
Heavy Duty Catalysts 831 - - - 831
Light Duty Catalysts 1,742 - - - 1,742
Catalyst Technologies - 513 - - 513
Platinum Group Metal
Services - 298 - - 298
Advanced Glass
Technologies - 70 - - 70
Diagnostic Services - 64 - - 64
Generics - - 134 - 134
Innovators - - 89 - 89
Alternative Powertrain - - - 237 237
Medical Device Components - - - 71 71
Life Science
Technologies - - - 47 47
Other 44 - - 30 74
Revenue 6,172 7,670 229 506 14,577
------------ ------------ ------------ ------------ ------------
Year ended 31(st) March 2019
Efficient
Clean Natural
Air Resources Health New Markets Total
GBP million GBP million GBP million GBP million GBP million
------------ ------------ ------------ ------------ --------------
Metal 2,229 4,194 3 105 6,531
Heavy Duty Catalysts 938 - - - 938
Light Duty Catalysts 1,737 - - - 1,737
Catalyst Technologies - 504 - - 504
Platinum Group Metal
Services - 233 - - 233
Advanced Glass
Technologies - 75 - - 75
Diagnostic Services - 68 - - 68
Generics - - 171 - 171
Innovators - - 85 - 85
Alternative Powertrain - - - 206 206
Medical Device Components - - - 70 70
Life Science
Technologies - - - 46 46
Other 44 - - 37 81
Revenue 4,948 5,074 259 464 10,745
4 Operating profit
2020 2019
GBP million GBP million
Operating profit is arrived at after charging / (crediting):
Past service credit (20) (9)
----------- -------------
Depreciation of property, plant and equipment 140 142
Depreciation of right-of-use assets 14 -
----------- -------------
Depreciation 154 142
----------- -------------
Amortisation of internally generated intangible assets
included in cost of sales 3 6
Amortisation of other intangible assets included in:
- cost of sales 1 2
- distribution costs 1 1
- administrative expenses 7 6
- amortisation of
acquired
intangibles 12 14
----------- -------------
Amortisation 24 29
----------- -------------
Impairment losses / (reversals) included in administrative
expenses:
- other intangible assets 1 -
- property, plant and
equipment 9 2
- borrowings and related
swaps - (2)
Impairment losses included in amortisation of acquired
intangibles:
- other intangible assets 1 -
Impairment losses / (reversals) included in major
impairment and restructuring charges:
- goodwill 7 -
- other intangible assets 31 -
- property, plant and
equipment 90 (7)
- right-of-use assets 1 -
- inventories (3) -
- trade and other
receivables 9 -
Impairment losses / (reversals) 146 (7)
----------- -------------
The following items are shown separately on the face of the
income statement:
- Profit or loss on disposal of businesses The group released a
residual provision for environmental liabilities of GBP2 million
which had originally been recognised in respect of the disposal of
Johnson Matthey Gold and Silver Refining Holdings in March 2015.
The time limit on claims was five years and no claims have been
received. In the prior year, the group sold its water disinfection
business, Miox. After costs, the net proceeds were GBP2 million
which resulted in a loss on sale of GBP12 million.
- Gain or loss on significant legal proceedings In April 2019,
the group paid GBP17 million in respect of a settlement with a
customer on mutually acceptable terms with no admission of fault
relating to failures in certain engine systems for which it
supplied a component in the US. The settlement was recognised in
the prior year on the basis that it confirmed that the group had a
present obligation at the prior year end.
- Amortisation of acquired intangibles Amortisation and
impairment of intangible assets which arose on the acquisition of
businesses totalled GBP13 million (2019: GBP14 million).
- Major impairment and restructuring charges The group
recognised the following impairments during the year:
o Clean Air manufacturing plants Investment in new manufacturing
plants in Europe and Asia has allowed the Clean Air sector to
consolidate its existing capacity into new, more efficient plants.
Specifically, we plan to restructure three of our manufacturing
plants. As a result, the carrying value of one of the plants has
been impaired, by GBP42 million to GBP24 million, based on a fair
value less costs of disposal assessment, with our assessment of the
market value of the plant based on internal data (level 3 inputs -
see note 7 for the fair value hierarchy). The other two plants have
been impaired by GBP17 million to GBP3 million and by GBP2 million
to GBPnil based on a value in use assessment, with discount rates
of 13% and 38%, respectively. The impairment comprises intangible
assets (GBP6 million) and property, plant and equipment (GBP55
million).
o Battery Materials LFP business We are focusing our science and
innovative solutions on cathode materials that are truly market
leading, principally eLNO, our ultra-high energy density cathode
material and, in addition, our higher performing lithium iron
phosphate (LFP). Sales of LFP declined during the year and we are
now refocusing our LFP business on the high value segment of the
market to better support our eLNO customers and the development of
that business. These changes mean that the carrying value of the
Battery Materials LFP cash-generating unit has been impaired, by
GBP57 million, to GBP3 million based on a value in use assessment.
The impairment comprises goodwill (GBP7 million), intangible assets
(GBP5 million), property, plant and equipment (GBP35 million),
right-of-use assets (GBP1 million) and trade and other receivables
(GBP9 million). The recoverable amount of GBP3 million reflects
residual working capital balances. The discount rate for the
purposes of the value in use assessment was 10.7% (2019:
11.9%).
o Health capitalised development expenditure During the year, a
fundamental review of the Health sector's new product introduction
process was undertaken to determine how the business will deliver
its strategic plan. The organisation was restructured and new
employees were recruited to strengthen the sector's technical
capabilities. A detailed review of each molecule was performed
which considered all assumptions, including market size, number of
competitors, molecular process design and technical feasibility.
The assessment resulted in the determination to reprioritise the
molecules in the pipeline, focusing on the optimal number of
projects to sustain a consistent and predictable new product launch
process. Consequently, the development of 21 molecules in the
pipeline has been terminated. Development expenditure which had
been capitalised in respect of the terminated molecules totalling
GBP20 million has been written off during the year. With a focus on
fewer molecules, we have made further progress towards delivering
an additional c.GBP100 million of operating profit from our
pipeline of generic and innovator active pharmaceutical
ingredients.
In addition to the impairments recognised during the year,
consultancy costs of GBP5 million were incurred in respect of the
major restructuring initiatives announced in June 2020 and a write
off of inventories of GBP3 million recognised in the Health sector
as part of the group's operational efficiency programme announced
in March 2017 was released.
In the prior year, GBP7 million of a prior year impairment of
the Health sector's Riverside site was reversed and, in September
2019, the site was sold, with no gain or loss on disposal.
5 Dividends
A final dividend of 31.125 pence per ordinary share has been
proposed by the board which will be paid on 4(th) August 2020 to
shareholders on the register at the close of business on 19(th)
June 2020, subject to shareholders' approval. The estimated amount
to be paid is GBP60 million and has not been recognised in these
accounts.
2020 2019
GBP million GBP million
2017/18 final ordinary dividend paid -- 58.25
pence per share - 112
2018/19 interim ordinary dividend paid --
23.25 pence per share - 44
2018/19 final ordinary dividend paid -- 62.25
pence per share 120 -
2019/20 interim ordinary dividend paid --
24.50 pence per share 47 -
Total dividends 167 156
----------- -----------
6 Post-employment benefits
Background
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.
Financial
assumptions
2020 2020 2020 2019 2019 2019
Other Other
UK plan US plans plans UK plan US plans plans
% % % % % %
First year's
rate of
increase
in salaries - - 2.15 3.85 3.00 2.45
Ultimate rate
of increase
in
salaries 2.60 3.00 2.15 3.85 3.00 2.45
Rate of
increase in
pensions
in payment 2.50 - 1.70 2.95 - 1.50
Discount rate 2.30 3.00 1.87 2.40 3.80 1.82
Inflation 2.20 1.65 2.20 1.60
- UK Retail
Prices Index
(RPI) 2.50 3.10
- UK Consumer
Prices Index
(CPI) 1.85 2.10
Financial
information
Movements in the net post-employment benefit assets and liabilities,
including reimbursement rights, were:
UK post- US post-
UK UK retirement retirement
pension pension
- -
legacy cash medical US medical
balance
section section benefits pensions benefits Other Total
GBP GBP GBP GBP GBP GBP GBP
million million million million million million million
At 1(st) April
2019 199 (1) (9) (15) (29) (38) 107
Current service
cost - in
operating profit (8) (21) - (8) (1) (3) (41)
Past service
credit - in
operating profit - - - - 10 10 20
Administrative
expenses -
in operating
profit (3) - - (1) - - (4)
Interest 5 - - (1) (1) (1) 2
Remeasurements 86 6 (3) 3 (7) 2 87
Company
contributions 27 19 - - 3 3 52
Exchange - - - (2) (2) (1) (5)
At 31(st) March
2020 306 3 (12) (24) (27) (28) 218
A past service credit of GBP10 million has been recognised in
underlying operating profit in respect of changes to the Johnson
Matthey Inc. Post-retirement Welfare Plan, effective 1(st) January
2020. A past service credit of GBP10 million has been recognised in
underlying operating profit in respect of changes to the group's
Advanced Glass Technologies Netherlands defined benefit pension
plan, effective 1(st) January 2020.
The net remeasurement gain in the legacy section of the UK
pension plan during the year ended 31(st) March 2020 includes a
gain due to changes in financial assumptions mainly reflecting a 60
basis point decrease in inflation, partly offset by a loss due to
changes in demographic assumptions reflecting updated mortality
assumptions.
The post-employment benefit assets and liabilities are included in
the balance sheet as follows:
2020 2020 2020 2019 2019 2019
Post- Post-
employment Employee employment Employee
benefit benefit
benefit net benefit net
net assets obligations Total net assets obligations Total
GBP million GBP million GBP million GBP million GBP million GBP million
UK pension - legacy
section 306 - 306 199 - 199
UK pension - cash balance
section 3 - 3 - (1) (1)
UK post-retirement
medical
benefits - (12) (12) - (9) (9)
US pensions - (24) (24) - (15) (15)
US post-retirement
medical
benefits 7 (34) (27) 8 (37) (29)
Other 1 (29) (28) 2 (40) (38)
Total post-employment
plans 317 (99) 218 209 (102) 107
Other long term employee
benefits (5) (4)
Total long term employee benefit
obligations (104) (106)
7 Fair values
Fair value hierarchy
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.
-- Level 3 -- not based on observable market data (unobservable).
Fair value of financial instruments
Certain of the group's financial instruments are held at fair
value. The fair value of a financial instrument is the price that
would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants at the
balance sheet date.
The fair value of forward foreign exchange contracts, interest
rate swaps, forward precious metal price contracts and currency
swaps is estimated by discounting the future contractual cash flows
using forward exchange rates, interest rates and prices at the
balance sheet date.
The fair value of trade and other receivables measured at fair
value is the face value of the receivable less the estimated costs
of converting the receivable into cash.
The fair value of money market funds is calculated by
multiplying the net asset value per share by the investment held at
the balance sheet date.
There were no transfers of any financial instrument between the
levels of the fair value hierarchy during the current or prior
years.
Fair value
2020 2019 hierarchy
GBP million GBP million Level
Financial instruments measured at fair
value
Non-current
Investments at fair value through other
comprehensive income 49 52 1
Interest rate swaps 34 13 2
Borrowings and related
swaps (6) (5) 2
Current
Trade receivables(1) 328 173 2
Other receivables(2) 72 9 2
Cash and cash equivalents - money market
funds 192 347 2
Other financial
assets (3) 28 22 2
Other financial
liabilities (3) (50) (13) 2
Financial instruments not measured at fair
value
Non-current
Borrowings and related swaps (988) (1,068)
Lease liabilities (64) -
Current
Cash and cash equivalents - cash and deposits 112 90
Cash and cash equivalents - bank overdrafts (31) (59)
Borrowings and related swaps (331) (184)
Lease liabilities (12) -
(1) Trade receivables held in a part of the group with a business
model to hold trade receivables for collection or sale. The remainder
of the group operates a hold to collect business model and receives
the face value, plus relevant interest, of its trade receivables
from the counterparty without otherwise exchanging or disposing
of such instruments.
(2) Other receivables with cash flows that do not represent solely
the payment of principal and interest.
(3) Includes forward foreign exchange contracts, forward precious
metal price contracts and currency swaps.
The fair value of financial instruments, excluding accrued interest,
is approximately equal to book value except for:
2020 2019
Carrying Fair Carrying Fair
amount value amount value
GBP million GBP million GBP million GBP million
US Dollar Bonds 2022, 2023, 2025 and 2028 (514) (496) (481) (477)
Euro Bonds 2021, 2023, 2025 and 2028 (264) (247) (251) (264)
Euro EIB loan 2019 - - (107) (108)
Sterling Bonds 2024 and 2025 (110) (108) (110) (118)
KfW US dollar loan 2024 (41) (41) (38) (39)
The fair values are calculated using level 2 inputs by
discounting future cash flows to net present values using
appropriate market interest rates prevailing at the year end.
8 Precious metal leases
The group leases precious metals to fund temporary peaks in
metal requirements provided market conditions allow. These leases
are from banks for specified periods (less than 12 months) and the
group pays a fee which is expensed on a straight-line basis over
the lease term in finance costs. The group holds sufficient
precious metal inventories to meet all the obligations under these
lease arrangements as they fall due. At 31(st) March 2020, precious
metal leases were GBP451 million (31(st) March 2019: GBP372
million) at year end prices.
9 Contingent liabilities
The group is involved in various disputes and claims which arise
from time to time in the course of its business including, for
example, in relation to commercial matters, product quality or
liability, employee matters and tax audits. The group is also
involved from time to time in the course of its business in legal
proceedings and actions, engagement with regulatory authorities and
in dispute resolution processes. These are reviewed on a regular
basis and, where possible, an estimate is made of the potential
financial impact on the group. In appropriate cases a provision is
recognised based on advice, best estimates and management
judgement. Where it is too early to determine the likely outcome of
these matters, no provision is made. Whilst the group cannot
predict the outcome of any current or future such matters with any
certainty, it currently believes the likelihood of any material
liabilities to be low, and that such liabilities, if any, will not
have a material adverse effect on its consolidated income,
financial position or cash flows.
On a specific matter, the group previously disclosed that it had
been informed by two customers of failures in certain engine
systems for which the group supplied a particular coated substrate
as a component for their customers' emissions after-treatment
systems. The particular coated substrate was sold to only these two
customers. The group has not been contacted by any regulatory
authority about these engine system failures. The reported failures
have not been demonstrated to be due to the coated substrate
supplied by the group. As previously disclosed, we settled with one
of these customers on mutually acceptable terms with no admission
of fault.
Having reviewed its contractual obligations and the information
currently available to it, the group believes it has defensible
warranty positions in respect of its supplies of coated substrate
for the after-treatment systems in the affected engines remaining
at issue. If required, it will vigorously assert its available
contractual protections and defences. The outcome of any
discussions relating to the matters raised is not certain, nor is
the group able to make a reliable estimate of the possible
financial impact at this stage, if any. The group works with all
its customers to ensure appropriate product quality and we have not
received claims in respect of our emissions after-treatment
components from this or any other customer. Our vision is for a
world that's cleaner and healthier; today and for future
generations. We are committed to enabling improving air quality and
we work constructively with our customers to achieve this.
10 Transactions with related parties
There were no material changes in related party relationships in
the year ended 31(st) March 2020 and no related party transactions
have taken place which have materially affected the financial
position or performance of the group during the year.
11 Changes in accounting policies
This note explains the impact on the group's accounts of the
adoption of IFRS 16, Leases, that has been applied from 1(st) April
2019.
IFRS 16 became effective from 1(st) April 2019, replacing IAS
17, Leases, and related interpretations. Whilst lessor accounting
is similar to IAS 17, lessee accounting is significantly different.
Under IFRS 16, the group recognises on the balance sheet a
right-of-use asset and a lease liability for future lease payments
in respect of all leases unless the underlying assets are of low
value or the lease term is 12 months or less. In the income
statement, rental expense on the impacted leases is replaced with
depreciation on the right-of-use asset and interest expense on the
lease liability.
It is unclear whether contracts entered into by the group to
lease metal from third parties constitute leases as defined by IFRS
16. Specifically, it is not clear whether the leased metal
represents a defined asset given its fungible nature. However, on
the basis that there is no alternative accounting standard
applicable to these transactions, the group has continued to
recognise the expense in the income statement on a straight-line
basis over the lease term, with no recognition on the balance
sheet.
The group has applied the modified retrospective transition
approach and has not restated comparative amounts for the year
ended 31(st) March 2019. Under this approach, the group has chosen
to measure right-of-use assets at 1(st) April 2019 at an amount
equal to the lease liability as adjusted for lease prepayments,
accrued lease expenses and onerous lease provisions.
The group has elected to adopt the following practical
expedients on transition:
-- not to capitalise a right-of-use lease asset or lease
liability where the lease expired before 31(st) March 2020;
-- not to reassess contracts to determine if the contract contains a lease;
-- to utilise onerous lease provisions to reduce right-of-use asset values;
-- to use hindsight in determining the lease term;
-- to exclude initial direct costs from the measurement of the right-of-use asset; and
-- to apply the portfolio approach when determining a discount
rate where a group of leases has similar characteristics.
Impact of adoption on the group's primary statements
Income statement
Profit before tax has been reduced by approximately GBP1 million
in the year ended 31(st) March 2020 as a result of adopting IFRS
16, with operating profit and finance costs increasing by GBP2
million and GBP3 million, respectively.
Balance sheet
The following table shows the effect of adopting IFRS 16 on the
group's balance sheet at 1(st) April 2019:
GBP million
Non-current assets
Right-of-use assets 89
Other receivables (1) (14)
Total non-current assets 75
Total assets 75
Current liabilities
Trade and other payables 1
Lease liabilities (11)
Total current liabilities (10)
Non-current liabilities
Lease liabilities (66)
Provisions 1
Total non-current liabilities (65)
Total liabilities (75)
Net assets -
(1) Prepayments reclassified as right-of-use assets.
The weighted average incremental borrowing rate applied
to lease liabilities was 4.2%.
Cash flow statement
There is no net cash flow impact from the adoption of IFRS 16
for the group. Lease payments of GBP16 million during the year
ended 31(st) March 2020, including interest, are included in
financing rather than operating activities in the consolidated cash
flow statement.
Impact of adoption on the group's non-GAAP measures
The adoption of IFRS 16 has not had a material impact on the
group's non-GAAP measures.
Reconciliation between operating lease commitments and lease
liabilities
The following table reconciles between the operating lease
commitments disclosed under IAS 17 at 31(st) March 2019 and the
lease liabilities recognised in the group's balance sheet on
transition to IFRS 16 at 1(st) April 2019:
GBP million
Future minimum amounts payable under non-cancellable
operating leases reported under
IAS 17 at 31(st) March 2019 76
Change in assessment of lease term 22
Low-value or short-term leases (1)
Reclassification of onerous lease provision 1
Impact of discounting lease liabilities (21)
Lease liabilities recognised on transition to IFRS
16 at 1(st) April 2019 77
Current 11
Non-current 66
Lease liabilities recognised on transition to IFRS
16 at 1(st) April 2019 77
Accounting policy applied since 1(st) April 2019
Leases are recognised as a right-of-use asset, together with a
corresponding lease liability, at the date at which the leased
asset is available for use.
The right-of-use asset is initially measured at cost, which
comprises the initial value of the lease liability, lease payments
made (net of any incentives received from the lessor) before the
commencement of the lease, initial direct costs and restoration
costs. The right-of-use asset is depreciated on a straight-line
basis over the shorter of the asset's useful life and the lease
term in operating profit.
The lease liability is initially measured as the present value
of future lease payments discounted using the interest rate
implicit in the lease or, where this rate is not determinable, the
group's incremental borrowing rate, which is the interest rate the
group would have to pay to borrow the amount necessary to obtain an
asset of similar value in a similar economic environment with
similar terms and conditions. Interest is charged to finance costs
at a constant rate of interest on the outstanding lease liability
over the lease term.
Payments in respect of short term leases, low-value leases and
precious metal leases are charged to the income statement on a
straight-line basis over the lease term in operating profit.
The group leases precious metals to fund temporary peaks in
metal requirements provided market conditions allow. These leases
are from banks for specified periods (less than 12 months) and the
group pays a fee which is expensed on a straight-line basis over
the lease term in finance costs. The group holds sufficient
precious metal inventories to meet all the obligations under these
lease arrangements as they fall due.
Accounting policy applied until 31(st) March 2019
Leases are classified as finance leases whenever they transfer
substantially all the risks and rewards of ownership to the group.
The assets are included in property, plant and equipment and the
capital elements of the leasing commitments are shown as
obligations under finance leases. The assets are depreciated on a
basis consistent with similar owned assets or the lease term if
shorter. The interest element of the lease rental is included in
the income statement.
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 the group pays a fee which is expensed on a
straight-line basis over the lease term in finance costs. The group
holds sufficient precious metal inventories to meet all the
obligations under these lease arrangements as they fall due.
All other leases are classified as operating leases and the
lease costs are expensed on a straight-line basis over the lease
term in operating profit.
12 Non-GAAP measures
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. Certain of these measures are financial
Key Performance Indicators which measure progress against our
strategy.
Definitions
Measure Definition Purpose
Sales(1) Revenue excluding sales Provides a better measure
of precious metals to customers of the growth of the group
and the precious metal content as revenue can be heavily
of products sold to customers. distorted by year on year
fluctuations in the market
prices of precious metals
and, in many cases, the value
of precious metals is passed
directly on to customers.
Underlying operating Operating profit excluding Provides a measure of operating
profit(2) non-underlying items. profitability that is comparable
over time.
Underlying operating Underlying operating profit Provides a measure of how
profit margin(1, divided by sales. we convert our sales into
2) underlying operating profit
and the efficiency of our
business.
Underlying profit Profit before tax excluding Provides a measure of profitability
before tax(2) non-underlying items. that is comparable over time.
Underlying profit Profit for the year excluding Provides a measure of profitability
for the year(2) non-underlying items and that is comparable over time.
related tax effects.
Underlying earnings Underlying profit for the Our principal measure used
per share(1, year divided by the weighted to assess the overall profitability
2) average number of shares of the group.
in issue.
Return on invested Underlying operating profit Provides a measure of the
capital (ROIC)(1) divided by average total group's efficiency in allocating
equity, excluding post tax the capital under its control
pension net assets, plus to profitable investments.
average net debt for the The group has a long term
same period. target of a return on invested
capital of 20% to ensure focus
on efficient use of the group's
capital.
Average working Monthly average of non-precious Provides a measure of efficiency
capital days metal related inventories, in the business with lower
(excluding precious trade and other receivables days driving higher returns
metals)(1) and trade and other payables and a healthier liquidity
(including any classified position for the group.
as held for sale) divided
by sales for the last three
months multiplied by 90
days.
Free cash flow Net cash flow from operating Provides a measure of the
activities after net interest cash the group generates through
paid, net purchases of non-current its operations, less capital
assets and investments, expenditure.
dividends received from
joint venture and associate
and the principal element
of lease payments.
Net debt (including Net debt, including post Provides a measure of the
post tax pension tax pension deficits and group's ability to repay its
deficits) to quoted bonds purchased to debt. The group has a long
underlying EBITDA fund the UK pension (excluded term target of net debt (including
when the UK pension plan post tax pension deficits)
is in surplus) divided by to underlying EBITDA of between
underlying EBITDA for the 1.5 and 2.0 times, although
same period. in any given year it may fall
outside this range depending
on future plans.
(1) Key Performance Indicator
(2) Underlying profit measures are before profit or loss on
disposal of businesses, gain or loss on significant legal
proceedings, together with associated legal costs, amortisation of
acquired intangibles, major impairment and restructuring charges
and, where relevant, related tax effects. These items have been
excluded by management as they are not deemed to be relevant to an
understanding of the underlying performance of the business.
Notes on the Preliminary Accounts
for the year ended 31(st) March 2020
Underlying profit measures exclude the following non-underlying
items which are shown separately on the face of the income
statement:
- Profit or loss on disposal of businesses The group released a
residual provision for environmental liabilities of GBP2 million
which had originally been recognised in respect of the disposal of
Johnson Matthey Gold and Silver Refining Holdings in March 2015.
The time limit on claims was five years and no claims have been
received. In the prior year, the group sold its water disinfection
business, Miox. After costs, the net proceeds were GBP2 million
which resulted in a loss on sale of GBP12 million.
- Gain or loss on significant legal proceedings In April 2019,
the group paid GBP17 million in respect of a settlement with a
customer on mutually acceptable terms with no admission of fault
relating to failures in certain engine systems for which it
supplied a component in the US. The settlement was recognised in
the prior year on the basis that it confirmed that the group had a
present obligation at the prior year end.
- Amortisation of acquired intangibles Amortisation and
impairment of intangible assets which arose on the acquisition of
businesses totalled GBP13 million (2019: GBP14 million).
- Major impairment and restructuring charges The group
recognised the following impairments during the year:
o Clean Air manufacturing plants Investment in new manufacturing
plants in Europe and Asia has allowed the Clean Air sector to
consolidate its existing capacity into new, more efficient plants.
Specifically, we plan to restructure three of our manufacturing
plants. As a result, the carrying value of one of the plants has
been impaired, by GBP42 million to GBP24 million, based on a fair
value less costs of disposal assessment, with our assessment of the
market value of the plant based on internal data (level 3 inputs -
see note 7 for the fair value hierarchy). The other two plants have
been impaired by GBP17 million to GBP3 million and by GBP2 million
to GBPnil based on a value in use assessment, with discount rates
of 13% and 38%, respectively. The impairment comprises intangible
assets (GBP6 million) and property, plant and equipment (GBP55
million).
o Battery Materials LFP business We are focusing our science and
innovative solutions on cathode materials that are truly market
leading, principally eLNO, our ultra-high energy density cathode
material and, in addition, our higher performing lithium iron
phosphate (LFP). Sales of LFP declined during the year and we are
now refocusing our LFP business on the high value segment of the
market to better support our eLNO customers and the development of
that business. These changes mean that the carrying value of the
Battery Materials LFP cash-generating unit has been impaired, by
GBP57 million, to GBP3 million based on a value in use assessment.
The impairment comprises goodwill (GBP7 million), intangible assets
(GBP5 million), property, plant and equipment (GBP35 million),
right-of-use assets (GBP1 million) and trade and other receivables
(GBP9 million). The recoverable amount of GBP3 million reflects
residual working capital balances. The discount rate for the
purposes of the value in use assessment was 10.7% (2019:
11.9%).
o Health capitalised development expenditure During the year, a
fundamental review of the Health sector's new product introduction
process was undertaken to determine how the business will deliver
its strategic plan. The organisation was restructured and new
employees were recruited to strengthen the sector's technical
capabilities. A detailed review of each molecule was performed
which considered all assumptions, including market size, number of
competitors, molecular process design and technical feasibility.
The assessment resulted in the determination to reprioritise the
molecules in the pipeline, focusing on the optimal number of
projects to sustain a consistent and predictable new product launch
process. Consequently, the development of 21 molecules in the
pipeline has been terminated. Development expenditure which had
been capitalised in respect of the terminated molecules totalling
GBP20 million has been written off during the year. With a focus on
fewer molecules, we have made further progress towards delivering
an additional c.GBP100 million of operating profit from our
pipeline of generic and innovator active pharmaceutical
ingredients.
In addition to the impairments recognised during the year,
consultancy costs of GBP5 million were incurred in respect of the
major restructuring initiatives announced in June 2020 and a write
off of inventories of GBP3 million recognised in the Health sector
as part of the group's operational efficiency programme announced
in March 2017 was released.
In the prior year, GBP7 million of a prior year impairment of
the Health sector's Riverside site was reversed and, in September
2019, the site was sold, with no gain or loss on disposal.
Reconciliations to GAAP measures
Sales
See note 2.
Underlying profit measures
Profit
Profit for
Operating before Tax the
profit tax expense year
Year ended 31(st) March GBP
2020 GBP million GBP million GBP million million
Underlying 539 455 (72) 383
Profit on disposal of businesses 2 2 - 2
Amortisation of acquired intangibles (13) (13) 3 (10)
Major impairment and restructuring
charges (140) (140) 16 (124)
Interest on non-underlying tax
provisions - 1 - 1
Change in non-underlying tax provisions - - 3 3
Reported 388 305 (50) 255
Profit
Profit for
Operating before Tax the
profit tax expense year
Year ended 31(st) GBP
March 2019 GBP million GBP million GBP million million
Underlying 566 523 (83) 440
Loss on disposal of businesses (12) (12) 4 (8)
Loss on significant legal proceedings (17) (17) 3 (14)
Amortisation of acquired intangibles (14) (14) 3 (11)
Major impairment and restructuring
charges 8 8 (2) 6
Reported 531 488 (75) 413
Underlying earnings per share
2020 2019
Underlying profit for the year (GBP
million) 383 440
Weighted average number of shares
in issue (number) 192,437,993 192,128,811
Underlying earnings per
share (pence) 199.2 228.8
Return on invested capital (ROIC)
2020 2019
GBP million GBP million
Underlying operating profit 539 566
Average net debt 1,489 1,128
Average equity 2,733 2,541
Average capital employed 4,222 3,669
Less: Average pension net assets (212) (251)
Less: Average related deferred taxation 32 41
Average capital employed (excluding post tax
pension net assets) 4,042 3,459
ROIC (excluding post tax pension net assets) 13.3% 16.4%
ROIC 12.8% 15.4%
Average working capital days (excluding precious
metals)
2020 2019
GBP million GBP million
Inventories 1,902 1,316
Trade and other receivables 2,077 1,553
Trade and other payables (2,745) (1,647)
Total working capital 1,234 1,222
Less: Precious metal working capital (597) (590)
Working capital (excluding precious metals) 637 632
Average working capital days (excluding precious
metals) 63 59
Free cash flow
2020 2019
GBP million GBP million
Net cash inflow from operating activities 598 334
Interest received 104 61
Interest paid (202) (108)
Purchases of property, plant and equipment (332) (215)
Purchases of intangible assets (111) (86)
Proceeds from sale of assets held for sale 7 -
Proceeds from sale of non-current assets 1 1
Principal element of lease payments (13) -
Free cash flow 52 (13)
Net debt (including post tax pension deficits) to underlying
EBITDA
2020 2019
GBP million GBP million
Cash and deposits 112 90
Money market funds 192 347
Bank overdrafts (31) (59)
Cash and cash equivalents 273 378
Borrowings and related swaps - current (331) (184)
Borrowings and related swaps - non-current (994) (1,073)
Interest rate swaps - non-current 34 13
Lease liabilities - current (12) -
Lease liabilities - non-current (64) -
Net debt (1,094) (866)
(Decrease) / increase in cash and cash
equivalents (103) 74
Less: Increase in borrowings (12) (241)
Less: Principal element of lease payments 13 -
Increase in net debt resulting
from cash flows (102) (167)
New leases, remeasurements and
modifications (13) -
Lease disposals 1 -
Exchange differences on net debt (47) (26)
Other non-cash movements 10 6
Movement in net debt (151) (187)
Net debt at beginning of year (866) (679)
Impact of adoption of IFRS 16 (77) -
Net debt at end of year (1,094) (866)
Net debt (1,094) (866)
Add: Pension deficits (53) (56)
Add: Related deferred tax 10 10
Net debt (including post tax pension deficits) (1,137) (912)
Underlying operating profit 539 566
Add back: Depreciation and amortisation excluding amortisation
of acquired intangibles 166 157
Underlying EBITDA 705 723
Net debt (including post tax pension deficits)
to underlying EBITDA 1.6 1.3
13 Events after the balance sheet date
The impact of the COVID-19 pandemic on the group's operations
and the carrying value of certain assets at 31(st) March 2020 has
been considered. The group has tested its performance under a deep
recession scenario and stress tested with a more extreme very deep
recession scenario. Subsequent to the balance sheet date, the group
has monitored its trading performance and external factors, such as
changes in government restrictions. Key estimates and judgements
that impact the balance sheet at 31(st) March 2020 have been
updated to reflect the impact of COVID-19 in the period since
31(st) March 2020.
The following non-adjusting events have also been identified in
the period since 31(st) March 2020:
-- In April 2020, the group secured a further $300 million of
funding from the US private placement market for the next five to
seven years; and
-- The group secured access to the Bank of England's COVID
Corporate Financing Facility (CCFF), with an allocated issuer limit
of GBP300 million which provides additional back-stop liquidity for
the next year if needed.
Financial Calendar
2020
18(th) June
Ex dividend date
19(th) June
Final dividend record date
23(rd) July
129(th) Annual General Meeting (AGM)
4(th) August
Payment of final dividend subject to declaration at the AGM
19(th) November
Announcement of results for the six months ending 30(th) September 2020
28(th) November
Ex dividend date
29(th) November
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 Plc
Registered Office: 5(th) Floor, 25 Farringdon Street, London EC4A 4AB
Telephone: +44 (0) 20 7269 8400
Internet address: www.matthey.com
E-mail: jmpr@matthey.com
Registered in England - Number 33774
LEI code: 2138001AVBSD1HSC6Z10
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 news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR EANKEFDPEEFA
(END) Dow Jones Newswires
June 11, 2020 02:00 ET (06:00 GMT)
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