Johnson Matthey optimistic on batteries as profits hit by one-offs

Chemicals group Johnson Matthey said it had made significant strides in developing new car battery materials and said it was confident of hitting full year targets after first-half profits were dented by one-off charges as its restructuring programme began.

Reported revenues grew 15% to £6.5bn in the six months to 30 September thanks to higher prices for platinum group metals, with sales excluding precious metals increasing 11% to £1.9bn or 5% if currency rates are ignored.

Good sales growth was sustained in the Clean Air division led by double digit growth of heavy duty diesel catalysts in every region, with slower growth sales of light duty vehicle catalysts that was in line with global production trends.

Staving off investor concerns that the company was overexposed to the combustion engine market, in September Johnson Matthey announcement that it was going to ramp up its investment in materials for the electric car market.

To this end, chief executive Robert MacLeod said on Tuesday that the company has made "significant progress" in developing its new high-energy battery material, enhanced lithium nickel oxide (eLNO), with six customers testing it and ongoing investment being made in a pilot plant.

Elsewhere, the Efficient Natural Resources arm enjoyed growth ahead of the market average, though operating profit declined due to a negative sales mix in catalyst technologies, while the Health division produced 5% sales and 4% profits growth thanks to strong innovation.

Group operating profits fell 2% to £221.9m at the reported level as an £18m forex benefit was offset by charges related to the restructuring programme.

Underlying operating profits were down 1% at constant currency rates to £250.3m, but if the impact of last year's US post-retirement medical plan credit is excluded then profits grew in line with sales growth.

Underlying earnings per share were up 4% to 99.8p and the interim dividend was hiked 6% to 21.75p, which management said reflected "confidence in the medium term outlook".

The short-term outlook remained for sales growth, at constant rates, of around 6%, with the operating profit outlook unchanged as an expected £10m of cost savings from the restructuring programme are balanced out by the US medical credit.

So far £3m of cost savings have been extracted via the new restructuring programme, while a restructuring and impairment charge of £18.5m has been recognised in the period out of the £50-65m expected for the full year, of which over half will be cash, with cash costs of £4.2m so far in the year. The programme is expected to generate annual savings of around £25m from next year.

Looking forward, MacLeod said: "We will grow our Clean Air business over the next ten years with growth in Europe, through share gains supported by our technology leadership, and by meeting the challenges of tighter legislation across the world, particularly in China and Europe.

"Our growing pipeline in Health will deliver significant growth over the medium term. We will deliver outperformance through targeted investment in Efficient Natural Resources and build our New Markets business primarily through our presence in battery materials.

"We are building a stronger platform from which we will achieve our goal of attractive returns to shareholders over the medium term: mid to high single digit EPS growth, expanding ROIC to 20% and a progressive dividend."