Johnson Matthey revenue rises but profit slips in first half

Speciality chemicals company Johnson Matthey reported a 37% rise in revenue in its first half on Thursday, to £6.82bn, although its reported operating profit was down 2% at £259m and its profit before tax was 8% lower at £225m.

The FTSE 100 company’s reported earnings per share for the six months ended 30 September were 91.8p, down 13% year-on-year.

On an underlying basis, the firm said its sales, excluding precious metals, were up 3% at constant exchange rates, driven by good growth in its clean air and efficient natural resources sectors.

Its underlying operating profit was down 5% at constant currency, impacted by around £15m of one-off costs in clean air, which included additional freight costs and inefficiencies within the company’s manufacturing footprint.

That, the board said, was driven by the phasing of completion of its new plant in Poland as it served strong growth in its European light duty business.

Underlying earnings per share declined 12%, which the board put down to the lower underlying operating profit, higher net interest expense and a one-off tax provision.

Capital expenditure totalled £186m in the half-year, and was estimated to be up to £500m for the 2020 financial year - in line with previous guidance - as it invested in strategic growth projects.

Free cash flow was said to be weaker, as expected, driven by higher precious metal working capital price and volume, and higher capital expenditure.

Johnson Matthey said average working capital days were stable, excluding precious metals.

Its return on invested capital was lower, primarily driven by higher precious metal working capital, while its net debt-to-EBITDA stood at 2.1x with net debt at £1.5bn, impacted by higher precious metal working capital.

Looking at its operational sectors, Johnson Matthey reported “good growth” in clean air, with sales up 4%, well ahead of the decline in global vehicle production, although operating profit was impacted by the phasing of completion of its new plant in Poland.

Sales and operating profit growth in efficient natural resources was said to have been driven by strong performance in platinum group metals services, as a result of higher average platinum group metals prices, and improved licensing income.

In Health, sales were down, although operating profit grew at double digits, driven by net benefits from footprint optimisation.

New markets saw good sales growth, but lower operating profit, due to higher costs as the company developed ‘eLNO’ - its portfolio of ultra-high energy density cathode materials.

The board said the company continued to make good progress with commercialisation of eLNO, and recently moved to full cell testing with two customers, which it described as “another significant milestone” in the customer validation process.

For the 2020 financial year, Johnson Matthey said it expected to deliver group operating performance in line with market expectations.

It was expecting a stronger second half, due to the absence of one-off costs, seasonality in catalyst technologies and efficiency gains in platinum group metals services.

“We continue to execute well against our strategy and delivered first half operating performance in line with expectations,” said chief executive officer Robert MacLeod.

“I was pleased with the continued good sales growth, demonstrating our broad based growth drivers, although operating profit was slightly down as a result of one-off costs associated with manufacturing inefficiencies in clean air in the first half.

“We expect to deliver a stronger second half, primarily driven by the absence of the one-off costs and seasonality in efficient natural resources.”

For the full year, MacLeod said the board was expecting to deliver group operating performance in line with market expectations.

“Given our clear strategy, the strong foundations we have put in place and the ongoing investment into the business for the longer term, we remain confident about the future growth prospects across all of our sectors, which will together drive mid to high single digit growth in earnings per share over the medium term.

“Our focus remains on executing our strategy, delivering on the ambitions that we laid out at our recent capital markets day and continuing to drive towards our vision to create a cleaner, healthier world.”

At 0801 GMT, shares in Johnson Matthey were down 2.97% at 3,120.37p.