Johnson Matthey impresses with flat profits as battery plans develop

The FTSE 100 group raised its final dividend 7% to 80p, ahead of the 78p the market expected, as directors expressed confidence in prospects, including a return to growth in the present year and long-term growth through development of its next-generation battery for electric cars.

For the 12 months to 31 March, underlying revenues excluding precious metals grew 8% to £3.85bn, or 7% at constant currency rates, with single-digit growth in each of its four sectors.

Clean Air, which makes catalytic converters, grew sales 9% as heavy duty diesel and light duty were both ahead of global vehicle production, while margins were held flat.

At less than half the size, the Efficient Natural Resources division saw sales up 4% though operating profit was lower due to lower licensing income and destocking; while the much smaller Health sales grew 6% but profits fell after costs from efforts to optimise manufacturing operations.

New Markets made progress in developing the new 'enhanced lithium nickel oxide', or eLNO, battery product, for which management are targeting testing with large, multinational automotive and battery manufacturers. With plans for a demonstration scale plant in the UK being doubled in size, directors said they were on track for the design and construction of a first commercial plant to start production in 2021/22 somewhere in Europe.

Group underlying operating profit was up 2% to £525m or flat at constant currencies, while profit before tax crept 1% higher to £486m but was down 1% excluding currency gains. Reported operating profit fell 31% to £359m after impairment and restructuring charges of £90m and a £50m charge relating to a legal settlement in February, where a car parts manufacturer sued the group over a coating substrate supplied for use in engine emission treatment systems.

For the new financial year, the group expects mid to high single-digit growth in operating profits at constant currency rates, in line with medium-term guidance, with the second half performance expected to be stronger mainly reflecting more normal seasonality. At current foreign exchange rates, an adverse impact of £41m on sales and £6m on underlying operating profit is expected.

Chief executive Robert MacLeod felt it was a good year, highlighting the "significant progress in executing our strategy and delivered a financial performance in line with our expectations at the start of the year" and further development of eLNO, where he was "excited about the speed of progress we are making and the plans we have to commercialise this product".

He added: "We have taken significant steps in running our businesses more effectively, delivering cost savings and becoming more agile and responsive to our customers. Our strong balance sheet continues to give us the flexibility to invest in our business, to maintain and extend our science and technology leadership supported by an optimised manufacturing footprint."

Johnson shares were up 1.2% to 3,438p by 1130 BST on Thursday.

Second-half results were in line with consensus throughout, said Morgan Stanley, noting Clean Air was ahead of expectations on profit, offsetting the weakness in Health.

Year-end net debt of £679m was down £212m from the first half level of £891m, and comfortably below consensus of £797m, driven by lower capex of £217m due to capex discipline and project phasing.

Profit guidance implies a midpoint for the coming year of £564m, which when adjusted for £6m FX headwind is a touch ahead of consensus of £556m.

"Bottom line: fears over weak cash flow and escalating capex have not materialised, margins are improving in Clean Air, and new guidance underpins consensus and may yet prove conservative. In cathode materials, the company remains confident around its emerging eLNO technology, and sees its proposed 10k mtpa project as "just the beginning". For the returns and growth on offer, JM remains one of the most attractive stocks in EU chemicals, we think."