Description of the Business
Environmental Technologies Division is a global supplier of catalysts and related technologies for applications which benefit the environment such as pollution control, cleaner fuel, more efficient use of hydrocarbons and the hydrogen economy. The division consists of three global businesses:
Emission Control Technologies (ECT)
ECT comprises Johnson Matthey’s global autocatalyst, heavy duty diesel and stationary source emissions control businesses. We are a world leading manufacturer of catalysts for vehicle exhaust emission control and a leader in catalyst systems for the reduction of volatile organic compound emissions from industrial processes. Manufacturing takes place in the UK, Germany, Belgium, Russia, USA, Mexico, Argentina, South Africa, Japan, Malaysia, India, China and South Korea. R&D facilities are in the USA, UK, Germany, Sweden, Japan, South Korea and Brazil.
Process Technologies
Process Technologies manufactures process catalysts for the syngas, methanol, ammonia, hydrogen, gas / coal to products, oil refineries and gas processing industries. Davy Process Technology develops chemical process technologies and licenses them to customers in the oil, gas and petrochemical industries. Our Tracerco business is an industrial leader in specialist technology for the diagnostics, measurement and analysis of process plant conditions across the hydrocarbon chain. Process Technologies is a global business with manufacturing sites in the UK, India and China, supported by several UK based technology centres and technical offices in key centres around the world.
Fuel Cells
Johnson Matthey is a world leader in catalysts and catalysed components for fuel cells.
Performance in 2007/08 Our new Environmental Technologies Division achieved strong growth in the year. Revenue rose by 23% to £2,290 million; sales excluding precious metals were 27% up at £1,140 million; and underlying operating profit (before amortisation of acquired intangibles) increased by 20% to £147.3 million. Translated at constant exchange rates, sales excluding precious metals increased by 29% and underlying operating profit was 21% higher.
Emission Control Technologies Emission Control Technologies’ sales excluding precious metals grew by 32% to £903 million. Sales of heavy duty diesel (HDD) catalysts to original equipment manufacturers (OEMs) accounted for £105 million of the increase rising from £54 million in 2006/07 to £159 million in 2007/08. Sales of light duty products were also well ahead with good growth in Asia and increasing fitment of particulate filters on new diesel cars in Europe. The acquisition of Argillon added £11.4 million to sales and £2.9 million to operating profit before amortisation of acquired intangibles in the last two months of the year. Profit growth was stronger in the second half of the year than the first with the division benefiting from improved efficiencies.
Return on sales (operating profit / sales excluding precious metals) for ECT in 2007/08 was lower than in 2006/07 reflecting the change in product mix with rapid growth in products using expensive filter substrates (which are a pass through cost for Johnson Matthey). The cost of substrates for these new products is now beginning to come down. Going forward, ECT’s return on sales is expected to stabilise at current levels despite the continued growth in sales of new products.
Vehicle Emissions Legislation Timeline
In Johnson Matthey’s financial year to 31st March 2008 global light duty vehicle sales increased by 4.5% to 70.0 million. Production rose by 5.7% reflecting an overall increase in inventories. Around half of the growth in production came in Asia, which was 8.4% up on last year. Within Asia, sales grew by 20% in China and 12% in India. Other markets showing strong growth include South America, Eastern Europe and Russia. ECT is well represented in all these locations. Light duty vehicle sales in North America were 3.9% down in our financial year.
We continue to see increasing demand from many of the leading car companies in Europe for diesel particulate filters (DPFs) to remove particulates from diesel exhaust emissions. Although legislation requiring such emission control devices does not come into full force in Europe until October 2010, most car manufacturers have started to fit these devices earlier. Nearly 8 million diesel cars were sold in Western Europe last year of which less than half were fitted with DPFs. Over the next two and a half years the DPF market is set to double as all new diesel cars will require fitment. In 2007/08 we constructed a new factory in Royston, UK to manufacture catalysed DPFs, doubling our existing capacity to meet the anticipated market growth.
During the year we also completed construction of a new autocatalyst manufacturing facility in the Russian Federation. This plant will produce catalysts to meet demand from both local and global car manufacturers following the introduction of emissions legislation requiring autocatalyst fitment in Russia in the spring of 2006.
Our business in Asia continues to perform very well. Over the next decade we expect that most of the growth in world car production will take place in the Asian region. In 2007/08 we achieved strong volume growth in China, India and Japan and our operation in Malaysia also continued to perform well. Our new plant in South Korea (our fifth in the Asian region) was opened in February 2008. This new plant will manufacture catalysts for both diesel and petrol powered vehicles and will carry out research and development activities to support the rapidly growing Korean motor industry. Further capacity expansions are planned for each of our factories in China, India and Japan.
Despite continued weakness in the domestic car market, our North American business achieved good growth in the year with the introduction of new diesel products. Most of the growth was for HDD products but light duty diesel catalyst sales for pick up trucks also increased significantly.
We expect the value of the global market for HDD catalysts to grow from an estimated US $700 million (excluding precious metals) by the end of 2008 to approximately US $3 billion by the end of 2014. New standards are scheduled to be introduced in Europe in October 2009 and North America and Japan in 2010 which will require the use of additional catalysts. Legislation is also planned in South Korea, China, India and Brazil. In 2011 legislation will start for non road vehicles in Europe and North America. To meet this rapid growth in demand, and further expansion in the light duty diesel market, Johnson Matthey is constructing new factories in Macedonia and Pennsylvania, USA which should be operational by the end of 2009.
The acquisition of Argillon in February 2008 adds valuable technology to ECT’s existing emission control capabilities for controlling oxides of nitrogen (NOx). As well as products for the HDD truck market, Argillon manufactures catalysts for power plants, industrial applications and waste incineration plants. These products have application in coal fired power stations to reduce harmful NOx emissions. This could become a major market in a few years’ time as coal is increasingly used to produce electricity and people around the world become more concerned about air quality. The acquisition of Argillon also adds to ECT’s existing business selling NOx control systems for large stationary engines and in marine applications.
Estimated Global Methanol Capacity Additions / Deletions
2001-2010
Process Technologies Process Technologies’ sales excluding precious metals grew by 10%. The Ammonia, Methanol, Oil and Gas (AMOG) business was well ahead of last year with continued strong demand for catalysts and purification materials for industries where hydrogen or synthesis gas are key intermediates. Demand for methanol catalysts was strong and, with new capacity for methanol coming on stream or under construction, the outlook for future growth of catalyst sales continues to be encouraging. In China a significant number of projects are based on utilising the country’s large coal reserves and thereby reducing its reliance on expensive imported oil.
The high price of oil is encouraging the use of more catalysts for hydrogen production in oil refineries and increased sales of purification materials to remove pollutants such as sulphur and mercury. Sales of ammonia catalysts were also buoyant in 2007/08 with growth stimulated by significantly increased demand for ammonia used in the production of fertiliser.
Davy Process Technology, which develops and licenses chemical process technologies, had another good year. Major licensing contracts included oxo alcohol projects in China and India, a methylamine and choline chloride project in Thailand and a methanol licence for a coal to methanol project in the USA.
Tracerco, Process Technologies’ oil services business, also achieved good growth in the year, successfully integrating Quest TruTec which was acquired in April 2006. The high oil price continued to stimulate strong demand for Tracerco’s specialist diagnostic services and equipment for oil production platforms and refineries.
A major expansion programme is underway at our UK factory in Clitheroe to manufacture the latest generation of catalysts for AMOG. We are also continuing to invest heavily in research and development on new products including novel catalysts and technologies for converting gas and coal into petrochemical intermediates and fuels.
Fuel Cells The net expense of our Fuel Cells business continues to fall as demand for its products grows. In 2007/08 the net expense fell by £0.9 million to £6.4 million. The order book for its products is strong and reflects an increasing range of applications as customers start to commercialise niche fuel cell products. Sales of membrane electrode assemblies (MEAs) grew over a broad base to companies that are commercialising fuel cells using hydrogen, methanol and natural gas as fuels.
Fuel cells fuelled directly by methanol (DMFC) sustained the growth seen last year and the number of companies supplying this type of technology also grew. Applications include portable power supplies and battery rechargers that remove the dependence of batteries on mains charging. This is useful not only in areas remote from the grid but also in situations when the time taken to recharge a battery offline affects productivity.
During the year many automotive companies were publicly robust in their view that hydrogen powered fuel cell cars were the way forward and the California Authorities have confirmed that the timescale for zero emission vehicle introduction is unchanged. The combination of fuel cells with batteries that can be recharged from the mains is attractive to car companies and legislators alike.
In a significant development, the use of natural gas powered fuel cells to provide combined heat and power to commercial buildings has progressed well and we have seen growth in sales of both catalysts and MEA components to this sector this year. Interest in these products is supported by the increasing concern over carbon dioxide emissions from buildings and the sensitivity of developers and major companies to this issue.
