Johnson Matthey's newly formed Ceramic Materials Division faced tough trading conditions and was hit by the strength of sterling during the year. Operating profits from the business were 29% down on last year at £9.4 million. However, disposal of peripheral businesses and rationalisation initiatives made good progress and prospects under our single ownership are encouraging.
The Ceramic Materials Division (CMD) was formed in early February 1998 when Johnson Matthey purchased Cookson Group's 50% stake in the former Cookson Matthey Ceramics joint venture. The results included in Johnson Matthey's accounts for the 1997/98 financial year therefore include 50% of the results for the period from 1st April 1997 to 5th February 1998 and 100% of the results for the period from 6th February 1998 to 31st March 1998.
Trading conditions in CMD's principal markets were mixed during the year. It is not expected that substantial growth in the division's major markets is likely in the short term. Since establishing the division, management has been taking steps to focus the business on its core ceramic markets, reduce costs and improve returns. Following the acquisition the business was reorganised into two sectors; Decorative Products, which includes the Pigments business, and Tile Products, including zircon.
Tile
The Tile business performed impressively during the year under review, which reflects the benefits of the substantial investments made in this sector in the past three years. The first half of the year was particularly good, on the back of very strong sales to Asia. These sales did not persist into the second half to the same extent, but the business has compensated with sales into other emerging markets in Eastern Europe and the Middle East.
Margins in the Zircon business remained under pressure throughout the year, although there was a modest recovery from the lows reached in the second half of 1996/97. The focus of the business is upon achieving the lowest possible manufacturing cost.
Decorative
The Decorative sector has had a difficult year, primarily due to the strength of sterling, which affects both its own business and that of its principal tableware customers. This led to the need to cut costs to remain competitive and a provision of £2.6 million (Johnson Matthey's share £1.3 million) was taken during the year to reduce headcount in the business. The automotive glass enamels business, whose principal manufacturing facility is located in the Netherlands, had another strong year and is well placed to replicate its European success in a wider global arena in 1998/99 and beyond.
The Pigments business traded strongly in the first half, with encouraging growth in sales of transparent iron oxide pigments and in pigment dispersions for the paint and automotive industries. The second half was somewhat weaker, largely as a result of the difficulties caused to its Venezuelan facility by the overvaluation of the bolivar.
It was announced in late 1997 that a number of peripheral businesses were to be sold in order to improve focus upon the division's core ceramic markets. The sale of the group's 87.6% share in Otavi Minen AG, which comprised the Perlite business and the German Minerals processing operations, and the sale of the UK Minerals processing activities, have now been completed successfully.There are a number of cost saving opportunities resulting from the ending of the Cookson Matthey Ceramics joint venture, including the scaling down of the Head Office and Research functions. These actions have largely been implemented and provision has been made in these accounts for their completion.
| RESEARCH AND DEVELOPMENT
Research and development activities within the Ceramic Materials Division
a retargeted at the future needs of its customers and at optimising its
manufacturing efficiency.
Fundamental research for the newly formed division is being consolidated within the Johnson Matthey Technology Centre at Sonning Common, whilst the majority of
CMD's applied research and development will remain with the appropriate business units at key European sites.
Major areas of research include the development of new materials to support
and expand the division's current product range. This involves investigating new stains and colours and new processing routes for the Tile, Decorative and Pigment businesses.
CMD is also taking a fundamental look at decorative precious metals to see how their performance can be improved and to develop more environmentally friendly materials and formulations.
Other major research projects include new decal printing technology and improvements to the division's range of zircon opacification products.
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