Earnings per share excluding exceptional items were unchanged at 44.3 pence. Including exceptional items, earnings per share were 46.1 pence.

Sales and Margins
Johnson Matthey's turnover is heavily impacted by the high value of precious metals sold by the group particularly in the Precious Metals Division. The total value of sales each year varies according to the mix of metals sold and level of trading activity. The value of the precious metals included in sales is separately invoiced and payment made within a few days. Consequently, although return on sales (operating profit / total external sales) for the precious metals businesses is low, profit growth has been relatively stable and return on investment is high.

To provide a more useful measure of return on sales, the table on the facing page shows sales by division excluding the value of precious metals. Total sales for the group excluding precious metals were £1,148.9 million and return on sales averaged 12.8%. The group's target for each of its divisions is to achieve a return on sales excluding precious metals in excess of 10%. In 1999 Catalysts & Chemicals and Precious Metals were well above that target, Colours & Coatings showed significant improvement and came in at just over 10%. Electronic Materials' margins were well down reflecting the major downturn in its market.

Return on Investment
We set a target of 20% for the pre-tax return on assets (ROA) for all our businesses. This target is based on operating profit divided by average net operating assets (including goodwill). Catalysts & Chemicals and Precious Metals were both well ahead of the group target. Colours & Coatings improved its return substantially but was still below the group target. Electronic Materials' ROA for the year fell below 10% reflecting the sharp decline in profits in that division.

For the group as a whole, return on assets was 15.8%. On a post-tax basis this equates to a return of 11.5% which is comfortably above the group's current average cost of capital of 10%.

Exceptional Items
Overall, exceptional items were nil on a pre-tax basis and gave rise to a credit of £3.9 million after tax. A net exceptional cost of £1.9 million is included in operating profit. This comprises a loss of £2.4 million on closure of the group's autocatalyst manufacturing business in Australia following the withdrawal of fiscal incentives. In addition, the group incurred a £2.5 million charge in withdrawing from plating and bushings manufacture. The total was partly offset by a gain of £3.0 million on the sale of shares in Ballard Power Systems, Inc. The net loss in operating profit is offset by an exceptional gain of £1.6 million arising from the sale of the UK Minerals business of Colours & Coatings Division on 1st June 1998 and a profit on disposal of land and buildings of £0.3 million.

The group achieved a tax saving of £3.9 million by paying dividends as Foreign Income Dividends (FIDs). This credit has been treated as exceptional.

Exchange Rates
Adverse exchange rates once again had a significant impact on Johnson Matthey's results for the year. Exchange translation reduced profits by £2.7 million as a result of the strength of sterling, particularly against the South African rand, the Australian dollar and the US dollar.

Interest
The group's interest charge rose by £6.9 million largely as a result of the increase in borrowings following the acquisition of 100% of the ownership of Cookson Matthey Ceramics (now Colours & Coatings) in February 1998. The purchase of the outstanding stake was earnings enhancing adding in excess of £5 million to group profit before tax after taking into account the additional interest charge.

Taxation
The group's tax charge shows the benefit of paying dividends as FIDs. Part of the benefit of the FID has been added to deferred tax to reflect the change in the offset rules for surplus Advance Corporation Tax (ACT) after April 1999. Excluding the ACT savings on the FIDs the group's average tax rate rose slightly to 27.3%.

Investment
The group invested £91.0 million on capital expenditure which was 1.4 times depreciation. Major projects included capacity expansions for autocatalyst production at Germiston, South Africa and for pharmaceutical materials at West Deptford in the US. A new plant for manufacturing homogeneous catalysts was completed at Royston in the UK. In Electronics, significant new investment went into High Density Interconnect manufacturing capacity for printed circuit boards.

On 3rd February 1999 Johnson Matthey acquired the business of Watson Engineering Testing Development Inc. (Watson) based in Detroit in the US for £6.5 million. Watson's main business is catalyst ageing, a critical step in the development and evaluation of autocatalysts. We are in the process of upgrading the facility which will also become our North American heavy duty diesel development centre.

In April 1998, the group completed the sale of its former head office site in Hatton Garden for £21 million.

Cash Flow
Net cash flow from operating activities rose by 13% to £176.0 million as a result of higher profits and depreciation. The figures include a full year contribution from Colours & Coatings which was accounted for as a joint venture for most of the previous year.