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| report to shareholders |
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| Operations |
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| Environmental Technologies |
Half Year to 30th September
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% at |
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2008
£ million |
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2007
£ million |
%
change |
constant
rates |
|
 |
| Revenue |
1,316 |
|
1,055 |
+25 |
+21 |
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| Sales excl. precious metals |
596 |
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541 |
+10 |
+8 |
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| Operating profit* |
77.8 |
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65.9 |
+18 |
+15 |
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| * Before amortisation of acquired intangibles |
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Environmental Technologies Division, which comprises Emission Control Technologies (ECT), Process Technologies and Fuel Cells, achieved good growth in the half year. Revenue increased by 25% to £1,316 million; sales excluding precious metals were 10% up at £596 million; and underlying operating profit was 18% better at £77.8 million. Translated at constant exchange rates, sales excluding precious metals increased by 8% and operating profit was 15% higher.
Emission Control Technologies’ sales excluding precious metals grew by 10% to £473 million. At constant exchange rates the increase was 8%. The growth resulted from a good contribution from Argillon, increased fitment of diesel particulate filters (DPFs) on new diesel cars in Europe and higher sales in Asia, which more than offset lower sales of autocatalysts in North America and Western Europe.
Return on sales (underlying operating profit / sales excluding precious metals) for ECT was significantly higher than in the first half of last year as a result of actions taken to reduce costs ahead of the downturn in US and Western European car markets.
Global light duty vehicle sales fell by 1.5% in the six months to 30th September 2008 compared to the equivalent period last year. Sales fell by 13% in North America and 7% in Western Europe but grew by 5% in Asia, 15% in South America and 27% in Eastern Europe. Within Asia sales were 8% up in China and 12% higher in India but 3% down in Japan. In Western Europe, sales of diesel engined cars continued to exceed sales of cars with petrol engines, with an increasing proportion of diesels fitted with DPFs as standard. |
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| Estimated Light Vehicle Sales and Production |
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Despite the fall in global car sales ECT’s light duty catalyst business performed well. Sales growth in Asia was strong with car demand continuing to grow and Johnson Matthey gaining share. In Europe the light vehicle market was slightly ahead with growth in Eastern Europe offsetting weakness in many Western European countries. Sales of DPFs also increased compared with last year. Light duty sales fell in North America as a result of falling car demand. Early action was taken to reduce costs which benefited operating profit.
Sales of heavy duty diesel (HDD) vehicles fell in North America but held up well in Europe in the first half. Despite lower volumes in North America, ECT’s sales excluding precious metals of HDD catalysts to original equipment manufacturers were higher than last year. The acquisition of Argillon added some sales in the period. We have revised downwards our estimate of market size for HDD catalysts for the end of 2008 to US $620 million excluding precious metals but expect Johnson Matthey to take a larger share of that market.
The market for HDD catalysts is expected to show substantial growth over the next decade. New standards are scheduled to be introduced in Europe (Euro V) in 2009 and in the USA and Japan in 2010. Legislation is also being introduced in many other countries over the next few years. In 2011 legislation will start for non road vehicles in Europe and North America which will increase the market for HDD catalysts. After allowing for the impact of a sustained economic downturn we now expect the market for HDD catalysts will grow to about US $2.5 billion in 2014, a fourfold increase over six years.
Argillon has performed very well since acquisition and made a useful contribution to ECT’s heavy duty diesel business in the half year. The Powerplants business, which manufactures catalysts used to reduce emissions of oxides of nitrogen in power stations, achieved good sales in the period and is looking at opportunities to expand its business in China.
Process Technologies’ sales excluding precious metals grew by 9%. At constant exchange rates sales increased by 8%. Its Ammonia, Methanol, Oil and Gas (AMOG) business achieved good sales growth with concerns over energy security and tightening environmental regulations underpinning demand for catalysts and purification materials. While the oil price has fallen back in recent months it still remains historically high and concerns over security of supply continue to encourage the use of alternative feedstocks, such as coal and natural gas, for fuels and key petrochemical intermediates.
Within AMOG demand from oil refineries was strong reflecting the need for more hydrogen and absorbents to treat dirtier crudes and to meet tighter fuel specifications. The business also won a number of new contracts for advanced purification materials for new gas processing projects. Demand remained firm for methanol and ammonia catalysts with continued investment in new plants in Asia and the Middle East.
Davy Process Technology, which develops and licenses chemical processes, achieved good growth in the first half. Major licensing contracts included methanol, oxo alcohol and butanediol projects in China and a biodiesel project in the USA.
In our Fuel Cells business sales continued to grow. There are a number of early markets for fuel cells which are beginning to develop and the business has been successful in selling fuel cell components to an increasing range of customers.
Sales of components for natural gas powered fuel cells which provide combined heat and power to commercial buildings have risen significantly and our customers have good order books. Demand for membrane electrode assemblies for direct methanol fuel cells was also encouraging. Applications include portable power supplies and battery rechargers that remove the dependence of batteries on mains charging. |
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| Precious Metal Products |
Half Year to 30th September
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% at |
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2008
£ million |
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2007
£ million |
%
change |
constant
rates |
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| Revenue |
2,719 |
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2,201 |
+24 |
+21 |
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| Sales excl. precious metals |
168 |
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151 |
+12 |
+5 |
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| Operating profit |
64.2 |
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47.2 |
+36 |
+30 |
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| Platinum and Palladium Prices |
Rhodium Price |
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Precious Metal Products Division’s revenue rose by 24% to £2,719 million. Precious metal prices were significantly higher than the same period last year particularly in the first quarter. Sales excluding the value of precious metals increased by 12% to £168 million with good volume growth in the division’s manufacturing businesses. Operating profit grew by 36% to £64.2 million. Translated at constant exchange rates, sales excluding precious metals increased by 5% and operating profit was 30% higher.
The Platinum Marketing and Distribution business achieved strong profit growth in favourable market conditions. Sales and profits were well ahead in the first quarter as a result of high pgm prices. Prices fell sharply in the second quarter but profit was still well ahead of last year as a result of the unprecedented volatility which improved margins.
Demand for platinum is expected to fall by 2% in the calendar year 2008 largely as a result of high metal prices in the first half of the year which negatively affected the affordability of jewellery in the important Chinese and Japanese markets. However, sales to the automotive industry are expected to grow for the tenth successive year. Weak demand from the troubled North American car market will be more than offset by higher platinum demand for diesel particulate filters in Europe and growth in vehicle production in Eastern Europe, Asia and South America. Supplies are expected to fall as mining in South Africa faces a series of challenges such as electricity shortages, smelter outages and a lack of skilled labour. Overall the platinum market is expected to be in deficit and prices in the first half of the calendar year 2008 reflected this by recording a series of all time highs, peaking at $2,276/oz in March. However, as problems in the financial sector became apparent investors and speculators sold down their substantial long positions and the price fell rapidly. The average platinum price in the first half of Johnson Matthey’s financial year was $1,795/oz, up 39% compared to last year.
The palladium market is expected to remain in surplus in 2008, although this will be much smaller than in previous years as a result of higher demand and lower sales from Russian stockpiles. The price peaked at $588/oz in March, its highest since 2001. Heavy fund selling later in the year pushed the average price for Johnson Matthey’s first half down to $391/oz, up 9% on last year.
Rhodium followed the same trend as platinum and palladium, recording a record price of $10,100/oz in the first half of calendar year 2008 before falling to $4,350/oz by the end of September. Overall the market is expected to remain in deficit. The average price for our first half was $8,142/oz, 32% higher than in the same period last year.
The division’s manufacturing businesses all performed well. The metal fabrication businesses achieved good sales of industrial products and medical components. Our Pgm Refining and Recycling business was particularly strong with increased intakes of secondary materials such as autocatalyst scrap. The division’s gold refineries, based in North America, both achieved good growth supported by the strong gold price and increased intakes.
Colour Technologies’ sales were below last year but margins and profits improved reflecting the impact of lower material costs. Demand for automotive glass enamels softened towards the end of the period as a result of weakness in the car market but sales of decorative precious metal products continued to grow.
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| Fine Chemicals & Catalysts |
Half Year to 30th September
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% at |
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2008
£ million |
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2007
£ million |
%
change |
constant
rates |
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| Revenue |
320 |
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256 |
+25 |
+18 |
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| Sales excl. precious metals |
160 |
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148 |
+9 |
+3 |
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| Operating profit |
32.4 |
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31.0 |
+5 |
- |
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Fine Chemicals & Catalysts Division’s revenue increased by 25% to £320 million with good sales of platinum chemicals. Sales excluding precious metals were 9% up at £160 million, and operating profit was 5% up at £32.4 million. With a significant proportion of its activities based in the USA the division benefited from favourable exchange translation. At constant exchange rates, sales excluding precious metals increased by 3% and operating profit was unchanged compared with last year.
Catalysts and Chemicals, which manufactures precious and base metal catalysts and chemicals, saw good growth in revenue largely as a result of the high average price of platinum compared with last year. The business sells platinum group metal chemicals and catalysts where the cost of the metal is a pass through for Johnson Matthey. Catalysts and Chemicals’ sales excluding precious metals were slightly down on last year as a result of the lower average prices of several of the base metals used in the manufacture of catalysts, particularly nickel. However, operating profit was ahead of last year with continued growth in catalyst volumes. Our new facility in China to manufacture platinum catalysts and chemicals has started well and catalyst demand across the Asian region continued to grow.
Macfarlan Smith, which manufactures active pharmaceutical ingredients (APIs) and intermediate products, achieved good sales growth in specialist opiates. Manufacturing costs rose, particularly for energy, which reduced return on sales but operating profit was still ahead of last year. Operating profit for Pharmaceutical Materials and Services, our US based API manufacturing business, was down on last year with reduced income from amphetamine salts in the run up to the launch of the generic version of Adderall XR® in April 2009. The business is expected to benefit next year from the launch of this new product.
Research Chemicals, which supplies speciality inorganic and organic chemicals to research institutes and other customers through a global catalogue, achieved good sales growth with profits ahead of last year. Most of the growth was in North America and Asia. Sales were held back in China during the period of the Olympics but have recovered well since then. |
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