The year has begun in line with our expectations. In the first quarter, we delivered low single-digit sales growth at constant rates and double-digit reported sales growth. The changes we have implemented are making the business more agile and efficient and our guidance for the full year is unchanged.
Sales performance was strongest in our Clean Air sector as we again outperformed vehicle production in most markets. Strong growth of our HDD catalyst business was the main contributor with continued growth in Asia and Europe and following the anticipated improvement of the US Class 8 truck market. In the quarter, global light duty vehicle production declined although we outperformed in Europe as a result of the new business wins and sales of higher value technology which we had outlined in our 2017 results presentation. As we said in June, this will drive stronger growth in our LDV catalyst business over the remainder of our financial year.
Sales in Efficient Natural Resources grew slightly. We delivered growth in our services businesses and while manufacturing sales declined we expect sales to recover in the second quarter. As anticipated, low levels of licensing activity and weak demand for equipment for use in the construction of formaldehyde plants led to lower sales in our chemicals business.
Our Health business grew slightly as sales of APIs for products launched last year offset the decline we expect in the first half in sales of APIs for the treatment of ADHD. The performance of our new API products is encouraging and development of a broader API product portfolio will be the driver of improved medium-term performance for the sector.
Changes introduced last year in China affected demand for our LFP battery materials and this led to the decline we saw in sales in New Markets. Our development of high nickel battery materials continues at pace and in addition, we have seen good growth in medical components as we look to build this business for the future.
Cash generation and disciplined management of working capital remain a key focus for the business and working capital days were reduced compared to the same period last year. We are implementing the restructuring programme we announced in June which will deliver £10 million of cost savings in the second half of this year, contributing to the stronger underlying operating performance we expect to see in the second half. Through this restructuring programme we will generate a further £15 million of cost savings in 2018/19. As part of our capital markets day in September we will update the market on the work we are doing to enhance our functional excellence, making the whole business more agile.
Our guidance for year ended 31 st March 2018 is unchanged. We have momentum in sales and expect to build on this through the second quarter and into the second half to deliver our full year guidance. Our move to four sectors has improved our focus on the key growth trends and we remain confident that through inspiring science and enhancing life, Johnson Matthey will create value.
Unless otherwise stated, commentary in this statement is based on sales for the quarter ended 30th June 2017 and compares this quarter with the quarter ended 30th June 2016 at constant rates.
Johnson Matthey announced changes to the group structure on 20th April 2017 under which the group would be managed and report its results as four sectors. The results for the half year ended 30th September 2016 and year ended 31st March 2017 have been restated on the new basis of reporting sectors and are attached to this AGM statement.
2017/18 restructuring charge
In the year ending 31st March 2018 Johnson Matthey expects to take a restructuring charge as part of the further changes it will make to improve efficiency. The charge is expected to be in the range of £50 million to £65 million, of which over half will be cash. It is expected to generate savings of around £25 million in a full year and benefit 2017/18 by approximately £10 million.
In the preliminary announcement of results for the year ended 31st March 2017 on 1st June 2017 Johnson Matthey gave the following outlook for the year ending 31st March 2018:
- Sales growth, at constant rates, is expected to be broadly in line with the 6% growth delivered in the second half of the year ended 31st March 2017
- The combination of stronger sales growth together with additional cost savings is expected to be offset by comparison against the 2016/17 US post-retirement medical benefit credit and by higher non-cash pension charges in 2017/18
In the same announcement Johnson Matthey gave the following guidance for foreign exchange:
- At current exchange rates (£:$ 1.289; £:Euro 1.149; £:RMB 8.84) translational foreign exchange movements are expected to increase revenue by £133 million, sales by £66 million and operating profit by £13 million in the year ending 31st March 2018
There has been no material change to this guidance.
Capital markets day
Johnson Matthey will hold a capital markets day in London on 21st September 2017. Further details will follow shortly.