TIDMJMAT
RNS Number : 7998F
Johnson Matthey PLC
19 November 2020
Half year results for the six months ended 30(th) September 2020
Successfully navigating a challenging period and well positioned for
the future
Robert MacLeod, Chief Executive, commented:
The COVID-19 pandemic has created great uncertainty for businesses and
society globally. Our priority has been the safety of our people, customers,
suppliers and the communities in which we operate. It has been a challenging
period but the steps we have taken in recent years to create a more
simple, agile and efficient business, coupled with the dedication of
all my colleagues across the whole of Johnson Matthey, have enabled
us to navigate it well. I am pleased that we delivered operating performance
ahead of market expectations, as well as good cash generation, and made
further progress on transforming the group.
In Clean Air, following the temporary disruption earlier in the year,
we are currently seeing a strong recovery in demand across all regions,
especially in China. Efficient Natural Resources saw an impact from
weaker demand in some end markets, although we are seeing positive momentum
in licensing with new wins and are strongly positioned for the energy
transition. Health is benefiting from new customer contracts which will
also drive future growth. We are making good progress with the commercialisation
of eLNO and, given our increasing confidence from customer testing,
are now proceeding with the front end engineering design for our second
commercial plant.
Across the group we have made structural improvements to our operating
model to drive efficiency and increase capability, and are already starting
to see the benefits. Our actions include executing on our targeted annualised
cost savings of c.GBP225 million by the end of 2022/23; optimising our
global manufacturing footprint in Clean Air and delivering significant
working capital benefits by fundamentally changing our metal operating
model. Consistent with our ongoing strategy to create a simpler and
more efficient portfolio, we completed the disposal of two of our smaller
non-core activities.
Activity in autos and other key markets has improved since the beginning
of the COVID-19 pandemic and we expect a materially stronger second
half in comparison to the first half of this year. However, the path
of recovery remains uncertain and we are not providing quantitative
guidance for the group overall for the year ending 31(st) March 2021.
In light of the market backdrop, but also reflecting the group's performance
and the importance of dividends to shareholders, the board has approved
an interim dividend of 20.0 pence per share.
I am excited by our medium term growth prospects driven by accelerating
global trends and we are purpose led to reduce the impact of climate
change. We are investing for our future and remain focused on executing
our growth opportunities including battery materials, fuel cells and
our hydrogen production technologies.
Reported results Half year ended % change
30(th) September
-----------
2020 2019
--------- -------- -----------
Revenue GBP million 6,979 6,818 +2
Operating profit GBP million 68 259 -74
Profit before tax (PBT) GBP million 26 225 -88
Earnings per share (EPS) pence 12.3 91.8 -87
Interim dividend per share pence 20.0 24.5 -18
---------------------------------------- ------------------ --------- -------- -----------
Underlying performance(1) Half year ended % change % change,
30(th) September constant rates(2)
---------------------------------------------------- ------------ ---------------------------
2020 2019
------------------------------- ------------------ --------- -------- ------------ ---------------------------
Sales excluding precious metals
(sales)(3) GBP million 1,679 2,124 -21 -20
Operating profit GBP million 151 265 -43 -42
Profit before tax GBP million 109 231 -53 -52
Earnings per share pence 47.7 95.8 -50
-------------------------------- ------------------ --------- -------- ------------ ---------------------------
Reported results
-- Reported revenue increased 2% driven by higher average precious metal
prices
-- Reported operating profit declined 74% driven by lower demand in Clean
Air and major impairment and restructuring charges of GBP78 million
-- Reported EPS declined 87%, reflecting lower reported operating profit
and higher net finance charges
-- Cash inflow from operating activities was GBP482 million
Underlying performance(1)
-- Sales declined 20%, primarily driven by weaker demand in Clean Air.
Sales in Efficient Natural Resources and New Markets also declined
whilst Health grew
-- Underlying operating profit declined 42% primarily driven by Clean
Air. In aggregate, operating profit from our other operating sectors
was broadly flat
-- Underlying EPS declined 50% reflecting lower operating profit and
higher net finance charges
-- Capital expenditure of GBP148 million as we continue to invest in
our strategic growth projects
-- Free cash flow improved to GBP256 million benefiting from lower precious
metal working capital, despite higher average precious metal prices
-- Strong balance sheet maintained with net debt of GBP0.9 billion; net
debt to EBITDA of 1.6 times
-- Return on invested capital (ROIC) decreased to 10.4% primarily due
to lower operating profit
Dividend
The group maintains a strong balance sheet, good access to liquidity
and is cash generative. In a challenging period, operating performance
improved progressively through the first half, although remains below
the prior year with heightened levels of uncertainty persisting. In
considering all these factors and recognising the importance of dividends
to shareholders, the board has approved an interim dividend of 20.0
pence per share (1H 2019/20: 24.5 pence per share).
The board remains committed to a progressive dividend and anticipates
restoring future dividend payments to levels seen prior to the COVID-19
pandemic when circumstances permit. The interim dividend will be paid
to shareholders on 4(th) February 2021, with an ex dividend date of
26(th) November 2020.
Outlook for the year ending 31(st) March 2021
Activity in autos and other key markets has improved since the COVID-19
pandemic began earlier this year and we expect a materially stronger
second half in comparison to the first half of this year. However, the
path of recovery remains uncertain and we are not providing quantitative
guidance for the group overall for the year ending 31(st) March 2021.
Looking at each of our sectors:
-- Clean Air performance recovered strongly through the first half.
The global outlook for autos has improved, with external data now
suggesting European and US automotive production could be down c.20%
in our fiscal year, compared with the previous estimate of down c.25%,
with China above the prior year. In heavy duty, external data suggests
European and US production could be down c.30% with the Chinese market
above the prior year. Order patterns remain volatile and visibility
is low, meaning the actual outcome for the full year could still be
materially different. Our flexible cost base, with c.75% of costs
being variable before mitigation, enables us to manage different levels
of activity
-- Efficient Natural Resources full year operating performance is expected
to be below the prior year, although we currently expect our usual
seasonality and a stronger second half. Catalyst Technologies is likely
to be below the prior year due to weaker demand whilst PGM Services
is expected to be above the prior year, benefiting from higher average
precious metal prices
-- In Health we continue to make progress with our new customer contracts
for active pharmaceutical ingredients used in generic opioid addiction
therapies and our work with innovator customers which will drive future
growth. Consequently, we expect full year operating performance to
be above the level of the prior year
-- In New Markets we expect operating performance to be above the level
of the prior year
We continue to drive efficiency and are making good progress against
our targeted annualised cost savings of c.GBP225 million. From these
initiatives, we are on track to deliver expected benefits of
GBP59 million(4) in the year ending 31(st) March 2021, with costs in
the year of c.GBP90 million. To support our medium term growth, we are
continuing to invest in our strategic growth projects.
Appointment of interim Chief Financial Officer
As previously announced, Anna Manz will be stepping down as Chief Financial
Officer and Executive Director of Johnson Matthey on 20(th) November
2020. We are pleased to announce the appointment of Karen Hayzen-Smith,
currently Group Financial Controller, as interim Chief Financial Officer
with immediate effect. Karen will not be appointed to the board.
Enquiries:
Investor Relations Director of Investor Relations 020 7269 8241
Senior Investor Relations
Martin Dunwoodie Manager 020 7269 8235
Louise Curran Investor Relations Manager 020 7269 8242
Jane Crosby
Media 020 7269 8407
Sally Jones Director of Corporate Relations 020 7353 4200
Simon Pilkington Tulchan Communications
Notes:
Vara consensus for underlying operating profit in the first half 2020/21
was GBP142 million (range: GBP122 million to GBP158 million) as at 18(th)
November 2020.
1. Underlying is before profit or loss on disposal of businesses, gain
or loss on significant legal proceedings together with associated
legal costs, amortisation of acquired intangibles, major impairment
and restructuring charges and, where relevant, related tax effects.
For definitions and reconciliations of other non-GAAP measures, see
pages 46 to 49.
2. Unless otherwise stated, sales and operating profit commentary refers
to performance at constant rates. Growth at constant rates excludes
the translation impact of foreign exchange movements, with 2019/20
results converted at 2020/21 average exchange rates.
3. Revenue excluding sales of precious metals to customers and the precious
metal content of products sold to customers.
4. GBP59 million includes GBP30 million relating to Clean Air footprint
and driving group organisational efficiency, and GBP29 million of
procurement savings.
eLNO is a trademark of Johnson Matthey Public Limited Company.
Strategy update
Our vision is for a world that is cleaner and healthier; today and for
future generations. With our expertise in science, we are developing
sustainable solutions to tackle the world's most challenging problems.
This includes addressing global trends such as climate change where the
urgency for action is accelerating. We continue to invest in these growth
areas and are making good strategic progress. More recently, in Europe
and the US the macroeconomic environment has been impacted by COVID-19
whilst China has experienced a strong recovery with auto production above
pre-pandemic levels.
Driving growth from our established businesses
-- In Clean Air , we continue to benefit from tightening legislation
in Europe and particularly Asia. In light duty, this legislation is
driving fitment of higher value parts, which is well underway in Europe
and in China. We are also beginning to see benefits in heavy duty
from tightening legislation, particularly in China and India. To support
this growth, our new plants in Europe and China are ramping up production
giving us a global, efficient and agile manufacturing footprint. As
we transform from a local to global operating model, we are focused
on delivering excellent technology solutions and service to our customers,
and driving further efficiency.
-- In Efficient Natural Resources , we continue to focus our resources
on selected, higher growth segments; target our R&D investment for
future growth; and drive operational efficiency. We are making good
strategic progress, which includes structurally changing our metal
operating model (for further detail see page 6) and delivering against
our efficiency plans. To support our longer term growth, we are committed
to playing a key role in the energy transition. We are evolving our
business and developing low carbon chemical processes, and work is
already underway around renewable feedstocks. In addition, we have
a significant opportunity in hydrogen and our continued work to develop
a circular economy, for example battery materials recycling, means
we are well positioned.
-- In Health , we are benefiting from new multi-year supply agreements
which will drive our future growth. This includes contracts with generic
partners for the supply of active pharmaceutical ingredients (APIs)
used in opioid addiction therapies. We continue to make progress towards
delivering c.GBP100 million of operating profit from our pipeline
of generic and innovator APIs. In the period we launched one innovator
product, which is the supply of an immuno-oncology treatment to Immunomedics,
and in October we received FDA (Food and Drug Administration) approval
for a generic oncology therapy. On the innovator side, we also secured
a new long term supply agreement with Sarepta Therapeutics. Whilst
our new pipeline is advancing, we are seeing some pressure on our
base business, specifically within ADHD therapies and bulk opiates,
as our existing portfolio matures.
Executing now to capture medium term growth from climate change solutions
-- In Battery Materials , we continue to make substantial progress in
the commercialisation of eLNO as we target the automotive market for
high energy cathode materials which is expected to be c.1,700kT by
2030(1). We are around one third of the way through construction of
our first commercial plant and progressing well with customers. In
the period we have seen considerable interest from potential new customers,
and our existing customers for both auto and non-auto applications
continue to move into full cell testing. For non-auto customers the
qualification process is typically faster and two have now moved to
cell prototyping. This is a more advanced stage in which customers
test their specific cell format. The work with our non-auto customers
is providing valuable learnings ahead of auto customers moving through
to this stage.
Construction of our first commercial plant in Konin, Poland is on
schedule and we expect commissioning to commence in 2022, with commercial
production in 2024. Customer requirements are continuously evolving
as they look to customise materials for their specific applications.
As these requirements change and our understanding of them increases,
we have gained even more confidence and are committing greater investment
to support our customers getting to market. In finalising the design
of the plant to build in the greater flexibility our customers require
and maintaining speed to market, the cost of this plant has increased.
As a result, we now expect the full cost to commercialisation of eLNO
to be c.GBP550 million against our previous estimate of GBP350 million.
This is a total project cost comprising investment in our pilot plant,
application centres, commercial plant, research and development, and
management costs.
Notes:
1. IHS and Johnson Matthey estimates.
The knowledge we have gained in constructing the first commercial
plant to support our customers' requirements means that we continue
to expect further capacity will have a substantially lower capital
intensity, moving towards a level which is comparable with other European
plants(2). At scale we expect this business will generate returns
towards the upper end of the current industry average expected returns
of 10-15%(3).
The exciting progress we are making with our customer pipeline alongside
the size of the market we are targeting has given us the confidence
to accelerate our scale up plans for eLNO and we are proceeding with
the front end engineering design for our second commercial plant with
30kT capacity.
-- Hydrogen: As the global transition to net zero accelerates and demand
for clean energy increases, there will be fundamental changes across
the energy supply chain. Hydrogen will be key in achieving net zero
because it helps to decarbonise energy and transportation. There is
increasing policy support for hydrogen solutions, promoting greater
adoption of hydrogen, and the opportunity is significant. As a leader
in hydrogen activities including fuel cells and hydrogen production
technologies, we are strongly positioned.
Fuel cells will play a key role in the decarbonisation of transportation.
We have a strong position in this market, supplying critical components
for fuel cell stacks, and our platinum group metal (pgm) expertise
enables us to deliver high performance solutions optimised for specific
applications. Our business has grown strongly in recent years and
we have an established customer base including major global truck
and automotive OEMs, and leading players in the important and fast
growing Chinese market. We have a significant opportunity in heavy
duty trucks and automotive applications and are working on platforms
due to launch over the next few years. To support our future growth
we are investing GBP15 million to double our capacity in the UK and
China. Our new capacity in China is now complete and expected to be
fully operational by January 2021. In the UK, our new capacity is
progressing well and expected to be complete by the end of this fiscal
year. We are already planning our next phase of expansion.
Blue and green hydrogen production technologies will be critical in
the transition to net zero. In blue hydrogen (production of hydrogen
from natural gas with carbon capture), we have leading technology
which is more efficient, with lower capital intensity(4) and captures
over 95% of produced carbon dioxide at high pressure and purity, enabling
easier transportation and storage. Commercialisation of our technology
is progressing well. We are involved with the world scale HyNet and
Acorn projects in the UK and have a strong pipeline of projects globally.
In green hydrogen (production of hydrogen from electrolysis of water
using renewable energy), we are well positioned with our proton exchange
membrane (PEM) technology which is underpinned by our expertise in
pgm catalysis and fuel cells. We are currently testing with leading
electrolyser players.
Creating a more simple, agile and efficient group
We are transforming the group to create a more simple, agile and efficient
organisation. Through the structural changes we have made to all aspects
of how we run our business, we are driving further efficiency across
our operations.
Driving cost efficiency
We are targeting total annualised cost savings of c.GBP225 million by
the end of 2022/23. This includes recently announced annualised savings
of at least GBP80 million relating to both the consolidation of our Clean
Air footprint and group wide organisational efficiency, as well as GBP145
million of cost savings from previous initiatives including global procurement.
Over three years the recently announced initiatives are expected to result
in a reduction in staff numbers of c.2,500, subject to consultation.
Of this reduction, c.300 took place in the first half. Total costs associated
with these savings are expected to be c.GBP315 million, of which c.GBP110
million is cash. We have incurred costs of GBP289 million to date and
expect remaining future restructuring costs of around GBP25 million,
all of which is cash.
Notes:
2. Based on Bain benchmarking of competitors'
European plants, giving
average costs of c.$15k per tonne.
3. Bain estimates.
4. Compared to conventional steam methane
reforming technology with carbon
capture and storage. Johnson Matthey Technol.
Rev., 2020, 64, (3),
357-37.
In 2020/21, we expect to achieve GBP59 million of cost savings related
to all our efficiency initiatives, of which GBP24 million was delivered
in the first half. Related to these efficiency measures, we incurred
one-off costs of GBP78 million in the first half taken outside of underlying
operating profit, of which
GBP16 million was cash.
For further detail on these costs, please see page 16.
Key developments in the period include:
-- Procurement: We expect to meet our targeted GBP100 million
savings
by the end of this fiscal year, previously expected by 2022/23
-- Clean Air footprint: Our new world class plants in Poland and
China
are now in production, and our new plant in India will follow in
2021/22.
We are progressively rebalancing production into our plant in
North
Macedonia, and new facilities in Poland and China
-- Driving organisational efficiency: We have reviewed our group
operating
model to remove duplication of activities between the corporate
centre
and the sectors and reduce complexity across the organisation
Summary of efficiency initiatives
Initiative Delivered Annualised benefits
GBP million to date by 2022/23
---------------------------------------------- ------------------------------------------- -------------------
Procurement 84 100
Restructuring (2017) 25 25
Health footprint optimisation 20 20
Clean Air footprint 3 30
Group wide organisational efficiency 8 50
---------------------------------------------- ------------------------------------------- -------------------
Total efficiency initiatives 140 225
---------------------------------------------- ------------------------------------------- -------------------
Driving balance sheet efficiency
To improve the efficiency of our balance sheet, we have made fundamental
changes to our metal operating model which has structurally reduced our
precious metal working capital by c.GBP400 million in the first half.
Our actions include optimising our precious metal working capital across
our businesses; contracting more effectively with our customers and enhancing
the efficiency of our refining processes. These structural improvements,
together with the immediate actions we took to manage the business through
the pandemic, mean we have further strengthened our financial position.
Going forward, the group is more resilient with our balance sheet less
impacted by fluctuations in precious metal prices.
Focusing our portfolio
Our drive for efficiency and disciplined capital allocation enhances
returns, and we continue to actively manage our portfolio. Post period
end we divested our activities in Atmosphere Control Technologies and
Water, which were not core to our growth strategy. Sales from these businesses
in 2019/20 were c.GBP35 million in total. We continue to review our portfolio
to increase focus on those businesses where we have a competitive advantage
to drive value creation.
Notes:
5. GBP78 million includes GBP62 million of restructuring
costs, of which
GBP16 million was a cash cost in the half and the
remaining GBP46
million will be a future cash cost, and GBP16 million of
impairments.
6. Around three quarters of procurement initiatives will
benefit the
income statement, of which around two thirds will be
reinvested to
drive growth.
7. Based on 31(st) March 2020 prices.
Summary of underlying operating results
Unless otherwise stated, commentary refers to performance
at constant
rates. Percentage changes in the tables are calculated on
unrounded
numbers
Sales Half year ended % change % change,
(GBP million) 30(th) September constant
rates
---------------------------- -------- ---------
2020 2019
---------------------------- --------- -------- -------- ---------
Clean Air 1,003 1,392 -28 -27
Efficient Natural Resources 446 496 -10 -10
Health 119 111 +7 +8
New Markets 168 186 -10 -8
Eliminations (57) (61)
Sales 1,679 2,124 -21 -20
---------------------------- --------- -------- -------- ---------
Underlying operating profit Half year ended % change % change,
(GBP million) 30(th) September constant
rates
---------------------------- -------- ---------
2020 2019
---------------------------- --------- -------- -------- ---------
Clean Air 77 179 -57 -56
Efficient Natural Resources 81 94 -14 -12
Health 15 18 -21 -21
New Markets 5 (8) n/a n/a
Corporate (27) (18)
Underlying operating profit 151 265 -43 -42
---------------------------- --------- -------- -------- ---------
Reconciliation of underlying operating profit to Half year ended
operating profit 30(th) September
(GBP million)
-------------------------------------------------
2020 2019
------------------------------------------------- --------- --------
Underlying operating profit 151 265
Amortisation of acquired intangibles (5) (6)
Major impairment and restructuring charges(1) (78) -
Operating profit 68 259
------------------------------------------------- --------- --------
(1) For further detail on these items please see page 16.
Operating results by sector
Clean Air
Clean Air impacted by COVID-19 but seeing demand recovering strongly
-- Sales were materially below the prior year due to lower demand as
a result of COVID-19, principally in Europe and the Americas whilst
China was above the prior year. We saw a strong recovery as the half
progressed
-- In light duty, sales were down 23% as auto production volumes were
adversely impacted by the pandemic. We benefited from tightening
legislation which increased the value per vehicle in Europe and in
particular China
-- Heavy duty sales were down 33%, with Europe and the Americas down
materially. Sales were partly offset by strong growth in China where
we benefited from tightening legislation and government stimulus
supporting the market
-- Operating profit declined as expected, primarily driven by weaker
markets in Europe and the Americas. We benefited from the absence
of one-off costs in the prior period of c.GBP15 million due to manufacturing
inefficiencies
Half year ended % change % change, constant
30(th) September rates
-------- ------------------
2020 2019
-------- ------------------
GBP million GBP million
----------- ----------- -------- ------------------
Sales
LDV Europe 372 540 -31 -30
LDV Asia 192 193 -1 +1
LDV Americas 116 171 -32 -32
Total Light Duty Vehicle Catalysts 680 904 -25 -23
HDD Americas 132 258 -49 -48
HDD Europe 98 154 -37 -37
HDD Asia 80 52 +54 +56
Total Heavy Duty Diesel Catalysts 310 464 -33 -33
Other - stationary 13 24 -47 -47
Total sales 1,003 1,392 -28 -27
Underlying operating profit 77 179 -57 -56
Margin 7.7% 12.9%
Return on invested capital (ROIC) 11.4% 26.5%
Reported operating profit 42 178 -76
----------------------------------- ----------- ----------- -------- ------------------
Strong recovery through the half
Following the temporary disruption earlier in the year, we have seen
a strong recovery within our Clean Air business. This increased activity
was led by underlying consumer demand, short term government incentives
in China and automotive OEMs rebuilding inventory after unplanned shutdowns
earlier in the year. However, we continue to see volatility in customer
order patterns and there is limited visibility in the supply chain
meaning recent strength should not be extrapolated. External expectations
for auto and truck production are provided on page 2.
% change in global sales year-on-year
April May June July August September October
---------- -------- -------- -------- ------------ ----------------- -------------
-75% -60% -20% -1% -2% +17% +14%
Light Duty Vehicle (LDV) catalysts
In LDV catalysts, we provide catalysts for emission control after-treatment
systems for cars and other light duty vehicles powered by diesel and
gasoline. Our global LDV sales declined 23%, largely driven by Europe
and the Americas due to COVID-19 and associated customer shutdowns.
Asia was flat although our sales in China were up, supported by government
stimulus.
Europe
In Europe, diesel accounts for c.80% of our LDV business and we maintained
our strong market share. Sales of diesel catalysts decreased 30%, although
our performance was ahead of the decline in market production. This
largely reflected a better platform mix.
In Western Europe, diesel accounted for 28% of new passenger car sales
in the first half of 2020/21, compared with 32% in the same period
last year. Light duty commercial vehicles remain largely diesel today.
When these are included, the overall share of diesel sales in Western
Europe was 36% for the first half of 2020/21, compared with 39% in
the same period of 2019/20.
In Europe, sales of gasoline catalysts were down 27% although ahead
of the decline in market production driven by improved mix and benefits
from tighter legislation. We maintained our market share.
Asia
Asia LDV was flat, well ahead of a market that declined, as we benefited
from an uplift in value per vehicle due to tightening legislation,
particularly in China and India. Specifically in China, although our
market share declined, we saw good sales growth with consumer demand
recovering strongly to above pre-pandemic levels, supported by government
stimulus.
Americas
In the Americas, whilst sales were down 32% we maintained our market
share and performance was slightly ahead of the market due to a better
platform mix.
Heavy Duty Diesel (HDD) catalysts
In HDD catalysts, we provide catalysts for emission control after-treatment
systems for trucks, buses and non-road equipment. Global sales were
down 33%. We saw material declines in our HDD businesses in the Americas
and Europe, although this was partly offset by significant growth in
our HDD Asia business as we benefited from tighter legislation and
market share gains.
Americas
In the Americas, our largest HDD region in which we have a significant
market share, sales declined 48% broadly in line with market performance.
Following the peak of the Class 8 truck cycle in September last year,
the market has been declining and was further impacted by the pandemic.
Based on external data, the Class 8 truck cycle appears to be at or
near the bottom, but the timing and pace of recovery is uncertain.
Europe
In HDD Europe, sales declined 37% in line with the market.
Asia
Our Asian HDD businesses grew 56%, well ahead of market production.
We benefited from a significant uplift in value per truck due to tightening
legislation in China and India, as well as market share gains.
Underlying operating profit
Operating profit declined 56% and margin declined 5.2 percentage points.
This was driven by weaker consumer demand and temporary disruption
as a result of the COVID-19 pandemic, particularly in Europe and the
Americas. In the half we benefited from the absence of one-off costs
in the prior period of c.GBP15 million due to inefficiencies caused
by the phasing of completion of our plant in Poland.
ROIC
ROIC was 11.4%, down 15.1 percentage points due to lower operating
profit and higher invested capital from our new plants which are not
yet yielding returns.
Efficient Natural Resources
Weaker demand in Catalyst Technologies but positive developments in
PGM Services
-- Sales declined primarily due to weaker demand as a result of COVID-19
and the usual cyclicality of methanol and ammonia catalyst refills
in Catalyst Technologies. This was partly offset by good growth in
PGM Services which benefited from higher and more volatile average
pgm prices
-- Operating profit was lower reflecting weaker demand in Catalyst Technologies
and Diagnostic Services partly offset by higher results from PGM
Services
Half year ended % change % change, constant
30(th) September rates
2020 2019
GBP million GBP million
----------- -----------
Sales
Catalyst Technologies 208 274 -24 -24
PGM Services 190 150 +26 +26
Advanced Glass Technologies 27 37 -25 -25
Diagnostic Services 21 35 -40 -38
Total sales 446 496 -10 -10
Underlying operating profit 81 94 -14 -12
Margin 18.2% 18.8%
Return on invested capital (ROIC
) 18.4% 12.9%
Reported operating profit 59 91 -35
---------------------------------- ----------- ----------- -------- ------------------
Catalyst Technologies
Our Catalyst Technologies business licenses key process technologies
and manufactures high value speciality catalysts and additives for the
chemical and oil and gas industries. During the period, the vast majority
of our plants maintained operations and we continued to deliver for
our customers whilst ensuring compliance with relevant guidelines.
Sales were down materially primarily driven by lower demand for refill
catalysts and additives, with sales of copper zeolites to Clean Air
and licensing income also lower. These sales were partly offset by good
growth in first fill catalysts from plants already under construction
prior to COVID-19.
Refill catalysts and additives impacted by end market weakness and usual
cyclicality
This is recurring business which makes up the majority of sales within
Catalyst Technologies. We saw weaker demand in some end markets including
refill additives and formaldehyde, and also as some customers delayed
orders. Following strong performance in recent periods, sales were lower
in methanol and ammonia as expected due to the usual cyclicality of
customer changeouts.
First fill catalysts grew as new plants came onstream
First fill catalysts are lumpy in nature and driven by the start-up
of new plants. They are a lead indicator of future refill catalyst demand.
In the period, we saw good sales growth with increased demand for methanol
and hydrogen catalysts as new plants came onstream.
Licensing weaker in the period but a strong project pipeline
Our licensing business is dependent on new plant builds and revenue
is recognised over the period of construction. Sales were down in the
period partly reflecting project delays due to COVID-19. We are still
seeing medium term decisions being made and in the first half we signed
two new licenses and have a strong pipeline of projects.
PGM Services
PGM Services is the world's leading secondary refiner of platinum group
metals (pgms) and provides a strategic service to the group, mainly
supporting Clean Air with security of metal supply in a volatile market.
It comprises our pgm refining, recycling and trading activities and
produces chemical compounds and industrial products containing pgms.
In light of COVID-19, we adapted our operations accordingly and our
refineries continued to operate, ensuring continued supply to our customers.
PGM Services benefited from higher average pgm prices
Sales increased 26% reflecting strong growth in our refinery and trading
businesses as we benefited from higher and more volatile average pgm
prices. In the first half, average palladium and rhodium prices were
up 44% and 172% respectively, whilst the platinum price was broadly
flat, compared to the same period last year. Sales of chemical products
were broadly flat whilst sales of industrial products containing pgms
were slightly down.
Advanced Glass Technologies
Advanced Glass Technologies mainly provides black obscuration enamels
and silver paste for automotive glass applications. As expected, sales
were lower driven by the automotive segment as a result of the slowdown
in global car production due to COVID-19.
Diagnostic Services
Diagnostic Services provides specialised detection, diagnostic and measurement
solutions for our customers in the petroleum industry. Sales were down
as expected, impacted by COVID-19 which limited travel to customer sites,
and the lower oil price.
Underlying operating profit
Operating profit declined 12% reflecting weaker demand in Catalyst Technologies
and Diagnostic Services. This was partly offset by higher results from
PGM Services, where we saw strength in our trading business and a GBP24
million benefit from higher average pgm prices, although some of this
benefit was masked by higher costs in the refineries.
ROIC
ROIC increased to 18.4% due to increased operating profit driven by
higher and more volatile average precious metal prices over the rolling
12 month period of measurement.
Health
Sales benefited from new customer contracts, with operating profit slightly
down as expected
-- Sales growth in both Generics and Innovators supported by new customer
contracts
-- Operating profit declined slightly largely driven by a weaker business
mix
-- We made further progress towards delivering c.GBP100 million of operating
profit from our pipeline of generic and innovator APIs, although
we are seeing some pressure on our base business. From the pipeline
we launched one innovator in the period and received regulatory approval
for a generic molecule in October
Half year ended % change % change, constant
30(th) September rates
2020 2019
GBP million GBP million
--------------------------------- ----------- ----------- -------- ------------------
Sales
Generics 70 67 +6 +6
Innovators 49 44 +10 +10
Total sales 119 111 +7 +8
Underlying operating profit 15 18 -21 -21
Margin 12.6% 16.5%
Return on invested capital (ROIC
) 4.6% 9.5%
Reported operating profit 4 18 -79
--------------------------------- ----------- ----------- -------- ------------------
Generics
Our Generics business develops and manufactures generic active pharmaceutical
ingredients (APIs) for a variety of treatments. Sales were up, primarily
driven by speciality opiates.
Growth supported by new multi-year supply agreements for opioid addiction
therapies
Sales of controlled APIs were broadly flat in the period with a mixed
performance across the segment. Speciality opiates grew strongly reflecting
increased demand across a number of products partly due to COVID-19,
and in the opioid addiction therapy market where we signed multi-year
supply agreements with generic partners. We expect to see further benefits
from these contracts in the second half. Sales of APIs for ADHD treatments
and bulk opiates in Europe were slightly down as we continue to see
pressure on the base business.
Sales of non-controlled APIs were up reflecting higher demand across
a number of products.
Innovators
Our Innovators business provides custom development and manufacturing
services for active ingredients of new drugs during their lifecycle,
including for initial clinical evaluation and subsequently for commercial
supply post regulatory approval.
Further progress with innovator customers
Our Innovators business saw good growth. This was largely driven by
increased demand from Immunomedics for the manufacture of a drug linker
used in the production of an immuno-oncology treatment for triple negative
breast cancer. Immunomedics received approval for this therapy from
the FDA (Food and Drug Administration) in April and is now increasing
volumes to support commercial demand. We also saw increased sales as
we entered a new five year supply agreement with Sarepta to continue
supplying materials and services for their D uchenne Muscular Dystrophy
treatments. As expected, Innovator sales were impacted following the
cancellation of a project in the second half of last year that did not
receive approval.
API product pipeline
We continued to develop our new product pipeline across both our Generics
and Innovators businesses and made further progress towards delivering
c.GBP100 million of operating profit from this. To date we have launched
6 products which delivered sales of c.GBP35 million in the half.
Overall, our pipeline comprises 59 molecules across generic APIs, innovator
APIs and new applications. This includes the 6 launched molecules, of
which one received approval in the period (Immunomedics) and one generic
oncology treatment received approval from the FDA (Food and Drug Administration)
in October. We have 10 generic molecules awaiting regulatory approval
and one innovator project in late stage testing.
Underlying operating profit
Operating profit declined 21% largely driven by a weaker business mix,
notably the cancellation of an innovator project in the second half
of last year which was high margin.
ROIC
ROIC reduced to 4.6%, reflecting lower operating profit over the rolling
12 month period of measurement.
New Markets
Strong growth in Fuel Cells; commercialisation of eLNO on track and
advancing expansion plans
-- Sales declined largely due to the impact of COVID-19 in Battery Systems
and Medical Device Components, partly offset by strong growth in
Fuel Cells
-- Operating profit grew to GBP5 million, primarily due to the absence
of an GBP8 million impairment in the prior year relating to the eLNO
demo plant and a better mix in Life Science Technologies
-- Commercialisation of eLNO remains on track and we are proceeding
with the front end engineering design for our second commercial plant
with 30kT capacity
-- Investment in Fuel Cells to double capacity will be complete by the
end of this financial year
Half year ended % change % change, constant
30(th) September rates
2020 2019
GBP million GBP million
Sales
Alternative Powertrain 101 110 -8 -6
Medical Device Components 29 37 -23 -23
Life Science Technologies 25 23 +5 +7
Other 13 16 -11 -10
Total sales 168 186 -10 -8
Underlying operating profit /
(loss) 5 (8) n/a n/a
Margin 3.0% -4.2%
Return on invested capital (ROIC) 4.6% -3.2%
Reported operating loss (7) (10) +27
---------------------------------- ----------- ----------- -------- ------------------
Alternative Powertrain
Our Alternative Powertrain business provides battery systems for a range
of applications, fuel cell technologies and battery materials for automotive
applications. Our Battery Materials business comprises Lithium Iron
Phosphate (LFP) materials as well as eLNO, our portfolio of leading
ultra-high energy density materials.
Sales declined 6%, primarily driven by Battery Systems which was adversely
impacted by disruption caused by the COVID-19 pandemic.
Fuel Cells continues to grow strongly and investing for growth
We continue to see good momentum in Fuel Cells, with sales up 30% to
GBP19 million driven by increased demand for both automotive and non-automotive
applications in Asia. Our investment programme to double capacity is
on track, with our new capacity in China now complete and expected to
be fully operational by January 2021. Our new capacity in the UK is
progressing well and expected to be complete by the end of this fiscal
year.
Medical Device Components
Our Medical Device Components business leverages our science and technology
to develop products found in devices used in medical procedures, some
of which are elective. The postponement of some elective medical procedures
due to the COVID-19 pandemic has resulted in a decline in sales of 23%
.
Life Science Technologies
Our Life Science Technologies business provides advanced catalysts to
the pharmaceutical and agricultural chemicals markets. This business
was relatively unaffected by the pandemic and sales were up 7% as some
orders were pulled forward into the first half.
Underlying operating profit
Operating profit grew to GBP5 million primarily due to the absence of
an GBP8 million impairment to the eLNO demo plant in the prior year
and a better mix in Life Science Technologies.
ROIC
ROIC increased to 4.6% from a negative ROIC in the prior period driven
by an improved operating performance in the half.
Corporate
Corporate costs in the period were GBP27 million, an increase of GBP9
million from the prior period, primarily due to higher bonus accruals,
share based payments and pension charges.
Financial review
Research and development (R&D)
We invested GBP96 million in R&D in the half, including GBP9 million
of capitalised R&D. Key areas of investment included next generation
technologies in Clean Air, our eLNO cathode materials, improving the
efficiency and resilience of our refineries in Efficient Natural Resources
and our Health API product pipeline.
Foreign exchange
The calculation of growth at constant rates excludes the impact of foreign
exchange movements arising from the translation of overseas subsidiaries'
profit into sterling. The group does not hedge the impact of translation
effects on the income statement.
The principal overseas currencies, which represented 74% of the non-sterling
denominated underlying operating profit in the half year ended 30(th)
September 2020, were:
Share of 1H 2020/21 Average exchange rate % change
non-sterling denominated Half year ended
underlying operating 30(th) September
profit
------------------------- --------
2020 2019
----------------- ------------------------- ----------- ---------- --------
US dollar 13% 1.27 1.26 +1
Euro 32% 1.12 1.13 -1
Chinese renminbi 29% 8.86 8.70 +2
----------------- ------------------------- ----------- ---------- --------
For the half, the impact of exchange rates decreased sales by GBP24
million and decreased underlying operating profit by GBP3 million.
If current exchange rates (GBP:$ 1.28, GBP:EUR 1.11, GBP:RMB 8.76) are
maintained throughout the year ending 31(st) March 2021, foreign currency
translation will have a positive impact of approximately GBP1 million
on underlying operating profit. A one cent change in the average US
dollar exchange rate has an impact of approximately GBP1 million on
full year underlying operating profit, a one cent change in the average
euro exchange rate has an impact of approximately GBP2 million and a
ten fen change in the average rate of the Chinese renminbi has an impact
of approximately GBP1 million.
Major impairment and restructuring charges
As we drive cost efficiency throughout the group, we are targeting annualised
savings of
c.GBP225 million by 2022/23. Total costs associated with these savings
are expected to be
c.GBP315 million, of which c.GBP110 million is cash. We have incurred
costs of GBP289 million to date and expect remaining future restructuring
costs of c.GBP25 million, all of which is cash.
Related to our efficiency measures, we incurred one-off costs of GBP78
million in the first half taken outside of underlying operating profit,
of which GBP16 million was cash.
GBP million Costs incurred to 2019/20 Restructuring costs Total restructuring costs
1H 2020/21(1)
------------------------------------- ------------------------- ------------------- -------------------------
Restructuring (2017) (42) - (42)
Health footprint optimisation (29) - (29)
Procurement(2) - - -
Clean Air footprint (61) (14) (91)
Group wide organisational efficiency - (58) (70)
Other(3) (79) (6) (85)
------------------------------------- ------------------------- ------------------- -------------------------
Total (211) (78) (317)
------------------------------------- ------------------------- ------------------- -------------------------
Notes:
1. GBP78 million includes GBP62 million of restructuring
costs, of which
GBP16 million was a cash cost in the half and the remaining
GBP46
million will be a future cash cost, and GBP16 million of
impairments.
2. Around three quarters of procurement initiatives will
benefit the
income statement, of which around two thirds will be
reinvested to
drive growth.
3. Other includes Battery Materials LFP, Health product
pipeline and
other restructuring costs.
Finance charges
Net finance charges in the half amounted to GBP41 million,
up from
GBP36 million in the first half of 2019/20 due to higher
average interest
rates across the mix of our borrowings and increased
interest on our
metal borrowings. Our interest costs do not decrease
immediately with
lower borrowings as we have secured funding over a longer
period. With
sustained lower borrowings we would expect interest costs
to gradually
reduce as these transactions mature.
Taxation
The effective tax rate on reported profit for the half
ended 30(th)
September 2020 was 7.8%, down from 21.6% in the prior
period. This
was due to significant exceptional costs arising in the
first half,
the majority of which should be tax deductible in markets
with a higher
effective tax rate, and the weighting of those costs in
comparison
to the underlying profit for the half year.
The tax charge on underlying profit before tax for the half
year ended
30(th) September 2020 was GBP17 million, an effective
underlying tax
rate of 15.6%, down from 20.5% in the first half of
2019/20. The reduction
in underlying effective tax rate was primarily driven by
the recognition
of provisions for uncertain tax positions in the prior
period.
Post-employment benefits
IFRS - accounting basis
At 30(th) September 2020, the group's net post-employment
benefit position,
after taking account of the bonds held to fund the UK
pension scheme
deficit, was a surplus of GBP175 million.
The cost of providing post-employment benefits in the year
was GBP21
million, up from GBP12 million in the same period last
year. The prior
period post-employment benefits included a past service
credit of GBP10
million, compared to no credit this year.
Actuarial - funding basis
The UK pension scheme has a legacy defined benefit career
average section
which was closed to new entrants on 1(st) October 2012,
when a new
defined benefit cash balance section was opened.
The last triennial actuarial valuation of the career
average section
as at 1(st) April 2018 revealed a deficit of GBP34 million,
or a surplus
of GBP9 million after taking account of the future
additional deficit
funding contributions from the special purpose vehicle set
up in January
2013. The valuation results as at 1(st) April 2018 allowed
for the
equalisation of Guaranteed Minimum Pension.
The last triennial actuarial valuation of the cash balance
section
as at 1(st) April 2018 revealed a surplus of GBP0.2
million.
The latest actuarial valuations of our two US pension
schemes showed
a surplus of GBP7 million as at 1(st) July 2020, an
improvement from
a GBP1 million deficit as at 1(st) July 2019.
Capital expenditure
Capital expenditure was GBP148 million in the half, 1.8 times depreciation
and amortisation (excluding amortisation of acquired intangibles), with
some modest impact from delays to projects due to COVID-19. In the period,
projects included:
-- Commercialisation of eLNO in Battery Materials. We are now around
one third of the way through construction of our first commercial
plant, with commissioning to commence in 2022 and commercial production
in 2024
-- Completion of our new Clean Air manufacturing plants in Poland and
China. This additional capacity will support demand from tightening
legislation and will enable us to create efficiency by consolidating
our manufacturing footprint
-- Investment in the efficiency and resilience of our refineries within
Efficient Natural Resources
-- Upgrade to our core IT business systems
Capital expenditure for 2020/21 is expected to be up to GBP400 million
as we continue to invest in our strategic growth projects above.
Depreciation and amortisation (excluding amortisation of acquired intangibles)
is expected to increase to c.GBP200 million in 2020/21. This increase
is largely due to the depreciation of our new Clean Air plants and our
investment to upgrade our core IT business systems.
Strong balance sheet and significant progress on working capital
We maintained a strong balance sheet and good access to liquidity with
c.GBP1.8 billion of available cash and undrawn committed facilities
at 30(th) September 2020. Net debt at 30(th) September 2020 was c.GBP0.9
billion (31(st) March 2020: GBP1.1 billion) and our leverage ratio (net
debt to EBITDA) was 1.6 times (31(st) March 2020: 1.6 times). This was
at the bottom end of our target range of 1.5 to 2.0 times, despite the
impact of COVID-19 on EBITDA and higher working capital from increasing
activity in Clean Air.
We benefited from a c.GBP400 million(1) reduction in precious metal
working capital volumes in the period which reflects strong progress
in reducing our refinery backlogs due to structural improvements to
optimise precious metal working capital across our businesses. With
the impact of COVID-19, we saw a one-off benefit of c.GBP200 million
in the period, of which c.GBP100 million is likely to unwind in the
second half. These reductions were partly offset by other working capital
movements including increasing activity in Clean Air and higher pgm
prices.
Notes:
1. Based on 31(st) March 2020 prices.
Free cash flow and working capital
Free cash flow was an inflow of GBP256 million, an improvement from
an outflow in the prior period. This was primarily due to a reduction
in precious metal working capital volumes as we reduced our refinery
backlogs.
Excluding precious metal, working capital days at 30(th) September 2020
decreased to 54 days compared to 61 days at 30(th) September 2019. Average
working capital days through the period excluding precious metals increased
to 70 days driven by the lower average sales volume through the period.
We continue to have a disciplined approach to our working capital position.
We are targeting an improvement in average non precious metal working
capital to between 50 and 60 days over the medium term.
Dividend
The board approved an interim dividend of 20.0 pence per share (1H 2019/20:
24.5 pence per share). The interim dividend will be paid to shareholders
on 4(th) February 2021, with an ex dividend date of 26(th) November
2020.
Return on invested capital (ROIC)
ROIC declined to 10.4% at 30(th) September 2020, from 15.0% in the prior
period mainly reflecting lower operating profit due to the impact of
the pandemic.
Contingent liabilities
The group is involved in various disputes and claims which arise from
time to time in the course of its business including, for example, in
relation to commercial matters, product quality or liability, employee
matters and tax audits. The group is also involved from time to time
in the course of its business in legal proceedings and actions, engagement
with regulatory authorities and in dispute resolution processes. These
are reviewed on a regular basis and, where possible, an estimate is
made of the potential financial impact on the group. In appropriate
cases a provision is recognised based on advice, best estimates and
management judgement. Where it is too early to determine the likely
outcome of these matters, no provision is made. Whilst the group cannot
predict the outcome of any current or future such matters with any certainty,
it currently believes the likelihood of any material liabilities to
be low, and that such liabilities, if any, will not have a material
adverse effect on its consolidated income, financial position or cash
flows.
On a specific matter, the group previously disclosed that it had been
informed by two customers of failures in certain engine systems for
which the group supplied a particular coated substrate as a component
for their customers' emissions after-treatment systems. The particular
coated substrate was sold to only these two customers. The group has
not been contacted by any regulatory authority about these engine system
failures. The reported failures have not been demonstrated to be due
to the coated substrate supplied by the group. As previously disclosed,
we settled with one of these customers on mutually acceptable terms
with no admission of fault.
Having reviewed its contractual obligations and the information currently
available to it, the group believes it has defensible warranty positions
in respect of its supplies of coated substrate for the after-treatment
systems in the affected engines remaining at issue. If required, it
will vigorously assert its available contractual protections and defences.
The outcome of any discussions relating to the matters raised is not
certain, nor is the group able to make a reliable estimate of the possible
financial impact at this stage, if any. The group works with all its
customers to ensure appropriate product quality and we have not received
claims in respect of our emissions after-treatment components from this
or any other customer. Our vision is for a world that's cleaner and
healthier; today and for future generations. We are committed to enabling
improving air quality and we work constructively with our customers
to achieve this.
On a separate matter, the group is involved in investigating environmental
contamination at a site for which it has been identified as a potentially
responsible party under US law. Johnson Matthey Inc. is party to litigation
brought by the Pennsylvania Department of Environmental Protection regarding
contamination at a site in Chester County, Pennsylvania, that was operated
by Johnson Matthey Inc. between 1951 and 1969, when it sold its interest
in the site. A site investigation is nearing completion, but remediation
has not yet commenced. Johnson Matthey has asserted various legal defences.
In addition, there are several variables that may influence the nature
of the remediation to be conducted, such as the future use of the site.
Whether and to what extent Johnson Matthey and other potentially responsible
parties (given subsequent use of the site by third-party entities) have
any liability for the remediation has not yet been determined. It is
the directors' current view that the group cannot reliably assess the
outcome of the litigation nor reasonably estimate the quantum of future
remediation costs or the group's share of such costs and as such no
provision for the remediation has been recognised in these consolidated
accounts. Estimated legal and technical fees associated with the litigation
of GBP1.5 million have been provided for as at
30(th) September 2020.
UK's withdrawal from European Union
We are continuing to monitor and assess the potential impact of the
UK's withdrawal from the European Union on current operations and strategy.
Plans are well developed and being implemented for the key scenarios.
Business continuity and regulatory compliance are particular areas of
focus. Our businesses are ensuring stock is available and the associated
working capital impacts are carefully managed such that any logistics
delays do not impact business continuity.
In terms of Registration, Evaluation, Authorisation and restriction
of Chemicals (REACH), we will establish an 'Only Representative' through
a Johnson Matthey EU legal entity. This will allow a seamless crossover
and continued trade in the European Union of Johnson Matthey products,
after the transition period deadline has passed. In addition, we will
also take the appropriate actions to ensure our products and incoming
raw materials are compliant with the UK's equivalent of REACH from 1(st)
January 2021.
We are confident that the acute demands of managing the COVID-19 response
will not reduce our ability to respond to changes caused by the withdrawal.
Going concern
The group has a strong balance sheet with c.GBP1.8 billion of available
cash and undrawn committed facilities at 30(th) September 2020. Cash
generation was strong in the first half with free cash flow of GBP256
million leaving net debt GBP216 million lower than year end. There was
strong operational performance behind this, including reducing refining
backlogs by c.GBP400 million in the period, which places the group in
a strong position going forward. Despite the lower EBITDA from the effects
of COVID-19, leverage, measured by net debt ( including post tax pension
deficits) to EBITDA, was at the bottom of our target range at 1.6 times.
Overall, our performance in the first half was better than the projections
in the deep recession case scenario used at year-end, both in terms
of operating profit and cash flow. COVID-19 nonetheless continues to
leave great uncertainty in the market outlook and in response to this
we have revisited our projections using, for the purposes of assessing
going concern, latest forecasts and the deep recession and very deep
recession scenarios as described on page 65 of the Annual Report for
the year ended 31(st) March 2020.
Our base case scenario for the going concern assessment has been updated
with our latest forecast for the remainder of 2020/21. This shows improved
business performance. In Clean Air, the global outlook for autos has
improved, with external data now suggesting European and US automotive
production could be down c.20% in our fiscal year, compared with the
previous estimate in the deep recession scenario of down c.25%, with
China above the prior year. In heavy duty, external data suggests European
and US production could be down c.30% with the Chinese market above
the prior year. In Efficient Natural Resources, Catalyst Technologies
is likely to be below the prior year due to weaker demand whilst PGM
Services is expected to be above the prior year, benefiting from higher
average precious metal prices. The delivery of Health's full year operating
performance is expected to be above the level of the prior year. Thereafter
we have kept the deep recession scenario outcomes for 2021/22. Due to
the improved business performance now assumed in 2020/21 the growth
rate in 2021/22 is broadly flat.
For our severe but plausible downside case, we have used an outlook
in line with the deep recession scenario for the remainder of 2020/21
and the very deep recession scenario for 2021/22. The very deep recession
showed a slower recovery in 2021/22 with Clean Air relatively stable
to our deep recession scenario but a greater impact on our Efficient
Natural Resources businesses where a higher proportion of costs are
fixed. The severe but plausible downside case reflects year-on-year
decline to 2021/22.
In addition to these two key scenarios and given the ongoing uncertainty
we have stress tested the short-term performance against a second shutdown
in the second half in line with our experience early in the first half.
Whilst this would reduce profitability and EBITDA against our latest
forecast, our balance sheet remains strong.
Under all of these scenarios we have sufficient headroom under committed
facilities and against key financial covenants.
Funding and available liquidity
The group has a robust funding position comprising a range of long-term
debt and a GBP1 billion five year committed revolving credit facility
signed in March this year which was entirely undrawn at
30(th) September 2020. The maturity profile at 30(th) September 2020
is excellent with only GBP130 million of term debt maturing before December
2021. In the period we signed EUR90 million of seven year and EUR45
million of five year loans with the European Bank for Reconstruction
and Development and KfW IPEX - Bank GmbH (KfW) respectively to support
our Battery Materials investment in Poland.
In addition, as a long time, highly rated issuer in the US private placement
market, JM expects to be able to access additional funding in its existing
markets should it need to. The group also has a number of additional
sources of funding available including uncommitted lease facilities
that can provide precious metal funding. Furthermore, JM still has access
to the Bank of England's COVID Corporate Financing Facility (CCFF) which
would provide additional back-stop liquidity if needed. Whilst we would
fully expect to be able to utilise the metal lease facilities and CCFF
they are excluded from our going concern modelling.
Conclusion
The group has a robust funding position and has tested its performance
again under a range of scenarios. In all of these cases, we have sufficient
headroom against committed facilities and key financial covenants in
the going concern period (12 months following the date of this announcement).
There remain risks to the group including more extreme economic outcomes.
Against these the group still has a range of levers which it could utilise
to protect headroom including delaying inventory builds, reducing capital
expenditure and reducing future dividend distributions.
The directors are therefore of the opinion that the group has adequate
resources to fund its operations for the period of 12 months following
the date of this announcement and so determine that it is appropriate
to prepare the accounts on a going concern basis.
Risks and uncertainties
We have made several improvements to our approach to understanding risk
and uncertainty, further articulating the risk information and insights
we use to support various business decisions. The principal risks and
uncertainties, together with the group's strategies to manage them,
are set out on pages 67 to 74 of the 2020 annual report and these are
unchanged. They are:
Existing market outlook - the risk of the impact of changing assumptions
in our key markets being either unplanned or unforeseen and not being
agile enough to respond to them. This risk includes potential impact
of legislative changes (e.g. those caused by Brexit), other market movements
outside of our predictions, the extended impact of global pandemics
such as COVID-19 and emerging trends such as the imposition of tariffs
as well as regional and global slowdowns to which our business may be
sensitive
Future growth - this risk considers the potential failure to deliver
planned growth and value creation through ineffective execution of strategic
initiatives and investments
Competitive advantage - addressing the need to maintain competitive
advantage in existing markets and as a result not meeting customers'
evolving needs as effectively and profitably as our competitors
Environment, health and safety (EHS) - as per similar high hazard manufacturing
companies, our business operations are subject to a wide range of challenging
health, safety and environmental laws, standards and regulations from
government and non-governmental bodies around the world. If we fail
to operate safely, we could injure our people or breach applicable laws
which could adversely impact our employees. This could result in lost
production time and potentially attract negative interest from the media
and regulator
Supply failure - the nature of JM's operations means there are limited
suppliers from which to source certain strategic raw materials including
precious metals. Any significant breakdown in the supply of these materials
would lead to an inability to manufacture and satisfy customer demand
People - to successfully execute our strategy and deliver growth we
need to ensure that we have an appropriate culture, the breadth and
depth of leadership and capabilities to drive a motivated, inclusive
and engaged workforce, underpinned by adequate people data
Security of metal and highly regulated substances - the group has significant
quantities of high value precious metals or highly regulated substances
on site and in transit. Loss or theft due to a failure of the security
management systems associated with the protection of metal or highly
regulated substances may result in financial loss and/or a failure to
satisfy our customers which could reduce our customers' confidence in
JM and potential legal action
Intellectual property management - failure to adequately manage our
own, and third party intellectual property, knowledge and information
could lead to a loss in business advantage, loss of freedom to operate
and reputational damage associated with litigation
Failure of operations - we may experience planned and unplanned interruptions
and/or delays in the manufacturing and supply of our products resulting
in lost sales affecting our reputation and revenue growth
Ethics, compliance and legal - failure to comply with ethical and regulatory
compliance standards leading to reputational damage and possible criminal/legal
exposure for the company or for individuals. We have recently refreshed
our legal risk analysis and broadened the principal risk with aspects
related to contractual liability risk which addresses JM's potential
exposure to suffering significant loss or damage as a result of entering
into contracts with unfavourable terms
Business transition - failure to manage and deliver change in a controlled
manner to achieve expected business benefits
Product quality - our products are used in a wide range of applications,
processes and systems. The quality of these products is crucial to ensuring
they function as intended and meet the established quality criteria.
Should a product fail to perform as expected or have quality defects,
we could cause harm to consumers or expose ourselves to liability claims.
This could lead to loss of future business, reputational damage and
loss of licence to operate
Applications, systems and cyber - risks that our applications and systems
security is inadequate or fails to adapt to changing business requirements
and/or external threats. The impact of these may adversely affect our
financial position and could harm our reputation
Responsibility statement of the Directors in respect of the half yearly
report
The half yearly report is the responsibility of the directors. Each
of the directors as at the date of this responsibility statement, whose
names and functions are set out below, confirms that to the best of
their knowledge:
-- the condensed consolidated accounts have been prepared in accordance
with International Accounting Standard (IAS) 34 - 'Interim Financial
Reporting'; and
-- the interim management report included in the Half-Yearly Report
includes a fair review of the information required by:
a) DTR 4.2.7R of the Financial Conduct Authority's Disclosure Guidance
and Transparency Rules, being an indication of important events
that have occurred during the first six months of the financial
year and their impact on the condensed consolidated accounts; and
a description of the principal risks and uncertainties for the remaining
six months of the financial year; and
b) DTR 4.2.8R of the Financial Conduct Authority's Disclosure Guidance
and Transparency Rules, being related party transactions that have
taken place in the first six months of the current financial year
and that have materially affected the financial position or performance
of the company during that period; and any changes in the related
party transactions described in the last annual report that could
do so.
The names and functions of the directors of Johnson Matthey Plc are
as follows:
Patrick Thomas Chair of the Board and of the Nomination Committee
Jane Griffiths Non-Executive Director
Xiaozhi Liu Non-Executive Director
Robert MacLeod Chief Executive
Anna Manz Chief Financial Officer
Chris Mottershead Non-Executive Director and Chair of the Remuneration
Committee
John O'Higgins Senior Independent Director
Doug Webb Non-Executive Director and Chair of the Audit Committee
The responsibility statement was approved by the Board of Directors
on 18(th) November 2020 and is signed on its behalf by:
Patrick Thomas
Chairman
Independent Review Report
to Johnson Matthey Plc
Report on the condensed consolidated accounts
Our conclusion
We have reviewed Johnson Matthey Plc's condensed consolidated
accounts (the "interim financial statements") in the half year
results of Johnson Matthey Plc for the 6 month period ended 30
September 2020. Based on our review, nothing has come to our
attention that causes us to believe that the interim financial
statements are not prepared, in all material respects, in
accordance with International Accounting Standard 34, 'Interim
Financial Reporting', as adopted by the European Union and the
Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority.
What we have reviewed
The interim financial statements comprise:
-- the Condensed Consolidated Balance Sheet as at 30 September 2020;
-- the Condensed Consolidated Income Statement and Condensed
Consolidated Statement of Total Comprehensive Income for the period
then ended;
-- the Condensed Consolidated Cash Flow Statement for the period then ended;
-- the Condensed Consolidated Statement of Changes in Equity for the period then ended; and
-- the explanatory notes to the interim financial statements.
The interim financial statements included in the half year
results have been prepared in accordance with International
Accounting Standard 34, 'Interim Financial Reporting', as adopted
by the European Union and the Disclosure Guidance and Transparency
Rules sourcebook of the United Kingdom's Financial Conduct
Authority.
As disclosed in note 1 to the interim financial statements, the
financial reporting framework that has been applied in the
preparation of the full annual financial statements of the group is
applicable law and International Financial Reporting Standards
(IFRSs) as adopted by the European Union.
Responsibilities for the interim financial statements and the
review
Our responsibilities and those of the directors
The half year results, including the interim financial
statements, is the responsibility of, and has been approved by, the
directors. The directors are responsible for preparing the half
year results in accordance with the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom's Financial
Conduct Authority.
Our responsibility is to express a conclusion on the interim
financial statements in the half year results based on our review.
This report, including the conclusion, has been prepared for and
only for the company for the purpose of complying with the
Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority and for no other purpose. We
do not, in giving this conclusion, accept or assume responsibility
for any other purpose or to any other person to whom this report is
shown or into whose hands it may come save where expressly agreed
by our prior consent in writing.
What a review of interim financial statements involves
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, 'Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity' issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and,
consequently, does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the half year
results and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the interim financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
London
18 November 2020
Condensed Consolidated Income Statement
for the six months ended 30 September 2020
Six months ended
30.9.20 30.9.19
Notes GBP million GBP million
2,
Revenue 3 6,979 6,818
Cost of sales (6,587) (6,321)
----------- -----------
Gross profit 392 497
Distribution costs (54) (66)
Administrative expenses (187) (166)
Amortisation of acquired intangibles 4 (5) (6)
Major impairment and restructuring charges 4 (78) -
----------- -----------
Operating profit 68 259
Finance costs (77) (66)
Finance income 36 30
Share of profit/(loss) of joint venture and
associate (1) 2
----------- -----------
Profit before tax 26 225
Tax expense 5 (2) (49)
----------- -----------
Profit for the period 24 176
----------- -----------
pence pence
Earnings per ordinary share
Basic 6 12.3 91.8
Diluted 6 12.3 91.6
Condensed Consolidated Statement of Total Comprehensive
Income
for the six months ended 30 September 2020
Six months ended
30.9.20 30.9.19
Notes GBP million GBP million
Profit for the period 24 176
----------- -----------
Other comprehensive income
Items that will not be reclassified to the
income statement
Remeasurements of post-employment benefit
assets and liabilities 11 (103) -
Fair value gains on equity investments at fair value
through other comprehensive income 6 3
Tax on items that will not be reclassified
to the income statement 21 1
----------- -----------
(76) 4
----------- -----------
Items that may be reclassified to the income
statement
Exchange differences on translation of foreign
operations (11) 73
Amounts charged to hedging reserve (6) (16)
Fair value losses on net investment hedges - (8)
Tax on items that may be reclassified to
the income statement 1 1
----------- -----------
(16) 50
----------- -----------
Other comprehensive (expense)/income for
the period (92) 54
----------- -----------
Total comprehensive (expense)/income for the period (68) 230
----------- -----------
Condensed Consolidated Balance Sheet
as at 30 September 2020
30.9.20 31.3.20
Notes GBP million GBP million
----------- -----------
Assets
Non-current assets
Property, plant and equipment 8 1,429 1,403
Right-of-use assets 81 88
Goodwill 572 580
Other intangible assets 9 404 396
Investments in joint venture and associate 22 23
Investments at fair value through other comprehensive
income 56 49
Other receivables 60 63
Interest rate swaps 16 31 34
Deferred tax assets 91 66
Post-employment benefit net assets 11 229 317
----------- -----------
Total non-current assets 2,975 3,019
----------- -----------
Current assets
Inventories 2,074 1,902
Current tax assets 39 31
Trade and other receivables 2,415 2,077
Cash and cash equivalents -- cash and deposits 16 197 112
Cash and cash equivalents -- money market
funds 16 573 192
Other financial assets 35 28
Assets classified as held for sale 10 46 -
----------- -----------
Total current assets 5,379 4,342
----------- -----------
Total assets 8,354 7,361
----------- -----------
Liabilities
Current liabilities
Trade and other payables (3,575) (2,745)
Lease liabilities 16 (11) (12)
Current tax liabilities (120) (106)
Cash and cash equivalents -- bank overdrafts 16 (32) (31)
Borrowings and related swaps 16 (371) (331)
Other financial liabilities (25) (50)
Provisions (49) (11)
Liabilities classified as held for sale 10 (7) -
----------- -----------
Total current liabilities (4,190) (3,286)
----------- -----------
Non-current liabilities
Borrowings and related swaps 16 (1,220) (994)
Lease liabilities 16 (58) (64)
Deferred tax liabilities (52) (74)
Employee benefit obligations 11 (110) (104)
Provisions (20) (9)
Other payables (3) (6)
----------- -----------
Total non-current liabilities (1,463) (1,251)
----------- -----------
Total liabilities (5,653) (4,537)
----------- -----------
Net assets 2,701 2,824
----------- -----------
Equity
Share capital 221 221
Share premium 148 148
Shares held in employee share ownership trust
(ESOT) (29) (32)
Other reserves 132 142
Retained earnings 2,229 2,345
----------- -----------
Total equity 2,701 2,824
----------- -----------
Note: GBP0.2 billion increase in precious metal inventories on higher
volumes and metal price increases; GBP0.3 billion increase in trade and
other receivables, of which
GBP0.1 billion relates to an increase in amounts receivable under precious
metal sale and repurchase agreements; GBP0.8 billion increase in trade
and other payables relates to an increase in amounts payable under precious
metal sale and repurchase agreements. Amounts payable under precious
metal sale and repurchase agreements will unwind in line with metal demand
across the group. As business activity and demand for metal increases,
these agreements will be repaid to the extent metal is required within
the business. Alternatively, they will be renewed on expiry for metal
we continue to lend into the market.
Condensed Consolidated Cash Flow Statement
for the six months ended 30 September 2020
Six months ended
30.9.20 30.9.19
Notes GBP million GBP million
Cash flows from operating activities
Profit before tax 26 225
Adjustments for:
Share of loss/(profit) of joint venture
and associate 1 (2)
Depreciation 76 77
Amortisation 13 14
Impairment losses 16 8
Loss on sale of non-current assets 1 -
Share-based payments 5 3
Increase in inventories (177) (134)
Increase in receivables (347) (403)
Increase in payables 840 70
Increase/(decrease) in provisions 49 (5)
Contributions in excess of employee benefit
obligations charge (5) (13)
Changes in fair value of financial instruments (37) (3)
Net finance costs 41 36
Income tax paid (20) (32)
----------- -----------
Net cash inflow/(outflow) from operating
activities 482 (159)
----------- -----------
Cash flows from investing activities
Interest received 33 28
Purchases of property, plant and equipment (139) (133)
Purchases of intangible assets (36) (51)
Proceeds from sale of non-current assets - 8
Net cash outflow from investing activities (142) (148)
----------- -----------
Cash flows from financing activities
Proceeds from borrowings 288 168
Repayment of borrowings (4) (11)
Dividends paid to equity shareholders 7 (60) (120)
Interest paid (77) (70)
Principal element of lease payments (7) (5)
----------- -----------
Net cash inflow/(outflow) from financing
activities 140 (38)
----------- -----------
Net increase/(decrease) in cash and cash
equivalents 480 (345)
Exchange differences on cash and cash equivalents (1) 1
Cash and cash equivalents at beginning of
year 273 378
Cash and cash equivalents at end of period 752 34
----------- -----------
Cash and deposits 197 99
Money market funds 573 -
Bank overdrafts (32) (65)
Cash and deposits transferred to assets classified
as held for sale 14 -
----------- -----------
Cash and cash equivalents 16 752 34
----------- -----------
Condensed Consolidated Statement of Changes in Equity
for the six months ended 30 September 2020
Share Shares
held
Share premium in Other Retained Total
capital account ESOT reserves earnings equity
GBP million GBP million GBP million GBP million GBP million GBP million
At 1 April 2019 221 148 (45) 87 2,205 2,616
Total comprehensive income
for the period - - - 53 177 230
Dividends paid (note 7) - - - - (120) (120)
Share-based payments - - - - 6 6
Cost of shares transferred
to employees - - 13 - (16) (3)
At 30 September 2019 221 148 (32) 140 2,252 2,729
Total comprehensive income
for the period - - - 2 144 146
Dividends paid (note 7) - - - - (47) (47)
Share-based payments - - - - (1) (1)
Cost of shares transferred
to employees - - - - (3) (3)
At 31 March 2020 221 148 (32) 142 2,345 2,824
Total comprehensive
expense
for the period - - - (10) (58) (68)
Dividends paid (note 7) - - - - (60) (60)
Share-based payments - - - - 9 9
Cost of shares transferred
to employees - - 3 - (7) (4)
At 30 September 2020 221 148 (29) 132 2,229 2,701
----------- ----------- ----------- ----------- ----------- -----------
Notes to the Accounts
for the six months ended 30 September 2020
Basis of preparation and statement
1 of compliance
These condensed consolidated accounts do not constitute
statutory accounts within the meaning of Section 435 of the
Companies Act 2006 and should be read in conjunction with the
Annual Report 2020. The half-yearly accounts have been prepared in
accordance with International Accounting Standard (IAS) 34 'Interim
Financial Reporting' and the Disclosure Guidance and Transparency
Rules of the UK's Financial Conduct Authority. The accounting
policies applied are consistent with the accounting policies
applied by the group in its consolidated accounts as at, and for
the year ended, 31 March 2020, with the exception of the adoption
of amended accounting policies and standards as explained
below.
Information in respect of the year ended 31 March 2020 is
derived from the company's statutory accounts for that year which
have been delivered to the Registrar of Companies. The auditor's
report on those statutory accounts was unqualified, did not include
a reference to any matters to which the auditor drew attention by
way of emphasis without qualifying its report and did not contain
any statement under Section 498 (2) or Section 498 (3) of the
Companies Act 2006.
The half-yearly accounts are unaudited, but have been reviewed
by the auditors. They were approved by the board of directors on 18
November 2020.
Going concern
The accounts are prepared on a going concern basis in accordance
with International Financial Reporting Standards (IFRS) issued by
the International Accounting Standards Board (IASB) and
interpretations issued by the IFRS Interpretations Committee or the
Standing Interpretations Committee (SIC) as adopted by the European
Union (EU) and the Companies Act 2006 applicable to companies
reporting under IFRS.
The COVID-19 pandemic has impacted many countries in which the
group operates and created a challenging macro-economic
environment. The business remains resilient with performance
exceeding the deep recession scenario modelled at year end. Some of
our sites re-opened following the implementation of additional
safety measures and continue to operate to serve our customer
demand.
However, given the fast-changing nature of the COVID-19
situation in which we are operating, our near-term visibility
remains limited. In response to this we have undertaken further
extensive reviews of our businesses and projections using latest
forecasts and the deep recession and very deep recession scenarios
described in our results for the year ended 31 March 2020, refer to
page 65 of the group's 31 March 2020 Annual Report.
During the year ended 31 March 2020, the deep recession scenario
was considered to be our base case scenario. Overall, our
performance in the period to 30 September 2020 was better than
these projections, both in terms of operating profit and cash
flow.
Our base case scenario for the going concern assessment has been
updated with our latest forecast for the remainder of the financial
year. This shows improved business performance. Thereafter we have
kept the deep recession scenario outcomes for the remaining going
concern period. Due to the improved business performance now
assumed to 31 March 2021 the growth rate to next year is broadly
flat.
For our severe but plausible downside case, we have used an
outlook in line with the deep recession scenario for the remainder
of the financial year and the very deep recession scenario for the
remaining going concern period which reflects slower recovery. The
severe but plausible downside case reflects year-on-year
decline.
In addition to these two key scenarios, we have further stress
tested the short term performance to incorporate another global
shutdown this year with similar disruptions to our customer base
and production facilities as experienced during the first quarter
of this year. The directors consider this to be an extreme scenario
given we continue to operate and serve our customer demands under
current governmental restrictions.
In all scenarios, we have sufficient headroom against committed
facilities and key financial covenants are not in breach during the
going concern period.
The group has a strong balance sheet with GBP1.8 billion of
available cash and undrawn committed facilities as at 30 September
2020. In addition, as a long time, highly rated issuer in the US
private placement market, the group expects to be able to access
additional funding in its existing markets should it need to. The
group also has a number of additional sources of funding available
including uncommitted lease facilities that can provide precious
metal funding. Furthermore, the group still has access to the Bank
of England's COVID Corporate Financing Facility (CCFF) which would
provide additional back-stop liquidity if needed. Whilst we would
fully expect to be able to utilise the metal lease facilities and
CCFF they are excluded from our going concern modelling on the
basis that they are short term in nature.
The directors are therefore of the opinion that the group has
adequate resources to fund its operations for the period of 12
months following the date of this announcement and so determine
that it is appropriate to prepare the accounts on a going concern
basis.
Non-GAAP measures
The group uses various measures to manage its business which are
not defined by generally accepted accounting principles (GAAP). The
group's management believes these measures provide valuable
additional information to users of the accounts in understanding
the group's performance. The group's non-GAAP measures are defined
and reconciled to GAAP measures in note 16.
Amended standards adopted by the group
The following amendments to existing standards were applicable
to the group from 1 April 2020, but did not have a significant
effect on its reported results or net assets:
-- Amendments to References to Conceptual Framework in IFRS Standards
-- Amendments to IAS 1 and IAS 8: Definition of Material
-- Amendments to IFRS 3: Definition of a Business.
The group has elected not to apply the exemption granted in the
'COVID-19 related rent concessions' amendment to IFRS 16, 'Leases',
as the group has not received material COVID-19 related rent
concessions as a lessee.
2 Segmental information
Revenue, sales and underlying operating profit
by sector
Excluding Corporate costs, the group has four reporting segments,
aligned to the needs of our customers and the global challenges we
are tackling.
Clean Air - provides catalysts for emission control after-treatment
systems to remove harmful emissions from vehicles. Catalysts are provided
for light duty vehicles powered by diesel and gasoline, heavy duty
diesel trucks, buses and non-road equipment.
Efficient Natural Resources - provides products and processing services
for the efficient use and transformation of critical natural resources
including oil, gas, biomass and platinum group metals.
Health - develops and manufactures active pharmaceutical ingredients
(APIs) for a variety of treatments and new drugs during their lifecycle,
including for initial clinical evaluation and subsequently for commercial
supply post regulatory approval.
New Markets - assesses new areas of potential growth aligned to global
priorities of cleaner air, improved health and more efficient use
of natural resources. This includes battery systems for a range of
applications, fuel cell technologies and battery materials for automotive
applications. The sector also develops products found in devices used
in medical procedures and advanced catalysts for pharmaceutical and
agricultural chemicals markets.
The analysis of sectors (business segments) is presented in accordance
with IFRS 8 Operating Segments, on the basis of those segments whose
operating results are regularly reviewed by the group chief executive
who acts as the Chief Operating Decision Maker as defined by IFRS
8.
Six months
ended 30
September
2020
Efficient
Clean Natural New
Air Resources Health Markets Corporate Eliminations Total
GBP GBP GBP
million million million GBP million GBP million GBP million GBP million
Revenue from
external
customers 2,888 3,723 122 246 - - 6,979
Inter-segment
revenue 2 1,948 - 29 - (1,979) -
---------- ---------- ---------- ----------- ----------- ------------ -----------
Revenue 2,890 5,671 122 275 - (1,979) 6,979
---------- ---------- ---------- ----------- ----------- ------------ -----------
External sales
(1) 1,002 390 119 168 - - 1,679
Inter-segment
sales 1 56 - - - (57) -
---------- ---------- ---------- ----------- ----------- ------------ -----------
Sales (1) 1,003 446 119 168 - (57) 1,679
---------- ---------- ---------- ----------- ----------- ------------ -----------
Underlying
operating profit
(1) 77 81 15 5 (27) - 151
---------- ---------- ---------- ----------- ----------- ------------ -----------
Six months
ended 30
September
2019
Efficient
Clean Natural New
Air Resources Health Markets Corporate Eliminations Total
GBP GBP GBP
million million million GBP million GBP million GBP million GBP million
Revenue from
external
customers 2,937 3,530 114 237 - - 6,818
Inter-segment
revenue - 1,822 - 2 - (1,824) -
---------- ---------- ---------- ----------- ----------- ------------ -----------
Revenue 2,937 5,352 114 239 - (1,824) 6,818
---------- ---------- ---------- ----------- ----------- ------------ -----------
External sales
(1) 1,392 437 111 184 - - 2,124
Inter-segment
sales - 59 - 2 - (61) -
---------- ---------- ---------- ----------- ----------- ------------ -----------
Sales (1) 1,392 496 111 186 - (61) 2,124
---------- ---------- ---------- ----------- ----------- ------------ -----------
Underlying
operating profit
(1) 179 94 18 (8) (18) - 265
---------- ---------- ---------- ----------- ----------- ------------ -----------
(1) Sales and underlying operating profit are non-GAAP measures (see
note 16 for reconciliation to GAAP measures). Sales excludes the sale
of precious metals. Underlying operating profit excludes profit or
loss on disposal of businesses, gain or loss on significant legal
proceedings, together with associated legal costs, amortisation of
acquired intangibles and major impairment and restructuring charges.
2 Segmental information (continued)
Net assets by
sector
At 30
September 2020
Efficient
Clean Natural New
Air Resources Health Markets Corporate Total
GBP GBP
million million GBP million GBP million GBP million GBP million
Segmental net
assets 1,742 526 495 281 427 3,471
---------- ---------- ----------- ----------- ------------
Net debt (see note 16) (878)
Post-employment benefit net
assets
and liabilities 119
Deferred income tax net
assets 39
Provisions and non-current
other
payables (72)
Investments in joint venture
and associate 22
Net assets 2,701
-----------
At 31 March
2020
Efficient
Clean Natural New
Air Resources Health Markets Corporate Total
GBP GBP
million million GBP million GBP million GBP million GBP million
Segmental net
assets 1,361 1,267 520 236 332 3,716
---------- ---------- ----------- ----------- ------------
Net debt (see note 16) (1,094)
Post-employment benefit net
assets
and liabilities 213
Deferred income tax net
liabilities (8)
Provisions and non-current
other
payables (26)
Investments in joint venture
and associate 23
Net assets 2,824
-----------
2 Segmental information (continued)
Impact of exchange rate movements on sales and underlying operating
profit by sector
The main impact of exchange rate movements on sales and
underlying operating profit is from the translation of the results
of foreign operations into sterling.
Six months ended
Average exchange rates 30.9.20 30.9.19
US dollar / GBP 1.27 1.26
Euro / GBP 1.12 1.13
Chinese renminbi / GBP 8.86 8.70
Six months ended Change
Six months 30.9.19 at
ended At last At this this year's
year's year's
30.9.20 rates rates rates
GBP
GBP million million GBP million %
Clean Air 1,003 1,392 1,375 -27%
Efficient Natural Resources 446 496 493 -10%
Health 119 111 111 8%
New Markets 168 186 182 -8%
Elimination of inter-segment sales (57) (61) (61)
------------ --------- ------------
Sales (1) 1,679 2,124 2,100 -20%
------------ --------- ------------
Clean Air 77 179 177 -56%
Efficient Natural Resources 81 94 93 -12%
Health 15 18 18 -21%
New Markets 5 (8) (8) n/a
Unallocated corporate expenses (27) (18) (18)
------------ --------- ------------
Underlying operating profit (1) 151 265 262 -42%
------------ --------- ------------
(1) Sales and underlying operating profit are non-GAAP measures (see
note 16 for reconciliation to GAAP measures). Sales excludes the sale
of precious metals. Underlying operating profit excludes profit or
loss on disposal of businesses, gain or loss on significant legal
proceedings, together with associated legal costs, amortisation of
acquired intangibles and major impairment and restructuring charges.
3 Revenue
Products and services
The group's principal products and services by operating sector and
sub-sector are disclosed in the table below, together with information
regarding performance obligations and revenue recognition. Revenue
is recognised by the group as contractual performance obligations
to customers are completed.
Performance Revenue
Sub-sector Primary industry Principal products and services obligations recognition
-------------- -------------------------- -------------------------------- ------------ -----------------
Clean Air
-------------------------------------------------------------------------------------------------------------
Light Duty Automotive Catalysts for cars and other Point in On despatch
Catalysts light duty vehicles time or delivery
Heavy Duty Automotive Catalysts for trucks, buses Point in On despatch
Catalysts and non-road equipment time or delivery
Efficient Natural Resources
-------------------------------------------------------------------------------------------------------------
Catalyst Chemicals Speciality catalysts and Point in On despatch
Technologies / oil and additives time or delivery
gas
Process technology licences Over time Based on costs
incurred or
straight-line
over the licence
term(1)
Engineering design services Over time Based on costs
incurred
Platinum Various Platinum Group Metal refining Over time Based on costs
Group Metal and recycling services incurred
Services
Other precious metal products Point in On despatch
time or delivery
Platinum Group Metal chemical Point in On despatch
and industrial products time or delivery
Advanced Automotive Precious metal pastes and Point in On despatch
Glass enamels time or delivery
Technologies
Diagnostic Oil and gas Detection, diagnostic and Over time Based on costs
Services measurement solutions incurred
Health
-------------------------------------------------------------------------------------------------------------
Generics Pharmaceuticals Manufacture of active Point in On despatch
pharmaceutical time or delivery
ingredients
Innovators Pharmaceuticals Development and manufacture Over time Based on costs
of active pharmaceutical incurred
ingredients
New Markets
-------------------------------------------------------------------------------------------------------------
Alternative Automotive Battery materials and fuel Point in On despatch
Powertrain cell technologies time or delivery
Consumer Battery systems for a range Point in On despatch
goods of applications time or delivery
Medical Device Pharmaceuticals Products found in devices Point in On despatch
Components used in medical procedures time or delivery
Life Science Pharmaceuticals Advanced catalysts Point in On despatch
Technologies / agriculture time or delivery
(1) Revenue recognition depends on whether the licence is distinct
in the context of the contract.
3 Revenue (continued)
Revenue from external customers by principal products and services
Six months ended 30 September 2020
Efficient
Clean Natural New
Air Resources Health Markets Total
GBP GBP GBP
GBP million million GBP million million million
Metal 1,885 3,333 3 78 5,299
Heavy Duty Catalysts 310 - - - 310
Light Duty Catalysts 680 - - - 680
Catalyst Technologies - 194 - - 194
Platinum Group Metal Services - 148 - - 148
Advanced Glass Technologies - 27 - - 27
Diagnostic Services - 21 - - 21
Generics - - 70 - 70
Innovators - - 49 - 49
Alternative Powertrain - - - 101 101
Medical Device Components - - - 29 29
Life Science Technologies - - - 25 25
Other 13 - - 13 26
Revenue 2,888 3,723 122 246 6,979
Six months ended 30 September 2019
Efficient
Clean Natural New
Air Resources Health Markets Total
GBP GBP GBP
GBP million million GBP million million million
Metal 1,545 3,093 3 53 4,694
Heavy Duty Catalysts 464 - - - 464
Light Duty Catalysts 904 - - - 904
Catalyst Technologies - 249 - - 249
Platinum Group Metal Services - 117 - - 117
Advanced Glass Technologies - 36 - - 36
Diagnostic Services - 35 - - 35
Generics - - 67 - 67
Innovators - - 44 - 44
Alternative Powertrain - - - 110 110
Medical Device Components - - - 37 37
Life Science Technologies - - - 22 22
Other 24 - - 15 39
Revenue 2,937 3,530 114 237 6,818
The contract receivables balance at 30 September 2020 is GBP134 million
(1H 2019/20: GBP68 million).
4 Operating profit
Six months ended
30.9.20 30.9.19
GBP
GBP million million
----------- -------
Operating profit is arrived at after charging
/ (crediting):
Total research and development expenditure 96 100
Less: Development expenditure capitalised (9) (12)
Research and development expenditure charged
to the income statement 87 88
Less: External funding received from governments (5) (6)
Net research and development expenditure charged
to the income statement 82 82
----------- -------
Past pension service credit - (10)
----------- -------
Depreciation of property, plant and equipment 69 71
Depreciation of right-of-use assets 7 6
Depreciation 76 77
----------- -------
Amortisation of internally generated intangible assets 2 2
Amortisation of acquired intangibles 5 6
Amortisation of other intangible assets 6 6
Amortisation 13 14
----------- -------
Property, plant and equipment 12 -
Right-of-use assets 1 -
Other intangible assets 4 -
Inventories 1 -
Trade and other receivables 1 -
Trade and other payables (3) -
Impairment charges 16 -
----------- -------
Restructuring charges 62 -
Major impairment and restructuring charges 78 -
----------- -------
Major impairment and restructuring charges
We are transforming the group to create a more simple, agile and
efficient organisation. Through the structural changes we have made
to all aspects of how we run our business, we are driving further
efficiency across our operations. In June 2020, the group announced
efficiency workstreams to optimise our operating model and
consolidate our footprint, this targets GBP80m in annualised cost
savings, which combined with the global procurement initiatives
will deliver a total of GBP225m in annualised savings by 31 March
2023. Both efficiency workstreams are progressing as planned, as
such, the group has recognised GBP78 million (1H 2019/20: GBPnil)
in major impairment and restructuring charges during the period
ended 30 September 2020:
- Clean Air manufacturing plants, We are progressively
rebalancing production into our key plants in North Macedonia, and
new facilities in Poland and China to create a simplified and agile
structure. The Clean Air restructuring charge was GBP34 million and
includes substantial implementation and redundancy costs.
- Efficient Natural Resources operating model, The operating
model initiative targets to remove duplication, standardise global
systems and processes and reduce complexity to increase overall
effectiveness and efficiency. The Efficient Natural Resources
restructuring charge was GBP8 million and includes substantial
redundancy costs.
- Efficient Natural Resources site closure, The operating model
workstream within Efficient Natural Resources includes closure of
the Catacel Ravenna facility in Ohio which we acquired in 2014. The
site will be closed by February 2021 and results in a GBP7 million
impairment charge. A further charge of GBP4 million for site
closure and redundancy costs was recognised.
4 Operating profit (continued)
- Health footprint consolidation, Closure of a production unit
in Scotland was announced during the year. Operations will be wound
down over the next two years with production transferred to other
units, this results in a GBP5 million impairment charge. The sector
is also right-sizing another business unit, combined with this a
further restructuring charge of GBP6 million is recognised of which
the majority is redundancy and compliance costs.
- Battery Materials LFP business , In the prior year, the
Battery Materials lithium iron phosphate (LFP) business was
impaired to GBP57 million. This was due to the anticipated site
closure following sales that fell short of expectations and
focusing our science and innovative solutions on cathode materials
that are truly market leading, principally eLNO, our ultra-high
energy density cathode material. During the period, the decision to
close the LFP site was announced and a restructuring charge of GBP6
million for site closure costs was recognised.
- New Markets businesses, Our drive for efficiency and
disciplined capital allocation enhances returns, and we continue to
actively manage our portfolio. We are divesting our activities in
Water and Atmosphere Control Technologies which is not core in our
growth strategy, this results in a GBP4 million impairment charge,
of which all is allocated to Water. Other restructuring activities
within New Markets results in a restructuring charge of GBP1
million related to redundancy costs.
- Other restructuring, The group function is reviewing the
existing corporate functional organisation structures, cost base
and efficiency opportunities. Thereafter, and in collaboration with
the sectors, we target an operating model that will deliver
benefits in the medium to long-term by eliminating duplication and
reducing complexity. In the period to 30 September 2020, GBP3
million had been charged for restructuring costs.
5 Tax expense
The charge for taxation is after a tax credit of GBP14 million
(1H 2019/20: GBPnil) relating to major impairments and
restructuring charges, and a tax credit of GBP1 million (1H
2019/20: GBP1m) relating to amortisation of acquired intangibles.
On an underlying basis, the group incurred a tax expense for the
half year of GBP17 million (1H 2019/20: GBP47 million) which
equates to an underlying effective tax rate of 15.6% (1H 2019/20:
20.5%) representing the current best estimate of the average annual
effective tax rate expected for the full year.
6 Earnings per ordinary share
Six months ended
30.9.20 30.9.19
pence pence
Basic 12.3 91.8
Diluted 12.3 91.6
------------ -----------
Earnings per ordinary share have been calculated by dividing profit
for the period by the weighted average number of shares in issue
during the period.
Six months ended
Weighted average number of shares in issue 30.9.20 30.9.19
Basic 192,650,843 192,297,943
Dilution for long term incentive plans 211,074 410,076
------------ -----------
Diluted 192,861,917 192,708,019
------------ -----------
7 Dividends
An interim dividend of 20.0 pence (1H 2019/20 24.5 pence) per
ordinary share has been proposed by the board which will be paid on
4 February 2021 to shareholders on the register at the close of
business on 27 November 2020. The estimated amount to be paid is
GBP39 million (1H 2019/20 GBP47 million) and has not been
recognised in these accounts.
Six months ended
30.9.20 30.9.19
GBP million GBP million
2018/19 final ordinary dividend paid --
62.25
pence per share - 120
2019/20 final ordinary dividend paid --
31.125
pence per share 60 -
Total dividends 60 120
Property, plant and
8 equipment
Assets
in
Freehold Plant the course
land Leasehold and of
and
buildings improvements machinery construction Total
GBP million GBP million GBP million GBP million GBP million
Cost
At 1 April 2020 627 24 2,171 486 3,308
Additions - - 18 99 117
Transferred to assets
classified
as held for sale
(note 10) - (1) (6) - (7)
Reclassification
between categories 2 1 37 (40) -
Disposals (3) - (6) - (9)
Exchange adjustments (5) (1) (20) 1 (25)
At 30 September 2020 621 23 2,194 546 3,384
Accumulated depreciation and
impairment
At 1 April 2020 317 17 1,554 17 1,905
Charge for the period 10 1 58 - 69
Impairments - - 10 2 12
Transferred to assets
classified
as held for sale
(note 10) - - (3) - (3)
Disposals (2) - (6) - (8)
Exchange adjustments (4) - (16) - (20)
At 30 September 2020 321 18 1,597 19 1,955
Carrying amount at 30
September
2020 300 5 597 527 1,429
Carrying amount at 1
April 2020 310 7 617 469 1,403
During the half year ended 30 September 2020, the group
recognised impairments in respect of the Efficient Natural
Resources Catacel business (GBP3 million), a Health production unit
(GBP5 million) and the New Markets water business (GBP4 million).
The impairment charges have been included in major impairment and
restructuring charges (see note 4).
9 Other intangible assets
Customer Patents, Acquired
contracts research
and Computer trademarks and Development
relationships software and licences technology expenditure Total
GBP million GBP million GBP million GBP million GBP million GBP million
Cost
At 1 April 2020 146 321 64 50 218 799
Additions - 22 - - 9 31
Transferred to assets
classified
as held for sale (note 10) (9) - - (1) - (10)
Exchange adjustments 4 1 (1) 1 (4) 1
At 30 September 2020 141 344 63 50 223 821
Accumulated amortisation and impairment
At 1 April 2020 113 71 40 39 140 403
Charge for the period 3 7 - 2 1 13
Impairments - - 4 - - 4
Transferred to assets
classified
as held for sale (note 10) (4) - - - - (4)
Exchange adjustments 2 - - 1 (2) 1
At 30 September 2020 114 78 44 42 139 417
Carrying amount at 30
September
2020 27 266 19 8 84 404
Carrying amount at 1 April
2020 33 250 24 11 78 396
During the half year ended 30 September 2020, the group
recognised impairments in respect of the Efficient Natural
Resources Catacel business (GBP4 million). The impairment charges
have been included in major impairment and restructuring charges
(see note 4).
Assets and liabilities classified as
10 held for sale
The group strategically drives for efficiency and disciplined
capital allocation to enhance returns, as such we continue to
actively manage our portfolio. In line with this strategy, during
the half year the board decided to sell the New Markets' Water and
Atmosphere Control Technologies businesses. Both businesses have
been classified as separate disposal groups held for sale and
presented separately on the balance sheet.
The sale of the Atmosphere Control Technologies business
completed on 16 November 2020. The proceeds less costs to sell were
equal to the book value of the net assets on disposal date and so
no impairment loss has been recognised.
As at 30 September 2020, the proceeds less costs to sale for the
Water business were estimated to be less than the book value of net
assets and so an impairment of GBP4 million has been recognised.
The sale of the Water business completed on
17 November 2020 with proceeds equal to the impaired value of
the net assets on disposal date.
The major classes of assets or liabilities comprising the
businesses classified as held for sale are:
Atmosphere
Control
Water Technologies Total
At 30 September 2020 GBP million GBP million GBP million
Non-current assets
Property, plant and equipment - 4 4
Right-of-use-assets - 1 1
Goodwill - 9 9
Other Intangible Assets - 6 6
Current assets
Inventories 1 5 6
Trade and other receivables 2 4 6
Cash and cash equivalents - cash and deposits - 14 14
Current liabilities
Trade and other payables (1) (5) (6)
Non-current liabilities
Lease liabilities - (1) (1)
Net assets of disposal group 2 37 39
11 Post-employment benefits
Background
The group operates a number of post-employment benefit plans
around the world, the forms and benefits of which vary with
conditions and practices in the countries concerned. The major
defined benefit plans are pension plans and post-retirement medical
plans in the UK and the US.
Financial assumptions
30.9.20 31.3.20
Other Other
UK plan US plans plans UK plan US plans plans
% % % % % %
First year's rate of increase
in salaries - - 2.15 - - 2.15
Ultimate rate of increase
in salaries 2.90 3.00 2.15 2.60 3.00 2.15
Rate of increase in pensions
in payment 2.75 - 1.70 2.50 - 1.70
Discount rate 1.70 2.50 1.32 2.30 3.00 1.87
Inflation 2.20 1.60 2.20 1.65
- UK Retail Prices Index
(RPI) 2.80 2.50
- UK Consumer Prices Index
(CPI) 2.15 1.85
Current medical benefits
cost trend rate 5.40 2.20 - 5.40 2.20 -
Ultimate medical benefits
cost trend rate 5.40 2.20 - 5.40 2.20 -
Financial
information
Movements in the net post-employment benefit assets and liabilities,
including reimbursement rights, were:
UK UK UK post- US post-
pension pension
- - retirement retirement
cash
legacy balance medical US medical
section section benefits pensions benefits Other Total
GBP GBP GBP GBP GBP
million million million million GBP million million GBP million
At 1 April 2020 306 3 (12) (24) (27) (28) 218
Current service
cost - in
operating profit (3) (10) - (5) - (1) (19)
Administrative
expenses - in
operating profit (2) - - - - - (2)
Interest 3 - - - (1) - 2
Remeasurements (87) (9) - (6) (1) - (103)
Company
contributions 3 10 - 11 1 1 26
Exchange - - - 1 1 - 2
At 30 September
2020 220 (6) (12) (23) (27) (28) 124
The decrease in UK net post-employment assets in the half year to
30 September 2020 is primarily driven by a change to the UK discount
rate assumption.
11 Post-employment benefits (continued)
Financial information
(continued)
The post-employment benefit assets and liabilities are included in
the balance sheet as follows:
30.9.20 30.9.20 31.3.20 31.3.20
Post- Post-
employment Employee employment Employee
benefit benefit benefit benefit
net assets obligations net assets obligations
GBP GBP
million GBP million million GBP million
UK pension - legacy section 220 - 306 -
UK pension - cash balance section - (6) 3 -
UK post-retirement medical benefits - (12) - (12)
US pensions - (23) - (24)
US post-retirement medical benefits 8 (35) 7 (34)
Other 1 (29) 1 (29)
Total post-employment plans 229 (105) 317 (99)
Other long-term employee benefits (5) (5)
Total long-term employee benefit
obligations (110) (104)
12 Fair values
Fair value hierarchy
Fair values are measured using a hierarchy where the inputs
are:
-- Level 1 -- quoted prices in active markets for identical assets or liabilities.
-- Level 2 -- not level 1 but are observable for that asset or
liability either directly or indirectly.
-- Level 3 -- not based on observable market data (unobservable).
Fair value of financial instruments
Certain of the group's financial instruments are held at fair
value. The fair value of a financial instrument is the price that
would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants at the
balance sheet date.
The fair value of forward foreign exchange contracts, interest
rate swaps, forward precious metal price contracts and currency
swaps is estimated by discounting the future contractual cash flows
using forward exchange rates, interest rates and prices at the
balance sheet date.
The fair value of trade and other receivables is measured at
face value taking into account credit risk. There are no other
significant risks affecting the fair value.
The fair value of money market funds is calculated by
multiplying the net asset value per share by the investment held at
the balance sheet date.
There were no transfers of any financial instrument between the
levels of the fair value hierarchy during the current or prior
periods.
12 Fair values (continued)
Fair value
30.9.20 31.3.20 hierarchy
GBP million GBP million level
Financial instruments measured at fair value
Non-current
Investments at fair value through other comprehensive
income 56 49 1
Interest rate swaps 31 34 2
Borrowings and related swaps (7) (6) 2
Current
Trade receivables(1) 486 328 2
Other receivables(2) 65 72 2
Cash and cash equivalents - money market funds 573 192 2
Other financial assets(3) 35 28 2
Other financial liabilities(3) (25) (50) 2
Fair value
30.9.20 31.3.20 hierarchy
GBP million GBP million level
Financial instruments not measured at fair value
Non-current
Borrowings and related swaps (1,213) (988)
Lease liabilities (58) (64)
Current
Cash and cash equivalents - cash and deposits 197 112
Cash and cash equivalents - bank overdrafts (32) (31)
Other borrowings and related swaps (371) (331)
Lease liabilities (11) (12)
(1) Trade receivables held in a part of the group with a business
model to hold trade receivables for collection or sale. The remainder
of the group operates a hold to collect business model and receives
the face value, plus relevant interest, of its trade receivables from
the counterparty without otherwise exchanging or disposing of such
instruments.
(2) Other receivables with cash flows that do not represent solely
the payment of principal and interest.
(3) Includes forward foreign exchange contracts, forward precious
metal price contracts and currency swaps.
12 Fair values (continued)
The fair value of financial instruments, excluding accrued interest,
is approximately equal to book value except for:
30.09.20 31.03.20
Carrying Fair Carrying Fair
amount value amount value
GBP million GBP million GBP million GBP million
US Dollar Bonds 2022, 2023, 2025,
2027,
2028 and 2030 (711) (700) (514) (496)
Euro Bonds 2021, 2023, 2025, 2028 and
2030 (294) (276) (264) (247)
Sterling Bonds 2024 and 2025 (110) (109) (110) (108)
KfW US dollar loan 2024 (39) (39) (41) (41)
The fair values are calculated using level 2 inputs by
discounting future cash flows to net present values using
appropriate market interest rates prevailing at the period end.
13 Precious metal leases
The group leases precious metals to fund temporary peaks in
metal requirements provided market conditions allow. These leases
are from banks for specified periods (less than 12 months) and the
group pays a fee which is expensed on a straight-line basis over
the lease term in finance costs. The group holds sufficient
precious metal inventories to meet all the obligations under these
lease arrangements as they fall due. At 30 September 2020, precious
metal leases were GBP367 million at closing prices (31 March 2020:
GBP451 million). Precious metal leases are not accounted for under
IFRS 16 as they qualify as short term leases.
14 Contingent liabilities
The group is involved in various disputes and claims which arise
from time to time in the course of its business including, for
example, in relation to commercial matters, product quality or
liability, employee matters and tax audits. The group is also
involved from time to time in the course of its business in legal
proceedings and actions, engagement with regulatory authorities and
in dispute resolution processes. These are reviewed on a regular
basis and, where possible, an estimate is made of the potential
financial impact on the group. In appropriate cases a provision is
recognised based on advice, best estimates and management
judgement. Where it is too early to determine the likely outcome of
these matters, no provision is made. Whilst the group cannot
predict the outcome of any current or future such matters with any
certainty, it currently believes the likelihood of any material
liabilities to be low, and that such liabilities, if any, will not
have a material adverse effect on its consolidated income,
financial position or cash flows.
On a specific matter, the group previously disclosed that it had
been informed by two customers of failures in certain engine
systems for which the group supplied a particular coated substrate
as a component for their customers' emissions after-treatment
systems. The particular coated substrate was sold to only these two
customers. The group has not been contacted by any regulatory
authority about these engine system failures. The reported failures
have not been demonstrated to be due to the coated substrate
supplied by the group. As previously disclosed, we settled with one
of these customers on mutually acceptable terms with no admission
of fault.
Having reviewed its contractual obligations and the information
currently available to it, the group believes it has defensible
warranty positions in respect of its supplies of coated substrate
for the after-treatment systems in the affected engines remaining
at issue. If required, it will vigorously assert its available
contractual protections and defences. The outcome of any
discussions relating to the matters raised is not certain, nor is
the group able to make a reliable estimate of the possible
financial impact at this stage, if any. The group works with all
its customers to ensure appropriate product quality and we have not
received claims in respect of our emissions after-treatment
components from this or any other customer. Our vision is for a
world that's cleaner and healthier; today and for future
generations. We are committed to enabling improving air quality and
we work constructively with our customers to achieve this.
14 Contingent liabilities (continued)
On a separate matter, the group is involved in investigating
environmental contamination at a site for which it has been
identified as a potentially responsible party under US law. Johnson
Matthey Inc. is party to litigation brought by the Pennsylvania
Department of Environmental Protection regarding contamination at a
site in Chester County, Pennsylvania, that was operated by Johnson
Matthey Inc. between 1951 and 1969, when it sold its interest in
the site. A site investigation is nearing completion, but
remediation has not yet commenced. Johnson Matthey has asserted
various legal defences. In addition, there are several variables
that may influence the nature of the remediation to be conducted,
such as the future use of the site. Whether and to what extent
Johnson Matthey and other potentially responsible parties (given
subsequent use of the site by third-party entities) have any
liability for the remediation has not yet been determined. It is
the directors' current view that the group cannot reliably assess
the outcome of the litigation nor reasonably estimate the quantum
of future remediation costs or the group's share of such costs and
as such no provision for the remediation has been recognised in
these consolidated accounts. Estimated legal and technical fees
associated with the litigation of GBP1.5 million have been provided
for as at 30 September 2020.
15 Transactions with related parties
There have been no material changes in related party
relationships in the six months ended 30 September 2020 and no
related party transactions have taken place which have materially
affected the financial position or performance of the group during
that period.
16 Non-GAAP measures
The group uses various measures to manage its business which are
not defined by generally accepted accounting principles (GAAP). The
group's management believes these measures provide valuable
additional information to users of the accounts in understanding
the group's performance. Certain of these measures are financial
Key Performance Indicators which measure progress against our
strategy.
Definitions
Measure Definition Purpose
Sales(1) Revenue excluding sales Provides a better measure of
of precious metals to customers the growth of the group as revenue
and the precious metal can be heavily distorted by year
content of products sold on year fluctuations in the market
to customers. prices of precious metals and,
in many cases, the value of precious
metals is passed directly on
to customers.
Underlying Operating profit excluding Provides a measure of operating
operating profit(2) non-underlying items. profitability that is comparable
over time.
Underlying Underlying operating profit Provides a measure of how we
operating profit divided by sales. convert our sales into underlying
margin(1,2) operating profit and the efficiency
of our business.
Underlying Profit before tax excluding Provides a measure of profitability
profit before non-underlying items. that is comparable over time.
tax(2)
Underlying Profit for the year excluding Provides a measure of profitability
profit for non-underlying items and that is comparable over time.
the year(2) related tax effects.
Underlying Underlying profit for the Our principal measure used to
earnings per period divided by the weighted assess the overall profitability
share(1,2) average number of shares of the group.
in issue.
Return on Invested Annualised underlying operating Provides a measure of the group's
Capital (ROIC)(1) profit divided by the 12 efficiency in allocating the
month average equity, excluding capital under its control to
post tax pension net assets, profitable investments. The group
plus average net debt for has a long term target of a return
the same period. on invested capital of 20% to
ensure focus on efficient use
of the group's capital.
Average working Monthly average of non-precious Provides a measure of efficiency
capital days metal related inventories, in the business with lower days
(excluding trade and other receivables driving higher returns and a
precious metals)(1) and trade and other payables healthier liquidity position
(including any classified for the group.
as held for sale) divided
by sales for the last three
months multiplied by 90
days.
Free cash flow Net cash flow from operating Provides a measure of the cash
activities after net interest the group generates through its
paid, net purchases of operations, less capital expenditure.
non-current assets and
investments, dividends
received from joint venture
and associate and the principal
element of lease payments.
Net debt (including Net debt, including post Provides a measure of the group's
post tax pension tax pension deficits and ability to repay its debt. The
deficits) to quoted bonds purchased group has a long term target
underlying to fund the UK pension of net debt (including post tax
EBITDA (excluded when the UK pension pension deficits) to underlying
plan is in surplus) divided EBITDA of between 1.5 and 2.0
by underlying EBITDA for times, although in any given
the same period. year it may fall outside this
range depending on future plans.
(1) Key Performance Indicator
(2) Underlying profit measures are before profit or loss on
disposal of businesses, gain or loss on significant legal
proceedings, together with associated legal costs, amortisation of
acquired intangibles, major impairment and restructuring charges
and, where relevant, related tax effects. These items have been
excluded by management as they are not deemed to be relevant to an
understanding of the underlying performance of the business.
16 Non-GAAP measures (continued)
Reconciliations to GAAP measures
Sales
See note 2.
Underlying profit measures
Profit
Operating Profit Tax for
before
profit tax expense the year
Six months ended 30 September 2020 GBP million GBP million GBP million GBP million
Underlying 151 109 (17) 92
Amortisation of acquired intangibles (5) (5) 1 (4)
Major impairment and restructuring charges(1) (78) (78) 14 (64)
Reported 68 26 (2) 24
(1) For further detail please see note 4.
Profit
Operating Profit Tax for
before
profit tax expense the year
Six months ended 30 September 2019 GBP million GBP million GBP million GBP million
Underlying 265 231 (47) 184
Amortisation of acquired intangibles (6) (6) 1 (5)
Change in non-underlying tax provisions - - - - (3) (3)
Reported 259 225 (49) 176
Underlying earnings per share Six months ended
30.09.2020 30.09.2019
Underlying profit for the period (GBP million) 92 184
Weighted average number of shares in issue
(million) 192.7 192.3
Underlying earnings per share (pence) 47.7 95.8
16 Non-GAAP measures (continued)
Return on Invested Capital (ROIC)
Period Year Period
ended ended ended
30.9.20 31.3.20 30.9.19
GBP million GBP million GBP million
Annualised underlying operating profit 425 539 560
Average net debt 1,504 1,489 1,270
Average equity 2,774 2,733 2,679
Average capital employed 4,278 4,222 3,949
Less: Average pension net assets (258) (212) (258)
Less: Average related deferred taxation 44 32 40
Average capital employed (excluding post tax
pension net assets) 4,064 4,042 3,731
ROIC (excluding post tax pension net assets) 10.4% 13.3% 15.0%
ROIC 9.9% 12.8% 14.2%
Average working capital days (excluding precious
metals) Six months Year Six months
ended ended ended
30.9.20 31.3.20 30.9.19
GBP million GBP million GBP million
Inventories 2,074 1,902 1,475
Trade and other receivables 2,415 2,077 1,953
Trade and other payables (3,575) (2,745) (1,713)
914 1,234 1,715
Working capital balances classified as held
for sale 6 - -
Total working capital 920 1,234 1,715
Less: Precious metal working capital (313) (597) (959)
Working capital (excluding precious metals) 607 637 756
Average working capital days (excluding precious
metals) 70 63 61
Free cash flow
Six months ended
30.9.20 30.9.19
GBP million GBP million
Net cash inflow/(outflow) from operating activities 482 (159)
Interest received 33 28
Interest paid (77) (70)
Purchases of property, plant and equipment (139) (133)
Purchases of intangible assets (36) (51)
Proceeds from sale of non-current assets - 8
Principal element of lease payments (7) (5)
Free cash flow 256 (382)
16 Non-GAAP measures (continued)
Net debt (including post-tax pension deficits)
to underlying EBITDA
30.9.20 31.3.20 30.9.19
GBP million GBP million GBP million
Cash and deposits 197 112 99
Money market funds 573 192 -
Bank overdrafts (32) (31) (65)
Cash and deposits transferred to assets classified
as held for sale 14 - -
Cash and cash equivalents 752 273 34
Other current borrowings and related swaps (371) (331) (351)
Non-current borrowings and related swaps (1,220) (994) (1,124)
Non-current interest rate swaps 31 34 30
Current lease liabilities (11) (12) (12)
Non-current lease liabilities (58) (64) (65)
Lease liabilities transferred to liabilities
classified as held for sale (1) - -
Net debt (878) (1,094) (1,488)
Increase/(decrease) in cash and cash equivalents 480 (103) (345)
Less: Increase in borrowings (284) (12) (157)
Less: Principal element of lease payments 7 13 5
Decrease/(increase) in net debt resulting from
cash flows 203 (102) (497)
New leases, remeasurements and modifications (1) (13) (4)
Lease disposals - 1 -
Exchange differences on net debt 19 (47) (47)
Other non-cash movements (5) 10 3
Movement in net debt 216 (151) (545)
Net debt at beginning of year (1,094) (866) (866)
Impact of adoption of IFRS 16 - (77) (77)
Net debt at end of year (878) (1,094) (1,488)
Net debt (878) (1,094) (1,488)
Add: Pension deficits (58) (53) (74)
Add: Related deferred tax 11 10 14
Net debt (including post tax pension deficits) (925) (1,137) (1,548)
Underlying EBITDA for this period 235 350
Underlying EBITDA for prior year 705 723
Less: Underlying EBITDA for prior half year (350) (350)
Annualised underlying EBITDA 590 705 723
Net debt (including post tax pension deficits)
to underlying EBITDA 1.6 1.6 2.1
Underlying EBITDA 235 705 350
Depreciation and amortisation (89) (179) (91)
Major impairment and restructuring charges (78) (140) -
Profit on disposal of businesses - 2 -
Finance costs (77) (195) (66)
Finance income 36 109 30
Share of profit/(loss) of joint venture and
associate (1) 3 2
Income tax expense (2) (50) (49)
Profit for the period 24 255 176
Cash and cash equivalents includes GBP88 million (31 March 2020: GBPnil)
of restricted amounts relating to cash held in South Africa. The cash
has been restricted as a result of a change in company residency status.
The group anticipates extracting and/or utilising this in the near term
and is reviewing options.
2020
26 November
Ex dividend date
27 November
Interim dividend record date
2021
4 February
Payment of interim dividend
27 May
Announcement of results for the year ending 31 March 2021
3 June
Ex dividend date
4 June
Final dividend record date
29 July
130(th) Annual General Meeting (AGM)
3 August
Payment of final dividend subject to declaration at the AGM
Cautionary Statement
This announcement contains forward looking statements that are subject
to risk factors associated with, amongst other things, the economic
and business circumstances occurring from time to time in the countries
and sectors in which the group operates. It is believed that the
expectations reflected in this announcement are reasonable but they
may be affected by a wide range of variables which could cause
actual results to differ materially from those currently anticipated.
Johnson Matthey Plc
Registered Office: 5th Floor, 25 Farringdon Street, London EC4A 4AB
Telephone: +44 (0) 20 7269 8400
Fax: +44 (0) 20 7269 8433
Internet address: www.matthey.com
E-mail: jmpr@matthey.com
Registered in England -- Number 33774
LEI code: 2138001AVBSD1HSC6Z10
Registrars
Equiniti, Aspect House, Spencer Road, Lancing, West Sussex BN99 6DA
Telephone: 0371 384 2344 (in the UK) *
+44 (0) 121 415 7047 (outside the UK)
Internet address: www.shareview.co.uk
* Lines are open 8.30am to 5.30pm Monday to Friday excluding public
holidays in England and Wales.
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END
IR BVLLFBFLXFBL
(END) Dow Jones Newswires
November 19, 2020 02:00 ET (07:00 GMT)
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