TIDMJMAT
RNS Number : 1331U
Johnson Matthey PLC
21 November 2019
Half year results for the six months ended 30(th) September 2019
Good sales growth and confident in delivering our strategy
Robert MacLeod, Chief Executive, commented:
We continue to execute well against our strategy and delivered first
half operating performance in line with expectations. I was pleased
with the continued good sales growth, demonstrating our broad based
growth drivers, although operating profit was slightly down as a result
of one-off costs associated with manufacturing inefficiencies in Clean
Air in the first half.
We expect to deliver a stronger second half, primarily driven by the
absence of the one-off costs and seasonality in Efficient Natural Resources.
For the full year, we expect to deliver group operating performance
in line with market expectations.
Given our clear strategy, the strong foundations we have put in place
and the ongoing investment into the business for the longer term, we
remain confident about the future growth prospects across all of our
sectors, which will together drive mid to high single digit growth in
earnings per share over the medium term. Our focus remains on executing
our strategy, delivering on the ambitions that we laid out at our recent
Capital Markets Day and continuing to drive towards our vision to create
a cleaner, healthier world.
Reported results Half year ended % change
30(th) September
--------------
2019 2018
----------- --------------
Revenue(1) GBP million 6,818 4,967 +37
Operating profit GBP million 259 264 -2
Profit before tax (PBT) GBP million 225 244 -8
Earnings per share (EPS) pence 91.8 106.1 -13
Interim dividend per share pence 24.50 23.25 +5
--------------------------------- ------------------ ------------ ----------- --------------
Underlying performance(2) Half year ended % change % change,
30(th) September constant rates(3)
---------------------------------------------- -------------- ------------------------
2019 2018
------------------------ ------------------- ------------ ------------ -------------- ------------------------
Sales excluding
precious metals
(sales)(4) GBP million 2,124 2,009 +6 +3
Operating profit GBP million 265 271 -2 -5
Profit before tax GBP million 231 251 -8 -10
Earnings per share pence 95.8 109.0 -12
------------------------- ------------------- ------------ ------------ -------------- ------------------------
Underlying performance(2)
-- Sales increased 3% driven by good growth in Clean Air and Efficient
Natural Resources
-- Underlying operating profit declined 5% impacted by c.GBP15 million
of one-off costs in Clean Air, which included additional freight
costs and inefficiencies within our manufacturing footprint, driven
by the phasing of completion of our new plant in Poland as we serve
the strong growth in our European Light Duty business
-- Underlying EPS declined 12% reflecting lower underlying operating
profit, higher net interest expense and a one-off tax provision
-- Capital expenditure of GBP186 million in the first half and estimated
to be up to GBP500 million in 2019/20, in line with previous guidance,
as we invest in strategic growth projects
-- Free cash flow weaker as expected driven by higher precious metal
working capital (price and volume) and higher capital expenditure
-- Stable average working capital days excluding precious metals
-- Return on invested capital (ROIC) lower primarily driven by higher
precious metal working capital
-- Net debt to EBITDA of 2.1x with net debt at GBP1.5 billion, impacted
by higher precious metal working capital
By sector
-- Good growth in Clean Air with sales up 4%, well ahead of the decline
in global vehicle production, although operating profit was impacted
by the phasing of completion of our new plant in Poland
-- Sales and operating profit growth in Efficient Natural Resources
driven by strong performance in Pgm Services as a result of higher
average pgm prices, and improved licensing income
-- In Health, sales declined although operating profit grew double digit
driven by net benefits from footprint optimisation
-- New Markets saw good sales growth but lower operating profit due
to higher costs as we develop eLNO, our portfolio of leading ultra-high
energy density cathode materials. We continue to make good progress
with commercialisation of eLNO and recently moved to full cell testing
with two customers, another significant milestone in the customer
validation process
Reported results
-- Reported revenue increased 37% reflecting higher precious metal prices
-- Reported operating profit down 2%
-- Reported EPS down 13% reflecting lower operating profit, higher net
interest expense and a one-off tax provision
-- Cash outflow from operating activities of GBP159 million due to an
increase in precious metal working capital
-- Interim dividend up 5% to 24.50 pence given our confidence in the
group's future prospects
Outlook for the year ending 31(st) March 2020
-- For 2019/20, we expect to deliver group operating performance in
line with market expectations(5) . We expect a stronger second half
due to the absence of one-off costs, seasonality in Catalyst Technologies
and efficiency gains in Pgm Services
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
David Allchurch Tulchan Communications
Notes:
1. Revenue for the six months ended 30(th) September 2018 has been restated,
see note 15 on pages 39 to 40
2. 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 41 to 42
3. 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 2018/19
results converted at 2019/20 average exchange rates
4. Revenue excluding sales of precious metals to customers and the precious
metal content of products sold to customers
5. Vara consensus for full year underlying operating profit in 2019/20
is GBP595 million (range: GBP583 million to GBP611 million)
eLNO is a trademark of Johnson Matthey Public Limited Company
Strategy update
At our recent Capital Markets Day, we provided an update on our strategy
for sustained growth and value creation. Through our leading positions
in high margin, technology driven growth markets, we will deliver attractive
and sustainable growth over the medium term:
-- Mid to high single digit EPS CAGR
-- Expanding group ROIC to 20%
-- Progressive dividend
Sustained growth for the next decade in Clean Air
In Clean Air, we have clear visibility of sustained growth for the next
decade as we benefit from tightening legislation globally, particularly
in Europe and Asia. This will drive mid single digit growth in operating
performance to 2025.
-- We expect good growth in the short term as we benefit from new legislation
in Asia and tighter legislation in Europe, driving GPF (gasoline particulate
filter) fitment in both regions. Our European business will be maintained
in size to 2025 and we expect to maintain our 65% share of the Light
Duty diesel market in Europe
-- Growth will accelerate in the medium term with the full benefits of
the new legislation in China and India. Our Asian business will more
than double in size to 2025
-- Heavy duty legislation in China and India will be phased in
from
2020 and drives a tripling of value per vehicle to us
-- Implementation of China 6 light duty legislation will on
average
double the value per vehicle to us from July 2023 when the
second
phase of legislation is enacted
-- Growth is expected to moderate in the longer term with the increased
penetration of pure battery electric vehicles
-- We will deliver planned efficiencies from optimising our cost base
and processes, and expect to maintain margins and return on capital
in the medium term
-- Construction of our new manufacturing plants is progressing. Our new
plants in Poland and China are nearing completion and construction
of our plant in India is underway. As these plants ramp up they will
drive further growth and efficiencies across the sector
Market leading growth in Efficient Natural Resources
In Efficient Natural Resources, we have stabilised the business through
restructuring and are on plan with our programme to modernise our operations,
whilst targeting investment in R&D for future growth. We expect this
sector to deliver mid to high single digit growth in operating performance
to 2025 through:
-- Focused investment in higher growth sub-segments
-- Leveraging and evolving our existing technology to meet customer requirements
-- Further simplification of our product portfolio to optimise and improve
our offering to the market
-- Delivering planned efficiency benefits as we focus on areas including
procurement, operational excellence and build our commercial expertise
-- Steady income from licensing with growth in the medium term as we
extend our technologies into new applications and markets, for example
commercialisation of newly developed technology including Fischer
Tropsch waste to aviation fuel and mono ethylene glycol
-- Business development projects to support longer term growth, for example,
battery materials recycling and work with various partners to drive
the acceleration of adoption of hydrogen as a more significant part
of the energy mix
Breakout growth in Health
In Health, we are making strong progress on operational improvements
and will deliver breakout growth over the medium term as we benefit from
the commercialisation of our pipeline of new generic and innovator products.
Following our Capital Markets Day, the further political and regulatory
focus on opioid addiction - principally in the United States - has created
uncertainty in the market for opioid addiction therapies, principally
Suboxone products. We are well positioned in this attractive and growing
segment as it evolves, supplying active pharmaceutical ingredients (APIs)
to several customers and remain confident in the long term growth prospects.
However, these recent developments mean that we now expect Health operating
performance in the second half of 2019/20 to be broadly in line with
the first half.
-- This is primarily driven by lower demand in the short term for a single
API due to the recent and ongoing developments in the opioid addiction
therapy market
-- Whilst these developments impact the performance of our base business,
the timing of delivery and value of our pipeline of generic and innovator
APIs is unaffected and we continue to expect an incremental c.GBP100
million of operating profit from this by 2025
-- We remain focused on stabilising short term performance in this business,
delivering the value from our pipeline and executing our strategy
for breakout growth
Significant progress in commercialisation of eLNO
eLNO is our portfolio of leading ultra-high energy density cathode materials
which will compete with future materials such as NMC 811. eLNO will suit
a broad range of applications in electric vehicles and, in particular,
enable greater adoption of long range, pure battery electric vehicles.
We are making significant progress in commercialising eLNO. We continue
to test our materials with target customers and customer feedback remains
positive, in particular our ability to provide tailored solutions to
solve their specific problems. Recently, we moved to full cell testing
with two customers which is another significant milestone and point of
validation in the commercialisation process. These two customers have
reduced the number of potential suppliers they are testing with and are
collaborating with us more intensively to further develop, formulate
and test eLNO. This gives us increased confidence that our materials
provide the solutions our customers seek.
There is also ongoing work as we consider options for manufacturing scale
up. We recently made the decision to progress directly from our pilot
plant to our first commercial plant, which resulted in an impairment
of GBP8 million to our demo plant. Our first commercial plant is expected
to be on stream in 2022 and supplying platforms in production in 2024.
Our total investment to commercial production from our plant will amount
to c.GBP350 million. Beyond this, scale up is likely to be phased as
we match capacity to market demand.
Working capital and efficiencies remain a strong focus
We continue to have a disciplined approach to working capital and remain
focused on building a more efficient business to strengthen our platform
for growth and increase our agility.
Precious metal working capital
We use precious metals such as platinum, palladium and rhodium which
are processed and converted into manufactured goods. As a result, there
is a precious metal component to our working capital. The exposure to
these metals is principally within Clean Air and Efficient Natural Resources.
In the period, average palladium and rhodium prices were up 52% and 58%
respectively which had an associated impact to precious metal working
capital and return on invested capital.
-- Higher precious metal working capital: an outflow of GBP352 million
driven by the impact of higher pgm prices (GBP271 million) and also
volumes (GBP81 million). Higher pgm prices have a direct impact on
precious metal working capital and also liquidity and funding requirements
due to lower customer metal. We also had stock builds related to roll
out of our single global ERP system and the UK's planned withdrawal
from the European Union as well as higher working capital to support
business growth
-- Impact on return on invested capital: this declined to 15.0% (1H 2018/19:
16.7%) driven by higher precious metal working capital. ROIC excluding
the impact of the increase in precious metal working capital was 15.9%
Non precious metal working capital
We are targeting an improvement in average non precious metal working
capital to between 50 and 60 days over the medium term and in the period,
we achieved 61 days (1H 2018/19: 61 days)
Summary of efficiency initiatives
We are focusing on areas including procurement, restructuring and manufacturing
footprint optimisation in Health which will together deliver GBP145 million
of savings by 2022/23.
-- Global procurement - as our global procurement process builds, we
are continuing to realise benefits and are on track to deliver the
expected GBP100 million of savings to 2022/23. Of these savings, around
three quarters will benefit the income statement and around two thirds
will be reinvested. In 2019/20, we expect around GBP23 million of
savings to benefit the income statement, of which GBP13 million was
achieved in the first half
-- Group restructuring programme - now complete with the delivery of
annualised cost savings of around GBP25 million
-- Health footprint optimisation - delivered GBP20 million of annualised
cost savings following the closure of our manufacturing plant in Riverside,
US
Initiative Total Achieved in Achieved
GBP million the period to date
------------------------------------------------- ---------------- ---------------------- -----------------------
Procurement 100 15 43
Restructuring 25 1 25
Footprint optimisation 20 5 20
------------------------------------------------- ---------------- ---------------------- -----------------------
Total 145 21 88
------------------------------------------------- ---------------- ---------------------- -----------------------
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
---------------------------- -------- ---------------
2019 2018
---------------------------- --------- -------- -------- ---------------
Clean Air 1,392 1,312 +6 +4
Efficient Natural Resources 496 463 +7 +4
Health 111 118 -6 -9
New Markets 186 173 +7 +5
Eliminations (61) (57)
Sales 2,124 2,009 +6 +3
---------------------------- --------- -------- -------- ---------------
Underlying operating profit Half year ended % change % change,
(GBP million) 30(th) September constant rates
---------------------------- -------- ---------------
2019 2018
---------------------------- --------- -------- -------- ---------------
Clean Air 179 191 -6 -9
Efficient Natural Resources 94 85 +9 +6
Health 18 15 +25 +21
New Markets (8) 3 n/a n/a
Corporate (18) (23)
Underlying operating profit 265 271 -2 -5
---------------------------- --------- -------- -------- ---------------
Reconciliation of underlying operating profit Half year ended
to operating profit 30(th) September
(GBP million)
2019 2018
---------------------------------------------- --------- --------
Underlying operating profit 265 271
Amortisation of acquired intangibles (6) (7)
Operating profit 259 264
---------------------------------------------- --------- --------
Operating results by sector
Clean Air
Good sales growth but operating profit impacted by one-off costs
-- Light Duty Europe sales up 13% with strong growth in both gasoline
and diesel driven by increasing fitment of gasoline particulate filters
and annualisation of our diesel share gains
-- Light Duty Asia sales grew 6%, ahead of declining market production
-- Light Duty Americas sales were down 7% driven by weaker diesel sales
-- Sales of Heavy Duty Diesel catalysts were slightly lower, with growth
in US Class 8 more than offset by a decline in Europe and Asia
-- Operating profit was down 9% and margin declined 1.7 percentage points
to 12.9% impacted by one-off costs associated with manufacturing
inefficiencies
Half year ended % change % change, constant
30(th) September rates
-------- ------------------
2019 2018
-------- ------------------
GBP million GBP million
----------------------------------- ----------- ----------- -------- ------------------
Sales
LDV Europe 540 479 +13 +13
LDV Asia 193 177 +9 +6
LDV Americas 171 175 -2 -7
Total Light Duty Vehicle Catalysts 904 831 +9 +7
HDD Americas 258 234 +10 +4
HDD Europe 154 165 -7 -7
HDD Asia 52 63 -18 -20
Total Heavy Duty Diesel Catalysts 464 462 - -3
Other - stationary 24 19 +34 +30
Total sales 1,392 1,312 +6 +4
Underlying operating profit 179 191 -6 -9
Margin 12.9% 14.6%
Return on invested capital (ROIC) 26.5% 30.9%
Reported operating profit 178 190 -6
----------------------------------- ----------- ----------- -------- ------------------
Estimated LDV sales and production (number of light duty
vehicles)*
Half year ended 30(th) September
2019 2018 %
millions millions change
-------------- ----------- ----------------- ---------------- ------
North America Sales 10.4 10.6 -2
Production 8.5 8.4 +2
Total Europe Sales 10.4 10.5 -1
Production 10.5 10.7 -2
Asia Sales 18.9 20.5 -8
Production 21.7 23.3 -7
Global Sales 44.5 46.8 -5
Production 44.0 45.9 -4
-------------------------- ----------------- ---------------- ------
Estimated HDD truck sales and production (number of trucks)*
Half year ended 30(th) September
2019 2018 %
thousands thousands change
-------------- ----------- ---------------- ---------------- ------
North America Sales 325 306 +6
Production 333 314 +6
Total Europe Sales 241 227 +6
Production 290 293 -1
Asia Sales 871 1,010 -14
Production 901 967 -7
Global Sales 1,516 1,618 -6
Production 1,592 1,634 -3
-------------------------- ---------------- ---------------- ------
*Source: LMC Automotive
Light Duty Vehicle (LDV) Catalysts
Our LDV Catalyst business provides catalysts for emission control after-treatment
systems that reduce emissions for cars and other light duty vehicles
powered by diesel and gasoline. The business grew 7%, well ahead of
the decline in global vehicle production.
In Europe, where diesel accounts for around 80% of our LDV business,
sales grew 13% with strong sales in both diesel and gasoline, despite
a decline in market production.
Sales of diesel catalysts were up 6% driven by the annualisation of
diesel market share gains as we maintained market share of c.65% in
light duty diesel vehicles.
In Western Europe, diesel accounted for 32% of new passenger car sales
in the first half of 2019/20 compared with 34% in the second half of
last year. Light duty commercial vehicles remain largely diesel today.
When these are included, the overall share of diesel sales in Western
Europe was 39% for the first half of 2019/20, compared with 42% in the
second half of 2018/19. We continue to assume a diesel share of around
25% of total light duty vehicles and 20% of cars in 2025.
Sales of gasoline catalysts were up 49%, significantly ahead of market
production. Growth was driven by new platforms in production and an
increased number of high value coated gasoline particulate filters (GPFs)
sold in the period. We expect the number of vehicles with coated GPFs
will continue to increase in the medium term, increasing our sales value
per gasoline vehicle by up to two times.
Sales in Asia LDV grew 6%, with growth across most of our key markets
and well ahead of the decline in market production. This was driven
by increased sales of high value coated GPFs due to the beginning of
light duty China 6 legislation. Over the medium term, our Asian business
will more than double in size as we capture growth from tightening legislation
in China and India.
Sales in Americas LDV were down 7%, whilst market production grew. This
was driven by a weaker performance in diesel following a temporary pause
in production at one of our customers and the ramp down of a platform.
Heavy Duty Diesel (HDD) Catalysts
Our HDD Catalyst business provides catalysts for emission control after-treatment
systems that reduce emissions for trucks, buses and non-road equipment.
Sales declined 3%, in line with global market production. We saw growth
in Americas HDD catalyst business, however this was offset by our HDD
businesses in Asia and Europe.
Sales in our Americas HDD catalyst business grew 4%. Sales of catalysts
for Class 8 trucks grew with continued strength in the US truck cycle,
although behind market production due to phasing of platforms. We saw
high levels of production peak towards the end of the first half and
continue to expect production to decline in the second half as the cycle
rolls over.
Sales in our European HDD Catalyst business declined 7%. This was driven
by our non-road business which was lower following a pre-buy in the
prior year ahead of new legislation and lower exports outside of Europe.
We maintained our market share.
Sales in the Asian HDD Catalyst business were down 20%, behind market
production. This was primarily driven by China, where sales fell 23%
mainly due to the phasing as our customers transition from China 5 to
China 6 products.
Underlying operating profit
Operating profit declined 9% and margin declined by 1.7 percentage points
primarily driven by
c.GBP15 million of one-off costs, which included additional freight
costs and inefficiencies within our manufacturing footprint. This was
caused by the phasing of completion of our new plant in Poland as we
serve the strong growth in our European Light Duty business.
ROIC
ROIC was down 4.4 percentage points to 26.5% reflecting higher working
capital and invested capital from our three new plants which is not
yet yielding returns.
Outlook
We expect operating performance in 2019/20 to be below the prior year,
weighted to the second half. In the second half, we will benefit from
the absence of one-off costs experienced in the first half.
Efficient Natural Resources
Sales and operating profit growth
-- Sales growth driven by strong performance in Pgm Services and improved
licensing income
-- Good operating profit growth and margin improved 0.3 percentage points
to 18.8%, driven by higher average pgm prices partly offset by higher
costs as we continue to invest in our refineries and the absence
of one-off benefits from improved efficiency in the prior period
Half year ended % change % change, constant
30(th) September rates
2019 2018
GBP million GBP million
Sales
Catalyst Technologies 274 264 +4 +1
Pgm Services 150 128 +17 +13
Advanced Glass Technologies 37 39 -6 -7
Diagnostic Services 35 32 +9 +9
Total sales 496 463 +7 +4
Underlying operating profit 94 85 +9 +6
Margin 18.8% 18.5%
Return on invested capital (ROIC) 12.9% 12.6%
Reported operating profit 91 82 +10
----------------------------------- ----------- ----------- -------- ------------------
Catalyst Technologies
Our Catalyst Technologies business licenses technology and manufactures
speciality catalysts and additives for the chemicals and oil and gas
industries. Sales improved with good growth in licensing partly offset
by lower sales of copper zeolites to Clean Air. Refill catalysts and
additives were stable following a very strong prior period, and first
fills were broadly flat as expected.
Refill catalysts and additives is recurring business which makes up
the majority of sales within Catalyst Technologies. In refill catalysts,
sales were up, ahead of the market. We saw good performance in ammonia
and formaldehyde, although weaker relative performance in methanol following
strong demand in the prior period. In additives, sales were down due
to feedstock dynamics and a planned maintenance shutdown at one of our
plants.
Our licensing business is dependent on new plant builds and income is
recognised over the period of construction. In the year, licensing income
saw good performance driven by formaldehyde and we also began to recognise
income from recent licence wins, which includes our newly developed
mono ethylene glycol technology. We signed three new licences in the
period and are pleased with the progress in developing and commercialising
new technologies.
Pgm Services
Our Pgm Services business primarily provides a strategic service to
the group, mainly supporting Clean Air with security of metal supply
in a volatile market. This business is expected to grow at low single
digits over the medium term. It comprises our pgm refining and recycling
activities, and produces chemical and industrial products containing
pgms.
In the period, sales grew 13%. We saw strong growth in our refining
and trading businesses due to higher and more volatile average pgm prices.
Average palladium and rhodium prices were up 52% and 58% respectively,
while platinum was up 1% compared to the same period last year. Sales
of chemical products grew driven by growth in Clean Air which uses pgm
materials in its catalyst products, however, sales of industrial products
containing pgms were down.
Following the unscheduled downtime in one of our pgm refineries in 2018/19
which resulted in higher precious metal working capital, we continue
to make progress in reducing the volume of precious metal working capital
in our refineries and still expect to be at normalised levels by the
end of 2020/21. However, despite reducing our backlog volumes, the sharp
increase in pgm prices has led to the value of precious metal working
capital increasing in the period.
As previously announced, the GBP100 million investment in our new refinery
is well underway. This will ensure our assets operate effectively and
reliably, improving returns and strengthening our position as a long
term supplier to our customers.
Advanced Glass Technologies
Advanced Glass Technologies mainly provides black obscuration enamels
and silver paste for automotive glass applications. Sales were lower,
primarily driven by the automotive segment reflecting both a slowdown
in global car production and some loss of market share in non-automotive
product segments across Europe.
Diagnostic Services
Diagnostic Services provides specialised detection, diagnostic and measurement
solutions for our customers in the petroleum industry. Our Diagnostic
Services business grew strongly. A higher, stable oil price drove greater
activity in the upstream oil and gas industry leading to higher capital
investment and increased operating expenditure by our customers. This
resulted in improved demand for our services.
Underlying operating profit
Operating profit was up 6% and margin improved 0.3 percentage points
to 18.8%, driven mainly by a GBP14 million benefit from higher average
pgm prices partly offset by higher costs as we continue to invest in
our refineries and one-off benefits of GBP5 million in the prior period
from improved efficiency.
ROIC
ROIC increased 0.3 percentage points to 12.9%.
Outlook
In 2019/20, we expect sales growth with operating profit growth ahead
of sales as we continue to drive efficiencies in our business and maintain
our focus on higher growth segments. Second half performance will benefit
from normal seasonality and the timing of orders in Catalyst Technologies,
and efficiency gains in Pgm Services.
Health
Sales declined although operating profit grew double digit
-- Innovators grew double digit whilst generics declined, with no new
launches in the period
-- Operating profit grew double digit and margin improved 4.1 percentage
points. This was primarily driven by net benefits from footprint optimisation
-- Health operating performance in the second half of 2019/20 is now
expected to be broadly in line with the first half reflecting recent
developments in the opioid addiction therapy market. The timing of
delivery and value of our pipeline of generic and innovator APIs is
unaffected and we continue to expect an incremental c.GBP100 million
of operating profit from this by 2025
Half year ended % change % change, constant
30(th) September rates
2019 2018
GBP million GBP million
Sales
Generics 67 80 -16 -19
Innovators 44 38 +17 +11
Total sales 111 118 -6 -9
Underlying operating profit 18 15 +25 +21
Margin 16.5% 12.4%
Return on invested capital (ROIC) 9.5% 7.4%
Reported operating profit 18 15 +26
----------------------------------- ----------- ----------- -------- ------------------
Generics
Our Generics business develops and manufactures generic active pharmaceutical
ingredients (APIs) for a variety of treatments. Sales were down significantly,
with a mixed performance across the business.
Sales of controlled APIs were flat. We saw growth in sales of speciality
opiates but this was offset by lower sales of APIs for ADHD treatments
as certain high margin ADHD APIs moved through their natural lifecycle.
Sales of bulk opiates in Europe were stable.
Our non-controlled APIs declined as expected. This primarily reflected
a continued reduction in sales of dofetilide as new competitors for
our customer entered the market.
Innovators
Our Innovators business performed well. We saw growth from sales of
APIs from customers in four late stage testing programmes who are increasing
volumes ahead of commercialisation. This included higher sales in relation
to our strategic manufacturing partnership with Immunomedics for the
manufacture of a drug linker used in the production of an immuno-oncology
treatment for triple negative breast cancer.
API product pipeline
We continued to invest in our new product pipeline across both our Generics
and Innovators businesses and remain confident in delivering an additional
c.GBP100 million of operating profit by 2025. Overall, our pipeline
comprises 75 molecules which includes generic APIs, innovator APIs and
new applications. Within this, 33 molecules will generate the additional
c.GBP100 million of operating profit by 2025 and the remainder will
support growth beyond this timeframe.
In the period, we continued to make progress in developing and commercialising
our pipeline of new generic and innovator products. At the end of September,
3 molecules had launched, 10 generics were awaiting regulatory approval
and 4 products were late stage innovator programmes.
Underlying operating profit
Operating profit grew double digit and margin improved 4.1 percentage
points. This was mainly driven by net benefits from footprint optimisation.
ROIC
ROIC increased 2.1 percentage points to 9.5% mainly driven by higher
operating profit.
Outlook
As described on page 4, Health operating performance in the second half
of 2019/20 is now expected to be broadly in line with the first half.
This primarily reflects lower demand in the short term, due to the recent
and ongoing developments in the opioid addiction therapy market, for
a single API used in Suboxone products. The timing of delivery and value
of our pipeline of generic and innovator APIs is unaffected and we continue
to expect an incremental c.GBP100 million of operating profit from this
by 2025.
New Markets
Good sales growth; further progress on commercialisation of eLNO
-- Sales growth driven by strong demand for our non-automotive battery
systems and fuel cells
-- Operating profit declined due to higher costs as we develop eLNO
and an impairment of
GBP8 million related to our demo plant
-- Commercialisation of eLNO is progressing well and we have advanced
to full cell testing with two customers
Half year ended % change % change, constant
30(th) September rates
2019 2018
GBP million GBP million
Sales
Alternative Powertrain 110 98 +13 +12
Medical Device Components 37 36 +3 -1
Life Science Technologies 23 23 - -3
Other 16 16 -5 -9
Total sales 186 173 +7 +5
Underlying operating profit (8) 3
Margin -4.2% 1.6%
Return on invested capital (ROIC) -3.2% 5.1%
Reported operating loss (10) -
---------------------------------- ----------- ----------- -------------------- ------------------
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 cathode materials. Alternative Powertrain
sales grew 12% driven by continued momentum in battery systems for e-bikes
and significant growth in Fuel Cells.
Commercialisation of eLNO
eLNO will compete with future ultra-high energy density cathode materials
such as NMC 811. We continue to make good progress in the development
and commercialisation of our portfolio.
Testing of our materials with our target customers is progressing well
and feedback remains positive. As previously announced, we have progressed
to full cell testing with two customers, which is another significant
milestone and point of validation in the commercialisation process.
These two customers have reduced the number of potential suppliers they
are testing with and are collaborating with us more intensively to further
develop, formulate and test eLNO. This gives us increased confidence
that our materials provide the solutions our customers seek.
Plans for manufacturing scale up are continuing. We recently made the
decision to progress directly from our pilot plant to our first commercial
plant in Konin, Poland, which resulted in an impairment of GBP8 million
to our demo plant. Our first commercial plant is expected to be on stream
in 2022 and supplying platforms in production in 2024. This plant will
initially produce 10,000 metric tonnes per annum but the site has the
potential for expansion up to 100,000 metric tonnes.
Fuel Cells
Sales in Fuel Cells grew 62% to GBP15 million, with increased demand
for non-automotive applications and new business wins in China. We are
investing GBP15 million in new capacity in both the UK and China to
support growth in demand.
Medical Device Components
Our Medical Device Components business leverages our science and technology
to develop products found in devices used in medical procedures. Sales
were broadly flat as we continue to experience increased competition
in the market with a number of customers moving to dual sourcing.
Life Science Technologies
Life Science Technologies provides advanced catalysts to the pharmaceutical
and agricultural chemicals markets. Sales were broadly stable in the
period.
Underlying operating profit
Operating profit declined due to higher costs as we develop eLNO, which
includes an GBP8 million impairment following our decision not to proceed
with our demo plant.
ROIC
ROIC decreased to -3.2%.
Outlook
New Markets is expected to deliver sales and operating profit growth
in 2019/20.
Corporate
Corporate costs in the period were GBP18 million, a decrease of GBP5
million due to cost saving initiatives and lower legal costs.
Outlook
Corporate costs are now expected to be below the prior year in 2019/20.
Financial review
Restatements
At the full year, we concluded that location and form swaps and sale
and repurchase agreements entered into by our Pgm Services business
within Efficient Natural Resources should not be included within statutory
revenue. Consequently, we have excluded these transactions from statutory
revenue in 2019, and we have also fully restated the prior half financial
statements to reflect these changes. This results in both periods now
being presented on a consistent basis.
The impact of the restatement is to reduce both revenue and cost of
sales in respect of swaps and sale and repurchase agreements for the
six months ended 30(th) September 2018 by GBP2.1 billion. The restatement
has no net impact on sales, profit, working capital, net debt or net
assets. Historic business performance measures communicated by Johnson
Matthey are unchanged. Full details are given in note 15 on pages 39
to 40.
IFRS 16
IFRS 16 came into effect from 1(st) April 2019 and replaces IAS 17,
Leases. Upon transition, the group recognised right-of-use assets and
lease liabilities of GBP89 million and GBP77 million respectively on
the balance sheet.
For the year ending 31(st) March 2020, we anticipate an increase in
underlying operating profit of GBP2 million and an additional interest
cost of GBP3 million. Consequently, the group estimates that profit
before tax will be reduced by approximately GBP1 million for the year
ending 31(st) March 2020 as a result of adopting IFRS 16. Full details
are given in note 14 on pages 37 to 39.
Research and development (R&D)
We invested GBP100 million in R&D in the half, including GBP12 million
of capitalised R&D, around 5% of sales. Key areas of spend included
next generation technologies in Clean Air, improving the efficiency
and resiliency of our refineries in Efficient Natural Resources, our
Health API product pipeline and investment in our eLNO battery material.
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 83% of non-sterling
denominated underlying operating profit in the half year ended 30(th)
September 2019, were:
Share of H1 2019/20 Average exchange rate
non-sterling denominated Half year ended 30(th)
underlying operating September
profit
2019 2018 % change
----------- --------
US dollar 44% 1.257 1.329 -5
Euro 31% 1.126 1.131 -
Chinese renminbi 8% 8.70 8.77 -1
----------------- ------------------------- ------------ ----------- --------
For the half, the impact of exchange rates increased sales by GBP47
million and increased underlying operating profit by GBP8 million.
If current exchange rates (GBP:$ 1.295, GBP:EUR 1.160, GBP:RMB 9.11)
are maintained throughout the year ending 31(st) March 2020, foreign
currency translation will have a negative impact of approximately GBP5
million on underlying operating profit. A one cent change in the average
US dollar and euro exchange rates each have an impact of approximately
GBP1 million on full year underlying operating profit and a ten fen
change in the average rate of the Chinese renminbi has an impact of
less than GBP1 million.
Pgm prices
Higher average pgm prices benefited operating profit by around GBP14
million in the period in Efficient Natural Resources.
Major impairment and restructuring charges
We had no major impairment and restructuring charges in the half year
ended 30(th) September 2019. Cash spend in relation to ongoing restructuring
was GBP1 million in the period.
Our group restructuring programme is now complete, having achieved a
further GBP1 million of benefits in the half. This programme delivers
annualised cost savings of around GBP25 million.
The closure of our manufacturing plant in Riverside, US, is now complete
and delivers annualised cost savings of around GBP20 million, having
delivered GBP5 million of savings in the half.
Finance charges
Net finance charges in the period amounted to GBP36 million, an increase
of GBP16 million from the first half year ended 30(th) September 2018.
This increase was primarily driven by higher precious metal funding
costs.
We continue to expect that net finance charges will be significantly
higher in 2019/20 due to higher average net debt as we invest for future
growth, higher precious metal funding costs and the impact of IFRS 16.
Taxation
The tax charge on underlying profit for the half year ended 30(th) September
2019 was GBP47 million, an effective tax rate of 20.5% (1H 2018/19:
16.3%). This was due to increases in provisions for uncertain tax positions
(GBP12 million of which relates to reassessments of prior years) which
have been recognised in the first half of this year. We also recognised
a tax charge of GBP2 million outside of underlying which resulted in
an effective tax rate of 21.7% (1H 2018/19: 16.4%).
We expect the tax rate on underlying profit for the year ending 31(st)
March 2020 to be around 18% compared to our previous guidance of around
16%. This is due to the increase in provisions for uncertain tax positions.
Post-employment benefits
IFRS - accounting basis
At 30(th) September 2019, 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 GBP173 million.
The cost of providing post-employment benefits in the period was GBP20
million, which is in line with the same period last year. The post-employment
benefits cost also included a past service credit of GBP10 million,
which compared to an GBP8 million credit in the prior period.
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 Special Purpose Vehicle
set up in January 2013. The annual funding update as at 31(st) March
2019 showed a deficit of GBP22 million or a surplus of GBP15 million
after taking the value of the Special Purpose Vehicle into account.
The last triennial actuarial valuation of the cash balance section as
at 1(st) April 2018 revealed a surplus of GBP0.2 million. The annual
funding update as at 31(st) March 2019 showed a surplus of GBP2.6 million.
Since the triennial valuation a review of the Scheme's investment strategy
has taken place. This resulted in several changes that diversify the
Scheme's assets and reduce investment risk further.
The latest actuarial valuations of our two US pension schemes
showed a total deficit of GBP2 million at 1(st) July 2018.
UK's withdrawal from European Union
JM relies extensively on an agile, flexible supply chain and so we have
paid significant attention to the potential impact of the UK's withdrawal
from the European Union under a 'no deal' scenario. Our well established
working group, which is composed of a number of functional and sector
experts, has assessed the implications of a 'no deal' withdrawal. A
number of mitigating activities were put in place ahead of 31(st) October
2019 in preparation for this eventuality, for example through building
inventory.
As part of the preparations, the project team conducted scenario analyses
to assess the potential impact of individual risks and combinations
of risks. As the probability of a hard withdrawal (without a transition
agreement reflecting the existing trading rules) increased, we accelerated
our contingency plans, with the primary objective of ensuring the continuity
of our business across our whole business model.
We remain confident that our current contingency planning will be effective
should the UK withdraw from the European Union without a deal. We remain
vigilant and alert to changes in the political environment, and the
UK and EU's stance, and the potential implications these may have on
our operations.
Capital expenditure
Capital expenditure was GBP186 million in the half, 2.2 times depreciation
and amortisation (excluding amortisation of acquired intangibles). In
the period, projects included:
-- Clean Air manufacturing plants in Poland, China and India. This increased
capacity will drive growth, efficiency and improve flexibility, enabling
us to support demand from tightening legislation in Europe and Asia
-- Investment in development and commercialisation of eLNO, our leading
ultra-high energy density cathode material. We continued construction
of our application centres. FEED (front end engineering design) work
has progressed for our site in Poland for the first 10,000 metric
tonnes commercial plant, and the site has the potential for expansion
to 100,000 metric tonnes. We expect to supply platforms in 2024
-- Upgrading our core IT business systems
-- In Health, continued investment in our API product pipeline
-- Expansion of our additives plant in the US and continued investment
to improve the efficiency and resilience of our pgm refineries within
Efficient Natural Resources
Capital expenditure for 2019/20 is estimated to be up to GBP500 million
as our investments in growth projects mentioned above increase.
Depreciation and amortisation (excluding amortisation of acquired intangibles)
is expected to increase by around GBP14 million in 2019/20 primarily
as we depreciate our investment in upgrading our core IT systems.
Free cash flow and working capital
Free cash flow was an outflow of GBP382 million. This was mainly due
to a working capital outflow of GBP467 million, of which GBP352 million
related to precious metal working capital driven by higher pgm prices
(GBP271 million) and volumes (GBP81 million). We also saw higher capital
expenditure of
GBP184 million in the half.
Excluding precious metal, working capital days at 30(th) September 2019
improved to 61 days compared to 65 days at 30(th) September 2018. Average
working capital days through the period excluding precious metals was
stable at 61 days.
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, and expect to
deliver GBP350 million of savings in precious metal working capital,
comprising GBP250 million in backlog reduction and a further GBP100
million of refinery efficiencies. As metal prices move, the level of
savings will vary.
Dividend
The board approved an increase of 5% in the interim dividend to 24.50
pence per share
(1H 2018/19: 23.25 pence per share). The interim dividend will be paid
to shareholders on 4(th) February 2020, with an ex dividend date of
28(th) November 2019.
Return on invested capital (ROIC)
ROIC declined to 15.0% from 16.7% at 30(th) September 2018 driven primarily
by higher precious metal working capital and also increased capital
expenditure. ROIC excluding the impact of the increase in precious metal
working capital was 15.9%.
Capital structure
Net debt at 30(th) September 2019 was GBP1.5 billion. This is an increase
of GBP452 million from
30(th) September 2018 and an increase of GBP622 million from 31(st)
March 2019, mainly driven by the significant increase in precious metal
working capital and higher capital expenditure. Net debt increased to
GBP1,548 million when adjusted for the post tax pension deficits (GBP1,488
million excluding post tax pension deficits). The group's net debt (including
post tax pension deficits) to EBITDA was 2.1 times (30(th) September
2018: 1.5 times). Our target range is 1.5 to 2.0 times, as this ensures
we have flexibility to invest further in the future growth of the business.
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.
Going concern
The directors have assessed the future funding requirements of the group
and are of the opinion that the group has adequate resources to fund
its operations for the foreseeable future. Therefore the directors believe
that it is appropriate to prepare the accounts on a going concern basis.
Given the large increase in precious metal working capital recently,
the group has already taken actions to increase liquidity in case of
further pressure.
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 91 to 96 of the 2019 annual report and these are
unchanged. They are:
-- Existing market outlook - the risk of a change to the outlook for
our key markets is either unplanned or unforeseen and as a result
we may be inefficient in our plans to respond. Whilst not a principal
risk, see our financial review on page 18 for details on how we are
monitoring the possible impacts of the UK's planned withdrawal from
the EU and related risks
-- Future growth - this risk considers the potential failure to deliver
growth and create value as communicated in our capital markets day
-- Maintaining our competitive advantage - addressing the need to maintain
our competitive advantage in existing markets, including our ability
to transform and adapt Johnson Matthey to new challenges
-- Environment, health and safety - operating in accordance with our
own values, and in line with changes to environmental, health and
safety legislation standards
-- Sourcing of strategic materials - we closely analyse and manage our
supply of key critical materials to address the risk of metal supply
to our manufacturing facilities
-- People - we recruit, retain and motivate the most appropriate people
at every level of our business
-- Security of metal and highly regulated substances - keeping our valuable
and highly regulated products and intermediates secure
-- Intellectual capital management - our ability to identify, manage
and protect the innovative ideas that underpin our current and future
success
-- Failure of significant sites - our ability to run our operations
effectively and efficiently, and with resilience to adverse events
-- Ethics and compliance - running our businesses ethically and effectively
- not 'business at any cost'
-- Business transition - our ability to identify and deliver the requirement
for projects and programmes to transform Johnson Matthey as we develop
new products and markets
-- Product quality - the imperative to consistently deliver our products
to required standards
-- Applications, systems and cyber - the systems, and supporting knowledge,
processes and behaviours that allow effective and secure information
management
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 Chairman of the Board and of the Nomination Committee
Alan Ferguson Non-Executive Director, Senior Independent Director and
Chairman of the Audit 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 Chairman of the Remuneration
Committee
John O'Higgins Non-Executive Director
John Walker Executive Director
Doug Webb Non-Executive Director
The responsibility statement was approved by the Board of Directors
on 20(th) November 2019 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 six-month period ended
30(th) September 2019. 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(th) September 2019;
-- 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
20(th) November 2019
Notes:
a) The maintenance and integrity of the Johnson Matthey Plc
website is the responsibility of the directors; the work carried
out by the auditors does not involve consideration of these matters
and, accordingly, the auditors accept no responsibility for any
changes that may have occurred to the interim financial statements
since it was initially presented on the website.
b) Legislation in the United Kingdom governing the preparation
and dissemination of interim financial statements may differ from
legislation in other jurisdictions.
Condensed Consolidated Income Statement
for the six months ended 30(th) September 2019
Six months ended
30.9.19 30.9.18
Restated(1)
Notes GBP million GBP million
2,
Revenue 3 6,818 4,967
Cost of sales (6,321) (4,493)
----------- -----------
Gross profit 497 474
Distribution costs (66) (65)
Administrative expenses (166) (138)
Amortisation of acquired intangibles 6 (6) (7)
Operating profit 259 264
Finance costs (66) (42)
Finance income 30 22
Share of profit of joint venture and associate 2 -
----------- -----------
Profit before tax 225 244
Tax expense (49) (40)
----------- -----------
Profit for the period 176 204
----------- -----------
pence pence
Earnings per ordinary share
Basic 91.8 106.1
Diluted 91.6 105.9
(1) See note 15.
Condensed Consolidated Statement of Total Comprehensive
Income
for the six months ended 30(th) September 2019
Six months ended
30.9.19 30.9.18
Notes GBP million GBP million
Profit for the period 176 204
----------- -----------
Other comprehensive income
Items that will not be reclassified to the
income statement
Remeasurements of post-employment benefit
assets and liabilities 10 - 65
Tax on items that will not be reclassified
to the income statement 1 (11)
----------- -----------
1 54
----------- -----------
Items that may be reclassified to the income
statement:
Exchange differences on translation of foreign
operations 73 42
Fair value gains / (losses) on investments at fair
value through other comprehensive income 3 (2)
Amounts charged to hedging reserve (16) (1)
Fair value and exchange losses on net investment
hedges (8) (7)
Tax on items that may be reclassified to
the income statement 1 1
----------- -----------
53 33
----------- -----------
Other comprehensive income for the period 54 87
----------- -----------
Total comprehensive income for the period 230 291
----------- -----------
Condensed Consolidated Balance Sheet
as at 30(th) September 2019
30.9.19 31.3.19
Notes GBP million GBP million
Assets
Non-current assets
Property, plant and equipment 1,363 1,271
Right-of-use assets 88 -
Goodwill 588 578
Other intangible assets 378 336
Investments in joint venture and associate 22 20
Investments at fair value through other comprehensive
income 56 52
Other receivables 69 39
Interest rate swaps 8 30 13
Deferred income tax assets 74 58
Post-employment benefit net assets 10 232 209
----------- -----------
Total non-current assets 2,900 2,576
----------- -----------
Current assets
Inventories 1,475 1,316
Current income tax assets 35 37
Trade and other receivables 1,953 1,553
Cash and cash equivalents -- cash and deposits 8 99 90
Cash and cash equivalents -- money market
funds 8 - 347
Other financial assets 15 22
Assets held for sale - 7
----------- -----------
Total current assets 3,577 3,372
----------- -----------
Total assets 6,477 5,948
----------- -----------
Liabilities
Current liabilities
Trade and other payables (1,713) (1,647)
Current income tax liabilities (155) (130)
Cash and cash equivalents -- bank overdrafts 8 (65) (59)
Other borrowings and related swaps 8 (351) (184)
Lease liabilities 8 (12) -
Other financial liabilities (21) (13)
Provisions (14) (20)
Total current liabilities (2,331) (2,053)
----------- -----------
Non-current liabilities
Borrowings and related swaps 8 (1,124) (1,073)
Lease liabilities 8 (65) -
Deferred income tax liabilities (93) (91)
Employee benefit obligations 10 (119) (106)
Provisions (10) (9)
Other payables (6) (5)
----------- -----------
Total non-current liabilities (1,417) (1,284)
----------- -----------
Total liabilities (3,748) (3,337)
----------- -----------
Net assets 2,729 2,611
----------- -----------
Equity
Share capital 221 221
Share premium 148 148
Shares held in employee share ownership trust
(ESOT) (32) (45)
Other reserves 140 87
Retained earnings 2,252 2,200
----------- -----------
Total equity 2,729 2,611
----------- -----------
Condensed Consolidated Cash Flow Statement
for the six months ended 30(th) September 2019
Six months ended
30.9.19 30.9.18
Restated(1)
Notes GBP million GBP million
Profit before tax 225 244
Adjustments for:
Share of profit of joint venture and associate (2) -
Depreciation, amortisation, impairment losses and profit
/ loss on sale of non-current assets 99 86
Share-based payments 3 3
Increase in inventories (134) (254)
Increase in receivables (403) (30)
Increase/(decrease) in payables 70 (75)
Decrease in provisions (5) (12)
Contributions in excess of employee benefit
obligations charge (13) (20)
Changes in fair value of financial instruments (3) (2)
Net finance costs 36 20
Income tax paid (32) (48)
----------- -----------
Net cash outflow from operating activities (159) (88)
----------- -----------
Interest received 28 22
Purchases of property, plant and equipment (133) (63)
Purchases of intangible assets (51) (33)
Proceeds from sale of non-current assets 8 1
Net cash outflow from investing activities (148) (73)
----------- -----------
Proceeds from borrowings 168 137
Repayment of borrowings (11) (2)
Dividends paid to equity shareholders 7 (120) (112)
Interest paid (70) (45)
Principal element of lease payments (5) -
----------- -----------
Net cash outflow from financing activities (38) (22)
----------- -----------
Net decrease in cash and cash equivalents (345) (183)
Exchange differences on cash and cash equivalents 1 (1)
Cash and cash equivalents at beginning of
year 378 304
Cash and cash equivalents at end of period 8 34 120
----------- -----------
Net cash outflow from operating activities (159) (88)
Interest received 28 22
Interest paid (70) (45)
Purchases of property, plant and equipment (133) (63)
Purchases of intangible assets (51) (33)
Proceeds from sale of non-current assets 8 1
Principal element of lease payments (5) -
----------- -----------
Free cash flow(2) (382) (206)
----------- -----------
Reconciliation to net debt
Net decrease in cash and cash equivalents (345) (183)
Less: Increase in borrowings (157) (135)
Less: Principal element of lease payments 5 -
----------- -----------
Increase in net debt resulting from cash
flows (497) (318)
New leases, remeasurements and modifications (4) -
Exchange differences on net debt(3) (47) (38)
Other non-cash movements(3) 3 (1)
----------- -----------
Movement in net debt (545) (357)
Net debt at beginning of year (866) (679)
Impact of adoption of IFRS 16 14 (77) -
----------- -----------
Net debt at end of period(2) 8 (1,488) (1,036)
----------- -----------
(1) See note 15.
(2) Non-GAAP measure (see page 41).
(3) 2018 re-presented to separately analyse fair value movements in
net debt relating to hedging instruments.
Condensed Consolidated Statement of Changes in Equity
for the six months ended 30(th) September 2019
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(st) April 2018 221 148 (48) 62 1,995 2,378
Total comprehensive income
for the period - - - 33 258 291
Dividends paid (note 7) - - - - (112) (112)
Share-based payments - - - - 6 6
Cost of shares transferred
to employees - - 3 - (6) (3)
Tax on share-based
payments - - - - 1 1
----------- ----------- ----------- ----------- ----------- -----------
At 30(th) September 2018 221 148 (45) 95 2,142 2,561
Total comprehensive
(expense)
/ income for the
period - - - (12) 99 87
Dividends paid (note 7) - - - - (44) (44)
Share-based payments - - - - 11 11
Cost of shares transferred
to employees - - - - (4) (4)
Reclassification - - - 4 (4) -
----------- ----------- ----------- ----------- ----------- -----------
At 31(st) March 2019 221 148 (45) 87 2,200 2,611
Impact of adoption of
IFRIC
23 - - - - 5 5
----------- ----------- ----------- ----------- ----------- -----------
At 31(st) March 2019
(restated) 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(th) September 2019 221 148 (32) 140 2,252 2,729
----------- ----------- ----------- ----------- ----------- -----------
Notes to the Accounts
for the six months ended 30(th) September 2019
1 Basis of preparation
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 2019. 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(st) March 2019, with the exception of the
adoption of new and amended standards as explained below.
Information in respect of the year ended 31(st) March 2019 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 comparatives for the six months ended 30(th) September 2018
have been restated as a result of a detailed review of revenue
transactions in the group's Platinum Group Metal Services business
conducted in the prior year which concluded that location and form
swaps and sale and repurchase agreements should be excluded from
revenue under IFRS 15 (see note 15).
The group uses various measures to manage its business not
defined by generally accepted accounting principles (GAAP) which
are presented alongside GAAP measures. The group's non-GAAP
measures are defined on page 41.
The half-yearly accounts are unaudited, but have been reviewed
by the auditors. They were approved by the board of directors on
20(th) November 2019.
New and amended standards adopted by the group
IFRS 16, 'Leases', became applicable to the group on 1(st) April
2019 and the group changed its accounting policy as a result of
adopting the new standard. The impact of the adoption of IFRS 16
and the group's new accounting policy in respect of leases are
disclosed in note 14.
IFRIC 23, 'Uncertainty over Income Tax Treatments', became
applicable to the group on 1(st) April 2019. The interpretation
clarifies how to recognise and measure current and deferred income
tax assets and liabilities where there is uncertainty over a tax
treatment. The group has adopted IFRIC 23 retrospectively, with the
cumulative effect of adoption, a GBP5 million decrease in tax
provisions, recognised in reserves at 1(st) April 2019.
The other amendments to standards did not have any impact on the
group's reported results or net assets.
2 Segmental information
Six months ended
30(th)
September 2019
Efficient
Clean Natural New
Air Resources Health Markets Corporate Eliminations Total
GBP GBP GBP
million GBP million GBP million million 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 1,392 437 111 184 - - 2,124
Inter-segment
sales - 59 - 2 - (61) -
-------- ----------- ----------- -------- --------- ------------ -----------
Sales 1,392 496 111 186 - (61) 2,124
-------- ----------- ----------- -------- --------- ------------ -----------
Underlying
operating profit
(note 5) 179 94 18 (8) (18) - 265
-------- ----------- ----------- -------- --------- ------------ -----------
Segmental net
assets 1,594 1,437 531 282 287 - 4,131
-------- ----------- ----------- -------- --------- ------------
Net debt (1,488)
Post-employment benefit net
assets
and liabilities 113
Deferred income tax net
liabilities (19)
Provisions and non-current
other
payables (30)
Investments in joint venture
and associate 22
Net assets 2,729
-----------
Six months ended
30(th)
September 2018
Efficient
Clean Natural New
Air Resources Health Markets Corporate Eliminations Total
Restated(1) Restated(1)
GBP GBP GBP
million GBP million GBP million million million GBP million GBP million
Revenue from
external
customers 2,305 2,320 120 222 - - 4,967
Inter-segment
revenue 144 1,203 - 7 - (1,354) -
-------- ----------- ----------- -------- --------- ------------ -----------
Revenue 2,449 3,523 120 229 - (1,354) 4,967
-------- ----------- ----------- -------- --------- ------------ -----------
External sales 1,312 408 118 171 - - 2,009
Inter-segment
sales - 55 - 2 - (57) -
-------- ----------- ----------- -------- --------- ------------ -----------
Sales 1,312 463 118 173 - (57) 2,009
-------- ----------- ----------- -------- --------- ------------ -----------
Underlying
operating profit
(note 5) 191 85 15 3 (23) - 271
-------- ----------- ----------- -------- --------- ------------ -----------
Segmental net
assets 1,245 1,342 486 231 163 - 3,467
-------- ----------- ----------- -------- --------- ------------
Net debt (1,036)
Post-employment benefit net
assets
and liabilities 214
Deferred income tax net
liabilities (58)
Provisions and non-current
other
payables (46)
Investments in joint venture
and associate 20
Net assets 2,561
-----------
(1) See note 15.
3 Revenue
Revenue from external customers by principal products and services
Six months ended 30(th) September 2019
Efficient
Clean Natural New
Air Resources Health Markets Total
GBP GBP
GBP million GBP million million million GBP 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
Six months ended 30(th) September 2018
Efficient
Clean Natural New
Air Resources Health Markets Total
Restated(1) Restated(1)
GBP GBP
GBP million GBP million million million GBP million
Metal 993 1,912 2 51 2,958
Heavy Duty Catalysts 462 - - - 462
Light Duty Catalysts 831 - - - 831
Catalyst Technologies - 232 - - 232
Platinum Group Metal Services - 106 - - 106
Advanced Glass Technologies - 38 - - 38
Diagnostic Services - 32 - - 32
Generics - - 80 - 80
Innovators - - 38 - 38
Alternative Powertrain - - - 97 97
Medical Device Components - - - 36 36
Life Science Technologies - - - 22 22
Other 19 - - 16 35
Revenue 2,305 2,320 120 222 4,967
(1) See note 15.
Effect of exchange rate movements on translation of sales and underlying
4 operating profit of foreign
operations
Six months ended
Average exchange rates used for translation
of results of foreign operations 30.9.19 30.9.18
US dollar / GBP 1.257 1.329
Euro / GBP 1.126 1.131
Chinese renminbi / GBP 8.70 8.77
The main impact of exchange rate movements on the group's sales
and underlying operating profit comes from the translation of the
results of foreign operations into sterling.
Six months ended Change
Six months 30.9.18 at
ended At last At this this year's
year's year's
30.9.19 rates rates rates
GBP million GBP million GBP million %
Sales
Clean Air 1,392 1,312 1,341 4%
Efficient Natural Resources 496 463 475 4%
Health 111 118 122 -9%
New Markets 186 173 176 5%
Elimination of inter-segment sales (61) (57) (58)
----------- ----------------- -----------
Sales 2,124 2,009 2,056 3%
----------- ----------------- -----------
Underlying operating profit
Clean Air 179 191 196 -9%
Efficient Natural Resources 94 85 88 6%
Health 18 15 15 21%
New Markets (8) 3 3 n/a
Unallocated corporate expenses (18) (23) (23)
----------- ----------------- -----------
Underlying operating profit 265 271 279 -5%
----------- ----------------- -----------
5 Underlying profit reconciliations Six months ended
30.9.19 30.9.18
GBP million GBP million
Underlying operating profit 265 271
Amortisation of acquired intangibles (note 6) (6) (7)
Operating profit 259 264
----------- -----------
Underlying profit before tax 231 251
Amortisation of acquired intangibles (note 6) (6) (7)
Profit before tax 225 244
----------- -----------
Tax on underlying profit before tax (47) (41)
Tax on amortisation of acquired intangibles
(note 6) 1 1
Change in non-underlying tax provisions (3) -
Tax expense (49) (40)
----------- -----------
Underlying profit for the period 184 210
Amortisation of acquired intangibles (note 6) (6) (7)
Tax thereon 1 1
Change in non-underlying tax provisions (3) -
----------- -----------
Profit for the period 176 204
----------- -----------
million million
Weighted average number of shares in issue 192.3 192.1
----------- -----------
pence pence
Underlying earnings per share 95.8 109.0
----------- -----------
6 Amortisation of acquired intangibles
Amortisation of intangible assets which arises on the
acquisition of businesses, together with any subsequent impairment
of these intangible assets, is shown separately on the face of the
income statement and excluded from underlying operating profit.
7 Dividends
An interim dividend of 24.50 pence (2018/19 23.25 pence) per
ordinary share has been proposed by the board which will be paid on
4(th) February 2020 to shareholders on the register at the close of
business on 29(th) November 2019. The estimated amount to be paid
is GBP47 million (2018/19 GBP44 million) and has not been
recognised in these accounts.
Six months ended
30.9.19 30.9.18
GBP million GBP million
2017/18 final ordinary dividend paid -- 58.25
pence per share - 112
2018/19 final ordinary dividend paid -- 62.25
pence per share 120 -
--------------------- -----------
Total dividends 120 112
--------------------- -----------
8 Net debt
30.9.19 31.3.19
GBP million GBP million
Cash and deposits 99 90
Money market funds - 347
Bank overdrafts (65) (59)
--------------------- -----------
Cash and cash equivalents 34 378
Other current borrowings and related swaps (351) (184)
Non-current borrowings and related swaps (1,124) (1,073)
Non-current interest rate swaps 30 13
Current lease liabilities (12) -
Non-current lease liabilities (65) -
--------------------- -----------
Net debt (1,488) (866)
--------------------- -----------
Net debt (including post tax pension deficits)
to underlying EBITDA
Six months ended
30.9.19 30.9.18
Restated(1)
GBP million GBP million
Underlying EBITDA 350 350
Depreciation and amortisation (91) (86)
Finance costs (66) (42)
Finance income 30 22
Share of profit of joint venture and associate 2 -
Tax expense (49) (40)
----------- -----------
Profit for the period 176 204
----------- -----------
Underlying EBITDA for this period 350 350
Underlying EBITDA for prior year 723 681
Less: Underlying EBITDA for prior first half (350) (327)
----------- -----------
Annualised underlying EBITDA 723 704
----------- -----------
Net debt (1,488) (1,036)
Pension deficits (74) (61)
Related deferred taxation 14 11
----------- -----------
Net debt (including post tax pension deficits) (1,548) (1,086)
----------- -----------
Net debt (including post tax pension deficits)
to underlying EBITDA 2.1 1.5
----------- -----------
(1) See note 15.
9 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(th) September 2019,
precious metal leases were GBP371 million at closing prices (31(st)
March 2019 GBP372 million). The group's accounting policy in
respect of precious metal leases is discussed in note 14.
10 Post-employment benefits
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.
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(st) April
2019 199 (1) (9) (15) (29) (38) 107
Current service
cost - in
operating
profit (4) (10) - (4) - (2) (20)
Past service
credit
- in
operating
profit - - - - 10 - 10
Administrative
expenses
- in
operating
profit (2) - - - - - (2)
Interest 2 - - - (1) - 1
Remeasurements 13 (2) - (8) (3) - -
Company
contributions 15 9 - - - 1 25
Exchange - - - (2) (2) - (4)
---------- ---------- ---------- ---------- ----------- ---------- -----------
At 30(th)
September
2019 223 (4) (9) (29) (25) (39) 117
---------- ---------- ---------- ---------- ----------- ---------- -----------
A past service credit of GBP10 million has been recognised in underlying
operating profit in respect of changes to the Johnson
Matthey Inc. Post-retirement Welfare Plan, effective 1(st) January
2020, which were announced during the period.
The post-employment benefit assets and liabilities are included in
the balance sheet as follows:
30.9.19 30.9.19 31.3.19 31.3.19
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 223 - 199 -
UK pension - cash balance section - (4) - (1)
UK post-retirement medical benefits - (9) - (9)
US pensions - (29) - (15)
US post-retirement medical benefits 7 (32) 8 (37)
Other 2 (41) 2 (40)
---------- ----------- ---------- -----------
Total post-employment plans 232 (115) 209 (102)
---------- ----------
Other long-term employee benefits (4) (4)
----------- -----------
Total long-term employee benefit
obligations (119) (106)
----------- -----------
11 Transactions with related parties
There have been no material changes in related party
relationships in the six months ended 30(th) September 2019 and no
related party transactions have taken place which have materially
affected the financial position or performance of the group during
that period.
12 Fair values
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.
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).
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 measured at fair
value is the face value of the receivable less the estimated costs
of converting the receivable into cash.
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.
Fair value
30.9.19 31.3.19 hierarchy
GBP million GBP million level
Financial instruments measured at fair value
Non-current
Investments at fair value through other comprehensive
income 56 52 1
Interest rate swaps 30 13 2
Borrowings and related swaps (9) (5) 2
Current
Trade receivables(1) 431 173 2
Other receivables(2) 4 9 2
Cash and cash equivalents - money market funds - 347 2
Other financial
assets(3) 15 22 2
Other financial
liabilities(3) (21) (13) 2
Financial instruments not measured at fair value
Non-current
Borrowings and related swaps (1,115) (1,068)
Lease
liabilities (65) -
Current
Cash and cash equivalents - cash and deposits 99 90
Cash and cash equivalents - bank overdrafts (65) (59)
Other borrowings and related swaps (351) (184)
Lease liabilities (12) -
(1) Trade receivables held in a part of the group with a business model
to hold trade receivables for collection or sale.
(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:
30.9.19 31.3.19
Carrying Fair Carrying Fair
amount value amount value
GBP million GBP million GBP million GBP million
US Dollar Bonds 2022, 2023,
2025 and
2028 (511) (522) (481) (477)
Euro Bonds 2021, 2023, 2025
and 2028 (266) (277) (251) (264)
Euro EIB loan 2019 (110) (111) (107) (108)
Sterling Bonds 2024 and 2025 (110) (120) (110) (118)
KfW US dollar loan 2024 (41) (43) (38) (39)
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 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 Changes in accounting policies
This note explains the impact of the adoption of IFRS 16,
'Leases', on the group's accounts and discloses the new accounting
policy that has been applied from 1(st) April 2019.
IFRS 16
IFRS 16 became effective from 1(st) April 2019, replacing IAS
17, 'Leases', and related interpretations. Whilst lessor accounting
is similar to IAS 17, lessee accounting is significantly different.
The group leases some of its property, plant and equipment which
are used by the group in its operations. Under IFRS 16, the group
recognises on the balance sheet a right-of-use asset and a lease
liability for future lease payments in respect of all leases unless
the underlying assets are of low value or the lease term is 12
months or less. In the income statement, rental expense on the
impacted leases is replaced with depreciation on the right-of-use
asset and interest expense on the lease liability.
It is unclear whether contracts entered into by the group to
lease metal from third parties constitute leases as defined by IFRS
16. Specifically, it is not clear whether the leased metal
represents a defined asset given its fungible nature. However, on
the basis that there is no alternative accounting standard
applicable to these transactions, the group has continued to
recognise the expense in the income statement on a straight-line
basis over the lease term, with no recognition on the balance
sheet.
The group has applied the modified retrospective transition
approach and has not restated comparative amounts for the year
ended 31(st) March 2019. Under this approach, the group has chosen
to measure right-of-use assets at 1(st) April 2019 at an amount
equal to the lease liability as adjusted for lease prepayments,
accrued lease expenses and onerous lease provisions.
The group has elected to adopt the following practical
expedients on transition:
-- not to capitalise a right-of-use lease asset or lease
liability where the lease expires before 31(st) March 2020;
-- not to reassess contracts to determine if the contract contains a lease;
-- to utilise onerous lease provisions to reduce right-of-use asset values;
-- to use hindsight in determining the lease term;
-- to exclude initial direct costs from the measurement of the right of use asset; and
-- to apply the portfolio approach where a group of leases has similar characteristics.
Impact of adoption on the group's primary statements
Income statement
The group estimates that profit before tax will be reduced by
approximately GBP1 million in the year ending 31(st) March 2020 as
a result of adopting IFRS 16, with operating profit and finance
costs increasing by GBP2 million and GBP3 million,
respectively.
Balance sheet
The group has recognised a right-of-use asset of GBP89 million
(after adjustments for lease prepayments, accrued lease expenses
and onerous lease provisions) and lease liabilities of GBP77
million on transition at 1(st) April 2019. The weighted average
incremental borrowing rate applied to lease liabilities was
4.2%.
Cash flow statement
There is no net cash flow impact from the adoption of IFRS 16.
Lease payments of GBP7 million during the six months ended 30(th)
September 2019, including interest, are included in financing
rather than operating activities.
Impact of adoption on the group's non-GAAP measures
The adoption of IFRS 16 has not had a material impact on the
group's non-GAAP measures.
14 Changes in accounting policies (continued)
Reconciliation between operating lease commitments and lease
liabilities
The following table reconciles between the operating lease
commitments disclosed under IAS 17 at 31(st) March 2019 and the
lease liabilities recognised on transition to IFRS 16 at 1(st)
April 2019:
GBP million
Future minimum amounts payable under non-cancellable operating
leases reported under IAS 17 at 31(st)
March 2019 76
Change in assessment of lease term 22
Low-value or short-term leases (1)
Reclassification of onerous lease provision 1
Impact of discounting lease liabilities (21)
Lease liabilities recognised on transition to IFRS 16 at 1(st)
April 2019 77
Current 11
Non-current 66
Lease liabilities recognised on transition to IFRS 16 at 1(st)
April 2019 77
Impact on consolidated balance sheet at 1st April 2019
The following table shows the effect of adopting IFRS 16 on the consolidated
balance sheet at 1(st) April 2019:
GBP million
Non-current assets
Right-of-use assets 89
Other receivables(1) (14)
Total non-current assets 75
Total assets 75
Current liabilities
Trade and other payables 1
Lease liabilities (11)
Total current liabilities (10)
Non-current liabilities
Lease liabilities (66)
Provisions 1
Total non-current liabilities (65)
Total liabilities (75)
Net assets -
(1) Prepayments reclassified as right-of-use assets.
Accounting policy applied to 31st March 2019
Under IAS 17, all of the group's leases were classified as
operating leases and lease payments made (net of any incentives
received from the lessor) were charged to the income statement on a
straight-line basis over the lease term.
14 Changes in accounting policies (continued)
Accounting policy applied from 1(st) April 2019
Leases are recognised as a right-of-use asset, together with a
corresponding lease liability, at the date at which the leased
asset is available for use.
The right-of-use asset is initially measured at cost, which
comprises the initial value of the lease liability, lease payments
made (net of any incentives received from the lessor) before the
commencement of the lease, initial direct costs and restoration
costs. The right-of-use asset is depreciated on a straight-line
basis over the shorter of the asset's useful life and the lease
term in operating profit.
The lease liability is initially measured as the present value
of future lease payments discounted using the interest rate
implicit in the lease or, where this rate is not determinable, the
group's incremental borrowing rate, which is the interest rate the
group would have to pay to borrow the amount necessary to obtain an
asset of similar value in a similar economic environment with
similar terms and conditions. Interest is charged to finance costs
at a constant rate of interest on the outstanding lease liability
over the lease term.
Payments in respect of short-term leases, low-value leases and
leases of intangible assets are charged to the income statement on
a straight-line basis over the lease term in operating profit.
15 Restatements
The comparatives for the six months ended 30(th) September 2018
have been restated as a result of a detailed review of revenue
transactions in the group's Platinum Group Metal Services business
conducted in the prior year which concluded that location and form
swaps and sale and repurchase agreements should be excluded from
revenue under IFRS 15. The group regularly enters into contracts
whereby metal is transferred with a separate agreement to buy back
the metal, either in a different location and/or in a different
form. IFRS 15 requires the presentation of swap transactions
(regardless of whether they are a location or form swap) with
counterparties of a similar nature to the group to be excluded from
revenue. It further clarifies that transactions with a linked sale
and future repurchase (sale and repurchase agreements) are excluded
from revenue and treated as finance transactions.
The impact of the restatement is to reduce both revenue and cost
of sales in respect of swaps and sale and repurchase agreements for
the six months ended 30(th) September 2018 by GBP604 million and
GBP1,537 million, respectively. The latter restatement includes
other, smaller errors identified during the review and also
increases finance costs and finance income by GBP18 million. The
restatement has no net impact on sales, profit, working capital,
net debt and net assets and, therefore, historic business
performance measures communicated by the group are unchanged.
Impact on the Condensed Consolidated Income Statement
Six months ended 30(th) September
2018
As Sale and
Location
previously repurchase and
reported agreements form swaps Restated
GBP million GBP million GBP million GBP million
Revenue 7,108 (1,537) (604) 4,967
Cost of sales (6,634) 1,537 604 (4,493)
------------- -------------
Gross profit 474 - - 474
------------- -------------
Finance costs (24) (18) - (42)
Finance income 4 18 - 22
------------- -------------
15 Restatements (continued)
Impact on the Condensed Consolidated Cash Flow Statement
Six months ended 30(th)
September 2018
As Sale and
previously repurchase
reported agreements Restated
GBP million GBP million GBP million
Interest received 4 18 22
Interest paid (27) (18) (45)
------------- -------------
Non-GAAP Measures
for the six months ended 30(th) September 2019
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.
Reconciliation
Non-GAAP measure to GAAP measure
Definition Purpose
Sales(1) Revenue excluding sales Provides a better measure See note
of precious metals to customers of the growth of the group 2
and the precious metal as revenue can be heavily
content of products sold distorted by year on year
to customers. fluctuations in the market
prices of precious metals
and, in many cases, the
value of precious metals
is passed directly on
to customers.
Underlying Underlying operating profit Provides a measure of See note
operating divided by sales. Underlying how we convert our sales 5
profit margin(1) operating profit excludes into underlying operating
profit or loss on disposal profit and the efficiency
of businesses, gain or of our business.
loss on significant legal
proceedings, together with
associated legal costs,
amortisation of acquired
intangibles and major impairment
and restructuring charges.
Underlying Underlying profit for the Our principal measure See note
earnings per period divided by the weighted used to assess the overall 5
share(1) average number of shares profitability of the group.
in issue.
Return on Underlying operating profit Provides a measure of See below
Invested Capital divided by average equity, the group's efficiency
(ROIC)(1) excluding post tax pension in allocating the capital
net assets, plus average under its control to profitable
net debt for the same period. investments.
Average working Monthly average of non-precious Provides a measure of See below
capital days metal related inventories, efficiency in the business
(excluding trade and other receivables with lower days driving
precious metals)(1) and trade and other payables higher returns and a healthier
(including any classified liquidity position for
as held for sale) divided the group.
by sales for the last three
months multiplied by 90
days.
Free cash Net cash flow from operating Provides a measure of See Condensed
flow activities after net interest the cash the group generates Consolidated
paid, net purchases of through its operations, Cash Flow
non-current assets and less capital expenditure. Statement
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 See note
post tax pension tax pension deficits and the group's ability to 8
deficits) quoted bonds purchased repay its debt.
to underlying to fund the UK pension
EBITDA (excluded when the UK pension
plan is in surplus) divided
by underlying EBITDA for
the same period.
(1) Key Performance Indicator
Return on Invested Capital (ROIC)
Six months ended
30.9.19 30.9.18
GBP million GBP million
Underlying operating profit for this period
(note 5) 265 271
Underlying operating profit for prior year 566 525
Less: Underlying operating profit for prior
first half (note 5) (271) (250)
Annualised underlying operating profit 560 546
Average net debt 1,270 1,029
Average equity 2,679 2,373
Average capital employed 3,949 3,402
Less: Average pension net assets (258) (170)
Less: Average related deferred taxation 40 26
Average capital employed (excluding post tax
pension net assets) 3,731 3,258
ROIC (excluding post tax pension net assets) 15.0% 16.7%
ROIC 14.2% 16.0%
Average working capital days (excluding precious
metals)
30.9.19 30.9.18
Restated(1)
GBP million GBP million
Inventories 1,475 1,176
Trade and other receivables 1,953 1,342
Trade and other payables (1,713) (1,122)
Total working capital 1,715 1,396
Less: Precious metal working capital (959) (671)
Working capital (excluding precious metals) 756 725
Six months ended
30.9.19 30.9.18
Days Days
Average working capital days (excluding precious
metals) 61 61
(1) See note 15.
2019
28(th) November
Ex dividend date
29(th) November
Interim dividend record date
2020
4(th) February
Payment of interim dividend
28(th) May
Announcement of results for the year ending 31(st) March 2020
4(th) June
Ex dividend date
5(th) June
Final dividend record date
23(rd) July
129(th) Annual General Meeting (AGM)
4(th) 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
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.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR FBLLLKFFXFBE
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November 21, 2019 02:01 ET (07:01 GMT)
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