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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Johnson Matthey Plc | LSE:JMAT | London | Ordinary Share | GB00BZ4BQC70 | ORD 110 49/53P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 5.00 | 0.29% | 1,747.00 | 1,742.00 | 1,744.00 | 1,763.00 | 1,735.00 | 1,763.00 | 286,503 | 16:35:07 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Chemicals & Chem Preps, Nec | 14.97B | 276M | 1.5064 | 11.56 | 3.19B |
From Apr 2019 to Apr 2024
TIDMJMAT
RNS Number : 9667H
Johnson Matthey PLC
21 November 2018
Half year results for the six months ended 30(th) September 2018
Delivering on our strategy and confident in our outlook
Hot Features
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Robert MacLeod, Chief Executive, commented:
"We had a good half, delivering double digit sales and operating profit
growth. I am pleased with the progress we are making on implementing
our strategy and delivering solutions for our customers through the
application of our strong science and technology.
Clean Air continues to grow strongly driven by our diesel share gains
in light duty Europe which are coming through as planned. Heavy duty
is also performing well, supported by strength in the Class 8 truck
market in the US. Efficient Natural Resources saw good sales growth
and margin improvement, and Health traded in line with our first half
expectations. We remain on track with our plans to commercialise eLNO(TM)
, our next generation battery material. Customer feedback remains positive
and, in July, the board approved the initial investment in our first
commercial plant.
The interim dividend was increased by 7% in line with medium term guidance,
reflecting our continued confidence in the group's future prospects.
We now expect full year operating performance towards the upper end
of our guidance of mid to high single digit growth."
Reported results Half year ended % change
30(th) September
----------------------------------------------------- --------------
2018 2017
--------------------------------- ------------------ ------------ ----------- --------------
Revenue GBP million 7,108 6,478 +10
Operating profit GBP million 264 222 +19
Profit before tax (PBT) GBP million 244 205 +19
Earnings per share (EPS) pence 106.1 87.9 +21
Interim dividend per share pence 23.25 21.75 +7
--------------------------------- ------------------ ------------ ----------- --------------
Underlying(1) performance Half year ended % change
30(th) September
---------------------------------------------------------- -------------- ---------------
% change,
constant
2018 2017 rates(2)
-------------------------------------- ------------------ ------------ ----------- -------------- ---------------
Sales excluding precious metals
(Sales) GBP million 2,009 1,853 +8 +10
Operating profit GBP million 271 250 +8 +10
Profit before tax GBP million 251 233 +7 +9
Earnings per share pence 109.0 99.8 +9
-------------------------------------- ------------------ ------------ ----------- -------------- ---------------
Underlying performance
-- Sales grew 10% and underlying operating profit grew 10% at constant
rates(2) driven by continued strong growth in Clean Air
-- Underlying EPS was up 9% and grew slightly ahead of operating profit
benefiting from a lower underlying tax rate
-- As indicated previously, free cash flow was lower due to platinum
group metal (pgm) refinery downtime, driving higher precious metal
working capital
-- Average working capital days excluding precious metals improved by
two days to 61 days
-- Return on invested capital declined from 16.4% at 31(st) March 2018
to 16.0% at 30(th) September 2018 primarily due to an increase in
the net pension fund asset
-- Strong balance sheet maintained with net debt (including post tax
pension deficits) to EBITDA of 1.5 times
By sector
-- Continued strength in Clean Air with sales up 11%, well ahead of
global vehicle production, driven by double digit growth in both
light and heavy duty
-- Sales growth of 3% in Efficient Natural Resources and strong operating
profit growth reflecting improved efficiency and higher precious
metal prices
-- In Health, we have made good strategic progress and are trading in
line with full year expectations. Sales remained stable but operating
profit was lower, in line with our guidance, due to product mix and
costs associated with manufacturing footprint optimisation
-- We have made progress in commercialisation of our next generation
battery material product, eLNO. In New Markets overall, we saw strong
sales growth but lower operating profit
Reported results
-- Reported revenue increased 10% slightly ahead of sales growth
-- Reported operating profit was GBP264 million, up 19%, reflecting
an GBP18 million major impairment and restructuring charge in the
prior year
-- Reported EPS was up 21%, reflecting higher operating profit and a
lower tax rate following a change in US tax legislation
-- Cash outflow from operating activities of GBP88 million due to an
increase in precious metal working capital
-- Interim dividend up 7% to 23.25 pence reflecting our confidence in
the group's future prospects
Outlook for the year ending 31(st) March 2019
-- We now expect growth in operating performance at constant rates towards
the upper end of our previous guidance of mid to high single digit
growth
-- At current foreign exchange rates (GBP:$ 1.307, GBP:EUR 1.129, GBP:RMB
8.85), translational foreign exchange movements for the year ending
31(st) March 2019 are expected to benefit sales and underlying operating
profit by GBP1 million and GBP2 million respectively
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 8444
Katharine Burrow
Media 020 7269 8407
Sally Jones Director of Corporate Relations 020 7353 4200
David Allchurch Tulchan Communications
Notes:
1. Underlying is before amortisation of acquired intangibles, major
impairment and restructuring charges, profit or loss on disposal
of businesses, gain or loss on significant legal proceedings together
with associated legal costs, significant tax rate changes and, where
relevant, related tax effects. For reconciliation see note 5 on page
30
2. Unless otherwise stated, sales and operating profit commentary refers
to performance at constant rates. Growth at constant rates excludes
the translation impact of foreign exchange movements, with H1 2017/18
results converted at H1 2018/19 average exchange rates
For definitions and reconciliations of other non-GAAP measures see pages
39 and 40
eLNO is a trademark of the Johnson Matthey group of companies
Progress on our strategy
Our strategy will deliver sustained growth and value creation through
the application of our science to solve customers' complex problems
for a cleaner, healthier world. This is underpinned by:
-- Sustained leadership in growing, high margin technology driven markets
-- Targeted investment in R&D which accelerates growth
-- Relentless focus on operational excellence
This strategy will deliver sustained growth in Clean Air, market leading
growth in Efficient Natural Resources and break out growth in Health
and Battery Materials. Over the medium term, it will deliver:
-- Mid to high single digit EPS CAGR
-- Expanding group ROIC to 20%
-- Progressive dividend
Sustained growth in Clean Air
Our strategy in Clean Air provides clear visibility of sustained growth
over the next decade, as we help solve the challenges of air quality
across the world. Share gains in Europe and tighter legislation across
the world, particularly in Europe and China, will deliver mid single
digit sales CAGR. Our progress against this strategy includes:
-- Our share of Light Duty diesel in Europe increased from c.45% in
2017/18 to c.60% at the end of the first half, and we are on track
to achieve a c.65% share by March 2019
-- Delivering planned efficiencies from optimising our cost base and
processes. Expect to maintain a margin of c.14% in the medium term
-- Further platform wins in China to help customers meet China 6/VI
legislation, with the majority of expected business already secured
-- Starting construction of our new manufacturing facilities in Poland
and China to increase capacity to meet demand from new legislation
Market leading growth in Efficient Natural Resources
Our strategy for Efficient Natural Resources is to leverage our market
leading technologies through focused resource allocation to outperform
in selected, higher growth segments. Increased operational efficiency
will enhance performance to deliver profit growth ahead of sales growth.
Our progress against this strategy includes:
-- Good progress in commercialising newly developed technology such
as mono ethylene glycol and waste to aviation fuel, with new licences
in relation to these signed in the period
-- Simplifying our product and customer portfolio to help deliver profit
growth above sales growth through more rigorous resource allocation
and deeper relationships with customers to identify opportunities
to add greater value
-- Started to deliver savings in relation to centralising procurement
and also operational excellence with process improvements across
a number of sites
-- Restructuring programme delivering expected annualised cost savings
of GBP12 million, with around GBP5 million achieved in the period
Break out growth in Health
Our Health strategy will deliver break out growth as we benefit from
the commercialisation of our pipeline of new generic products. This
pipeline is expected to deliver incremental operating profit of around
GBP100 million by 2025, driving margin for the sector to the high 20%s.
Our progress against this strategy includes:
-- R&D investment in our pipeline of new generic API products. This
pipeline remains on track, with one product launched in October and
other products progressing through the stages of development and
commercialisation
-- Our pipeline of innovator API products also continued to progress
with three products nearing commercialisation
-- Progress on optimising our manufacturing footprint to build the platform
for break out growth:
o Previously announced closure of manufacturing plant in Riverside,
US now complete
o First commercial sales made from our plant in Annan, UK and this will
be fully operational by the end of 2019/20
Break out growth in Battery Materials
Our strategy in Battery Materials will deliver break out growth as we
commercialise our eLNO battery materials. eLNO is a leading ultra-high
energy density next generation material, competing with future materials
such as NMC 811. It enables rapid development of long range pure battery
electric vehicles. Our progress against this strategy includes:
-- Further increase in R&D investment to continue eLNO's technology
leadership
-- Continued testing of our material by customers with positive feedback
as we now develop more tailored solutions to meet their different
needs
-- Commercialisation progressing with pilot plant operational and on
track for design and construction of our first commercial plant with
board approval for the initial capital investment. The plant will
be located in mainland Europe in line with the development of its
supply chain and we continue to expect production in 2021/22
Relentless focus on operational excellence
Growth from our sector strategies is supported by a relentless focus
on operational excellence across the whole group. We are continually
identifying opportunities to run our business more efficiently. Within
this there are a number of key areas which we are focused on, including
commercial excellence, procurement, restructuring savings, upgrading
our core IT systems and working capital management. We are taking significant
actions and investing ahead of the realisation of benefits. Our progress
against this strategy includes:
-- Commercial excellence programmes progressing. These will drive a
better understanding of our customers' needs, enabling us to deliver
greater value through our technology-led propositions; improve value
based data driven decisions and provide an enhanced customer experience
-- Continued build out of global procurement process, which is expected
to deliver GBP60 million of savings over the next three years, with
three quarters benefiting the income statement. We expect around
GBP13 million of savings to benefit the income statement in 2018/19,
of which
GBP5 million was achieved in H1 2018/19
-- Our restructuring programme will deliver annualised cost savings
of around GBP25 million. We delivered GBP12 million of savings in
2017/18, and expect to deliver the majority of the remaining savings
in the current financial year
-- We are progressively upgrading our core IT platform moving from over
40 enterprise resource planning (ERP) systems to one global system
(SAP) and the first implementation is now successfully complete.
This will reduce complexity; help us to better understand our processes
to drive future cost savings and make us more agile and responsive
to our customers
-- Improved average working capital days excluding precious metals by
two days to 61 days, despite planned inventory build ahead of the
first implementation of SAP. This represents an eight day average
reduction over the last 18 months compared to the previous 12 months
Summary of 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
----------------------------- --------- ----------------
2018 2017
----------------------------- --------- --------- --------- ----------------
Clean Air 1,312 1,194 +10 +11
Efficient Natural Resources 463 458 +1 +3
Health 118 119 -1 -
New Markets 173 143 +21 +23
Eliminations (57) (61)
Sales 2,009 1,853 +8 +10
----------------------------- --------- --------- --------- ----------------
Underlying operating profit Half year ended % change % change,
(GBP million) 30(th) September constant rates
----------------------------- --------- ----------------
2018 2017
----------------------------- --------- --------- --------- ----------------
Clean Air 191 168 +14 +15
Efficient Natural Resources 85 70 +23 +26
Health 15 21 -33 -31
New Markets 3 9 -69 -67
Corporate (23) (18)
Underlying operating profit 271 250 +8 +10
----------------------------- --------- --------- --------- ----------------
Reconciliation of underlying operating profit Half year ended
to operating profit (GBP million) 30(th) September
2018 2017
----------------------------------------------- --------- ---------
Underlying operating profit 271 250
Amortisation of acquired intangibles (7) (10)
Major impairment and restructuring charges(1) - (18)
Operating profit 264 222
----------------------------------------------- --------- ---------
(1) For further detail on these items please see page 16
Operating results by sector
Clean Air
Strong sales growth driven by double digit growth in both LDV and HDD
catalysts
-- Light Duty Europe sales up 16% with very strong growth in diesel
and modest growth in gasoline. Diesel share gains coming through
driving our light duty diesel market share in Europe to c.60% at
the end of the half year and on track for a c.65% share by March
2019
-- Light Duty Asia sales grew 7%, ahead of market production, with growth
across key markets
-- Light Duty Americas sales were broadly flat with strong growth in
gasoline offset by a decline in diesel following strong growth in
the prior year
-- Sales of HDD catalysts were up 14% led by very strong growth in the
US and good growth in Europe, both ahead of market production
-- Operating profit was up 15% and margin improved 0.5 percentage points
to 14.6%
Half year ended % change % change,
30(th) September constant rates
2018 2017
GBP million GBP million
Sales
LDV Europe 479 414 +16 +16
LDV Asia 177 167 +6 +7
LDV Americas 175 183 -4 -1
Total Light Duty Vehicle Catalysts 831 764 +9 +10
HDD Americas 234 195 +20 +24
HDD Europe 165 152 +9 +8
HDD Asia 63 63 -1 -
Total Heavy Duty Diesel Catalysts 462 410 +13 +14
Other - stationary 19 20 -7 -6
Total sales 1,312 1,194 +10 +11
Underlying operating profit 191 168 +14 +15
Margin 14.6% 14.1%
Return on invested capital (ROIC) 30.9% 30.6%
Reported operating profit 190 167 +14
------------------------------------ ------------ ------------ --------- ----------------
Estimated LDV sales and production (number of light duty vehicles)*
Half year ended 30(th) September
2018 2017 %
millions millions change
--------------- ------------ ----------------- ----------------- -------
North America Sales 10.6 10.7 -1
Production 8.5 8.4 +1
Total Europe Sales 10.6 10.2 +3
Production 10.9 10.6 +2
Asia Sales 21.4 20.8 +3
Production 23.5 23.0 +2
Global Sales 47.0 46.0 +2
Production 46.0 44.9 +2
---------------------------- ----------------- ----------------- -------
Estimated HDD truck sales and production (number of trucks)*
Half year ended 30(th) September
2018 2017 %
thousands thousands change
--------------- ------------ ----------------- ---------------- -------
North America Sales 300 264 +14
Production 302 273 +10
Total Europe Sales 227 223 +2
Production 293 291 +1
Asia Sales 990 971 +2
Production 977 973 -
Global Sales 1,574 1,504 +5
Production 1,627 1,584 +3
---------------------------- ----------------- ---------------- -------
*Source: LMC Automotive
Light Duty Vehicle (LDV) Catalysts Our LDV Catalyst business provides catalysts for cars and other light duty vehicles powered by diesel and gasoline. The business grew 10%, well ahead of global vehicle production. In Europe, where diesel accounts for around 85% of our LDV business, sales grew 16% primarily driven by our diesel market share gains. Sales of diesel catalysts were up 18% reflecting our market share gains and significantly ahead of diesel market production which saw a 6% decline year on year. With an increased diesel market share of c.60% at the end of our first half, we remain on track to achieve our diesel market share of c.65% by March 2019. As our market share gains come through, we are seeing an increased proportion of sales of higher value, more complex catalyst systems. In Western Europe, diesel accounted for 36% of new passenger car sales in the first half of 2018/19 compared to 40% 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 44% for the first half of 2018/19, compared with 47% in the second half of 17/18. Overall, these trends do not change our assumption of a diesel share of around 25% of total light duty vehicles and 20% of cars in 2025. Sales of gasoline catalysts were up 4%, behind market production growth of 8%, due to weaker performance from some of our customers. Growth was supported by an improved sales mix with an increased number of coated gasoline particulate filters (GPFs) sold in the period. We expect the number of vehicles with coated GPFs to continue to increase in the medium term which doubles our sales value per gasoline vehicle. In gasoline, we have seen a shift in the market with larger engine gasoline vehicles growing faster than those with smaller engines, where we are over indexed. In light of this market dynamic and some uncertainty around platform wins, our previously anticipated five percentage point market share gain may not be achieved by 2020/21. However, the profit impact is not material. The World Harmonised Light Duty Testing Procedure (WLTP) was introduced from September 2018. This resulted in some disruption to phasing of European automotive production and sales. However, in our first half we did not see a material impact from WLTP on our business. Our growth in LDV Europe will continue to be driven by both diesel and gasoline through a combination of share gains, primarily in diesel, and increasing value per catalyst over the next few years. Sales in Asia LDV grew ahead of market production, with sales growth in all our key markets. China sales grew 3%, in line with market production. We saw a slowdown in China towards the end of the first half due to broader macroeconomic weakness and customers reducing inventory levels. Sales in Americas LDV were down 1%, slightly behind market production. Strong performance in gasoline reflected the ramp up of a new platform. This was offset by weaker performance in diesel following strong growth in the prior year and the ramp down of a platform. Heavy Duty Diesel (HDD) Catalysts Our HDD Catalyst business provides catalysts for trucks, buses and non-road equipment. In the first half sales grew 14%, significantly ahead of market production in Europe and the Americas. The Americas HDD Catalyst business saw sales growth of 24%. Sales of catalysts for Class 8 trucks were well ahead of market production of 17% and we now expect high levels of production to continue until the middle of the 2019 calendar year. Catalyst sales to smaller Class 4 to 7 trucks also outpaced market production. The European HDD Catalyst business continued to outperform the market with sales growing 8% in the period driven by outperformance by our customers and increased sales of catalysts to non-road vehicles. Sales in the Asian HDD Catalyst business were flat, in line with market production. In China, sales fell 10% also in line with the market. This followed two years of strong production growth driven by increased demand for trucks as a result of loading limit legislation. Our sales in India grew strongly from a low base. Underlying operating profit Operating profit grew 15% and margin improved by 0.5 percentage points, benefiting from volume leverage and tight cost control. ROIC ROIC improved 0.3 percentage points to 30.9% reflecting higher operating profit. Full year 2018/19 outlook We expect Clean Air to deliver continued strong sales growth in the remainder of 2018/19 as significant share gains in European light duty diesel come through. In the second half, we expect benefits from operational gearing to be offset by price downs, trade tariffs and additional costs related to the ramp up of our share gains. As a result, the 2018/19 margin is expected to be in line with the prior year.
Efficient Natural Resources
Growth in sales with continued margin improvement
-- Sales growth across the majority of businesses, driven by strong
demand for refill catalysts and higher average pgm prices
-- Operating profit grew strongly and margin improved by 3.2 percentage
points to 18.5%, benefiting from higher average pgm prices and improvements
in efficiency across the Sector
Half year ended % change % change,
30(th) September constant rates
2018 2017
GBP million GBP million
Sales
Catalyst Technologies 264 260 +1 +3
Pgm Services 128 128 - +2
Advanced Glass Technologies 39 41 -5 -5
Diagnostic Services 32 29 +12 +17
Total sales 463 458 +1 +3
Underlying operating profit 85 70 +23 +26
Margin 18.5% 15.3%
Return on invested capital (ROIC) 12.6% 12.3% Reported operating profit 82 59 +40 ----------------------------------- ------------ ------------ --------- ---------------- Catalyst Technologies Our Catalyst Technologies business licenses technology and manufactures speciality catalysts and additives for the chemicals and oil and gas industries. Sales grew 3% with strong growth in refill catalysts partly offset by lower first fill catalysts. Refill catalysts and additives make up the majority of sales within our Catalyst Technologies business. These grew double digit, outperforming our markets in aggregate. This was primarily driven by the phasing of orders as more customers changed out their catalysts. We saw particularly strong performance in methanol, and good growth in catalysts for petrochemical and hydrogen plants. Sales of catalyst first fills were significantly down. These are one-off in nature and driven by the start-up of new plants. While sales of first fills of methanol and ammonia catalysts were broadly stable, first fills to refineries were down following a large order in the first half of 2017/18. Licensing income was broadly stable following a number of years of decline. We signed a number of licences in the period, although overall activity around new plant builds, especially for the technologies we license, remained at low levels. Our development and commercialisation of new technologies is progressing well and whilst there are some early signs of improved activity in certain markets, we do not expect a material recovery in our licensing income in the near term. Pgm Services Our Pgm Services business primarily provides a strategic service to the group, principally 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 2%. We saw good growth in our Pgm Refining and Recycling business due to higher average pgm prices. Sales of chemical products were steady but sales of industrial products containing pgms were down in the period. Average palladium and rhodium prices were up 12% and 119% respectively, while the platinum price declined 9%, compared to the same period last year. We had downtime in one of our pgm refineries in the first half, which resulted in a significant increase in precious metal working capital, which we are working hard to reduce. Whilst we will not be at normalised levels by the year end, we expect to have made significant progress. To ensure our refineries operate effectively and reliably we are increasing investment in our plants. Advanced Glass Technologies Advanced Glass Technologies mainly provides black obscuration enamels and silver paste for automotive glass applications. Although sales were stable in the automotive part of the business, demand for non-automotive enamels and ceramics was lower, which resulted in a slight decline in overall sales. Diagnostic Services Our Diagnostic Services business grew strongly, with the higher oil price driving increased activity in the upstream oil and gas industry. This resulted in improved demand across the majority of our services. Underlying operating profit Operating profit was up 26% and margin improved by 3.2 percentage points, benefiting by around GBP10 million from higher pgm prices, around GBP5 million of savings from the restructuring programme, and improved efficiency across the Sector (of which around GBP5 million will not repeat). This was partly offset by higher operating costs in the pgm refineries and investment in their safety and resilience. ROIC ROIC increased slightly to 12.6%. Although operating profit grew strongly, we also had significantly higher working capital due to the pgm refinery downtime in the half. Full year 2018/19 outlook Our outlook for Efficient Natural Resources is unchanged. We expect slight sales growth and operating profit growth ahead of sales, although there is scope to outperform if current momentum continues. In addition, we will also benefit from around GBP7 million of cost savings in relation to the restructuring programme started in 2017/18.
Health
Sales stable with operating profit down as expected; trading in line
with full year expectations
-- Sales declined slightly in Generics whilst Innovators continued to
grow well
-- Operating profit declined 31% and margin was 5.8 percentage points
lower as expected. This was mainly due to a weaker product mix because
of a decline in high margin products as they moved through their
natural life cycle and net costs associated with footprint optimisation
-- Good strategic progress in line with our plans as we build our platform
for break out growth. We continue to invest in the pipeline of generic
APIs and optimise our manufacturing footprint
Half year ended % change % change,
30(th) September constant rates
2018 2017
GBP million GBP million
Sales
Generics 80 82 -3 -2
Innovators 38 37 +3 +6
Total sales 118 119 -1 -
Underlying operating profit 15 21 -33 -31
Margin 12.4% 18.2%
Return on invested capital (ROIC) 7.4% 10.0%
Reported operating profit 15 19 -27
----------------------------------- ------------ ------------ --------- ----------------
Generics
Our Generics business develops and manufactures generic APIs for a variety
of treatments. Sales were broadly stable, although with a mixed performance
across the business.
As expected, sales of controlled APIs were down. There was a reduction
in both pricing and volumes of certain particularly high margin ADHD
APIs as they move through their natural lifecycle. This was partly offset
by growth in speciality opiates, with higher volumes supported by increased
capacity from the continued ramp up of our manufacturing site in Annan,
UK. Sales of bulk opiates remained stable.
Our non-controlled APIs continued to grow. We saw growth across a number
of products, although there was a decline in sales in relation to dofetilide
as new competitors for our customer entered the market in September.
Innovators
Our Innovators business continued to grow well. We saw growth from sales
of APIs where our customers are increasing volumes as they move into
late stage testing ahead of commercialisation. This was partly offset
by a decline in sales of another API for a branded drug already in commercial
production. Income in relation to clinical development work remained
broadly stable.
API product pipeline
We continued to invest in our new product pipeline across both our Generics
and Innovators businesses and this is developing in line with our plans.
We now have 46 products in our pipeline of generic APIs (31(st) March
2018: 39 products). In October, two products were submitted for regulatory
approval and one product was launched. Within our pipeline of innovator
APIs, three products are nearing commercial launch with new drug approvals
(NDAs) filed with the US Food and Drug Administration (FDA) by our customers.
Underlying operating profit
Operating profit was down 31% and margin decreased by 5.8 percentage
points. This mainly reflected a significant decline in high margin products
as they moved through their natural life cycle. Operating profit was
also impacted by net costs associated with the optimisation of our manufacturing
footprint due to the closure of Riverside, US and ramp up of Annan,
UK. Whilst this optimisation will deliver significant benefits over
the medium term, associated costs in the period outweighed early savings.
ROIC
Return on invested capital declined 2.6 percentage points to 7.4% driven
by lower operating profit.
Full year 2018/19 outlook
We are trading in line with full year expectations and our outlook for
Health is unchanged. For the full year, we continue to expect sales
in Health to be broadly stable and for operating profit to be down.
New Markets
Strong sales growth but operating profit lower; continued progress in
commercialising eLNO
-- Sales growth driven by strong demand for our non-automotive battery
systems and fuel cells
-- Operating profit declined 67% mainly due to higher costs within our
Battery Materials business as we build strategic customer relationships
to support commercialisation of eLNO
-- Continued progress in commercialising eLNO with Board approval for
the initial capital investment in our first commercial plant
Half year ended % change % change,
30th September constant rates
2018 2017
GBP million GBP million
Sales
Alternative Powertrain 98 65 +52 +52
Medical Device Components 36 39 -8 -6
Life Science Technologies 23 23 +2 +5
Other 16 16 -2 -
Total sales 173 143 +21 +23
Underlying operating profit 3 9 -69 -67
Margin 1.6% 6.1%
Return on invested capital (ROIC) 5.1% 7.9%
Reported operating profit/(loss) - (5) +102
----------------------------------- ------------ ------------ --------- ----------------
Alternative Powertrain
Our Alternative Powertrain business provides battery materials for
automotive applications, battery systems for a range of applications
and fuel cell technologies. Sales grew over 50% driven by significant
growth in battery systems for e-bikes and continued momentum in fuel
cells for non-automotive applications.
We continue to make good progress in the development and commercialisation
of our ultra-high energy density battery material, eLNO, as discussed
on page 4. Sales of LFP battery materials were flat and remain at
a low level, with electric vehicle tax incentives in China continuing
to favour high energy materials over LFP.
Medical Device Components
Our Medical Device Components business leverages our science and technology
to develop products found in devices used in medical procedures. Sales
declined 6% due to quality issues which have now been resolved.
Life Science Technologies
Our Life Science Technologies business provides advanced catalysts
to the pharmaceutical and agricultural chemicals markets. Sales grew
5% in the period, supported by sales to two large customers.
Underlying operating profit
Operating profit declined 67% and margin reduced by 4.5 percentage
points to 1.6%. This was mainly impacted by higher costs in our Battery
Materials business as we build strategic customer relationships to
support commercialisation of eLNO. The margin was further affected
by the strong increase in lower margin Battery Systems sales.
ROIC
ROIC declined to 5.1% reflecting lower operating profit.
Full year 2018/19 outlook
New Markets is expected to deliver sales growth in 2018/19. Operating
profit is now expected to be down for the full year, although second
half operating profit will be ahead of the same period last year.
Corporate
Corporate costs in the period were GBP23 million, an increase of GBP5
million from the first half of last year. This was due to higher legal
costs and building further capability in group functions.
Full year 2018/19 outlook
As previously guided, corporate costs will be higher for the full year
2018/19 compared to 2017/18.
Financial review
Research and development (R&D)
We invested GBP91 million on R&D in the period, including GBP8 million
of capitalised R&D. This continues to represent around 5% of sales,
although spend was down 8% partly due to phasing of investment. Key
areas of spend included next generation technologies in Clean Air,
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 84% of non-sterling
denominated underlying operating profit in the half year ended 30(th)
September 2018, were:
Share of H1 2018/19
non-sterling denominated Average exchange rate
underlying operating Half year ended
profit 30(th) September
--------------------------
2018 2017 % change
------------------ -------------------------- ----------- ----------- ---------
US dollar 36% 1.329 1.295 +3
Euro 38% 1.131 1.138 -1
Chinese renminbi 10% 8.77 8.76 -
------------------ -------------------------- ----------- ----------- ---------
In the six months ended 30(th) September 2018 there were limited changes
in exchange rates compared to the same period last year. Overall, the
impact of exchange rates decreased sales and underlying operating profit
for the period by GBP27 million and GBP4 million respectively.
If current exchange rates (GBP:$ 1.307, GBP:EUR 1.129, GBP:RMB 8.85)
are maintained throughout the year ending 31(st) March 2019, foreign
currency translation will have a positive impact of approximately GBP2
million on underlying operating profit. A one cent change in the average
US dollar and euro exchange rates each has an impact of approximately
GBP2 million and GBP2 million respectively on full year underlying operating
profit and a ten fen change in the average rate of the Chinese renminbi
has an impact of approximately GBP1 million.
Pgm prices
Higher average pgm prices benefited operating profit by around GBP10
million in the period in Efficient Natural Resources.
Major impairment and restructuring costs
We had no major impairment and restructuring costs in the six months
ended 30(th) September 2018. Cash spend in relation to ongoing restructuring
in H1 2018/19 was GBP4 million.
Our group restructuring programme is expected to deliver annualised
cost savings of around
GBP25 million. We delivered GBP12 million of savings in 2017/18, and
expect to deliver the majority of the remaining savings in the current
financial year. In our first half we realised an incremental benefit
of GBP7 million compared to H1 2017/18. See below for a breakdown showing
the cost, cash costs and cost savings achieved to date:
Group restructuring Impairment and restructuring Cash costs Cost savings in
programme charge the period
(GBP million)
--------------------- ----------------------------- ----------- ----------------
H1 2017/18 18 4 4
H2 2017/18 25 9 8
FY 2017/18 43 13 12
H1 2018/19 - 2 11
--------------------- ----------------------------- ----------- ----------------
As expected, we have completed the closure of our Health Sector Riverside,
US facility. This is a key part of our plan to optimise our Health manufacturing
footprint and will deliver significant benefits over the medium term.
Finance charges
Net finance charges in the period amounted to GBP20 million, up from
GBP16 million in the first half of 2017/18. This was primarily driven
by higher precious metal funding costs following downtime during the
half in one of our pgm refineries.
For the full year ending 31(st) March 2019 we expect net finance charges
to be higher than in 2017/18 due to rising US interest rates, higher
borrowing costs as we expand in China and higher precious metal funding
costs.
Taxation
The tax charge for the half year ended 30(th) September 2018 was GBP40
million, an effective tax rate of 16.4% (H1 2017/18: 17.7%). The tax
charge on underlying profit before tax was GBP41 million, an effective
tax rate of 16.3%, down from 17.9% in the half year ended 30(th) September
2017. This decrease was primarily due to changes in the US tax legislation.
We currently expect the tax rate on underlying profit for the year ending
31(st) March 2019 to remain around 16%.
Post-employment benefits
IFRS - accounting basis
At 30(th) September 2018, 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 GBP270 million.
The cost of providing post-employment benefits in the period was GBP14
million, down from GBP22 million, primarily reflecting a decrease in
the current service cost due to a higher discount rate. The post-employment
benefits cost also included a past service credit of GBP8 million, which
compared to GBP5 million in the prior period.
Actuarial - funding basis
In order to reduce the company's long-term pension risk exposure a number
of changes to the group's UK pension scheme became effective from 1(st)
July 2018:
-- Contributions from those employees who remain in the career
average defined benefit section of the scheme have been increased
and will further rise over the next few years to help fund the
increased cost of providing these benefits
-- The accrual rate in the career average defined benefit section
reduced from 1/80(th) to 1/100(th) for each year of future service
after this date
-- Employees in the career average defined benefit section of the
scheme were given the option of switching to the contributory
cash balance defined benefit scheme. This resulted in a past
service credit of GBP8 million.
UK's withdrawal from European Union
Whilst the details of the UK's relationship with the European Union
(EU) remain the subject of ongoing negotiation, we continue to monitor
the associated risks of the UK's planned exit from the EU across our
business. Our well established working group has continued to develop
plans for a range of scenarios to ensure Johnson Matthey is well placed
to navigate the uncertainty.
The working group has started to implement a number of actions to mitigate
risks with a specific focus on trade, regulation and our people. Given
the nature of our trading relationship across Europe, we are taking
steps to minimise the impact of disruption in our supply chain, for
example through building inventory.
We are confident in the plans we have made for possible Brexit scenarios,
and we are in a good position to manage the effects on our European
operations.
Capital expenditure
Capital expenditure was GBP104 million in the first half, 1.3 times
depreciation and amortisation (excluding amortisation of acquired intangibles).
In the period, projects included:
-- New Clean Air manufacturing plants in Poland and China to support
demand from tightening legislation in Europe and China, and
the share gains in European light duty diesel, while also enhancing
our efficiency and operating flexibility
-- Upgrading our core IT business systems
-- Investment in our Health manufacturing and development facilities
in Annan, UK and continued investment in our Health API product
pipeline
-- Investment in development of our eLNO material, as well as spend
on our pilot, demonstration and commercial plants as we commercialise
our market leading product
Capital expenditure for the full year is expected to be up to GBP350
million as our investments into the growth projects mentioned above
increases.
Free cash flow and working capital
Free cash flow was an outflow of GBP206 million. This was due to a working
capital outflow of GBP391 million, of which GBP283 million related to
precious metal primarily reflecting downtime at one of our pgm refineries
in the half.
Excluding precious metal, working capital days were broadly stable at
65 days compared to
64 days at 30(th) September 2017. Average working capital days excluding
precious metal improved two days compared to the same period last year
to 61 days. This was despite increased inventory during the period related
to the first site implementation of our single global IT system (SAP).
Our target is for year-end working capital days excluding precious metal
to be in the 50 to 60 day range.
Interim dividend
The board has increased the interim dividend by 7% to 23.25 pence per
share. The interim dividend will be paid to shareholders on 5(th) February
2019, with an ex dividend date of
29(th) November 2018.
Return on invested capital (ROIC)
ROIC declined to 16.0% from 16.4% at 31(st) March 2018, mainly due to
an increase in the net pension fund asset. Excluding net pension fund
assets, ROIC would have been 16.5% in line with full year 2017/18, on
the same basis.
Capital structure
Net debt at 30(th) September 2018 was GBP1,036 million. This is an increase
of GBP357 million from 31(st) March 2018. Net debt increases to GBP1,086
million when adjusted for the post-tax pension deficits. The group's
net debt (including post tax pension deficits) to EBITDA was 1.5 times
(31(st) March 2018: 1.1 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 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 current specific matter, Johnson Matthey has 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 reported failures have not been
demonstrated to be due to the coated substrate supplied by Johnson Matthey.
The particular coated substrate has been sold to only these two customers.
While Johnson Matthey works with all its customers to ensure appropriate
product quality, we have not received similar notification of issues
in respect of other emissions after-treatment components from these
or any other customers. Johnson Matthey has not been contacted by any
regulatory authority about these failures.
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. 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. 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 they believe that
it is appropriate to prepare the accounts on a going concern basis.
Risks and Uncertainties
The principal risks and uncertainties to which the group is exposed
are unchanged from those identified in our 2018 annual report.
The principal risks and uncertainties, together with the group's strategies
to manage them, are set out on pages 76 to 81 of the 2018 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 are poorly planned to respond. Whilst not a principal risk,
see our financial review on page 17 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 - Failure to maintain our
competitive advantage in existing markets
-- Environment, health and safety - Operating safely in line with
changes to environmental, health and safety legislation standards
-- Sourcing of strategic materials - Any breakdown in the supply of
certain strategic raw materials would lead to an inability to manufacture
and satisfy customer demand
-- People - Ensure we have the breadth and depth of leadership and
the appropriate capabilities
-- Security of metal and highly regulated substances
-- Intellectual capital management
-- Failure of significant sites
-- Ethics and compliance - Doing the right thing
-- Business transition - Failure to manage major programmes and transition
from a big small company to a small big company
-- Product quality
-- Applications, systems and cyber
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
Odile Desforges Non-Executive Director
Alan Ferguson Non-Executive Director, Senior Independent Director
and Chairman of the Audit Committee
Jane Griffiths 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 Sector Chief Executive, Clean Air
The responsibility statement was approved by the Board of Directors
on 20(th) November 2018 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 2018. 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 2018;
-- 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 2018
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 2018
Six months ended
30.9.18 30.9.17
Notes GBP million GBP million
Revenue 2, 3 7,108 6,478
Cost of sales (6,634) (6,045)
----------- -----------
Gross profit 474 433
Operating expenses (203) (183)
Amortisation of acquired intangibles 6 (7) (10)
Major impairment and restructuring charges 7 - (18)
----------- -----------
Operating profit 264 222
Finance costs (24) (20)
Finance income 4 4
Share of loss of joint venture and associate - (1)
----------- -----------
Profit before tax 244 205
Income tax expense (40) (36)
----------- -----------
Profit for the period 204 169
----------- -----------
pence pence
Earnings per ordinary share
Basic 106.1 87.9
Diluted 105.9 87.8
Condensed Consolidated Statement of Total Comprehensive Income
for the six months ended 30(th) September 2018
Six months ended
30.9.18 30.9.17
Notes GBP million GBP million
Profit for the period 204 169
----------- -----------
Other comprehensive income
Items that will not be reclassified to the
income statement
Remeasurements of post-employment benefit
assets and liabilities 11 65 (1)
Tax on items that will not be reclassified
to the income statement (11) 1
----------- -----------
54 -
----------- -----------
Items that may be reclassified to the income
statement
Currency translation differences 42 (59)
Cash flow hedges (1) 5
Fair value (loss) / gain on net investment
hedges (7) 2
Fair value loss on investments at fair value through
other comprehensive income (2) -
Tax on items that may be reclassified to
the income statement 1 -
----------- -----------
33 (52)
----------- -----------
Other comprehensive income / (expense) for
the period 87 (52)
----------- -----------
Total comprehensive income for the period 291 117
----------- -----------
Condensed Consolidated Balance Sheet
as at 30(th) September 2018
30.9.18 31.3.18
Notes GBP million GBP million
Assets
Non-current assets
Property, plant and equipment 1,173 1,155
Goodwill 582 574
Other intangible assets 320 295
Investments in joint venture and associate 20 20
Deferred income tax assets 39 48
Investments at fair value through other comprehensive
income 55 56
Interest rate swaps 9 6 6
Other receivables 41 38
Post-employment benefit net assets 11 324 236
----------- -----------
Total non-current assets 2,560 2,428
----------- -----------
Current assets
Inventories 1,035 783
Current income tax assets 29 35
Trade and other receivables 1,281 1,228
Cash and cash equivalents -- cash and deposits(1) 9 141 374
Other financial assets 17 15
Total current assets 2,503 2,435
----------- -----------
Total assets 5,063 4,863
----------- -----------
Liabilities
Current liabilities
Trade and other payables (920) (1,012)
Current income tax liabilities (133) (149)
Cash and cash equivalents -- bank overdrafts(1) 9 (21) (70)
Other borrowings and related swaps(1) 9 (170) (38)
Other financial liabilities (13) (12)
Provisions (28) (37)
Total current liabilities (1,285) (1,318)
----------- -----------
Non-current liabilities
Borrowings and related swaps 9 (992) (951)
Deferred income tax liabilities (97) (94)
Employee benefit obligations 11 (110) (103)
Provisions (13) (14)
Other payables (5) (5)
----------- -----------
Total non-current liabilities (1,217) (1,167)
----------- -----------
Total liabilities (2,502) (2,485)
----------- -----------
Net assets 2,561 2,378
----------- -----------
Equity
Share capital 221 221
Share premium 148 148
Shares held in employee share ownership trust
(ESOT) (45) (48)
Other reserves(2) 95 62
Retained earnings(2) 2,142 1,995
----------- -----------
Total equity 2,561 2,378
(1) Re-presented to increase cash and deposits by GBP45 million, bank
overdrafts by GBP17 million and other current borrowings and related
swaps by GBP28 million at 31(st) March 2018 to better reflect the group's
cash pooling and borrowing arrangements.
(2) Restated on adoption of IFRS 9 and IFRS
15.
Condensed Consolidated Cash Flow Statement
for the six months ended 30(th) September 2018
Six months ended
30.9.18 30.9.17
Notes GBP million GBP million
Profit before tax 244 205
Adjustments for:
Share of loss of joint venture and associate - 1
Depreciation, amortisation, impairment losses
and (profit) / loss on
sale of non-current assets and investments 86 95
Share-based payments 3 4
Changes in working capital and provisions (391) (264)
Changes in fair value of financial instruments (2) (4)
Net finance costs 20 16
Income tax paid (48) (45)
----------- -----------
Net cash (outflow) / inflow from operating
activities (88) 8
----------- -----------
Dividends received from joint venture and
associate - 1
Interest received 4 1
Purchases of non-current assets and investments (96) (81)
Proceeds from sale of non-current assets
and investments 1 1
Net cash outflow from investing activities (91) (78)
----------- -----------
Proceeds from borrowings falling due within
one year 137 15
Repayment of borrowings falling due within
one year (2) -
Dividends paid to equity owners of the parent
company 8 (112) (104)
Settlement of currency swaps for net investment
hedging - (3)
Interest paid (27) (20)
----------- -----------
Net cash outflow from financing activities (4) (112)
----------- -----------
Net decrease in cash and cash equivalents (183) (182)
Exchange differences on cash and cash equivalents (1) (4)
Cash and cash equivalents at 1 April(1) 304 298
Cash and cash equivalents at end of period 9 120 112
----------- -----------
Reconciliation to net debt
Net decrease in cash and cash equivalents (183) (182)
Less: Net proceeds from borrowings (135) (15)
----------- -----------
Increase in net debt from cash flows (318) (197)
Exchange differences on net debt (39) 22
----------- -----------
Increase in net debt (357) (175)
Net debt at 1 April (679) (716)
----------- -----------
Net debt at end of period 9 (1,036) (891)
----------- -----------
(1) Re-presented to increase cash and cash equivalents at 1(st) April
2018 by GBP28 million to better reflect the group's borrowing arrangements.
Condensed Consolidated Statement of Changes in Equity
for the six months ended 30(th) September 2018
Share Shares Non-
held
Share premium in Other Retained controlling Total
capital account ESOT reserves earnings interests equity
GBP million GBP million GBP million GBP million GBP million GBP million GBP million
At 1(st) April 2017 221 148 (55) 147 1,776 (20) 2,217
Total comprehensive
income
for the period - - - (52) 169 - 117
Dividends paid
(note 8) - - - - (104) - (104)
Share-based
payments - - - - 7 - 7
Cost of shares
transferred
to employees - - 5 - (8) - (3)
----------- ----------- ----------- ----------- ----------- ----------- -----------
At 30(th) September
2017 221 148 (50) 95 1,840 (20) 2,234
Total comprehensive
income
for the period - - - (32) 201 - 169
Dividends paid - - - - (42) - (42)
Share-based
payments - - - - 10 - 10
Cost of shares
transferred
to employees - - 2 - (6) - (4)
Purchase of
non-controlling
interests - - - - (9) 20 11
----------- ----------- ----------- ----------- ----------- ----------- -----------
At 31(st) March
2018 221 148 (48) 63 1,994 - 2,378
Impact of adoption
of IFRS
9 (note 16) - - - (1) - - (1)
Impact of adoption
of IFRS
15 (note 16) - - - - 1 - 1
----------- ----------- ----------- ----------- ----------- ----------- -----------
At 31(st) March
2018 (restated) 221 148 (48) 62 1,995 - 2,378
Total comprehensive
income
for the period - - - 33 258 - 291
Dividends paid
(note 8) - - - - (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
----------- ----------- ----------- ----------- ----------- ----------- -----------
Notes to the Accounts
for the six months ended 30(th) September 2018
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 2018. 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 2018, with the exception of the adoption of two new standards as explained below.
Information in respect of the year ended 31(st) March 2018 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 2018 accounts were reported on by KPMG LLP. Following the Annual General Meeting on 26(th) July 2018, PricewaterhouseCoopers LLP succeeded KPMG LLP as the company's auditor.
Cash and deposits, bank overdrafts and other current borrowings and related swaps in the group's consolidated balance sheet at 31(st) March 2018 have been re-presented to better reflect the group's cash pooling and borrowing arrangements as follows: increase cash and deposits (GBP45 million), increase bank overdrafts (GBP17 million) and increase other current borrowings and related swaps (GBP28 million).
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 2018.
New standards adopted by the group
IFRS 9 'Financial Instruments' and IFRS 15 'Revenue from Contracts with Customers' became applicable to the group on 1(st) April 2018 and the group changed its accounting policies as a result of adopting these new standards. The impact of the adoption of these standards and the group's new accounting policies are disclosed in note 16.
New standards issued, but not yet adopted by the group
IFRS 16 'Leases', which replaces IAS 17 'Leases', is applicable to the group from 1(st) April 2019. Whilst lessor accounting is similar to IAS 17, lessee accounting is significantly different. Under IFRS 16, the group will recognise 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 will be replaced with depreciation on the right-of-use asset and interest expense on the lease liability. As set out in note 39 of the Annual Report 2018, the group had operating lease commitments totalling GBP93 million at 31(st) March 2018 and, therefore, IFRS 16 will have a material impact on the group's balance sheet. The implications of the standard are currently under review and the group has not yet determined which transition option will be applied. As the impact of transition is dependent on the option chosen, the group is unable to quantify the effect at this time.
2 Segmental information
Underlying
operating profit by
segment
Efficient
Clean Natural New
Air Resources Health Markets Eliminations Total
GBP GBP GBP GBP GBP
million million million million GBP million million
Six months ended
30(th) September
2018
Revenue from
external customers 2,305 4,461 120 222 - 7,108
Inter-segment
revenue 144 1,203 - 7 (1,354) -
---------- ---------- ---------- --------- ------------ ----------
Total revenue 2,449 5,664 120 229 (1,354) 7,108
---------- ---------- ---------- --------- ------------ ----------
External sales
excluding precious
metals 1,312 408 118 171 - 2,009
Inter-segment sales - 55 - 2 (57) -
---------- ---------- ---------- --------- ------------ ----------
Sales excluding
precious metals 1,312 463 118 173 (57) 2,009
---------- ---------- ---------- --------- ------------ ----------
Segmental
underlying
operating
profit 191 85 15 3 - 294
---------- ---------- ---------- --------- ------------
Unallocated
corporate expenses (23)
----------
Underlying
operating profit
(note
5) 271
----------
Segmental net
assets 1,245 1,342 486 231 - 3,304
---------- ---------- ---------- --------- ------------ ----------
Six months ended
30(th) September
2017
Revenue from
external customers 2,006 4,169 122 181 - 6,478
Inter-segment
revenue 128 1,034 - 9 (1,171) -
---------- ---------- ---------- --------- ------------ ----------
Total revenue 2,134 5,203 122 190 (1,171) 6,478
---------- ---------- ---------- --------- ------------ ----------
External sales
excluding precious
metals 1,194 403 119 137 - 1,853
Inter-segment sales - 55 - 6 (61) -
---------- ---------- ---------- --------- ------------ ----------
Sales excluding
precious metals 1,194 458 119 143 (61) 1,853
---------- ---------- ---------- --------- ------------ ----------
Segmental
underlying
operating
profit 168 70 21 9 - 268
---------- ---------- ---------- --------- ------------
Unallocated
corporate expenses (18)
----------
Underlying
operating profit
(note
5) 250
----------
Segmental net
assets 1,085 1,273 534 218 - 3,110
---------- ---------- ---------- --------- ------------ ----------
Reconciliation from underlying operating profit
to operating profit by segment
Efficient
Clean Natural New
Air Resources Health Markets Corporate Total
GBP GBP GBP GBP GBP
million million million million GBP million million
Six months ended
30(th) September
2018
Underlying
operating profit
(note
5) 191 85 15 3 (23) 271
Amortisation of
acquired
intangibles
(note 6) (1) (3) - (3) - (7)
Operating profit /
(loss) 190 82 15 - (23) 264
---------- ---------- ---------- --------- ------------ ----------
Six months ended
30(th) September
2017
Underlying
operating profit
(note
5) 168 70 21 9 (18) 250
Amortisation of
acquired
intangibles
(note 6) (1) (4) - (5) - (10)
Major impairment
and restructuring
charges (note 7) - (7) (2) (9) - (18)
---------- ---------- ---------- --------- ------------ ----------
Operating profit /
(loss) 167 59 19 (5) (18) 222
---------- ---------- ---------- --------- ------------ ----------
3 Revenue
Six months ended
30.9.18 30.9.17
GBP
million GBP million
Sale of goods 7,051 6,424
Rendering of services 48 44
Royalties and licence income 9 10
Total revenue 7,108 6,478
Effect of exchange rate changes on translation of foreign subsidiaries
4 sales excluding precious
metals and underlying operating profits
Six months ended
Average exchange rates used for translation
of
results of foreign operations 30.9.18 30.9.17
US dollar / GBP 1.329 1.295
Euro / GBP 1.131 1.138
Chinese renminbi / GBP 8.77 8.76
The main impact of exchange rate movements on the group's sales and underlying operating profit comes from the translation of foreign subsidiaries' results into sterling.
Six months ended Change
Six months 30.9.17 at
ended At last At this this year's
year's year's
30.9.18 rates rates rates
GBP million GBP million GBP million %
Sales excluding precious metals
Clean Air 1,312 1,194 1,178 +11
Efficient Natural Resources 463 458 451 +3
Health 118 119 117 -
New Markets 173 143 140 +23
Elimination of inter-segment sales (57) (61) (60)
----------- ----------------- ----------------
Sales excluding precious metals 2,009 1,853 1,826 +10
----------- ----------------- ----------------
Underlying operating profit
Clean Air 191 168 167 +15
Efficient Natural Resources 85 70 68 +26
Health 15 21 21 -31
New Markets 3 9 8 -67
Unallocated corporate expenses (23) (18) (18)
----------- ----------------- ----------------
Underlying operating profit (note
5) 271 250 246 +10
----------- ----------------- ----------------
5 Underlying profit reconciliation Six months ended
30.9.18 30.9.17
GBP million GBP million
Underlying operating profit 271 250
Amortisation of acquired intangibles (note 6) (7) (10)
Major impairment and restructuring charges
(note
7) - (18)
---------------- -----------
Operating profit 264 222
---------------- -----------
Underlying profit before tax 251 233
Amortisation of acquired intangibles (note 6) (7) (10)
Major impairment and restructuring charges
(note
7) - (18)
---------------- -----------
Profit before tax 244 205
---------------- -----------
Tax on underlying profit before tax (41) (42)
Tax on amortisation of acquired intangibles
(note 6) 1 3
Tax on major impairment and restructuring
charges
(note 7) - 3
---------------- -----------
Income tax expense (40) (36)
---------------- -----------
Underlying profit for the period 210 191
Amortisation of acquired intangibles (note 6) (7) (10)
Major impairment and restructuring charges
(note
7) - (18)
Tax thereon 1 6
---------------- -----------
Profit for the period 204 169
---------------- -----------
million million
Weighted average number of shares in issue 192.1 191.9
---------------- -----------
pence pence
Underlying earnings per share 109.0 99.8
---------------- -----------
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 Major impairment and restructuring charges
Major impairment and restructuring charges are shown separately on the face of the income statement and excluded from underlying operating profit. As part of the group's operational efficiency programme announced on 31(st) March 2017, a restructuring charge of GBP18 million was incurred in the six months ended 30(th) September 2017 primarily related to redundancies and business closures. Of the total, GBP8 million related to asset write-offs, GBP6 million to provisions and GBP4 million to cash costs incurred.
8 Dividends
An interim dividend of 23.25 pence (2017/18 21.75 pence) per ordinary share has been proposed by the board which will be paid on 5(th) February 2019 to shareholders on the register at the close of business on 30(th) November 2018. The estimated amount to be paid is GBP45 million (2017/18 GBP42 million) and has not been recognised in these accounts.
Six months ended
30.9.18 30.9.17
GBP million GBP million
2016/17 final ordinary dividend paid -- 54.5
pence per share - 104
2017/18 final ordinary dividend paid -- 58.25
pence per share 112 -
Total dividends 112 104
----------- -----------
9 Net debt
30.9.18 31.3.18
GBP million GBP million
Cash and deposits(1) 141 374
Bank overdrafts(1) (21) (70)
----------- -----------
Cash and cash equivalents 120 304
Other current borrowings and related swaps(1) (170) (38)
Non-current borrowings and related swaps (992) (951)
Non-current interest rate swaps 6 6
----------- -----------
Net debt (1,036) (679)
----------- -----------
(1) Re-presented to increase cash and deposits by GBP45 million,
bank overdrafts by GBP17 million and other current borrowings and
related swaps by GBP28 million at 31(st) March 2018 to better reflect
the group's cash pooling and borrowing arrangements.
The increase in current borrowings primarily reflects the draw-down
of short-term loans from committed revolving credit facilities in
order to meet the funding requirements of the business.
10 Precious metal operating leases
The group leases, rather than purchases, precious metals to fund temporary peaks in metal requirements provided market conditions allow. These leases are from banks for specified periods (typically a few months) and for which the group pays a fee. These arrangements are classified as operating leases. The group holds sufficient precious metal inventories to meet all the obligations under these lease arrangements as they fall due. At 30(th) September 2018, precious metal leases were GBP263 million (31(st) March 2018 GBP184 million).
11 Post-employment benefits
The group has updated the accounting valuation of its main post-employment benefit plans, which are its UK and US pension plans, and US post-retirement medical benefits plan, at 30(th) September 2018.
Movements in the net post-employment benefit assets and liabilities,
including reimbursement rights, were:
UK post- US post-
retirement retirement
UK medical US medical
pension benefits pensions benefits Other Total
GBP million GBP million GBP million GBP million GBP million GBP million
At 1(st) April 2018 226 (9) (20) (26) (34) 137
Current service cost (14) - (4) - (2) (20)
Past service credit 8 - - - - 8
Administrative expenses (1) - (1) - - (2)
Net interest 3 - - (1) (1) 1
Remeasurements 67 - (3) 1 - 65
Company contributions 26 - 5 1 1 33
Exchange adjustments - - (2) (3) 1 (4)
----------- ----------- ----------- ----------- ----------- -----------
At 30(th) September 2018 315 (9) (25) (28) (35) 218
----------- ----------- ----------- ----------- ----------- -----------
The GBP8 million past service credit in the UK pension plans arose
as a result of the breaking of the salary linkage on the accrued pensions
of employees who elected to switch from the Career Average section
to the hybrid cash balance (Elements) section during the period.
The GBP67 million remeasurement credit in the UK pension plans mainly
reflects a reduction in liabilities as a result of a 20 basis-point
increase in the real (after inflation) discount rate from 31(st) March
2018 to 30(th) September 2018.
The post-employment benefit assets and liabilities are included in
the balance sheet as:
30.9.18 30.9.18 31.3.18 31.3.18
Post- Post-
employment Employee employment Employee
benefit benefit benefit benefit
net assets obligations net assets obligations
GBP million GBP million GBP million GBP million
UK pension plan 315 - 226 -
UK post-retirement
medical
benefits plan - (9) - (9)
US pension plans - (25) - (20)
US post-retirement
medical
benefits plan 8 (36) 8 (34)
Other plans 1 (36) 2 (36)
----------- ----------- ----------- -----------
Total post-employment
plans 324 (106) 236 (99)
----------- -----------
Other long term employee
benefits (4) (4)
----------- -----------
Total long term employee benefit
obligations (110) (103)
----------- -----------
12 Transactions with related parties
There have been no material changes in related party relationships in the six months ended 30(th) September 2018 and no other related party transactions have taken place which have materially affected the financial position or performance of the group during that period.
13 Financial instruments
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. The fair values are estimated by discounting the future contractual cash flows using appropriate market-sourced data at the balance sheet date.
-- Level 3 -- not based on observable market data (unobservable).
There have been no transfers between levels during the period.
Financial instruments measured at fair value are:
30.9.18 30.9.18 31.3.18 31.3.18
Level Level Level Level
1 2 1 2
GBP million GBP million GBP million GBP million
Quoted bonds purchased to fund pension deficit
included in:
Non-current investments 52 - 53 -
----------- ----------- ----------- -----------
Interest rate swaps included in:
Non-current assets - 6 - 6
Current other borrowings and
related swaps - (1) - (2)
Non-current borrowings and related
swaps - (10) - (8)
----------- ----------- ----------- -----------
Forward foreign exchange and precious metal price
contracts and currency swaps
included in:
Current other financial assets - 17 - 15
Current other financial liabilities - (13) - (12)
----------- ----------- ----------- -----------
The fair value of financial instruments is approximately
equal to book value except for:
30.9.18 30.9.18 31.3.18 31.3.18
Carrying Fair Carrying Fair
amount value amount value
GBP million GBP million GBP million GBP million
US Dollar Bonds 2022, 2023, 2025
and 2028 (478) (453) (448) (420)
Euro Bonds 2021 and 2023 (107) (118) (104) (118)
Euro EIB loan 2019 (110) (114) (109) (113)
Sterling Bonds 2024 (65) (70) (65) (71)
KfW US dollar loan 2024 (38) (37) (36) (35)
----------- ----------- ----------- -----------
Unquoted investments included in non-current investments have a carrying amount of GBP3 million at 30(th) September 2018 (31(st) March 2018 GBP3 million). There is no active market for these investments and, therefore, they are categorised as level 3.
14 Contingent liabilities
The group is involved in various disputes and claims which arise from time to time in the course of its business including, for example, in relation to commercial matters, product 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 current specific matter, Johnson Matthey has 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 reported failures have not been demonstrated to be due to the coated substrate supplied by Johnson Matthey. The particular coated substrate has been sold to only these two customers. While Johnson Matthey works with all its customers to ensure appropriate product quality, we have not received similar notification of issues in respect of other emissions after-treatment components from these or any other customers. Johnson Matthey has not been contacted by any regulatory authority about these failures.
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. 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. 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.
15 Events after the balance sheet date
On 26(th) October, the High Court ruled that UK defined benefit pension schemes should be amended to equalise pension benefits for men and women in relation to guaranteed minimum pensions. The group is working with the trustees of its UK pension plans to understand the extent to which the ruling impacts the liabilities of its plans. Any additional liabilities will be treated as a plan amendment and a past service cost will be reflected in the income statement in the second half of the year. As there are still a number of uncertainties with respect to the period over which the benefits should be equalised, the group cannot provide a definitive estimate of the income statement impact at this date, although the amount may be up to GBP30 million.
16 Changes in accounting policies
This note explains the impact of the adoption of IFRS 9 'Financial Instruments' and IFRS 15 'Revenue from Contracts with Customers' on the group's financial statements and discloses the new accounting policies that have been applied from 1(st) April 2018 where they are different from those applied in earlier periods.
IFRS 9
Impact of adoption
IFRS 9 introduces new requirements for recognition, classification and measurement of financial assets and financial liabilities, a new impairment model for financial assets based on expected credit losses and simplified hedge accounting, replacing the requirements of IAS 39 'Financial Instruments: Recognition and Measurement'.
Classification and measurement
The group has classified its financial instruments in the appropriate IFRS 9 categories as at 1(st) April 2018 and, as a result, certain financial assets were reclassified from being valued at amortised cost to fair value through other comprehensive income. Derivative financial instruments that did not qualify for hedge accounting under IAS 39 were classified in the fair value through profit or loss category and gains and losses have been recognised in the income statement in the period. There is no change in the classification of these financial instruments under IFRS 9 as they fail the contractual cash flow characteristics test.
Impairment of financial assets
Trade and other receivables and contract receivables are subject to IFRS 9's new expected credit loss model and, as they do not contain a significant financing element, expected credit losses are measured using the simplified approach, which requires expected lifetime losses to be recognised from initial recognition. Whilst cash and cash equivalents are also subject to the impairment requirements of IFRS 9, there was no identified impairment loss on these balances.
Hedge accounting
Derivative financial instruments designated as part of cash flow hedges, fair values hedges and net investment hedges under IAS 39 at 31(st) March 2018 continue to qualify for hedge accounting under IFRS 9 at 1(st) April 2018 and are, therefore, treated as continuing hedges.
Summary
Changes to the classification and measurement of financial assets are applied retrospectively by adjusting opening retained earnings at 1(st) April 2018. The group has chosen not to restate comparative information for prior periods. The impact of adopting IFRS 9 on the group's equity as at 1(st) April 2018 is a decrease of GBP1 million.
Accounting policies applied since 1(st) April 2018
Investments and other financial assets
The group classifies its financial assets in the following measurement categories:
-- those measured at fair value either through other comprehensive income or through profit or loss; and
-- those measured at amortised cost.
At initial recognition, the group measures financial assets at fair value plus, in the case of financial assets not measured at fair value through profit or loss, transaction costs that are directly attributable to their acquisition.
The group subsequently measures equity investments at fair value and has elected to present fair value gains and losses on equity investments in other comprehensive income. There is, therefore, no subsequent reclassification of cumulative fair value gains and losses to profit or loss following disposal of the investments.
The group subsequently measures trade and other receivables and contract receivables at amortised cost, with the exception of trade receivables designated as at fair value through other comprehensive income where the group has entered into debt factoring arrangements. All other financial assets, including short-term receivables, are measured at amortised cost less any impairment provision.
For trade and other receivables and contract receivables, the group applies the simplified approach permitted by IFRS 9, which requires expected lifetime losses to be recognised from initial recognition.
Derivative financial instruments
The group uses derivative financial instruments, in particular forward currency contracts and currency swaps, to manage the financial risks associated with its underlying business activities and the financing of those activities. The group does not undertake any speculative trading activity in derivative financial instruments.
Derivative financial instruments are measured at their fair value. Derivative financial instruments may be designated at inception as fair value hedges, cash flow hedges or net investment hedges if appropriate. Derivative financial instruments which are not designated as hedging instruments are classified as at fair value through profit or loss, but are used to manage financial risk. Changes in the fair value of any derivative financial instruments that are not designated as, or are not determined to be, effective hedges are recognised immediately in the income statement. The vast majority of forward precious metal price contracts are entered into and held for the receipt or delivery of precious metal and, therefore, are not recorded at fair value.
Cash flow hedges
Changes in the fair value of derivative financial instruments designated as cash flow hedges are recognised in other comprehensive income to the extent that the hedges are effective. Ineffective portions are recognised in the income statement immediately. If the hedged item results in the recognition of a non-financial asset or liability, the amount previously recognised in other comprehensive income is transferred out of equity and included in the initial carrying amount of the asset or liability. Otherwise, the amount previously recognised in other comprehensive income is transferred to the income statement in the same period that the hedged item is recognised in the income statement. If the hedging instrument expires or is sold, terminated or exercised, the hedge no longer meets the criteria for hedge accounting or the designation is revoked, amounts previously recognised in other comprehensive income remain in equity until the forecast transaction occurs. If a forecast transaction is no longer expected to occur, the amounts previously recognised in other comprehensive income are transferred to the income statement. If a forward precious metal price contract will be settled net in cash, it is designated and accounted for as a cash flow hedge.
Fair value hedges
Changes in the fair value of derivative financial instruments designated as fair value hedges are recognised in the income statement, together with the related changes in the fair value of the hedged asset or liability. Fair value hedge accounting is discontinued if the hedging instrument expires or is sold, terminated or exercised, the hedge no longer meets the criteria for hedge accounting or the designation is revoked.
Net investment hedges
For hedges of net investments in foreign operations, the effective portion of the gain or loss on the hedging instrument is recognised in other comprehensive income, while the ineffective portion is recognised in the income statement. Amounts taken to other comprehensive income are reclassified from equity to the income statement when the foreign operations are sold or liquidated.
Financial liabilities
Borrowings are measured at amortised cost unless they are designated as being fair value hedged, in which case they are remeasured for the fair value changes in respect of the hedged risk with these changes recognised in the income statement. All other financial liabilities, including short-term payables, are measured at amortised cost.
IFRS 15
Impact of adoption
IFRS 15 supersedes all revenue standards and interpretations in IFRS. It provides a principles-based approach for revenue recognition and requires that revenue is recognised as the distinct performance obligations promised within a contract are satisfied either at a point in time or over time.
Whilst some timing differences have been identified as a result of allocating revenue to distinct performance obligations or where the criteria set out in IFRS 15 for recognising revenue over time are met, applying IFRS 15 has not had a significant impact on the timing and recognition of revenue.
IFRS 15 provides new guidance in respect of principal versus agent considerations which is relevant to the sale of metal and substrate in Clean Air and to the sale of metal in Efficient Natural Resources. Revenue in respect of the sale of the company's metal and substrate continues to be recognised on a gross basis reflecting the fact that the group is the principal. Where the group refines metal owned by customers and control of the metal remains with the customer during the process, the revenue recognised does not include the value of the metal controlled by the customer.
Revenue from refining metal owned by customers in Efficient Natural Resources continues to be recognised over time on the basis that the group is enhancing an asset controlled by the customer.
Summary
The group has applied IFRS 15 on a modified retrospective basis, recognising the cumulative effect of initial application as an adjustment to opening retained earnings for contracts which were not completed at the adoption date. This means that the comparative information continues to be recognised under previous revenue accounting requirements. The impact of adopting IFRS 15 on the group's equity as at 1(st) April 2018 is an increase of GBP1 million. The impact of adoption on the half year financial results is also not significant.
Accounting policies applied since 1(st) April 2018
Revenue represents income derived from contracts for the provision of goods and services by the company and its subsidiary undertakings to customers in exchange for consideration in the ordinary course of the group's activities.
Performance obligations
Upon approval by the parties to a contract, the contract is assessed to identify each promise to transfer either a distinct good or service or a series of distinct goods or services that are substantially the same and have the same pattern of transfer to the customer. Goods and services are distinct and accounted for as separate performance obligations in the contract if the customer can benefit from them either on their own or together with other resources that are readily available to the customer and they are separately identifiable in the contract.
The group typically sells licences to its intellectual property together with other goods and services and, since these licences are not generally distinct in the context of the contract, revenue recognition is considered at the level of the performance obligation of which the licence forms part. Revenue in respect of performance obligations containing bundles of goods and services in which a licence with a sales or usage-based royalty is the predominant item is recognised when sales or usage occur.
Transaction price
At the start of the contract, the total transaction price is estimated as the amount of consideration to which the group expects to be entitled in exchange for transferring the promised goods and services to the customer, excluding sales taxes. Variable consideration, such as trade discounts, is included based on the expected value or most likely amount only to the extent that it is highly probable that there will not be a reversal in the amount of cumulative revenue recognised. The transaction price does not include estimates of consideration resulting from contract modifications until they have been approved by the parties to the contract. The total transaction price is allocated to the performance obligations identified in the contract in proportion to their relative stand-alone selling prices. Many of the group's products and services are bespoke in nature and, therefore, stand-alone selling prices are estimated based on cost plus margin or by reference to market data for similar products and services.
Revenue recognition
Revenue is recognised as performance obligations are satisfied as control of the goods and services is transferred to the customer.
For each performance obligation within a contract, the group determines whether it is satisfied over time or at a point in time. Performance obligations are satisfied over time if one of the following criteria is satisfied:
-- the customer simultaneously receives and consumes the benefits provided by the group's performance as it performs;
-- the group's performance creates or enhances an asset that the customer controls as the asset is created or enhanced; or
-- the group's performance does not create an asset with an alternative use to the group and it has an enforceable right to payment for performance completed to date.
If the over time criteria are met, revenue is recognised using an input method based on costs incurred to date as a proportion of estimated total contract costs. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised immediately as an expense.
The majority of the metal processed by the group's refining businesses is owned by customers and, therefore, revenue is recognised over time on the basis that the group is enhancing an asset controlled by the customer.
If the over time criteria for revenue recognition are not met, revenue is recognised at the point in time that control is transferred to the customer, which is usually when legal title passes to the customer and the business has the right to payment, for example, when the goods are despatched or delivered in line with the International Chamber of Commerce's International Commercial Terms (Incoterms(R) ) as detailed in the relevant contract or on notification that the goods have been used when they are consignment products located at customers' premises. Most of the group's contracts satisfy the point in time criteria.
Contract modifications
A contract modification exists when the parties to the contract approve a modification that either changes existing or creates new enforceable rights and obligations. The effect of a contract modification on the transaction price and the group's measure of progress towards the satisfaction of the performance obligation to which it relates is recognised in one of the following ways:
-- prospectively as an additional, separate contract; -- prospectively as a termination of the existing contract and creation of a new contract; or -- as part of the original contract using a cumulative catch up.
Costs to obtain a contract
Pre-contract bidding costs which are incurred regardless of whether a contract is awarded are expensed as incurred. Costs to obtain contracts that would not have been incurred had the contract not been awarded, such as sales incentives, are capitalised and recognised in line with the revenue to which they relate.
Costs to fulfil a contract
Contract fulfilment costs in respect of over time contracts are expensed as incurred. Contract fulfilment costs in respect of point in time contracts are accounted for under IAS 2 'Inventories'.
Contract receivables
Contract receivables represent amounts for which the group has an unconditional right to consideration in respect of unbilled revenue recognised at the balance sheet date.
Contract liabilities
Contract liabilities represent the obligation to transfer goods or services to a customer for which consideration has been received, or consideration is due, from the customer.
Definition and reconciliation of non-GAAP measures to GAAP measures
for the six months ended 30(th) September 2018
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.
Sales excluding precious metals (sales)
The group believes that sales excluding precious metals is a better measure of the underlying performance of the group than revenue. Total revenue can be heavily distorted by year-on-year fluctuations in the market prices of precious metals. In addition, in the majority of cases, the value of precious metals is passed directly on to our customers.
Underlying profit and earnings
These are the equivalent GAAP measures adjusted to exclude amortisation of acquired intangibles (note 6), major impairment and restructuring charges (note 7), profit or loss on disposal of businesses, gain or loss on significant legal proceedings together with associated legal costs, significant tax rate changes and, where relevant, related tax effects. The group believes that these measures provide a better guide to the underlying performance of the group. These are reconciled in note 5.
Margin
Underlying operating profit divided by sales excluding precious metals.
Working capital days
Non-precious metal related inventories, trade and other receivables and trade and other payables (including any classified as held for sale) divided by sales excluding precious metals for the last three months multiplied by 90 days.
Average working capital days
The sum of monthly working capital days for the period divided by the number of months in the period.
Free cash flow
Net cash flow from operating activities, after net interest paid, net purchases of non-current assets and investments, and dividends received from joint venture and associate.
Capex
Additions of property, plant and equipment, plus additions of other intangible assets.
Capex to depreciation ratio
Capex divided by depreciation. Depreciation is the depreciation charge on property, plant and equipment, plus the amortisation charge on other intangible assets, excluding amortisation of acquired intangibles (note 6).
Net debt (including post-tax pension deficits) to EBITDA
Net debt, including post-tax pension deficits and bonds purchased to fund UK pensions (excluded when the UK pension plan is in surplus) divided by profit for the period before net finance costs, tax, share of loss of joint venture and associate, major impairment and restructuring charges (note 7), depreciation and amortisation (EBITDA) for the same period.
Return on invested capital (ROIC)
Annualised underlying operating profit divided by the monthly average of equity, plus net debt for the same period.
Six months ended
30.9.18 30.9.17
GBP million GBP million
Average net debt 1,029 922
Average equity 2,373 2,093
----------- -----------
Average capital employed 3,402 3,015
----------- -----------
Underlying operating profit for this period (note
5) 271 250
Underlying operating profit for prior year 525 513
Underlying operating profit for prior first half
(note 5) (250) (236)
----------- -----------
Annualised underlying operating profit 546 527
----------- -----------
ROIC 16.0% 17.5%
----------- -----------
30.9.18 31.3.18
GBP million GBP million
Inventories 1,035 783
Trade and other receivables 1,281 1,228
Trade and other payables (920) (1,012)
----------- -----------
Total working capital 1,396 999
Less precious metal working capital (671) (404)
----------- -----------
Working capital (excluding precious metals) 725 595
----------- -----------
Six months ended
30.9.18 30.9.17
GBP million GBP million
EBITDA 350 327
Depreciation and amortisation (86) (87)
Major impairment and restructuring charges (note
7) - (18)
Finance costs (24) (20)
Finance income 4 4
Share of loss of joint venture and associate - (1)
Income tax expense (40) (36)
----------- -----------
Profit for the period 204 169
----------- -----------
EBITDA for this period 350 327
EBITDA for prior year 681 665
less EBITDA for prior first half (327) (311)
----------- -----------
Annualised EBITDA 704 681
----------- -----------
Net debt (1,036) (891)
Pension deficits (61) (60)
Related deferred tax 11 15
----------- -----------
Net debt (including post tax pension deficits) (1,086) (936)
----------- -----------
Net debt (including post tax pension deficits)
to EBITDA 1.5 1.4
----------- -----------
Net cash (outflow) / inflow from operating activities (88) 8
Dividends received from joint venture and associate - 1
Interest received 4 1
Interest paid (27) (20)
Purchases of non-current assets and investments (96) (81)
Proceeds from sale of non-current assets and investments 1 1
----------- -----------
Free cash flow (206) (90)
----------- -----------
Financial Calendar
2018
29(th) November
Ex dividend date
30(th) November
Interim dividend record date
2019
5(th) February
Payment of interim dividend
30(th) May
Announcement of results for the year ending 31(st) March 2019
6(th) June
Ex dividend date
7(th) June
Final dividend record date
17(th) July
128(th) Annual General Meeting (AGM)
6(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 BBLLLVFFZFBL
(END) Dow Jones Newswires
November 21, 2018 02:00 ET (07:00 GMT)
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