Emissions technology demand lifts Johnson Matthey – Financial Times

Strong demand for high-value emissions control technology lifted full-year revenues and profits at Johnson Matthey, the FTSE 100 specialty chemicals group.

Despite European consumers moving away from the diesel cars that make up the bulk of its vehicle catalyst sales, revenues at the group jumped 12 per cent to £12bn and pre-tax profits rose 19 per cent to £461m in the year to March 31.

The strong performance was in part thanks to the weak pound. With currency effects stripped out, underlying sales in the group’s continuing businesses increased 3 per cent and pre-tax profits 1 per cent.

As the world’s largest manufacturer of catalytic converters, Johnson Matthey said the focus on clean air would drive medium and long-term growth in its catalytic converter business as Europe and Asia introduced tighter legislation to control emissions.

The group’s operations span catalysts, active pharmaceutical ingredients, precious metals and fuel cells.

Chief executive Robert MacLeod said the past year had been “a year of further progress” as he announced a 5 per cent increase in the group’s ordinary dividend, paying out 75 pence per share.

Mr MacLeod also said he expected sales growth at constant rates for the year ahead to be roughly in line with the 6 per cent increase in the group’s second half.

The company has been trying to expand into battery technology in expectation of a long-term shift in the motor industry away from diesel and gasoline-powered cars, towards electric vehicles.

In October, the company said it expected the battery division to make a profit for the first time this year.

However, its battery materials division experienced a “significantly weaker” second half of the year due to changes in electric vehicle tax incentives in China, which “impacted the market for lithium iron phosphate battery materials”, the company said.

Lithium iron phosphate cathodes, which have been the group’s main focus, are typically used in hybrid electric vehicles and buses.

But it has also expanded into nickel-based technologies, more often used in all-electric passenger cars, in an effort to diversify.

Adam Collins, an analyst at Liberum, said in a note to clients that he was “in two minds” about Johnson Matthey’s shares.

He said that analysts’ concerns about the group’s reliance on profits from the diesel car catalyst business may be overstated, as a new EU testing regime could help prop up demand.

But Mr Collins said there were “three troubling structural problems” the business faced that could affect future earnings: “EU diesel car exposure, poor e-car battery materials positioning, and the growing regulation of US approved opiates.”

The group’s fine chemicals division, which makes ingredients for pharmaceuticals and agrochemicals, suffered after sales of the high-margin active ingredients for attention deficit hyperactivity disorder drugs and opiates fell due to increased competition.

The group said that future sales of active ingredients for opiates could be hit by tighter manufacturing quotas introduced by the US Drug Enforcement Agency as it seeks to control rising use of the drugs.

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