European emissions rules help lift Johnson Matthey profit

By Editor

Nov 21, 2013 06:56 AM EST

Catalyst maker Johnson Matthey beat its own expectations with a 13-percent rise in profit, lifted by increased car and truck production globally, and tighter European rules on emissions due to come into force in January.

The British speciality chemicals firm - the world's No. 1 maker of catalysts to control car emissions - said underlying first-half profit before tax totalled 212.9 million pounds ($344.3 million), at the higher end of analyst expectations and outperforming the group's own forecast, which had warned of the impact of summer closures at European car plants.

Much of the jump came from its key Emission Control Technologies business, which accounts for more than half the group's sales and almost 40 percent of group operating profit.

Underlying operating profit in that division rose 16 percent in the six months to the end of September, thanks to growth in sales across regions. That includes long-depressed Europe, where sales of car catalysts outpaced vehicle production, and where it saw increased demand for truck catalysts ahead of the legislation - Euro VI.Finance Director Robert MacLeod said the group had seen customers for smaller trucks buying up cheaper Euro V trucks ahead of the deadline, and buyers of larger vehicles coming in early for Euro VI trucks, to benefit from fuel efficiency.

But the impact of "pre-buying" on sales in the second half of the group's financial year was unclear, MacLeod said.
"We have had a pull forward of orders into this half, or this calendar year, ahead of the new legislation," he said.
"No one really knows what is going to happen (in 2014). The truck fleet in Europe is pretty old too - are some of these orders just getting the fleet back up to the right age?"

Analysts particularly welcomed the performance in Europe's car market, where Johnson Matthey appeared to gain market share - beating a dip in production with a 9-percent rise in sales.

"There was a market share beat in the car business in Europe, and on the truck side... 25 percent of their sales were Euro VI, where revenues are three times as high," analyst Adam Collins at Liberum in London said.

"There is some concern the pre-buy could result in next year starting softly, but in the overall scheme of things it doesn't appear like it will be more than a quarter or so of transition," he said.

Shares in the group were up 3.3 percent at 1040 GMT at 3,197 pence, outperforming a 0.1 percent rise in the FTSE 100.

Johnson Matthey forecast a second half performance broadly in line with the first six months of its financial year. That excludes the impact of ending long-standing platinum buying and other arrangements with Anglo American Platinum AMSJ.J in the new year, which had included a discount. 

Analysts said it could beat that outlook, thanks to pre-buying into the coming months and higher margins from Euro VI.


Other divisions also helped, with Process Technologies, the division which makes speciality catalysts, reporting sales up 15 percent and underlying operating profit up 17 percent, helped by the acquisition of formaldehyde producer Formox in March. Johnson Matthey's MacLeod said he expected the division could see more small-scale deals.
It forecast a second-half performance for the unit "slightly ahead" of the first half.

Precious Metals Products, which refines and recycles, saw core profit climb by almost a quarter on the year-ago period, which had been hit by operational woes at its Salt Lake City refinery, and by a relatively weak platinum price that held back volumes at its precious metals refining arm.

Fine Chemicals, a division which makes active pharmaceutical ingredients for the pharmaceutical industry and which Johnson Matthey has refocused, saw profit tick 1 percent higher, helped by the sale of ingredients to treat drug addiction and attention deficit hyperactivity disorder (ADHD). 

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