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Johnson Matthey's debt mushrooms on higher platinum prices

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Higher PGM prices led to net debt being worse than expected, up £452mln to £1.5bn versus consensus of £916mln, mainly driven by the significant increase in precious metal working capital and higher capital expenditure

Johnson Matthey PLC (LON:JMAT) shares fell on Thursday after the chemicals group reported better than expected first-half profits but rejigged full year guidance and saw net debt much higher than expected.  

The FTSE 100 group posted interim results to 30 September with revenue of £6.8bn up 37% on last year, boosted by higher average platinum group metals prices, with underlying operating profit down 5% to £265mln and reported profit before tax down 8% to £225mln.

Underlying profits, which beat the £261mln average analyst forecast, were hit by around £15mln of one-off costs in its catalytic converters division, which included additional freight costs and manufacturing “inefficiencies” as the company completing a new plant in Poland.

The catalysts arm, called Clean Air, improved sales 4%, while in the Health segment, sales declined although operating profit grew by double digits driven by efficiency improvements.

Efficient Natural Resources, the recycling arm, grew sales and profits as a result of higher average PGM prices and improved licensing income.

With average palladium and rhodium prices up 52% and 58% respectively, this led to net debt being worse than expected, up £452mln to £1.5bn versus consensus of £916mln, because of the significant increase in precious metal working capital and higher capital expenditure.

The New Markets arm saw good sales growth but lower operating profit as investment is poured into developing the eLNO new battery material.

“We continue to make good progress with commercialisation of eLNO and recently moved to full cell testing with two customers, another significant milestone in the customer validation process,” JMAT said.

Directors lifted the interim dividend 5% to 24.5p per share and said they expected to deliver group operating performance in line with market expectations, where the full-year consensus is for £595mln versus £566mln a year ago.

“We expect a stronger second half due to the absence of one-off costs, seasonality in Catalyst Technologies and efficiency gains in PGM Services.”

Broker Liberum said for a company with 60% exposure to the vehicles sector the first-half result “testifies to the resilience of vehicle sector”.

Source - Proactive Investors

Image - Photo © Hugh Venables (cc-by-sa/2.0)

About the author

Philip Scott

Head of Equities, Director

Philip has worked as a Private Client Stockbroker for nearly 20 years, commencing his career in Operations with Rensburg Sheppards (now part of Investec plc) before spending 9 years with Killik & Co advising on and directly managing portfolios. He joined SI Capital in 2006 to head up the Private Client Advisory desk.

Philip is a regular contributor to local media commenting on stock market dynamics and is a Chartered Member of the Chartered Institute for Securities & Investment (MCSI). His RDR qualification gained special recognitionfrom the CISI for achieving the highest combined pass mark in the country for the Investment Advice Diploma in 2012.

“At SI Capital I enjoy being part of a talented team who collectively share the same desire to provide excellence in service.  My focus is to ensure that each client receives effective and optimal management of their assets.”

Philip lives locally, is married with 2 daughters and is an avid sports fan (if now predominantly from the sidelines).  His other interests include music and film.

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