US trucks surge converts into boost for Johnson Matthey

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Shares in Johnson Matthey have accelerated as a recovery in the US truck market mitigated the impact of lower platinum prices, helping the speciality chemicals company beat expectations on its annual pre-tax profit.

The FTSE 100 company is the world’s largest supplier of vehicle catalytic converters by volume, and its sales mimic the fluctuations in sales of cars and trucks, as well as stricter legislation governing car emissions.

Johnson Matthey said that sales of light trucks in North America grew by more than 10 per cent in the year to March 31, while catalytic converters for heavy-duty diesels rose by 7 per cent and drove up the company’s sales volumes.

However, the stronger US truck sales failed to offset what Johnson Matthey called “a very disappointing year” from its precious metals unit, usually the company’s most profitable business.

The division reported underlying operating profit down 27 per cent for the financial year to £147.1m. It was hurt by dwindling prices for platinum and palladium, lower volumes, industrial action in South Africa’s mining industry, and operational issues at Johnson Matthey’s Salt Lake City refinery that cost the group £10m in the first half.

“The year [for Johnson Matthey] wasn’t so good compared with previous years, but it was good considering the circumstances,” said Neil Carson, Johnson Matthey chief executive.

For the group as a whole, Johnson Matthey reported pre-tax profit down from £409.3m to £354.9m, as revenues contracted 11 per cent to £10.7bn.

Sales excluding precious metals – a measure that strips out fluctuating commodity prices – was relatively flat at £2.7bn.

On an underlying basis, profit of £389m beat analysts’ consensus expectations of £381m, helping push up Johnson Matthey’s shares 6.34 per cent to £27.50.

Mr Carson attributed the share price increase to “exceeding analysts’ consensus expectations, combined with our likely steady improvement in our profit this year. The analysts that we have spoken to seem to value that in this uncertain environment.”

Although Johnson Matthey’s numbers were below those of the previous year, the cautiously positive tone of its statement was in contrast to its first-half results in November, which imparted a downbeat tone on the back of continental European truck sales falling to levels last seen in 1995.

“We note the confident outlook from a normally conservative company, with management expecting to make steady progress in 2013/14 and growth to accelerate in 2014/15 with the new Euro VI legislation [to tighten emission controls] and greater demand for chemicals catalysts in China,” said Martin Dunwoodie, analyst at Deutsche Bank.

The company said it was seeking ways to offset the impact of failing to renew several contracts with Anglo American Platinum, which will cost the precious metals refiner £35m a year, commencing in the final quarter of 2013/14.

Diluted earnings per share contracted from 146.9p to 133.5p, while a final dividend of 41.5p brings the full-year payout up 4 per cent to 57p.

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