REG - Johnson Matthey PLC - Final Results <Origin Href="QuoteRef">JMAT.L</Origin> - Part 1

Johnson MattheyAnnouncement

01/06/2017 07:06

RNS Number : 7793G
Johnson Matthey PLC
01 June 2017
Preliminary results for the year ended 31st March 2017
Improving performance with stronger second half and full year results in line with expectations
Financial information
Year ended 31st March
% change
2017
2016
Revenue
 million
12,031
10,714
+12
Operating profit
 million
493.2
418.9
+18
Profit before tax (PBT)
 million
461.6
386.3
+19
Earnings per share (EPS)
pence
201.2
166.2
+21
Ordinary dividend per share
pence
75.0
71.5
+5
Underlying1 performance
Year ended 31st March
% change
% change, continuing businesses2 at constant rates3
2017
2016
Sales excluding precious metals (Sales) 
 million
3,578
3,177
+13
+3
Operating profit 
 million
513.3
450.8
+14
-
Profit before tax 
 million
481.7
418.2
+15
+1
Earnings per share
pence
209.1
178.7
+17
For notes see page 2
Highlights of the year ended 31st March 2017
 Revenue up 12% to 12,031 million and operating profit up 18% to 493.2 million including translational FX benefit of 721 million and 69 million respectively 
 At constant rates3, sales for continuing businesses2 grew 3% with underlying1 PBT up 1% 
 In H2, at constant rates, sales for continuing businesses grew 6% and underlying operating profit grew 4%
 As a result of the restructuring programme announced in 2015/16, costs were reduced by 26million, primarily in Process Technologies and Fuel Cells
 EPS up 21% at 201.2 pence and underlying EPS up 17% at 209.1 pence
 Cash flow from operating activities of 523 million and free cash flow of 230million. Working capital days4 reduced from 56 to 54 days
 Capex and R&D spend to drive future growth: capex was 265 million, 1.7times depreciation, with gross R&D 201million5, 5.6% of sales 
 Return on invested capital increased to 18.2% from 17.3%
 Strong balance sheet with net debt to EBITDA of 1.1 times (2015/16: 1.2 times)
 Recommended final dividend per share of 54.5 pence, up 5% reflecting confidence in group's medium term prospects. Full year dividend per share 75.0p.
Robert MacLeod, Chief Executive, commented:
"This has been a year of further progress; strengthening our business, implementing our strategy and delivering financial results in line with our expectations. Across each of our businesses we are applying our world class science and technology strengths to help customers solve problems, enabling Johnson Matthey to contribute to a cleaner, healthier world.
Underlying sales growth has come from the application of our leading technologies. We have invested over 440 million in capex and R&D combined, underpinning our commitment to science in the UK and internationally. In ECT in Europe, our technology strengths delivered strong sales growth by providing customer focused solutions to meet increasing emissions standards. We have broadened our platforms, especially in our pipeline of new active pharmaceutical ingredients and in high energy battery materials. Our cost saving programme has increased efficiency, primarily in Process Technologies and Fuel Cells, and we have improved our agility and are capturing greater synergy across the divisions. Cash generation has improved through our disciplined management of working capital.
For the full year 2017/18, sales growth, at constant rates, is expected to be broadly in line with the 6% growth delivered in the second half of this year. Improving operating performance at constant rates, with stronger sales growth and further efficiency savings, is expected to be offset as there will be no US post-retirement medical benefit credit and there are higher non cash pension charges in 2017/18. At current exchange rates, reported results in 2017/18 will benefit from the positive impact of translational foreign exchange.
Beyond 2017/18, our stronger business platform and operational momentum will deliver sustained sales growth and margin expansion."
Ends
Enquiries:
Investor Relations
Simon McGough
Sarah Armstrong
Katharine Burrow
Head of Investor Relations
Head of Investor Relations
Investor Relations Analyst
020 7269 8235
020 7269 8426
020 7269 8444
Media
Sally Jones
David Allchurch/Latika Shah
Director of Corporate Relations
Tulchan Communications
020 7269 8407
020 7353 4200
www.matthey.com
Notes:
1. Underlying is before amortisation of acquired intangibles, major impairment and restructuring charges, profit or loss on disposal of businesses, significant tax rate changes and, where relevant, related tax effects. For reconciliation see note5 on page 26 
2. Growth for continuing businesses excludes the contribution from the Research Chemicals business in 2015/16
3. Growth at constant rates excludes the translation impact of foreign exchange movements, with 2015/16 results converted at 2016/17 average exchange rates
4. Working capital days are calculated as 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
5. Gross R&D includes capitalised development of 19 million which is also included in capex
6. For definitions and reconciliations of other non-GAAP measures see page 29
Additional Information
Group structure: On 20th April 2017, Johnson Matthey announced a new group structure, effective 1st April 2017. The group has moved to managing and reporting as four sectors aligned on the global priorities of cleaner air, the efficient use of natural resources and improved health: Clean Air, Efficient Natural Resources, Health and New Markets. Restated results for year ended 31st March 2017 will be issued prior to the Capital Markets Day which Johnson Matthey will hold in London on 21st September 2017.
Quarterly reporting: For the year ending 31st March 2018 and subsequent years, Johnson Matthey will not issue quarterly trading updates in line with current thinking from investment associations. A trading update will be issued at the time of the AGM on 28th July 2017.
Other financial information
Outlook for the year ending 31st March 2018
 Sales growth, at constant rates, is expected to be broadly in line with the 6% growth delivered in the second half of the year ended 31st March 2017
 The combination of stronger sales growth together with additional cost savings is expected to be offset by comparison against the 2016/17 US post-retirement medical benefit credit and by higher non cash pension charges in 2017/18 (see post-employment benefits note below)
2017/18 restructuring charge
 In the year ending 31st March 2018 Johnson Matthey expects to take a restructuring charge as part of the further changes it will make to improve efficiency. The charge is expected to be in the range of 50 million to 65 million, of which over half will be cash. It is expected to generate savings of around 25 million in a full year and benefit 2017/18 by approximately 10 million
Future capital expenditure
Capital expenditure for the year ending 31st March 2018 is expected to be around 285 million (1.8times depreciation). Proposed projects include:
 Construction of a new manufacturing plant in Poland to provide capacity to satisfy the anticipated requirements of European emissions legislation and enhance our efficiency and operating flexibility
 Capitalised development costs as we continue work on expanding our pipeline of new active pharmaceutical ingredient products
 Continued investment in our core IT business systems
Research and development
 Johnson Matthey spent 201million on R&D in the year, an increase of 7% and 5.6% of sales. Investment in R&D supports our growth agenda, especially in Emission Control Technologies (ECT) and Fine Chemicals
Foreign exchange
 Translational foreign exchange movements in the year benefited revenue by 721 million, sales by 351 million and operating profit by 69 million
 At current exchange rates (:$ 1.289; :Euro 1.149; :RMB 8.84) translational foreign exchange movements are expected to increase revenue by 133 million, sales by 66 million and operating profit by 13 million in the year ending 31st March 2018
Post-employment benefits
 In the six months ended 30th September 2016 a one-off gain of 16 million was recognised in operating profit and for the full year the gain was 17 million mainly following the implementation of an inflation cap in the US post-retirement medical plan. ECT and Precious Metal Products both received a credit of 6 million
 For the year ending 31st March 2018 the cost of providing post-employment benefits will increase due to lower discount rates. The service cost, accounted for in operating profit, is expected to increase by 12 million
Share-based payments
 In the year ended 31st March 2017 the charge to operating profit relating to the group's share-based payments increased by 15 million. No material change is expected for 2017/18
Taxation
 The effective tax rate on reported profit was 16.7% and on underlying profit it was 17.0%, an increase from 15.7% and 16.1% respectively in the year ended 31st March 2016. In the year ending 31stMarch2018 we currently expect the tax rate on underlying profit to be around 18%
Additional financial analysis
Unless otherwise stated, commentary refers to performance of continuing businesses at constant rates. Percentage changes in the tables are calculated on unrounded numbers
Sales ( million)
Year ended 31st March
% change
% change, continuing businesses* at constant rates
2017
2016
Emission Control Technologies
2,224
1,913
+16
+4
Process Technologies
587
541
+8
-
Precious Metal Products
403
343
+18
+6
Fine Chemicals
284
296
-4
+1
New Businesses
191
157
+22
+10
Eliminations
(111)
(73)
Sales
3,578
3,177
+13
+3
*Sales for year ended 31st March 2016 includes 38 million from the Research Chemicals business sold in September 2015
Sales grew 6% in the second half of the year, following a decline of 1% in the first half. The anticipated improvement in sales growth in Process Technologies, which saw orders phased into the second half was the main driver of the improvement. In addition, stronger sales growth in Precious Metal Products reflected higher average platinum group metal (pgm) prices and improved refinery intakes.
Underlying operating profit
( million)
Year ended 31st March
% change
% change, continuing businesses* at constant rates
2017
2016
Emission Control Technologies
318.2
272.2
+17
+2
Process Technologies
90.4
73.6
+23
+9
Precious Metal Products
86.4
66.3
+30
+17
Fine Chemicals
64.5
82.3
-22
-23
New Businesses
(14.4)
(17.9)
+20
+12
Corporate
(31.8)
(25.7)
-24
-24
Underlying Operating Profit
513.3
450.8
+14
-
*Underlying operating profit for year ended 31st March 2016 includes 7.5million from the Research Chemicals business
Underlying operating profit was flat for the full year. Following a decline of 3% in the first half operating profit grew 4% in the second half. This is the result of the higher second half sales. In addition, Fine Chemicals benefited from the increased contribution of the API for dofetilide in the second half.
Reconciliation of underlying operating
Year ended 31st March 
profit to operating profit ( million)
2017
2016
Underlying operating profit
513.3
450.8
Amortisation of acquired intangibles
(20.1)
(20.9)
Profit on sale of Research Chemicals
-
130.0
Major impairment and restructuring charges
-
(141.0)
Operating profit
493.2
418.9
Reported operating profit was up 18%, benefiting from foreign exchange movements of 69million. In the year ended 31st March 2016 there were two large one-off items namely the profit on the sale of Research Chemicals and the major impairment and restructuring charge. In the year ended 31st March 2017 there were no similar charges.
Operating results by division
Emission Control Technologies
Sales outperformed vehicle production in almost every market despite a year of limited changes in legislation
 Very strong growth in our European Light Duty Vehicle Catalyst business driven by sales of higher value catalysts across diesel and gasoline, and share gains in diesel catalysts
 In our Heavy Duty Diesel Catalyst business, sales outperformed in every region, driven by new business wins in North America and Asia, and sales of higher value catalysts in Europe
 The global focus on clean air will drive growth for our business over the medium to long term as tighter emissions legislation continues to be introduced, particularly in Europe and Asia
Year ended 31st March
% change
% change, constant rates
2017
2016
 million
 million
Sales 
LDV Europe
847
698
+21
+13
LDV Asia
339
282
+20
+6
LDV North America
214
202
+6
-8
Total Light Duty Vehicle Catalysts
1,400
1,182
+18
+7
HDD North America 
397
405
-2
-15
HDD Europe 
249
196
+27
+15
HDD Asia 
85
44
+95
+64
Other - non-road and stationary
93
86
+8
-3
Total Heavy Duty Diesel Catalysts
824
731
+13
-1
Total sales 
2,224
1,913
+16
+4
Underlying operating profit
318.2
272.2
+17
+2
Return on sales
14.3%
14.2%
Return on invested capital
30.7%
28.3%
Estimated LDV sales and production (number of light duty vehicles)*
 Year ended 31st March
%
2017
2016
millions
millions
change
North America
Sales
21.1
20.9
+1 
Production
18.0
17.6
+2
Total Europe
Sales
20.2
19.3
+5
Production
21.8
21.0
+4
Asia
Sales
43.8
39.9
+10
Production
49.3
45.6
+8
Global
Sales
93.9
89.1
+5
Production
94.4
89.0
+6
Estimated HDD truck sales and production (number of trucks)* 
Year ended 31st March
2017
2016
%
thousands
thousands
change
North America
Sales
478
550
-13
Production
456
558
-18
Total Europe
Sales
445
413
+8
Production
569
534
+7
Asia
Sales
1,628
1,263
+29
Production
1,788
1,424
+26
Global
Sales
2,646
2,344
+13
Production
2,879
2,592
+11
*Source: LMC Automotive
Light Duty Vehicle (LDV) Catalysts
Our LDV Catalyst business provides catalysts for cars and other light duty vehicles powered by both gasoline and diesel. The business delivered a good performance in which it outperformed the growth in global vehicle production.
Our European LDV Catalyst business performed strongly and sales grew 13%, well ahead of the 4% growth in vehicle production.
Sales of catalysts for diesel powered vehicles, which account for approximately 80% of our European LDV catalyst sales, grew strongly in the year. This was in part driven by the full year effect of the sale of higher value catalysts to meet Euro 6b, which applied to all car production from September 2015 and which imposed tighter emissions standards on oxides of nitrogen (NOx) from diesel vehicles. However, sales growth, and Johnson Matthey's outperformance, was primarily due to new business for higher value products. This is the result of our strength in the technology required to meet Euro 6b and the tougher real world driving emission standards (RDE). While RDE will not be applicable to new models of cars until September 2017, with the increased public focus and scrutiny on emissions, we have seen our customers increasingly shift towards more advanced NOx control systems for diesel vehicles. As a result, there was increased demand for our advanced selective catalytic reduction (SCR) catalysts which have a higher value. The move to advanced SCR catalysts will benefit sales in 2017/18 and through the medium term.
Sales of catalysts for gasoline powered vehicles showed good growth on the back of a shift in mix to some larger engine platforms for luxury vehicles and increased demand from some of our customers as a result of sales growth of their vehicles.
While in the year, diesel vehicles as a proportion of total vehicles produced in Western Europe only declined one percentage point to 51%, we expect the decline in diesel's share in Western Europe to accelerate over time, with demand for smaller diesel cars initially being most impacted. However, diesel engines continue to offer greater fuel efficiency and lower CO2 emissions compared to their gasoline counterparts, particularly for larger vehicles. They enable car manufacturers to meet the significant reduction in fleet average CO2 limits which will apply in 2020 and, therefore, we expect diesel to remain an important powertrain technology. Consequently, with the tighter RDE legislation and the business wins Johnson Matthey has already secured, we expect to see continued strong sales growth in our European LDV diesel catalyst business over the short to medium term.
We are also well positioned in our technology for catalysts for gasoline engines and will benefit from growth in gasoline vehicle production and tighter legislation. Euro 6c legislation, which requires a reduction in particulate emissions from gasoline vehicles, will apply to new models from September 2017 and to all production from September 2018. Certain gasoline cars, such as those with direct injection, are expected to require additional advanced coated particulate filter catalysts to meet the new standard and we estimate this will initially apply to up to a quarter of gasoline cars sold in the European Union. The addition of a coated particulate filter catalyst will significantly increase our average sales value per vehicle for these cars. During the year, we secured contracts with customers to supply Euro 6c platforms and these will begin to phase in from September 2017.
In order to provide sufficient capacity to satisfy anticipated requirements for tighter European emissions legislation in the medium term, and also to enhance our global efficiency and operating flexibility, we plan to invest approximately 90 million in the construction of a new manufacturing plant in Poland. This plant will commence production in summer 2019.
In Asia, our LDV Catalyst business performed well with sales up 6%. In China, while our volumes outperformed the strong 14% growth in Chinese vehicle production, our sales growth was lower. This was due to a change in customer mix as we increased the number of platforms supplied to local car manufacturers but reduced sales to global car manufacturers. Although this change in mix negatively impacted sales, margins were maintained as the associated manufacturing costs were also lower. We continued to work with customers ahead of the introduction of China 6 legislation from 2020 and completed the expansion of our research and development facilities there. Our businesses in Japan and South East Asia grew slightly ahead of flat markets.
Sales in our North American LDV Catalyst business declined 8%, underperforming vehicle production which was up 2% in the year. This was expected as a number of sales agreements came to an end. However, sales in the second half benefited from new platform wins which will drive sales growth next year.
Heavy Duty Diesel (HDD) Catalysts - on road
Our on road HDD Catalyst business, which provides catalysts for trucks and buses, outperformed truck production across all regions.
Our US HDD Catalyst business outperformed a weak US market, where total truck production was down 18%, driven by a 30% decline in production of the larger Class 8 trucks. Our sales declined by 15% as we benefited from the launch of a new Class 8 platform and strong demand for catalysts for smaller trucks. We expect Class 8 truck production to stabilise in the first half of 2017/18 given our improving order book.
Sales in our European HDD Catalyst business were up 15%, supported by 7% growth in truck production and positive mix as an increasing proportion of our sales related to higher value products, both coated and extruded.
Our HDD Catalyst business in Asia grew very strongly from a low base. Truck production in China was up 47% following enforcement of truck loading limits from September 2016. Johnson Matthey's strong reputation for working with customers in a rapidly changing legislative environment resulted in new business with local truck manufacturers. Our sales to China more than doubled. We expanded capacity in the year ahead of the move from nationwide China IV legislation to China VI in 2020.
Heavy Duty Diesel Catalysts - other
Sales of catalysts for non-road and stationary applications fell slightly, mainly due to continued lower demand from the agricultural sector.
Operating profit
Underlying operating profit was up 2% and return on sales at constant rates declined only slightly in spite of higher initial manufacturing costs associated with producing more advanced catalyst systems. Return on sales is expected to be broadly maintained in the year ending 31st March 2018 as we balance continued investment in China with improvements in the manufacturing efficiency of our advanced catalyst systems. 
Return on invested capital
ROIC improved to 30.7% from 28.3% driven primarily by the benefit of translational foreign exchange.
Process Technologies
A good second half performance as the business maintained its strong position in a challenging market
 With fewer new chemical plants constructed in the year, licence income in our Chemicals businesses was lower impacting sales and profitability
 New business gains benefited catalyst sales with a good second half
 Operating profit grew strongly, up 9%, benefiting from efficiency gains from last year's restructuring programme
Year ended 31st March
% change
% change, constant rates
2017
2016
 million
 million
Sales 
Syngas
141
158
-11
-17
Oleo/biochemicals
53
48
+9
-2
Petrochemicals
133
103
+30
+19
Chemicals
327
309
+6
-3
Refineries
161
127
+27
+14
Gas Processing
41
42
-2
-5
Diagnostic Services
58
63
-8
-15
Oil and Gas
260
232
+12
+3
Total sales
587
541
+8
-
Underlying operating profit
90.4
73.6
+23
+9
Return on sales
15.4%
13.6%
Return on invested capital (ROIC)
11.4%
9.6%
Process Technologies sells licences, catalysts and services to help our customers operate their processes at optimum efficiency with reduced environmental impact.
Chemicals
Across all our Chemicals businesses (Syngas, Oleo/biochemicals and Petrochemicals), we supply licences to our customers. There is excess manufacturing capacity which has negatively impacted new plant construction and consequently demand from our customers for new licences remains depressed. In addition, we saw lower sales of equipment to customers for use in the construction of their formaldehyde plants. We addressed these market challenges through restructuring the organisation improving both profitability and our flexibility to respond to demand.
We also supply a portfolio of catalysts. In our Syngas business, these are primarily to customers who manufacture ammonia, formaldehyde and methanol. Sales of first fills of catalysts for new ammonia plants were down year on year as a result of excess ammonia manufacturing capacity. Methanol first fill catalyst sales benefited from the supply to an Iranian customer. Ammonia and methanol catalyst replacements are typically every four to six years and those for formaldehyde are annual. Given there is excess manufacturing capacity for ammonia and methanol, our customers delayed the purchase of refill catalysts and sales of these catalysts were down year on year. Formaldehyde refill catalyst sales were up 9%. Sales of catalysts in our Oleo/biochemical business were steady.
The Petrochemicals business produces catalysts for a range of different processes. Since the summer of 2015 it has supplied speciality zeolites to ECT for use in its SCR catalyst technologies. Growth in ECT's demand for zeolites and the full year impact of this was the main driver of the year on year sales growth.
Across our Chemicals business, the second half showed stronger sales benefiting from the purchase of catalysts by our customers as they prepare for plant shutdowns in the summer.
Oil and Gas
Sales in our Refineries business, where we supply catalysts and additives, were up significantly as we outperformed a broadly flat market with sales growth of 14%. We won a large first fill by providing a customer specific solution based on our world class catalyst technology. In addition we increased sales to an existing customer through our ability to respond quickly to an urgent order. In the increasingly competitive additives market, we developed new products and manufacturing processes and sales were up 1% in a flat market.
In Gas Processing, which supplies purification products used to remove mercury and sulphur impurities from natural gas, sales were down due to our introduction of more cost competitive products but this increased margins and profitability.
We have recently commenced a detailed strategic review to assess the alignment of our Diagnostic Services business with the rest of the group.
Operating profit
Underlying operating profit was up by 9%. Lower income from licencing and Diagnostic Services impacted operating profit and return on sales but this was more than offset by the 18 million of cost savings from the restructuring programme announced last year.
We expect ongoing tough end markets for our catalyst customers and do not expect a significant recovery in investment in plant construction. We will continue to review our cost base and deliver supply chain and manufacturing efficiencies in the year ending 31st March 2018. However, we expect licencing activity to remain subdued and this will negatively impact operating profit. 
ROIC
ROIC increased from 9.6% to 11.4%, reflecting efficiency gains in the period and foreign exchange.
Precious Metal Products
Stronger second half, reflecting higher pgm prices and actions taken to drive efficiency
 PGM Refining and Recycling benefited from improving intakes and higher average pgm prices
 We have improved the operational efficiency of our refineries which benefited working capital
 Our Manufacturing businesses continued to grow steadily based on our strong market positions
Year ended 31st March
% change
% change, constant rates
2017
2016
 million
 million
Sales 
PGM Refining and Recycling
95
77
+24
+13
Precious Metals Management
19
17
+12
+8
Services
114
94
+22
+13
Noble Metals
152
130
+16
+4
Advanced Glass Technologies
85
71
+20
+5
Chemical Products
52
48
+9
+1
Manufacturing
289
249
+16
+4
Total sales
403
343
+18
+6
Underlying operating profit
86.4
66.3
+30
+17
Return on sales
21.4%
19.4%
Return on invested capital (ROIC)
19.8%
16.5%
Services
Sales in our PGM Refining and Recycling business grew by 13% helped by improving intake volumes and higher average prices of platinum and palladium, which rose by 2% and 8% respectively over the year. These drivers particularly benefited the second half. The business also benefited from a focus on an improved mix of intakes and actions taken to improve the operational efficiency of our refineries.
In order to position us for future demand in China, we opened a new pgm recycling facility in Zhangjiagang in October 2016. The site is now processing small quantities of material consistent with a phased start up.
Sales in Precious Metals Management increased as the business benefited from volatility in pgm prices over the year.
Manufacturing
Sales across our Manufacturing businesses grew by 4% with good growth in Advanced Glass Technologies and Noble Metals.
Sales growth in Noble Metals reflects slightly higher sales of medical device components and increased sales of pgm products for a range of industrial applications. Sales of pgm gauzes, used in the production of nitric acid, were slightly down in the year.
Sales growth in our Advanced Glass Technologies business was driven by higher automotive production, particularly in China, leading to increased demand for our black obscuration enamels used in car windscreens. Sales of other glass products for a range of functional and decorative applications were broadly steady.
Sales across Chemical Products were slightly up, helped by a small increase in sales of materials for autocatalysts to ECT.
Operating profit
Underlying operating profit grew strongly in the year, up 17%. The first half benefited from the US post-retirement medical benefit credit. The second half was particularly strong, benefiting from sales growth across manufacturing products, higher pgm prices and improved operational efficiency helped by an improved mix of intakes.
While some of these improved trends are expected to continue, there will be no US
post-retirement medical benefit credit in 2017/18.
ROIC
ROIC improved to 19.8%, reflecting operating profit growth and foreign exchange.
Fine Chemicals
Strong sales from active pharmaceutical ingredients (APIs) for two newly approved drugs offset lower sales of ADHD APIs
 Underlying operating profit was significantly down due to lower sales of the higher margin ADHD APIs
 Investment to drive medium term growth through the continued development of our pipeline of new APIs
Year ended 31st March
% change
% change, continuing businesses* at constant rates
2017
2016
 million
 million
Sales 
API Manufacturing
236
217
+9
-1
Catalysis and Chiral Technologies
48
41
+17
+9
Research Chemicals
-
38
Total sales
284
296
-4
+1
Underlying operating profit
64.5
82.3
-22
-23
Return on sales
22.8%
27.8%
Return on invested capital (ROIC)
12.3%
16.9%
*Continuing businesses excludes sales and underlying operating profit for the year ended 31st March 2016 of 38 million and 7.5million respectively in relation to the Research Chemicals business sold in September 2015
API Manufacturing
Our API Manufacturing business develops and manufactures APIs for a variety of treatments, with over half of our sales coming from opiate-based painkillers and ADHD treatments. While our API portfolio is currently relatively small, there is great opportunity for Johnson Matthey to increase its share of a $650 billion global pharmaceutical market growing at mid to high single digits per year.
The performance in the year reflects lower sales from ADHD treatments in the US and lower sales of opiate-based APIs, broadly offset by sales of new APIs for drugs which have been in development and have now been successfully launched.
Increased competition in the US market for ADHD treatments had a significant impact on the business' results. While the market for ADHD treatments grew in the year, consolidation of distributors and increased competition amongst ADHD drug product manufacturers led to significant pricing pressures. The impact of this on our main customer led to a reduction in our sales.
Sales of opiate-based APIs were lower this year, partly reflecting increased competition in the market for bulk opiates, principally codeine and morphine. Sales were also impacted by the conclusion of a contract with one customer for a specialist opiate.
The US Drug Enforcement Agency has introduced tighter manufacturing quotas for the 2017 calendar year for certain controlled substances. This had no material impact on sales in the year, although the tighter quotas may impact future periods.
Sales of other APIs grew strongly. We benefited from a significant contribution from dofetilide, an anti-arrhythmic drug and which is currently the only true generic alternative to Tikosyn. We worked to develop dofetilide with the generic manufacturer and we now supply the API. Following its launch in June 2016 it has had strong sales, particularly in the second half of the year. We also saw increased sales of an API for the treatment of muscular dystrophy, as approval was granted for a customer's new product in September 2016.
Our API Manufacturing business also includes our contract development business. This had an excellent year of sales. The business benefited from capacity expansion in North America and a full year's contribution of Pharmorphix, a solid state research services provider acquired last year, which has broadened our product and service offering.
Catalysis and Chiral Technologies (CCT)
CCT saw increased sales across its range of catalysts, with particular growth in catalysts used in the production of drugs to treat Hepatitis C.
Operating profit
The reduced contribution from ADHD-related sales had a significant impact on underlying operating profit at a time when we were investing in the business to develop future growth. This was partially offset by the strong contribution of dofetilide for the first time this year.
In the year we have continued to develop our API product portfolio and now have over 40 products in development. This will reduce the volatility of sales and profit trends, improving performance as our portfolio builds scale in the medium term. In 2017/18, sales growth will improve and operating profit is expected to grow.
ROIC
The reduction in operating profit, partly as a result of investing in future growth, was the primary driver of the reduction in ROIC to 12.3%.
New Businesses
Through our New Businesses division we access additional areas of potential growth
 Widened our portfolio of battery materials, developing high energy materials
 Sales growth and improving productivity in Fuel Cells
Year ended 31st March
% change
% change, constant rates
2017
2016
 million
 million
Sales
Battery Technologies
148
130
+14
+2
Fuel Cells
12
10
+25
+23
Water Technologies
11
1
n/m
n/m
Atmosphere Control Technologies
20
16
+27
+11
Total sales
191
157
+22
+10
Underlying operating loss*
(14.4)
(17.9)
+20
+12
*In the year ended 31st March 2017, our long term investments in two venture funds were impaired and this resulted in a charge of 5 million
Battery Technologies is the biggest element of New Businesses and has two parts, Battery Systems and Battery Materials.
Battery Materials, which sells battery materials for automotive applications, saw sales down 2% with a significantly weaker second half as changes to electric vehicle tax incentives in China impacted the market for lithium iron phosphate (LFP) battery materials. Drawing on our expertise in nickel based chemistry we have moved at pace to extend our battery technology platforms. We have already entered into two new licensing agreements and are developing nickel rich high energy battery materials.
Battery Systems is a cell assembly business and delivered single digit growth mainly from increasing demand for e-bikes in Europe.
In our other new businesses, growth in the stationary back up power market benefited Fuel Cells, with sales 23% ahead of last year. We increased our expertise in water technology with small acquisitions of MIOX Corporation and Finex in 2016. Atmosphere Control Technologies, acquired in May 2015, delivered modest sales growth in North America.
Operating profit
The underlying operating loss reduced by 3.5 million despite taking a 5million impairment charge. The underlying improvement resulted from a significant reduction in the operating loss in Fuel Cells, helped by the prior year restructuring, and improved profitability within Battery Technologies. We will continue to make progress in the underlying profitability of New Businesses.
Corporate
Corporate costs increased in the year from 25.7million to 31.8million, primarily driven by an increased charge in relation to performance related pay and benefits due to the improving business performance compared to the year ended 31st March 2016.
Corporate costs for the year ending 31st March 2018 are expected to be around 1% of sales.
Financial review
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 income statement impact of these translation effects.
The principal overseas currencies, which represented 82% of the non-sterling denominated underlying operating profit in the year ended 31st March 2017, were:
Share of 2016/17
non-sterling denominated underlying operating profit
Average exchange rate
Year ended 31st March
% change
2017
2016
US dollar
36%
1.308
1.510
-13
Euro
33%
1.191
1.367
-13
Chinese renminbi
13%
8.79
9.60
-8
There was a significant decrease in the value of sterling against most major currencies during the year. The impact of exchange rates increased sales and underlying operating profit for the year by 351million and 69million respectively.
If current exchange rates are maintained throughout the year ending 31st March 2018, foreign currency translation will have a positive impact of approximately 13 million on underlying operating profit. A one cent change in the average US dollar and euro exchange rates each has an impact of approximately 1.6million on full year underlying operating profit and a ten fen change in the average rate of the Chinese renminbi has an impact of approximately 0.9 million.
Research and development
Johnson Matthey spent 200.7million on R&D in the year, an increase of 7% and 5.6% of sales. This included 18.9 million of capitalised development costs. Investment in R&D supports our growth agenda, especially in ECT and Fine Chemicals.
Major impairment and restructuring costs
In the financial year ending 31st March 2018 Johnson Matthey expects to take a restructuring charge as part of our continued focus on operational efficiency. The charge is expected to be in the range of 50 million to 65 million, of which over half will be cash. It is expected to generate savings of around 25 million in a full year and benefit 2017/18 by approximately 10 million.
In the year ended 31st March 2016, a major impairment and restructuring charge of 141 million was taken. It identified annual cost savings of 34 million of which 8 million were achieved in 2015/16 and a further 26 million were realised in 2016/17. In the year ended 31st March 2017 cash costs relating to the restructuring charge were around 16 million.
Finance charges
Net finance charges were 31.8 million, down from 32.6 million in 2015/16. Interest increased by 5.8 million mainly due to the negative impact from foreign exchange on interest on our US dollar and euro denominated debt and the higher average net debt, as excess cash from disposals was held during the year ended 31st March 2016 prior to payment of the special dividend in February 2016. 99% of the group's net debt at 31stMarch2017 has fixed interest rates averaging approximately 3.1%. The group's interest charge on its post-employment benefit plans decreased by 6.6 million.
Taxation
The tax charge for the year was 77.0 million, a tax rate of 16.7% on profit before tax (2015/16:15.7%). The tax charge on underlying profit before tax was 82.0 million, which represents an effective tax rate of 17.0%, up from 16.1% last year due to the change in UK tax legislation during the year which adversely impacted the tax outcome of certain intra group financing arrangements.
Going forward, we expect that the current upward pressure on corporate tax rates will continue and the tax rate on underlying profit to be around 18%. 
Post-employment benefits
IFRS - accounting basis
At the year end 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 63.3 million, up from a surplus of 47.3 million at 31st March 2016. This increase in the surplus results from changes in the assumptions made relating to inflation and mortality, partly offset by the lower discount rates at 31st March 2017.
The cost of providing post-employment benefits in the year was 45.9 million, a reduction of 24.6million, as a result of the higher discount rate at 31st March 2016 compared to 31stMarch2015. This reduction included the impact of the 16.8 million one-off credit which was mainly the result of the implementation of an inflation cap in the US post-retirement medical plan. 
For the year ending 31st March 2018 the cost of providing post-employment benefits is expected to increase, due to the absence of the one-off credit in the US post-retirement medical plan and due to the reduction in discount rates at 31st March 2017. The service cost, accounted for in operating profit, is expected to increase by 12 million.
Actuarial - funding basis
The latest triennial actuarial valuation of the UK scheme as at 1st April 2015 revealed a deficit of 69 million in the legacy defined benefit career average section, or 28 million after taking account of the future additional deficit funding contributions from the special purpose vehicle set up in January 2013. The latest valuation update as at 1st April 2016, showed the UK pension scheme to be in deficit, 109 million in the legacy defined benefit career average section. The deficit for this section of the scheme is 69 million after taking account of the special purpose vehicle. The increase in the deficit from 1st April 2015 was due to a reduction in gilt yields which increased the value of liabilities combined with lower than assumed asset returns. The 2016 valuation showed a surplus of 2 million in the defined benefit cash balance section of the scheme, which was opened on 1stOctober 2012 when the defined benefit career average section was closed to new entrants. The latest actuarial valuations of our two US pension schemes showed a surplus of 2 million at 30th June 2016 down from a 3 million surplus at 30th June 2015.
Capital expenditure
Capital expenditure was 264.7 million (of which 259.5 million was cash spent in the year) which equated to 1.7 times depreciation. The principal investments were:
 to increase ECT manufacturing capacity and technology in Europe and China to meet demand from business wins, vehicle production growth and new legislation;
 improvements to API development and manufacturing facilities and capitalised development costs as we work on expanding our pipeline of new APIs; and
 to upgrade core IT business systems
Depreciation was 151.7 million (2015/16: 139.3 million).
Capital expenditure for the year ending 31st March 2018 is expected to be around 285 million (1.8times depreciation).
Free cash flow
Free cash flow was 230 million. While working capital days (excluding precious metals) reduced, the strong sales in the fourth quarter increased receivables at the year end.
Dividend
The board has recommended a 5% increase in the final dividend to 54.5 pence per share. Together with the interim dividend of 20.5 pence per share this gives a total ordinary dividend for the year ended 31stMarch 2017 of 75.0 pence per share (2015/16: 71.5 pence per share). At this level the dividend would be covered 2.8 times by underlying earnings per share. Subject to approval by shareholders, the final dividend will be paid to shareholders on 1st August 2017, with an ex-dividend date of 8th June 2017.
Return on invested capital
Return on invested capital (ROIC) increased to 18.2% from 17.3%. Underlying operating profit for the group was 14% ahead of last year at 513.3million, and average invested capital increased 215 million to 2,816million, primarily due to the impact of foreign exchange translation.
Our long term ROIC target is 20%. We continue to invest organically in our businesses across the world to improve returns and we target appropriate acquisitions that accelerate the delivery of the group's strategy. Acquisitions may depress ROIC in the short term, but create long term value.
Capital structure
Net debt at 31st March 2017 was 715.7 million. This is down 181.1 million from 30th September 2016 and is an increase of 40.8 million from 31st March 2016. Net debt increases to 758.5million when adjusted for the post-tax pension deficits. The group's underlying EBITDA increased to 665million (2015/16: 590.1million). As a result, the group's net debt (including post tax pension deficits) to EBITDA was 1.1 times (2015/16: 1.2 times). Our target range is 1.5 to 2.0 times.
Corporate responsibility
Health and safety
We continue to build a world class health and safety culture across Johnson Matthey. However, this year saw a deterioration in performance in some safety areas; the lost time injury and illness rate was 0.49, and the total recordable injury and illness rate was 1.05, per 200,000 hours worked in a rolling year. Actions have been taken and new measures put in place to ensure that we reach our target of being in the top 10% of our industry peers.
People
As we grow and work towards our vision for a cleaner, healthier world, we rely on our talented and committed workforce to achieve it. We are working to enhance the engagement of our people to enable them to reach their full potential, so they can do their best work with us. In November 2016 we ran our first ever global employee survey, designed to gain a greater understanding of strategically and culturally important themes across the group and highlight opportunities to create a better working environment for employees to develop and contribute. We received a 75% response rate and in 2017/18 we will act on the results of the survey to drive higher levels of engagement to enable higher levels of performance.
Sustainability 2017
In 2007, we launched Sustainability 2017, our ten year programme to support growth by running our business in a more sustainable way. Over the last decade this has transformed the efficiency of our operations, reduced their environmental impact, delivered improved solutions for our customers and created significant value for our shareholders. Through the programme we have more than doubled our earnings per share while reducing our carbon intensity and use of key resources (electricity, natural gas and water) by almost half, relative to sales. We have also made significant progress in reducing waste to landfill across our global operations, our health and safety performance has improved over the ten year period and occupational illness cases have reduced to just one case for every 1,000 employees. The most important outcome of Sustainability 2017 has been the successful embedding of sustainability across Johnson Matthey which has been achieved through engaging employees and making sustainability the way we do business.
Consolidated Income Statement
for the year ended 31st March 2017
2017
2016
Notes
 million
 million
Revenue
3
12,031.0
10,713.9
Cost of sales
(11,188.0)
(9,947.1)
Gross profit
843.0
766.8
Distribution costs
(126.5)
(126.1)
Administrative expenses
(203.2)
(189.9)
Profit on sale or liquidation of businesses
-
130.0
Amortisation of acquired intangibles
2
(20.1)
(20.9)
Major impairment and restructuring charges
-
(141.0)
Operating profit
3
493.2
418.9
Finance costs
(38.7)
(40.2)
Finance income
6.9
7.6
Share of profit of joint venture and associate
0.2
-
Profit before tax
461.6
386.3
Income tax expense
(77.0)
(60.6)
Profit for the year
384.6
325.7
Attributable to:
Owners of the parent company
386.0
333.1
Non-controlling interests
(1.4)
(7.4)
384.6
325.7
pence
pence
Earnings per ordinary share attributable to the equity holders of the parent company 
Basic
201.2
166.2
Diluted
200.8
165.9
Consolidated Statement of Total Comprehensive Income
for the year ended 31st March 2017
2017
2016
Notes
 million
 million
Profit for the year
384.6
325.7
Other comprehensive income:
Items that will not be reclassified to profit or loss:
Remeasurements of post-employment benefit assets and liabilities
10
(18.4)
180.1
Tax on above items taken directly to or transferred from equity
2.0
(39.1)
(16.4)
141.0
Items that may be reclassified subsequently to profit or loss:
Currency translation differences
163.9
23.8
Share of currency translation differences of joint venture and associate
1.3
0.3
Cash flow hedges
(1.4)
5.6
Fair value losses on net investment hedges
(21.0)
(1.2)
Fair value gains / (losses) on available-for-sale investments
7.0
(5.5)
Tax on above items taken directly to or transferred from equity
(0.4)
(4.7)
149.4
18.3
Other comprehensive income for the year
133.0
159.3
Total comprehensive income for the year
517.6
485.0
Attributable to:
Owners of the parent company
518.5
492.8
Non-controlling interests
(0.9)
(7.8)
517.6
485.0
Consolidated Balance Sheet
as at 31st March 2017
2017
2016
Notes
 million
 million
Assets
Non-current assets
Property, plant and equipment
1,235.1
1,086.3
Goodwill
607.1
570.0
Other intangible assets
288.3
225.0
Deferred income tax assets
25.6
22.2
Investments and other receivables
107.3
92.3
Interest rate swaps
7
17.4
11.1
Post-employment benefit net assets
10
116.6
109.1
Total non-current assets
2,397.4
2,116.0
Current assets
Inventories
772.3
653.7
Current income tax assets
20.4
21.9
Trade and other receivables
1,139.4
948.0
Cash and cash equivalents  cash and deposits
7
330.4
304.5
Interest rate swaps
7
-
4.6
Other financial assets
7.5
8.5
Total current assets
2,270.0
1,941.2
Total assets
4,667.4
4,057.2
Liabilities
Current liabilities
Trade and other payables
(968.3)
(812.3)
Current income tax liabilities
(133.5)
(115.0)
Cash and cash equivalents  bank overdrafts
7
(31.8)
(20.7)
Other borrowings, finance leases and related swaps
7
(20.2)
(138.5)
Other financial liabilities
(14.9)
(17.9)
Provisions
(21.0)
(41.3)
Total current liabilities
(1,189.7)
(1,145.7)
Non-current liabilities
Borrowings, finance leases and related swaps
7
(1,011.5)
(835.9)
Deferred income tax liabilities
(113.0)
(99.4)
Employee benefit obligations
10
(111.8)
(115.1)
Provisions
(18.4)
(20.6)
Other payables
(5.9)
(5.9)
Total non-current liabilities
(1,260.6)
(1,076.9)
Total liabilities
(2,450.3)
(2,222.6)
Net assets
2,217.1
1,834.6
Equity
Share capital
220.7
220.7
Share premium account
148.3
148.3
Shares held in employee share ownership trust (ESOT)
(55.5)
(54.9)
Other reserves
146.6
(2.3)
Retained earnings
1,776.5
1,541.3
Total equity attributable to owners of the parent company
2,236.6
1,853.1
Non-controlling interests
(19.5)
(18.5)
Total equity
2,217.1
1,834.6
Consolidated Cash Flow Statement
for the year ended 31st March 2017
2017
2016
Notes
 million
 million
Cash flows from operating activities
Profit before tax
461.6
386.3
Adjustments for:
Share of profit of joint venture and associate
(0.2)
-
Profit on sale of continuing activities
-
(130.0)
Depreciation, amortisation, impairment losses and loss on sale of non-current assets 
176.6
252.0
Share-based payments
10.6
(2.8)
(Increase) / decrease in inventories
(36.7)
211.6
(Increase) / decrease in receivables
(111.1)
153.2
Increase in payables
120.7
47.1
Decrease in provisions
(27.5)
(0.7)
Contributions in excess of employee benefit obligations charge
(40.8)
(21.0)
Changes in fair value of financial instruments
(3.2)
4.0
Net finance costs
31.8
32.6
Income tax paid
(58.9)
(65.8)
Net cash inflow from operating activities
522.9
866.5
Cash flows from investing activities
Dividends received from joint venture
-
0.3
Interest received
4.8
5.2
Purchases of non-current assets and investments
(259.5)
(253.5)
Proceeds from sale of non-current assets and investments
3.9
4.0
Purchase of interest in associate
-
(16.2)
Purchases of businesses
(19.7)
(16.6)
Net proceeds from sale of businesses
-
244.6
Net cash outflow from investing activities
(270.5)
(32.2)
Cash flows from financing activities
Net cost of ESOT transactions in own shares
(6.1)
(3.1)
Proceeds from additional borrowings
80.8
134.4
Repayment of borrowings and finance leases
(133.2)
(211.6)
Dividends paid to equity holders of the parent company
6
(139.0)
(444.6)
Settlement of currency swaps for net investment hedging
(7.3)
(4.8)
Interest paid
(42.1)
(33.9)
Net cash outflow from financing activities
(246.9)
(563.6)
Increase in cash and cash equivalents in the year
5.5
270.7
Exchange differences on cash and cash equivalents
9.3
9.2
Cash and cash equivalents at beginning of year
283.8
3.9
Cash and cash equivalents at end of year
7
298.6
283.8
Reconciliation to net debt
Increase in cash and cash equivalents in the year
5.5
270.7
Decrease in borrowings and finance leases
52.4
77.2
Change in net debt resulting from cash flows
57.9
347.9
Borrowings acquired with subsidiaries
(4.8)
-
New finance leases
(0.1)
-
Exchange differences on net debt
(93.8)
(28.4)
Movement in net debt in year
(40.8)
319.5
Net debt at beginning of year
(674.9)
(994.4)
Net debt at end of year
7
(715.7)
(674.9)
Consolidated Statement of Changes in Equity
for the year ended 31st March 2017
Share
Shares
Non-
Share
premium
held in
Other
Retained
controlling
Total
capital
account
ESOT
reserves
earnings
interests
equity
 million
 million
 million
 million
 million
 million
 million
At 1st April 2015
220.7
148.3
(54.7)
(21.0)
1,517.3
(10.5)
1,800.1
Total comprehensive income
-
-
-
18.7
474.1
(7.8)
485.0
Dividends paid (note 6)
-
-
-
-
(444.6)
(0.2)
(444.8)
Purchase of shares by ESOT
-
-
(3.3)
-
-
-
(3.3)
Share-based payments
-
-
-
-
4.3
-
4.3
Cost of shares transferred to employees
-
-
3.1
-
(10.1)
-
(7.0)
Tax on share-based payments
-
-
-
-
0.3
-
0.3
At 31st March 2016
220.7
148.3
(54.9)
(2.3)
1,541.3
(18.5)
1,834.6
Total comprehensive income
-
-
-
148.9
369.6
(0.9)
517.6
Dividends paid (note 6)
-
-
-
-
(139.0)
(0.1)
(139.1)
Purchase of shares by ESOT
-
-
(6.1)
-
-
-
(6.1)
Share-based payments
-
-
-
-
17.1
-
17.1
Cost of shares transferred to employees
-
-
5.5
-
(11.9)
-
(6.4)
Tax on share-based payments
-
-
-
-
(0.6)
-
(0.6)
At 31st March 2017
220.7
148.3
(55.5)
146.6
1,776.5
(19.5)
2,217.1
Notes on the Preliminary Accounts
for the year ended 31st March 2017
1
Basis of preparation
The financial information contained in this release does not constitute the company's statutory accounts for the years ended 31stMarch2017 or 31stMarch2016 within the meaning of section 435 of the Companies Act 2006, but is derived from those accounts. The accounts are prepared in accordance with International Financial Reporting Standards (IFRS) and interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC) or the Standing Interpretations Committee (SIC) as adopted by the European Union. For Johnson Matthey, there are no differences between IFRS as adopted by the European Union and full IFRS as published by the International Accounting Standards Board and so the accounts comply with IFRS. The accounting policies applied are set out in the Annual Report and Accounts for the year ended 31stMarch2016. None of the new standards or amendments to standards and interpretations which the group has adopted during the year has had a material effect on the reported results or financial position of the group. Statutory accounts for 2016 have been delivered to the Registrar of Companies and those for 2017 will be delivered following the company's Annual General Meeting. The auditors have reported on both of these sets of accounts. Their reports were unqualified, did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and did not contain any statement under sections 498(2) or 498(3) of the Companies Act 2006. The accounts for the year ended 31stMarch2017 were approved by the Board of Directors on 31stMay2017.

2
Amortisation of acquired intangibles
The amortisation of intangible assets which arise on the acquisition of businesses, together with any subsequent impairment of these intangible assets, is shown separately on the face of the income statement. It is excluded from underlying operating profit.
3
Segmental information by business segment
Emission
Precious
Control
Process
Metal
Fine
New
Technologies
Technologies
Products
Chemicals
Businesses
Eliminations
Total
 million
 million
 million
 million
 million
 million
 million
Year ended 31st March 2017
Revenue from external customers
3,779.5
537.8
7,206.1
308.9
198.7
-
12,031.0
Inter-segment revenue
175.0
63.7
1,688.0
6.0
2.5
(1,935.2)
-
Total revenue
3,954.5
601.5
8,894.1
314.9
201.2
(1,935.2)
12,031.0
External sales excluding precious metals
2,223.1
523.4
363.4
278.7
188.9
-
3,577.5
Inter-segment sales
0.4
63.4
39.7
4.8
2.4
(110.7)
-
Sales excluding precious metals
2,223.5
586.8
403.1
283.5
191.3
(110.7)
3,577.5
Segment underlying operating profit / (loss)
318.2
90.4
86.4
64.5
(14.4)
-
545.1
Unallocated corporate expenses
(31.8)
Underlying operating profit
513.3
Amortisation of acquired intangibles (note 2)
(20.1)
Operating profit
493.2
Net finance costs
(31.8)
Share of profit of joint venture
0.2
Profit before tax
461.6
Segment net assets
1,090.2
802.4
347.9
554.1
162.4
-
2,957.0
Year ended 31st March 2016
Revenue from external customers
3,262.8
519.4
6,454.1
318.5
159.1
-
10,713.9
Inter-segment revenue
221.0
31.3
1,213.3
6.4
1.6
(1,473.6)
-
Total revenue
3,483.8
550.7
7,667.4
324.9
160.7
(1,473.6)
10,713.9
External sales excluding precious metals
1,912.7
510.0
307.9
291.4
155.0
-
3,177.0
Inter-segment sales
0.4
31.2
34.6
4.8
1.5
(72.5)
-
Sales excluding precious metals
1,913.1
541.2
342.5
296.2
156.5
(72.5)
3,177.0
Segment underlying operating profit / (loss)
272.2
73.6
66.3
82.3
(17.9)
-
476.5
Unallocated corporate expenses
(25.7)
Underlying operating profit
450.8
Profit on sale or liquidation of businesses
130.0
Amortisation of acquired intangibles (note 2)
(20.9)
Major impairment and restructuring charges
(141.0)
Operating profit
418.9
Net finance costs
(32.6)
Profit before tax
386.3
Segment net assets
903.2
756.2
313.5
457.3
100.8
-
2,531.0
4
Effect of exchange rate changes on translation of foreign subsidiaries' sales excluding precious metals and operating profit
 
Average exchange rates used for translation of results of foreign operations
2017
2016
US dollar / 
1.308
1.510
Euro / 
1.191
1.367
Chinese renminbi / 
8.79
9.60
The main impact of exchange rate movements on the group's sales and operating profit comes from the translation of foreign subsidiaries' results into sterling.
Year ended
Year ended 31st March 2016
Change at
31st March
At last
At this
this year's
2017
year's rates
year's rates
rates
 million
 million
 million
%
Sales excluding precious metals
Emission Control Technologies
2,223.5
1,913.1
2,139.1
+4
Process Technologies
586.8
541.2
588.6
-
Precious Metal Products
403.1
342.5
380.5
+6
Fine Chemicals
283.5
296.2
325.6
-13
New Businesses
191.3
156.5
173.8
+10
Elimination of inter-segment sales
(110.7)
(72.5)
(79.9)
Sales excluding precious metals
3,577.5
3,177.0
3,527.7
+1
Less Research Chemicals
-
(38.3)
(43.9)
Sales excluding precious metals for continuing businesses
3,577.5
3,138.7
3,483.8
+3
Underlying operating profit
Emission Control Technologies
318.2
272.2
313.2
+2
Process Technologies
90.4
73.6
83.0
+9
Precious Metal Products
86.4
66.3
74.1
+17
Fine Chemicals
64.5
82.3
91.6
-30
New Businesses
(14.4)
(17.9)
(16.3)
+12
Unallocated corporate expenses
(31.8)
(25.7)
(25.7)
Underlying operating profit
513.3
450.8
519.9
-1
Less Research Chemicals
-
(7.5)
(8.3)
Underlying operating profit for continuing businesses
513.3
443.3
511.6
-
Fine Chemicals' Research Chemicals business was sold on 30th September 2015.
5
Underlying profit reconciliation
2017
2016
 million
 million
Underlying operating profit, continuing businesses at constant rates (note 4)
513.3
511.6
Underlying operating profit of Research Chemicals (note 4)
-
8.3
Translation exchange effect to this year's rates
-
(69.1)
Underlying operating profit (note 4)
513.3
450.8
Profit on sale or liquidation of businesses
-
130.0
Amortisation of acquired intangibles (note 2)
(20.1)
(20.9)
Major impairment and restructuring charges
-
(141.0)
Operating profit
493.2
418.9
Underlying profit before tax
481.7
418.2
Profit on sale or liquidation of businesses
-
130.0
Amortisation of acquired intangibles (note 2)
(20.1)
(20.9)
Major impairment and restructuring charges
-
(141.0)
Profit before tax
461.6
386.3
Tax on underlying profit before tax
(82.0)
(67.4)
Tax on profit on sale or liquidation of businesses
-
(15.5)
Tax on amortisation of acquired intangibles (note 2)
5.0
4.9
Tax on major impairment and restructuring charges
-
17.4
Income tax expense
(77.0)
(60.6)
Underlying profit for the period
401.1
358.2
Profit on sale or liquidation of businesses
-
130.0
Amortisation of acquired intangibles (note 2)
(20.1)
(20.9)
Major impairment and restructuring charges
-
(141.0)
Tax thereon
5.0
6.8
Profit for the period attributable to owners of the parent company
386.0
333.1
million
million
Weighted average number of shares in issue
191.9
200.5
pence
pence
Underlying earnings per share
209.1
178.7

6
Dividends
A final dividend of 54.5 pence per ordinary share has been proposed by the board which will be paid on 1stAugust2017 to shareholders on the register at the close of business on 9thJune 2017, subject to shareholders' approval. The estimated amount to be paid is 104.5million and has not been recognised in these accounts.
2017
2016
 million
 million
2014/15 final ordinary dividend paid  49.5 pence per share
-
100.5
Special dividend paid  150.0 pence per share
-
304.5
2015/16 interim ordinary dividend paid  19.5 pence per share
-
39.6
2015/16 final ordinary dividend paid  52.0 pence per share
99.7
-
2016/17 interim ordinary dividend paid  20.5 pence per share
39.3
-
Total dividends
139.0
444.6

7
Net debt
2017
2016
 million
 million
Cash and deposits
330.4
304.5
Bank overdrafts
(31.8)
(20.7)
Cash and cash equivalents
298.6
283.8
Other current borrowings, finance leases and related swaps
(20.2)
(138.5)
Current interest rate swaps
-
4.6
Non-current borrowings, finance leases and related swaps
(1,011.5)
(835.9)
Non-current interest rate swaps
17.4
11.1
Net debt
(715.7)
(674.9)

8
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 31stMarch2017 precious metal leases were 77.0 million (2016: 70.3 million).

9
Transactions with related parties
There were no material changes in related party relationships in the year ended 31st March 2017 and no other related party transactions have taken place which have materially affected the financial position or performance of the group during the year.
10
Post-employment benefits
The group operates a number of post-employment benefit plans around the world, the forms and benefits of which vary with conditions and practices in the countries concerned. The major defined benefit plans are pension plans and post-retirement medical plans in the UK and the US.
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
 million
 million
 million
 million
 million
 million
At 1st April 2016
100.8
(10.5)
(21.4)
(41.9)
(29.6)
(2.6)
Current service cost - in operating profit
(28.5)
-
(10.0)
(0.8)
(2.2)
(41.5)
Current service cost - capitalised
(1.0)
-
(0.1)
-
-
(1.1)
Net interest
3.6
(0.4)
(1.1)
(1.5)
(0.6)
-
Past service cost
(2.5)
-
-
16.8
-
14.3
Remeasurements
(22.2)
0.9
6.1
(2.0)
(1.2)
(18.4)
Company contributions
56.2
0.4
9.6
1.1
2.4
69.7
Exchange adjustments
-
-
(3.2)
(5.6)
(2.4)
(11.2)
At 31st March 2017
106.4
(9.6)
(20.1)
(33.9)
(33.6)
9.2
These are included in the balance sheet as:
2017
2017
2017
2016
2016
2016
Post-
Post-
employment
Employee
employment
Employee
benefit
benefit
benefit
benefit
net assets
obligations
Total
net assets
obligations
Total
 million
 million
 million
 million
 million
 million
UK pension plan
106.4
-
106.4
100.8
-
100.8
UK post-retirement medical benefits plan
-
(9.6)
(9.6)
-
(10.5)
(10.5)
US pension plans
-
(20.1)
(20.1)
-
(21.4)
(21.4)
US post-retirement medical benefits plan
8.3
(42.2)
(33.9)
6.7
(48.6)
(41.9)
Other plans
1.9
(35.5)
(33.6)
1.6
(31.2)
(29.6)
Total post-employment plans
116.6
(107.4)
9.2
109.1
(111.7)
(2.6)
Other long term employee benefits
(4.4)
(3.4)
Total long term employee benefit obligations
(111.8)
(115.1)
Definition and reconciliation of non-GAAP measures to GAAP measures
for the year ended 31st March 2017
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 growth 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 many 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 2), major impairment and restructuring charges, profit or loss on disposal of businesses, 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.
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 90days.
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.
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 of property, plant and equipment plus the amortisation charge of other intangible assets excluding amortisation of acquired intangibles (note 2).
Return on invested capital (ROIC)
Annualised underlying operating profit divided by the monthly average of equity plus net debt for the same period.
2017
2016
 million
 million
Average net debt
878.5
691.0
Average equity
1,937.1
1,909.2
Average capital employed
2,815.6
2,600.2
Annualised underlying operating profit
513.3
450.8
ROIC
18.2%
17.3%
Inventories
772.3
653.7
Trade and other receivables
1,139.4
948.0
Trade and other payables
(968.3)
(812.3)
Total working capital
943.4
789.4
Less precious metal working capital
(335.5)
(256.5)
Working capital (excluding precious metals)
607.9
532.9
2017
2016
 million
 million
Earnings before interest, tax, depreciation and amortisation (EBITDA)
665.0
590.1
Depreciation and amortisation
(171.8)
(157.6)
Impairment of acquired intangibles
-
(2.6)
Profit on sale or liquidation of businesses
-
130.0
Major impairment and restructuring charges
-
(141.0)
Operating profit
493.2
418.9
Net debt
(715.7)
(674.9)
Pension deficits
(55.6)
(52.6)
Bonds purchased to fund pensions (excluded when UK pension plan in surplus)
-
-
Related deferred tax
12.8
28.4
Net debt (including post tax pension deficits)
(758.5)
(699.1)
Net debt (including post tax pension deficits) to EBITDA
1.1
1.2
Adjusted operating cash flow
352.8
709.4
Income tax paid
(58.9)
(65.8)
Pension deficit funding contributions
(26.6)
(26.6)
Less net purchases of non-current assets and investments
255.6
249.5
Net cash flow from operations
522.9
866.5
Adjusted operating cash flow
352.8
709.4
Precious metal working capital increase / (decrease)
78.9
(341.9)
Adjusted operating cash flow (excluding precious metal)
431.7
367.5
Cash flow conversion
84%
82%
Financial Calendar
2017
8th June
Ex dividend date
9th June
Final dividend record date
28th July
126th Annual General Meeting (AGM)
1st August
Payment of final dividend subject to declaration at the AGM
21st November
Announcement of results for the six months ending 30th September 2017
30th November
Ex dividend date
1st December
Interim dividend record date
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 Public Limited Company
Registered Office: 5th Floor, 25 Farringdon Street, London EC4A 4AB
Telephone: 020 7269 8400
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: 0871 384 2344
Internet address: www.shareview.co.uk

This information is provided by RNS
The company news service from the London Stock Exchange
  END
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