Johnson Matthey’s profits decline by a quarter as chemicals firm hit by supply woes and China Covid rules
- Underlying operating profits fell to £222m in the six months ending September
- Johnson Matthey’s decision to leave Russia caused a major loss in catalyst sales
- On a reported basis, the FTSE 250 chemicals maker recovered to a £150m profit
Johnson Matthey profits have tumbled amid falling prices of platinum group metals and supply chain difficulties.
The speciality chemicals manufacturer revealed underlying operating earnings plunged by a quarter to £222million in the six months ending September, compared to the same period last year.
It said demand for catalytic converters had been impacted by Covid lockdown policies in China and the worldwide semiconductor shortage hitting production of diesel vehicles.
Share repurchase: Johnson Matthey originally disclosed its intention to undertake the £200million buyback programme at the publication of its first-half results in November
Further disruption has been caused by the intensification of the Ukraine war, which led the firm to exit the Russian market, causing a significant loss in catalyst sales and higher-margin licensing income.
Johnson Matthey also lost sales in its PGM Services division following a drop of around 30 per cent in rhodium prices and a lively used car market reducing auto scrap volumes at its refineries.
Excluding precious metals, total sales still rose by 10 per cent to £2.04billion as price hikes offset a fall in volumes of emission control catalysts, and the company saw greater demand for e-bike batteries and medical device components.
And on a reported basis, the FTSE 250 firm bounced back to a £150million profit, having posted a £24million interim loss the previous year after incurring a hefty charge from quitting the battery materials market.
For the current financial year, Johnson Matthey forecasts operating profits to be within the consensus range of £458million to £516million despite ‘continued political and economic uncertainty.’
The group expects improved performances from its clean air division in the second half of the period as automotive production volumes recover, as well as a stronger result from PGM Services.
‘We are focused on effectively navigating the near-term macroeconomic challenges affecting our business, including significant cost inflation, which we partially recovered in the half,’ remarked chief executive Liam Condon.
Condon, who joined in May following a long stint at pharmaceutical giant Bayer, added that the company stands to benefit from the ‘growing need’ for renewable energy in Europe and the Inflation Reduction Act (IRA) in the United States.
US President Joe Biden’s landmark climate change legislation has earmarked $369billion in spending towards energy security and climate change programmes over the coming decade.
Johnson Matthey believes the law will provide a boost to its hydrogen technologies business, which manufactures catalyst-coated membranes for use in electrolysers and fuel cells.
But it warned of a larger operating loss in this arm due to investments involved in growing the division, including building a new plant in Royston, Hertfordshire.
Johnson Matthey shares were down 1 per cent to £20.13 during the mid-morning on Wednesday, meaning their value has declined by about 10 per cent over the past six months.