LONDON (Alliance News) - Johnson Matthey PLC on Thursday reported a decline in annual profit but the speciality chemicals company was buoyed by the progress made in its new battery material development.
Johnson Matthey shares were up 1.7% at 3,456.00 pence on Thursday.
For the year ending March 31, revenue rose 17% to GBP14.12 billion from GBP12.03 billion last year, with revenue excluding precious metals up 8% to GBP3.85 billion from GBP3.58 billion. Consensus had expected revenue excluding precious metals sales for 2018 to come in at GBP3.84 billion.
Pretax profit fell to GBP320.0 million from GBP462.0 billion in financial 2017; however on an underlying basis pretax profit was GBP486.0 million, up slightly from GBP482.0 million prior. This was in line with the underlying pretax profit consensus estimate of GBP486.0 million.
The company said it incurred impairment and restructuring charges of GBP90 million during the year and a GBP50 million charge related to a legal settlement with a US car manufacturer.
The company's largest division Clean Air saw revenue rise to GBP2.45 billion in 2018 from GBP2.22 billion last year and underlying operating profit also rose to GBP349.0 million from GBP318.0 million.
Clean Air unit produces catalytic converters to reduce harmful emissions from vehicles and other sources and are purchased predominately by diesel car makers.
"The business is expected to grow over the next decade as regulators tighten emission rules - particularly in China and Europe," said Hargreaves Lansdown analyst Nick Hyett.
With the demand for diesel cars waning as consumers look for more environmentally friendly alternatives, Johnson Matthey has endeavoured to diversify itself by tapping into the growing electric car market.
The group's batteries business has been the cause of excitement among investors. Last September, Johnson Matthey announced plans to invest GBP200 million in developing batteries for electric cars. Shares surged 15% following the announcement.
On Thursday, Johnson Matthey's New Markets unit - which houses its electric battery development - saw revenue rise to GBP312.0 million from GBP308.0 million last year.
Johnson Matthey manufactures lithium nickel oxide raw materials used for electric car batteries. The company claims this has best in class positioning in every one of the key factors required by electric vehicle battery cell producers - namely cost, safety, power, lifecycle and energy density compared to current technologies.
The company said it has made significant progress in developing its enhanced lithium nickel oxide performance material and its strategy to commercialise it as a next generation product.
"New Markets is expected to deliver sales and operating profit growth in 2018/19 led by continued growth in fuel cells and Medical Device Components and a stronger year for battery systems," the company said.
Analysts at Credit Suisse believe Johnson Matthey's eLNO technology could be the next leading battery material for electric cars and can improve performance by nearly a third.
"Its foray into lithium nickel alternatives seems to be getting some good results, with the eLNO product getting a warm reception from potential customers. Commercial production of eLNO is still years away though, with the first plant expected to open in 2021/22. For now catalysts remain firmly in the driving seat where profits are concerned," Hyett noted.
However, Hyett suggested that the pace and direction of electric car development is unknown.
"A rapid shift to fully electric vehicles would be bad news. But increasingly stringent regulation and widespread uptake of hybrids vehicles would be fantastic - since catalytic converters would still be required but there would also be opportunities to sell into the battery supply chain," Hyett said.
Elsewhere, Johnson Matthey proposed a final dividend of 80.0 pence, up 7% from 75.0p last year.
"The entrenched progressive dividend policy continues, and even though the dividend yield of 2.2% is relatively meagre, this is also a reflection of the fact that Johnson Matthey is a group which is committed to continued investment in science and technology, enabling it to remain at the forefront of the next generation," said Richard Hunter, head of markets at Interactive Investor.
Johnson Matthey (JMAT)