Precious metals processor Johnson Matthey PLC (LON:JMAT) slightly underwhelmed with half-year results, despite the windfall of lower service costs.
Revenue in the six months to the end of September rose 15% to £6.48bn from £5.63bn the year before, driven by higher platinum group metals (PGM) prices and a £179mln benefit from fluctuating exchange rates.
Full-year sales guidance remained unchanged.
Underlying profit before tax climbed 6% to £233.1mln from £219.6mln a year earlier, while earnings per share rose 4% to 99.8p from 96.4p.
The interim dividend was bumped up 6% in line with underlying profit before tax to 21.75p from 20.5p last year.
The company had alerted the market back in September to an outflow of precious metals working capital due to higher metal prices and lower liquidity, and it confirmed on Tuesday that this amounted to £156mln year; free cash flow was negative at £90.4mln.
On the plus side, the company said the increase in pension service costs for the full year is now expected to be small; previously the company had indicated it would be around £13mln.
This reduction in the expected increase in pension costs will be reinvested in the business to drive efficiency across the group
“We made further investments in line with the strategy we outlined at our recent capital markets day, which continues to strengthen our business,” said Robert MacLeod, chief executive of Johnson Matthey.
“We will grow our Clean Air business over the next ten years with growth in Europe, through share gains supported by our technology leadership, and by meeting the challenges of tighter legislation across the world, particularly in China and Europe. Our growing pipeline in Health will deliver significant growth over the medium term. We will deliver outperformance through targeted investment in Efficient Natural Resources and build our New Markets business primarily through our presence in battery materials,” he added.
Broker Liberum Capital said the earnings were more or less in line with consensus, albeit with a helping hand from the lower-than-expected pension service costs.
“As flagged, free cash flow was poor due to the impact of rising palladium and rhodium prices on auto-catalyst inventory - an asymmetrical risk because PGM recycling is now fairly small in group terms,” observed Liberum’s Adam Collins.
“Divisional guidance suggests Health and Efficient Resources forecasts may have to be trimmed, Clean Air raised,” Collins suggested.
Liberum has a ‘hold’ rating on the shares and Collins said “we need to see cash flow improve or underlying estimates increase to become more enthused”.
The shares were down 2% at 3,206p in mid-morning trade.