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Johnson Matthey to take £50mln hit as it settles engine lawsuit

A car parts maker took Johnson and another supplier to court in November in a dispute relating to a coating substrate supplied by Johnson for use in engine emission after treatment systems
car exhaust
At least the recent tax cuts in the US will offset some of the cost of the lawsuit

Specialty chemicals group Johnson Matthey PLC (LON:JMAT) is to take a £50mln hit after it agreed to settle a lawsuit with a car parts maker in the US.

The unnamed manufacturer took Johnson and another supplier to court in November, claiming that they should be liable for repairing or replacing the parts of engine emission after treatment systems which they supplied.

READ: Johnson Matthey underwhelms with interims

At the time, Johnson said it did not believe it had warranty liability in respect of the coated substrate which it supplied for the affected engines.

But the FTSE 100 company said on Wednesday it had agreed to settle the dispute on “mutually acceptable terms” with no admission of fault.

It will recognise a charge of £50mln in connection with the resolution of the lawsuit. This charge will be excluded from underlying operating profit for the current financial year ending March 31 2018.

Expects benefit from US tax cuts

As with most big companies, Johnson Matthey expects to see a benefit from the tax cuts recently introduced by US President Donald Trump.

Although the effective tax rate is unlikely to change much in the current financial year given that there are less than two months left, the firm expects to realise a one-off, non-cash benefit of £30mln this time around. This will be excluded from the tax on underlying profit.

 For next year – the 12 months ending March 31 2019 – Johnson thinks its effective tax rate will fall by two percentage points to around 16%, although it is still trying to work out the full impact of the changes.

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