Shares in FTSE 100 chemicals giant Johnson Matthey (JMAT) fell 4.9% to £24.38 by mid-morning on Thursday after it cut its dividend, reported a steep drop in pre-tax profit and declined to provide guidance owing to the coronavirus pandemic.
Its shares had opened around 3.5% higher following the publication of its half-year results, and there are some encouraging signs for the firm with profit still coming in ahead of market expectations and good progress being made in its New Markets division.
For the six months to 30 September pre-tax profit fell 88% to £26 million year-on-year, while revenue was up 2% to £6.8 billion, driven by higher average precious metal prices. Sales excluding precious metals were down 20% to £1.7 billion.
The fall in profit was largely down to lower demand in its clean air business, which makes catalytic converters for cars (one in three cars on the road use a Johnson Matthey catalytic converter), and major impairment and restructuring charges of £78 million, the company said.
The company cut its interim dividend by 18% to 20p per share. In its efficient natural resources business, full year operating performance was expected to be below the prior year, but higher in its health business.
Despite the big fall in overall sales and profit, there were still signs of encouragement for investors.
eLNO REMAINS ON TRACK
Sales in its New Markets business fell 8% but it moved from an £8 million loss last year to a £5 million profits this half, and commercialization of its enhanced lithium nickel oxide (eLNO) battery material remains largely on track despite the pandemic with its first plant set to be up and running in 2022 and full scale commercial production by 2024.
The company is pinning a large amount of its growth hopes on commercialization of eLNO, which it hopes will disrupt the electric vehicle battery market and appears to be the area most of interest to investors.
Speaking to Shares, Johnson Matthey’s chief financial officer Anna Manz said the company is continuing to get ‘really good feedback’ on the product from its customers, which are typically the big car manufacturers.
She said, ‘If I was to provide you with a list of our customers it would be all the big names that you would expect. Our customers testing the material are giving us really good feedback, and we’re making good progress with the qualification process.’
Explaining the two-year delay between having a plant up and running and actually selling the product, Manz added, ‘No car manufacturer will award a contract to a supplier unless they’ve taken significant samples and tested it and ensured that it works for their own applications.
‘Our product is highly customized and what we are seeing is that our customers are optimizing it for their own applications.’
