Johnson Matthey earned profits before tax of £130.2 million in the year ended 31st March 1998, an increase of 20% over the previous year. Profits would have been £5.6 million higher but for the effect of adverse foreign exchange translation. Earnings per share excluding exceptionals rose by 23% to 44.3 pence.

Our cash flow for the year was strong. Cash flow from operations was up 26% at £156.4 million and free cash flow improved to £28.8 million.

The Board is recommending to shareholders a final dividend of 12.6 pence (to be paid as a Foreign Income Dividend) making a total for the year of 17.8 pence, an increase of 15%.

Operations

Precious Metals Division (PMD), operating profits were up 19% at £52.5 million. Management took full advantage of favourable market conditions. The division's Platinum, Gold and Chemicals businesses all performed well. Platinum benefited from good trading income, resulting from strong demand for all the platinum group metals. Sales of fabricated products and chemicals were strong. The Gold business had an excellent year with the financial turmoil in Asia resulting in a substantial increase in gold refining activity.

Catalytic Systems Division (CSD) operating profits were up 33% at £45.4 million benefiting from strong sales by our customers, increased market share and expansion into new markets. A new facility in Argentina was opened at the end of March which will supply the Mercosur free trade region of South America. Work has begun on a new catalyst coating plant in India that will service the country's rapidly growing market for both car and motorcycle catalysts.

Our Pharmaceutical Materials business, which is included in CSD, had a tremendous year with profits up 46% due mainly to the introduction of a highly successful new product, methylphenidate. Sales have risen rapidly and with other new products we are increasing manufacturing capacity to meet future demand.

Electronic Materials Division (EMD), which has been the major focus of our investment in recent years, delivered a 30% increase in profits to £40.1 million. Our new semiconductor packages facility at Chippewa Falls is now producing 1.5 million units per month. Elsewhere in the division we have purchased and equipped a new facility to make thermal management products and acquired an additional facility to manufacture printed circuit boards. Our titanium business recovered very well from the downturn in the DRAM market last year and we continue to increase our share of the worldwide sputtering target market.

Ceramic Materials Division – Cookson Matthey Ceramics for the first ten months – had a very poor year, with profits down 29% at £9.4 million in difficult market conditions. It became clear, both to us and our partner, that the joint venture had reached the end of its useful life and that the business would fare better under single ownership. We acquired the other half of the business in February 1998 and have already made substantial progress in reducing the cost base and selling off peripheral businesses.

Outlook

Precious Metals Division continues to benefit from increasing demand for platinum group metals. All three of the division's sectors are expected to see further growth.

Catalytic Systems should achieve growth through the introduction of new products and geographic expansion into emerging markets.

The division will work closely with its customers to provide world leading technology at competitive prices. The prospects for Pharmaceutical Materials are exciting and the year will see continued expansion of our facilities to accommodate the growth of our controlled substances business.

Our programme to rationalise and re-focus Ceramic Materials Division on its core activities is well under way. We bought the business at a good price and are confident that we can restore it to a satisfactory level of profitability.

In Electronic Materials, the industry outlook for the first half of the year has softened. The financial crisis in Asia is undoubtedly having some knock on effect and the weakness of local currencies, especially the Japanese yen, is bringing competitive pressures. Nevertheless EMD is expected to show continued growth with a good contribution from Semiconductor Packages.

Overall the outlook for 1998/99 is positive, with Johnson Matthey well placed at the forefront of many key and exciting technologies.

Chris Clark
Chief Executive