Johnson Matthey drops 4% after results; rise in working capital a concern

4th Jun 2015 07:05

Platinum and palladium refiner Johnson Matthey fell 4.2% on Thursday, with analysts pointing to a sharp increase in debt due to higher working capital, as the company posted a better-than-expected 22% rise in fiscal 2015 pre-tax profit to £495.8m.The figures were boosted by a gain of £69.7m from the sale of the Gold and Silver Refining business in March 2015.Underlying pre-tax profit rose 3% to £440.1m from £427.3m last year. Revenue fell 10% to £10.06bn from £11.16bn last year, but the company's margin improved as it posted a gross profit of £817.7m from £799.1m. Analysts at UBS expected to see a 2.5% increase in pre-tax profit.Although profit beat expectations, net debt rose to £994.4m as working capital increased by £433.4. Johnson Matthey attributed the rise in working capital to factors such as business growth in Asia where payment terms are longer than in other regions, an increase in product inventories to meet expected demand and higher precious metals stocks."Adverse working capital movement conspired against our hopes for a return of cash as early as this set of results," said Jefferies, which rates the stock at 'buy'.Citigroup, which has the stock at 'neutral', said: "This is solid set of results and new guidance for the current year (2015/16) is in line with consensus expectations on underlying basis. We would not expect any significant change in sentiment although the net debt is disappointing."Underlying earnings per share increased by 6% to 180.6p and basic earnings per share were 26% above last year at 211.2p. The board is recommending a 9% increase in the total dividend for the year - beating consensus expectations - reflecting its confidence in the group's long-term performance. This comprises a final dividend of 49.5p which, together with the interim dividend of 18.5p, gives a total ordinary dividend for the year of 68.0p, said the company.Chief executive Robert MacLeod said: "Johnson Matthey performed in line with our expectations in 2014/15, delivering good growth in many areas of our business. Underlying EPS grew by 6% but on a constant currency basis, and adjusting for the loss of commission income from Anglo Platinum, our sales were up 9% and underlying PBT was 15% ahead."Johnson Matthey remains well placed to benefit from major global sustainability drivers and we continue to invest in Research & Development, our infrastructure and our people, working closely with customers to provide them with innovative and improved solutions," said MacLeod. "Supported by a clear purpose and strategy, Johnson Matthey is well positioned to deliver growth for our shareholders through the creation of value adding sustainable technologies."