ii view: resized Johnson Matthey back in favour

Full-year results to 31 March and business sale

• Revenue down 9% to £11.7 billion
• Operating profit down 5% to £389 million
• Final dividend of 55p per share
• Total dividend for the year unchanged at 77p per share
• Net debt down 16% to £799 million
• Sale of catalytic technologies division for £1.8 billion

Chief executive Liam Condon said: 

"Today's announcement represents a significant milestone in the history of Johnson Matthey. 

“We will now fundamentally re-shape Johnson Matthey into a more focused and leaner business. This will better position us to leverage our strong capabilities and leading market positions in Clean Air and PGM Services to drive a step change in sustainable cash generation with higher returns to shareholders. 

“JM is a great company and we are confident that the actions we have announced today will deliver substantial and sustainable value to our shareholders."

• Invest with ii: Open an ISA | ISA Investment Ideas | ISA Offers & Cashback

ii round-up:

Johnson Matthey (LSE:JMAT) provides products aimed at reducing harmful emissions. 

The clean air division supplies catalytic converters fitted to exhaust systems for many of the world’s major vehicle manufacturers and generated most profits this latest year at just over half. 

The PGM business is the world's largest recycler of platinum group metals (PGMs), supplying both its own clean air division and other external businesses with metal products from areas such as vehicle scrappage. It generated profits of just over a quarter of the group’s total. 

A small loss-making Hydrogen Technologies business provides components for fuel cells and electrolysers.  

The catalyst technologies business, now sold for £1.8 billion, produced profits of just under a fifth. 

For a round-up of the group’s latest news announced on 22 May, please click here.

ii view:

Started in 1817, Johnson Matthey today employs around 11,000 people. Geographically, major markets include the UK, the USA, China and Germany. 

For investors, the sale of the catalyst technologies business along with previous sales of Battery Materials and Medical devices divisions now leaves Johnson Matthey less product diverse. A broad move towards electric vehicles will reduce demand for emission reducing clean air, or catalytic converters. The small hydrogen business is still losing money, with group investment reduced given slower demand, while US trade tariffs and their exact impact on vehicle demand is yet to be seen. 

• How we hunt for quality stocks
• How are retail investors investing their SIPPs?
• The 20 most-popular dividend shares among UK fund managers

More favourably, the sale price achieved for the catalyst technologies business was above City hopes, and with £1.4 billion of the proceeds to be returned to shareholders. A reduction in capital expenditure is expected to boost group cash generation, enabling the return of at least £130 million over the year ahead (FY2025/26), rising to at least £200 million for FY2026/27 and beyond. Cost savings of £200 were achieved over this latest year, while a global energy transition could yet benefit the Hydrogen business.  

In all, a portfolio of few energy transition businesses now offers lower potential growth excitement. That said, a need for pollution reduction products is not going away anytime soon and a forecast dividend yield of around 4.5% will likely be attractive to income seekers.

Positives: 

• Reduced capital expenditure
• Hydrogen technology opportunities 

Negatives:

• Expected demand fall for catalytic converters 
• Subject to currency headwinds

The average rating of stock market analysts:

Strong hold