INSIGHT: Johnson Matthey looks to further growth

28 November 2007 17:28  [Source: ICIS news]

Testing heavy duty diesel catalysts, Johnson MattheyBy Nigel Davis

LONDON (ICIS news)--There are good and bad places to be in the chemical industry. Catalysts maker Johnson Matthey is in one of the best.

Top-line growth remains strong and margins firm despite higher precious metal raw material costs. The company is largely shielded from the chemicals cycle. Its products are in strong demand.

Any economic downturn will hurt, of course, but the company is locked into markets driven by increased environmental awareness.

Key products are the catalysts used to strip unwanted pollutants from vehicle exhausts.

New legislation to control diesel engine emissions will push up demand for heavy-duty diesel emission control catalysts. That market is expected to be worth $700m, excluding precious metals, in 2008. By the end of 2014 it could have grown to $3bn, according to the UK-based catalysts maker.

New emission control standards come into force in Europe in 2008 and in the US and Japan in 2010. Legislation starts for non-road vehicles in Europe and North America in 2011.

Johnson Matthey has a great foothold in this market and has the technology and expertise to take full advantage of its growth. The good thing is that it is relatively easy to see where the future lies.

The company was upbeat on Tuesday after reporting 14% higher profits at £132.4m ($286m) and sales (excluding the value of the precious metals which it trades) up 28% at £840m. Profit margins remained strong.

Prospects for the second half are still encouraging, Johnson Matthey said.

It is bringing on new capacity at plants in the three key regions over the next few years to feed growing demand.

Three new emissions control plants for light vehicles are coming on stream in the second half of the current financial year - in Russia, South Korea and a new diesel particulate filter plant at Royston in the UK.

As far as light vehicles are concerned, diesel accounts for up to 52% of the western Europe automobile market, Johnson Matthey says, and diesel particulate filters are increasingly fitted as standard.

The uptake of diesel in North America is improving. Light vehicle production was up in the first half (of the company’s year) even though overall light vehicle sales were down.

The other increasingly important part of Johnson Matthey’s portfolio is its process technologies (PT) businesses.

PT sales and profits were higher in the first half. High oil prices are encouraging investment in projects using gas and coal as raw materials.

Petrochemicals investment in the Middle East and China is helping lift the business and methanol catalyst sales are growing.

The Davy Process technology division is ahead of last year with two major Davy Process technology oxo-alcohol projects licences in China and India and the first choline chloride plants to be built in Thailand using Johnson Matthey proprietary technology.

The company has developed a new process to convert glycerine, increasingly available as a by-product of biodiesel, to propylene glycol.

Both the drive to reduce vehicle pollution and the move to new technologies in a world of high oil prices help Johnson Matthey and make the company more attractive as a potential takeover target.

The company’s share price rose sharply in October when it was put in the frame with gases producer Praxair. It has also been cited as a potential target for chemicals giant Dow. The shares traded slightly lower on Wednesday following the announcement of the interim results.

The environmental and industrial catalysts business is attractive for many reasons and Johnson Matthey is one of the most attractive in the segment. It is good to be in chemicals and even better to be in a part of the business that works.

By: Nigel Davis
+44 20 8652 3214

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