Johnson Matthey upbeat after trumping forecasts

Underlying pre-tax profit fell 9 per cent to £389m on sales, excluding volatile precious metals, that were flat at £2.7bn. Falling precious metal prices crimped demand for services by 15 per cent at the precious metals division (PMP). Operational issues at Matthey's Salt Lake City refinery (now resolved) cost £10m and, with high fixed costs, underlying divisional operating profit plunged 27 per cent to £147m. Refining volumes also fell, although a second-half recovery has spilled over into the current financial year and the manufacturing business is doing well. However, the renegotiated contract to supply Amplats with services such as research and forecasts kicks in on 1 January and will cost about £35m this year.

Business has been better at the environmental technologies unit, though, and new truck emissions legislation should offset the Amplats hit. Of course, falling car sales in Europe have hurt demand for Matthey's car catalysts, but heavy duty diesel (HDD) catalysts for trucks, especially in North America, are growing. More catalysts are being shipped out of Europe to Brazil, and there are signs of an uptick in demand on the continent, too. That may be down to companies buying cheaper Euro V trucks ahead of new Euro VI legislation, also due on 1 January - which could mean fewer sales of the latter initially. But, given the fact that the new trucks are worth four times more to Matthey, a big upswing in profits from April next year is inevitable, according to chief executive Neil Carson.

There are also high hopes for sales at process technologies. Here, lower raw material prices and new contracts in China for Matthey's higher margin operation, Davy, ramped up profits. And America's shale boom has ignited interest in methanol plants there, too. It's early days, says Matthey, but "serious conversations" are under way.

Deutsche Bank expects underlying pre-tax profit of £411m in 2014, giving underlying EPS of 160.6p (from 150p in 2013).