By Barbara Lewis
BRUSSELS (Reuters) - Johnson Matthey (L:JMAT), a world leader in making catalysts for car emission-control devices, forecast higher results in the coming year, saying the regulatory push for cleaner vehicles would spur demand although competition would be intense.
Its share price rose 1.5 percent in early trading after the firm predicted better conditions ahead after a 5 percent fall in pre-tax profit for the year ended March 31 to 418.2 million pounds ($603.3 million). This was just ahead of the average forecast of 415 million pounds in a Thomson Reuters poll.
Profits for the financial year 2015-16 were hit by actions to cut costs and exceptional impairment and restructuring charges of 141 million pounds ($203 million).
However, the ratio of net debt to core profits declined to 1.1 times from 1.7. The company said its balance sheet was strong and would allow for research and development.
Sales of auto emissions control technology rose 7 percent and underlying profits in the sector climbed by 15 percent.
Robert MacLeod, chief executive of Johnson Matthey, told Reuters the sector should stay strong as global regulators pushed for tougher emissions reduction following the Volkswagen (DE:VOWG_p) scandal.
He expected diesel cars, which particularly need platinum to reduce emissions, would account for about 40 percent of the market in Europe by 2025, down from roughly half now.
The company is also betting on increased battery technology sales following last year's acquisitions in battery materials and greater sales of hybrid vehicles.
"Hybrids are the perfect answer for Johnson Matthey. They still need emission control, but they also need a battery," MacLeod said in a telephone call.
Competition from rivals Belgium's Umicore (BR:UMI) and Germany's BASF (DE:BASFn), which is joint leader with Johnson Matthey in the auto catalyst market, will be tough, however.
"We are all going to be competing intently in the battery space. It's a good clean fight," MacLeod said.
Johnson Matthey's business in refining and recycling platinum group metals was hit by a roughly 25 percent fall in prices, it said.
The petrochemicals market was also challenging, MacLeod said, because of the fall in oil prices.
Analysts were positive.
"The balance sheet is in good shape to support capital programmes for longer term growth," Marc Elliott, analyst at Investec, said, adding the firm was "transitioning back to growth".