| Half Year to 30th September | ||||
|---|---|---|---|---|
| 2011 £ million |
2010 £ million |
% change |
% at constant rates |
|
| Revenue | 4,858 | 3,694 | +32 | +34 |
| Sales (excl. precious metals) | 298 | 274 | +9 | +10 |
| Underlying operating profit | 107.1 | 81.2 | +32 | +32 |
| Return on sales | 35.9% | 29.7% | ||
Precious Metal Products Division (PMPD) also performed well with sales 9% higher at £298 million. Underlying operating profit was 32% up at £107.1 million, reflecting strong profit growth across the division, particularly in Precious Metal Services which benefited from higher average precious metal prices.
Sales in our Precious Metal Services businesses, which comprise the division’s Platinum Marketing and Distribution and Refining activities and represent 33% of PMPD’s total sales, grew by 10% to £99 million. These businesses have a relatively high level of fixed costs and a significant proportion of their sales is influenced by precious metal prices. As a result of this operational leverage, operating profit from these businesses increased significantly.
Platinum Marketing and Distribution – The price of platinum has generally been supported by strong industrial demand and a positive investment trend in physically backed Exchange Traded Funds (ETFs). Price volatility has increased in turbulent markets as commodities respond to wider economic and political events. The average price of platinum in the first half was $1,782/oz, up 12%.
The platinum market is expected to be in a modest surplus in calendar year 2011, with growth in both global demand and supply. Industrial demand is expected to reach a new high, with increased production of heavy duty diesel vehicles in Europe and North America driving up demand for platinum containing emission control catalysts. The price sensitive jewellery sector will also grow modestly, supported by demand in China, despite rising platinum prices in much of 2011. Production increases have largely been seen outside South Africa, where underlying production has weakened.
Although palladium has traded at substantially higher levels than in the same period in 2010, the momentum that made the metal an outstanding performer in the commodity sector last year has been lost as the year has progressed. The price of palladium nonetheless averaged $759/oz, up 53%.
The market for palladium is expected to return to a significant surplus in 2011 after being in deficit in the previous year. Demand from the autocatalyst sector is predicted to reach an historic high with demand from other industrial sectors returning to pre-recession levels. Overall, gross demand is, however, expected to decline in 2011 as a consequence of a significant reversal in investment flows, with a net liquidation of metal held in ETFs. With mine production slightly higher, the balance of the market has moved decisively to a position of oversupply.
The rhodium market is expected to remain in surplus in 2011 as increases in mine output as well as recycling outstrip growth in gross demand. The average price of rhodium fell 18% to $2,029/oz in our first half.
Refining – Our Refining businesses had a very strong start to the year as all of our refineries benefited from good intakes of material in the first half and higher average metal prices.
Intake volumes in our Platinum Group Metal (Pgm) Refining business increased in the first six months aided by higher pgm prices. Refining feeds such as autocatalyst derived collector metal (despite the end of the various car scrappage incentive schemes), spent petrochemical catalysts and insoluble metals were particularly strong. In addition, our focus on operational improvements started last year has increased plant efficiency and enhanced profitability.
In our Gold and Silver business, both our Canadian and US refineries continued at record levels, with sales up 34% at improved margins. The business in particular benefited from higher gold prices, which climbed dramatically in the summer before falling back slightly by the end of our first half, although they were still higher than at the start of the period. Average prices in the period for gold and silver were $1,611/oz and $38/oz respectively, increases of 33% and 106% over the comparable period in 2010/11. Intakes, stimulated by these higher prices, were significantly up (15% to 20% across the various types of feed) from both our primary mine customers and continued strength in the secondary (scrap) markets for both metals. Demand for investment products such as kilo bars has also been buoyant.
Our Precious Metal Manufacturing businesses, which comprise the division’s Noble Metals, Colour Technologies and Catalysts and Chemicals activities, delivered growth in sales of 8% to £199 million. Underlying operating profit was significantly ahead as utilisation levels in our factories increased in response to higher demand for our products.
Noble Metals – Our Noble Metals business continued to grow with good demand across its product range. Sales were up by 10% to £64 million and operating profit grew substantially as our plants, particularly in Europe, were operating close to capacity. The business’ performance was supported by strong growth in pgm products for automotive applications, especially iridium alloy spark plug tips. Demand for catalyst gauzes for nitric acid manufacture and for nitrous oxide (N2O) abatement catalysts also increased. Our medical device components business performed well in the first half and we have expanded our service offering in Asia to access this growing market. Whilst demand for our industrial products was good in the first few months of the period, sales in September were a little weaker which may suggest some inventory reduction by our customers.
Colour Technologies – Colour Technologies’ sales were slightly lower, down 3% to £44 million, and operating profit was down in line with sales. Whilst demand for obscuration enamels for automotive glass and silver pastes for heated rear windows continued in line with last year, sales of decorative precious metal products were lower as higher metal prices impacted demand.
Catalysts and Chemicals – Catalysts and Chemicals had a robust start to the year with sales up by 13% at £91 million and operating profit well ahead. Chemical catalyst sales were particularly strong in Asia with a number of new product developments in pgm catalysts and we saw good growth in pgm chemicals in support of autocatalyst volume growth, especially in China. Our recently launched ethylene scavenger product, e+TM, which delays the ripening of some fresh produce, is performing well in customer trials. Our new plant in Royston, UK to manufacture e+TM is close to completion and the outlook for this new product remains very encouraging. Commissioning of our pgm catalysts manufacturing plant in Shanghai, China is well underway and we expect to make our first commercial sales shortly.