(Adds Finance Director, analyst comments, updates shares)
By Santosh Menon
LONDON, Nov 28 (Reuters) - British metals and chemicals firm Johnson Matthey Plc expects a modest rise in annual profits after first-half profits climbed three percent despite a weaker dollar and a slump in the prices of key metals.
Group Finance Director John Sheldrick told Reuters on Thursday that the outlook for palladium and rhodium remained tough and exchange rates remained unfavourable.
He said most analysts were expecting full-year pre-tax profits just above 190 million pounds ($295 million). "We're comfortable with the majority," he added.
Earlier, the firm, which makes catalysts to cut vehicle exhaust fumes, reported that weakness in the South African rand and the dollar had shaved 7.4 million pounds off profits for the half year to end-September.
Profits before tax, exceptional items and goodwill during the period rose to 95 million pounds from 92.2 million last year, in line with forecasts that ranged between 92 and 96 million.
While Johnson Matthey was able to compensate for its losses from the South African currency by raising its rand selling prices, it was not as lucky in the United States, a country which accounts for 40 percent of group profits.
The dollar's weakening against the pound cost the firm 2.6 million pounds in the first half. Had currencies been constant, pre-tax profits would have risen eight percent, Sheldrick said,. Shares in the company were little changed at 839-1/2p by 1145 GMT, valuing it around 1.84 billion pounds. The stock, down 12 percent this year, has performed broadly in line with peers in the chemicals sector during the past 12 months.
Analysts were satisfied with the results.
"These headline results were in line with our expectations," Schroder Salomon Smith Barney said in a research note.
Merrill Lynch analyst Robyn Coombs, who has a "neutral" rating on the stock, said the firm remained a solid medium-term investment, with strong underlying demand drivers.
PLATINUM SHINES, OTHERS HIT
Johnson Matthey said profits at its mainstay Precious Metals unit, which refines, processes and markets precious metals, fell 13 percent to 25.4 million pounds due to lower prices and subdued trading in palladium and rhodium. Sales at the unit fell 12 percent to 1.5 billion pounds. Palladium prices crashed after car makers, which use the metal for pollution control systems, switched to alternatives after a steep rise in prices last year.
Palladium, which traded at over $1,000 an ounce last year, is now around $265, and Sheldrick said it was difficult to predict any recovery.
But demand for platinum remained strong and prices would remain firm, he said, driven by sales to the auto sector and jewellery manufacturers in China, the world's most populous nation and one of the fastest growing economies.
The firm said its Catalysts and Chemicals division and its Pharmaceutical Materials division, which supplies ingredients to the drugs industry, posted strong growth with profits up seven and 45 percent respectively.
Demand for pollution control systems has been increasing as governments tighten environmental laws around the world, which has helped cushion Johnson Matthey from slowing car sales.
Sheldrick said Johnson Matthey expected global car sales to be flat or slightly down next year as growing demand in China and India offsets slowing sales in Europe and the United States.
Johnson Matthey is also counting on its recent acquisition of the Synetix catalyst unit, which it bought from Imperial Chemical Industries in September for 260 million pounds, to help its earnings from the second half.
Sheldrick ruled out any big acquisitions for now, saying the company would focus on integrating the Synetix purchase.
The firm, which operates in 34 countries and employs about 8,000 people, set an interim dividend of 7.8 pence a share, up four percent from a year earlier.