(adds Anglo contract, fresh analyst comment, updates shares)
By Santosh Menon
LONDON, Nov 27 (Reuters) - British metals and chemicals firm Johnson Matthey Plc reported half-year profits towards the top end of expectations on Thursday and forecast growth in annual earnings, helped by the growing quest for cleaner air.
But its shares fell as the earnings were hemmed in by a weak dollar, and after it unveiled a less profitable new contract with Anglo American Platinum .
The world's largest distributor of platinum and related metals, as well as a producer of catalysts used to cut vehicle exhaust emissions, was mildly positive about the outlook for the rest of the year while exuding optimism about more distant future prospects.
"In the short term, we're relatively confident... But it's the medium to long term (that) is particularly attractive," Group Finance Director John Sheldrick told Reuters in an interview.
The firm said the outlook for the second half was similar to the first, with further growth expected in the catalysts and pharmaceutical materials divisions, where profits grew 28 percent and eight percent, respectively, at the interim stage.
"Despite adverse currency movements, we are confident that the group will achieve growth in earnings per share (before exceptional items and goodwill amortisation) and dividends for the full year," the company added.
Profit before tax and goodwill for the half year to September 30 rose to 97.5 million pounds ($166 million) from a restated 93.7 million last year. Analysts' forecasts had ranged between 92.1 million and 98.7 million pounds.
Johnson Matthey said the profit would have been 2.8 million pounds higher had the dollar stayed stable. It set an interim dividend of 8.2 pence a share, up five percent on last year.
Sales fell four percent to 2.17 billion pounds, reflecting lower prices and trading in metals such as palladium and rhodium. The firm said sales excluding the value of precious metals rose 11 percent to 625 million pounds.
"They're doing very well in their catalysts business, which is offsetting the downturn in car production in the U.S. and Europe," said Sreejith Banerji, analyst at ETrade Securities.
The firm's shares were down 3.3 percent at 1,020 pence by 1210 GMT, valuing it around 2.28 billion pounds. They are up 32 percent so far this year, outperforming its UK chemical sector peers by around 33 percent.
Dryden Wealth Management said the mixed news on metal prices and weaker terms with Anglo, along with dollar exposure, had taken the "gloss off what are otherwise better-than-expected figures".
Johnson Matthey said it had renewed contracts with Anglo, but warned it would get lower commissions and discounts under the new deal with the world's top platinum miner.
The firm said strong Asian sales and increasing turnover in heavy duty diesel products more than made up for sluggish car sales in the U.S. and Europe.
Sheldrick said sales of emission control products for heavy duty diesel vehicles grew strongly, notably in Japan, and this area was a big future business opportunity.
"There's legislation coming up in the U.S. in 2007 and in 2008 in Europe, which will require significant new fitment (in diesel vehicles)... We reckon the market will be about $600 million, and we hope to get a good share of it," he said.
Other areas of strong potential included supplying catalysts to new refineries being built to convert natural gas to sulphur-free diesel fuel, and fuel cells, he said.