Financial overview

( in millions of Pound )

Business Overview
Activities of Automotive Business (Environmental Catalysts and Technologies (ECT) business in Catalyst Division)

1. Overall
- Environmental Catalysts and Technologies was well ahead of last year with good growth in Europe, particularly for diesel oxidation catalysts and CSFs, increasing autocatalyst sales in Asia and a welcome upturn in its North American business with the introduction of products to meet new HDD legislation.
- The Company's business in Asia continues to perform very well. In FY2006 the Company has achieved strong volume growth in China and Japan and its operations in India and Malaysia also continued to perform well. During the year the Company again expanded its autocatalyst manufacturing facility in Japan in order to serve growing demand for its products from Japanese car companies. Further expansion is planned for the coming year.

2. Heavy Duty Diesel (HDD) catalysts
- The Company's sales, excluding precious metals, of HDD catalysts to original equipment manufacturers (OEMs) increased to 46 million pounds in the second half of 2006/07 from 7 million pounds in the first half.
- Sales in the US, as expected, started slowly as truck sales were impacted by pre-buying of trucks ahead of the legislation.
- FY2007 the Company expects to see further rapid growth in its sales of HDD catalysts as the legislation in Europe and the US will apply for the whole of the year and as US truck sales return to more normal levels over the course of the year.
- Its HDD business in Asia continues to make good progress, gaining share of the OEM market in Japan and achieving good sales into the large retrofit programme underway in Seoul, South Korea.
- Both China and India are major manufacturers of trucks and similar emission control legislation to Europe and the US is expected to be introduced in those two countries by 2010. HDD emissions legislation in Europe, the US and Japan will tighten significantly in 2009 and 2010 which will require more sophisticated catalyst systems to meet the standards.

Outlook
In FY2007 the Company expects to benefit from a full year of sales of HDD catalysts to meet new emission standards introduced in Europe in October 2006 and in North America in January 2007. Although industry experts are predicting a 25% fall in truck sales in North America in 2007, all new trucks sold will need to meet the emissions legislation, which will provide the opportunity for significant new business for the Company. In addition, the Company expects to achieve significant growth in sales of CSFs for light duty diesel vehicles and grow its market share of autocatalysts in Asia, and expects to achieve double digit growth in both sales and operating profit in FY2007.

R&D Expenditure

-	Mar. 2007	Mar. 2006	Mar. 2005
R&D Expenditure	66.5	62.7	58.2

R&D Structure

Johnson Matthey Technology Centre (JMTC)	Sonning Common, UK	-Novel materials preparation
European Technology Center	Royston, UK	-Catalyst development and testing
Diesel Centre	Gothenburg, Sweden	-Diesel center
Johnson Matthey Testing	Detroit, USA	-Contract Testing -Steady State Engine Cells (Gasoline) -Transient Engine Cells (Heavy Duty Diesel) -SCAT rigs
North American Technology Center	Wayne, USA	-Catalyst development and testing
Asian Technology Centre	Kitsuregawa, Japan	-Catalyst development and testing

-The JMTC is the Company窶冱 main centre for longer term research. It employs over 180 scientists, specialists in the fields of catalysis, precious metals, materials science and many other disciplines in which the Company operates.

-The Company has invested in ECT's R&D facilities during the year to meet the demands of planned new emissions regulations around the world. FY2007 will see the completion of expansions at its Royston, UK and Gothenburg, Sweden facilities and of the R&D centre at its new facility in Korea.

-During FY2006, the Fuel Cells business completed a major project on advanced membrane electrode assemblies (MEAs) for automotive applications funded in part by the UK Department of Trade and Industry (DTI) and has collaborated with a number of other DTI funded potential UK suppliers. This work has demonstrated significant improvements in the durability of key components at the heart of the MEA, such as the membrane. Using the Company's own composite design, the Company has achieved a five fold improvement in membrane durability under automotive test cycles and other improvements have reduced
the cost of the substrates and catalysts used in MEAs by a factor of five while maintaining or improving performance.

In FY2006 capital expenditure was 119.8 million pounds. Most of this investment was in Catalysts Division with Environmental Catalysts and Technologies (ECT) spending 63.9 million pounds on new manufacturing capacity.

Domestic Investment
- In FY2006, the Company completed work on a new factory in Royston, UK to manufacture CSFs and during FY2007 the Company will complete an additional facility which will double its capacity.

Overseas Investment
Russia
During the year the Company commenced construction of a new autocatalyst manufacturing facility in the Russian Federation. This plant will produce catalysts to meet demand from both local and global car manufacturers following the introduction of emissions legislation requiring autocatalyst fitment in Russia in the spring of 2006.

South Africa
The Company has added CSF capacity at its South African facility, which also supplies the European market.

South Korea
Its new plant in South Korea (the Company's fifth in the Asian region) is nearing completion and will begin production during FY2007. This new plant will manufacture catalysts for both diesel and petrol powered vehicles and will carry out research and development activities to support the rapidly growing Korean motor industry.