Johnson Matthey sees stronger year ahead after spike in debt

* Company says working capital up on rise in orders, stocks

* Underlying pre-tax profit up 3 percent

* In advanced negotiations to sell Research Chemicals business (Adds debt, working capital details, analysts comments)

By Silvia Antonioli and Clara Denina

LONDON, June 4 (Reuters) - Johnson Matthey (LSE: JMAT.L - news) , the world's biggest maker of autocatalysts, expects higher European sales of the exhaust emission control devices, will help boost its performance in the next financial year it said in reporting results on Thursday.

However shares in the London-listed firm fell 4 percent as investors worried about an unexpectedly sharp increase in debt caused by a rise in working capital, which the company said was mostly due to business growth and higher inventories.

"We have seen a 100 million-pound ($154 million) improvement in working capital in April and I expect that to improve. We are working on continuing to improve this," Chief Executive Robert MacLeod told analysts in a results meeting.

Earlier the company reported a 3 percent rise in its underlying pre-tax profit to 440.1 million pounds ($675 million) for the year ended March 31, which it said compared with the consensus forecast from analysts of 437.3 million pounds.

It said it will pay a final dividend of 49.5 pence a share, a rise of 4.4 percent and increasing the total payout for the year by 9 percent to 68 pence.

In the current year it said it expected "to deliver good underlying growth" with a result which would be "slightly ahead".

Johnson Matthey has been benefitting in the last few years from stricter EU regulations on vehicle emissions which has boosted sales of its platinum and palladium-based autocatalysts but this has been partially offset by weaker precious metals prices which have hit its metals division in the last year.

Its share price has risen by over 400 percent from a 2008 low of 671 pence but is only up by 3 percent in the last year, with the shares trading down 4 percent on the day at 3,365 pence by 0945 GMT.

"The outlook statement is quite decent but there is a negative in the shooting up of the debt because of very the large working capital outflows which was a bit of a surprise," said Numis analyst Charles Pick.

"We were expecting to see a net debt of 642 million and I had to rub my eyes when I saw it is nearly a billion."

Net debt rose to 994 million pounds from 729 million as working capital increased by 433 million pounds.

The company put the increase in working capital down to factors such as business growth in Asia where payment terms are longer than elsewhere, an increase in product inventories to meet expected demand and higher stocks of precious metals.

Johnson Matthey's largest division, Emission Control Technologies, was the strongest performer last year among its five business units, with underlying operating profit up 21 percent.

Its separate Precious Metal Products' business, however, saw a 21 percent fall in underlying profits.

The company also said it is in advanced negotiations to sell its wholesale Research Chemicals business, whose margins are slightly below those of the wider Fine Chemicals division, as its focus switches to higher value-added chemicals businesses.

($1 = 0.6492 pounds) (Editing by Pravin Char and Greg Mahlich)