ANNUAL REPORT & NOTICE OF ANNUAL GENERAL MEETING
Johnson Matthey Plc (the "Company") has today published its 2014 Annual Report
and Accounts and Notice of the 2014 Annual General Meeting. Both documents can
be viewed at or downloaded from the Company's website at www.matthey.com
Copies of both documents, together with the Form of Proxy for the 2014 Annual
General Meeting, have been submitted to the National Storage Mechanism and will
shortly be available for inspection at www.hemscott.com/nsm.do.
The Annual General Meeting of the Company will be held at 11.00 am on Wednesday
23rd July 2014 at Ironmongers' Hall, Shaftesbury Place, Barbican, London EC2Y
8AA.
Additional information, required to be made available by the Company under Rule
6.3.5R of the Disclosure and Transparency Rules of the Financial Conduct
Authority, to the extent not already included in the Company's announcement of
results for the year ended 31st March 2014 issued on 5th June 2014, is set out
in the Appendix below.
Simon Farrant
Company Secretary
18th June 2014
APPENDIX
A. RISKS AND UNCERTAINTIES
The effective identification and management of risks and opportunities across
the group are integral to the delivery of the group's strategic objectives.
The group's approach to risk management is aimed at monitoring material issues
to enable the early identification of key risks and the taking of action to
remove or reduce the likelihood of those risks occurring and their effect.
The board has overall responsibility for ensuring that risk is effectively
managed across the group and the Audit Committee is responsible for reviewing
the effectiveness of the group's system of internal control. This includes the
approach to risk management and procedures for the identification, assessment,
management, mitigation, reporting of risk and assurance of mitigating actions.
The group has a process in place for the continuous review of its risks. As
part of the risk management process, each division reviews its risks and its
mitigation strategies and actions and discusses relevant risks with each
business as necessary. As part of that process, the most significant risks
identified are collated into a Group Risk Register. The Group Risk Register is
reviewed by the Chief Executive's Committee (CEC) and the board. Each
individual risk is considered, together with the effectiveness of current
controls and the status and progression of mitigation actions and plans are
monitored.
Set out below are what the board believes to be the principal risks and
uncertainties facing the group, the mitigating actions for each and an update
on any change in the profile of each risk during the course of 2013/14. The
board considers that the risk identified last year associated with pension
scheme funding has reduced. This has therefore been removed from the principal
risks and uncertainties. More detail of the group's pension schemes is included
in note 14 on pages 147 to 154 of the 2014 Annual Report and Accounts.
1. STRATEGIC
(a) Responding to, identifying or capitalising on appropriate new or growth
opportunities
(i) Risk and impact:
The group's existing activities are well placed to deliver good growth over the
coming years. New business areas will help to sustain the group's growth beyond
that period.
Failure to identify new business areas or extend the group's portfolio could
impact the ability of the group to achieve its strategy and / or maintain
growth and / or market share.
(ii) Mitigation:
• The group and each business prepares a strategic plan to review demand in
existing markets and potential new opportunities. These plans are regularly
monitored and challenged.
• The group continues to invest in new business development and to identify and
convert targets for acquisition.
(iii) Changes since 2013 annual report:
No change.
We continue to target potential new markets and develop new businesses, both
organically and through acquisition. The progress of our new business
development activities, including the integration of our battery systems
business (formerly Axeon), is described on pages 41 to 43 of the 2014 Annual
Report and Accounts.
(b) Technological change
(i) Risk and impact:
Johnson Matthey operates in highly competitive markets in which technology is
key to success. Constant product innovation is critical to maintain competitive
advantage.
Failure to keep up with changes in the market place and to maintain our
technology pipeline could result in a lack of competitive products and erosion
of margins and / or loss of market share.
(ii) Mitigation:
• The group continues to invest in existing and new products and technologies
through R&D (including through its technology centres around the world) and as
part of our ten year technology plan.
• There is constant innovation and development in cooperation with our key
customers.
• The group invests in its people to ensure that it maintains a high level of
relevant scientific expertise.
(iii) Changes since 2013 annual report:
No change.
Our commitment to innovation, research and development is described throughout
the 2014 Annual Report and Accounts.
As set out on page 15 of the 2014 Annual Report and Accounts we have a network
of technology centres. During the year we established a centre in South Africa
and a further new technology centre in Singapore was officially opened in April
2014.
We invested £152.3 million in R&D in the year (2012/13 £136.0 million).
2. MARKET
(a) Responding to changes in global political and economic conditions or future
environmental legislation
(i) Risk and impact:
The global nature of the group's business exposes it to risk arising from
economic, political and legislative change in the countries in which it
operates.
Failure to respond to sudden short and medium term changes in the market or
economy or a sustained period of economic weakness in our markets could have a
material adverse effect on the group's results.
The group has no influence upon changes in inflation, interest rates or other
economic factors affecting its business. In addition, the possibility of
political unrest and legal or regulatory changes also exists in countries in
which the group operates.
Over 50% of the group's sales are driven by environmental legislation,
particularly legislation over emissions from light and heavy duty vehicles.
Further tightening of global emissions legislation generally requires improved
technological solutions and the extension of emissions legislation to new
applications can create opportunities for the group.
A curtailment in environmental legislation around the world could limit the
group's growth potential and undermine profit margins.
(ii) Mitigation:
• The group maintains a balanced portfolio of products and businesses and
serves a wide range of diverse customers which reduces the impact of a change
to any one market.
• Management continuously monitors the performance of our businesses across the
world at both business and group level.
• Our cost base contains a significant variable element and is flexible to
changing political and economic conditions.
• Forthcoming changes in emissions legislation are well understood and our
products are designed to meet these increased requirements.
• Profit margins can be maintained with continuous improvements in technology
to reduce the cost and improve the effectiveness of our products.
• Regular reviews are undertaken to monitor areas of new potential legislation.
• Lobbying activities are undertaken where appropriate to improve the
understanding of regulatory and legislative bodies.
(iii) Changes since 2013 annual report:
No change.
We performed well in 2013/14 and are well positioned to respond to and benefit
from legislation changes in both light and heavy duty catalyst markets over the
years ahead as detailed on pages 26 to 29 of the 2014 Annual Report and
Accounts.
3. OPERATIONAL
(a) Operating safely, including in line with changes in health, safety,
environmental and other regulations and standards
(i) Risk and impact:
In common with similar manufacturing companies, the group operates in a
challenging safety environment that is subject to numerous health, safety and
environmental laws, regulations and standards.
Failure to operate safely and respond to changes made to applicable laws,
regulations or standards could adversely impact the group's employees or other
stakeholders, our manufacturing capability or the marketability of our
products.
(ii) Mitigation:
• Detailed health, safety and environmental processes are documented in our
operating manuals, communicated and reviewed regularly and used as the basis
for continuous training and development.
• Robust maintenance programmes are undertaken in order to ensure that our
facilities and assets meet the applicable group and legislative standards.
• The group carries out regular internal audits to ensure compliance with
current group policies and applicable laws, regulations and standards such as
ISO 14001 and OHSAS 18001. Our quality standards are also scrutinised
externally by customers, suppliers and the relevant authorities.
• Changes in legislation are carefully monitored and, if required, the
composition of our products is amended to comply with the latest legislation.
• We are committed to proactive communication and to building open
relationships with the authorities and relevant legislative bodies, both
directly and through the relevant trade associations.
(iii) Changes since 2013 annual report:
No change.
Our health and safety and environmental performance is described on pages 62 to
67 and 70 to 73 respectively of the 2014 Annual Report and Accounts.
(b) Availability of strategic materials
(i) Risk and impact:
The group uses many raw materials within its manufacturing processes. Several
raw materials are available from only a limited number of countries and / or
suppliers.
Disruption to the supply or a change in the group's ability to access
sufficient stocks of these raw materials, most notably platinum group metals,
rare earth materials or narcotic raw materials, could adversely affect the
group's operations. This may be due to increased prices or because our ability
to manufacture and supply products to customers may be impacted.
(ii) Mitigation:
• Although most of the world's platinum is mined in South Africa, the group has
access to world markets for platinum and other precious metals and is not
dependent on any one source for obtaining supplies.
• Appropriate sourcing arrangements are in place for other key raw materials to
ensure that the group is not dependent on any one supplier.
• Where possible the group enters into fixed price contracts for key raw
materials.
• We work closely with key suppliers to ensure availability, including through
audits, benchmarking and specific risk reviews.
• We regularly monitor forecast requirements and hold buffer stocks.
• We look to identify alternative raw materials where appropriate.
(iii) Changes since 2013 annual report:
In light of the change in the nature of our contracts with Anglo American
Platinum Limited (effective 1st January 2014) and continued labour unrest in
South Africa, we have concluded that this risk has increased since last year.
We are actively managing this risk, partly through higher metal inventory
holdings.
(c) The effective recruitment, retention and development of high quality staff to
support the growth of our business
(i) Risk and impact:
The group relies upon its ability to recruit, retain and develop employees
around the world with the necessary range of skills and experience to meet its
stated objectives, including in relation to business growth.
The existing management team has many years of experience at Johnson Matthey,
operating in the markets and developing the technologies in which the group
maintains a presence.
Ineffective succession on the departure of senior management or the lack of an
appropriately skilled workforce could adversely impact the group's ability to
perform in line with expectations.
(ii) Mitigation:
• Global employee development programmes are in place. These include training
of manufacturing leaders to run our operations in a consistent and efficient
way.
• Regular reviews of management succession plans are carried out and are
closely monitored by the Nomination Committee and Management Development and
Remuneration Committee.
• Global remuneration policies are in place to ensure appropriate rewards to
motivate and retain staff.
• We undertake a continuous assessment of the skills required within the group
and action plans are put in place to address identified gaps.
(iii) Changes since 2013 annual report:
Although our senior management succession has been successfully managed, such a
change at the top of the group must inherently increase risk.
(d) Security of assets
(i) Risk and impact:
On any given day the group has significant quantities of high value precious
metals or highly regulated substances on site and in transit, the security of
which is critical.
A material loss due to a breach in the group's security measures, including
theft or fraud, could be significant to the group's performance.
(ii) Mitigation:
• The group has well developed security, assay and other process controls.
• We complete security checks to safeguard both our tangible and intangible
assets.
• Annual security audits are carried out across the group.
• Insurance cover is maintained for losses from theft or fraud.
(iii) Changes since 2013 annual report:
No change.
(e) Intellectual property (IP) and know-how
(i) Risk and impact:
The group operates in markets in which the generation and application of
technology know-how and IP allows an advantage to be maintained. Careful
monitoring of competitors' IP is required to ensure that breaches of their
rights are not made by the group.
Failure to establish the group's IP rights or to identify third parties' IP
rights could undermine the group's competitive advantage particularly given the
group's expansion into new markets. Alternatively, not noting the expiration of
patents held by third parties could mean the loss of potential business
opportunities. Protecting our broader know-how is equally important to ensure
that we maintain this advantage.
(ii) Mitigation:
• The group has established policies and procedures for registering patents and
for monitoring its existing patent portfolio and those of third parties.
• We defend infringement claims and challenge new patents where appropriate.
• We continuously evaluate operating restrictions and opportunities available
to us through the use of our IP and know-how.
• Know-how is protected by non-disclosure agreements and legal measures.
• We restrict internal and external access to IP and know-how as necessary.
• We complete security checks to safeguard our intangible assets, including
cyber checks.
• Our investment in technical developments partially mitigates the risks to our
IP and know-how.
(iii) Changes since 2013 annual report:
No change.
(f) Systems failure
(i) Risk and impact:
The group uses a significant number of complex IT systems in its operational
and supporting activities, some of which are starting to see the end of their
useful life.
Failure of one or more of our major IT systems over an extended period could
impact our ability to manufacture or to report our operational performance.
(ii) Mitigation:
• We continuously review our IT infrastructure and environment and make short
and long term investments where these are deemed necessary and appropriate.
• We identify and implement other systems based or manual work arounds where
these are identified as necessary.
• IT disaster recovery and general business continuity plans are in place and
are regularly tested and reviewed.
• A number of systems are bespoke to specific businesses or locations which
reduces the impact to the group of a failure in any one system.
(iii) Changes since 2013 annual report:
There are a number of systems initiatives being undertaken which will result in
significant change. We have therefore concluded that the level of associated
risk has increased and we are using external expertise to help to mitigate
this.
(g) Failure of significant sites
(i) Risk and impact:
While the group operates from a variety of locations, certain sites are
critical to the group due to their scale or the specific nature of their
production activities.
Failure of one of our critical sites could significantly impact the performance
of the group.
(ii) Mitigation:
• Business continuity plans include consideration and testing of circumstances
in which alternative back up locations may be required.
• Capacity and demand planning includes consideration of the site's
significance.
• Given the nature of the group's operating activities, these can be replicated
at other locations with reasonable ease and in a short time frame.
(iii) Changes since 2013 annual report:
No change
B. RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OF THE ANNUAL REPORT AND ACCOUNTS
Each of the directors as at the date of the 2014 Annual Report and Accounts,
whose names and functions are set out below:
• Tim Stevenson, Chairman
• Neil Carson, Chief Executive
• Robert MacLeod, Group Finance Director
• Larry Pentz, executive director
• John Walker, executive director
• Odile Desforges, non-executive director
• Alan Ferguson, non-executive director
• Colin Matthews, non-executive director
• Michael Roney, non-executive director
• Dorothy Thompson, non-executive director
states that to the best of his or her knowledge:
• the group and parent company accounts, prepared in accordance with the
applicable set of accounting standards, give a true and fair view of the
assets, liabilities, financial position and profit or loss of the company and
the undertakings included in the consolidation taken as a whole; and
• the management report (which comprises the Strategic Report and the
Directors' Report) includes a fair review of the development and performance of
the business and the position of the company and the undertakings included in
the consolidation taken as a whole, together with a description of the
principal risks and uncertainties that they face.
This responsibility statement was approved by the board on 4th June 2014 and is
signed on its behalf by Tim Stevenson, Chairman.