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2018 Annual Report
and Accounts
www.matthey.com/AR18
Johnson Matthey Plc
5th Floor
25 Farringdon Street
London EC4A 4AB
UK
Tel: +44 20 7269 8400
Our vision is for a world that’s
cleaner and healthier; today
and for future generations
Johnson Matthey
As a global leader in
sustainable technologies
we apply our cutting edge science to create solutions
with our customers that make a real difference to
the world around us.
Delivering solutions
today:
Creating solutions
for the future:
Catalysts that prevent 40 tonnes of pollutants entering
our air every minute
Class leading battery materials technology
to enable zero emission vehicles
Active pharmaceutical ingredients that relieve
symptoms for millions of people each year
Recycling technologies that conserve millions of
tonnes of platinum group metals every year
Our strategy will deliver
sustained growth
Cutting edge science and technology
is our competitive advantage.
Delivery of our strategy requires us to:
Invest in our science and technology in order to;
Maintain and build our leadership in high
growth markets by solving complex problems
for our customers.
Operate our business efficiently, safely and sustainably.
Develop and grow our great people.
The outcome is sustained
value over the long term,
characterised by:
Strong return on invested capital of 20%
Attractive earnings – mid to high single digit growth in underlying earnings per share
A progressive dividend for our shareholders
And a cleaner, healthier world for everyone.
We have five values:
Protecting
people and
the planet
Acting with
integrity
Working
together
Innovating
and
improving
Owning
what we do
They guide how we do things in JM and shape
the right culture to achieve our strategy.
2017/18 was a good year for JM
We delivered what we said we would.
We built foundations for future growth.
Investing in our science
Gross R&D spend
£193m
Underlying operating profit flat3
£525m
3 At constant rates (see note 2 on page 61).
Carbon footprint (’000 tonnes CO2 equivalent)
445
Progressive dividend –
up 7% to
80.0p
Delighting our customers
Revenue up 17% to
£14,122m
Running our business better
Average working capital days4
62
4 Excluding precious metals.
Sales1 up 7%2 to
£3,846m
1
Sales excluding precious metals.
2 At constant rates (see note 2 on page 61).
Free cash flow 5 of
£136m
5
For definition see page 191.
Supporting our people
Lost time injury and illness rate
flat
Employee engagement
61%
Creating value for our shareholders
Attractive return on
invested capital6
16.4%
6
For definition see note 31g on page 181.
208.4p
Underlying earnings
per share flat
Building a sustainable
business for the future
A new sustainable business framework to 2025
Aligned to our brand, vision and strategy
Driving sustainable business practices throughout JM’s value chain
Comprising six new goals
Health and
safety
Our
people
Low carbon
operations
Responsible
sourcing
Sustainable
products
Community
engagement
1
2
3
4
5
6
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Contents
Strategic Report
4 JM in profile
6 Chairman’s statement
8 Strategic progress and priorities
9 Chief Executive’s statement
13 Group Management Committee
14 Group strategy
16 Sustainable business framework
18 How we create value
20 Our stakeholders
22 Key performance indicators
25 Science
32 Customers
About this report
Our integrated report for 2018 combines
all aspects of the group’s performance into
one document and reflects how we are
addressing areas which we believe have
the potential to have a material impact on
our business.
Unless otherwise stated, performance data is for
the year ended 31st March 2018.
36
Technologies for clean transportation
Navigation
38 Operations
44
48 People
Environmental performance
51 Health and safety performance
56
58
JM’s 200th anniversary
People performance data
60 Financial performance review
Group performance review
Sector performance review
Clean Air
Efficient Natural Resources
61
62
64
66
67 Health
68 New Markets
70
74
Financial review
Treasury policies, going concern and viability
76 Risks and uncertainties
Governance
84 Board of Directors
86 Letter from the Chairman
87 Corporate Governance Report
99 Nomination Committee Report
103 Audit Committee Report
111 Remuneration Report
131 Directors’ Report
135 Responsibility of Directors
Accounts
138 Consolidated Income Statement
138 Consolidated Statement of Total Comprehensive Income
139 Consolidated and Parent Company Balance Sheets
140 Consolidated and Parent Company Cash Flow Statements
141 Consolidated Statement of Changes in Equity
142 Parent Company Statement of Changes in Equity
143 Accounting policies
150 Notes on the accounts
191 Reconciliation of non-GAAP measures to GAAP measures
192 Independent auditor’s report
Other Information
200 Basis of reporting – non-financial data
203 Verification of non-financial data
204 GRI Standard Content Index
206 Shareholder information
208 Glossary of terms
209 Index
210 Financial calendar 2018/19
IBC Company details
Throughout this report you will find a series of easy
to identify icons to help you find further information
about the group.
Read more
Principal risk
Go online
Key performance indicator (KPI)
Sustainability reporting
This report is written to the GRI reporting standard.
We report against GRI in line with the issues that are
important and / or material to our business.
Stay updated
You can find this report and additional information
about Johnson Matthey, including the latest news,
investor updates and sustainability, on our website:
www.matthey.com
Cautionary statement
The Strategic Report and certain other sections of this
annual report contain forward looking statements that
are subject to risk factors associated with, amongst other
things, the economic and business circumstances occurring
from time to time in the countries and sectors in which the
group operates. It is believed that the expectations reflected
in these statements are reasonable but they may be affected
by a wide range of variables which could cause actual
results to differ materially from those currently anticipated.
1
Contents
4 JM in profile
6 Chairman’s statement
8 Strategic progress and priorities
9 Chief Executive’s statement
13 Group Management Committee
14 Group strategy
16 Sustainable business framework
18 How we create value
20 Our stakeholders
22 Key performance indicators
25 Science
32 Customers
36
Technologies for clean transportation
38 Operations
44
48 People
Environmental performance
51 Health and safety performance
56
58
JM’s 200th anniversary
People performance data
60 Financial performance review
Group performance review
Sector performance review
Clean Air
Efficient Natural Resources
61
62
64
66
67 Health
68 New Markets
70
74
Financial review
Treasury policies, going concern and viability
76 Risks and uncertainties
Strategic
Report
2
Johnson Matthey / Annual Report and Accounts 2018
Here we explain
how we use our
inspiring science
to enhance life.
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The Strategic Report from page 2 to page 81
was approved by the board on 30th May 2018
and is signed on its behalf by:
Robert MacLeod
Chief Executive
3
Johnson Matthey / Annual Report and Accounts 2018
Strategic Report
JM in profile
Johnson Matthey is a global leader in science that
makes the world cleaner and healthier. With over
200 years of sustained innovation and technological
breakthroughs, our solutions improve the performance,
function and safety of our customers’ products.
14,000
people
More than
30locations
Our science has a global impact in areas such as low emission
transport, pharmaceuticals, chemical processing and making
the most efficient use of the planet’s natural resources.
Our strategy to deliver sustained growth and value creation
for shareholders drives attractive returns over the medium
term: mid to high single digit compound annual growth in
earnings per share, ROIC expanding to 20% and, as a result,
a progressive dividend.
Today more than 14,000 Johnson Matthey professionals
collaborate with our network of customers and partners to
make a real difference to the world around us.
North America
12 major manufacturing facilities
33% of group sales
24% of employees
Europe
14 major manufacturing facilities
39% of group sales
53% of employees
China
5 major manufacturing facilities
10% of group sales
8% of employees
Rest of World
5 major manufacturing facilities
9% of group sales
5% of employees
4
Rest of Asia
6 major manufacturing facilities
9% of group sales
10% of employees
Johnson Matthey
Clean Air
• A global leader in
catalysts and catalyst
systems for vehicles
and industry
• Creating value from
high technology
catalyst formulations
and systems to meet
legislated limits for
emissions around
the world
• 13 manufacturing
facilities in
12 countries
• Nine technical centres
in eight countries
• Strategy to deliver
sustained growth
Efficient Natural
Resources
• Creating value from
efficient use and
transformation of
critical natural
resources including
oil, gas, biomass and
platinum group
metals (pgms)
• Leading positions
across four global
businesses: Catalyst
Technologies, Pgm
Services, Advanced
Glass Technologies
and Diagnostic
Services
• 18 manufacturing
facilities in
eight countries
Health
New Markets
Group Functions
• Accessing new areas
of potential growth
aligned to global
priorities of cleaner air,
improved health and
more efficient use of
natural resources
• Strategy to deliver
break out growth in
battery materials,
with market leading
cathode material
technology
• Provide common
standards to leverage
efficiency and create
value across the
group’s sectors
• Includes global science
and technology
function which drives
innovation and leads
R&D in core science
and business areas.
Supports technology
development in sectors
• Leading provider of
complex chemistry
solutions to generic
and innovator
pharmaceutical
companies
• Develops and
manufactures active
pharmaceutical
ingredients (APIs) for
a range of treatments
• Operates in the large
and growing
outsourced small
molecule API market
• Five manufacturing
facilities in
two countries
• Two technical centres
in the UK
• Strategy to deliver
market leading growth
• Three technical centres
in three countries
• Strategy to deliver
break out growth
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Sales
excluding precious metals
Operating profit
underlying
£3.8bn
£525m
Sales by sector
excluding precious metals
Operating profit excluding corporate
underlying
New
Markets
8%
Health
6%
Efficient
Natural
Resources
24%
New
Markets
3%
Health
8%
Efficient
Natural
Resources
28%
Clean Air
62%
Clean Air
61%
5
Johnson Matthey / Annual Report and Accounts 2018
Strategic Report
Chairman’s statement
This is my last statement to shareholders after seven years as
your Chairman. I must start by saying what a pleasure and
privilege it has been to chair the board of a company as special
as Johnson Matthey. I leave in the knowledge that with a strong
management team, a sound strategy and a very experienced
new Chairman to take over running the board, the company is
set for further growth and success in the years ahead.
During the last year, Robert and the management team
set out a clear strategy for sustained growth and value creation.
Together with JM’s 14,000 people they have successfully
embarked on delivering that strategy, applying world class
science to solve complex problems for our customers. As a result,
the company has continued to make an important contribution
to making the world a cleaner and healthier place, enhancing
the lives of millions of people around the world.
With the aim of achieving more effective focus, the group
was reorganised in the year into four sectors: Clean Air, Efficient
Natural Resources, Health and New Markets, which includes our
Battery Materials business.
Air quality has remained an intensifying global issue. Our
Clean Air Sector continues to work closely with our customers
to enable the current generations of internal combustion engines
to respond to changing legislation and consumer demand.
Our strategy is delivering the capacity, technology and efficiency
improvements that will enable us to sustain growth in this key
group business for at least the next decade.
At the same time, and in response to the concern about
air quality, the automotive market has accelerated its long term
plans for replacement of the internal combustion engine.
JM has put itself at the forefront of this process, developing
a leading battery chemicals technology needed to make it
happen. A key focus for the board is now ensuring that we
manage investment in capacity and commercialisation to
ensure we deliver our next generation technology to our
customers as the market for battery electric vehicles begins
significantly to grow.
Elsewhere, our Efficient Natural Resources and Health
Sectors bring diversity and added fire power to the group’s
portfolio. Both serve growing markets in which they hold
technology leadership positions and have made solid progress
on deploying our strategy during the year.
Alongside the development and implementation of strategy
sector by sector, we have continued the process of making JM a
more agile, flexible and efficient company, ready and able to
cope with the demands of the growth we expect to deliver.
6
Tim Stevenson
Chairman
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JM has continued to make an
important contribution to
making the world a cleaner,
healthier place
Committed to sustainable business
Ever since our business was founded in 1817, JM has made a
significant contribution to sustainability: long before the word
‘sustainability’ became common in corporate language, it was
an intrinsic part of JM’s culture.
Our Sustainability 2017 programme came to an end on
31st March 2017 and, as we reported last year, we achieved our
specific goals in relation to embedding sustainability into the way
we do business. This is now exemplified in our vision and brand,
through the focus of our sectors and is explicit in the delivery of
our group strategy. I am delighted that we are now able, in this
annual report, to share our sustainable business ambitions for
the period to 2025. Aligned to our business strategy and framed
as a series of six challenging goals, it will drive us towards
sustainability leadership across our whole value chain.
Great people and the right culture
Since I joined the business seven years ago I have always been
struck by the pride and commitment that our people bring to
their work; they are proud of the positive impact the company
has on the world and are deeply committed to making sure JM
continues to be successful. In this context, the board has had
particular focus on a number of key areas over the course of the
last year. First, on a redoubling of our effort to drive the right
health and safety behaviours; our performance this year was
unchanged and so there is more work for us to do in this area.
Second, on training and development of our people and effective
succession planning. Third, on the reinforcement of a healthy
and positive culture across the business, with particular focus on
the board’s key theme of ‘doing the right thing’. In the latter, we
have expanded and further embedded our ethics and compliance
programme to ensure we are a responsible partner for our
customers and that we stand up well to the increasing external
scrutiny on corporations. Our board and senior team are clear
about the role they play in all this; we are setting the right tone
from the top to create a culture that drives success on all fronts.
An effective board
We operate in an increasingly complex world of operational,
commercial, geopolitical, environmental and financial
opportunities and risks. A key job for the board is to ensure
that the executive is enabled to manage the group’s businesses
effectively through the challenge that this difficult mix can create.
With an appropriate balance of skills, diversity and experience,
the board has become increasingly effective in carrying out this
role. We make sure our Non-Executive Directors have a thorough
understanding of JM’s strategic priorities, in particular through
focused teach-ins on specific areas of our business and markets.
A very positive external review, this year, of the work of the
board underlined the board’s open and collegiate way of working.
In November 2017, after five years on our board, Colin
Matthews stepped down as a Non-Executive Director and
Chairman of our Remuneration Committee. Colin contributed
significantly during his time on the board; his wise counsel will
be missed. Following his retirement, the board appointed Chris
Mottershead as Chairman of the Remuneration Committee.
In November we were delighted to welcome John O’Higgins
as a Non-Executive Director. He brings a combination of strong
business credentials and deep industrial experience.
A new Chairman
In July 2018, at the close of this year’s annual general meeting,
I will step down after seven years as your Chairman and hand over
to Patrick Thomas. Patrick joins the board as Non-Executive
Director and Chairman Designate on 1st June 2018. I am
delighted that my colleagues have chosen him to succeed me.
He has substantial experience in leading international speciality
chemicals businesses and an impressive track record of driving
growth through science and innovation across global markets.
His extensive board experience and recent executive leadership
of major global organisations means he will be a great asset to JM.
I wish him every success in his role.
Shareholder returns
Underlying earnings per share were flat this year as translational
foreign exchange benefits were offset by higher net finance
charges and a higher underlying tax rate. Nevertheless,
confident in our prospects, the board is recommending a 7%
increase in the final dividend.
JM is well set for the future
Johnson Matthey is a great business with a proud history.
Our 200th anniversary in 2017 was a remarkable achievement.
World class science and a sure ability to spot opportunities have
been at the base of the company’s consistent delivery and
success. I am confident that can continue long into the future.
Tim Stevenson
Chairman
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Johnson Matthey / Annual Report and Accounts 2018
Strategic Report
Delivering our strategy – progress and priorities
Strategy
Strategic outcome Progress in 2017/18
Priorities for 2018/19
Sustained
growth in
Clean Air
Market
leading
growth in
Efficient
Natural
Resources
Break out
growth in
Health
Break out
growth in
New Markets
from battery
materials
Market share
gains.
Expanded,
enhanced
capacity to
meet growing
demand.
Growth ahead
of market and
enhanced
margin.
Be development
partner of choice
for innovator
and generic
companies
and deliver
£100 million
additional
operating profit
by 2025.
Focus on next
generation high
energy density
market.
Deliver leading
product to gain
share of next
generation high
energy density
battery electric
vehicle market.
• On track to move to circa 65% share of Light Duty
• Continue to enhance efficiency through
diesel in Europe.
• Increased efficiency of manufacturing footprint
and processes.
procurement and automation in order to deliver
broadly stable operating margin in 2018/19.
• Continued capital investment to deliver against
• Secured majority of expected platform wins in China
customer needs.
and approved new plant to meet demand.
• Secure new business wins in Light Duty Europe and
in China.
• Managed the business more efficiently through:
– Simplifying product and customer portfolio.
– Improved working capital management.
• Continue to grow sales ahead of market.
• Leverage efficiency actions to deliver enhanced
margin (before restructuring benefits).
• In addition, delivered cost savings from restructuring
programme.
• Jason Apter appointed Sector Chief Executive in
• Deliver value from manufacturing footprint
March 2018.
optimisation.
• R&D investment in new generic API product pipeline
• Continue to mature our generics pipeline.
on track.
• Optimising manufacturing footprint.
• Stepped up R&D investment to continue eLNO™’s
• Progress technology development and
technology leadership.
• Further testing of eLNO by customers with continued
infrastructure build out in order to commence sales
of product for ‘A cycle’ testing with customers.
positive feedback.
• Building out infrastructure:
– Approved plans to build demonstration scale plant
in the UK and first customer application centre.
– Design underway of first commercial plant, located
in Europe and due to start production in 2021/22.
Relentless
focus on
operational
efficiency
Deliver
£60 million
savings through
procurement.
• £12 million of cost savings from our restructuring
• Deliver additional £13 million restructuring savings
programme in 2017/18.
• Continued focus on efficiency through:
– Accelerated roll out of global procurement function.
– Continued investment in core IT systems upgrade.
– Improved average non-precious metal working
capital days to 62 days (2016/17: 69 days).
to benefit 2018/19.
• Deliver savings from procurement.
• Roll out first and second waves of IT core systems.
Science and
technology
Sustain
market leading
positions.
Increased visibility across our R&D portfolio and
polarised investment process.
Further targeting of investments to high growth
opportunities.
Developed eLNO market leading battery material product.
Continued development of eLNO.
Sustainable
business
Sustainability
leadership.
Developed and launched new sustainable business
framework and six goals to 2025.
Investing in
our people
and creating
the right
culture
Peer group
leading health
and safety
performance.
Engaged and
enabled
workforce.
Continued emphasis on behavioural health and safety
programmes although health and safety performance
was flat.
Engaged employees in strategy and priorities.
Refreshed values.
Make progress towards achieving sustainable business
goals throughout our businesses globally (see pages 16
and 17).
Shape culture through:
• Continued emphasis on health and safety, including
process safety, to drive improved performance.
• Engaging our people. Roll out new values
and behaviours and carry out second global
opinion survey.
8
Chief Executive’s statement
Q&A with
Robert MacLeod
JM refreshed its strategy over the last 12 months. What has
stayed the same and what has changed?
The core of our strategy is largely unchanged: applying our
science to solve our customers’ complex and challenging
problems. In refreshing it, we have sharpened its focus and
set out clear plans that will deliver sustained growth and value
creation for shareholders.
Our strategy stems from our vision for a cleaner, healthier
world. So, we are investing in areas where our inspiring science
enhances life: through cleaner air, improving people’s health
and by conserving our planet’s critical natural resources. These
are areas that will help us continue to build a sustainable
business and accelerate our growth.
Today our science is world class and we will continue to
invest in our science and technology to ensure that we maintain
and enhance our world class capabilities. By applying it to the
complex problems faced by our customers, we sustain leading
positions in markets that are growing, driven by technology and
therefore attract high margins. This is the source of the
attractive return profile we generate in our business.
In refreshing our strategy, we have identified the areas
where our technology will drive growth. Linked to this, we have
also dialled up our efforts to operate more effectively across the
group. These programmes will help us realise benefits across the
whole group, enabling us to run the business more effectively
and making us more agile and responsive to our customers.
The enthusiasm and contribution of JM’s people are central
across all aspects of our strategy, so no change there. But we are
placing much more emphasis on helping them connect their
contribution to our goals, on developing their capabilities and
on developing the right culture; one that encourages us all to
work together safely, sustainably, ethically and with respect for
each other.
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Robert MacLeod
Chief Executive
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Johnson Matthey / Annual Report and Accounts 2018
Strategic Report
Would you say you’ve delivered operational performance in
2017/18 in line with your plans for the group?
Yes, we absolutely have. It has been a good year where we have
achieved our short term objectives and have made significant
progress in building the platform that enables us to execute our
strategy through 2018/19 and beyond.
We started the year by reorganising into four new sectors:
Clean Air, Efficient Natural Resources, Health and New Markets.
These are aligned to the global challenges we tackle. Having
developed the long term strategies for each of our sectors, we
have moved swiftly into execution mode and are making good
early progress.
We also have made significant strides forward on our
groupwide enablers. We have accelerated the roll out of a global
procurement function which is well on track to deliver around
£60 million of savings over the next three years. We have
initiated our Commercial Excellence programme and progressed
our upgrade of IT systems. In addition, we have realised cost
savings from our group restructuring programme.
Numbers wise, we have delivered sales and underlying
operating profit in line with our expectations at the start of
the year, and I am especially pleased with our disciplined
management of working capital. Together, this demonstrates
the sound running and management of the business.
If I look across our four sectors, once again Clean Air had
a strong year. We improved the quality of our Efficient Natural
Resources business and in Health we are better positioned as we
optimise our manufacturing footprint and continue to progress
our substantial active pharmaceutical ingredient (API) pipeline.
The further development of our next generation battery
material was a highlight this year and I am really excited
about the speed of progress we are making and the plans
we have to commercialise this product.
Building on your last point, one can’t escape headlines about
air quality, vehicle emissions and how electric cars are the
future. This clearly has implications for Johnson Matthey so
can you explain your strategic priorities in this context?
When it comes to air quality, JM is part of the solution. We are
working with our customers to meet the ever tighter emissions
legislation as legislators push to improve air quality in cities.
In Europe, we have developed products that enable emissions
from diesel cars to be the same as those from petrol cars and,
of course, that are lower than ever before.
We have been working alongside customers in the
automotive supply chain for almost 50 years and are a trusted
partner on technology. So as their markets and products are
changing, we are expanding our portfolio with technologies
to reduce and eliminate emissions that span the full range of
powertrain options.
In our Clean Air Sector, our technology leadership,
investments and focus on efficiency mean we have secured
significant market share gains in Europe. These will deliver
growth in the short to medium term, even as consumers’
preferences move away from diesel powered cars. At the same
time, we are actioning our strategic plans that will drive strong
growth in the medium to longer term in Asia when the tighter
emissions legislation comes into force in India and China.
Our progress in developing our Battery Materials business
this year has been tremendous. This is JM science at its best.
We have harnessed the full JM science and technology arsenal
and our expert people across the whole company. In doing so,
we have moved rapidly this year to become a technology leader.
Our class leading material, which we call eLNO™, is delighting
our customers in qualification tests and we announced our
plans to significantly ramp up our investment to commercialise
our eLNO technology. eLNO is not a product for today’s market
which focuses on hybrid vehicles; it is designed to enable large
scale adoption of pure battery electric vehicles with greater
range and lifetime. Our strategic plans are timed to deliver the
very best performing technology to our customers as the market
moves into high growth.
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Clear strategy and plans for
growth; delivery underway
and on track
What investments are required in these areas, and across
JM as a whole, to support your future growth?
Investment in our science and technology across all of JM,
of course. I can’t emphasise enough how good we are at
translating our world class science expertise into solutions
across the group and through our sectors. It is how we
differentiate ourselves in our markets, and our refreshed
strategy is providing us with increased focus and discipline in
investing our R&D spend into areas of higher potential future
growth. One such area is in our Health Sector where we are
investing in our pipeline of new generic API products.
In addition to investments in battery materials manufacturing,
we are making important investments in Efficient Natural
Resources’ facilities and have major capacity expansions in
Poland and China for Clean Air.
We also continue to invest in strengthening the core of
JM to simplify the way we do things, bring consistency to
common processes and generate savings which we can reinvest
in the business.
Our investments will enable us to capture growth in our
markets and ensure we run our business as safely and effectively
as possible. And underpinning all this is the investment we are
making in our people.
Can you tell us more about your people and the JM culture?
Great people are the force behind JM and so it is really important
we get this right. Our employee survey, which we ran in
November 2016, gave us a valuable steer on how well we are
doing and over the last year we have done a lot of work in
response to what we heard from our people. There were a lot
of positives, but they also said they wanted to be clearer about
our strategy so we are spending time not only to help them
understand it, but to provide a clear line of sight between our
strategy and their individual goals, helping them connect their
contribution directly to JM’s achievements and vision. At the
same time, we are creating a more consistent approach across
all areas relating to talent. There is more for us to do, but we
are well on our way.
Beyond putting the right processes in place, we are doing
a lot to make sure we have the right culture. Alongside our
strategy refresh we have also refreshed our company values.
That’s not a decision we took lightly. But in doing so we now
have a stronger set of values, and the behaviours that put them
into action, that are true to our vision, will guide us to act
ethically and support us in delivering our strategy.
Our culture and values must also drive the right behaviours
when it comes to health and safety; it is a major priority for us
and our performance this year was unchanged. I am determined
that we must do better.
Now that your Sustainability 2017 programme has come to
a close, have you put anything else in its place?
Yes, we have. We have much to contribute to a more
sustainable future.
Sustainability 2017 engaged our people and transformed
our sustainability performance. It laid the foundations for our
new brand and our vision; our refreshed business strategy has
stemmed from these.
And now we have put in place our new sustainable business
framework which, through its six challenging goals, continues
our sustainability commitment but is more outward looking
– towards our customers, communities and supply chains.
It drives sustainable business practices for internal and
external stakeholders, throughout JM’s value chain. It also
includes an important ambition: to make JM a truly diverse
and inclusive organisation.
JM celebrated its 200th anniversary in 2017. With the
celebrations now drawn to a close, what would you call out
as the highlights?
Reaching 200 is a rare achievement for a company and we
were determined to recognise and engage our people and look
to the future. In May 2017 we launched our new brand –
inspiring science, enhancing life – which encapsulates what we
do best and the positive impact we have on the world. It is
already helping us build a stronger presence in our markets,
connect with our customers and attract and retain great people.
Then on 19th July, the 200th day of our 200th year, everyone
in JM around the world joined together for our global celebration
during which we ‘followed the sun’, from Melbourne, Australia
to San Diego, USA, with a broadcast live to staff for 24 hours.
It was a really amazing day.
We closed events with our JM200 Awards which recognised
the incredible work and contribution of our people. We
announced our winners at a ceremony held at the Royal
Institution in London, which made for a memorable and fitting
end to our anniversary year.
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Strategic Report
Finally, your thoughts on 2018/19 and beyond?
In July, at our AGM we will say goodbye to Tim Stevenson,
our Chairman of seven years. It has been a huge privilege and
pleasure for me to work with Tim during that time, including
over the last four years in my role as Chief Executive. I’d like to
offer him my personal thanks, and extend those of everyone
associated with JM, for all that he has done for the company.
We will miss him and wish him the all very best for the future.
We welcome Patrick Thomas as our new Chairman who
brings a wealth of experience which I know will be extremely
valuable to JM at this stage in its development. I am really looking
forward to working with Patrick to take the business forward.
Our key priorities for 2018/19 are to deliver in line with
our strategic plans for each of our sectors, continue to develop
our technology and meet the milestones for our groupwide
enabler programmes, as outlined on page 8. And we must
focus our people: embedding our values to create a safer and
ethical culture, acting on what they have said through our
survey and ensuring everyone understands how they contribute
to Johnson Matthey’s success.
So, 2018/19 should see us continue to build our stronger
business platform for the future. JM is a great company with
strong opportunities for growth and a strategy that I am
confident we will deliver. In doing so we will achieve our
potential as a business, make our mark and leave the world
a cleaner, healthier place.
Outlook for the year ending 31st March 2019
We expect growth in operating performance at constant
rates to be in line with our medium term guidance of mid
to high single digit growth.
We expect the second half performance to be
stronger mainly reflecting our normal seasonality.
At current foreign exchange rates, (£:$ 1.354,
£:€ 1.143, £:RMB 8.62), translational foreign exchange
movements for the year ending 31st March 2019 are
expected to adversely impact sales and underlying
operating profit by £41 million and £6 million respectively.
Pages 65 to 69 for the outlook for our four sectors
Robert MacLeod
Chief Executive
12
Group Management Committee (GMC)
From left to right
Matthew Harwood, Chief Strategy and Corporate
Development Officer
Joined the GMC: August 2017
Jane Toogood, Sector Chief Executive,
Efficient Natural Resources
Joined the GMC: March 2016
Matthew joined JM in August 2017. Prior to JM he
was at Petrofac. Matthew leads the group’s strategic
planning and corporate development activities and
works with the Sector Chief Executives to develop
the strategy for our sectors.
Jane joined JM from Borealis in March 2016
and leads the Efficient Natural Resources Sector,
directing the strategy to deliver market leading
growth. Jane also chairs the Brexit working group.
Jason Apter, Sector Chief Executive, Health
Joined the GMC: March 2018
Jason joined JM in March of this year to lead
the Health Sector. Bringing experience from
the healthcare and life science industry from
MilliporeSigma, Jason leads the strategy to deliver
complex chemistry solutions for our customers.
Alan Nelson, Chief Technology Officer and
Sector Chief Executive, New Markets
Joined the GMC: June 2015
Alan joined JM in June 2015 as Chief Technology
Officer and now also leads our Battery Materials
business and the rest of our New Markets Sector.
Previously with The Dow Chemical Company,
he leads our innovation portfolio, directs global
research efforts and leads the implementation
of business plans into new markets. He is also
responsible for our sustainable business framework.
Annette Kelleher, Chief HR Officer
Joined the GMC: May 2013
Annette is our Chief HR Officer, leading the
group’s people strategy. Joining from Pilkington
Glass in May 2013, Annette is responsible for
the programmes to build talent and capabilities
across JM in line with our group strategy.
Robert MacLeod, Chief Executive
Joined the GMC and the board: June 2009
Having joined JM as Group Finance Director
in 2009, Robert has been leading JM since
June 2014 when he became Chief Executive.
Anna Manz, Chief Financial Officer
Joined the GMC and the board: October 2016
Anna joined JM as Chief Financial Officer in
October 2016 to lead the group’s finance activities,
risks and controls. Joining from Diageo, Anna also
leads our efforts to drive excellence and efficiency
across JM’s business.
Simon Farrant, General Counsel and
Company Secretary
Joined the GMC: July 2007
Simon joined JM in 1994 as Senior Legal Adviser
and became Company Secretary in 2001. Simon
heads up our company secretarial and legal activities,
including on ethics and compliance. He also acts
as secretary to the board and its committees.
John Walker, Sector Chief Executive, Clean Air
Joined the GMC and board: October 2013
John joined JM in 1984 and has led our Clean Air
Sector since 2009 after heading up its Asian
business for many years. John also has board level
responsibility for environment, health and safety.
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Johnson Matthey / Annual Report and Accounts 2018
Strategic Report
Our strategy for sustained growth
and value creation
JM’s competitive advantage is our world class science and technology. We use it to create
long term value for our shareholders and a cleaner, healthier planet for everyone.
A cleaner, healthier world, today
and for future generations
Sustained growth and value creation from science, customers, operations and people
Delivered through four global sectors
Clean Air
Sustained growth
Efficient Natural
Resources
Market leading growth
Health
Break out growth
New Markets
Break out growth in
battery materials
Enabled by
Science and
technology
Rigorous resource
allocation
Efficiency and
excellence
Creating the right culture
and licence to operate
By 2025 we will:
Enhance technology leadership in our targeted markets
Have three substantial and growing sectors with sizeable
new opportunities realised through New Markets Sector
Have excellence in everything we do
Driving attractive returns:
Expanding return on invested capital
(ROIC) to 20%
Mid to high single digit EPS CAGR
Progressive dividend
Have made the world a cleaner and healthier place
Groupwide enablers
Support strategic delivery and generate savings to reinvest and drive growth in the business
Science and technology Investment in world class science that delivers market leading positions
Rigorous resource allocation Targeting the highest growth opportunities that deliver the most attractive
returns in areas where our inspiring science enhances life
Efficiency and excellence Common standards and processes, enabled by IT
Developing future talent
Improving working capital management
Savings from procurement
Optimising JM’s value share from commercial relationships
Creating the right culture and licence to operate Delivering our brand promise
No compromise on health and safety
‘Doing the right thing’ without question
Engaged and enabled people, ready to play their part
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Clean Air
Sustained growth from:
• Market share gains (already secured) in Europe
•
•
•
•
Tighter legislation in Europe requiring higher value products
Tighter legislation in Asia (China and India)
Consistent growth in light duty catalyst market in North America
Operational efficiency activities that support margin and ROIC
Efficient Natural Resources
Market leading growth from:
•
•
•
•
Focused investment in R&D to maintain and extend technology leadership
Outperforming in selected, high growth segments
Increased efficiency to enhance performance
Extending capabilities into adjacent markets, geographies and technologies
Health
Break out growth from:
•
•
•
Enhancing our position as a technology partner of choice with innovator customers
Driving value from existing generics business
Commercialising our pipeline of new generic products
New Markets
Break out growth in battery materials from:
•
•
•
•
Commercialising our leading eLNO high energy cathode material
Scale up through demo, pilot and full production scale; investment of more than £200 million from mid 2018
Continued investment in next generation, best in class high energy battery materials
Continuing to position other new businesses for growth
Our strategy directs investment choices across the group so that our people can translate our world class science and
technology as efficiently as possible to solve our customers’ complex problems and tackle major global challenges:
the need for clean air, improved healthcare and the most efficient use of our planet’s natural resources.
Our strategy will deliver sustained growth and value creation through:
•
•
Investment in science and technology which accelerates growth and creates leadership
Serving customers in growing, high margin, technology driven markets, aligned to global
challenges and delivered through our four sectors
• Operating with a relentless focus on efficiency and excellence; maximising synergies and
driving standard processes and ways of working where it makes sense to do so
• Attracting and retaining the best people into a culture that is true to our vision and
that breeds success
View the presentation and transcript from
our Capital Markets Day in September 2017
15
Johnson Matthey / Annual Report and Accounts 2018
Strategic Report
A new sustainable business framework
to support value creation
With our science, understanding and vision, we believe we have much to contribute to
a more sustainable future.
In March 2017 we came to the end of our Sustainability 2017 programme. In realising our Sustainability 2017 Vision,
we engaged our people, made Johnson Matthey a safer place to work and built our reputation as a world leading
manufacturer of sustainable technologies. Over ten years we transformed our business and our sustainability
performance, halving our operational carbon footprint and our use of energy and water per unit of sales.
Sustainability 2017 laid the foundations for our new brand: inspiring science, enhancing life; and our vision for a
cleaner, healthier world. Our refreshed business strategy has stemmed from these.
All of this provided a powerful impetus for rethinking our business and how we wanted to further embed and
integrate sustainability. It was time to move forward and increase our ambition for building a sustainable business.
Several inputs steered our new
sustainable business framework
In developing the next phase of our sustainable
business framework, we recognised that the world
had moved on. External stakeholder expectations
had increased, and customers and investors now
are looking increasingly for evidence of sustainable
practices. Regulation has also increased in our field.
And in the bottom line savings of £142 million that
we achieved during Sustainability 2017, we knew
that a new framework would once again provide
business benefits.
We also considered the UN Sustainable
Development Goals (UN SDGs) and identified six
of the UN SDGs where we can make the biggest
positive impact. The six are:
How can sustainability
support our vision?
What goals are
our peers setting?
Sustainability
2017
Sustainable
business goals
to 2025
UN Sustainable
Development Goals
What new
legislation is coming?
What are our
stakeholders
concerned about?
Our sustainable business goals – what have we continued and what’s new?
Health and
safety
Our
people
Low carbon
operations
1
2
3
Goal 1: For health and safety, aspire to zero harm.
This goal continues our Sustainability 2017 target. It is the same
goal with the same ambitious KPIs and target. We measure our
lost time injury and illness rate (LTIIR) and total recordable
injury and illness rate (TRIIR).
Goal 2: Ensure JM is a truly inclusive organisation that
fosters employee engagement and development within
a diverse and global workforce.
This is a new goal which acknowledges the crucial role our
people play in delivering our vision and strategy.
Goal 3: Reduce our greenhouse gas (GHG) emissions per unit
of production output by 25%.
This goal continues our commitment to reducing the
environmental impact we have through GHG emissions
from our operations. Whilst similar to our 2017 target
(where we measured GHG emissions relative to sales), in
our goal to 2025 we are measuring relative to production
output to drive operational improvements further and
reduce the impact of our business on climate change.
16
Our framework and our six new sustainable business goals
The outcome is a new sustainable business framework aligned to our brand, vision and strategy. It continues our sustainability
commitment but is more outward looking – towards our customers, communities and supply chains. It drives sustainable business
practices for internal and external stakeholders, throughout JM’s value chain.
The framework comprises six new goals:
Sustainable
business goal
Sustainable
business KPIs
Baseline
2016/17
2017/18
Health and
safety
1
Our people
2
For health and safety,
aspire to zero harm
Annual TRIIR
TRIIR in 2016/17
Annual LTIIR
LTIIR in 2016/17
Annual OSHA severity rate
Rate in 2016/17
Ensure JM is truly inclusive,
fostering employee
engagement and
development within a
diverse global workforce
Employee engagement
index score (%)
Employee enablement
index score (%)
Diversity and inclusion
plan implementation (%)
2016/17
2016/17
2016/17
1.00
0.48
11.2
61%
62%
0%
Low carbon
operations
3
Reduce our greenhouse
gas (GHG) emissions
per unit of production
output by 25%
Annual GHG emissions
(Scope 1+2) / tonnes
manufactured
product sold
Responsible
sourcing
4
Improve sustainable
business practices in
our supply chains
Tier 1 strategic suppliers
assessed and compliant
with Supplier Code
of Conduct
% of Tier 1 strategic
suppliers assessed
in 2017/18
Not
measured
% of these compliant
with the code
Not
measured
Annual sales giving
contribution to UN SDGs
2017/18 sales data
against UN SDG indicators
(% of group sales)
Not
measured
CO2 eq emissions
intensity for 2016/17
3.8
3.4
2.8
2025
target
0.6
0.2
6.0
73%
72%
0.93
0.48
12.2
–
–
13%
100%
11%
100%
73%
100%
85.8%
>90%
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Sustainable
products
5
Double the positive impact
that JM’s products
make to a cleaner,
healthier world
Annual aggregation of
product sustainability
benefits in key areas
2017/18 data relating to:
Tonnes of
pollutants removed
Number of lives
positively impacted
Tonnes of GHGs
removed (CO2 eq)
Community
engagement
6
Increase our volunteer
work within our local
communities
Cumulative number
of volunteer days
across JM
Number of employee
volunteer days across
JM in 2017/18
Not
measured
Not
measured
Not
measured
Not
measured
3.31m
6.62m
138,000
920,000
10.6m
21.2m
678
50,000
Responsible
sourcing
Sustainable
products
Community
engagement
4
5
6
Goal 4: Improve sustainable business practices in our supply
chains and, through collaboration, ensure full compliance
with our minimum standards from strategic suppliers.
Goal 4 is new. Through our Supplier Code of Conduct (in place
since 2017) and other responsible sourcing policies, goal 4 will
bring about a new standard of transparency and vigilance.
Goal 5: Double the positive impact that JM’s products,
services and technologies make to a cleaner, healthier world.
Goal 5 is also new. Here we aim to double the impact that our
products, services and technologies can make on a cleaner,
healthier world.
It drives us towards our JM vision.
Supported by our new sustainable business framework of
six goals, we believe we can achieve our vision through our
inspiring science; our collaboration with customers; our
operations and their commitment to sustainable practices;
and our great people.
Goal 6: Increase the use of volunteer hours to support our
community and charity partners through the JM employee
volunteering programme.
Goal 6 is new and continues our community involvement
with a formal target. Through this target we aim to support
our communities and also provide personal development
opportunities for our people.
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Strategic Report
How we create value
What we use
Knowhow and intellectual capital
JM’s competitive advantage is its science and technology.
We use our industry leading capabilities across our sectors.
We own patents covering our science, technology and processes.
Financial
We invest for growth using equity from our shareholders, raised
debt and cash flow delivered by our sectors.
Customer relationships
We draw on our deep relationships with customers to understand
how best to apply our science to solve their problems.
Natural resources
We source raw materials responsibly and use them as efficiently
as possible. We also recycle platinum group metals (pgms).
Manufacturing operations
We have a global network of manufacturing plants, application
centres and laboratories.
People
Our 14,000 people bring the talent, expertise and innovative
thinking needed to drive growth and efficiency in JM.
We create sustained value and growth through the
effective use of our resources and our relationships.
We act in line with our core values which, together
with our sustainable business goals, drive us towards
our vision for a cleaner, healthier world.
Sustainable business f
Operations
Science
Customers
How we use it
Science
Our science has been established over many years.
We invest in it and in our scientific talent. Our skill and
knowledge is acknowledged across the scientific
community and amongst customers.
We have a set of nine core science capabilities (see page 26)
which we use across JM. They provide us with fundamental
insights about materials, their design and then the control of
their activity through chemical and functional manipulation.
Our competitive advantage is in combining knowledge
of the fundamental science with commercial and
scalable solutions, potentially customised for each and
every customer.
This combination enables us to outperform in our target
markets, and creates high barriers to entry.
Our customers choose us because of our technology.
Pages 25 to 31
18
Customers
Our science directs where we play. We apply it in
technology driven markets and generate high margins
from it. This drives high returns.
Our customers are mostly other industrial companies,
operating in the transport, energy, chemicals and
healthcare segments.
We work closely with them to develop solutions which
enable them to bring their products to market faster,
improve the performance of their products and reduce
their environmental impact.
We provide them with functional components that help
them create more sustainable products and solutions.
We also provide specialist services such as the refining
and recycling of pgms and process technology used to
design chemical plants.
Collaboration and strong relationships with our customers
are crucial in providing a high quality tailored service.
Together, we put our inspiring science to work to
enhance life.
Pages 32 to 37
ramework
The value we create
How we measure value
Outcomes
For society
Cleaner, healthier world
For shareholders and other stakeholders
Attractive returns
Taxes paid to authorities
Key performance indicators
Pages 22 to 24
Operational carbon footprint
Positive impact of JM’s products
Sales growth
Underlying operating profit
margin growth
Underlying earnings per share
ROIC
Average working capital
(excluding precious metals)
For our people
Strong culture
Employment and opportunities
Health and safety
Employee engagement
For our company
Cash to reinvest in our science,
infrastructure and people
Technology leadership through
R&D investment
People
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Operations
People
We continue to improve our global standards and systems
to enable us to operate every aspect of our business
efficiently: from strategy to supply chain, from innovation
to IT.
Our global manufacturing operations create highly
specified physical products for our customers.
We manufacture efficiently and responsibly to drive
economic and environmental performance and have
programmes in place to optimise our manufacturing assets.
We invest in our manufacturing capacity to meet
customers’ future demand and have the ability to flex
our cost base if our markets slow.
We demand high returns from our investments, with
a target of at least 20%, which drives continued
improvement in operational efficiency.
Pages 38 to 47
Everyone in JM plays their part in taking ideas from the
lab to full scale commercial success.
We hire the best people with the right skills and support
them in an innovative culture that encourages them to
develop and grow.
We are driven by values which means we always keep
each other safe, work with clear intentions and respect,
and do the right thing for our people and our planet.
They are supporting us as we are evolving to take
decisions more quickly, to be more open-minded to new
possibilities, to share more and stay confident through
times of uncertainty.
Our values provide the strong foundation from which
we are creating a cleaner, healthier world.
Our people are motivated by working for a company
that is ‘making a difference’ and this is an important
differentiator in attracting and retaining the very best.
Pages 48 to 59
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Strategic Report
Shaping our strategy
with our stakeholders
Our vision is for a world that’s cleaner and healthier, today and
for future generations and our strategy is designed to achieve it.
Our stakeholders are crucial to our long term success. Their
views inform and help shape our strategy. We work together
with them as we execute it; they input into it and benefit from
the value it creates.
Pages 18 and 19: How we create value
We always seek to engage with and listen to our stakeholders to understand their views.
We tailor this in different ways for our different stakeholders so that it encourages them
to share with us what they expect or need from us, or tell us about any concerns.
Customers
Investors
By working closely with our customers,
we aim to provide them with the best
solutions and excellent service.
JM is listed on the London Stock Exchange
and is a constituent of the FTSE 100.
We provide investors with fair, balanced
and understandable information about the
company, its performance and prospects.
We encourage two way conversation and
regularly seek their feedback.
Why we engage
Understanding customers’ complex
problems helps us research, develop
and apply our science to give them the
best solution to their challenges.
By providing open and transparent
information and engaging in two way
dialogue, investors are able to make
informed investment decisions.
Our impact
We provide class leading scientific
solutions that contribute to a cleaner,
healthier world.
Feedback from investors forms part of
the board’s strategic discussions.
Governments and
trade associations
We inform and contribute to debate,
mostly in areas where our science and
technology expertise can have a positive
impact. We see our role as being a
technical expert.
Policy and regulatory changes affect
many aspects of our business. They
create a framework in which we must
operate and their impact on our
customers can provide opportunities
for growth.
By sharing information about what is
technically possible, we have provided
useful insight for policymakers in areas
such as vehicle emissions legislation.
Pages 32 to 37
Page 55
Page 55
Page 23
3 5
20
Pages 97 and 98
Pages 22 to 24
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What matters most
Materiality map
The map below highlights the areas of focus for JM which we have identified as key
to our business and most important to our stakeholders.
Our regular materiality assessment helps
us to focus on the areas that matter most
to our stakeholders and where we make
the greatest positive or negative
contribution to society. From it we define
our material areas. We review them
every year, either by engaging with our
stakeholders through an external
consultancy or by conducting our own
internal review. In 2017/18 we carried
out an internal review which considered
feedback from stakeholders gained
through our interactions with them
during the year.
Pages 204 and 205: GRI Standard
Content Index
Air quality
Governance
Sustainability
leadership
Ethical business practices
and compliance
Climate
change risk
Our
operations
Financial
sustainability
Greenhouse gas
emissions
Water use
Health and
safety
Supply
chain
Community
engagement
Diversity and
inclusion
JM’s ability
to impact
Wider
society
Environmental
Resource scarcity
Employee recruitment
and retention
Responsible
sourcing
Modern slavery
and child labour
Social
Product lifecycle
management
Suppliers and
other partners
Our people
Communities
We work closely with our core suppliers.
We also participate in collaborative
scientific programmes with other
companies and academic experts.
Our people drive our business. We want
them to be engaged with our vision and to
feel confident that they are coming to work
in a safe, ethical and inclusive environment.
Our operations are part of local
communities around the world. We
strive to be a good citizen and provide
high quality employment opportunities.
Dialogue with suppliers is essential to
mitigate risks in the value chain and ensure
a responsible approach. Collaborative
relationships with other science experts
in industry and academia furthers our
technical expertise.
High levels of engagement and enablement
in a safe, sustainable and supportive culture
contributes directly to JM’s success.
We engage with communities to
understand how we can make a positive
impact, in line with our vision for a
cleaner, healthier world.
Our Supplier Code of Conduct aims to
ensure responsible behaviours in our value
chains. Our scientific collaborations create
mutually beneficial outcomes for JM and
our partners.
Our employee engagement survey helps us
to focus on the areas that matter most to
our people.
Our community investments around the
world support local projects through
provision of cash and through
volunteering.
Pages 28 and 29
Pages 40 to 42
4
Pages 48 to 59
Pages 54 and 55
Page 24
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How we measure performance
We have ten key performance indicators (KPIs) which we use to measure our financial
and non-financial performance.
Our KPIs measure progress against our strategy. Our performance against our KPIs is explained below.
Group financial objectives
Growth in sales excluding precious metals (sales)
Monitoring sales growth at constant currency is a
measure of the growth of the business. In many cases,
variations in the value of the precious metals contained
within our products are passed directly on to our
customers. Therefore to measure the growth of the group,
we use sales excluding the value of precious metals.
Underlying operating profit margin
Underlying operating profit margin is a measure of how
we convert our sales into underlying operating profit and
a measure of efficiency in our business. We aim to increase
our operating margin year on year as we: improve our
efficiency to take costs out, improve our effectiveness as
we focus on higher value add products for our customers,
and as we introduce new products through innovation
to serve our customers’ changing needs.
Underlying earnings per share
Underlying earnings per share is the principal measure
used to assess the overall profitability of the group.
The following items are excluded from underlying
earnings as they do not allow for a consistent comparison
of performance between financial years:
• Amortisation and impairment of intangible assets arising
on acquisition of businesses (acquired intangibles).
• Major impairment and restructuring charges.
• Profit or loss on disposal of businesses.
• Gain or loss on significant legal proceedings together
with associated legal costs.
• Tax on the above and major tax items arising from
changes in legislation.
Return on invested capital (ROIC)
JM’s business model of applying world class science
efficiently to solve customers’ complex problems
generates high returns. We define ROIC as underlying
operating profit divided by the monthly average capital
employed, defined as equity plus net debt. ROIC for
individual sectors is calculated using average monthly
segmental net assets as the denominator.
Performance in 2017/18
In 2017/18, sales grew by 8% to
£3,846 million including a translational
foreign exchange benefit of £33 million.
Excluding this, sales grew by 7%
(2016/17: 3%), with good growth
in Clean Air, Efficient Natural Resources
and Health partially offset by lower sales
in New Markets.
Pages 60 to 73
In 2017/18, underlying operating margin
declined to 13.6% (2016/17: 14.3%). This
was due in part to lower margin in Efficient
Natural Resources, impacted by reduced
licensing income year on year and where
we invested in the business to improve its
effectiveness and efficiency. Margin also
declined in Health as we took actions,
with associated costs, to optimise our
manufacturing footprint.
Pages 60 to 73
This year, underlying earnings per
share decreased to 208.4 pence due to
underlying operating profit growth of 2%
offset by higher net finance charges and a
higher underlying tax rate. A reconciliation
from underlying profit for the year to
profit for the year attributable to equity
shareholders is given in note 4 on
page 153.
Page 153
3,018
3,164
3,177
3,578
3,846
15.5%
15.1%
14.2%
14.3%
13.6%
170.6
180.6
178.7
209.1
208.4
The group’s ROIC decreased from 18.2% to
16.4%, mainly due to an increase in the UK
pension fund asset and higher precious
metal working capital through the year.
Cost of capital
Page 73
£ million
%
pence
2014
2015
2016
2017
2018
2014
2015
2016
2017
2018
2014
2015
2016
2017
2018
%
Target
24
22
20
18
16
14
12
10
8
6
2014
2015
2016
2017
2018
Average working capital (excluding precious metals)
Average working capital days (as defined on page 191)
is a measure of efficiency in the business with lower days
driving higher returns and a healthier liquidity position
for the group. We exclude precious metals as our precious
metal working capital is a function of our customers’
choices and therefore not fully under our control. It can
have a material effect on the group’s working capital days.
62 days
Our average working capital days
(excluding precious metal) improved
by 7 days. This reflects our continued focus
on, and disciplined management
of, working capital across JM.
Page 73
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Group non-financial objectives
Science
Gross research and development expenditure
Johnson Matthey’s strategy delivers sustainable
growth through applying science and technology
to meet the global challenges and opportunities
from clean air, improved health and efficient use
of natural resources. To maintain our competitive
advantage and enable future growth, we invest in
research and development.
£ million
2014
2015
2016
2017
2018
Performance in 2017/18
152
170
188
201
193
The group’s research and development
expenditure decreased this year by 4%
to £193 million, although our output was
maintained, as we increased our focus
and discipline in investing into areas of
higher potential future growth.
Pages 25 to 31
Customers
Positive impact of JM’s products
JM uses its science and technology expertise to create
products that have a positive impact on the planet.
We track progress towards our vision for a cleaner,
healthier world by measuring the percentage of our
sales that come from products that make a positive
contribution to the UN’s sustainable development
goals (UN SDGs).
% sales from products
contributing to UN SDGs
85.8%
In 2017/18 the percentage of sales from
products that positively contributed to
the UN SDGs was 85.8%. Our sustainable
business goal is to increase this to >90%
by 2025.
Pages 17, 35 and 202
5
We are developing a KPI relating to a common, groupwide customer satisfaction measure (see page 35). We aim to report this
KPI next year.
Operations
Operational carbon footprint per unit of production output
Our operational carbon footprint, reported in tonnes
of carbon dioxide equivalent (CO2 eq), includes
Scope 1 and Scope 2 emissions. We normalise
our carbon emissions based on production
output. The denominator is defined as ‘tonnes
of manufactured product sold externally’ and
only sold products manufactured on JM premises
are included. A detailed definition of this KPI is
provided on pages 201 and 202.
CO2 eq emissions intensity
3.4
This year the group’s operational carbon
footprint per unit of production output
reduced from 3.8 to 3.4 tonnes CO2
equivalent per tonnes of output. This is due
to concerted action across our operations
as described on pages 39 and 40.
Pages 39, 40, 47, 201 and 202
3
We are developing a KPI relating to the Overall Equipment Effectiveness (OEE) of our manufacturing operations. This measures the
percentage of manufacturing time that is truly productive. We aim to report this KPI next year.
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Strategic Report
People
Health and safety
Making sure our people go home in the same, or
better, state than when they came to work is everyone’s
responsibility in JM. That’s why we place huge emphasis
on health and safety. We drive the right behaviours
through our values and through health and safety
programmes across the group. Rigorous health and
safety systems apply across all facilities and we actively
manage our safety performance through monitoring
the incidence and causes of accidents that result in
lost time.
Lost time injury and illness rate (LTIIR) is defined
as the number of lost workday cases per 200,000 hours
worked in a rolling year. A detailed definition of this
KPI is provided on page 201.
2014
2015
2016
2017
2018
Lost time injury and
illness rate
0.63
0.45
0.37
0.48
0.48
The group’s LTIIR was unchanged this
year at 0.48 although we continued to
focus on improving behavioural safety
across JM. We continue to build a world
class health and safety culture. However,
this year we saw our performance
plateau. Actions have been taken and
new measures put in place to ensure that
we improve our performance.
Pages 49 to 51: Our approach to
health and safety
1
Employee engagement
An engaged workforce is a key driver of performance.
Our global yourSay survey, carried out every two years,
looks at the key drivers of employee engagement.
Further details are provided on pages 52 to 55.
We use employee engagement as a measure of how
committed and motivated our people are to give their
best to Johnson Matthey.
%
61%
Our employee engagement score in
November 2016 was 61%. This was our
first ever survey and we will carry out
our second in September 2018.
Pages 52 to 57: Further details of
what we’ve been doing to engage
our people over the last year
2
Sustainable business goals
Progress towards four of our six sustainable business goals is described in the above KPIs. Our progress towards the remaining two
goals is as follows:
Our responsible sourcing goal measures improvements in sustainable business practices in our supply chains. We track the
percentage of Tier 1 strategic suppliers assessed and compliant with JM’s Supplier Code of Conduct. 2017/18 is our first year
of measurement. In the year, 11% of Tier 1 strategic suppliers were assessed and of those 11%, 73% were compliant with
the JM code.
Our community engagement goal measures the cumulative number of volunteer days undertaken by JM’s employees.
Our target is 50,000 days by 2025. In 2017/18, the first year of our goal, our employees undertook 678 volunteer days.
4
6
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Science
World class science and technology is at our core. We have world class
scientists and we use our world class expertise to solve complex problems
for our customers, drive growth for JM and help make the world cleaner
and healthier. In a world which is becoming increasingly challenging,
our expertise in science and our ability to scale it up, is a competitive
advantage. That competitive advantage enables us to build close
collaborative relationships with current and future customers.
Johnson Matthey / Annual Report and Accounts 2018
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We apply our science and technology
expertise in high margin, technology
driven growth markets.
We choose markets where the combination of our broad expertise and our
customer focus gives us leadership. We then sustain our leadership positions
through a virtuous circle of investment in research and development.
Our science and technology is our
source of competitive advantage
We invest in it and in our talent. Our skill
and knowledge are acknowledged across
the academic and commercial scientific
community and amongst our customers.
We have nine core areas of world
class scientific capability, developed over
many years. Together they give us the
ability to provide fundamental insights
about materials, their design and then
the control of their activity through
chemical and functional manipulation.
But it is not just about these
scientific capabilities alone. Our
competitive advantage is in combining
knowledge of the fundamental science
and technology, with commercial and
scalable solutions, potentially customised
for each and every customer. This
combination allows us to outperform
in our target markets and creates high
barriers to entry.
We focus on the complex and
the difficult. And we don’t compete on
price – we win based on our technology.
Our scientific capabilities give us the
opportunities to drive growth.
World class science capabilities
Cleverly applied
Value for JM
Characterisation
and modelling
Chemical synthesis
Material design
and engineering
Provision of
customised solutions
Product formulation
Process optimisation
Surface chemistry
and coatings
Development of
new and next
generation products
Solutions
for
customers
Pgm chemistry
and metallurgy
Catalysis and
advanced materials
Electrochemistry
Scale up of complex
manufacturing
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eLNO: solving complex problems
for the automotive battery market
Enabling people to breathe
cleaner air is close to our
heart and evident in many of our
current markets and products.
As alternative powertrains, such
as battery powered vehicles,
become more mainstream and
governments legislate to support
their adoption, our researchers are
at the forefront of technological
advances and development of
materials – providing customers
with the performance and
consumers with the confidence
required of battery powered
vehicles. Adoption of battery
powered vehicles will have a
positive impact on cleaner air,
and that’s important to us.
Last September, we announced our investment in automotive battery materials and
the new cathode material – eLNO™.
We developed this material through a truly collaborative programme, from nine
locations across the UK, Germany and North America, applying our knowledge of base
metal chemistry, formulation and testing, modelling and electrochemistry across the
materials supply chain. Our relationship with the automotive industry, and understanding
their requirements for energy density, power, lifetime and security of supply for materials,
have focused our effort on the key enablers for this technology. Our innovation delivers
a step change in energy density that, in the end, improves both performance and cost
to drive mass electric vehicle adoption across vehicle platforms.
More than a materials manufacturer, we are committed to using our core
competencies to understand electrode structure and applications testing to further
drive up energy density of our cathode materials. Together, our knowledge of materials
engineering, coatings science and electrochemistry span all aspects important to
battery material performance.
This deep appreciation of how the cathode material operates and the structure
and function of the materials at an atomic scale means we can model and predict
how changes to the material affect performance. Combined with applications testing
we understand how our materials perform under different operating conditions which
enables us to deliver the material’s performance, lifetime and safety specifications
required by our customers.
We use this expertise to optimise our materials for different automotive customers
and platforms. Working with our teams on formulation, scale up, applications testing,
and manufacturing means we can translate these insights into a deliverable product.
In 2016, the battery market represented 50% of the global cobalt demand, compared
to 36% of the global lithium demand. With the recent increase in cobalt prices, our
ability to thrift cobalt, much like we've done in platinum group metals in autocatalysts
for well over 40 years, is a key market differentiator for JM.
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Innovating to realise value
Innovation is realising value from
knowledge. We do this by identifying a
customer need and understanding the
value that can be delivered through
applying our science. This could be a
new technology in a new area or a next
generation product developed through
refining and optimising. We focus on
solutions for cleaner air, improving
people’s health and the most efficient
use of our planet’s natural resources.
Our strength comes from the
interrelationship of our world class
science capabilities and the value they
deliver when applied to a solution to a
customer’s complex, difficult problem.
We do not innovate in isolation and
it's our strength of understanding across
the value chain that accelerates our
progress. We work closely with universities
around the world to supplement our
knowledge. We also sponsor students
through their PhDs which allows us to
access a stream of talented young
scientists and engineers at the forefront
of scientific discovery.
We are proud of our science and
technology. Success comes from
combining our core capabilities with
smart manufacturing to develop new
products and processes. This approach is
important from initial R&D right through
to customer support and collaboration.
Our broad science capabilities enable
us to design new materials. Our deep
expertise in characterisation and
modelling underpins everything. We use
this capability to understand processes
and chemistry at atomic level. Then, by
combining it with our access to world class
capabilities in computational modelling,
we can predict how materials and
catalysts will behave, deliver results faster
and supply better performing, longer
lasting, more cost effective products.
Opening innovation with a new
approach to collaboration
We believe that collaboration and diversity
are central to effective innovation.
Bringing in new skills, fresh thinking and
different perspectives is crucial. If you
can combine and apply that breadth of
knowledge and knowhow, you can create
exponential value.
Among the many industry verticals
in which we operate, the agricultural
sector is familiar to us. We bring our
world leading catalytic science to the
manufacture of fertilisers and other
agrochemical intermediates. Now we
are exploring ways to use our broader
capabilities, from formulations and
coatings to advanced manufacturing
techniques, to help develop new
opportunities and address critical market
challenges in the agriculture market.
There is no monopoly on great ideas.
That's why, alongside the work we do
within JM, we're building external
partnerships with activities like our
AgTech pilot programme with Cranfield
University. Earlier this year, we sought
applications from entrepreneurs,
start-ups or businesses especially working
in certain specific agricultural areas.
Three companies were chosen and given
an opportunity to develop their product
or idea within an intense programme of
collaboration and scientific and
management support.
Investing in the ares of highest
potential growth
Science lies at the heart of our company.
We invested £193 million in R&D in
2017/18, including £18 million of
capitalised R&D, which represents 5%
of sales. Our spend was 4% lower than
last year, although our output was
maintained, as we invested with greater
discipline and efficiency into areas of
higher potential return.
To ensure our R&D investment
is accelerating revenue growth
opportunities as effectively as possible,
we apply a high level of rigour to manage
and prioritise our R&D programmes.
Delivery of our vision for a cleaner,
healthier world requires an innovation
strategy to prioritise and manage our
technology investments. By looking at
our strategic aims as an organisation,
we can map the technologies, areas
of expertise and investment we need.
R&D employees
Distribution of R&D expenditure
Gross R&D expenditure
Central Research
20%
Central Research
16%
Clean Air
41%
New
Markets
9%
Health
13%
£ million
201
193
188
170
152
Clean Air
41%
210
175
140
105
70
35
0
%
10
8
6
4
2
0
Efficient
Natural Resources
22%
Efficient
Natural Resources
21%
2014 2015
2016
2017
2018
R&D expenditure / sales
New
Markets
11%
Health
6%
28
The commercial and technical leadership
teams work closely to ensure objectives
are aligned.
We apply active R&D portfolio
management with stage gating
processes and a cross cutting approach
for discovering new innovations and
customer solutions. This ensures
we're creating new sources of growth
through innovation and aligning our
investments to drive higher returns.
This requires a strong relationship
between R&D and new business
development to drive opportunity
assessment in new technologies and new
markets, in line with our group strategy.
Our Chief Technology Officer ensures
that we have the right expertise and
the right oversight to investigate the
opportunities in our businesses and
deliver customer focused technology.
The project portfolio is underpinned
The research we undertake covers
development of the next generation
of products in close liaison with our
customers, through to supporting the
advancement of our underpinning
capabilities and fundamental research
to keep us at the forefront of our fields.
Externally, we partner with other
organisations in funded programmes
supported by the UK, EU and USA, giving
us access to a wider talent pool of
exceptional scientists, and allowing us
to explore new opportunities through
collaboration whilst sharing risk.
by a robust New Product Introduction
(NPI) process, and is reviewed to ensure
it will deliver our growth ambitions from
the next generation of products, to
step-out technology. Having this visibility
of our R&D investments means we can
make sure the balance of projects is right
to meet our strategic growth plans.
The majority of our 1,450 science
and technology employees are based
in our businesses, developing products
and processes for our customers. They
are supported with fundamental science
from our corporate research facilities in
the UK, USA and South Africa (as detailed
on the map below). Together we
collaborate to deliver world class science
that our businesses can convert to
customer solutions.
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Savannah, USA
• Zeolite design and
Billingham, UK
• Manufacturing science
manufacturing support
centre
• Analytical chemistry
• Zeolite powder R&D
Sonning, UK
• Catalysts and materials
• Advanced materials
characterisation
Pretoria, South Africa
• Computational modelling
• Materials design
• Reactor engineering
• Refining
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Applying our science
to new areas
Platinum group metal (pgm)
chemistry is an area of deep and
longstanding expertise for JM
and we look for new areas where
our experience can bring benefit.
One such example is an escape
hood used by first responders
to protect them from carbon
monoxide (CO) poisoning. The
problem with conventional
solutions was that the catalyst
for removing the CO gas was
deactivated by components in
the carbon adsorbent used in
the masks.
30
Through accessing our breadth of science capabilities and collaboration with our
customer, Avon Protection, a novel pgm catalyst on a specially designed support was
developed. Begun as a project funded by Anglo Platinum, our scientists screened a
wide range of established and innovative materials for ambient temperature CO
oxidation to find the best catalyst for use under these challenging conditions.
Our analytical experts were called in to extensively characterise the catalyst to
evaluate its behaviour under different conditions. This enabled our scientists to
understand the interactions between the pgm and the support and then optimise the
pgm concentration whilst maintaining activity for CO reduction, which led to reduce costs.
For manufacture and scale up, our pgm and materials experts collaborated with
their JM colleagues with expertise in process optimisation and powder forming to meet
the customer’s requirements. The outcome was a route to scale up and manufacture
established in line with customer specifications and expected customer demand.
Using our catalysts, Avon Protection were able to develop the award winning Avon
Protection NH15 Combo Escape Hood, a stable and lightweight hood which provides
portable protection from chemical, biological, radiological and nuclear (CBRN)
poisoning. In addition, and uniquely in such a small and lightweight device, it provides
protection from CO poisoning.
To date, JM has provided enough catalyst for 40,000 respiratory protection devices,
providing reassurance to emergency personnel who find themselves in dangerous
situations daily. Thanks to JM’s catalyst, these front-line people have at least 15 minutes
of breathable air, providing time to get themselves to safety.
Clever science is not all we do.
At JM we develop technology
solutions to complex problems
which involve engineering and
design of processes and reactors.
Being able to do this alongside
our knowledge of materials and
reactions means we can gather the
insight needed to make innovative
changes. We applied this approach
to the development of a new
reactor for Fischer Tropsch
technology to economically produce
sustainable fuels from feedstock
sources such as renewable biomass,
municipal solid waste (MSW) and
flared associated natural gas.
In collaboration with BP we combined expertise in catalyst development, catalyst
manufacture, plant design, process development, process design and modelling to
develop an optimised Fischer Tropsch catalyst with a unique reaction enhancement
device (which we call a CAN) inserted into a multi tubular fixed bed reactor. The reactor
was designed to carefully manage heat transfer and pressure drop. The catalyst particle
size was optimised to give excellent activity and selectivity without compromising the
functionality of the reactor.
This work took many years to come to fruition, but has resulted in a system that
delivers three times the productivity of a conventional multi tubular fixed bed reactor.
This reduces capital expenditure by half and reduces ongoing plant operating costs.
This also makes the technology more attractive and economical from small scale
suitable for MSW based projects, to world scale natural gas based projects.
We are proud to have been double award winners with our partner BP, landing the
Research Project Award and the Oil and Gas Award at the prestigious IChemE Awards
in November 2017.
We are now progressing to build commercial size units and to licence the
technology from small to large units worldwide.
Chemical reactors:
innovation by design
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Customers
Collaboration and strong relationships with our customers are crucial in
providing a high quality tailored service. Together, we put our inspiring
science to work to enhance life.
We work closely with them, applying our science and technology to
develop solutions which enable them to bring their products to market faster,
improve the performance of their products and reduce their environmental
impact. This creates value for them; and it creates value for JM – through
high margin products from which we generate strong returns.
Our Commercial Excellence programme (page 35), launched in
2017/18, is a key enabler of our strategy. Through it we will deliver an
enhanced experience all round for our customers and at the same time,
create more value for JM.
In serving our customers, we also contribute to making the world a
cleaner, healthier place. Through our new sustainable business goal 5,
we are quantifying the positive impact our products and services have
and aim to double that between now and 2025.
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Sustainable business goals
Sustainable
products
5
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Putting our inspiring science
to work for our customers
The markets we serve are directed by our science and are driven
by our technology. As a result, we create leading technology positions,
often in niche global sub-markets that form part of larger markets.
The markets we serve aggregate into four main global economic segments, each crucial to the development of prosperity
and wellbeing. They are:
•
•
•
Transport (principally automotive, with some marine and aerospace).
Energy (fuels and electricity generation).
Chemicals (including agrochemicals, food and beverage).
• Healthcare (both pharmaceuticals and medical).
Beyond these we also think about the critical raw materials and commodities used in these spaces.
Segment trends and dynamics
Transport
The automotive industry continues to grow. Light duty vehicle (LDV) production reached almost 95 million units in 2017/181 and is
expected to pass 100 million units in the early 2020s (~2.4% compound annual growth (CAGR))1. Asia is fuelling this expansion,
with Europe and America growing at a more subdued pace. Heavy duty vehicle (HDV) production was 3.3 million units in
2017/181. This remains a cyclical market with growth in Asia underpinning current expansion. Whilst vehicle production is a
growth driver for JM, next generation, tighter emission control legislation in the European, North American and Asian markets is
an additional, more significant opportunity for us.
Beyond current evolution pathways, the emergence of new powertrain technologies, innovative vehicle ownership and access
models, along with a rising degree of connectedness and automation, is transforming the mobility landscape. Analysts expect a
move away from pure internal combustion engine (ICE) vehicles over time, with hybrid, battery electric and / or fuel cell vehicles
becoming more common.
This transition is not expected to be quick, with most market evolution studies showing a gradual uptake of alternative
powertrains in LDVs through the 2020s. The transition for HDVs is expected to be more gradual. Alternative powertrains are also
starting to appear in other forms of transport (e.g. trains) and industrial applications (e.g. fork-lift trucks). For JM, this means
expanding our offering, applying our science to develop solutions to enable and deal with the expected uptick in demand and a
potential shift into new applications.
Energy
Fossil fuels remain the dominant global energy source today (~85% of primary energy2), but the rise of renewables, the drive for
energy efficiency, along with the possibility of cost effective energy storage is changing that dynamic. Most analysts expect natural
gas to become the fastest growing fossil fuel (~1.5% CAGR for piped gas and ~3.0% CAGR for liquefied natural gas2), with the share
of coal and oil in the world’s energy mix falling. This implies growth in renewables and other low carbon fuels (including nuclear).
For JM, this evolution touches our applications in the stationary energy space across several other products and services. We remain
focused on this market as it will also potentially inform us about changes in the interconnected transport and chemicals markets.
Chemicals
Oil demand is predicted to grow by around 0.7% between 2015 and 20352, with production rising from ~96 million barrels per day
(mmbbls/d) to ~106mmbbls/d in 20352. Growth in natural gas is expected to be stronger, rising at around 1.6%2. This would take
gas demand from 336 billion cubic feet per day (Bcf/d) in 2015 to around 462 Bcf/d in 20352.
Downstream products have benefited from these low input prices, but those advantages are beginning to pass and the
perception about overcapacity / low utilisation rates remain. Petrochemical end markets are expected to grow over the coming
years with compound annual growth rates of between 2% (fertilisers) and 7% (engineered polymers)3. New capacity additions
in the US (gas price advantage), Middle East and Asia are expected over the coming years. Associated pricing changes linked to
demand shifts may also impact the chemicals markets in which we play (e.g. methanol, ammonia).
These evolutions impact the profitable pathways and catalytic transformation routes that we try to serve. As a business, we will
continue to target the highest growth and most profitable segments to ensure that critical raw materials are used and transformed
in the most efficient manner possible.
Sources
1 LMC Automotive.
2 BP Energy Outlook, 2018 (www.bp.com/en/global/corporate/energy-economics/energy-outlook.html).
3 IHS Chemicals.
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Healthcare
The global population continues to rise with people living to an older age. To service this trend, a range of interventions are being
requested. Additional medications are required to keep people healthy for longer, additional pressure is put on scarce food and
water resources, more devices are being used to improve quality of life. However, the pressure to deliver these interventions at a
low cost is growing.
The global pharmaceuticals market is expected to grow at 6% per annum, from $650 billion today to more than $820 billion
by 20204 and with growth in that market outstripping global GDP growth (of ~3% per annum over the period5). The largest markets
remain the US and Europe, which together account for about two thirds of the global market. The market for generic
pharmaceuticals accounts for about one third of the total pharma market today and is forecast to experience equivalent or higher
growth rates than the pharma industry overall (ranging from 5 to 9% between forecasts4).
JM will continue to focus on how we can serve this growing market through our differentiated science and technology, helping
to deliver the products that our growing population requires.
Critical raw materials
Within the evolving market dynamics described above, commodity prices will play an important role. We already see the
commodity cycle starting to turn with higher metal prices seen during the 2017 calendar year. Oil prices are starting to rise
(moving beyond $70 per barrel for the first time since late 2014), while gas prices, especially in North America have remained
subdued at around $3/mmbtu (US Henry Hub). Beyond these traditional commodities we are also seeing upward pressure on the
key inputs to battery cathode materials (e.g. lithium in 2017, cobalt and nickel more recently). These prices and their movements
will impact decisions about how our key end markets evolve and which technologies / pathways come to dominate over time.
JM will continue to focus on the most efficient use and transformation of critical raw materials and we will position our business
(including our refining expertise) to respond and react to these trends.
Sources
4 EvaluatePharma.
5 BP Energy Outlook, 2018 (www.bp.com/en/global/corporate/energy-economics/energy-outlook.html).
The breadth of JM is a source of strength
The four economic segments we serve are undergoing major change; change that is driven and enabled by technology. We apply our
scientific skills, via our sectors, into markets within these segments to create new products and services that improve lives, improve
efficiency and reduce environmental impact.
Glass
Automotive
Energy generation
and storage
Oil and gas
Food and
beverage
Chemicals
Agrochem-
icals and
fertilisers
Other industrial
Pharmaceutical and medical
Transport
Energy
Chemicals
Healthcare
Clean Air
Health
New Markets
(Battery Materials)
New Markets
Efficient Natural Resources
Major
markets
served
by JM
Global
economic
sectors
JM’s
sectors
•
•
Our Clean Air Sector abates
emissions from the transport,
energy and chemicals segments.
Our Efficient Natural Resources
Sector has businesses supplying
products and processes that
conserve scarce resources, enabling
the manufacture of chemicals,
fertilisers, fuels and glass using less
energy and fewer raw materials.
It also has our platinum group
metal recycling business.
•
•
Our Health Sector draws on core
capabilities in complex chemistry,
manufacturing and scale up to
create solutions for niche areas
within the pharmaceutical industry.
Our New Markets Sector applies our
science into emerging opportunities
across all segments.
This breadth is a source of strength for JM.
The markets and segments we serve are
amongst the most important in the world
economy, are universal and supported
by strong macro drivers. Maintaining this
broad market exposure and managing
the balance of our business across these
segments of the world economy is part
of our strategy.
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The four segments are complementary.
Many of the customers we serve operate
in two adjacent segments: for example,
fuel companies also have chemical
operations; chemical companies
manufacture pharmaceutical ingredients.
We bring market, technical and regulatory
insights from each segment and apply it
to the adjacent segments. These insights
drive business development.
What we sell and how we work
with our customers
Across all our markets, we have two
fundamental customer offerings.
1.
Functional components that our
customers incorporate into the
products they manufacture. These
components are fundamental to
the performance of our customer’s
product. Examples are: electrode
tips for cardiac oblation, emission
control catalysts for engines, active
pharmaceutical ingredients for pain
treatment, protective coatings for
automotive glass, cathode materials
for batteries.
For these types of product, most
of what we sell we have developed
and formulated specifically for an
individual customer’s application,
in collaboration with our customer.
2. Process technologies that our
customers use to enhance the
efficiency, economics and
sustainability of their manufacturing
processes. In these cases, our
technology is used to make the
customer’s product rather than
being part of the finished product.
We develop manufacturing
processes, including the catalysts
that enable them, both for
customer-proprietary products
(e.g. pharmaceutical actives)
and for chemicals and fuels
(e.g. methanol, ethylene glycol).
For processes we develop ourselves,
we either licence to our customers
or operate them ourselves in our
own facilities. When we develop
processes for customer-proprietary
products we work under contract
development agreements.
Our Pgm Refining and Recycling
business uses a JM-developed and
operated process. We provide a
service for our customers (including
other JM businesses) where we
transform their materials to produce
high value product.
Across these offerings, our customers,
in the most part, value the performance
of our technology in their applications.
The performance of our products delivers
different advantages to our customers by:
•
•
•
•
Translating directly into the
performance of their product.
Enhancing the reliability of their
production.
Increasing their efficiency.
Enabling them to reduce the overall
cost of their product.
Maximising this performance advantage
through codevelopment is the basis of
the way we work with our customers.
This collaborative development requires
strong, long term relationships based
on mutual commitment, risk sharing
and trust.
In addition to performance,
customers also come to JM for additional
sources of value: speed and efficiency in
development, reliability, responsiveness
in problem solving, security and flexibility.
We work with our customers across
a range of markets, understanding the
needs of each sector and customer.
This approach gives us a business that is
balanced and robust. Through serving
broad markets, the opportunities to
apply our science and technology are
greater and our contribution to a cleaner,
healthier world is increased.
Driving commercial excellence
We have distinctive scientific and
technical capabilities which we translate
into solutions for our customers. It is
important that, together with providing
them high quality products and service,
we capture our fair share of the value
we create for customers.
Our Commercial Excellence
programme is focused on doing just
that. It is a key enabler of our strategy
and was launched in 2017/18. The overall
objective of the programme is to deliver
value by building the commercial
capability across JM; enhancing our
ability to make value based data driven
decisions; measuring and responding to
customer satisfaction; improving our sales
and marketing processes and leveraging
digital technology where appropriate.
The programme has made good early
progress. We are investing in growing
our people and our commercial function.
We will be launching our commercial
academy this coming year to support the
development of our commercial people
across JM. We are also improving the
consistency of our data analytics to
inform our commercial decisions.
We have started work to establish
a consistent measure of customer
satisfaction across JM so that we can
enhance the experience our customers
have when buying from us. The
programme is on track to deliver benefits
over the coming year.
Measuring our impact beyond
customer value
The value we create for our customers
drives growth in our business and returns
for our shareholders. But our products
and services have a much broader
positive impact, making our air cleaner,
improving people’s health and conserving
the world’s natural resources. We want
that positive contribution to grow.
As part of our new sustainable
business framework we have set a goal
to double the positive contribution of our
products by 2025. This, our sustainable
business goal 5, has two streams by
which we will track our progress.
The first shows our global impact by
measuring the absolute and percentage of
JM’s sales that have a direct contribution
to the UN Sustainable Development
Goals. The percentage measure is a key
performance indicator for the group as
detailed on page 23.
The second relates to JM’s vision for
a cleaner, healthier world. Our goal is
to at least double:
1.
2.
3.
The tonnes of pollutants (oxides
of nitrogen, carbon monoxide,
hydrocarbons, particulate matter)
removed by our products, thereby
making the world cleaner.
The number of lives impacted by
our pharmaceutical products,
thereby making the world healthier.
The quantity of greenhouse gases
removed or reduced (CO2 equivalent)
by our products, thereby taking
climate action.
Our baseline measures are outlined
on page 17.
We are excited to introduce our
sustainable business goal 5. It will be
a positive driver for our business
performance and, crucially, provides a
tangible measure of progress towards
our vision for a cleaner, healthier world.
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Long term view Technologies for clean
transportation – JM brings insight
as the powertrain evolves
Automotive powertrain technology
has seen many developments in
the 50 years that Johnson Matthey
has been involved in, shaped
largely by societal requirements
for cleaner vehicles. The coming
decades will see even bigger
changes. JM is in a uniquely
powerful position to understand
these changes and to grow our
business further by providing new
technologies to enable them.
Our insights into these new
demands are broad and deep.
We understand the big trends in
regulations, in driver expectations,
in the strategies of vehicle
manufacturers and in the
capabilities of the new technologies
available to the manufacturers.
These trends determine the
demand for our technologies.
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Understanding our customers and their value chains
Johnson Matthey brings deep insight into how these market trends translate into
performance requirements for all our automotive powertrain-enabling products and
the technical support our customers need. We work from market needs, through system
performance requirements and into the design of materials at the atomic scale. We can
then scale our science from the lab, through vehicle testing, to production processes
for millions of engines a year – which itself requires intimate understanding of our
customers’ preferences and their ways of working.
A key JM strength is our relationship with vehicle manufacturers, built on 50 years
of collaboration at all stages of technology development from design, through
application, scale up, testing and into mass production. We understand how they work,
their time cycles and their technology needs.
Our relationships up the supply chain are equally important. Securing and
managing reliable, ethical supplies of metals and other raw materials will be just as
important for batteries as it is for our emission control catalyst and fuel cell businesses.
The automotive supply chain is highly integrated, but is evolving, with more emphasis
on lifetime stewardship and circular supply chains. JM has the experience and
structures for this way of working from our precious metal businesses, including
recycling emission control catalysts.
As the supply chain evolves, we stay aware of who is making the critical decisions
and on what basis. Decisions on required performance standards, technology selection,
supplier selection and system optimisation are made between different functions within
companies and between companies and different stages in the supply chain. We maintain
a broad set of contacts in order to participate fully in this decision making process.
An ‘all options’ approach to technology
As we plan for success in future powertrain markets, the experience that JM applies
to technology road mapping is very broad. We supply all the transport applications
currently using internal combustion engines, everything from scooters to the largest
container ships. Thus, we know the performance demands and design cycles for the
full range of land and water based transport. We combine this with our practical
experience of all the options for clean energy storage and powertrains, across
combustion engines, batteries and fuel cells. We believe that over time, everything will
become electrified but in different ways, at different speeds and to different degrees.
Internal combustion engines will remain important in all transport sectors for decades,
increasingly in hybrid systems, and fuel cells will come in too – particularly for heavy
and long haul vehicles. The world will need all options and all options represent
opportunities for JM.
This ‘all options’ view shapes our strategic planning process. It determines the
portfolio of technologies and businesses that we develop. It determines the way that
we use our understanding of the various alternative technologies to develop and
market the technologies. It determines the flexibility we maintain in resource planning
to place bets on the most promising technologies and retain the options we need to
maintain our strong position in the market regardless of the shape of future demand.
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Following policy and
regulation
In looking at where JM’s scientific and
manufacturing capabilities can create
most value as powertrain technologies
evolve, a vital perspective for us is
regulations. Standards are set for new
vehicles and limits on pollutant emissions
have been the primary driver for JM.
They will be in the future, too, but other
regulatory and policy areas are becoming
equally important. There are four aspects
of policy that we follow and interpret:
1. Although our catalyst technology
has enabled a 100-fold reduction in
emissions from vehicles since the
1970s, many cities around the world
still suffer from poor air quality
caused in part by vehicle exhaust
gases. Therefore, new vehicle
emissions regulations will continue
to tighten and will be a significant
driver of demand for our products.
The most important trend for the
future is not the further reduction
of the headline emissions limits,
although this will continue, but in
the shift to testing and compliance
regimes that better reflect emissions
in ‘real world’ use. These new tests
require higher system performance
across a wider range of conditions
and as a result, demand more
JM technology.
In recent years, regulations on the
efficiency of new vehicles, as
measured by CO2 emissions, have
become an equally important factor
in powertrain design. More efficient
engines demand more efficient
emissions control – for example,
exhaust gas temperatures are lower
on more fuel efficient vehicles, so
the catalysts need to work at these
lower temperatures. Hybrid
powertrains place new demands on
the after-treatment system. Electric
vehicle investment and introduction
is being driven by fleet CO2 limits,
creating new demand for battery
materials and fuel cells.
2.
3. As well as the regulations on new
vehicles, the market is shaped by
incentives for drivers to buy low or
zero emission vehicles. These may
be financial, in the form of purchase
grants or preferential tax rates.
In some countries, drivers of low
emission vehicles are granted perks
such as access to bus lanes. These
incentives shape demand in local
markets and can be important in the
early adoption of new technologies.
4.
For the future, we see cities as
increasingly important in driving
and shaping demand for clean
vehicles. In most parts of the world,
city authorities are responsible for
ensuring air quality. To meet legal
requirements and the expectations
of their citizens, they are increasingly
offering incentives for cleaner
vehicles and applying penalties or
even bans to dirtier ones. We’ve been
working with cities for decades to
improve their air quality, retrofitting
emissions control to buses and
supporting Low Emission Zones.
Knowing where the greatest air quality
problems are, where the political will to
solve them is strongest and what the
practical technologies are to address the
problems efficiently, enables JM to see
where the next market demand will be.
Total cost of
ownership is key
We assess the regulatory landscape but
we are careful not to lose sight of what
technology can be practically and
profitably incorporated in a vehicle and
what the people who buy the vehicles
most value. The market is constrained by
two simple and related principles: people
can’t buy it if the manufacturers aren’t
offering it and manufacturers can’t sell it
if people don’t want it. Consequently, we
believe that the total cost of ownership
will continue to be the primary criterion
in vehicle purchases. As such, we assess
the effect of each new technology on the
cost of developing, manufacturing, fuelling
and maintaining each class of vehicle.
When it comes to zero emission
vehicles, we consider a third constraint:
people won’t buy it if they can’t recharge
or refuel it. As such, we are monitoring
and participating in projects to develop
infrastructure for charging battery
electric vehicles and for refuelling fuel
cell electric vehicles.
Seeing the whole system,
from well to wheel
Our market view on transport trends
is not confined to vehicle technology.
JM has fuels related businesses and
technologies too. These have an
important part to play in reducing
emissions from transport and, at the
same time, give a perspective on the
environmental impact of transport that
greatly strengthens the view we have on
vehicle technology.
JM has fuel processing expertise
and our process catalyst technology is
important for making the hydrogen that
removes sulphur from fuel. By combining
the views we gain from the fuels value
chain with our vehicles knowledge,
we understand the full impact –
environmental, economic, consumer –
of all the potential technical solutions.
JM has technology for the manufacture
of synthetic fuels, bio fuels, gaseous fuels
and, particularly importantly, hydrogen.
Uniquely, we have technology for all the
major manufacturing paths for hydrogen.
Being able to see the whole system,
‘well to wheel’, we can assess costs and
trade-offs and we can see how these
translate into the potential demand for
our technologies.
Future mobility models
Finally, we make sure that we pay
attention to the way that vehicles will be
used in the future because this will affect
the way they are bought and the way they
are designed. Cars bought to be used in
fleets of shared vehicles may be designed
with the same considerations that now
apply to commercial vehicles – cost per
mile, durability, availability / up-time.
It is important that we understand which
aspects of our very successful heavy duty
business we will need to apply to light
duty. Autonomy will be an enabler of
shared mobility and will also lead to a
change in drive cycles and vehicle design,
so autonomous vehicles will have different
power requirements. Connectivity, as
well as being an enabler of vehicle
autonomy, provides new opportunities
for monitoring and regulating vehicles
and their emissions in use. In turn, this
is likely to promote the adoption of more
low emission technologies.
Our automotive facing businesses
have been designed from inception to
anticipate and respond to change. Change
brings continuous demand for new
technology, and it is in the development
and application of new technology that
JM creates value.
We cannot accurately predict the
rate of growth in electric drivetrains but
we foresee a period of fundamental
transformation in the automotive market.
It brings opportunities for us to advance
our business and our vision for a cleaner,
healthier world. And JM is embracing it,
knowing that we are uniquely well placed
to understand and deliver the technologies
the market will require.
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Operations
Our vision for a cleaner, healthier world demands us to operate our
business responsibly and with a relentless focus on efficiency and
excellence. This cuts across everything we do: from common systems
and core processes to the way we manage and drive the environmental
performance of our assets.
Sustainable business goals
Low carbon
operations
Responsible
sourcing
3
4
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Driving responsible and
effective operations
As a global group, we seek to maximise synergies across our businesses so we
put in place standard processes and ways of working where it makes sense
for us to do so.
Our focus is end-to-end operational
efficiency; it’s not cost-cutting and it’s not
a project. Through this we are driving
sustained improvements across every
aspect of how we run our business,
and therefore the benefits are broader
than cost.
This approach has two main themes.
Firstly, we’re simplifying and automating
common processes. It doesn’t deliver
monetary savings per se, but it frees up
our people to target them against our
biggest business opportunities.
Secondly, we are ensuring common
standards and ways of working across JM.
This will improve our performance by
accelerating the best of JM around the
group rapidly.
Simplifying and automating
This year we have continued to invest in
upgrading our core IT systems to reduce
complexity across the group and make
us more agile and responsive to our
customers. We are introducing a global
business solution to standardise and
simplify business processes, data and
systems across JM. The single groupwide
platform supports all our global
operations, giving us a full view of all our
businesses. Implementation is on track
and we will start our roll out during
2018/19. We expect to be complete by
end 2021/22.
Common standards and ways
of working
Group led excellence programmes are
in place to target specific areas where
we see an opportunity to rapidly make
efficiency gains by ensuring common
standards and ways of working across JM.
A group led approach enables us to deploy
best practice quickly and effectively
across our operations.
Manufacturing Excellence, which
has been in place since 2012, encourages
a continuous improvement culture to
enhance the efficiency and long term
profitability of our manufacturing
operations. Progress is measured against
ten criteria. The highest performing
sites can work towards Silver, Gold or
Platinum levels of status. Since 2012,
over £100 million in savings have been
delivered collectively by sites that have
achieved those levels.
Procurement is a key global activity
and by managing it with a strategic and
category led approach, significant
savings can be achieved. Professionalising
procurement within JM not only reduces
cost, but it also means that we manage
our suppliers better, which has many
additional benefits, including reducing
supply chain risk. We purchase state
of the art equipment which meets
the latest environmental, health and
safety standards.
We have activated a Procurement
Excellence programme with the goal of
saving more than £60 million over the
next three years. Our annual purchases,
excluding precious metal and substrate,
are about £1.5 billion. These purchases
are made across 118 sites, historically
with each site accountable, for the most
part, for its own purchases. This has, in
the past, limited our ability to consolidate
our understanding of purchases across
the group.
Over the last year we have begun to
move to a global procurement strategy
and have started to capture this data on
a consistent basis to fully understand
where the procurement opportunity lies.
We have begun to execute against this
opportunity and have made excellent
early progress in bringing together our
existing procurement community and in
building new capability to ensure that we
capture it in full. We will continue to roll
out our global procurement function
during 2018/19 to realise savings and
enhance our supply chain performance.
Responsible operations
Our technology is used by customers
every day to create products that have
a direct benefit on the environment,
preventing millions of tonnes of pollutants
from entering the atmosphere. We also
have a responsibility to ensure the way we
make these technologies is responsible
and environmentally conscious too.
In the course of our now completed
ten-year strategy, Sustainability 2017, we
halved our operational carbon footprint
and our use of energy and water per unit
of sales. These efforts, combined with
those in our Manufacturing Excellence
programme, delivered bottom line
savings of £142 million.
But now we want to go further.
Building on the impressive achievements
of Sustainability 2017, we have set
ourselves more stringent targets to
2025 and are incorporating a stronger
external focus.
In developing our six goals for
sustainable business to 2025, we defined
two goals that are linked to our operations,
both at group and site level. One is our
goal to reduce our greenhouse gas
emissions by 25% per unit of production
output (goal 3), an ambition that forms
part of our approach to low carbon
operations. The second is to improve
sustainable business practices in our
supply chains (goal 4).
Three of our four other goals –
covering health and safety (goal 1),
employee engagement (goal 2) and
volunteering in the community (goal 6) –
are explained in the People section of this
report on pages 48 to 59. Goal 5, which
aims to increase the positive contribution
of our products to a cleaner, healthier
world, is explained in the Customers
section of this report on page 35.
3
Climate change action
through reducing greenhouse
gas emissions
We have set ourselves a new carbon
intensity goal in which we aim to reduce
our greenhouse gas (GHG) emissions
per unit of production output by 25%
(sustainable business goal 3). Monitoring
our emissions as a function of production
output, rather than sales, will allow us
to capture any operational efficiency
improvements more authentically. The
new carbon intensity goal also reflects the
type that companies are setting in order
to qualify as a Science Based Target using
the Sectoral Decarbonisation Approach.
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Our ambitious target was based on an
assessment of potential installations and
energy procurement opportunities across
our sites and a consideration of the
targets being set by peer companies.
We are including Scope 1 and 2
(direct and indirect) emissions in our
goal, which covers our entire use of fossil
fuels, electricity from all sources and
emissions of all major GHGs. To improve
our data collection and help drive
improvements, we have installed a
groupwide environmental data reporting
tool to our sustainability management
platform, Enablon. The tool was
operational from 1st April 2018 and
enables us to increase the frequency
of our internal reporting.
In recent years, we have increased
our use of renewable energy on our
sites. For example, at our pgm refinery
and chemicals plant at West Deptford,
New Jersey, USA, we source 17% of our
electricity from an adjacent photovoltaic
plant, saving 861 tonnes of GHG emissions
in 2017/18. Also in the US, all our sites
in the Philadelphia region will be
purchasing zero carbon electricity from
grid suppliers from April 2018; this is
expected to reduce the group’s carbon
footprint by 7% over the next year. And
five of our UK sites (Royston, Brimsdown,
Sonning, Swindon and Edinburgh) have
been purchasing renewable electricity
(wind power) from the National Grid
since April 2016, making CO2 equivalent
emissions savings of over 40,000 tonnes in
2017/18. This has been achieved through
an agreement with Ørsted, who supply
Renewable Energy Guarantee of Origin
(REGO) certified wind power from the West
of Duddon Sands Offshore Wind Farm near
Blackpool and the London Array Offshore
Windfarm in the River Thames estuary.
In Skopje, Macedonia, our site
installed a new waste water treatment
plant in 2017. The factory first opened in
November 2013 and had been growing.
Consequently, the previous waste water
treatment plant was unable to meet the
demands of the site in terms of quantity
and type of waste water handled – it
could only treat sanitary water. This left
the site having to send over 300 m3 of
effluent to neighbouring Serbia every
month – a distance of 450 km.
The Skopje site worked with waste
water specialist EnviroChemie to create
a treatment facility specific to the site’s
needs. In the first year of operation
(July 2017 to March 2018), the new plant
has achieved 162 tonnes of CO2 savings
and cost savings of over €900,000.
40
Other examples of our work to
reduce energy use and emissions include
our platinum group metal fabricated
products plant in Royston, UK, where
we have made a 655 MWh reduction in
energy use. This was achieved through
a comprehensive package of measures
including installing solar photovoltaic
panels, replacing a furnace and upgrading
the lighting and pump scheduling. We
are also making good use of solar energy
at five sites, while at our Royston, UK site
we are linking solar panels to our air
conditioning systems to reduce energy
consumption. One of our sites has a wind
turbine and we have also refurbished
office buildings increasing insulation,
installing LED lighting and replacing the
windows to improve working conditions
whilst saving energy.
Page 45: More on our greenhouse
gas performance
Understanding potential impacts
of climate change on our business
We disclose our environment, social and
governance (ESG) performance through
the CDP climate change programme,
which looks at risks and opportunities of
climate from the world’s largest companies
on behalf of institutional investors.
matthey.com/cpd-investor
We also participate in benchmarking
studies to deepen our knowledge and
compare our progress against our peers.
A changing global climate brings with
it a number of risks and opportunities for
Johnson Matthey, which we continually
consider and review annually as part of
our CDP disclosure. The most significant
of these continue to be environmental
legislation and water availability.
Johnson Matthey is also a signatory
of L’Appel de Paris (the Paris Pledge for
Action), committing us to play our part
in delivering the agreement’s ambition to
limit global temperature rise to 2°C. Our
sustainable business goal 3 supports this.
Water risk
Water is an essential resource. The World
Resource Institute (WRI) reported in
June 2016 that in the industrialised
world, fresh water is becoming scarcer
due to increased demand and higher
pollution levels. Availability is often
transient, dependent on changing
weather patterns.
A reliable supply of fresh water is
required by all our manufacturing sites
and, often in considerably greater
quantities, by our strategic suppliers.
To examine our exposure, we periodically
undertake water stress surveys of our
business. We also report our principal
water risk publicly through the annual
CDP Water survey.
matthey.com/cdp-water
In 2016/17 we conducted a survey
using the World Business Council for
Sustainable Development (WBCSD)
Global Water Tool™ (version 1.3). Of the
66 principal sites surveyed, 15 were
identified as being in regions of extreme
water stress. Our water usage in most
of these locations is very low. However,
there are four where we are close to
using the locally available freshwater
supply per capita: Taloja, India; Yantai,
China; New Mexico, USA; Brimsdown,
UK. We are using the data from the
survey to prioritise water conservation
projects for the sites that are at the
greatest risk of an interruption to supply.
Our facility in Taloja, India was
assessed by the WBCSD Water Tool
survey to be our highest water stressed
manufacturing plant. To meet the ever
increasing demands of the local waste
water treatment facility that treats all
waste water on the industrial park in
which our facility is located, we are in
the early stages of installing a water
treatment / recycling plant with the
aim of making the plant ‘zero liquid
discharge’ (ZLD).
Our largest risk to water is in our
supply chain, where we are exposed to
industries that are significant water users,
such as mining and agriculture. The next
step is to gather the exact locations of our
strategic suppliers’ facilities and evaluate
them with the WBCSD tool.
4
Responsible sourcing
The second part of our operational
sustainable business goals concerns
responsible sourcing. Under goal 4,
we aim to improve sustainable business
practices in our supply chains. Through
collaboration, we will ensure full
compliance with our minimum standards
from strategic Tier 1 suppliers.
This due diligence is not new to us
but it is the first time we have framed it
as a formal sustainability goal, with clear
measures to show our progress. Our goal
is to achieve compliance among 100%
of our Tier 1 strategic suppliers by 2025.
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Where we source strategic raw materials
We procure goods and services globally and our supply chains are multi-tiered. Sourcing of strategic materials is a principal risk
(see page 79) and monitoring and understanding the risk is challenging but essential. Some of our strategic raw materials are
available from only a limited number of countries. The countries we rely on for these materials are highlighted in the map below.
Precious metals
Narcotic raw materials / agricultural feedstocks
Chemical intermediates
Base metals and compounds
Zeolites
Rare earth metals
Ceramic supports and substrates
Several factors have led us to select
responsible sourcing as a goal. Regulation
of supply chains is increasing, for example
in the areas of conflict minerals and
modern slavery. And we are aware that
some of our suppliers are located in high
risk countries. We launched our Supplier
Code of Conduct in September 2017;
it is available on our website in English,
German, Japanese, Polish and Mandarin.
We will report annually on the numbers
of strategic Tier 1 suppliers assessed and
of those, how many meet our responsible
supplier compliance criteria. We have
put in place a Supplier Sustainable
Development Programme (SSDP). This
business tool enables us to classify risk in
our suppliers, determine what level of due
diligence is required, identify corrective
actions and follow up on progress. We will
track the number of suppliers that have
signed up to the code and the number
assessed during the last three years.
In 2017/18, 97 supplier sustainability
assessments were undertaken across our
sectors. These comprised formal on-site
audits, desktop assessments and supplier
self-assessments. These assessments
represent approximately 30% of JM’s
direct materials spend with suppliers.
The table below represents the responses
from JM’s sectors. We have not identified
any incidences of child labour or forced
labour in our value chain.
In 2017/18, 26 strategic Tier 1
supplier assessments were undertaken
to check compliance against the JM
Supplier Code of Conduct. This represents
approximately 11% of suppliers classified
in this way. Of those assessed, 73% were
in compliance with the expectations of
JM’s code.
Modern slavery
Research from the Walk Free Foundation
shows that over 40 million people
worldwide are trapped in some form of
modern slavery, including forced labour.
This is an important social issue and JM
is proactively taking steps to ensure high
ethical standards throughout our value
chain, including through our sustainable
business goal 4 on responsible sourcing.
Number of new Total number of
Sustainable business Number of suppliers non-conformances non-conformances
topic of concern assessed for this concern identified in 2017/18 open at 31st March 2018
Child labour 97 – –
Forced labour 97 – –
Wages and working hours 97 3 3
Discrimination 97 – –
Freedom of association 82 – –
Health and safety 97 45 25
Environmental 82 5 2
Other – anti-bribery and corruption,
supply chain standards 35 5 2
We support the principles set out in
the UN Universal Declaration of Human
Rights and the International Labour
Organisation Core Conventions, including
the conventions on child labour, forced
labour, non-discrimination, freedom of
association and collective bargaining.
We also support the principles
endorsed under the UN Global Compact
and the UN Guiding Principles on
Business and Human Rights (the ‘Ruggie’
Principles). We are working to embed
them throughout our operations and
whenever we enter into business in a new
territory, make an acquisition or enter a
joint venture. There were no human
rights grievance reports made against
Johnson Matthey during the year.
The UK Modern Slavery Act 2015
requires UK listed companies to make an
annual statement describing the steps
they have taken during the year to ensure
that slavery and human trafficking are not
taking place, either in their businesses or
their supply chains.
Our annual statement is posted on
our website and details the steps we are
taking. They include our policies and
codes (including our code of ethics and
confidential ‘speak up’ line), details of
our supply chain governance team and
the Supplier Sustainable Development
Programme. In order to improve
standards in our supply chains, in
2017/18, we have undertaken a risk
mapping exercise and identified suppliers
where we need to focus our attention.
matthey.com/modern-slavery
41
Johnson Matthey / Annual Report and Accounts 2018
Strategic Report
The criteria considered in the assessment
included industries that are considered
high risk, country corruption risk and
country modern slavery risk. By
undertaking this due diligence, we can
understand and address potential
impacts on human rights and ensure
that there is no enslaved labour within
our supply chains.
A number of voluntary responsible supply
chain schemes for cobalt are springing
up but they are not yet harmonised or
universally applied; we are currently
evaluating participating actively in the
Responsible Cobalt Initiative.
matthey.com/conflict-minerals
Conflict minerals
The pgm supply chain
The term ‘conflict minerals’ refers to tin,
tungsten, tantalum and gold which
originated from the Democratic Republic
of Congo (DRC) and surrounding
countries, in particular from areas of
military conflict where most mining is
artisanal and linked to serious human
rights abuses.
We have established a process for
due diligence of all conflict minerals
based on the Organisation for Economic
Co-operation and Development (OECD)
Guidelines which includes keeping records
that enable us to track the suppliers of
all the raw materials we use and identify
which smelter the conflict minerals came
from. We are working towards being
compliant with the new European Union
Conflict mineral regulation, which was
enacted in July 2017, ahead of the
January 2021 deadline.
Of the smelters identified throughout
all tiers of our supply chain, 89% are listed
as conformant with the Responsible
Minerals Assurance Process (RMAP)
assessment protocols on the RMI
(Responsible Minerals Initiative) database
and we expect this to increase as more
refiners and smelters join the programme
and become RMAP-conformant. We use
our in-house database to respond to
customer requests for information on
conflict minerals in our products and to
provide them with a tailored answer to
any query they have. This year we have
responded to around 70 customer
requests for information.
We are also extending our minerals
supply chain due diligence activity to
include cobalt. Cobalt is used in a range
of applications from battery technology,
industrial catalyst to health care.
At present the Democratic Republic
of the Congo (DRC) holds about 50%
of the global reserves of cobalt.
Although there are some mining
companies which are operating ethically
in the country, there is a significant
amount of illegal artisanal mining in
uncontrolled conditions leading to a
number of human rights concerns.
42
One example where we are taking a
proactive approach is in the platinum
group metal (pgm) supply chain. We
have worked closely with some of our
automotive customers to address
concerns that they raised relating to
the pgm supply chain in South Africa.
A collaborative visit facilitated by JM,
resulted in direct dialogue between the
pgm mining companies, JM and these
key customers. This allowed our customers
to see and hear first hand the challenges
of operating within that industry and in
the complex South African economic,
social and political context. A clear action
plan has been agreed.
In addition, we have worked with
peer pgm fabricator companies to
develop a single consistent due diligence
approach to be taken by all when
assessing pgm supply from South Africa.
This fabricator working group, liaising
through the International Platinum
Group Metals Association (IPA), is
establishing a systemic ‘one mine, one
audit’ approach from late 2018. This will
ensure supply chain partners are assessed
and audited in a more consistent, efficient
and effective manner. Ultimately, this
will lead to improvements in standards
of business conduct throughout the
value chain.
Our business is highly diverse, both in
the range of our manufactured products
and the markets we serve. Our supply
chains are correspondingly complex
and we are aware that we still have a
significant amount of work to do in
improving sustainable business practices
in those supply chains. Our supply chain
governance team, which is integrated
into our Procurement Excellence
programme, is driving this forward.
Product lifecycle management
The products we sell to our customers
often form an important part of the end
product supplied to the user. For example,
we supply catalytic coated substrate
as a component for engine emission
control systems for car manufacturers.
The catalyst is incorporated into the
catalytic converter in the exhaust system
of a car which is bought by the end user
who drives it. We do not manufacture the
car, but we are concerned with the whole
life of the catalyst until the end of its life,
and beyond, e.g. to recovery of
components for subsequent reuse.
This ‘whole life’ responsibility is what
we call product lifecycle management,
also known as product stewardship.
We set ourselves high standards: our
customers want to see evidence that we
understand any hazards inherent in our
products and that, through understanding
their uses, we can, in turn, help them
manage any consequent risks. Equally,
our external stakeholders want assurance
that the potential impacts – on the
environment, our employees and
downstream users – are well managed.
Some stakeholders are starting to
demand that chemical companies like
ourselves move towards safer chemistries.
Internally, our product lifecycle
management supports our value of
protecting people and the planet. More
pragmatically, it is essential to our
business that we identify and mitigate
any risk to our portfolio. Our social
licence to operate depends on our
compliance with safety regulations and,
of powerful importance, our voluntary
stewardship of our products all the way
down the value chain.
It is important we design in green
chemistries at the start of a product’s
life. Recently we have developed a
sustainability checklist as part of our
New Product Introduction (NPI) process.
The checklist contains a series of questions
about health and safety, environmental,
social and financial issues which must
be answered before the project can
progress to the next stage of the NPI
process. The checklist is now being
evaluated by teams in JM’s sectors.
Our management systems
We implement our product lifecycle
management through well established
systems to ensure the sound
management of our products throughout
their lifecycle. We have groupwide
policies and guidance which align our
approach with the global framework
set by the Strategic Approach to
International Chemicals Management
(SAICM) to promote chemical safety
around the world. The Strategic
Approach, begun in 2006, is hosted by
the UN Environment Programme.
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We have procedures in place at
group and sector level to identify
regulatory obligations, both future and
current, and create the documentation
necessary to ensure compliance. Our
internal committees assess hazard and
exposure data to identify opportunities
for risk reduction in our operations.
Potential new products are assessed at an
early stage of their development against
safety and regulatory criteria, with higher
hazard products being put through more
detailed assessments. Finally, business
compliance with lifecycle management
policies forms part of our environment,
health and safety (EHS) audit.
Our three areas of focus
As part of our work on product lifecycle
management, we have three current
areas of focus. The first is active horizon
scanning which identifies proposed
regulatory developments that could
impact our sites and products and the
raw materials we use. Linked to this is our
second area of focus: early identification
of new regulatory pressures for our
customers that our existing or new
technologies may be able to overcome.
Our third area of focus is ‘high
hazard’ substances – chemicals with
significant potential to harm human
health or the environment and how we
ensure appropriate investment in
researching less hazardous alternatives.
On the basis of elevated concern on a
substance’s hazards, regulators may
require companies to generate extensive
data packages to underpin detailed risk
assessments. If a true risk is identified
they could take action that effectively
eliminates use of the substances in that
market. All of our businesses could be
affected by these changes and we follow
developments closely.
Our policies, especially on NPI,
emphasise the expectation that we
actively investigate the availability of
safer alternatives to our use of high
hazard substances. For example, our
Finnish business identified a risk to its
portfolio as a critical component of its
resin bead manufacturing process would
face severe restriction in Europe due to
it being considered a substance of very
high concern (SVHC). Unlike our key
competitors, rather than apply for
authorisation to continue use of this
hazardous substance, which would be an
expensive and time consuming process
with an uncertain and time-limited
authorisation outcome, we decided to
alter our manufacturing process.
The development work took time
and money, but the project to move to a
safer process gained financial support
from the Finnish authorities. Customers
were fully informed of the rationale for
the change; we retained their orders and
they in turn retained theirs.
Pgm user guide
During the year JM provided significant
input into a comprehensive user
guide to pgms. ‘Safe Use of Platinum
Group Metals in the Workplace’ was
published by the IPA in December 2017
and is intended to advance awareness
of the hazards and risks associated with
occupational exposure to pgms and how
to manage them effectively. This is an
important and directly relevant piece of
work, as many JM sites handle pgms, and
one of the eight occupational illnesses
reported in 2017/18 related to pgm
exposure. The user guide provides practical
advice on workplace monitoring, the
medical surveillance of workers, control
measures, training and regulatory controls.
It is available on the IPA website and we
have advised our sites to consider the
new guidance in their pgm management
programmes, subject to local law.
The IPA guide is the most visible of
our recent efforts in this area, but we
continue to work with peer companies
in trade associations and consortia to
develop best practice on stewardship.
Priority substance management
We have set up a committee to review
certain high hazard substances of relevance
to JM in order to ensure there is appropriate
recognition of the risks from developing
new products using these substances.
The PARS (Prior Approval Required
Substances) Committee decides on
whether the risks (i.e. EHS, sustainability,
financial, reputational) are sufficiently
high that a senior leader is required to
issue a time-limited approval to use the
substance in NPI projects. The committee
has reviewed its first tranche of substances
and has concluded that a small number of
relevant substances either face regulatory
pressures of sufficient magnitude in the
foreseeable future, or are sufficiently
hazardous that they should be PARS listed.
Although focused on NPI, existing uses of
a PARS substance will consequently face
additional scrutiny.
We use or manufacture only a very
limited number of substances considered
regulated1, or of international concern2.
As a proportion of our portfolio,
approximately 5% of products consist of,
or use in their production, such substances.
Looking ahead to the next year, we
plan to improve our audit programme for
product lifecycle management. At present,
it forms part of the EHS audits of our sites.
We are now reviewing how we manage
our product lifecycle work across the
group and will embed our findings in
a more targeted audit programme on
this specific issue. This will enable us
to be proactive across all our sites and
businesses and to provide more
consistent information to our customers.
And in the medium term, we recognise
that we have more work to do on end of
life solutions for our products, with,
among other things, improved recycling.
As the UK prepares to leave the EU,
we have made plans for Brexit and are in
a good position to manage the effects on
our European operations. We are actively
supporting the UK government in
understanding the potential impact of
the various options being considered.
Product lifecycle performance
We made good progress during 2017/18.
We completed our 1 to 100 tonne per
annum substance registrations for our
operations in the EU in good time for the
May 2018 deadline under the REACH
requirements (the European Regulation
on the registration, evaluation,
authorisation and restriction of
chemicals). Work is also progressing on
preparing registrations for a small
number of priority chemicals in South
Korea. In the US, the US Toxic Substances
Control Act (TSCA) was recently subject
to a major update and we have responded
to the resetting of the TSCA Inventory
per the deadlines.
We use a systematic product
responsibility reporting scheme to
monitor the performance of our
operations and maintain surveillance of
the company’s products and services.
In 2017/18, there were no
notifications of significant end user
health effects involving our products.
We did not identify any non-compliance
with regulations or voluntary codes
concerning health and safety impacts
of products and services or product
and service information, labelling and
marketing communications.
Policy on animal testing:
matthey.com/stewardship-testing
1
2
e.g. SVHCs under REACH, RoHS or California Prop 65
listed substances.
e.g. controlled by the Montreal Protocol, Stockholm
and Rotterdam Conventions, GHS category 1A/1B
carcinogens, mutagens or reprotoxins, etc.
43
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Strategic Report
Environmental performance
Environmental performance summary
2018 2017 % change
Operational carbon footprint thousand tonnes CO2 equivalent 445 4691 -5
(Scope 1 and 2 market method)
Energy consumption thousands GJ 5,104 5,1472 -1
Electricity consumption thousands GJ 2,055 1,955 +5
Natural gas consumption thousands GJ 2,722 2,8722 -5
Total waste sent off site tonnes 71,787 70,2003,4 +2
Total hazardous waste sent off site5 tonnes 44,020 43,542 +1
Waste to landfill tonnes 6,271 6,8943 -9
Water withdrawal thousands m3 2,729 2,643 +3
1
Carbon footprint data for 2016/17 has been restated using updated methodology to be used to 2025, see further details on page 201.
2 Restated to reflect updated conversion factors.
3 Excludes 17,682 tonnes of uncontaminated soil from a construction project in Redwitz, Germany in 2016/17 which was classified as non-hazardous waste to landfill under local law.
4 Restated to include additional waste stream omitted last year.
5 Excludes hazardous waste sent for beneficial reuse.
All percentages and ratios in this section are calculated on unrounded numbers.
We have group policies, processes
and systems in place to manage our
environmental performance and help
us realise continuous improvement. In
addition to process improvement efforts,
the efficiency and longevity of equipment
are considered in purchasing decisions
and for large capital expenditure projects.
The company also provides
environmental policies on areas including
emissions to atmosphere, energy
management, waste management,
protection of waste water discharge
systems and discharges to surface and
ground water. These policies provide the
guiding principles necessary to ensure
that high standards are achieved at all
our sites around the world.
All our major manufacturing sites are
required to maintain certification to the
ISO 14001 environmental management
system as a means of setting,
maintaining and improving standards.
The group also requires new or acquired
sites to achieve ISO 14001 certification
within two years of beneficial operation
or acquisition; 89% of such sites are
ISO 14001 compliant.
Energy consumption
Energy consumption
Carbon footprint
GJ (’000)
GJ / tonnes
output
Other
fossil fuels
7%
Tonnes C02
equivalent (’000)
Tonnes /
tonnes output
5,500 5,015
5,366
5,064
5,1472
5,104
42.1
38.6
4,400
3,300
2,200
1,100
0
50
40
30
20
10
0
2014 2015
2016
2017
2018
GJ (’000)
GJ / tonnes output
2 Restated to reflect updated conversion factors.
44
Other grid
electricity
purchases
31%
Natural
gas
53%
Certified renewable
electricity purchased
or generated on site
9%
600
500
463
510
482
4691
3.8
400
300
200
100
0
445
3.4
6
5
4
3
2
1
0
2014 2015
2016
2017
2018
Tonnes C02
equivalent (’000)
Tonnes /
tonnes output
1 Restated using updated methodology to be
used to 2025, see further details on page 201.
21% of grid electricity was purchased on
zero carbon tariffs in 2017/18. We expect
this percentage to increase in 2018/19 as
several of our Pennsylvania area sites
switch suppliers.
Our absolute carbon footprint using
the market method decreased by 5% in
2017/18. Using less gas and processing
cleaner feeds in our pgm refinery yielded
a 6% reduction in our Scope 1 carbon
footprint. We purchase zero carbon
electricity at many of our UK sites. A
reduction in the carbon intensity of our
electricity purchases around the globe
led to a 4% drop in Scope 2 emissions,
despite a 5% increase in electricity usage.
Relative to production output, our carbon
footprint decreased by 12%.
Pages 39 and 40: Details of our actions
to reduce greenhouse gas emissions
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Going beyond this, 12% of our
manufacturing sites are also ISO 50001
compliant. ISO 50001 builds on
ISO 14001 and looks specifically at the
development of energy management
systems to systematically and
continuously improve energy efficiency.
Our manufacturing sites in Macedonia,
South Africa and our major sites in
Germany have all achieved this standard.
Every year we undertake a
comprehensive review of group
environmental performance across
all our manufacturing, R&D facilities
and large offices that are under our
financial control.
Energy consumption
Group product output grew by 8% in
the year. By contrast we recorded a 1%
absolute decrease in energy usage within
our facilities this year.
The make-up of our energy purchases
changed in 2017/18 as our combined
heat and power (CHP) plant in Royston,
UK was out of service for much of the
year as we are replacing it with a new
CHP. Electricity usage across the group
rose by 5% whilst gas usage declined by
a similar amount. 0.2% of our electricity
came from local solar power facilities
that are not grid connected, a 14%
rise on last year (see further details on
page 40). In total, 467,960 GJ (21%)
of the electricity we consumed during
the year came from certified renewable
energy sources for which JM is in
possession of the associated Renewable
Energy Certificates.
3
Greenhouse gas emissions
We report greenhouse gas emissions
from our manufacturing processes and
energy usage in accordance with the
2015 revision of the Greenhouse Gas
Protocol (www.ghgprotocol.org). Our
total operational carbon footprint is
based on:
•
•
Scope 1 emissions – generated
by the direct burning of fuel
(predominantly natural gas) and
process derived greenhouse gas
emissions (CO2, N2O, CH4 and
refrigerants).
Scope 2 emissions – generated from
grid electricity and steam use at
our facilities.
Although we dual report our Scope 2
emissions, in 2017/18 we have switched
to using Scope 2 calculated by a market
based method. This reflects the emissions
of the electricity we are actually buying
more accurately than using location
based emissions factors. Market data is
available for 57% of our sites and is
obtained from local suppliers, energy
contractual documents and website
declarations. At 80% of sites where
competitive electricity purchasing
markets are operational, the carbon
intensity of electricity we purchased
was lower than the national or regional
average. Thus, Scope 2 carbon footprint
calculated by the market method is 10%
lower than the location based method.
Carbon footprint
2018 2018 2017 2017
thousand % of total thousand % of total
tonnes CO2 carbon tonnes CO2 carbon
equivalent footprint equivalent 1 footprint
Scope 1 215 48% 229 49%
Scope 2 (market based method) 230 52% 240 51%
Scope 2 (location based method) 279 56% 286 56%
Scope 3 (from electricity transmission and distribution) 20 n/a 22 n/a
Total operational carbon footprint
(Scope 1 and 2 market based method) 445 100% 469 100%
Total operational carbon footprint
(Scope 1 and 2 location based method) 494 100% 515 100%
1 Restated using updated methodology to be used to 2025, see further details on page 201.
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Strategic Report
Other emissions to air
Emissions from our operations are
typically licensed by local regulations
and are generated from a number of
sources including combustion processes,
materials handling and chemical
reactions. All sites monitor emissions to
ensure compliance with local regulations
and set their own absolute targets aimed
at reducing significant emissions as part
of their local environment, health and
safety improvement plans.
Significant developments were made
in systems to abate emissions to air.
In Germany, new ammonia abatement
systems were installed and in China both
oxides of nitrogen (NOx) and volatile
organic compound (VOC) abatement
systems are being installed. The total
investment for these systems is around
£6.4 million. The VOC abatement system
in China was our Clean Air Sector’s first
VOC abatement system, which allows JM
to go beyond compliance and protect the
local atmosphere. New government
legislation in China means that all our
sites in Shanghai will be subject to
mandatory NOx, oxides of sulphur (SOx)
and VOC reporting going forward.
In 2017/18, our reported NOx
(NO + NO2) emissions were 383 tonnes,
up 10% on the previous year due to an
increase in production in our Catalyst
Technologies business. Our total SO2
emissions decreased by 13% to 44 tonnes
due to change in the type of material
processed through our pgm refinery in
Brimsdown, UK.
Our emissions of VOCs decreased by
24% to 101 tonnes. This mainly resulted
from a review of the efficiency of the
vacuum pumps scrubbing the emissions
at our Health Sector’s sites.
Our emissions to air data disclosed
here are comprised of data from 39% of
our manufacturing sites. Within these
numbers, we believe we have captured
our material emissions across the group
but will be working to increase coverage
of our emissions to air reporting over the
coming year to confirm this.
Waste
In 2016/17 we introduced a more
detailed reporting system for waste
disposal across the group, allowing us to
better track and report the considerable
efforts our sites are making in minimising
their waste streams and disposing of
waste in the most responsible way.
We continued to focus on better waste
reporting this year and have needed
to restate our 2016/17 data to include
some waste streams that were previously
omitted. We have had our reporting of
total solid waste and total hazardous
waste data externally assured for the
first time in 2017/18.
We disposed of 71,787 tonnes
of waste via third parties in 2017/18.
Of this 79% is liquid waste, largely dilute
aqueous waste coming from our UK pgm
refineries. 65% of our total waste sent off
site was classified as hazardous waste.
96% of our hazardous waste is very dilute
aqueous waste, 65% of which comes
from our pgm refinery in the UK and is
tankered off site for treatment by third
parties; we are actively investigating
alternative ways to deal with this waste
stream in future years. Only 1,822 tonnes
of our hazardous waste is solid material
that is not reused or recycled after it has
been sent off site. 2% of our hazardous
waste was shipped internationally for
disposal. This is a 33% drop on last year
due to less waste being shipped
internationally, mainly from our
Clitheroe, UK site.
Of the total waste sent off site for
treatment, 5% was sent for reuse by
others, 25% for recycling, 9% for energy
recovery and 9% was sent to landfill.
The remainder was sent directly to third
parties that offer a variety of treatment
and incineration services.
We also incinerated 7,075 tonnes
of waste within our own facilities,
principally waste sent to our refineries
for precious metal recovery.
Other emissions to air
Where our waste goes
Total waste to landfill
2018 2017 % change
NOx tonnes 383 348 +10
SOx tonnes 44 51 -13
VOC tonnes 101 132 -24
Waste to
treatment
52%
Waste to
landfill
9%
Reused
5%
Waste to
energy
9%
Recycled
25%
Tonnes
8,000
6,000
4,000
3,819
3,482
2,000
0
Tonnes /
tonnes output
6,8941
0.100
6,271
0.075
0.056
0.050
0.047
0.025
0.00
1,953
2014 2015
2016
2017
2018
Tonnes
Tonnes /
tonne output
1 Excludes 17,682 tonnes of uncontaminated soil
from a construction project in Redwitz, Germany
which was classified as non-hazardous waste to
landfill under local law.
46
The chemical oxygen demand (COD)
test is commonly used to indirectly
measure the amount of organic
compounds in water and is a useful
measure of water quality. In 2017/18
the group discharged organic chemicals
equivalent to an average COD of
197 mg/L into water courses, as
regulated by local emission limits at
each manufacturing facility.
This average COD was calculated
from readings collected at sites
representing 65% of our total water
discharged. Some of our sites use a
different measure of water quality
which cannot be translated directly to
a COD calculation and are therefore not
included in this measurement.
Environmental incidents
Johnson Matthey has a robust and
effective management system that
requires all sites to report environmental
incidents to our Group EHS department.
All spills that occur on unmade ground or
near drinking water sources are classified
as significant. One site (Royston, UK)
has self-reported an incident to the local
authorities in 2017/18 which is still
under investigation.
During 2017/18, we received one
fine for an environmental permitting
requirement breach, which had no
environmental impact. This was at our
Clean Air plant in Shanghai, where we had
begun work to construct a new production
line prior to receiving an environmental
permit from the Environmental
Protection Bureau. The permit was
granted retrospectively but the
business was fined RMB 1.998 million
(approximately £220,000). The
management error that led to the
breach was subsequently investigated
and actioned.
Environmental performance –
priorities for 2018/19
More regular reporting by sites
throughout the year (using the recently
launched Enablon reporting tool) will
enable areas of improvement to be
identified and implemented more
quickly. It will also allow us to report
data from a greater proportion of sites
for some areas, such as other emissions
to air.
Additionally, we will review and
update some environmental policies and
their associated guidance.
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Water withdrawal
Water withdrawal increased slightly this
year to 2.7 million m3, a 3% increase in
absolute terms but a 5% decrease relative
to production output. 91% was supplied
by local municipal water authorities, 7%
was abstracted from groundwater and 2%
was abstracted from fresh surface water.
40% sites operate their own waste
water treatment facilities treating
1.2 million m3 of waste water per year,
a 3% increase on last year. 27% of the
water treated on site is recycled back
into our processes rather than being
discharged as effluent, reducing the sites'
water demand. Our Clitheroe, UK site is
leading our initiatives, recycling 64% of
its water treated on site.
Our total effluent increased by 1%
to 1.6 million m3 in 2017/18 after data
from 2016/17 was restated due to
inaccurate billing to our Germiston,
South Africa site by its local authority.
86% of our total effluent was discharged
to local authority sewers after treatment
and in accordance with local discharge
consent agreements. The remainder was
discharged to surface water courses after
treatment and within quality limits set by
local water authorities.
Our total consumption (water
withdrawn less water discharged) was
1.1 million m3, a 7% increase on last
year. More information is available on
our website in our CDP disclosure.
matthey.com/cdp-water
Water withdrawal
Environmental spills
Thousands m3
m3 /
tonnes output
Location Volume (litres) Material Impact
Royston, UK 2,000 Chemicals Under investigation
2,564
2,529
2,605
2,643
2,729
21.6
20.6
3,000
2,500
2,000
1,500
1,000
500
0
30
25
20
15
10
5
0
2014 2015
2016
2017
2018
Thousands m3
m3 / tonnes output
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Strategic Report
People
Our people are key in delivering our strategy and achieving our vision.
We want to harness their commitment to our sustainability goals. At the
same time, we want them to be confident that they are coming to work
in a safe and healthy environment, with a strong ethical culture, clear
values and a positive approach to diversity and inclusion.
Sustainable business goals
Our values
Health and
safety
Our
people
Community
engagement
1
2
6
Protecting
people and
the planet
Acting with
integrity
Working
together
Innovating
and
improving
Owning
what we do
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Creating the right culture
No compromise on health and safety; doing the right thing without question;
engaged and enabled people, ready to play their part.
Three of our 2025 goals relate to people
and cover health and safety, employee
engagement and volunteering in the
community. They continue work already
in place and build on our achievements.
For example, under our Sustainability
2017 programme, we reduced lost time
injury and illness rates by 25% and
occupational health incidents by 75%.
But now we are setting the bar higher
for ourselves and there are significant
new inclusions in our targets.
As a company handling chemicals
and hazardous materials, we must
maintain and continuously improve
our health surveillance systems and
preventative actions.
1
Keeping our people healthy
and safe
Our vision is for a cleaner and healthier
world. As we embark on our sustainable
business framework, health and safety –
and our aspiration to zero harm – heads
the list of our six new goals to 2025.
We are building on decades of hard work
to enhance health and safety. However,
we saw our performance plateau in
2017/18 so much remains to be done
in an area where both leadership and
employee awareness must always be
active and alert.
During the last year we created a
strategic environment, health and safety
(EHS) leadership committee that
developed and approved a three year
EHS roadmap, taking us up to 2021. We
have analysed our current position in key
areas such as process safety, lifesaving
policies, occupational health and EHS
capability and have defined where we
want to be by 2021. These clear targets
and the interim milestones will shape
our activities over the next years.
Our roadmap to 2021 has four
main elements: leadership and
personal ownership, managing key
risks, management processes and
the effectiveness of our EHS staff.
While formal tasks have been set for all
four elements and their components,
what underpins the whole roadmap is
personal engagement with the plan.
We expect our leaders to ‘walk the talk’,
for example, through site visits and getting
involved in questions, conversations
and updates.
We also expect our line managers
to take responsibility and give continuous
emphasis and clarity on health and safety
requirements. And employees are being
empowered to participate actively in
EHS activities. We are placing a special
emphasis on what we call high potential
learning events, where we can draw
lessons from incidents and risky
behaviour. Across JM, everyone is
required to follow five clear and simple
safety principles and with a health and
safety element a requirement of all
employees’ performance reviews, we
ensure it remains firmly on everyone’s
radar and that they are clear about
what is expected from them.
We have designated a core group
of our health and safety policies as
‘lifesaving policies’. These policies cover
known dangers, where policy breaches
could endanger life or lead to serious
injury. We have eight lifesaving policies
covering areas such as process isolation,
permit to work, driving, working at
height, guarding dangerous machinery
and isolating electrical equipment, and
have refreshed them during the year.
They are available in local languages and
we are providing guidance to our sites
on how to implement them, using tools
such as e-learning, gap assessments
and internal audits. The first e-learning
module was an overall awareness on all
eight of our lifesaving policies and was
completed by about 8,000 staff who had
access via e-mail. For staff without e-mail,
internal briefings were carried out.
The main causes of injuries across
JM are slips, trips and falls, hand injuries
and ergonomic problems. We have set a
behaviour standard in order to prevent
injury, the task now is to ensure that
employees remain aware of their personal
safety at all times, and that of their
colleagues. We know from our EHS audits
which sites have the highest rates of
injury and where they stand in meeting
our behaviour standard. To improve
performance on these sites, we have
introduced safety improvement plans.
These are special short term safety plans
specific to a particular site based on its
risk profile and EHS performance in
lagging and leading indicators. These
special plans are over and above our
annual EHS plans.
My Team, My Responsibility
We have continued to implement
My Team, My Responsibility, the training
programme that builds on our EHS
behaviour awareness programme and
aligns with our EHS behaviour standard.
The training supports work we have
already done to encourage employees
to take personal responsibility for safety.
Team leaders receive training on how
to deliver the interactive programme.
Back at their local site, team action plans
are developed, along with how they will
be tracked. These are later submitted to a
third party consultancy for audit. The aim
of the programme is to help us identify
preventative measures to avoid incidents
from happening in the first place. It also
builds the skills and confidence of team
leaders, removes employee reluctance to
speak up and make the right behaviours
second nature. We plan to complete the
implementation of this by end of 2018.
Process safety risk management
One area of special concern for us is
process safety risk management (PSRM),
which is all about how we safely manage
our most hazardous processes. We are
committed to improving safety by
embedding process safety capability in
our sites through training at all levels.
We have completed PSRM training for
96 of our senior executives and also
312 of our site leadership teams. This
training was developed with Cogent Skills
in the UK and meets the national training
standards for process safety. A PSRM
experts group has been established which
holds regular meetings to discuss strategy
and implementation.
49
Johnson Matthey / Annual Report and Accounts 2018
Strategic Report
During the year we have updated
our own PSRM Policy which defines
‘applicable processes’, i.e. those with high
hazards such as flammable gas and toxic
liquids, and also provided detailed
guidance for this. We have completed
maximum credible event (MCE) studies
and gap assessments against our
PSRM Policy. We also have developed
a process safety audit protocol and
audited selected sites.
The focus for the coming year is
the completion of the action plans from
the MCE studies and the gap assessments
against our PSRM Policy, training our
process safety champions and embedding
process safety indicators. We are also
reviewing the resources we have on
PSRM and plan to meet the requirements
for these with in-house capabilities or
through external recruitment.
Occupational health
Occupational health also remains
important for us. While the number of
occupational illnesses reported each
year remains low, we remain vigilant
on both known and recently emerging
types of illness.
Our approach to occupational health
is covered at the group and business
level. At group level, for example, we set
policy and provide guidance for the
management of chemical exposure,
which is implemented at our sites.
Chemical exposure is a major area of
focus for us and incidents are declining.
We continue to conduct work on key
areas such as platinum salt exposure
because platinum salt sensitivity can
occur in some, but not all, employees who
are exposed to certain types of platinum
salts during the course of their work.
We have improved our management
of platinum salts and are working with
the International Platinum Group Metals
Association (IPA) to gain a better
understanding of the epidemiology of
those at higher risk of sensitisation.
We are seeing an increase in mental
health incidents involving stress and
we are responding with research and
planned action. Following a pilot survey,
we identified three factors that are
leading to stress in our workplaces:
work relationships, work pressures and
organisational change. Until recently,
companies have not recognised
sufficiently the toll that mental health
issues are taking. In the UK alone, over
11 million working days a year are lost
because of a mental health problem,
with one in four people affected.
We are putting in place employee
assistance programmes (EAPs) in all of
our major countries to support our
people. EAPs are voluntary, work-based
programmes that offer free and
confidential assessments, short term
counselling support, referrals and
follow-up services to employees who have
personal and / or work related problems.
Ergonomics and the prevention of
musculoskeletal disorders also remain
an area of focus for us. These are tackled
at the level of our businesses based on
guidance that is provided at group level.
Driving improvement
We provide ongoing training on health
and safety to maintain employees’
awareness towards known risks and advise
on the top injury trends. Our Enablon
health and safety reporting platform is
used for reporting and analysing risks,
which helps us target areas of concern.
In September 2017 we held a three
day conference and training session in
North America, attended by 23 EHS
professionals and 23 operational staff.
During the conference attendees shared
best practice, networked and obtained
a deeper understanding of the JM EHS
strategy, enabling them to better drive
EHS performance in their areas.
We have an ongoing programme of
regular EHS assurance audits which are
undertaken using global protocols. In
2017/18, we undertook 26 audits at our
manufacturing and R&D facilities.
44% of our manufacturing sites
are compliant with BS OHSAS 18001,
the internationally recognised British
Standard that sets out requirements
for occupational health and safety
management good practice.
In addition, our group occupational
health and policy director visits up to five
sites a year to audit their occupational
health programmes. Occupational health
consultants have been appointed in
Europe, India, the US and China. They
provide help in identifying local problems
and implementing solutions.
Lost time injuries and illnesses
by event type
Lost time injuries and illnesses
by region
Rest of
World
4%
Asia
3%
Europe
66%
Lifting and
handling
21%
Slip, trip
or fall
19%
North
America
27%
Other
8%
Chemical
related
10%
Exposure to
workplace
stressor
10%
Struck against /
struck by object
32%
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Occupational illness cases
Number
of cases
Rate /
1,000 employees
30
25
20
15
10
5
0
3.0
2.5
2.0
1.5
1.0
0.5
0.0
2014 2015
2016
Occupational
illness cases
2018
2017
Rate per
1,000 employees
All of our manufacturing sites have
formal health and safety committees to
help monitor, collect feedback and advise
on occupational safety programmes.
They are led by site senior management
and meet on a regular basis to cascade
plans and ideas to and from our workforce.
Over half of our manufacturing sites
have a formal joint worker-management
health and safety committee comprised
of representatives from both staff level
and management grades, covering 67%
of employees globally.
Health and safety performance
Our renewed emphasis over the last
year has led to a slight improvement
in our TRIIR and occupational illness
performance. However, our LTIIR of 0.48
was the same as last year. Over the same
period, our TRIIR improved from 1.00
to 0.93, a decrease of 7%. There was
a total of 68 lost time accidents and
illnesses across the group during
2017/18. There were no employee
fatalities in the year; the last employee
fatality at Johnson Matthey occurred
in July 2015. Our performance is
summarised in the charts below.
Our construction projects use a
contractor workforce and we work hard
to ensure the safety of all contractors
who work for us. Overall, contractor LTIIR
dropped from 3.15 to 0.74. We saw a
rise from six lost time incidents involving
contractors during 2016/17 to eight
during 2017/18.
The drop in contractor LTIIR was due
to improved classification and reporting
of contractor hours worked, which
increased from 381,359 during 2016/17
to 2,171,462 during 2017/18. There were
no contractor fatalities in 2017/18; the last
one occurred in October 2010.
The number of occupational
illnesses reported during 2017/18 was
eight, giving a rate of 0.64 illnesses per
1,000 employees in 2017/18 (compared
with 1.0 in 2016/17). Of the eight, six
were in Europe and two were in North
America. By gender, five were males and
three were females. No contractor
illnesses were reported in 2017/18.
Our overall number of occupational
illnesses remains very low and we expect
to see annual fluctuations as the figures
are subject to statistical variation. We use
a health scorecard system developed by
the UK Chemical Industries Association
to monitor our health performance. This
year 64 sites completed the scorecard
questionnaire, compared to 69 sites the
previous year. Of these, 64% reported
average scores of A or B (which
corresponds to best practice), the same
figure as in the previous year; 30%
reported average C scores (which
corresponds to our current minimum
target score), compared to 26% in the
previous year; and 6% reported an
average D score (below our current
minimum standards), compared to 9%
the previous year.
The survey continued to reveal
mental wellbeing programmes as the
least well performing area of occupational
health. It was also the lowest performing
topic from sites reporting A and B scores.
We are aware of a rising incidence of
mental ill health and are conducting
internal research to help tackle the
problem and provide proactive guidance
(as described above).
Alongside our other health and
safety performance metrics, we also
monitor our OSHA severity rate. The
severity rate from the US Occupational
Safety and Health Administration (OSHA)
is a calculation that gives us an average
of the number of lost work days per
recordable incident and as such, provides
an indication of how critical each injury
and illness is. The premise is that an
incident that resulted in an employee
missing time from work to heal and
recover has greater significance than one
where the employee can immediately
return to work. It is therefore a useful
metric for us as we strive to reduce the
severity of the incidents that occur at our
facilities by improving our workplaces
and our behaviours to avoid incurring
these more significant incidents.
At 31st March
2017
2018
OSHA severity
11.2
12.2
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Lost time injury and illness
rate (LTIIR)
per 200,000 working hours in a rolling year
Total recordable injury and illness
rate (TRIIR)
per 200,000 working hours in a rolling year
0.60
0.50
0.40
0.30
0.20
0.10
1.20
1.00
0.80
0.60
0.40
0.20
0
March
2015
LTIIR
March
2016
March
2017
March
2018
0
March
2015
TRIIR
March
2016
March
2017
March
2018
Trade union committee
representation
31 of our manufacturing sites have active
trade unions and 26 of them have a trade
union representative on their local health
and safety committee. 22 sites have formal
trade union agreements that cover health
and safety topics (listed in the table below).
Topics covered by trade union
agreements
Topic
% of sites covered
Use of personal protective equipment
Participation of worker representatives
in health and safety inspections
and investigations
Training and education
Complaints mechanisms
The right to refuse unsafe work
Periodic inspections
86
82
95
64
95
82
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Our People Strategy
We want our people to feel that JM is a
great place to work, where working safely
is a priority, where diversity is valued,
and working collaboratively is very much
encouraged, all within an environment
that promotes growth and development.
Our aim is to become an employer
of choice. We have refreshed our company
brand, making it more relevant to existing
employees and new recruits. Linked to this
is our employee value proposition (EVP);
this is the essence of how we position
ourselves as a company with a unique set
of benefits which an employee receives in
return for the skills, capabilities and
experience they bring to Johnson Matthey.
We have begun work on our EVP and plan
to develop it further in the coming year.
Guiding our HR practices is our
people strategy, which has five pillars:
•
•
•
•
•
attracting and recruiting talent;
developing and supporting our people;
rewarding and retaining them;
embedding our culture and values; and
supporting change.
The last year has seen considerable
progress.
We have launched our first ever
JM wide global graduate development
programme. The two-year programme
has been rolled out in the UK, the US
and China, with programme managers
in each of the countries. We select high
calibre graduates from partner universities
who are deployed in one of three
disciplines – science, engineering and
operations or commercial. Graduates
work on stretch projects with defined
objectives for three eight-month rotations.
After the third rotation, we will consider
permanent placement in JM based on
what is appropriate for the next phase in
their career development. We are making
a significant investment in the programme
to make it a highly positive experience for
the new recruits in the expectation that
they will want to make their future careers
with us. Alongside this we are improving
the consistency of our global recruitment
processes and we have launched a single
recruitment website for JM. We are also
developing a global onboarding
programme for all new recruits.
To support our business and growth
ambitions, it’s important for us to ensure
our people understand the career
development opportunities that exist
across JM. We are also keen to unlock the
potential we have within the company
and ensure that all employees are
enabled to reach their career aspirations.
52
With this in mind, over the last year we
have undertaken a job classification
project to enable us to develop a new
globally consistent framework of career
paths and a common, globally applied
job grading system.
All sectors and global functions have
been working together to identify the
various different roles we have within the
organisation and to systematically classify
them into a common structure that will
operate globally across JM.
We have classified the various roles
across the organisation into:
•
•
Job families - a broad grouping of jobs
where the type of work performed
and knowledge, skills and expertise
are related (e.g. Finance); and
Job disciplines – a narrower
grouping of jobs with similar
characteristics within a given job
family (e.g. Accounting and Control
is an example of a job discipline
within the Finance job family).
This job classification forms the basis
on which CareerPath frameworks and
Global Grade systems are established.
The CareerPath framework is a tool to
help give employees better clarity on the
different career steps available in Johnson
Matthey across different functional areas.
In the past, it has been difficult for people
to know how to progress in JM because
of a lack of common CareerPaths across
our different businesses, countries
and functions.
We are piloting a new R&D CareerPath
framework that focuses on career steps
within the R&D job family. This CareerPath
highlights key accountabilities and
competencies (technical and behavioural)
that are expected at each career level in
the R&D job family so it can enable better
career aspirations, more meaningful
career conversations about opportunities
for development and how to match
ambitions with the needs and goals of
JM as a whole. Once the pilot is complete,
we will create CareerPaths in all other
job family areas within JM.
We develop employees at all levels
of our organisation so that they are
equipped with the knowledge and skills
our company needs and to improve their
career satisfaction.
With a fresh look at the JM strategic
drivers and skills needed for the future,
we are developing a new leadership
development strategy. This includes a series
of programmes designed to shift mindsets
towards those required for leading through
change. These will be targeted across
our leadership pipeline, from first time
managers to executives, and will seek to
equip leaders to deal with the full range
and context of JM’s business operations.
This past year we have launched a
new pilot development programme for
middle level leaders and redesigned the
development programme for our senior
level executives. This senior executive
programme will launch in 2018,
along with a new pilot development
programme for employees taking on
a leadership role for the first time.
As part of our strategic pillar to
develop and support our people, we are
developing an enhanced approach to
performance management under a
programme called Inspiring Performance.
The decentralisation of our sites meant
that, in the past, performance
management was handled at a local
level, with a lack of global consistency.
We are now well advanced in a
programme of improving performance
management and ensuring it is globally
consistent for our management and staff
level employees.
We are committed to inspiring,
growing and investing in our people,
cultivating a continuous feedback culture
that empowers employees and leaders to
set stretching and achievable outcomes
that meet strategic goals. The business
goals in JM, and of each of our sectors
and global functions are cascaded down
so that employees are able to link their
personal objectives to business objectives
– aligning company and individual
aspirations so that our people can see
how they can contribute to JM’s goals.
We continue to work to ensure that
our reward and benefit packages are in
line with the location markets. In the
past year, we have realigned our UK
Pension Scheme to make sure it is more
sustainable for the future.
We are working to develop our
global wellbeing framework further so
that we can support our employees in
the areas of emotional, financial, physical
and social wellbeing.
There is clear evidence that wellbeing
programmes do impact attraction and
retention and play a significant role in
ongoing employee engagement. As a
result, well designed and coherent
wellbeing programmes go beyond their
proven ability to improve healthcare risks
and are now more firmly linked to the
business metrics that are a product
of a competitive EVP.
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In the last year, we reshaped our
business into four new sectors. Change
is always unsettling to employees and
our HR team is providing support to our
people as our business transformational
change programmes are implemented.
We are taking a holistic view and
approach to managing change. We are
creating communications toolkits across
the businesses and functions to support
them in helping employees to understand
our new strategy and the reasons for
change. The toolkit breaks down the core
messages and explains how to cascade
to our people.
2
Employee engagement
The driving force behind JM is our
employees who bring our inspiring science
to life every day. Their engagement, last
measured in 2016, is evident, but we know
we can do better and have made it one of
our sustainable business goals. We plan to
ensure that Johnson Matthey is truly
inclusive, fostering employee engagement
and development within a diverse and
global workforce (goal 2).
Clear values are essential for
securing engagement. As part of our
strategy review during 2017/18, we
recognised that our previous set of values
did not fully support our new strategy and
were sometimes confusing. Following
internal research and feedback, we have
developed a refreshed set of values. They
are defined as:
•
•
protecting people and the planet;
acting with integrity;
• working together;
•
•
innovating and improving; and
owning what we do.
For each of our values, we have also
defined the four or five types of behaviour
needed to achieve them, expressed as
actions. The behaviours will help people
to know what is expected of them and
‘what good looks like’. The new values were
launched in April 2018 and a programme
of work to embed them is underway.
Engagement survey
Our first global employee engagement
survey was conducted in November 2016
and managed for us by employment
consultancy Korn Ferry Hay Group.
Overall, we scored 61% for employee
engagement and 62% for employee
enablement, slightly below the industry
average. These form the baseline for
our sustainable business goal 2.
‘Engagement’ encourages our people
to contribute actively to our success,
while ‘enablement’ measures how we
are creating an environment where
people can perform at their best.
The survey revealed ‘health and safety’
and ‘doing the right thing’ as company
strengths. However, we received mixed
ratings on clarity around our strategy
and the openness and transparency of
communications across the company.
We made these priorities for action and
have developed a far reaching, two-year
engagement programme. Our second
engagement survey will take place in
September 2018.
JM200
In 2017, the company celebrated its
200th anniversary.
Pages 56 and 57
It provided an opportunity for
employees to unite as one company to
celebrate our success and the positive
contribution we make through our
science to a cleaner, healthier world.
At the end of our anniversary year,
we held an awards ceremony at the Royal
Institution in London. The new ‘JM200
Awards’ recognised the best examples of
our people applying Johnson Matthey’s
values and vision in their everyday work.
The awards, which are set to become
an annual event, brought together over
100 shortlisted employees from around
the world in an evening of celebration
and networking, together with – most
appropriately – live science experiments.
2
Diversity and inclusion
Diversity and inclusion (D&I) forms part
of our drive towards wider employee
engagement. There is convincing research
from consultants CEB (now Gartner)
and McKinsey that companies with high
levels of diversity and inclusion see
greater employee contributions to the
organisation and experience improved
retention and morale.
We also believe that it is ethically
right and are committed to developing
a truly inclusive culture. That means
providing equal opportunities for
everyone, regardless of their ethnic
origin, age, disability, religion, gender
identity or sexual orientation.
In line with our Equal Opportunities
Policy, we recruit, train and develop
employees who are the best suited to the
requirements of the job role, regardless
of gender, ethnic origin, age, religion or
belief, marriage or civil partnership,
pregnancy or maternity, sexual
orientation, gender identity or disability.
People with disabilities can often be
denied a fair chance at work because of
misconceptions about their capabilities,
and we work to enhance their
opportunities by attempting, wherever
possible, to overcome the obstacles.
This might mean modifying equipment,
restructuring jobs or improving access to
premises, provided such action does not
compromise health and safety standards.
This is set out in our policy, which
extends to employees who have become
disabled during their employment and
who will be offered employment
opportunities consistent with their
capabilities. We would also look to make
reasonable adjustments for new recruits.
matthey.com/diversity
We have set up a D&I taskforce
and developed a D&I action plan,
which launched with JM’s D&I month
in May 2018.
The D&I action plan has five
elements: training and development;
standards; data; leadership accountability;
and recruitment. Among our targets we
plan to add awareness training for the
organisation, include D&I content in all
our leadership development courses,
make D&I part of our global induction
process and provide training in
unconscious bias for employees involved
in recruitment. We will track our progress
against this detailed D&I plan using our
own criteria with the aim of achieving
100% completion of the plan by 2025
(our sustainable business goal 2).
Employee resource groups
There is much for us to do to become a
truly diverse and inclusive organisation
but we have made a good start. We have
set up two employee resource groups
(ERGs). The first is Pride in JM (inviting
LGBT+ membership, together with ‘allies’
or supporters), which launched in
October 2017. Pride in JM is working to
create a network of LGBT+ role models
and foster inclusivity. It also aims to
become an employer of choice, with a
place in the top 100 index of UK charity
Stonewall (with whom we are partnering)
within three years.
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Our second ERG is a women’s group,
Netwo
+rked, launched in Royston, UK in
July 2017. A global group is now being
formed with the aims of networking,
personal empowerment and increasing
the proportion of women in the company
to reflect the talent pool in society.
The groups have been welcomed
by employees – “vital to both increasing
confidence and awareness of various
groups”, in the words of one employee.
Next on our list is the formation of a
disabilities employee resource group.
Gender pay gap report
In March 2018, we published our first
gender pay gap report, covering UK
employees. It showed a median gender
pay gap of 9.2%, reducing to 4.7% if pay
before any salary sacrifice deductions
for voluntary benefits is considered.
Our figures compare favourably to the
average pay gap for UK companies,
which is of 18.8%.
matthey.com/gender-pay-gap-17
We are working to close the gender pay
gap and gender imbalance through our D&I
action plan. We are also boosting our
investment in apprentice and graduate
outreach and encouraging more women
into these roles in STEM areas (science,
technology, engineering and mathematics).
Over the next year, we plan to roll out
our unconscious bias training to our ethics
ambassadors, hiring managers and the HR
function. We will also complete our global
flexible working policy and roll it out.
Ethics and compliance
A strong culture of ‘doing the right thing’
will be critical to achieving our vision and
strategy. Our aim is to eliminate ethical
lapses and breaches of compliance and in
doing so, turn our reputation for doing the
right thing to our strategic advantage.
Our ethics and compliance strategy
has two pillars: (i) promoting an ethical
culture across the company; and (ii)
implementing a compliance programme
underpinned by a framework applied to
each risk area.
One of the main ways we promote
an ethical culture at JM is through our
global code of ethics, ‘Doing the Right
Thing’, which is central to the way we act
as a company. The code is available in 22
languages and contains information and
resources that enable our employees to
make the right choices in line with
54
our values and demonstrate the highest
standards of integrity and ethical
behaviour. We plan to refresh our existing
code during 2018 in line with best practice.
We have a network of over 85 ethics
ambassadors who play an important
role in bringing our code of ethics to life,
supporting senior leaders with their
responsibilities for ethics and compliance
and promoting a good ethical culture.
In March 2018, we hosted a global
conference for our ambassadors to share
experiences, best practices and shared
challenges whilst strengthening the
ethics ambassador network.
Within Johnson Matthey we promote
a ‘speak up’ culture encouraging
everyone to speak up when they have a
concern or are unsure about something.
We encourage individuals to do this
through their local management, ethics
ambassador, or HR or legal function
wherever possible. We also provide
employees (and third parties) with an
independently run speak up helpline
(which can also be accessed online)
where concerns can be raised. This
helpline also allows individuals, where
local law permits, to remain anonymous.
The helpline is available to everyone and
not just Johnson Matthey employees.
An Ethics Panel made up of senior leaders
meets monthly to provide oversight of
investigations into all speak ups received.
The panel reports three times a year to
the board with a particular focus on
identifying themes and opportunities to
continually look to improve the way we
do things in JM.
During 2017/18, 144 speak ups were
received and investigated which, given our
size, is in line with the industry norm in
terms of volume (see charts on page 59).
We view the increasing numbers as a
positive reflection of the confidence in
and awareness of the process and many
recommendations arising from
investigations have been actioned in
our businesses.
Everyone within Johnson Matthey
has undertaken training on our global
code of ethics. Additionally, targeted
compliance training is provided to people
whose roles expose them to specific risk
areas. We regularly review our training
and communications materials and
methods for delivery to ensure they
remain relevant to the risks our business
and employees face.
In order to have an effective ethics
and compliance programme we have
developed, and continue to review, a
compliance programme framework
applied to each risk area. These risk
areas include bribery and corruption,
data protection, export controls and
sanctions, conflicts of interest, competition
/ anti-trust, financial crime (including
the new Corporate Criminal Offence of
failing to prevent the facilitation of tax
evasion), modern slavery (see pages 43
and 44 and activities regulated by the
UK Financial Conduct Authority.
Data protection is now subject to
sweeping change in Europe, thanks to the
EU General Data Protection Regulation
(GDPR), which came into force in May
2018. We have an ongoing programme
of work to ensure that we are in line with
GDPR. Upholding high standards of data
privacy and information security is a key
focus of our business and we will continue
building on this to enhance the privacy
culture throughout our organisation.
We are part way through a strategic
review of all the third party intermediaries
(TPIs) JM uses, initially looking at those
that are the highest risk. Focusing deeply
on these relationships and, where
appropriate, challenging the rationale for
them enables us both to mitigate and
better manage bribery risks associated
with using them, as well as realise
commercial benefits from cost savings
and improved direct knowledge of our
customers and how they operate.
6
Engaging with the community
We have a long tradition of community
engagement. We work with charities,
organisations and schools to help develop
the local economy, protect the
environment, promote science education
and enhance health and nutrition.
In 2017/18, we donated £680,000
to charities, a small decline on the
previous year. The major elements of
our spend were on STEM education
and on health and nutrition. We have a
policy which entitles all our permanent
employees to two days of paid leave each
year, during normal working hours, to
support projects and charities in their
local communities.
During the year, our people took
678 paid volunteering days. Using the
group average cost of an employee per
day, this is equivalent to £152,000 in
in-kind giving to our local communities.
53% of volunteers’ time was spent
supporting STEM education in local
schools, 14% was spent working on local
community development and 12% on
contributing to the education of
disadvantaged people.
Now, as part of our sustainable
business framework, we are
reinvigorating our commitment to
community investment and hope
to increase the number of sites that
are active in their local community.
We have set ourselves a formal target to
increase our volunteer work with local
communities; our 2025 goal is 50,000
cumulative volunteer days (goal 6).
We are encouraging HR teams and
general managers at our sites to promote
employee volunteering and are asking
employees themselves to identify
opportunities for local volunteering that
aligns with our strategic aims.
We have set up a new online system
on our employee intranet, MyJM, to make
it easier for employees to record their
volunteering activities. We have also
updated our Community Investment
Policy and Volunteer Guidelines.
We have continued to support the
global children’s development charity,
Plan International. Together we are
working on an education programme in
Sierra Leone to train women teachers.
In a country where 73% of girls have
dropped out of school by the age of 11
and with 92% of teachers being men,
there is an overwhelming need for
more female teachers to ensure girls
are not left behind in their education.
Working with Plan International and the
Open University, the programme is on
track and it is estimated that over
120,000 children will directly benefit
over the next ten years. In March 2017,
480 women enrolled in teacher training
college and JM has supported the cost of
their tuition fees, learning materials and
transport. So far, 476 of them have
graduated to their second year. After
their third year of training, these young
women will be qualified to teach in
primary schools. During the year we
donated £28,000 to Plan International
in support of this, and other projects.
We support employees’ fundraising
efforts for good causes and match
donations up to £1,000 per employee
per year (up to a total of £70,000 per
annum for the group as a whole). In
the last year, employees raised £38,000
for charities and JM matched their
contributions. These company-matched
contributions are included in our total
company donations figure.
Communicating with external
stakeholders
We maintain ongoing communications
with our external stakeholders and update
them on our activities through regular
publications (including this report),
our website, surveys and topic specific
meetings. We outline details of our major
stakeholders on pages 20 and 21.
We are also active members of a
number of trade associations which help
us to understand, inform and contribute
to issues and discussions that are relevant
to our stakeholders. Associations we have
worked with in 2017/18 include the UK
Chemical Industries Association, the
Diesel Technology Forum, the Society
of Motor Manufacturers and Traders,
the Association for Emission Control by
Catalyst, the International Platinum
Group Metals Association, the European
Precious Metals Federation, the Platinum
Group Metals Health Science Research
Group of the International Precious
Metals Institute in the US, Eurometaux
(which represents the European
non-ferrous metals industry) and CEFIC
(the European Chemical Industry
Council). Shareholders are an important
stakeholder group. We meet with our
major shareholders regularly, as described
in the Corporate Governance Report.
Pages 97 and 98
For investors particularly interested
in ethical and socially responsible
investments, we meet with specialists from
their organisations to discuss sustainability
and corporate social responsibility (CSR)
issues where applicable and participate in
key sustainable investment benchmarking
studies. These include the Carbon
Disclosure Project (CDP), the Dow Jones
Sustainability Index (DJSI), FTSE4Good
and Business in the Community.
In March 2017, we received an
‘AAA’ ESG rating from investment index
provider MSCI for the fifth consecutive
year. This is the highest possible rating
for a company’s risk and performance
against a range of environmental, social
and governance (ESG) factors, and
one that places us above our chemical
industry peers. We are a constituent of
the FTSE4Good UK 50 Index.
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Investment
in 2017/18
£’000
Community investment summary
39% of our sites had a site-specific local community engagement and development
plan that was active during the year. Topics included in the plans were:
%
% sites including
Community engagement topic topic in their plan
Direct expenditure
Donations to Plan International
Other corporate donations
Donations by sites to local charities
and community projects
28
272
3%
33%
380
46%
Indirect expenditure
Employee volunteering
152
18%
Total group
832
Social impact assessments, including gender impact assessments 23%
Environmental impact assessments and ongoing monitoring 64%
Public disclosure of results of environmental and social impact assessments 23%
Local community development programmes based on local communities’ needs 82%
Stakeholder engagement plans based on stakeholder mapping 27%
Broad based local community consultation committees and processes that include
vulnerable groups 32%
Works councils, occupational health and safety committees and other worker representation
bodies to deal with impacts 50%
Formal local community grievance processes 23%
55
Canada
Candiac
Chasing the Sun
For 24 hours, we followed the sun.
Sites from Melbourne in Australia to
San Diego, USA marked JM’s bicentennial
year in a way that reflected the local
culture at their site and the diversity
across the company. We captured
events in a live 24 hour broadcast whilst
employees shared their experiences
with each other through photos, videos
and social media posts.
Our vision was at the heart of the
celebrations, with many sites planting
trees to mirror our commitment to a
cleaner, healthier world.
US
Albuquerque, Alpharetta, Audubon,
Chicago, Detroit, Devens, Devon,
Downingtown, Merrillville, Newark,
North Andover, Ravenna, Riverside,
San Diego, San Jose, Savannah,
Smithfield, Tennessee, Wayne,
West Deptford, West Whiteland
Switzerland
Zurich
UK
Annan, Belasis, Brimsdown,
Cambridge, Chilton, City Office,
Clitheroe, Edinburgh,
Milton Keynes, Paddington,
Royston, Sonning, Stockton,
Swindon, Teesdale
The Netherlands
Maastricht
Italy
Turin
Germany
Redwitz, Moosburg
Mexico
Queretaro
Argentina
Pilar
Celebrating 200 years
of inspiring science
2017 was Johnson Matthey’s 200th anniversary; an impressive milestone worthy
of a unique celebration.
It was an opportunity to engage and involve our people in our rich heritage,
our strategy for growth and mark our commitment to making the world a
cleaner and healthier place.
On 19th July 2017, the 200th day of our 200th year, employees from our sites
across the globe came together as one JM.
56
Sweden
Gothenburg, Perstorp
Finland
Kotka, Turku
Russia
Krasnoyarsk
Poland
Gliwice
Israel
Tefen
Macedonia
Skopje
India
Manesar, Gurgaon,
Vadodara, Taloja
China
Beijing, Changzhou, Yantai,
Shanghai, Zhangjiagang
South Korea
Jangan
Japan
Kitsuregawa
Thailand
Bangkok
South Africa
Germiston
Malaysia
Kuala Lumpur, Nilai
Australia
Melbourne
Watch our 200th anniversary video
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Recognising JM
and its people
2017 was full of memorable events. We published a book of our history, opened
the market at the London Stock Exchange and shared historical memorabilia at
our Annual General Meeting.
We closed the year by honouring perhaps the most important part of JM: the
achievements of our people. The ‘JM200 Awards’ celebrated the incredible efforts and
successes of our employees and were a fitting way to close our 200th anniversary year.
57
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People performance data
Governance and Human Resources
As a global company, we maintain progressive HR standards backed by group policies. Our HR activities meet local statutory
requirements and we often go beyond them to recognise best practice. Our global HR policies are applied across our sites and are
supplemented by local policies. Site specific policies and procedures are explained at inductions and through staff handbooks.
Our HR policies and risks are reviewed in accordance with our governance framework, with the board responsible for
overseeing the overall people strategy. In addition, the Nomination Committee oversees talent and succession decisions and the
Remuneration Committee deals with remuneration policy.
There were no significant fines or non-monetary sanctions for non-compliance with laws and regulations during the year.
New employees by age category
Aged under 30 Aged 30 to 50 Aged over 50 Total Total
Total Male Female Total Male Female Total Male Female
Male Female
Europe 210 100
North America 114 53
Asia 111 25
Rest of World 21 6
310 209 168 377 46 28 74 465 296
167 98 37 135 40 10 50 252 100
136 175 52 227 6 0 6 292 77
27 27 13 40 0 0 0 48 19
Total group 456 184
640 509 270 779 92 38 130 1,057 492
Attendance
Levels of attendance were reduced slightly this year. The average number of days lost per employee in 2017/18 due to sickness and
unplanned absence was 5.7 days, up from 4.8 days in 2016/17. This represents 2.2% of lost time per employee in the working year.
Average number of people employed
The following tables set out the average number of people employed by Johnson Matthey and the net change in the number of
people employed during 2017/18 by geographical region and by employment contract.
Average headcount 2017/18
Permanent Temporary contract
employees employees
Male Female Total Male Female Total Total
Europe
North America
Asia
Rest of World
4,614 1,751 6,365 176 124 300 6,665
2,376 649 3,025 18 11 29 3,054
1,597 382 1,979 18 10 28 2,007
400 183 583 8 2 10 593
Total group
8,987 2,965 11,952 220 147 367 12,319
Annual change in people employed
During the year 459 people left our business through redundancy.
This included reductions in New Markets (Battery Materials)
in China and Canada, in Health in Europe and North America,
as well as reductions due to a reorganisation following the
formation of Efficient Natural Resources. We support our
employees during their redundancy transition with practical
help to find new roles, which often includes a mix of counselling
and training in job search techniques, CV preparation and
interview techniques.
Net change between average headcount 2016/17
and 2017/18
Temporary Total
Permanent contract net
employees employees change
Europe +215 +4 +219
North America +7 0 +7
Asia -172 -4 -176
Rest of World +47 +8 +55
Total group +97 +8 +105
Employee turnover by region
The high level of employee commitment and loyalty to the group continues to bring strength to our businesses. Voluntary staff
turnover was low compared to many other organisations at 9.1% (2016/17: 8.9%). The total employee turnover figure increased
slightly to 12.8% from 12.3% in 2016/17.
The following table sets out the employee turnover in 2017/18 by geographical region. The employee turnover figure is
calculated by reference to the total number of leavers during the year expressed as a percentage of the average number of people
employed during the year. The analysis does not include agency workers not directly employed by Johnson Matthey.
Voluntary
Aged under 30 Aged 30 to 50 Aged over 50 Total Employee employee
Male Female Total Male Female Total Male Female Total leavers turnover turnover
Europe 96 58 154 228 130 358 157 48 205 717 10.8% 7.9%
North America 91 31 122 162 45 207 101 32 133 462 15.1% 10.8%
Asia 98 18 116 174 47 221 11 2 13 350 17.4% 11.6%
Rest of World 9 4 13 28 5 33 0 2 2 48 8.1% 4.9%
Total group 294 111 405 592 227 819 269 84 353 1,577 12.8% 9.1%
58
Gender diversity statistics
The table below shows the gender
breakdown of the group’s employees
as at 31st March 2018.
As at %
31st March 2018 Male Female Male
%
Female
Board 6 3 67%
GMC 6 3 67%
Subsidiary
directors 95 10 90%
Senior managers 180 60 75%
New recruits 1,057 492 68%
33%
33%
10%
25%
32%
Total group 9,462 3,253 74% 26%
Some individuals are included in more than one category.
Gender of people employed
by employment type
Full time Part time
As at % % %
31st March 2018 Male Female Male
%
Female
75%
Europe 73% 27% 25%
North America 79% 21% 50%
50%
Asia 82% 18% 0% 100%
80%
Rest of World 68% 32% 20%
Total group 76% 24% 28% 72%
Percentage of people employed
by gender
As at 31st March 2018
Europe
North America
Asia
Rest of World
Total group
%
Male
71%
78%
82%
68%
%
Female
29%
22%
18%
32%
74%
26%
Female
26%
Male
74%
Trade union representation
26% of our employees (2016/17: 26%)
belong to a recognised trade union.
We have positive and constructive
relations with all the recognised trade
unions that collectively represent our
employees. The following table sets out
the average number and percentage
of employees who were covered by
collective bargaining arrangements
and represented by trade unions
by geographical region in 2017/18.
During the year no working time was
lost due to employee action.
%
Permanent
employees Represented Represented
Europe
North America
Asia
Rest of World
6,365
3,025
1,979
583
2,138
514
97
308
34%
17%
5%
53%
Total group
11,952
3,057
26%
Average number of
contractors employed
Europe
North America
Asia
Rest of World
Total group
Male
Female
Total
608
48
107
23
786
264
28
21
23
872
76
128
46
336
1,122
%
100
80
60
40
20
0
Europe
N orth
A m erica
Male
Asia
W orld
Rest of
Female
Total
group
Speak up reports
In 2017/18 there were a total of 144 speak up reports, an increase of 92% on the
75 cases in the previous year (see page 54). 63% of these were closed in the year.
We consider the increase in the number of speak ups to be a signal of the increasing
confidence in and awareness of our speak up processes since the launch of our code
of ethics in 2015.
Concern / allegation raised
Number of cases
Bribery and corruption / supply chain
Business and financial reporting
Computer, email and internet use
Confidential information and
intellectual property
Conflict of interest
Discrimination including harassment
and retaliation
Environment, health and safety
Fraud
Misconduct or inappropriate behaviour
Other or general query
Violence or threat
15
2
4
8
17
63
16
7
6
4
2
Anti-bribery and corruption
training by region
number of employees
Rest of
World
300
Asia
1,124
North
America
1,609
Europe
4,091
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Code of ethics training
by region
number of employees
Competition law training
by region
number of employees
Rest of
World
727
Asia
1,757
North
America
2,995
Europe
6,367
Rest of
World
310
Asia
1,084
North
America
1,526
Europe
3,397
59
Johnson Matthey / Annual Report and Accounts 2018
Strategic Report
Financial
performance
review
Johnson Matthey had a good year. We have made significant progress in
executing our strategy and delivered a financial performance in line with
our expectations at the start of the year.
60
Group performance review
Year ended 31st March
Reported results 2018 2017 % change
Revenue £ million 14,122 12,031 +17
Operating profit £ million 359 493 -27
Profit before tax (PBT) £ million 320 462 -31
Earnings per share (EPS) pence 155.2 201.2 -23
Ordinary dividend per share pence 80.0 75.0 +7
Year ended 31st March % change,
Underlying1 performance 2018 2017 % change constant rates2
Sales excluding precious metals (Sales) £ million 3,846 3,578 +8 +7
Operating profit £ million 525 513 +2 –
Profit before tax £ million 486 482 +1 -1
Earnings per share pence 208.4 209.1 –
2017/18 highlights
Underlying performance
•
•
•
•
•
•
•
Sales grew 7% at constant rates2, slightly ahead of our
expectations with 8% growth in the second half.
Underlying operating profit was flat at constant rates,
impacted by the US post-retirement medical plan credit
(PRMB) in the prior period. Excluding this, operating profit
grew 4%3.
Underlying EPS was flat as translational foreign exchange
benefits were offset by higher net finance charges and a
higher underlying tax rate.
Free cash flow of £136 million (2016/17: £230 million)
was impacted by the expected working capital outflow.
Average working capital days excluding precious metals
reduced by 7 days for the year to 62 days.
Return on invested capital (ROIC) decreased from 18.2% to
16.4%, mainly due to an increase in the UK pension fund asset
and higher precious metal working capital through the year.
Strong balance sheet with net debt of £679 million; net debt
(including post tax pension deficits) to EBITDA of 1.1 times.
Reported results
•
•
•
•
•
Reported revenue was up 17% primarily driven by higher
precious metal prices.
Reported operating profit of £359 million. This includes
major impairment and restructuring charges of £90 million
(see page 71 for details) and a £50 million charge relating
to a legal settlement as announced in February 2018.
Reported EPS was therefore down 23%, reflecting the lower
operating profit, partly offset by a £24 million tax credit in
relation to the change in US tax legislation.
Cash inflow from operating activities of £386 million.
Recommended final dividend up 7% to 58.25 pence
reflecting continued confidence in our prospects.
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Notes:
1 Underlying is before amortisation of acquired intangibles, major impairment and restructuring charges, profit or loss on disposal of businesses, gain or loss on significant legal proceedings
together with associated legal costs, significant tax rate changes and, where relevant, related tax effects. For reconciliation see note 4 on page 153.
2 Unless otherwise stated, sales and operating profit commentary refers to performance at constant rates. Growth at constant rates excludes the translation impact of foreign exchange
movements, with 2016/17 results converted at 2017/18 average exchange rates.
3
See page 72 for further details of performance excluding the 2016/17 US post-retirement medical plan credit.
For definitions and reconciliations of other non-GAAP measures see page 191.
Sales by sector
New Markets
8%
Health
6%
Clean Air
62%
Efficient
Natural
Resources
24%
Underlying operating profit
excluding corporate
New Markets
3%
Health
8%
Clean Air
61%
Efficient
Natural
Resources
28%
61
Johnson Matthey / Annual Report and Accounts 2018
Strategic Report
Sector performance review
Performance summary by sector
Clean Air
Efficient Natural Resources
£2,454m £349m
Sales1 +9%2 Operating profit3 +7%2
£956m £158m
Sales1 +4%2 Operating profit3 -4%2
Sales1 by business
Sales1 by business
HDD
On Road
Asia
5%
Other
2%
LDV
Americas
15%
Diagnostic Services
6%
Advanced Glass
Technologies
9%
Catalyst
Technologies
59%
LDV Europe
35%
Pgm
Services
26%
HDD
Europe
13%
HDD
Americas
16%
LDV Asia
14%
Heavy Duty Diesel (HDD)
34%
Light Duty Vehicles (LDV)
64%
• A global leader providing catalysts to reduce harmful
emissions from vehicles
• Light Duty Vehicles – catalysts for gasoline and diesel
light duty vehicles, including hybrids
• Heavy Duty Diesel – catalyst systems for diesel
powered trucks and buses and non-road machinery
• Other – catalyst systems for stationary equipment
Customer profile
• Car companies
• Heavy duty truck and engine manufacturers
• Local Chinese producers
• Global customer base
Major competitors
• BASF • Umicore • Cataler
Margin 14.2%
Return on invested capital 30.8%
Employees 5,470
1
Sales excluding precious metals.
2 At constant rates (see note 2 on page 61).
3 Underlying (see note 1 on page 61).
62
• Creating value from efficient use and transformation
of critical natural resources including oil, gas, biomass
and platinum group metals (pgms)
• Catalyst Technologies – manufactures speciality
catalysts and additives, licenses process technology and
delivers services to the chemical and oil & gas industry
• Pgm Services – marketing, distribution, refining
and recycling of pgms, fabricates products using
precious metals and related materials and
manufactures pgm chemicals
• Advanced Glass Technologies – precious metal pastes
and enamels primarily for the automotive industry
Customer profile
• JM businesses and their customers
• Chemical companies
• Engineering contractors
• Oil and gas companies
• Industrial pgm users
• End of life autocatalyst collectors
• Automotive industry suppliers
Major competitors
• Haldor Topsøe • Albemarle • Umicore
• Clariant • Grace • Ferro
• BASF • UOP • DuPont
• Lurgi • Heraeus
Margin 16.5%
Return on invested capital 12.0%
Employees 3,711
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Health
New Markets
£247m £44m
Sales1 +6%2 Operating profit3 -13%2
£312m £17m
Sales1 -2%2 Operating profit3 +34%2
Sales1 by business
Sales1 by business
Innovators
30%
Generics
70%
• Leading provider of complex chemistry solutions to
generic and innovator pharmaceutical companies
• Develops and manufactures active pharmaceutical
ingredients (APIs) for a variety of treatments
• Operates in the large and growing outsourced small
molecule API market
• Providing solutions to the complex problems of both
generic and innovator companies
Customer profile
• Multiple small and large branded generic
pharmaceutical companies
• Innovative pharmaceutical companies developing
novel products
Major competitors
• Noramco • Cambrex • Hovione
• Francopia • AMRI • Almac
• Siegfried • Alcami
Margin 18.0%
Return on invested capital 8.4%
Employees 964
Other
12%
Alternative
Powertrain
50%
Life Science
Technologies
14%
Medical
Device
Components
24%
• Accessing new areas of potential growth aligned to
global priorities of cleaner air, improved health and
more efficient use of natural resources
• Alternative Powertrain – provides battery materials
for automotive applications, battery systems for a
range of applications and fuel cell technologies
• Medical Device Components – leverages our science
and technology to develop products found in devices
used in medical procedures
• Life Science Technologies – provides advanced
catalysts to the pharmaceutical and agricultural
chemicals markets
Customer profile
• Automotive and heavy duty vehicle companies
• Lithium-ion cell manufacturers
• Fuel cell manufacturers
• High performance cordless tool and niche transport manufacturers
• Medical device companies
• Pharmaceutical, fine chemical and agrochemical companies
Major competitors
• Umicore • BMZ • Heraeus
• BASF • WL Gore • Evonik
• LG • 3M
Margin 5.3%
Return on invested capital 8.1%
Employees 1,714
63
Johnson Matthey / Annual Report and Accounts 2018
Strategic Report
Operating results by sector
Clean Air
Year ended 31st March
2018 2017
restated1 % change,
£ million £ million % change constant rates
Sales
LDV Europe 855 828 +3 -
LDV Asia 351 338 +4 +4
LDV Americas 358 334 +7 +9
Total Light Duty Vehicle (LDV) Catalysts 1,564 1,500 +4 +3
HDD Americas 395 330 +20 +22
HDD Europe 320 259 +23 +20
HDD Asia 131 93 +40 +42
Total Heavy Duty Diesel (HDD) Catalysts 846 682 +24 +24
Other – stationary 44 42 +7 +6
Total sales 2,454 2,224 +10 +9
Underlying operating profit 349 318 +10 +7
Margin 14.2% 14.3%
Margin excl. PRMB 14.2% 14.0%
Return on invested capital (ROIC) 30.8% 30.7%
1 Restated to reflect a change in group structure.
Strong sales growth led by double digit growth in HDD catalysts in every region
•
•
•
•
•
Light Duty Europe sales were flat but with a stronger second half. Very strong growth in gasoline offset by a decline in diesel.
Light Duty Americas sales growth ahead of vehicle production driven by a favourable mix.
Light Duty Asia sales growth ahead of vehicle production helped by higher substrate content.
Sales of HDD catalysts were strong across the board and ahead of truck production, helped by a strong Class 8 market, ramp up
of business wins in Europe and strong production growth in Asia.
Excluding the US post-retirement medical benefit (PRMB) plan credit in the prior period, operating profit grew by 9% with
margin improving by 0.2 percentage points to 14.2%.
Light Duty Vehicle (LDV) Catalysts
Our LDV Catalyst business provides
catalysts for cars and other light duty
vehicles powered by gasoline and diesel.
The business grew ahead of global
vehicle production.
In Europe, where diesel accounts for
approximately 80% of our LDV business,
we maintained sales as significant
growth in gasoline offset slightly lower
sales in diesel.
Sales of diesel catalysts were
down 4%, mainly reflecting the impact
of lower substrate costs which are
passed through directly to customers.
Volume and sales growth excluding
substrate were down 1%, broadly in line
with market production which was flat
year on year. One customer delayed a
diesel platform launch from December
2017 to March 2018, which has affected
the phasing of our share gains though
we remain on track to reach circa 65%
by March 2019.
In Western Europe, diesel accounted
for 42% of new car sales in 2017/18
compared with 49% in the last financial
year. Light duty commercial vehicles
remain overwhelmingly diesel today. When
these are included the overall share of
diesel sales in Western Europe was 48% for
2017/18, compared with 54% in 2016/17.
Diesel’s proportion of new car sales has
continued to decline and in April 2018
represented 37% of sales. These trends
do not change our assumptions of a
diesel share of around 25% of total light
duty vehicles and 20% of cars by 2025.
Across Europe, production of
diesel light duty vehicles for 2017/18
was 10.1 million out of a total of
22.3 million, representing 45%. For
2016/17, 10.1 million diesel light duty
vehicles were produced out a total of
21.8 million, representing 46%.
64
Sales of catalysts for gasoline
vehicles were up 23%, well ahead of
the 4% growth in market production.
We achieved volume growth ahead of
market production and saw an improved
sales mix as we applied our science to
help customers with solutions for larger
and more complex platforms.
As we have outlined, our growth in
LDV Europe will be driven, in both diesel
and gasoline, by a combination of share
gains and increasing value per catalyst
over the next few years. Sales in our Asia
LDV catalyst business also grew ahead
of market production driven by higher
substrate content in China, which is
passed directly to customers. Excluding
substrate, our sales in Asia were flat.
Sales in our Americas LDV catalyst
business grew well ahead of market
production led by significant growth in
sales of catalysts for diesel platforms,
which have a higher value.
Heavy Duty Diesel (HDD) Catalysts
Our HDD business provides catalysts for
trucks, buses and non-road equipment.
The business had a very strong year,
growing significantly ahead of market
production in Europe and Asia and
benefiting from strong production growth
in the Americas, particularly for large
(Class 8) trucks.
Our Americas HDD catalyst business
saw very strong growth of 22% led by the
continued recovery of the Class 8 truck
market. Sales of catalysts for Class 8
trucks were in line with the 30% growth
in production over the year. We expect
the current high levels of production to
continue until the end of the 2018
calendar year with year on year growth
slowing significantly as it laps a higher
base. Catalyst sales to smaller Class 4 to 7
trucks grew slightly.
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Estimated LDV sales and production (number of light duty vehicles)*
Year ended 31st March
2018 2017 %
millions millions change
North America Sales 20.8 21.1 -1
Production 17.0 17.9 -5
Total Europe Sales 20.7 20.2 +3
Production 22.3 21.8 +2
Asia Sales 44.1 43.1 +2
Production 49.3 48.4 +2
Global Sales 93.6 92.3 +1
Production 94.6 93.3 +1
* Source: LMC Automotive.
Estimated HDD truck sales and production (number of trucks)*
Year ended 31st March
2018 2017 %
thousands thousands change
North America Sales 540 479 +13
Production 540 457 +18
Total Europe Sales 457 425 +7
Production 593 565 +5
Asia Sales 2,019 1,650 +22
Production 2,092 1,710 +22
Global Sales 3,112 2,633 +18
Production 3,321 2,801 +19
* Source: LMC Automotive.
Our European HDD catalyst business
Our Asian HDD catalyst business
continued to outperform, growing sales
by 20% in a market with only a 5%
increase in truck production. This
outperformance was driven by the ramp
up of production from business wins in
the last financial year and a continued
increase in the proportion of our sales
related to higher value products, both
coated and extruded.
continues to grow rapidly from a small
base. Sales in China increased by more
than 50%, led by high levels of truck
production as the impact of loading
limits continued to push demand for
more trucks and an increase in the
catalyst value per vehicle.
Operating profit
ROIC
Outlook
Return on invested capital was
maintained at 30.8%.
Operating profit grew by 7% and margin
was broadly maintained. Excluding the
US post-retirement medical benefit
plan credit in the prior period, margin
improved by 0.2 percentage points.
Margin was negatively impacted by an
adverse platform mix in European Light
Duty but this was more than offset by
benefits from transactional foreign
exchange and from operational gearing
in our Americas HDD business given the
strong sales growth.
Clean Air is expected to deliver a strong
2018/19 as significant share gains in
Light Duty Europe come through. We will
mitigate the additional costs from serving
these share gains through increased
efficiency in our manufacturing footprint
and processes. We had previously
expected that margin would be
negatively impacted by up to one
percentage point but we now expect
to maintain margin in 2018/19.
65
Johnson Matthey / Annual Report and Accounts 2018
Strategic Report
Efficient Natural Resources
Year ended 31st March
2018 2017
restated1 % change,
£ million £ million % change constant rates
Sales
Catalyst Technologies 564 542 +4 +3
Pgm Services 253 234 +8 +9
Advanced Glass Technologies 82 85 -4 -6
Diagnostic Services 57 58 -2 -2
Total sales 956 919 +4 +4
Underlying operating profit 158 163 -3 -4
Margin 16.5% 17.7%
Margin excl. PRMB 16.5% 17.2%
Return on invested capital (ROIC) 12.0% 13.4%
1 Restated to reflect a change in group structure.
Good sales growth with efficiencies driving margin improvement in the second half
•
•
Sales growth driven by strong demand for catalyst refills and growth in Pgm (Platinum group metal) Services partly offset by the
expected significant decline in licensing income.
Excluding the US post-retirement medical benefit plan credit in the prior period, operating profit declined 2% and margin was
only 0.7 percentage points lower at 16.5% despite the significant decline in licensing experienced in the year.
• We are starting to see the benefits of actions we have taken, including restructuring, destocking and product rationalisation,
to improve the quality of the business.
Catalyst Technologies
Sales in our Catalyst Technologies
business, which licenses technology
and manufactures speciality catalysts
and additives for the chemicals and oil
and gas industry, grew 3%. Excluding
licensing, the business grew strongly,
outperforming its markets in aggregate.
As expected we saw a significant
decline in licensing income. Licensing
activity remained subdued with limited
new plant builds, especially for the
technologies we license. We do not
anticipate any further decline in the
business and whilst we see some early
signs of improved activity in certain
markets (e.g. methanol), we do not
expect a material recovery in licensing
income in the near term.
Sales of catalyst first fills were stable,
supported in the second half by the
increased activity in methanol driven
by increased industry capacity coming
on stream.
66
Growth was led by high single
digit sales growth in refill catalysts and
additives. Sales of refill catalysts to
ammonia plants were strong, with
customers having delayed turnarounds
in 2016/17. Additives sales also grew
strongly, mainly driven by deteriorating
feed quality which resulted in increased
demand for environmental additives
to remove SOx (oxides of sulphur)
impurities. Sales of refill catalysts to
methanol and hydrogen plants were
lower due to the cyclicality of our
customers’ orders.
Pgm Services
Sales in Pgm Services increased 9%.
Our Pgm Refining and Recycling business
benefited from higher pgm prices with
average palladium and rhodium prices
up 39% and 79% respectively, while
platinum prices decreased 6%, compared
to 2016/17. Volumes were up, supported
by good demand for refining of
autocatalyst scrap in North America,
driven in part by higher metal prices.
Our precious metal management activities
benefited from the volatility in the
precious metal prices over the year.
Sales of chemical products also
grew strongly, supported by growth in
our Clean Air Sector, which uses pgm
materials in its catalyst products. Sales of
industrial products containing pgms were
down in the year as the business focused
on rationalising its product portfolio.
Advanced Glass Technologies
Sales in our Advanced Glass Technologies
business, which primarily provides black
obscuration enamels and silver paste for
automotive glass applications, declined
despite a slight increase in global car
production. The decline was principally
due to destocking in the supply chain in
China following a build-up of inventory
at the end of the 2016 calendar year.
Diagnostic Services
Sales in Diagnostic Services were broadly
flat as increased activity in the global
reservoir market, leading to higher sales
of our tracer technologies, was offset by
lower equipment sales.
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Operating profit
ROIC
Outlook
Return on invested capital declined
1.4 percentage points to 12.0%
impacted by higher precious metal
working capital especially through the
second half. This was driven by increased
precious metal prices and reduced
liquidity in these markets.
In 2018/19, we expect slight sales
growth and we will continue to improve
the quality of our business as we focus
our resources on areas of higher future
growth. Operating profit will grow ahead
of sales. In addition, we will also benefit
from £7 million of cost savings in relation
to the restructuring programme started
in 2017/18.
As expected, operating profit and
margin declined. Excluding the
US post-retirement medical benefit plan
credit in the prior period, margin was
down by 0.7 percentage points. In line
with our strategy, we made significant
progress in improving the efficiency and
quality of our business. This came with
some additional costs in the period,
principally in relation to destocking.
Additionally, as expected, licensing
income was significantly down. These
more than offset the benefit of higher
precious metal prices, transactional
foreign exchange and the delivery of
the expected cost savings.
Health
Year ended 31st March
2018 2017
restated1 % change,
£ million £ million % change constant rates
Sales
Generics 173 174 – +1
Innovators 74 62 +19 +20
Total sales 247 236 +5 +6
Underlying operating profit 44 52 -14 -13
Margin 18.0% 21.9%
Margin excl. PRMB 18.0% 20.9%
Return on invested capital (ROIC) 8.4% 10.5%
1 Restated to reflect a change in group structure.
Good sales growth but operating profit impacted by inefficiencies in manufacturing
•
•
•
Sales growth driven by active pharmaceutical ingredients (APIs) for innovators and non-controlled generics, but partly offset
by lower sales of controlled generic APIs.
Excluding the US post-retirement medical benefit plan credit in the prior period, operating profit declined 9% and margin was
2.9 percentage points lower at 18.0% as the benefits of improved pricing and increased profit shares were more than offset by
higher manufacturing costs.
As we build our platform for break out growth, we started to optimise our manufacturing footprint, including developing our
new plant in Annan, UK, and announcing the closure of our Riverside, US plant. This optimisation has associated costs in the
short term including higher operating costs in Annan and inventory write downs as we drive efficiency across sites.
Generics
In our Generics business, where we
develop and manufacture generic APIs
for a variety of treatments, sales were flat
with a mixed performance in the business.
Sales of controlled APIs were down.
Our speciality opiate sales grew strongly
led by customer orders ahead of an
anticipated product launch. However, this
was offset by lower sales in relation to
ADHD APIs in the US and to bulk opiates
in Europe. Our sales of ADHD APIs were
impacted by the end of a profit share
agreement during the year along with
increased competition in the US market
which continued from the second half
of 2016/17.
Non-controlled APIs grew strongly,
driven primarily by an increased profit
share contribution from dofetilide,
which was launched by our customer
in June 2016. This remained the only
true generic on the market throughout
2017/18 but two competitors have now
received US Food and Drug Administration
(FDA) approval and are expected to launch
in the first half of 2018/19. This will impact
our sales and operating profit in 2018/19.
We invested £16 million in the year
on our new API product pipeline. This
development of a broader, deeper product
portfolio continued in line with our plans to
scale the business with three submissions
for regulatory approval within the year.
Innovators
Sales in our Innovators business grew
strongly. This was mainly driven by
improved pricing and volumes of APIs
for branded drugs in commercial
production. We continue to invest in
growing our innovator product pipeline
utilising our chemistry strengths to
develop complex APIs for our customers.
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Johnson Matthey / Annual Report and Accounts 2018
Strategic Report
Operating profit
ROIC
Outlook
Return on invested capital declined
2.1 percentage points to 8.4% driven
by the lower operating profit.
Operating profit, excluding the US
post-retirement medical benefit plan
credit in the prior period, was down 9%
and margin declined 2.9 percentage
points. Improved pricing and increased
profit shares benefited margin. However,
these were more than offset by additional
costs as we optimise our manufacturing
footprint, including higher operating
costs associated with our plant in Annan,
UK coming on stream and inventory
write downs as we drive efficiency
across sites.
In 2018/19, sales in our Health Sector are
expected to be broadly stable. However,
operating profit will be down, particularly
in the first half. Several API products with
high margin or profit sharing agreements
move into decline in 2018/19, reflecting
normal product lifecycles of generics,
while launches of new API products only
have a small contribution in the year.
The optimisation of our manufacturing
footprint partly mitigates this decline,
as it will generate a small net benefit in
2018/19 and a significant benefit once
Annan is fully operational in 2020/21.
New Markets
Year ended 31st March
2018 2017
restated1 % change,
£ million £ million % change constant rates
Sales
Alternative Powertrain 156 160 -2 -7
Medical Device Components 74 69 +8 +8
Life Science Technologies 45 48 -7 -8
Other 37 31 +18 +19
Total sales 312 308 +1 -2
Underlying operating profit 17 12 +37 +34
Margin 5.3% 4.0%
Margin excl. PRMB 5.3% 3.3%
Return on invested capital (ROIC) 8.1% 6.2%
1 Restated to reflect a change in group structure.
Lower LFP sales led to a small sales decline; significant progress in developing eLNO
•
•
•
Significant decline of lithium iron phosphate (LFP) battery materials was partially offset by strong growth in fuel cells and
Medical Device Components.
Excluding the US post-retirement medical benefit plan credit in the prior period, operating profit grew by 60% reflecting
comparison against a £5 million impairment charge in the second half of last year.
Significant progress in developing eLNO and our strategy to commercialise this market leading next generation product.
68
Alternative Powertrain
Operating profit
Operating profit grew by 34%, helped
by comparison against a £5 million
impairment charge last year. Excluding
this, operating profit was flat as strong
growth in medical device components
and improved profitability in fuel cells
was offset by the decline in LFP sales and
by increased development costs for our
eLNO battery material.
ROIC
Return on invested capital increased to
8.1% reflecting the improvement in
operating profit.
Outlook
New Markets is expected to deliver sales
and operating profit growth in 2018/19
led by continued growth in fuel cells and
Medical Device Components and a
stronger year for battery systems.
Our Alternative Powertrain business
provides battery materials for automotive
applications, battery systems for a range
of applications and fuel cell technologies.
Sales were down 7% as the
decline in LFP battery material sales
more than offset significant growth
in fuel cell products. As expected, the
business grew sales in the second half
following stronger orders for battery
system products.
Sales of our LFP battery materials
continue to be subdued as the number of
platforms we serve is significantly lower
than in previous years. This primarily
reflects changes in electric vehicle tax
incentives in China which has led to
increased substitution of LFP by high
energy materials. While a recovery in our
LFP sales is expected in the medium term,
led by demand for our next generation
LFP for a range of higher value hybrid
applications, we do not see a recovery
in the near term given the current
competitive landscape and price points.
We continue to make significant
progress in the development of our
ultra-high energy density battery material,
eLNO, as discussed on pages 8 and 10.
Sales of fuel cell products grew
by over 50% in the year, helped by
increased volumes to stationary
applications for existing and new
customers. Sales of battery system
products were flat following a strong
second half as expected.
Medical Device Components
Our Medical Device Components business
leverages our science and technology to
develop products found in devices used
in medical procedures. Sales growth was
strong across product areas, including
for example, components for cochlear
implants to aid hearing. Growth was
driven by customer growth as demand for
our products across the world continues
to expand.
Life Science Technologies
Our Life Science Technologies business
provides advanced catalysts to the
pharmaceutical and agricultural
chemicals markets. As expected, sales
were lower in the period reflecting lower
sales to two large customers.
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Johnson Matthey / Annual Report and Accounts 2018
Strategic Report
Financial review
Introduction
Johnson Matthey delivered results in line with expectations in
2017/18. At constant rates, sales grew 7% and underlying
operating profit was flat. Further aspects of the group’s financial
performance in 2017/18 are outlined below.
This was 4% lower than last year, reflecting more focused
and disciplined investment into areas of higher potential return.
Key areas of spend included next generation technologies in
Clean Air, our Health API product pipeline and development of
our eLNO battery material.
Corporate
In line with our guidance, corporate costs in the period were
£43 million which was an increase of £11 million from
2016/17. This was driven by additional spend on central
programmes that will deliver operational excellence and
efficiency across the group, including rolling out the global
procurement programme, and higher legal costs.
Corporate costs are expected to be higher in 2018/19
reflecting further investment in group efficiency programmes
and our IT systems.
Research and development (R&D)
We invested £193 million on R&D in the period, including
£18 million of capitalised R&D, representing 5% of sales.
Foreign exchange
The calculation of growth at constant rates excludes the impact
of foreign exchange movements arising from the translation of
overseas subsidiaries’ profit into sterling (see note 2 on page 61).
The group does not hedge the impact of translation effects on the
income statement.
The principal overseas currencies, which represented 86%
of non-sterling denominated underlying operating profit in the
year ended 31st March 2018, were:
Share of 2017/18 Average exchange rate
non-sterling denominated Year ended 31st March
underlying operating profit 2018 2017 % change
US dollar 38% 1.328 1.308 +2
Euro 35% 1.134 1.191 -5
Chinese renminbi 13% 8.79 8.79 –
70
Anna Manz
Chief Financial Officer
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We had a good year, delivering
results in line with our
expectations at the start
of the year
In our first half, sterling decreased in value against
most major currencies compared to the half year ended
30th September 2016. However, this partly reversed in the
second half of the year especially in relation to the US dollar.
This meant that overall the impact of exchange rates increased
sales and underlying operating profit for the year as a whole by
£33 million and £9 million respectively following an £86 million
and £18 million benefit respectively in our first half.
If current exchange rates (£:$ 1.354, £:€ 1.143, £:RMB 8.62)
are maintained throughout the year ending 31st March 2019,
foreign currency translation will have a negative impact of
approximately £6 million on underlying operating profit. A one
cent change in the average US dollar and euro exchange rates
each has an impact of approximately £2 million and £2 million
respectively on full year underlying operating profit and a ten
fen change in the average rate of the Chinese renminbi has an
impact of approximately £1 million.
Pgm prices
Higher average pgm prices benefited operating profit by around
£15 million in the year in Efficient Natural Resources.
Reconciliation of underlying operating profit to
operating profit
Year ended 31st March
2018 2017
£ million £ million
Underlying operating profit 525 513
Amortisation of acquired intangibles1 (19) (20)
Major impairment and restructuring charges1 (90) –
Loss on disposal of businesses1 (7) –
Loss on significant legal proceedings1 (50) –
Operating profit 359 493
1
For further detail on these items please see notes 5 to 8 on pages 153 and 154.
Major impairment and restructuring costs
We have taken restructuring and impairment charges of
£90 million in the year, as we execute our strategy and build
our platform for future growth. Cash spend was £13 million
and in 2018/19 cash spend on restructuring is expected to be
£10 million.
The implementation of our group restructuring programme
resulted in costs of £43 million, which was below our previous
guidance of £50 – 65 million. This programme delivered
£12 million of cost savings in 2017/18. We remain on track
to deliver around £25 million of annualised cost savings.
In March 2018 we notified employees at our Health Sector
Riverside, US facility of our intention to close the plant, as we
continue our strategic focus on speciality, low volume, complex
APIs. The closure of Riverside led to a charge of £36 million.
We expect the plant to cease production by the end of the first
half of 2018/19. This is a key part of our plan to optimise our
Health manufacturing footprint, which will deliver a small net
benefit in 2018/19.
We have also impaired goodwill by £11 million relating to
our Water Technologies business within New Markets reflecting
lower growth assumptions for this business.
Impairment and Associated total
£ million restructuring charge cash costs
Group restructuring programme 43 19
Health – Closure of Riverside, US 36 4
New Markets - Impairment of Water 11 –
Total 90 23
Loss on disposal of businesses
On 31st January 2018, the group sold its UK automotive battery
systems business for net proceeds of £5 million which resulted
in a loss on sale of £7 million. This is excluded from underlying
operating profit.
Legal settlement
Finance charges
As announced in February 2018, a lawsuit against a group
company, Johnson Matthey Inc. was settled on mutually
acceptable terms with no admission of fault. Under the
settlement agreement, we have recognised a charge of
£50 million in connection with resolution of the lawsuit.
This charge has been excluded from underlying operating
profit for the year ended 31st March 2018.
Net finance charges in the year amounted to £38 million,
up from £31 million in 2016/17. This was the result of higher
precious metal funding costs.
We anticipate that net finance charges will be slightly
higher in 2018/19 due to rising US interest rates and higher
borrowing costs as we expand in China. These will be only partly
offset by lower precious metal funding costs.
The five year record can be found online at:
matthey.com/five-year-record
71
Johnson Matthey / Annual Report and Accounts 2018
Strategic Report
Taxation
2016/17 US PRMB
The effective tax rate on reported profit for the year was 6.9%,
a reduction of 9.8% from 2016/17.
The lowering of the US federal tax rate led to a revaluation
of our US deferred tax assets and liabilities, which has resulted in
a £24 million non-cash benefit in the income tax expense line
in the income statement for the year ended 31st March 2018.
Of this, £23 million has been excluded from the tax on
underlying profit.
Tax on underlying profit was 17.7%, an increase of 0.7%
from 2016/17.
We currently expect the tax rate on underlying profit for
the year ending 31st March 2019 to be around 16%, due to
changes in the US tax legislation.
Our approach to tax
Johnson Matthey has developed a reputation over the last
200 years for integrity and our people take pride in doing the
right thing across all aspects of our business. These principles
underpin our approach to the management of tax.
We want to be clear and open on our approach so that our
stakeholders understand it. Today we have operations in over
30 countries and, for each of those countries, we endeavour to
pay our fair share of tax. We follow the laws of the relevant
country and our group tax strategy so that we pay the correct
and appropriate amount of tax at the right time.
Profit growth for the period was impacted by the comparison
against a one-off gain of £17 million mainly following the
implementation of an inflation cap on the US post-retirement
medical benefit (PRMB) plan. The table below shows the
impact of this by sector:
Year ended 31st March 2017
£ million US PRMB gain
Clean Air 6
Efficient Natural Resources 5
Health 3
New Markets 2
Corporate 1
Total 17
The table below shows the performance excluding the impact of
the PRMB:
% change, at constant rates,
Adjusted underlying operating profit growth excl. PRMB 1
Clean Air +9
Efficient Natural Resources -2
Health -9
New Markets +60
Group +4
Through implementation of our tax strategy we plan to:
1 Excludes the translational FX impact on the PRMB as the impact is immaterial.
•
•
•
•
Optimise global tax incentives and exemptions, such as
those which support the research and development of our
next generation of sustainable technologies. We will only
engage in tax planning which is supported by a clear
commercial rationale.
Have clear and consistent tax policies and procedures to
support our business strategy. All our tax policies and
guidelines are managed and maintained by our
professional tax function which is supported by external
advisers. This ensures compliance and allows us to properly
respond to global tax changes and developments.
Proactively identify, evaluate, manage and monitor tax risks
arising from our business operations to ensure they remain
in line with the group’s risk appetite, seeking external
advice where necessary.
Ensure that all tax returns are accurate, complete and are
submitted in a timely manner through the activation of a
thorough tax risk compliance management process.
• Maintain open, positive and cooperative relationships with
governments and global tax authorities.
We also partake in constructive discussions on taxation policies
that are relevant to our business. The board approves our tax
strategy each year and reviews compliance against it on a
regular basis. That way, our strategy will encompass any learning
and remain relevant and consistent with our values. The tax
strategy satisfies the requirements of UK Finance Act 2016.
In line with our code of ethics and commitment to doing
the right thing, together with the requirements of Part 3 of
The Criminal Finances Act 2017, we are also taking steps to
put in place adequate procedures to prevent the facilitation
of tax evasion.
72
Post-employment benefits
IFRS – accounting basis
At the year end the group’s net post-employment benefit
position, after taking account of the bonds held to fund the UK
pension scheme deficit, was a surplus of £190 million, up from
a surplus of £63 million at 31st March 2017. This increase in
the surplus mainly reflects a reduction in obligations in the UK
plan due to a 20 basis point increase in the real (after inflation)
discount rate caused by rising corporate bond yields and falling
market-implied inflation.
The cost of providing post-employment benefits in the year
was £69 million, an increase of £23 million, mainly as a result
of the impact of the £17 million one-off credit in the prior year
in relation to the implementation of an inflation cap in the US
post-retirement medical plan.
Actuarial – funding basis
The UK pension scheme has a legacy defined benefit career
average section which was closed to new entrants on
1st October 2012 when a new defined benefit cash balance
section was opened.
The last triennial actuarial valuation of the career average
section as at 1st April 2015 revealed a deficit of £69 million, or
£28 million after taking account of the future additional deficit
funding contributions from the special purpose vehicle set up in
January 2013. The latest valuation update of this section as at
1st April 2017 revealed a deficit of £67 million, or £22 million
after taking account of the special purpose vehicle.
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During the year a pension increase exchange exercise was
conducted whereby current retirees were invited to exchange an
inflationary-linked pension for a higher non-increasing pension.
The last triennial actuarial valuation of the cash balance
section as at 1st April 2015 revealed a surplus of £2 million
with the latest update as at 1st April 2017 showing a deficit
of £3 million.
Improvements in efficiency and better control of working
capital have driven a reduction in working capital days as sales
have grown. Excluding precious metal working capital days have
improved to 50 days from 54 days at 31st March 2017. Average
working capital days excluding precious metal decreased from
69 days to 62 days. Our target is for working capital excluding
precious metal to be in the 50 to 60 day range.
The latest actuarial valuations of our two US pension
schemes showed a deficit of £11 million at 30th June 2017
up from a £2 million deficit at 30th June 2016.
The deterioration in the funding position of our defined
benefit pension schemes is mainly due to a reduction in gilt
yields and in the UK is also due to an increase in inflationary
expectations, both of which increased the value placed on
the liabilities.
Capital expenditure
Capital expenditure was £217 million for the year ended
31st March 2018, 1.4 times depreciation and amortisation
(excluding amortisation of acquired intangibles). In the year,
key projects included:
•
•
•
•
A new Clean Air manufacturing plant in Poland to support
demand from tightening legislation and the significant
share gains made in European Light Duty diesel while also
enhancing our efficiency and operating flexibility.
Continued investment in a new pgm catalyst plant in
Germany to meet future demand for a range of products
in our Catalyst Technologies business.
Investment in our Health manufacturing and development
facilities in Annan, UK and continued investment in our
Health API product pipeline.
Upgrading our core IT business systems to drive efficiency
across the group.
Capital expenditure was below our previous guidance of
£285 million for the year due to more rigorous capital allocation
and lower than planned spend on our Poland Clean Air plant
caused by permitting delays.
Capital expenditure for 2018/19 is expected to be around
£390 million as our investments into growth projects increases.
Key projects include:
•
•
•
Clean Air plants in Poland and China to meet the growing
demand for our technology.
Investment in our eLNO demonstration and commercial
plants as we commercialise our market leading product.
Upgrading our core IT business systems.
Depreciation and amortisation (excluding amortisation of
acquired intangibles) is expected to increase by around
£7 million in 2018/19 primarily as we start depreciation
of our investment in upgrading our core IT systems.
Free cash flow and working capital
Free cash flow was £136 million. Within this, working capital
outflows of £158 million were impacted by a precious metal
outflow of £84 million driven by higher precious metal prices
and volumes, and non-precious metal related outflows of
£64 million.
Dividend
The board has recommended an increase of 7% in the final
dividend to 58.25 pence per share. Together with the interim
dividend of 21.75 pence per share this gives a total ordinary
dividend for the year ended 31st March 2018 of 80.0 pence per
share (2016/17: 75.0 pence per share). Subject to approval by
shareholders, the final dividend will be paid to shareholders on
7th August 2018, with an ex dividend date of 7th June 2018.
Return on invested capital (ROIC)
ROIC declined to 16.4% from 18.2%, mainly due to an increase
in the UK pension fund asset and higher precious metal working
capital during the year. It was also impacted by higher levels of
non-current assets reflecting increased investment to drive
future growth.
Capital structure
Net debt at 31st March 2018 was £679 million. This is down
£212 million from 30th September 2017 and is a decrease
of £37 million from 31st March 2017. Net debt increases to
£725 million when adjusted for the post-tax pension deficits.
The group’s underlying EBITDA increased to £681 million
(2016/17: £665 million). As a result, the group’s net debt
(including post tax pension deficits) to EBITDA was 1.1 times
(2016/17: 1.1 times) and, whilst below our target range of
1.5 to 2.0 times, ensures we have flexibility to invest further
in the future growth of the business.
Contingent liability
Johnson Matthey has been informed of failures in certain
engine systems for which the group supplied a particular
coated substrate as a component for emissions after-treatment.
The extent to which, if any, the reported failures are due to the
coated substrate supplied by Johnson Matthey group companies
has not been demonstrated. Potential solutions for the reported
engine system issues and any associated costs have not yet been
notified to the group. Johnson Matthey has not been contacted
by any regulatory authority and no Johnson Matthey group
company has been served with any contract dispute lawsuit,
nor has any formal claim for recovery of identified costs been
made at this point. Having reviewed its contractual obligations
and the information currently available to it, the group believes
that were it to be served with a contract dispute lawsuit, it would
have defensible warranty positions in respect of its supplies of
coated substrate for the after-treatment systems in the affected
engines. If required, it will vigorously assert its available
contractual protections and defences. The outcome of any
discussions is not certain, nor is the group able to make a reliable
estimate of the possible financial impact at this stage, if any.
73
Johnson Matthey / Annual Report and Accounts 2018
Strategic Report
Treasury policies,
going concern and viability
Treasury policies and financial
risk management
Group Treasury is a centralised function
within Johnson Matthey based in the UK
and US. The role of Group Treasury is to
secure funding for the group, manage
financial risks and provide treasury services
to the group’s operating businesses.
Group Treasury is run as a service centre
rather than a profit centre. The group
does not undertake any speculative
trading activity in financial instruments.
Funding and liquidity risk
The group’s policy on funding capacity is
to ensure that we always have sufficient
long term funding and committed bank
facilities in place to meet foreseeable
peak borrowing requirements.
At 31st March 2018 the group had
cash and deposits of £329 million and
£510 million of undrawn committed
bank facilities available to meet future
funding requirements. The group also
has a number of uncommitted facilities,
including overdrafts and metal lease
lines, at its disposal. The maturity dates
of the group’s debt and committed
borrowing facilities as at 31st March 2018
are illustrated in the chart on page 75.
Of the committed bank facilities,
£155 million has a final maturity date
within the 15 months to 30th June 2019
(the going concern period). £53 million
of these committed bank facilities were
refinanced in May 2018 for a further two
years with a long term relationship bank.
Going concern
The directors have assessed the future
funding requirements of the group and
the company and compared it to the level
of long term debt and committed bank
facilities for the 15 months from the
balance sheet date. The assessment
included a sensitivity analysis on the key
factors which could affect future cash
flow and funding requirements. Having
undertaken this work, the directors are of
the opinion that the group has adequate
resources to fund its operations and so
determine that it is appropriate to prepare
the accounts on a going concern basis.
74
Viability
In accordance with provision C.2.2 of
the UK Corporate Governance Code 2016,
the directors have assessed the viability
of the company over a longer period
than the 15 months covered by the
‘Going Concern’ statement.
During the year, the board has
carried out a robust assessment of the
principal risks affecting the company,
particularly those which could threaten
the business model. These risks and the
actions taken to mitigate them are
described in the section on risks and
uncertainties. To reach the viability
statement conclusion we have
undertaken the following process:
•
•
•
•
The Audit Committee annually
reviews the risk management process
to ensure its continuing effectiveness.
A rolling programme is in place of
deep dive reviews of principal risks.
In each one, the board receives a
presentation on the risk and
mitigations from the GMC risk owner.
Twice a year, a presentation is
made to the board from the Group
Assurance and Risk Director,
explaining the process followed by
management to identify, assess
and manage risks throughout the
business. At this time all of our
principal risks are considered along
with the linkages between them.
Throughout the year, a number of
deep dives into specific risk areas
were conducted by the Corporate
Assurance and Risk team, the results
of which were presented to and
discussed by the board.
The group’s prospects are assessed through
the annual strategic and business planning
processes. This process includes a review
of assumptions made and the ongoing
assessment of annual and longer term
plans, including appraisal of the group
strategy and significant capital investment
decisions. Reviews are led by the Group
Chief Executive and Chief Financial Officer
in conjunction with Sector Chief Executives.
In addition, the board participates fully
in the annual process by reviewing sector
strategies throughout the year. During
these reviews, the group’s current position
and its prospects over the forthcoming
years are reviewed which allows
reaffirmation of the group strategy.
The directors have determined that
a three year period to 31st March 2021
is an appropriate period over which to
assess the group’s viability. As part of
our long term planning, the group also
prepares forecasts for longer periods than
three years, but there is inevitably more
uncertainty associated with longer time
horizons. We have therefore chosen a
three year horizon since this period is
also aligned with our normal and well
established business planning process
which includes preparing and reviewing
a three year plan each year.
In making the assessment, we
have considered a number of severe but
plausible stress scenarios linked to the
group’s principal risks. We have analysed
the impact of the following three
hypothetical stress scenarios plus all
of them occurring at the same time.
Scenario 1: Business performance risks.
Under this scenario we evaluated the
possible impact from a faster than
expected uptake of electric vehicles and
the failure to grow existing businesses
and to launch new products.
Scenario 2: Execution risks. This includes
poor management of capital projects,
significant production losses due to
downtime at a major site and the inability
to improve certain businesses or sites.
Scenario 3: External and macroeconomic
risks. This scenario assesses the impact
from a hard Brexit, cyber and IP related
risks and from adverse events and
movements in commodity markets.
All of our stress tests were derived
through discussions with senior
management and the board after
considering our principal risks and
uncertainties.
Our evaluation took account of the
group’s current financing arrangements
and assumes that existing debt and
borrowing facilities can be refinanced as
they mature, but we have also considered
the potential capacity for additional
funding should this be required. Our stress
testing showed that certain combinations
of these hypothetical scenarios would
increase JM’s funding requirements
substantially and risk breaching a key
financial covenant, requiring additional
funding and potentially mitigating
actions in order to maintain sufficient
headroom against the covenant limit.
Credit risk
The group is exposed to credit risk on
its commercial and treasury activities.
In both cases counterparties are assessed
against the appropriate credit ratings,
trading experience and market position.
Credit limits are then defined and
exposures monitored against these
limits. In treasury and precious metal
management, these exposures include
the mark to market of outstanding
transactions and potential settlement risks.
Pages 76 to 81: Our principal risks
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However, we are satisfied that the
mitigating actions and our capacity for
additional financing will allow JM to
effectively respond to the negative
impact from a combination of these
stress scenarios.
We have also undertaken a reverse
stress test in order to identify what
additional or alternative scenarios and
circumstances would threaten our
current financing arrangements.
Based on the results of our
assessment, the directors have a
reasonable expectation that the company
will be able to continue in operation and
meet its liabilities as they fall due over a
period of at least three years.
Foreign currency risk
Johnson Matthey’s operations are located
in over 30 countries, providing global
coverage. A significant amount of profit
is earned outside the UK. In order to
protect the group’s sterling balance
sheet and reduce cash flow risk, the
group has financed a significant
portion of its investment in the US
and Europe by borrowing US dollars
and euros respectively. Additionally,
the group uses foreign currency
swaps to hedge a portion of its assets.
The group uses forward exchange
contracts to hedge foreign exchange
exposures arising on forecast receipts
and payments in foreign currencies.
Details of the contracts outstanding
on 31st March 2018 are shown on
pages 175 and 176.
Interest rate risk
At 31st March 2018 the group had net
borrowings of £679 million of which
99% was at fixed rates with an average
interest rate of 3.1%. The remaining 1%
of the group’s net borrowings was funded
on a floating rate basis. A 1% change
in all interest rates would have an
immaterial impact on underlying profit
before tax.
Precious metal prices
Fluctuations in precious metal prices
have an impact on Johnson Matthey’s
financial results. Our policy for all
manufacturing businesses is to limit
this exposure by hedging against future
price changes where such hedging can
be done at acceptable cost. The group
does not take material exposures on
metal trading.
A proportion of the group’s precious
metal inventories are unhedged due to
the ongoing risk over security of supply.
Maturity profile of debt facilities
At 31st March 2018 exchange rates
£ million
1,600
1,400
1,200
1,000
800
600
400
200
0
Net debt at 31st March 2018
March
2018
March
2019
March
2020
March
2021
March
2022
March
2023
March
2024
March
2025
March
2026
March
2027
March
2028
Private placement notes
KfW loans
EIB loans
Committed bank facilities
75
Johnson Matthey / Annual Report and Accounts 2018
Strategic Report
Risks and uncertainties
A holistic approach to managing risk
Our approach to risk management focuses on identifying key risks early and action to reduce the likelihood of these having
a detrimental effect on the business. During the year we:
•
Continued to strengthen our processes, monitoring and reporting capabilities so that risks continue to be appropriately
identified and managed. As with all Johnson Matthey processes, we regularly review our approach to ensure that it
continues to meet business needs and supports the effective management of risks while meeting the requirements
of the UK Corporate Governance Code.
The effective management of risk enables Johnson Matthey to:
•
•
•
•
Improve our decision making, planning and prioritisation.
Pursue opportunities while keeping risks at an acceptable level in a rapidly changing external environment.
Effectively deal with risks should they materialise.
Consider risk and reward and implement controls in the areas that matter most to us.
All this helps us to deliver our strategic objectives.
Our risk framework
We operate a holistic risk management system that is applied throughout the business:
Board
3 Has overall responsibility for the approach to risk management and internal control
3 Ownership of principal risks and uncertainties
3 Sponsors the framework for enterprise risk management at Johnson Matthey
3 Determines the organisational risk management approach
3 Monitors the nature and extent of exposure for our principal risks
Audit Committee
3 Oversight of process and review of controls testing
Group Management Committee (GMC)
3 Championship of risk management
3 Carries out top down identification and review
3 Development of company strategy in line with board risk appetite
3 Reporting on principal risks and uncertainties to the board and on process to the Audit Committee
Sector level
3 Carrying out top down review activities
3 Responsible for ensuring that sites and functional areas have developed risk registers
3 Review and challenge of risk registers
3 Continuous monitoring
3 Reporting to GMC on sector risk and issues
Site / Functional areas / Programmes / Projects
3 Carrying out risk identification, assessment and mitigation
3 Reporting top risks to sector and Corporate Assurance and Risk
3 Carrying out regular reviews on effectiveness of existing controls and progress with control implementation
TOP DOWN
Oversight
Identification
of risk
Mitigation
of risk at
group level
BOTTOM UP
Identification
of risk
Assessment
of risk
Mitigation
of risk
Reporting
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How we manage risk
Evolution of our framework
We recognise that risk management is an important part of our business and continually seek to improve our processes.
This year we have enhanced our existing processes by continuing to review and refine:
•
•
•
•
•
Our bottom up risk management process, ensuring that our sectors have an embedded risk management process
in their businesses which are consolidated and reviewed by the sector leadership twice a year. Training and
facilitation is provided to support this.
Our top down risk management process, to ensure that any risks not materialising through the bottom up process
were captured through looking at the external environment and internal environment with the GMC and board.
Following the revision of our strategy in 2017, we took a fresh look at our risks to confirm that these continued
to be aligned to our strategy. With greater clarity of our strategic priorities, we have tightened our risks so that
we can focus on understanding worst case scenarios that could threaten our business model, future performance,
solvency or liquidity.
Our approach has meant that we have effective risk related conversations and that these are embedded within the
GMC and board agendas; and not just as specific discussions on risk.
As a result of this activity, our assessment of our risks has changed, narrowing the focus towards the worst case
scenario; and deeper more informed conversations that include constructive challenging debates.
• We have embedded risk mitigation monitoring in our business management processes. This therefore means that
we are continually monitoring our mitigating activities as part of our normal course of business management and
not waiting for a risk management process deep dive to flag progress against plan.
•
Our new process puts significantly more focus on monitoring the quality of our mitigation plans. We have embedded
continuous monitoring and improvement of the mitigation plans within the business, and ensure there is ongoing
challenge to further improve effectiveness of the plans.
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Our risk process
Our risk process is designed to support everyone,
at all levels of the business, in identifying and
managing risks.
All risks, whether they are identified at the
most senior level or throughout the business,
are described, analysed and reported using a
standard framework. The central Corporate
Assurance and Risk team acts as an advisory
function and provides independent challenge
and review. Each of our business functions also
participates in the process, identifying any
risks that may prevent them achieving their
objectives and describing these in terms of
cause and consequence. These are scored using
a variety of impact measures, including financial,
operational, reputational and people factors.
Controls for each risk are described and assessed.
Each risk, at every level, has a designated owner
who is responsible for ensuring the described
controls are effective and efficient. We continually
review the level of risk throughout the business
and complete a formal submission every six
months for reporting purposes (as illustrated
in our risk framework opposite).
Identification
of risk
Monitoring
and reporting
Framework
supported by
central Corporate
Assurance and
Risk Team
Assessment and
evaluation
Control
effectiveness
Determination
of response
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Johnson Matthey / Annual Report and Accounts 2018
Strategic Report
Our principal risks and uncertainties
Understanding why and how our principal risks change
The ongoing review of our principal risks ensures that we reflect
on the challenges facing our business and the changes that we
have made to our business in response to those challenges.
We continually map our principal risks and uncertainties to
strategic and business plans to ensure that we have appropriate
coverage of risks. Following the revision of our strategy in 2017,
we took a fresh look at our risks to confirm that these continued
to be aligned to the strategy. With greater clarity of our strategic
priorities we have better focused our risks, understanding the
worst case scenarios that could threaten our business model,
future performance, solvency or liquidity.
As a result of these exercises, we have concluded that for
the most part, the overarching areas of risk remain unchanged.
In all cases we continue to review and refine the documented
mitigations for each risk.
We have also changed our risk reporting to consider whether
the risk profile is increasing, decreasing or remaining constant.
We believe that provides our board and shareholders greater
transparency in reporting compared to reporting the gross or
net risk as high, medium or low.
Changes to our principal risks and uncertainties in 2017/18:
•
Future revenue growth. Now this is the risk specifically
associated with our failure to deliver against the growth
opportunities identified in our strategy. Previously it was
defined more broadly as the risk associated with revenue
growth opportunities, investment decisions, significant
capital investment, mergers and acquisitions and research
and development activities.
1
Existing market outlook
•
Applications systems and cyber security. This was added
to our principal risks during the year. The external cyber
threat is increasing with more sophisticated attacks on a
wide range of organisations. The elevation of this risk
ensures that the board has greater visibility of the actions
we take to mitigate the risk.
Brexit
Whilst not a principal risk and uncertainty, Johnson Matthey
continues to monitor closely the potential EU exit (Brexit) risks
through our businesses. Our well established Brexit working
group is composed of a number of functional experts who look
to mitigate risks for a range of Brexit scenarios with a specific
focus on trade, regulation and our people. Whilst there remains
a great deal of uncertainty as to what Brexit will mean for the
company, the Brexit working group is developing and
implementing plans to ensure Johnson Matthey is able to
navigate the best possible outcome for our people, our business
and our customers.
The following table sets out 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 the year.
Our risks are not listed from greatest risk to lowest risk;
we list our strategic risks first, followed by operational risks.
As explained above, we added applications, systems and
cyber risk this year. It is our newest risk and so it is listed last.
Risk and impact
The risk of a change to the
outlook for our key markets
is either unplanned or
unforeseen and as a result
we are poorly positioned
to respond.
This risk would include
legislative change, for
example as a result of Brexit
or changes in customer or
consumer behaviour
impacting our business.
2
Future growth
Risk and impact
To deliver growth as
communicated in our
capital markets day, we
are making significant
investments in key growth
opportunity areas. This
risk considers the potential
failure to deliver this
growth and create value.
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Mitigation
• Strategic planning process in place to assess and understand
trends across our sectors and markets with an understanding
and assessment of the impact of economic and geopolitical
uncertainty and legislative changes.
• Plans in place to execute mitigation strategies.
• Mechanisms to monitor changes and launch mitigation actions
if required.
Changes since 2017
annual report
As we continue to
strengthen our strategic
planning process, the
robustness of our scenario
planning is also increasing.
However, uncertainty will
always be present in the
external environment.
This risk is unchanged.
Mitigation
• A clear strategy, which is continuously reviewed in the light
of new information, and a business review process to track
execution of that strategy.
• Appropriate investment in R&D, capital and talent identified
to support realisation of the strategy.
• Ongoing monitoring and review of new technologies and
market competitiveness.
• Project Management Offices (PMOs) in place to ensure appropriate
governance in place and plans are delivering to expected timelines.
Changes since 2017
annual report
This risk has been refined
to consider our key growth
areas as described in our
capital markets day. This
risk is therefore not directly
comparable with that
reported in 2016/17.
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Maintaining our competitive advantage
Risk and impact
Failure to maintain our
competitive advantage
in existing markets and,
as a result, not meeting
customers’ evolving
needs as efficiently as
our competitors.
Mitigation
• Strong customer relationships, built around technical proposition,
reputation in the market and a high level of technical service.
• Regular strategy reviews to retest the external environment.
• Embedding analysis of competitor strategy and benchmarking
relative performance.
• Strong balance sheet to support significant ongoing investment
in R&D.
• Active prioritisation of R&D and capital investment to areas of
greatest opportunity.
4
Environment, health and safety
Risk and impact
In common with other similar
manufacturing companies,
the group operates in a
challenging safety
environment that is subject
to numerous health, safety
and environmental laws,
regulations and standards.
If we fail to operate safely we
could injure our people. We
could breach applicable laws,
regulations and standards
which could adversely impact
our employees, result in lost
production time and could
attract negative media
and regulator interest.
Mitigation
• Setting the tone from the top with senior managers leading
by example.
• Understanding of our business risk profile.
• Systems and processes to facilitate adherence to corporate
policies, procedures and standards.
• Ongoing investment in the business to ensure that our
equipment is appropriate.
• Training and awareness activities.
• Risk, audit and safety checks.
• Safety culture programme and behavioural standards.
• Investigations to determine the cause of incidents and accidents
and the development of remediation plans.
• An independent hotline for employees to report concerns.
Changes since 2017
annual report
This risk is unchanged.
We will continue to evolve
our position to maintain
our competitive advantage.
Changes since 2017
annual report
This risk is unchanged.
Health and safety
continues to be our
priority and we take
our responsibility for
environmental impact
very seriously.
5
Sourcing of strategic materials
Risk and impact
As JM has limited suppliers
from which to source
certain strategic raw
materials, any significant
breakdown in the supply
of these materials would
lead to an inability to
manufacture and satisfy
customer demand.
Mitigation
• Strengthening supplier relationship management, regular
reviews to discuss supplier capacity constraints.
• Continuing to build expertise in supply chain, logistics,
procurement and trade export controls.
• Supplier quality management processes.
• Safety stocks held in strategic locations.
• Research and development to consider alternative materials.
• Business continuity management, identification of critical failure
risks and plans in place to manage these.
Changes since 2017
annual report
This risk is inherent in our
Automotive and Health
related businesses, where
validated materials are
utilised in our products.
Risk landscape unchanged.
6
People
Risk and impact
To execute the JM strategy
and deliver growth, we
need to ensure that we
have the breadth and depth
of leadership and the
appropriate capabilities.
Mitigation
• Assessment of skills and capability requirements.
• JM leadership values and behaviours.
• Robust talent management processes.
• Leadership development programmes.
• Building high quality personal development plans in place for
all leaders.
Changes since 2017
annual report
With greater clarity of our
strategic priorities we have
tightened this risk to focus
on the skills and capabilities
we need now and in the
future. We are investing in
our leadership and growing
talent through robust
succession planning to
build our future leaders.
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Johnson Matthey / Annual Report and Accounts 2018
Strategic Report
7
Security of metal and highly regulated substances
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; loss
or theft due to a failure of
the security management
systems associated with the
protection of metal or highly
regulated substances may
result in performance impact,
reduced customer confidence
and potential legal action.
Mitigation
• Assay and other process controls.
• Stock takes to check inventories.
• Security awareness campaigns and training.
• Security management systems and site security systems.
• Audits of site security systems and process controls.
• Use of approved carriers for transit.
• Liaison with local law enforcement for high risk sites.
• Insurance coverage for losses from theft or fraud.
8
Intellectual capital management
Risk and impact
Failure to identify and
protect the group’s
intellectual capital or failure
to identify third party
intellectual capital rights
could lead to a loss in
business advantage, loss
of freedom to operate
and reputational damage
associated with litigation.
Mitigation
• Business intellectual capital management strategy.
• Ensuring we maintain a data security strategy to protect our
intellectual capital.
• Investment in cyber security (see risk 13).
• Annual research and development and intellectual property reviews.
• Monitoring of third party intellectual capital.
• Use of intellectual capital lawyers to provide specialist guidance.
• Training and awareness.
9
Failure of significant sites
Mitigation
• Assessment of significant sites.
• Business impact analysis for sites covering all activities,
e.g. supply chain, production, commercial etc.
• Building plans that enable a comprehensive response to an event
and annual testing.
• Insurance of activities.
Risk and impact
Potential risks include a
disruptive event such as
fire, flood or earthquake,
a major incident at site
level such as an explosion
or other events such as
geopolitical instability.
The consequences associated
with this risk include the
impact on our ability to
manufacture goods and
satisfy customer demand.
Changes since 2017
annual report
As reflected at the half
year, we saw this risk
increase in response to
the impact of the metal
price on our balance sheet.
Changes since 2017
annual report
We are developing market
leading intellectual capital,
through intellectual property,
in the battery materials and
health markets, both of which
are crowded and litigious.
Although cyber risk to our
business is considered
separately, it is also recognised
as a threat to this risk area. As
such we are investing in our
mitigating activity to manage
our increased risk profile.
Changes since 2017
annual report
Risk landscape unchanged.
10
Ethics and compliance
Risk and impact
Failure to comply with ethical
and regulatory compliance
standards leading to
reputational damage,
to civil or criminal legal
exposure for the company
or for individuals or to risk
of contractual breach.
Mitigation
• Code of ethics and tone from the top set by senior leadership.
• Use of subject matter experts, internal and external, to identify
risks, set standards and provide advice and training.
• Suite of legal compliance policies and procedures to mitigate key
ethics and compliance risks.
• Code of ethics in place supported by online training and formal
acknowledgement.
• Global network of ethics ambassadors.
• Independent confidential speak up hotline for employees,
contractors and third parties.
• Investigation / response to all matters overseen by an Ethics Panel.
Changes since 2017
annual report
This risk is reassessed on
an ongoing basis in the light
of the evolving regulatory
and business background.
In response, we review our
policies, processes and
controls and amend these
as appropriate.
Examples of this include
General Data Protection
Regulations (GDPR)
and the CCO (Corporate
Criminal Offence).
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11
Business transition
Risk and impact
To position the group for
future growth and maximise
available efficiencies, we
continue to evolve the way
in which we run our business.
This includes standardising
some activities across the
group, directed by strong
functional leaders, in order
to ensure best practice is
used and maintained across
the group.
The risk is that we fail to
achieve the benefits of
these efficiencies, lose
our business agility
and / or fail to maintain
a very high level of
customer responsiveness.
12
Product quality
Risk and impact
Our products are used in a
wide range of applications,
processes and systems.
The safety and quality of
these products is crucial
to ensuring they operate
as intended.
Should a product fail to
perform as expected, we
could be responsible for
consumer harm or exposed
to liability claims. This
could lead to loss of future
business, reputational
damage and loss of licence
to operate.
Mitigation
• Strategic PMO in place to monitor progress and provide assurance
across the workstreams.
• Programme management in place for key initiatives, with
group owners cascading plans and agreed deliverables with
business leads.
• Audit of key projects with third party assurance where
appropriate.
• Communication and employee engagement plans associated
with key initiatives.
Changes since 2017
annual report
Risk landscape unchanged.
A number of programmes
are in place to mitigate
this risk.
Mitigation
• Regulatory framework for compliance in place.
• Developing robust new product introduction process and
technical change processes.
• Developing robust manufacturing systems supported by
standardised processes.
• Monitoring and reporting of quality performance, taking
corrective action where required.
• Quality management systems in place supported by education
and audit.
• Robust contract terms and conditions.
Changes since 2017
annual report
The regulatory environment
continues to tighten and our
customers are experiencing
greater scrutiny which has
created pressure for our
business.
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Applications, systems and cyber
Risk and impact
Risks that our applications
and systems security is
inadequate or fails to adapt
to changing business
requirements and / or
external threats.
The impact of these may
adversely affect our financial
position and could harm
our reputation.
Mitigation
• Ensuring we maintain a data security strategy in line with the
evolving threat.
• Investment in information security systems, monitoring and
assurance in support of our data security strategy.
• Mapping of all at risk data and understanding of regulatory
requirements.
• Maintenance of a breach reaction plan.
Changes since 2017
annual report
The external cyber threat
is increasing with more
sophisticated attacks on a
wide range of organisations.
Against this backdrop we
are investing in our IT
infrastructure to support
a more efficient business
and, in doing so, we are
increasing the global
consistency and connectivity
of our applications and
infrastructure. As such, we
have decided to elevate the
risk of cyber attack from
within the risk of failure
of a critical site to a
principal risk in its own
right, to ensure greater
board visibility.
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Contents
84 Board of Directors
86 Letter from the Chairman
87 Corporate Governance Report
99 Nomination Committee Report
103 Audit Committee Report
111 Remuneration Report
131 Directors’ Report
135 Responsibility of Directors
Governance
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Johnson Matthey / Annual Report and Accounts 2018
The Governance
section, introduced
by our Chairman,
contains the
Corporate Governance
Report and details
about the activities
of the board and its
committees during
the year.
It also contains the Directors’ Report
and the statement on responsibilities
of directors.
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Johnson Matthey / Annual Report and Accounts 2018
Governance
Board of Directors
From left to right
Tim Stevenson, OBE – Chairman
Appointed to board: March 2011
Experience
Tim was appointed Chairman in July 2011. He was
Chairman of The Morgan Crucible Company plc
from December 2006 to July 2012 and Chairman
of Travis Perkins plc from November 2001 to May
2010. Tim has also sat on a number of other boards
including National Express plc, Partnerships UK
and Tribal PLC and was Chief Executive at Burmah
Castrol plc from 1998 to 2000. He is a qualified
barrister and is Lord Lieutenant of Oxfordshire.
Other current appointments
Director of the Emmott Foundation Limited.
Committees
Remuneration, Nomination (Chairman)
International experience
Spain, UK
Sector experience
Chemicals, Manufacturing, Oil and Gas, Retail
Robert MacLeod – Chief Executive
Appointed to board: June 2009
Anna Manz – Chief Financial Officer
Appointed to board: October 2016
Experience
Robert was appointed Chief Executive in June 2014.
He joined Johnson Matthey as Group Finance
Director in 2009. Previously he was Group Finance
Director of WS Atkins plc and a Non-Executive
Director at Aggreko plc. He is a Chartered
Accountant with a degree in Chemical Engineering.
Other current appointments
Non-Executive Director at RELX PLC, RELX NV and
RELX Group plc.
International experience
UK, US
Sector experience
Chemicals, Oil and Gas, Professional Services
Experience
Anna joined Johnson Matthey as Chief Financial
Officer in October 2016. Previously she was Group
Strategy Director and a member of the Executive
Committee at Diageo plc. During 17 years at
Diageo, Anna held a series of senior roles, including
Finance Director Spirits North America, Group
Treasurer and Finance Director Asia Pacific. Anna is
a qualified management accountant with a degree
in Chemistry.
Other current appointments
Non-Executive Director at ITV plc.
International experience
China, India, Ireland, Kenya, Korea, Nigeria,
Singapore, UK, US
Sector experience
Manufacturing, Media
Patrick Thomas – Chairman Designate
To be appointed to the board: June 2018
Patrick Thomas will join the board as Chairman
Designate on 1st June 2018 and will succeed
Tim Stevenson as Chairman at the close of the
2018 Annual General Meeting on 26th July 2018.
Experience
Between 2015 and May 2018 Patrick was Chief
Executive Officer and Chairman of the Board of
Management of Covestro AG. Between 2007
and 2015 he was Chief Executive Officer of its
predecessor, Bayer MaterialScience, prior to
its demerger from Bayer AG.
Other Current Appointments
Non-Executive Director of Akzo Nobel N.V.
Committees
Remuneration, Nomination (Chairman Designate)
International experience
Belgium, Germany, UK
Sector experience
Chemicals, Manufacturing, Oil and Gas,
Pharmaceuticals, Technology
Alan Ferguson – Senior Independent Director
Appointed to board: January 2011
Odile Desforges – Non-Executive Director
Appointed to board: July 2013
Experience
Alan was appointed a Non-Executive Director in
January 2011 and as Senior Independent Director
in July 2014. Previously he was Chief Financial
Officer and a Director of Lonmin Plc. Prior to this
he was Group Finance Director of The BOC Group.
Before joining BOC, he worked for Inchcape plc
for 22 years and was Group Finance Director from
1999 until 2005. He is a Chartered Accountant and
sits on the Business Policy Panel of the Institute of
Chartered Accountants of Scotland.
Other current appointments
Non-Executive Director and Chairman of the Audit
Committee at Croda International Plc and Marshall
Motor Holdings plc. He is also Senior Independent
Director at both these companies.
Committees
Audit (Chairman), Remuneration, Nomination
International experience
South Africa, UK
Sector experience
Automotive, Chemicals, Metals and Mining
Experience
Odile's automotive industry experience began
with the French Government's Transport Research
Institute and developed with Renault SA and AB
Volvo. She has held senior positions in purchasing,
product planning, development and engineering,
including as Chairman and Chief Executive Officer of
the Renault-Nissan Purchasing Organization (RNPO)
and most recently, until 2012, as Executive Vice
President, Engineering and Quality at Renault.
She was appointed a Knight of the French Legion
of Honour in 2009.
Other current appointments
Non-Executive Director of Safran SA, Dassault
Systèmes, Imerys and Faurecia.
Committees
Audit, Remuneration, Nomination
International experience
France, Japan, Sweden, UK
Sector experience
Aerospace, Automotive, Defence, Manufacturing,
Technology
84
From left to right
Jane Griffiths – Non-Executive Director
Appointed to board: January 2017
John O’Higgins – Non-Executive Director
Appointed to board: November 2017
Experience
Jane is currently Global Head of Actelion a Janssen
pharmaceutical company of Johnson & Johnson
(J&J). Since joining J&J in 1982 Jane's roles have
included international and affiliate strategic
marketing, sales management, product
management, general management and clinical
research. Jane is Director and Chair of the J&J
Corporate Citizenship Trust in EMEA, a sponsor of
the J&J Women's Leadership Initiative.
Experience
John is currently Chief Executive of Spectris plc,
a position he has held since January 2006. Prior
to this he worked for Honeywell in a number of
management roles, including as president of
automation and control solutions, Asia Pacific.
He began his career as a design engineer at
Daimler-Benz in Stuttgart. Between 2010 and
2015, John was a Non-Executive Director of
Exide Technologies, Inc.
Other current appointments
Director of Johnson & Johnson Innovation Limited.
Other current appointments
Trustee of The Wincott Foundation.
Committees
Audit, Remuneration, Nomination
International experience
Africa, Middle East, UK
Sector experience
Pharmaceuticals
Committees
Audit, Remuneration, Nomination
International experience
Belgium, China, Germany, UK, US
Sector experience
Automotive, Energy, Manufacturing, Oil and Gas,
Technology
Chris Mottershead – Non-Executive Director
Appointed to board: January 2015
John Walker – Sector Chief Executive, Clean Air
Appointed to board: October 2013
Experience
Chris is Senior Vice President of Quality, Strategy
and Innovation at King’s College London and
Director of King's College London Business Limited.
Prior to joining King’s College in 2009, Chris had
a 30 year career at BP, most recently as Global
Advisor on Energy Security and Climate Change.
Before this, he was Technology Vice President for
BP’s Global Gas, Power and Renewables businesses.
He is a Chartered Engineer and Fellow of the Royal
Society of Arts.
Other current appointments
Non-Executive Director of The Carbon Trust and
Carbon Trust Investments Limited.
Committees
Audit, Remuneration (Chairman), Nomination
International experience
UK, US
Sector experience
Energy, Oil and Gas
Experience
John joined Johnson Matthey in 1984 and was
appointed Division Director, Emission Control
Technologies in 2009 after holding a series of
positions within the division in the US, Asia and
Europe. He was appointed Executive Director,
Emission Control Technologies Division in October
2013 (division subsequently renamed Clean Air
Sector in April 2017).
International experience
Australia, China, France, Germany, India, Japan,
Malaysia, UK, US
Sector experience
Automotive, Chemicals
Simon Farrant – General Counsel and
Company Secretary
Joined Johnson Matthey: 1994
Experience
Appointed Company Secretary in 1999 and Group
Legal Director in 2007. He is a Solicitor and
Attorney and Counselor-at-Law (State of New York).
At the date of approval of this annual report,
the Board of Directors of Johnson Matthey is
as detailed here.
Colin Matthews retired as a Non-Executive Director
with effect from 15th November 2017.
Board diversity
Gender
Male Female
67% 33%
Board tenure
6–10 years
0–3 years
3
3
3
3–6 years
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Johnson Matthey / Annual Report and Accounts 2018
Governance
Letter from the Chairman
Tim Stevenson
Chairman
This section of the annual report describes our corporate governance
structures and processes and how they have been applied throughout
the year ended 31st March 2018.
My role as Chairman
My most important role is to ensure that Johnson Matthey has a board
which works effectively under my leadership. This is particularly
important as the company continues to evolve and grow. I believe we
have an effective board. We report on pages 94 to 95 on our board
and committee review, which we conducted externally this year. Open
and constructive evaluation is integral to our effectiveness.
Governance and strategy
During the year we have refined our strategy and business model,
including organising our business into four sectors, driving further
synergies for customers and our stakeholders. We have reviewed our
governance arrangements and concluded these continue to be right
for the company. They effectively support our strategy and will enable
us to respond to any challenges we may face. For me, ensuring the
right board dynamics is vital. I am pleased to say that we have strong
contributions and challenge from all our directors in an open and
constructive atmosphere. This is in large part created by having a
board comprising directors with a broad range of skills, expertise
and attributes. As Chairman, I lead the setting of the board’s agenda
and I pay considerable attention to ensuring we have a plan which
allows for appropriate time to discuss all necessary items, particularly
the development of strategy and the consideration of risk.
Culture
A key part of the board’s role is to take effective steps in shaping and
embedding a healthy corporate culture throughout our organisation.
This is fundamental to being able to build sound governance
behaviours and practices, all of which support the success of our
company and its strategic objectives. The board recognises that it has
a responsibility to act with integrity and lead by example to create our
desired corporate culture.
Succession planning and diversity
Ensuring that the group employs a process of thoughtful, strategic and
practical succession planning is a key role for the board in nurturing
our culture, sustaining our operating model and delivering our
strategy. The board itself needs to be refreshed over time, drawing on
an appropriately diverse talent pool. We recognise the benefits of
bringing greater diversity throughout the organisation and in the
boardroom. We explain our approaches to this component of board
effectiveness in this report.
The UK Corporate Governance Code
We are reporting against the UK Corporate Governance Code 2016
(the Code). We report on how we have applied the Code’s main
principles and complied with its relevant provisions. Except in one
respect (which is explained on page 98), Johnson Matthey has
complied with all relevant provisions throughout the year ended
31st March 2018 and from that date up to the date of approval of
this annual report.
Risk management
Looking forward
Risk management is an important part of our wider discussion
of strategy and our operating model. In this report, we aim to show how
our strategy is underpinned by a robust risk management framework.
Stakeholders
The board recognises the importance of balancing the needs of our
stakeholders with the long term strategic aims of our business.
We ensure effective engagement with our stakeholders so as to ensure
their views are understood and appropriately taken into account.
It has been a privilege to be Chairman of Johnson Matthey for the last
seven years and I am immensely proud of what we have achieved. It is
a great company with excellent people and a robust strategy. I would
like to thank our customers, our employees and our shareholders for
their support. I wish the business every success for the future.
Tim Stevenson
Chairman
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Corporate Governance Report
Introduction
Our Board of Directors is responsible to our
shareholders for ensuring the sound running
of the company. This can only be achieved
if the board is supported by appropriate
and well managed governance processes
to support our strategy, ensure a positive
culture across the group and manage risks
and uncertainties. The key elements of
these are described in this Corporate
Governance Report.
Getting to know the business
In order for our directors, particularly our
Non-Executive Directors, to effectively
discharge their responsibilities, it is critical
that they understand our businesses.
Throughout the year we review the
delivery against strategy of our sectors. These
sessions are attended by the relevant Sector
Chief Executive and, where appropriate,
other sectoral senior management. They give
the board an excellent opportunity to hear
about, discuss and challenge the strategic
direction of our business. This was
particularly important during the year as we
refreshed our strategy and moved to a group
structure aligned to our global priorities.
The board also reviews our key
functional areas. These reviews are attended
by the relevant functional head and enable
the board to assess the strength of these
functions in their ability to support delivery
of the group’s strategic objectives.
The board regards it as vital to make
space in the timetable to learn more about
our businesses through site visits,
presentations or other proposals brought to
the board. During the course of the year the
board engaged in significant discussion on
growth within our businesses, to ensure the
market opportunities were fully understood
as investments to build capacity were
considered. Periodically, we hold business
‘teach-ins’ for our board. These are separate
from board meetings and are attended by a
range of managers from the relevant business.
They are designed to give the board a more
in depth insight into our businesses and their
customers than is possible during board
meetings. This deeper understanding
enhances the Non-Executive Directors’ ability
to challenge, debate and contribute to
sectoral strategy at board meetings. During
the year a number of board members also
attended a training session on process safety,
led by the Group EHS Director.
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UK Corporate Governance Code
The UK Corporate Governance Code 2016 (the Code) contains broad principles and specific
provisions which set out standards of good practice in relation to leadership, effectiveness,
remuneration, accountability and relations with shareholders. This Corporate
Governance Report is structured to report against the Code by reference to each of these
key areas. Together with the Nomination Committee Report, the Audit Committee Report
and the Remuneration Report, it describes how we have complied with the relevant
provisions of the Code and applied its main principles during the year.
While the majority of our board meetings
are held at our City office in London, the
board holds two board meetings each year
at operational sites. The board always tours
the site and management present to them
on the business, its challenges and successes.
These visits enable the board to see our
operations on the ground and to meet the
teams that are making them successful.
They are a useful opportunity for the board to
hear about customers, business issues, risks
and strategy as well as environment, health
and safety developments and the business’
sustainability and manufacturing efforts.
knowledge and understanding, meeting
with management and other employees.
During the year our Non-Executive Directors
visited our Efficient Natural Resources
manufacturing facilities at Emmerich and
Oberhausen in Germany.
Tim Stevenson and some of our
Non-Executive Directors also attended for
part of the 2017 leadership conference,
which gave them an opportunity to get a
feel for the group’s culture, hear more about
the group’s priorities in action and meet
employees from across all our sectors
and functions.
During 2017/18, board meetings were
All of the above activities enable the
held at Sonning, UK (April 2017) and in
Redwitz, Germany (October 2017). At
Sonning, the board visited Johnson Matthey’s
Technology Centre to learn more about
research and development projects. At
Redwitz, the board toured our Clean Air
manufacturing site.
Our Non-Executive Directors also
undertake visits to our sites independent of
the Executive Directors, either individually
or collectively, to further enhance their
Non-Executive Directors to continue to
develop and refresh their knowledge and
understanding of our businesses, the markets
in which we operate and our key stakeholders.
They provide an opportunity to meet with
and hear the views of employees. Through
these, the board develops a sound and
balanced insight into the group which supports
it in its role to provide entrepreneurial
leadership and set strategy.
Board and
committee meetings
Capital Markets
Day feedback
Facility
tours
Getting to know
the business
Sector and
functional reviews
Sector
‘teach-ins’
Meeting
our people
Leadership
conference
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Johnson Matthey / Annual Report and Accounts 2018
Governance
Leadership
Governance framework
The group’s principal decision making body is the board. It has responsibility for setting the group’s strategic direction and for ensuring that the
group manages risk effectively. The board is accountable to shareholders for the group’s financial and operational performance. It is supported by
three principal committees: the Nomination Committee, the Audit Committee and the Remuneration Committee.
Our governance framework at 31st March 2018
Chairman
Tim Stevenson
Key responsibilities
• Leads the board.
• Ensures an effective board,
including contribution and challenge
from the directors.
• Ensures that Johnson Matthey
maintains effective communications
with its shareholders.
Independent Non-Executive Directors
Odile Desforges Jane Griffiths Chris Mottershead
Alan Ferguson John O’Higgins
Key responsibilities
• Constructively challenge the Executive Directors in all areas.
• Scrutinise management’s performance.
• Help develop proposals on strategy.
• Satisfy themselves on the integrity of financial information and on the effectiveness of
financial controls and risk management systems.
• Determine appropriate level of remuneration for Executive Directors.
Senior Independent Director
Alan Ferguson
Key responsibilities
• Provides a sounding board for the
Chairman.
• Acts, if necessary, as a focal point and
intermediary for the other directors.
• Ensures that any key issues not
addressed by the Chairman or the
executive management are taken up.
• Available to shareholders should they
have concerns.
• Leads the annual appraisal of the
Chairman’s performance.
• Ensures an orderly succession process
for succession to the chairmanship of
the company.
Board
Membership
Nine directors (Chairman, three Executive Directors and five independent Non-Executive
Directors).
Role
• Provides entrepreneurial leadership of the company and direction for management.
• Has collective responsibility and accountability to shareholders for the long term success
of the group.
• Reviews the performance of management and the operating and financial performance
of the group.
• Sets strategy.
• Determines risk appetite.
• Ensures that appropriate risk management and internal control systems are in place.
• Sets the company’s values and standards.
• Ensures good governance and promotes good behaviour.
Chief Executive
Company Secretary
Executive Directors
Robert MacLeod
Simon Farrant
Key responsibilities
• Has day to day responsibility for
running the group’s operations.
• Recommends to the board and
implements group strategy.
• Applies group policies.
• Promotes the company’s culture
and standards.
Key responsibilities
• Acts as secretary to the board and
its committees.
• Together with the Chairman, keeps
the efficacy of the company’s and
the board’s governance processes
under review.
• Has responsibility for compliance with
board procedures.
• Provides advice on corporate
governance issues.
Robert MacLeod
Anna Manz
John Walker
Key responsibilities
• Have specific executive responsibilities.
• Discharge duties in respect of the
group as a whole.
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Responsibility for implementing operational decisions and the day to day management of the business is delegated to the Chief Executive
who is supported by the Group Management Committee (GMC) as outlined on page 13. There is a clear division of responsibilities between the
running of the board and the executive responsibility for running the business. The board has identified certain matters which only it can approve.
These are set out in a schedule of matters reserved for the board. The Chairman’s and Chief Executive’s roles are separate and this division of
responsibilities is clearly established in a written statement within the corporate governance framework, which is available on our website.
The GMC is responsible for managing business performance, delivery of strategy and mitigating risks. It meets six times a year and most
weeks for informal discussions on day to day matters. The GMC is supported by four sub-committees – the Environment, Health and Safety
Leadership Committee, the OneJM Policy Committee, the Finance and Administration Committee, and the Legal Risk Committee.
matthey.com/corporate-governance
Audit Committee
Membership
Five independent Non-Executive Directors.
Chaired by Alan Ferguson.
Role
Assists the board in carrying out its oversight responsibilities in relation to financial reporting,
internal controls and risk management and in maintaining an appropriate relationship with
our external auditor, including recommending reappointment or a requirement to tender.
Nomination Committee
Membership
Five independent Non-Executive Directors and the group Chairman.
Chaired by Tim Stevenson.
Role
• Considers structure, size, composition and succession needs of the board.
• Oversees succession planning for senior executives.
Remuneration Committee
Membership
Five independent Non-Executive Directors and the group Chairman.
Chaired by Chris Mottershead.
Role
• Sets remuneration policy for Executive Directors and the Chairman and determines the
application of that policy.
• Reviews and monitors the level and structure of remuneration for senior executives.
Disclosure Committee
Membership
The Chief Executive, Chief Financial
Officer and the Company Secretary.
Chaired by Robert MacLeod.
Role
To identify and control inside information
or information which could become
inside information, and to determine
how or when that information is
disclosed in accordance with applicable
legal and regulatory requirements.
Ethics Panel
Membership
The Company Secretary and three
executive heads of functions.
Chaired by Simon Farrant.
Role
To oversee the concerns raised pursuant
to the Speak up Policy, including the
effective review and investigation of
these concerns.
Group Management Committee
Membership
Chief Executive, Chief Financial Officer, Sector Chief Executives, Chief HR Officer, Chief Technology Officer, Chief Strategy and Corporate
Development Officer and General Counsel and Company Secretary.
Role
Has responsibility for the executive management of the group’s businesses. Recommends strategic and operating plans to the board.
Environment, Health and
Safety (EHS) Leadership
Committee
Chaired by John Walker.
Role
Has responsibility for assisting
the company in discharging
its EHS responsibilities and in
creating a positive EHS culture
across the group.
OneJM Policy Committee
Chaired by Simon Farrant.
Role
Has responsibility for setting
a policy framework for the
group, oversight and approval
of Johnson Matthey group
policies.
Finance and
Administration
Committee
Chaired by Anna Manz.
Role
Has responsibility for certain
of the group’s finance and
corporate restructuring matters.
Legal Risk
Committee
Chaired by Simon Farrant.
Role
Reviews contract and litigation
risk for the group.
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Governance
Principal board activities
During the year and up to the date of approval of this annual report, the board focused on a number of specific areas which are outlined in
the following table.
Science
Customers
Role of the board Outcome
Role of the board Outcome
Strategy
Efficiency
To set the
company’s strategic
aims and to take
responsibility for
the long term
success of the
company.
To approve major
capital projects.
• Reviewed and approved Efficient
Natural Resources strategy.
• Reviewed and approved Health strategy.
• Reviewed and approved Clean Air
strategy including investments in
Clean Air plants in Poland and China
to expand capacity.
• Reviewed and approved Battery Materials
strategy including investing in
manufacturing capacity, for ultra-high
energy battery cathode materials.
R&D
To ensure the
long term success
of the company.
• Reviewed innovation and endorsed
the approach taken to grow and
develop the research and
development portfolio.
To ensure that
the needs of our
customers are
integral to our
strategy.
To ensure the
long term success
of the company.
To maintain
oversight of the
group’s financial
performance.
To establish
transparent
arrangements to
apply corporate
reporting, risk
management and
internal controls.
To maintain
an appropriate
relationship with
the auditors
• Reviewed and approved proposals on
our commercial excellence programme
to capture a fair share of the value we
create for customers.
Financial
• Reviewed and approved group budget
and three year plan.
• Approved full year results, half-yearly
results and the annual report.
• Approved the group’s going concern
and viability statements.
• Reviewed the group’s tax strategy,
including the implications of the
US tax reform.
• Reviewed the group’s treasury strategy,
including key policies.
• Approved the appointment of
PricewaterhouseCoopers LLP as
external auditor for the financial year
commencing 1st April 2018 subject
to shareholder approval at the
2018 Annual General Meeting (AGM).
• Reviewed proposals on our brand
refresh and our programme of
delivery to support Johnson Matthey’s
200th anniversary.
90
Operations
People
Role of the board Outcome
Role of the board Outcome
Operational
Culture
To supervise the
management of
the business.
• Reviewed progress on the development
and implementation of groupwide
business information systems.
• Reviewed our cyber security
arrangements.
• Reviewed and approved proposals
on our procurement excellence
programme, including a saving target
of £60 million over three years.
• Agreed to close our Health
manufacturing plant at Riverside, US.
Risk
• Reviewed the board’s responsibilities
in relation to risk assessment and
monitoring of risk management
and internal control systems.
• Reviewed principal risks and agreed
mitigating actions, key assurance
activities and risk appetite.
Governance
• Reviewed the key features of the
proposed amendments to the UK
Corporate Governance Code and
established a working group to
consider further proposals.
• Reviewed the schedule of matters
reserved for the board and committee
terms of reference and approved a
new corporate governance framework.
To determine the
nature and extent
of the principal risks
and the group’s
risk appetite.
To facilitate
effective,
entrepreneurial
and prudent
management
of the business.
To establish the
culture, values and
ethics of the
company.
• Reviewed and agreed the articulation
of our company values and behaviours.
• Received a legal, ethics and compliance
and intellectual property risk update.
• Reviewed EHS performance at each
meeting and considered significant
incidents, including management
responses and actions and the
outcome of safety audits.
Leadership
To ensure the
board is effective
with an appropriate
balance of skills,
experience,
independence
and knowledge.
• Considered board succession and
approved the appointments of
John O’Higgins and Patrick Thomas.
• Reviewed directors’ conflicts of
interest and Non-Executive Directors’
independence.
To undertake a
rigorous annual
performance
evaluation.
To ensure
remuneration
promotes the
long term success
of the company.
• Reviewed key findings of the board
and committee performance
evaluation and agreed key actions.
• Reviewed objectives for the
Executive Directors and GMC
members for 2018/19.
Pages 16 and 17:
Our strategy
Our principal risks
Pages 76 to 81
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Governance
Board meetings and attendance
Each year the board agrees an annual agenda plan. The board seeks to ensure there is sufficient time to discuss strategy so that the
Non-Executive Directors have the opportunity to challenge and help develop strategy proposals.
During the year, our board met seven times. The attendance of members at board meetings during the year was as follows:
Tim Stevenson
Odile Desforges
Alan Ferguson
Jane Griffiths
Robert MacLeod
Anna Manz
Colin Matthews
Chris Mottershead
John O’Higgins
John Walker
Role
Date of
appointment
to board
Number of
meetings
eligible to
attend
Number of
meetings
attended
29th March 2011¹
Chairman
1st July 2013
Non-Executive Director
13th January 2011
Non-Executive Director
1st January 2017
Non-Executive Director
22nd June 20093
Chief Executive
17th October 2016
Chief Financial Officer
4th October 2012
Non-Executive Director
Non-Executive Director
27th January 2015
Non-Executive Director 16th November 2017
9th October 2013
Executive Director
7
7
7
7
7
7
54
7
2
7
62
7
7
7
7
7
5
7
2
7
%
attended
86%
100%
100%
100%
100%
100%
100%
100%
100%
100%
1
2
Tim Stevenson was appointed Chairman on 19th July 2011.
Tim Stevenson was unable to attend one meeting due to illness. In his absence, Alan Ferguson, Senior Independent Director, chaired the board meeting. Tim Stevenson reviewed all meeting
papers and shared his thoughts, comments and questions with Alan Ferguson, who raised these at the meeting.
3 Robert MacLeod was appointed Chief Executive on 5th June 2014.
4
Colin Matthews retired from the board on 15th November 2017.
Since the end of the year, the board has met twice and all board members attended both meetings.
The attendance of members at committee meetings in the year is set out in the Nomination Committee Report, the Audit Committee
Report and the Remuneration Report (in respect of the Remuneration Committee) on pages 99, 104 and 122 respectively.
Individuals’ attendance at board and board committee meetings is considered, as necessary, as part of the formal annual review of their
performance.
During the year, board members also participated in three scheduled conference calls to give the Executive Directors the opportunity to
update the Non-Executive Directors on key matters between board meetings.
Effectiveness
Our board’s composition
As at 31st March 2018, our board comprised
the Chairman, three Executive Directors and
five independent Non-Executive Directors.
Our board believes that both it and its
committees have the appropriate range and
balance of skills, experience, knowledge and
independence to enable them to carry out
their duties and responsibilities effectively. The
size and composition of the board is regularly
reviewed by the Nomination Committee.
The board, through the Nomination
Committee, follows a formal, rigorous and
transparent procedure to select and appoint
new board directors.
Independence of the
Non-Executive Directors
The board reviews Non-Executive Director
independence annually, most recently at its
meeting in May 2018. The board considers
all relevant relationships and circumstances,
including those defined in the Code that
could affect, or appear to affect, their
independent judgement.
Each of our Non-Executive Directors is
determined by the board to be independent
in character and judgement.
Information on the company’s
procedures for authorising potential conflicts
of interest is set out under ‘Directors’ conflicts
of interest’ on page 94.
Succession planning
Effective succession planning is a
fundamental component of board
effectiveness and integral to the delivery of
Johnson Matthey’s strategic plans. It ensures
a consistent level of quality in management,
in avoiding instability by helping mitigate the
risks which may be associated with any
unforeseen events (such as the departure of
a key individual), and in promoting diversity.
The board, through the Nomination
Committee, is actively engaged in succession
planning to ensure plans are in place for the
orderly and progressive refreshing of its
membership and to identify and develop
senior management with potential for board
and GMC positions through a pipeline of
talented and capable individuals from within
Johnson Matthey.
Board succession
The board recognises the need to recruit
Non-Executive Directors with the right
technical skills and knowledge for its
committees and who have the potential
to chair them. During the year the board,
through the Nomination Committee,
recruited John O’Higgins who was appointed
as a Non-Executive Director in November
2017. The succession planning for my role
as Chairman and subsequent appointment
of Patrick Thomas was led by Alan Ferguson,
our Senior Independent Director. Further
details are included in the Nomination
Committee report on pages 101 and 102.
Executive succession planning
In addition to recruiting externally, it is
important to develop internal talent for
board appointments, and Johnson Matthey
has a wide range of management
development programmes for all employee
levels, as described on page 52.
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My induction
I joined the board in November 2017 and
received a tailored induction programme.
I met with the Chairman, Chief Executive
and Chief Financial Officer on a one to one
basis to discuss current priorities, strategy,
future plans and review specific aspects of
the business. I also met with the General
Counsel and Company Secretary who
provided an overview of the group, the
organisational structure and the corporate
governance framework.
I met with the Sector Chief Executives
at Royston, Billingham and Sonning, UK,
and with the US-based Health sector management team. This gave me the opportunity
to tour the sites and meet the teams so as to understand more about Johnson Matthey’s
people, products and processes.
John O’Higgins
Non-Executive Director
Each of our sectors and corporate
functions prepare and maintain succession
plans, assisted by Human Resources. A key
aim is to ensure that we have the right mix
of talent capability to support our business
strategies whilst also encouraging broad
experiences through movement of talent
across our sectors and corporate functions.
The GMC reviews these plans each year and
the identification and development of high
potential individuals is also considered. The
GMC’s review of succession plans generally
leads to further refinement and changes,
resulting in the final plans which are
submitted to the Nomination Committee.
Each year the Nomination Committee, with
input from the Chief HR Officer, reviews the
management development and succession
planning processes for the directors and
senior executives, approves succession plans
for the board and considers succession plans
for senior executives.
Succession planning at board and senior
management level for Johnson Matthey
includes potential succession to all senior
roles, including that of the Chief Executive,
and considers the identification,
development and readiness of potential
internal successors. The board (through the
Nomination Committee) continues to focus
on the key issues of active talent
management, mobility across the group and
diversity.
Directors’ induction and
development
Johnson Matthey provides full tailored
induction programmes for all its new board
directors. These are intended to give a broad
introduction to the group’s businesses and its
areas of significant risk. Key elements include
meeting the Executive Directors and
management, and visiting the group’s major
sites in order to gain an understanding of
group strategy and of individual businesses.
Our intention is that all directors are
familiar with, and gain an appropriate
knowledge of, Johnson Matthey through visits
to our operations and meeting with
employees. The board ensures that the
company provides the necessary resources to
allow this to happen. We take various steps to
ensure that all of our directors continually
refresh their knowledge and skills so that they
can effectively fulfil their roles and so that their
contributions remain informed and relevant.
The board has processes in place to
ensure that it receives the right information in
the right form and at the right time to enable
it to effectively discharge its duties. The
Chairman, through the Company Secretary
and with the support of the Executive
Directors and management, ensures that this
information is of a high quality. Directors are
able to seek clarification or amplification from
management where necessary. Our directors
have access to independent external
professional advice at the company’s expense
where they judge this necessary.
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Terms of appointment of the
Non-Executive Directors
Our Non-Executive Directors are appointed
for specified terms subject to annual election
and to the provisions of the Companies Act
2006 (the 2006 Act) relating to the removal
of a director. During the year and following
a rigorous review, the board approved the
extension of Tim Stevenson’s term of
appointment until 31st December 2018.
Chris Mottershead, one of our Non-Executive
Directors who will be proposed for re-election
at the 2018 AGM, has served on our board
for three years. His term of appointment was
also reviewed and extended during the year
until 26th January 2021.
Boardroom diversity
Our board believes that diversity is important
for board effectiveness. As set out in our
Diversity Policy, all appointments to the
board are made on merit while taking into
account suitability for the role, board balance
and composition, the required mix of skills,
background and experience. This includes
consideration of diversity. In adopting our
Diversity Policy, we have chosen not to
set express diversity quotas. However, in
Non-Executive Director selection processes
the board encourages applications from
diverse candidates subject to the objective
selection criteria being met and to the
appointment of the best qualified candidate.
The board only engages executive search
consultants who have signed up to the
Voluntary Code of Conduct for Executive
Search Firms to address gender diversity on
corporate boards.
The policy requires the board to satisfy
itself that plans are in place for orderly
succession for appointments to the board so
as to maintain balance and ensure progressive
refreshing of the board. As set out on page 92,
the board, through the Nomination
Committee, annually reviews and approves
the management development and
succession plans for the directors and senior
executives and makes recommendations to the
board on its structure, size and composition.
Since the launch of the board policy
in 2013, the board has made progress in
broadening the diversity of the board and
senior management. As at the date of
approval of this annual report we had three
women on our board, which represented
33% of our total board membership.
During the year the board has continued to
promote diversity and inclusion at all levels
of the organisation and in the boardroom.
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Johnson Matthey / Annual Report and Accounts 2018
Governance
This includes developing policies and
processes that prevent bias in relation to
recruitment and promotion, such as actively
discussing diversity in succession planning
and talent management, promoting
industrial and scientific careers to women
and flexible employment policies. There
remain challenges to overcome, particularly
in respect of gender diversity given the sector
in which Johnson Matthey operates, but we
are making good progress. The information
from our first UK gender pay gap report as
explained more fully on page 54 helps us to
focus on any underlying causes of any gender
pay gap and take action accordingly.
Under the Code, evaluation of the board
should consider board diversity (including
gender), how the board works together as
a unit and other factors relevant to its
effectiveness. Our board followed this principle
in its board and committee evaluation process
in 2017/18. Further information is set out to
the right under ‘Evaluation of the board, board
committees and directors’.
Pages 53 and 54: Diversity and inclusion
matthey.com/corporate-governance
Time commitment of the
Chairman and the Non-Executive
Directors
The board recognises that it is vital that all
directors should be able to dedicate sufficient
time to Johnson Matthey to effectively
discharge their responsibilities. The time
commitment required by Johnson Matthey
is considered by the board and by individual
directors on appointment. The letters of
appointment of the Chairman and of each
Non-Executive Director set out the expected
minimum time commitment for their roles.
Each undertake that they will have sufficient
time to meet what is expected of them for
the proper performance of their duties and
acknowledge that there may, on occasion, be a
need to devote additional time. The minimum
time commitment considered by the board
to be necessary for a Non-Executive Director,
who does not chair a committee, is two days
per calendar month following induction.
The other significant commitments of
the Chairman and of each Non-Executive
Director are disclosed to the board before
appointment, with an indication of the time
involved. These are periodically reviewed,
including as subsequent changes arise.
Periodic reviews are of particular importance
as the board recognises that the
commitments required from Non-Executive
Directors can differ and evolve. Where
Non-Executive Directors hold more than
one other external commitment, the board
carefully reviews the position to ensure that
sufficient time will continue to be dedicated
to Johnson Matthey.
Details of the directors’ other significant
commitments can be found on pages 84
and 85.
Indemnification of directors
and insurance
Under Deed Polls dated 31st January 2017,
Johnson Matthey has granted indemnities in
favour of each director of the company and
of its subsidiaries in respect of any liability
that he or she may incur to a third party in
relation to the affairs of the company or any
group member. These were in force during
the year for the benefit of all persons who
were directors of the company or of its
subsidiaries at any time during the year. They
remain in force as at the date of approval of
this annual report. The company has
appropriate directors’ and officers’ liability
insurance cover in place in respect of legal
action against, amongst others, its Executive
and Non-Executive Directors. Neither the
company nor any subsidiary has indemnified
any director of the company or a subsidiary
in respect of any liability that he or she may
incur to a third party in relation to a relevant
occupational pension scheme.
Directors’ conflicts of interest
We have established procedures in place in
accordance with our Articles of Association to
ensure we comply with the directors’ conflicts
of interest duties under the 2006 Act and for
dealing with situations in which a director
may have a direct or indirect interest that
conflicts with, or may conflict with, the
interests of the company. Johnson Matthey
has complied with these procedures during
the year.
In April 2018, the board undertook an
annual review of potential conflict matters
including in respect of directors’ external
appointments. In each case, the review was
undertaken by directors who were genuinely
independent of the matter. The board
concluded that there were no matters which
constituted a conflict. Potential conflicts will
continue to be reviewed by the board on an
annual basis.
The board confirms that Johnson
Matthey complies with its procedures to
authorise conflict situations and is satisfied
that its powers to authorise conflict
situations are being exercised properly
and effectively and in accordance with its
Articles of Association.
Evaluation of the board, board
committees and directors
Having undertaken an internal review
process in each of the prior two years,
an external review was undertaken by
independent consultants, Manchester Square
Partners LLP (MSP). MSP have no other
connection with the company.
The Chairman provided a comprehensive
brief to MSP in December 2017. During
January and February 2018, MSP held
individual discussions with each member of
the board, the Company Secretary, the Chief
HR Officer and the KPMG lead audit partner
regarding the board and its committees. The
conversations were open, confidential and
unattributed. Areas discussed included the
board role, composition and dynamics, the
agendas and board papers, strategy, culture
and values, leadership, risk and governance.
MSP also observed our January board
and committee meetings. Access to board
and committee papers was provided
electronically prior to the meetings via a
secure electronic portal.
A report was prepared by MSP based
on the feedback received and their own
observations and experience. Following
discussion with the Chairman, this was
presented to the board in April 2018.
The board discussed the report and agreed
a number of actions.
On the following page we provide an
update on the actions undertaken from the
2016/17 internal review, led by the Chairman,
the feedback and insight from the 2017/18
external review and the actions to be taken
in 2018/19.
The board’s intention remains to
undertake an externally facilitated evaluation
process at least every three years. In the
intervening years, the review will be led by
the Chairman supported by the committee
chairs and the Company Secretary.
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Board evaluation
2016/17
Action
2017/18
Insight and update
2018/19
Action
Strategy
In the 2016/17 review, the board felt
that there could be more discussion
of the shape and strategy for the
group overall and its business model
in order for the board to address the
medium to long term options for
continued growth.
During the year the board spent
considerable time developing
and refining strategy, resulting
in good alignment on and
understanding of the group’s
strategic priorities.
The Non-Executive Directors
valued the increased time spent
on these matters.
Whilst not losing focus on strategic
direction, there will now be an evolution in
the board’s role more towards refining and
monitoring execution of agreed strategies.
In 2018/19 it will be necessary to ensure
that sufficient time is allowed for iterative
discussions, including investment
decisions, whilst maintaining time for
discussing customers, suppliers, talent
development, culture and compliance.
Risk
management
Board
composition
Board
dynamics
People
The 2016/17 review found that the
proposals for board risk reviews
had been well executed but further
work was required to embed an
appropriately robust process
throughout the group.
Risk management and reporting
were considered to be thorough
but continued focus would be
required to ensure full embedding
of ownership at all levels of
the group.
This will need to be continuously
monitored as the business evolves
to ensure early identification and
mitigation of emerging risks.
The 2016/17 review confirmed that,
taking into account some change
in composition, the group of
Non-Executive Directors still had
good diversity of experience,
background and gender and
knowledge about the group’s
major markets.
The 2016/17 review found
opportunities to work together,
not only within the board but
importantly when visiting businesses
and meeting senior colleagues, were
valuable, particularly in enabling the
cementing of board relationships.
There was still scope for greater
contribution and input from the
Non-Executive Directors, particularly
on key strategy issues and on areas
where they could identify what
‘good looks like’.
In the 2016/17 review, the
Non-Executive Directors valued
continuing to receive regular
updates on key people moves
from the Chief Executive and
the opportunity to express views
on issues that arise.
The review confirmed that
there was a good mix of
complementary, relevant skills
and diverse experiences on
the board.
In considering succession planning, the
board will consider the need for further
international experience on the board,
as well as having regard to other elements
of diversity.
The board was stated to be
friendly, collaborative, open and
supportive and the Non-Executive
Directors appropriately engaged.
Discussions were described as
open and collaborative.
As we deliver our strategy, we need to
ensure the Non-Executive Directors
continue to further their challenge, support
and contribution to the Executives. In this
context the board is considering whether
more time together and with management
would be beneficial. The continued use
of ‘teach-ins’ on major business areas,
explicitly separated from consideration
of strategy, will also support this.
Site visits are an important part of
employee engagement and potential
further opportunities for these will
be found.
People matters, including talent
development, succession and
employee engagement, were felt
to be high on the agenda and the
Non-Executive Directors welcomed
their exposure to management
below the Executives.
All Non-Executive Directors
were appropriately involved in
the Chairman’s succession.
95
Johnson Matthey / Annual Report and Accounts 2018
Governance
Review of the Chairman’s
performance
The Non-Executive Directors recognise that
the Chairman’s effectiveness is vital to that of
the board. Led by Alan Ferguson, the Senior
Independent Director, the Non-Executive
Directors are responsible for performance
evaluation of the Chairman and for providing
a fair and balanced assessment to
shareholders.
In April 2018, the Non-Executive
Directors, led by Alan, met without
Tim Stevenson being present to discuss
Tim’s performance. Key considerations were
his overall leadership of the board, the setting
of tone, the planning of appropriate agendas
and the effectiveness of structuring and
facilitating discussions. The views of Executive
Directors were also taken into account. Alan
subsequently reported the outcome to the
board that Tim’s leadership of the board
continued to be effective and engendered
openness and constructive challenge.
Review of the Executive Directors’
performance
The Chairman met with the Non-Executive
Directors without the Executive Directors
being present in November 2017 in order to
review the Executive Directors’ performance.
Each of the directors was considered to be
effective in discharging their responsibilities.
Our five Non-Executive Directors and
Chairman Designate are each determined by
the board to be independent directors in
accordance with the criteria set out in the
Code. The board considers that their skills,
experience, independence and knowledge
of the company enable them to discharge
their respective duties and responsibilities
effectively. Biographies of each of the
directors standing for election or re-election
can be found on pages 84 and 85.
Our 2018 AGM circular details why the
board believes each director should be
elected or re-elected based on continued
satisfactory performance in the role. In the
circular, the Chairman confirms to
shareholders that, following formal
performance evaluation, the performance
of each Non-Executive Director continues
to be effective and that they demonstrate
commitment to the role (including
commitment of time for board and board
committee meetings).
Remuneration
The board has established a Remuneration
Committee. The composition and role of the
Remuneration Committee is set out in the
Annual Report on Remuneration.
Pages 122 to 130
Annual election of directors
Accountability
In accordance with the Code, all directors
retire at each AGM and offer themselves for
election or re-election by shareholders.
John O’Higgins joined the board as a
Non-Executive Director on 16th November
2017. Patrick Thomas joined the board as
a Non-Executive Director and Chairman
Designate on 1st June 2018. As required by
our Articles of Association, John and Patrick
will retire at the 2018 AGM and offer
themselves for election. All other directors
will be offering themselves for re-election.
Financial and business reporting
In its reporting to shareholders, the board
recognises its responsibility to present a fair,
balanced and understandable assessment of
the group’s position and prospects. This
responsibility covers the annual report and
accounts and extends to half year and other
price sensitive public reports and reports to
regulators, as well as to information required
by statutory requirements.
The directors are responsible for
preparing this annual report and consider it,
taken as a whole, to be fair, balanced and
understandable and provides the information
necessary for shareholders to assess the
company’s position and performance,
business model and strategy.
96
Each of the four sectors; Clean Air,
Efficient Natural Resources, Health and
New Markets, was managed by executive
management teams reporting to the GMC.
The GMC reviewed bi-monthly summaries of
financial results from each sector through a
standardised reporting process. The group
has a comprehensive integrated strategic
planning and annual budgeting process
including three-year and ten-year plans.
Budgets are approved by the board and
variances are closely monitored.
Pages 5 and 62 to 69: Our four sectors
Risk management and
internal control
The board is ultimately responsible for
maintaining sound risk management and
internal control systems (including financial
controls, controls in respect of the financial
reporting process and controls of an
operational and compliance nature).
The company’s internal control systems
are on a groupwide basis and the review of
their effectiveness (including of the
application of the Guidance on Risk
Management, Internal Control and Related
Financial and Business Reporting issued by
the Financial Reporting Council in September
2014 (FRC Guidance)) is implemented and
reported from a groupwide perspective,
covering the company and its subsidiaries.
There are no material joint ventures or
associates which have not been dealt with
as part of the group for the purposes of
applying the FRC Guidance.
Our risk management systems and
internal control systems are designed to meet
the group’s needs and to manage the risks to
which it is exposed, including the risks of
failure to achieve business objectives and of
material misstatement or loss. However, such
risks cannot be eliminated. Our systems can
only provide reasonable, but not absolute,
assurance. They can never completely protect
against such factors as unforeseeable events,
human fallibility or fraud.
The board confirms that there is an
ongoing process in place (established in
accordance with the FRC Guidance) for
identifying, evaluating and managing the
principal risks faced by the group. This
process is regularly reviewed by the GMC,
the board and the Audit Committee as
appropriate and has been in place during
the year and up to the date of approval of
this annual report.
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The board is responsible for determining
the nature and extent of the principal risks it
is willing to take in achieving its strategic
objectives. The board’s view of Johnson
Matthey’s key strategic and operating risks
and how the company seeks to manage those
risks is set out in this report.
The directors confirm that they have
carried out a robust assessment of the
principal risks facing the company, including
those that would threaten its business model,
future performance, solvency or liquidity.
Our principal risks
Pages 78 to 81
Risk management and internal
control systems
The group’s risk management and internal
control systems comprise group policies,
procedures and practices covering a range of
areas including the appropriate authorisation
and approval of transactions, the application
of financial reporting standards and the
review of financial performance and
significant judgements.
Review of effectiveness of the group’s
risk management and internal control
systems
The board has important responsibilities in
respect of the group’s risk management and
internal control systems (including financial
controls, controls in respect of the financial
reporting process and controls of an
operational and compliance nature). The
board monitors these carefully throughout
the year and carries out an annual review of
their adequacy and effectiveness. The board
has delegated part of this responsibility to the
Audit Committee. The role and work of the
Audit Committee in this regard and the role
of the group’s Corporate Assurance and
Risk function are described in the Audit
Committee Report on page 107.
The board, through setting its own
annual agenda plan, defines the review
process to be undertaken, including the
scope and frequency of assurance reports
received throughout the year. The board
agenda plan, together with that of the Audit
Committee, are designed to ensure that all
significant areas of risk and the related risk
management and internal control systems
are reported on and considered during the
course of the year. In addition to determining
risk appetite, the board specifically reviews,
amongst other things, risks relating to EHS,
innovation, legal and compliance and
intellectual capital.
The board, in part through the Audit
Committee, has conducted an overarching
review of the effectiveness of the company’s
risk management and internal control
systems, covering all material controls,
including financial, operational and
compliance controls, and financial reporting
processes, for the year. The review process
accords with the FRC Guidance.
The Audit Committee
The composition of the Audit Committee
is set out in the Audit Committee Report
(pages 103 to 110), which describes the
work of the Audit Committee in discharging
its responsibilities.
The board is satisfied that at least one
member of the Audit Committee, Alan
Ferguson, has recent and relevant financial
experience, including competence in
accounting and that the Audit Committee
as a whole has competence relevant to the
sectors in which the company operates.
Stakeholders
Our approach to our stakeholders is central
to our decision making. We keep in close
contact with our shareholders, workforce,
customers and suppliers, to ensure we are
aware of each other’s priorities and consider
their views appropriately in decision making.
on pages 54 and 59. The board receives
regular reports on speak up matters which
provide further insight into the culture
across the group.
Customers
Understanding our customers’ needs helps
us to deliver the best solutions for them and
the board considers this as part of its strategy
and approving capital investments.
Pages 32 to 37: Customers
Suppliers
Working well with our suppliers is essential
to our business. It ensures a responsible
approach to our supply chain and mitigates
risks. During the year the board approved
Johnson Matthey’s Modern Slavery and
Human Trafficking Statement which sets out
the steps taken to prevent modern slavery in
our business and supply chains.
Pages 20 and 21: Our stakeholders
Pages 40 to 42: Responsible sourcing
matthey.com/modern-slavery
Relations with shareholders
Pages 20 and 21: Our stakeholders
Dialogue with our shareholders
Shareholders
Information on how we manage relations
with our shareholders is set out to the right
and on the following page.
Workforce
The board welcomes the opportunity to
engage with the workforce. Site visits provide
the chance to meet with local management,
both formally and informally, to obtain their
views on the opportunities and risks and
gauge the culture. In receiving presentations
on strategy, we ensure that the Sector
Chief Executive or key functional head,
and where relevant, their teams, attend the
board meeting so their views can be heard
and considered.
We have a variety of management
committees across the group, at both a
sector level and country level, which provide
a forum to understand issues across the
group. There are also plans in place to
undertake our next employee engagement
survey in September 2018.
We have processes in place for the
workforce to be able to raise concerns in
a confidential manner. Further details on
our speak up arrangements are set out
Our board welcomes the opportunity to openly
engage with shareholders as it recognises the
importance of a continuing effective dialogue,
whether with major institutional investors,
private shareholders or employee shareholders.
The board takes responsibility for ensuring that
such dialogue takes place.
Reporting of results and
Capital Markets Day
We report formally to our shareholders when
we publish our full year results in May and our
half-yearly results in November. When we
publish the results, our Executive Directors give
presentations in meetings with institutional
investors, analysts and the media in London.
Live webcasts and transcripts of these
presentations are available on our website.
In addition, we hold a Capital Markets
Day for our institutional investors and
analysts. The last of these was held in
September 2017. A live webcast of the
presentation to investors, a transcript of the
event and a downloadable copy of the slides
are made available on our website.
matthey.com/cmd-17
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Johnson Matthey / Annual Report and Accounts 2018
Governance
Contact with our shareholders
Our Chairman takes overall responsibility for
ensuring that the views of our shareholders
are communicated to the board and that our
directors are made aware of major
shareholders’ issues and concerns. However,
contact with major shareholders is principally
maintained by the Chief Executive and the
Chief Financial Officer. They have a regular
dialogue with institutional shareholders on
performance, plans and objectives through a
programme of one to one and group
meetings and ensure that shareholders’ views
are communicated to the board. Our Investor
Relations department acts as a focal point for
contact with investors throughout the year.
During the year the Chairman and
Senior Independent Director met with
institutional investors to hear their views and
discuss governance and strategy matters. The
Chairman, Senior Independent Director and
the other Non-Executive Directors continue
to be available to discuss matters of concern
if requested.
Overall, the board believes that
appropriate steps have been taken during the
year to ensure that the members of the
board, and in particular the Non-Executive
Directors, develop an understanding of the
views of major shareholders. These have
included, for example, analysts’ and brokers’
briefings, consideration by the board of
six monthly brokers’ reports and feedback
from shareholder meetings on a six-monthly
basis. Major shareholders’ views are
canvassed for the board in a detailed investor
survey which is usually conducted every two
years by external consultants. The purpose of
these surveys is to obtain the views and
opinions of a broad range of shareholders
and non-shareholders. A survey was
undertaken in early 2018 and the results
discussed by the board in April 2018.
The Remuneration Committee undertakes
detailed consultation exercises with a
selection of major institutional shareholders
and institutional investor bodies as part of its
comprehensive review of Executive Director
and senior management remuneration
arrangements within the group.
The circular sent to shareholders with the
notice aims to set out a balanced and clear
explanation of each proposed resolution.
All directors who are able to attend our AGMs
do so. In 2017, the entire board attended.
At the AGM, we propose separate
resolutions on each substantially separate
issue. For each resolution, shareholders may
direct their proxy to vote either for or against
or to withhold their vote. The proxy form and
the announcement of the results make it
clear that a ‘vote withheld’ is not legally a
vote and is not counted in the calculation of
the proportion of the votes cast. All valid
proxy appointments received are recorded
and counted.
All resolutions at the AGM are decided
on a poll carried out by electronic means.
The results are announced as soon as possible
and posted on our website. This shows votes
for and against as well as votes withheld.
The board reviewed the arrangements
for communicating with shareholders during
the year and concluded that they remain a
practical and efficient way for all our
directors to keep in touch with shareholders’
opinions and views and to reach a balanced
understanding of major shareholders’
objectives, issues and concerns.
While the board recognises that the
company is primarily accountable to its
shareholders, it also recognises the
contribution made by other providers
of capital and confirms its interest
in listening to their views, including
where relevant, on the company’s overall
approach to governance.
Annual General Meetings
The AGM is an important part of effective
communication with shareholders. Our AGM
takes place in London. Notice is sent to
shareholders at least 20 working days
beforehand and is published on our website.
2018 AGM
Our 2018 AGM will be held on 26th July 2018. The notice, together with an explanation
of the resolutions to be considered, is set out in a circular to shareholders. Our board
welcomes the opportunity for face to face communication with our shareholders.
Shareholders are encouraged to participate and all directors are available to answer
questions, formally through the Chairman during the meeting and informally afterwards.
matthey.com/shareholder-information
Compliance with the UK Corporate Governance Code
Code provision E.1.1 states that the Senior Independent Director should attend sufficient
meetings with a range of major shareholders to listen to their views in order to help develop
a balanced understanding of the issues and concerns of major shareholders. Whilst the
Senior Independent Director did meet with some major shareholders, the board does not
consider this to be sufficient to have fully complied with this provision throughout the year.
The board has concluded, however, that there are appropriate mechanisms in place to
listen to the views of shareholders and communicate them to the board without it being
necessary for the Senior Independent Director to attend meetings with major shareholders.
However, he is available to attend any such meetings if requested by shareholders. The
board believes that this approach is consistent with the relevant main principle of the Code
on dialogue with shareholders and is consistent with good governance and the promotion
of delivery of the company’s objectives. This approach will continue throughout the current
year but the board will keep the matter under review.
98
Nomination Committee Report
This year we focused heavily on succession planning
to ensure Johnson Matthey continues to have a
board with the right skills to effectively develop the
company’s strategy and a strong executive team to
implement and support it.
Tim Stevenson
Chairman of the Nomination Committee
The year under review saw changes to our board composition. I am pleased to announce that Patrick Thomas was appointed to the board as
Non-Executive Director and Chairman Designate with effect from 1st June 2018 and will be taking on my role as Chairman after our Annual
General Meeting (AGM) on 26th July 2018. Led by Alan Ferguson, our Senior Independent Director, the committee spent significant time during
the year on the recruitment for my role and is confident that Patrick will successfully steer the company in delivering its strategy. We also refreshed
our board in November 2017 when John O’Higgins joined as Non-Executive Director, following Colin Matthews’ decision to step down. During the
year, we also continued our focus on succession planning and talent management for the senior management, recognising the importance these
roles play in supporting the group’s strategic aspirations.
Role
Composition
Our committee has six members, myself
as Chairman and all the independent
Non-Executive Directors. Only members
of the committee have the right to attend
meetings. The Chief Executive and the
Chief HR Officer, as well as external advisers
and others, attend for all or part of our
meetings by invitation when appropriate.
Simon Farrant, our Company Secretary,
is secretary to the committee.
Committee meetings
during the year
Our committee usually meets immediately
prior to or following board meetings and on
other occasions as needed.
We met seven times during the year.
I also kept committee members up to date
between meetings. Several members of the
committee also met as a working group
during the year to progress Non-Executive
Director recruitment and recruitment for the
position of Chairman. The attendance of
members at meetings during the year is set
out below.
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The principal role of our Nomination
Committee is to keep under review the
structure, size and composition of the board
and to make appropriate recommendations
to the board with respect to any necessary
changes. We also consider the adequacy and
effectiveness of senior management
development and succession planning
processes for board members and senior
executives and ensure the adequacy and
effectiveness of the group’s processes for
identifying and developing the future senior
management pipeline.
Further details on our role and
responsibilities can be found in our corporate
governance framework.
matthey.com/corporate-governance
Tim Stevenson
Odile Desforges
Alan Ferguson
Jane Griffiths
Colin Matthews
Chris Mottershead
John O’Higgins
Date of
appointment
to committee
Number of
meetings
eligible
to attend
Number of
meetings
attended
7 62
29th March 20111
7
7
1st July 2013
7
7
13th January 2011
63
1st January 2017
7
4th October 2012 44
4
7
7
27th January 2015
3
3
16th November 2017
%
attended
86%
100%
100%
86%
100%
100%
100%
1
2
3
4
Tim Stevenson was appointed Chairman of the board and the committee on 19th July 2011.
Tim Stevenson was unable to attend one meeting due to illness. In his absence, Alan Ferguson, Senior Independent Director, chaired the committee meeting. Tim Stevenson reviewed all
meeting papers and shared his thoughts, comments and questions with Alan Ferguson, who raised these at the meeting.
Jane Griffiths was unable to attend one meeting due to prior commitments with Johnson & Johnson. She reviewed all papers and shared her thoughts, comments and questions with Alan
Ferguson, who raised these at the meeting.
Colin Matthews retired from the board and the committee on 15th November 2017.
99
Johnson Matthey / Annual Report and Accounts 2018
Governance
Committee activities during the year
Our principal activities during the year, and up to the date of approval of this annual report, were as follows:
Chairman succession My term of appointment was due to expire at the end of the company’s 2017 AGM. After considering
my performance and ability to contribute to the board, an extension to the term of my appointment
until 31st December 2018 was recommended to the board. Led by the Senior Independent Director,
the committee conducted a search process for a new chairman.
• Read more on pages 101 to 102.
Non-Executive Director succession Having conducted a search process for a new Non-Executive Director with assistance from
The Zygos Partnership, recommended to the board the appointment of John O’Higgins as a new
Non-Executive Director.
Recommended to the board that on the retirement of Colin Matthews in November 2017,
Chris Mottershead should chair the Remuneration Committee.
Renewal of appointment terms – Having considered his performance, ability to continue to contribute to the board and time
Chris Mottershead commitment, as well as his independence and the need for progressive refreshing of the board,
recommended to the board that the term of appointment of Chris Mottershead as Non-Executive
Director be renewed for a further three year term to 26th January 2021.
Talent management framework Received a presentation from the Chief HR Officer and the Group Talent and Learning Director on the
group’s integrated talent management process, addressing the talent requirements for delivery of our
strategic aspirations and noting that the next engagement survey would take place in 2018.
Succession planning and senior Reviewed the 2018 succession and development plans in respect of the Group Management Committee
management changes (GMC) including the Chief Executive, and other senior executives in each sector and function.
Discussed GMC membership, responsibility changes and senior (non-GMC) moves.
Considered the process for, and progress in, recruiting a Chief Strategy and Corporate Development
Officer and a Chief Executive for the Health Sector.
Review of performance and With the assistance of external consultants, Manchester Square Partners LLP, reviewed our
effectiveness during 2017/18 committee’s performance and effectiveness.
Review of committee terms Undertook a thorough review of the committee’s terms of reference to ensure that they reflected legal
of reference and governance requirements and continued to be fit for purpose. The terms of reference were
subsequently expanded to clearly cover both periodical assessment of the knowledge, skills and
experience of individual members of the board, and the board collectively, and review and
recommendation of the Diversity Policy to the board for approval.
Nomination Reviewed and approved the draft Nomination Committee Report for 2017/18.
Committee Report
Board appointments
In considering board composition, we assess
the range and balance of skills, experience,
knowledge and independence on the board,
identify any gaps or issues and consider any
need to refresh the board. If, after this
evaluation, we feel that it is necessary to
appoint a new director we then prepare a
description of the role, the capabilities and
characteristics required for the appointment
and set objective selection criteria
accordingly. The benefits of diversity, in its
broadest sense, on the board are carefully
considered. We consider any proposed
recruitment in the context of the company’s
strategic priorities, plans and objectives, as
well as the prevailing business environment.
We also take into account relevant
succession plans already in place.
In appointing Non-Executive Directors
we seek individuals who can make positive
contributions to the board and its
committees and who have the capability to
challenge on strategic and other matters.
This is balanced with the need to maintain
board cohesiveness.
We use external search consultancies to
help with the appointment process and
appointments are ultimately made on merit
against the agreed objective selection
criteria, having due regard, amongst other
things, to the benefits of diversity.
While the board has not set express
gender or other related diversity quotas or
measurable objectives, the board seeks to
encourage applications from diverse
candidates, subject to the selection criteria
being met.
Succession planning
A key role of the Nomination Committee
is to ensure that plans are in place for the
orderly and progressive refreshing of the
board and to identify and develop individuals
with potential for board and GMC positions.
As announced in April 2017, we made
several changes in the leadership of our
group and the Nomination Committee played
a key role in supporting the Chief Executive
in making these changes. During the year
we discussed the recruitment of two key
positions: the Chief Strategy and Corporate
Development Officer and the Sector Chief
Executive, Health. Matthew Harwood and
Jason Apter joined Johnson Matthey in
July 2017 and March 2018 respectively.
You can read more about their experience
on page 13. The Nomination Committee
has continued to focus on active talent
management, mobility across the group
and diversity within the year.
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We considered a presentation from our
Chief HR Officer in respect of Johnson
Matthey’s leadership pipeline in the context
of the group’s talent strategy. This covered
both assessment and development of
internal talent as well as external
recruitment. We also considered a
presentation on the company’s integrated
talent strategy and talent focus for 2018.
This included discussion of further
strengthening of performance management
across the group.
Non-Executive Director succession
During the year, we decided it was desirable
to seek a further Non-Executive Director
following Colin Matthews’ decision to step
down from the board. The preference
expressed to the headhunters was for a
current serving Chief Executive with strong
international experience to further support
and challenge our strategy. We engaged The
Zygos Partnership in a search process which
led to the appointment of John O’Higgins in
November 2017. The Zygos Partnership is a
signatory to the Voluntary Code of Conduct
for Executive Search Firms and has no
connection with the company, other than
Non-Executive Director recruitment. The
Committee felt that John O’Higgins’ executive
experience in successfully driving growth as
well as improving operational efficiencies
and his independence in character and
judgement would be beneficial to the board
as a whole.
Chairman succession
The term of my appointment as Chairman
was reviewed in May 2017. After full review,
this was extended to 31st December 2018.
Given my intention to step down as Chairman
by this date, Alan Ferguson, our Senior
Independent Director led a process on behalf
of the committee to search for my successor.
Leading the search for a new Chairman
As Senior Independent Director,
I led the search for a new Chairman
for Johnson Matthey.
The Committee decided to appoint
The Zygos Partnership to support the
recruitment process, given their knowledge
of the board and the company following the
successful recruitment of John O’Higgins.
As the announcement of Tim’s retirement
was made to the market and interested
parties were able to contact me directly,
it was not considered necessary to publicly
advertise the role.
Following detailed discussions, the committee agreed the key skills, experience and
characteristics required for the role which were shared with The Zygos Partnership. It was
felt that the new Chairman should have a successful and accomplished track record as a
global industry leader, preferably in the areas of science and technology, be strong
strategically and have demonstrated an ability to bring leadership to a board. Candidates
would also likely be low ego, down to earth, challenging and yet supportive, indeed a
natural mentor, with strong people and communication skills.
As you can see from the timeline for the recruitment (page 102), the committee
invested significant time and effort to ensure that the right candidate was appointed. The
Zygos Partnership put forward an extensive range of candidates for the committee to initially
consider. Following detailed discussion, this was narrowed down to a shortlist for interview
by myself and the Chief Executive. This shortlist developed and evolved over the period.
In order to canvas views, a small selection of candidates met with some of my fellow
directors and, in time, the preferred candidate met with the rest of the board, the
Company Secretary and the Chief HR Officer.
Tim Stevenson, as outgoing Chairman, did not take part in the selection process.
However, I did consult him for his views and considerations on the role.
Following full consideration, the Nomination Committee unanimously recommended
to the board to appoint Patrick Thomas as an independent Non-Executive Director and
Chairman Designate with effect from 1st June 2018. Patrick’s succession as Chairman will
take place after the 2018 AGM. The committee believes Patrick is very well placed to lead
the board and support the management team in delivering its strategy.
Alan Ferguson
Senior Independent Director
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Governance
Timeline of succession planning
Date Action
June 2017
July 2017
It was announced that Tim Stevenson had confirmed to the board his intention to step down as Chairman of the
company by 31st December 2018.
Following multiple discussions and working with The Zygos Partnership, the Nomination Committee identified the
key skills, experience and characteristics required for the role of the Chairman.
October 2017 –
February 2018
Alan Ferguson and Robert MacLeod interviewed the shortlisted candidates with the list evolving over this period.
A small selection of candidates met with other board members.
February –
March 2018
April 2018
July 2018
All board members, the Company Secretary and Chief HR Officer met with the preferred candidate.
Following recommendation from the Nomination Committee, the board approved the appointment of Patrick
Thomas as Non-Executive Director and Chairman Designate with effect from 1st June 2018.
Subject to shareholder approval, Patrick Thomas will be Chairman with effect from the close of the 2018 Annual
General Meeting.
The Chief Executive and the Company
Secretary have commenced a detailed
induction process for Patrick. Further details
on this will be reported in the 2019 Annual
Report and Accounts.
The Nomination Committee Report was
approved by the Board of Directors on
30th May 2018 and signed on its behalf by:
Tim Stevenson
Chairman of the Nomination Committee
Committee effectiveness
The committee’s annual performance review
was externally facilitated by Manchester
Square Partners LLP (MSP) who held
meetings with all committee members to
seek their individual views on the
committee’s composition, its responsibilities
and the culture of meetings. The report from
MSP, which was reviewed by the committee
at its meeting in April 2018, contained
positive feedback, including that the
committee operated well and had strong
processes in place for key appointments. The
committee noted the importance of giving
continued appropriate attention to the
impact of new hires to the company’s culture,
and that of succession planning including the
importance of diversity.
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Audit Committee Report
The committee delivered its key priorities for the year,
including a successful tender of the external audit.
Alan Ferguson
Chairman of the Audit Committee
I am pleased to present our report for the year ended 31st March 2018
which outlines the committee’s activities during the year. Of particular
note this year was the work carried out in respect of the external audit
tender. We spent a significant amount of time planning this to ensure it
was conducted effectively and efficiently in order to secure the best result
for Johnson Matthey. Further details are set out on pages 108 and 109.
We have also looked at the risk management processes across the
group and at risk assurance mapping. Throughout the year we have
discussed and challenged risk and control matters and worked closely
with the Group Assurance and Risk Director to ensure delivery of a
well targeted and robust internal audit plan.
Continuing to monitor and review the effectiveness of the group’s
Our principal risks
internal controls and risk management systems has been particularly
important as we aligned our group structure to four sectors and the
risk landscape continued to evolve. Each year, we look at the control
environment of selected sectors and this year we focused on Clean Air
and Health.
Page 76: Risk management systems
Looking ahead, we will monitor and support the successful
transition to the new external auditor, ensuring audit quality is not put
at risk during this period.
Role
Composition
Our principal role is to assist the board in
carrying out its oversight responsibilities in
relation to financial reporting, internal
controls and risk management and in
maintaining an appropriate relationship with
our external auditor. More details on our role
and responsibilities can be found in our terms
of reference which were updated during the
year and are available on our website.
matthey.com/corporate-governance
Our committee currently comprises five
members: myself as Chairman and all of
our independent Non-Executive Directors.
We welcomed John O’Higgins to the
committee in November 2017. This is my
seventh year as Chairman of the committee.
I am a Chartered Accountant with many
years’ experience working in finance, having
been, over a 12 year period, the Group
Finance Director at Inchcape plc, The BOC
Group plc and Lonmin Plc. I also chair the
audit committees of two other companies.
As a committee, we have a broad range of
knowledge, skills and experience gained
from a variety of backgrounds, as detailed
on pages 84 and 85. This is essential to the
effective discharging of our duties.
The board has agreed that the
committee has experience relevant to the
sectors in which we operate and that I have
recent and relevant financial experience,
including competence in accounting, as
required by the provisions of the UK Corporate
Governance Code 2016.
The secretary to the committee is Simon
Farrant, Company Secretary.
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Johnson Matthey / Annual Report and Accounts 2018
Governance
Committee meetings during the year
We met six times during the year. Attendance at these meetings was as follows:
Alan Ferguson
Odile Desforges
Jane Griffiths
Colin Matthews
Chris Mottershead
John O’Higgins
Date of
appointment
to committee
Number of
meetings
eligible
to attend
Number of
meetings
attended
13th January 20111
1st July 2013
1st January 2017
4th October 2012
27th January 2015
16th November 2017
6
6
6
3
6
3
6
6
52
33
6
3
%
attended
100%
100%
83%
100%
100%
100%
1 Alan Ferguson was appointed Chairman of the committee on 19th July 2011.
2
3
Jane Griffiths was unable to attend one meeting due to prior commitments with Johnson & Johnson. She reviewed all papers and shared her thoughts, comments and questions with Alan
Ferguson, who raised these at the meeting.
Colin Matthews resigned from the board and the committee on 15th November 2017.
Since the end of the year, the committee
has met twice and all members attended.
The committee’s meetings coincide with key
events in the company’s financial calendar.
Following each meeting, I report on the main
discussion points and findings to the board.
In order for us to properly discharge our
role, it is critical that we have the opportunity
to openly discuss with management any
matter which falls within our remit and probe
and challenge where necessary. The Chief
Executive, the Chief Financial Officer and the
Group Assurance and Risk Director attend all
of our meetings and other senior managers
attend to support the committee’s activities
and provide technical or business information
as necessary.
In addition, our meetings were attended
On a more frequent basis, I meet with
by the KPMG lead audit partner and other
representatives from KPMG. Their attendance
is important as it gives us the opportunity to
seek their independent and objective views
on matters which they encounter during their
audit. At least once a year, we meet separately
with the lead audit partner and with the
Group Assurance and Risk Director, who
manages the internal audit function, to discuss
matters without executive management
being present.
the Chief Financial Officer, the Group
Assurance and Risk Director, other senior
management and with KPMG. This means
any issues or concerns can be raised at an
early stage, allowing me to ensure that
sufficient time is devoted to them at the
subsequent committee meeting.
Communication between the committee,
management and the internal and external
auditors is open and constructive.
Overview of how we discharged our responsibilities during the year
Our principal activities during the year, and up to the date of approval of this annual report, were as follows:
Role Activity
Published financial information
To monitor the integrity of the
reported financial information and
to review significant financial issues
and judgements
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Reviewed the group’s full year results and half-yearly results and considered the
significant accounting policies, principal estimates and accounting judgements used
in their preparation.
Reviewed the matters in support of preparing the accounts on a going concern basis and
assessing the long term viability of the group.
Assessed the process which management put in place to support the board when giving
its assurance that the 2018 Annual Report and Accounts, taken as a whole, is fair,
balanced and understandable.
Received an update on new or forthcoming accounting standards that could materially
impact the group, including IFRS 15 – ‘Revenue from Contracts with Customers’ and
IFRS 16 – ‘Leases’.
Responded to questions from the Financial Reporting Council (FRC) as part of their thematic
review of significant accounting judgements and sources of estimation uncertainty.
Reviewed and approved the 2018 Audit Committee Report.
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Role Activity
Risk management and internal control
To review the group’s internal financial
controls and its risk management
systems and to monitor the effectiveness
of the group’s internal audit function
•
Received reports at every meeting from the Group Assurance and Risk Director on the
corporate assurance and risk reviews and risk management processes.
• Monitored progress against the 2017/18 corporate assurance and risk plan and agreed
the 2018/19 plan.
• Monitored the effectiveness of the Corporate Assurance and Risk function.
•
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Reviewed the key control framework and finance policies, including treasury policies.
Received reports from the Clean Air and Health Sector Finance Directors.
Received a report from the Precious Metals Finance Director on the outcome of a review
of the precious metal governance framework including an enhanced set of controls.
Reviewed reports from the General Counsel on litigation and on the speak up
(whistleblowing) procedures and outcomes.
Reviewed reports on credit controls and credit risks.
Approved, after due challenge and discussion, KPMG’s proposed terms of engagement,
audit plan and fees for 2017/18.
Considered reports from KPMG on its audit.
Conducted a comprehensive external audit tender process and recommended two firms
to the board, with a stated preference that PricewaterhouseCoopers LLP (PwC) be
appointed as the external auditor for 2018/19. For further information, please see
pages 108 and 109.
External auditor
To ensure an appropriate relationship
with the external auditor, to monitor its
independence and objectivity, negotiate
and approve its fees, recommend its
reappointment or not and to ensure it
delivers, based on a sound plan, a high
quality effective audit
These activities are covered in more detail on the following pages.
Published financial information
Significant issues considered by the committee in relation to the group’s and company’s accounts
Ensuring the integrity of the accounts is fundamental to our remit. In preparing the accounts, there are a number of areas requiring management
to exercise a particular judgement or a high degree of estimation. Our role is to assess whether the judgements and estimates made by
management are reasonable and appropriate.
Significant issues considered by the
committee in relation to the accounts Work undertaken by the committee in forming an opinion
Refining process and stock takes
When setting process loss provisions
and agreeing commercial terms with
customers, key judgements are made in
estimating the amount of precious metal
that may be lost during the refining and
fabrication processes. In addition, refining
stock takes involves key judgements in
estimating volumes of precious metal
bearing material in the refining system
and the subsequent sampling and assaying
to assess the precious metal content
(accounting policies section on page 148).
In order to satisfy ourselves on the robustness of the stock take results and the adequacy of
process loss provisions, we reviewed the results from the refinery stock takes together with
explanatory commentary from management which included whether these results were
in line with expectations and historic trends. We also reviewed the results as a percentage
of throughput.
The refining process and stock takes were also an area of focus for KPMG who reported its
findings to us.
We considered whether the accounting treatment for refining stock take gains and losses was
in accordance with agreed methodology and concurred with management’s opinion that it was.
During the year, the committee agreed that a full refinery stock take in the UK refineries would
be delayed. This was due to strong customer demand and concern over a possible shortage
of palladium if our refinery had to be shut down for the stock take. In the absence of the
full stock take, the committee reviewed additional controls and procedures to be performed
by both management and KPMG, and were satisfied that they were appropriate.
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Governance
Significant issue considered by the
committee in relation to the accounts Work undertaken by the committee in forming an opinion
Impairment of goodwill, other intangibles and other assets
Key judgements are made in relation to the
assumptions used in calculating discounted
cash flow projections to value the cash
generating units (CGUs) containing
goodwill, to value other intangible assets
not yet being amortised and to value other
assets when there are indications that they
may be impaired. The key assumptions are
management’s estimates of budgets and
plans for how the relevant businesses will
develop or how the relevant assets will be
used in the future, as well as discount rates
and long term average growth rates for
each CGU (accounting policies section on
page 147 and notes 18, 19 and 20 on
pages 167 to 171).
Taxation
Key judgements are made in arriving at
management’s best estimate of the tax
charge included in the accounts, where the
precise impact of tax laws and regulations
is unclear (accounting policies section
on page 147).
Post-employment benefits
Key judgements are made in relation
to the assumptions used when valuing
post-employment benefit obligations
(accounting policies section on page 147
and note 17 on pages 160 to 167).
Claims and uncertainties
The business is exposed to potential claims
and uncertainties and how to deal with
these often involves significant judgement
(accounting policies section on pages 146
and note 32 on pages 181 to 182).
As part of the annual impairment review of goodwill and other intangible assets not yet being
amortised, we reviewed a report from management. This explained the methodology used
and the rationale for the assumptions made including explanations for any significant changes
from those used in prior years. For these annual impairment tests, there was significant
headroom over the carrying value of the relevant CGU’s net assets apart from the water business.
In looking at the sensitivities of average growth expectations of the markets for water services,
management concluded that an impairment of £11 million was appropriate. In addition,
following the annual impairment review, a number of other asset impairments were identified
as a result of restructuring activities during the year. Asset write offs totalling £55 million
included in major impairment and restructuring charges comprise impairments of tangible
fixed assets (£40 million) and goodwill, inventory and intangible assets (£15 million).
There were no other significant impairments of other assets in the year.
The impairment reviews were also an area of focus for KPMG who reported its findings to us.
We concluded that management’s key assumptions were reasonable.
We reviewed explanatory papers from management which included a review of the
appropriateness of the tax provisions, relevant disclosures and the impact of the recent
US tax changes.
KPMG also reported its findings in this area to us and we reviewed these.
We concluded that the judgements, estimates and disclosures were reasonable and appropriate.
We reviewed the report from management summarising actuarial valuations and key
assumptions for the main post-employment benefit plans. We compared these assumptions
with those made by other companies and those used last year.
We also considered the opinions expressed by KPMG in this area.
We concluded that the assumptions used are appropriate for the group’s post-employment
benefit plans.
We reviewed information provided by management in relation to legal claims and
uncertainties in accordance with relevant accounting standards. After challenge, we concurred
with their conclusions around provisioning and the contingent liability.
In addition to the above, the committee paid particular attention to the non-underlying charges this year as they were of a different magnitude
to previous years. This involved understanding the rationale for the charge as well as how it was disclosed in the Consolidated Income Statement
and accompanying notes to the accounts.
Fair, balanced and understandable
We reviewed and assessed the process which
management has put in place to support the
board when giving its assurance that the
2018 Annual Report and Accounts, taken as
a whole, is fair, balanced and understandable
and provided the information necessary for
shareholders to assess the company’s position
and performance, business model and strategy.
This process included senior managers
undertaking a detailed review of the sections
of the Annual Report and Accounts that fall
within their area of responsibility and
confirming it is fair, balanced and
understandable. A separate independent
review is also undertaken and key sections
are reviewed by our external advisers.
Following our review, we confirmed to the
board that we had reviewed the process
put in place by management and that it
was satisfactory.
Going concern and viability statement
We reviewed the matters, assumptions and
sensitivities in support of preparing the
accounts on a going concern basis and
assessed the long term viability of the group.
This included assessing the risks which would
threaten our business model, the current
funding position and different stress scenarios.
We concluded that the group would be able to
continue in operation, comply with facility
covenants and meet its liabilities as they fall
due over a period of at least three years and
that the accounts should be prepared on a
going concern basis. Further information can
be found on pages 74 and 75.
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Corporate assurance and risk
The committee receives regular reports on
the number and type of internal audit and
security reviews undertaken during the period
and how this compares to the plan, the key
findings of those audits and reviews, the
number and nature of actions to address the
findings and progress made by management
in implementing the actions. During the year
we paid particular attention to the level of
engagement of all our managers, whether at
local, sector or executive level, in
implementing corrective actions and in
strengthening the control framework across
all our sites, irrespective of location, size and
activity. At each meeting we tracked progress
in completing open actions and challenged
management to ensure that actions were
being dealt with in a timely manner.
We pay close attention to the resourcing
of the Corporate Assurance and Risk function,
knowing that the calibre, knowledge and
experience of individual auditors are critical
to achieving an effective audit and this is
supplemented with external support to
provide specialist skills as required. At each
meeting the Group Assurance and Risk
Director is present and we have the
opportunity to ask detailed questions and
challenge her. We receive regular reports
from her and we seek the views of managers
and also of KPMG, all of whom have frequent
contact with the function. We pay attention
to whether the function has adequate
standing across the group and is free from
management or other restrictions. We review
the performance of the function annually.
We spend a significant amount of time
Internal control
reviewing the corporate assurance and risk
annual plan to ensure it is comprehensive,
well targeted and provides the appropriate
level of assurance. In reviewing the 2018/19
plan, we considered the maturity of existing
internal controls and the work planned by
sector management, particularly the finance
teams, to review and check the controls across
different areas of their businesses. As part of
the detailed planning process, information
from a variety of sources was analysed to
assess levels of risk. This included output from
the key control assessment process, speak up
concerns, previous internal audit findings,
including EHS audits, as well as input from our
strategy team in relation to future revenue
growth. We also looked at what is not covered
by the plan, either by way of business activity
or geographic coverage. Where there is no
coverage at certain sites or businesses, we
discuss what other mechanisms are in place
to check the adequacy of controls. We were
pleased to see that the plan included
assurance work undertaken by the functional
teams, including Finance, as well as sector
management. In addition, there were also
proposals to enhance the second line of
defence controls further, with the sectors
reviewing each other. The plan was mapped
against the principal risks which allowed us
to see how much coverage there would be
on each risk. We believe the 2018/19 plan
addresses Johnson Matthey’s key risks and
its coverage is appropriate for the size and
nature of the group. On the basis of our
review, we approved the plan.
The key control questionnaire process is an
important part of our assurance programme.
It is a bottom up process that requires sectors
and management to certify the existence
and effectiveness of key controls within their
areas of responsibility. We assessed the
effectiveness of the process and we evaluated
the nature and quality of responses, the level
of challenge to the responses, significant
findings, areas for improvement and how
management intended to address findings.
Risk management
Working with the board, the risk assurance
processes were reviewed and refined. We
concentrate primarily on reviewing the
mitigating controls and the levels of
assurance over these. The board may ask
for additional assurance to be provided and
this can be carried out by the Corporate
Assurance and Risk function who report
back on this to the committee.
Speak up issues
The committee receives regular updates on
speak up (whistleblowing) issues. We review
key matters raised via speak up reports and
ensure the procedures allow proportionate
and independent investigation of such
matters, as well as appropriate follow up
action. Due to the importance of this process
to Johnson Matthey, the board delegates
some responsibility to the committee and to
the group’s Ethics Panel.
Risk management and
internal control
The committee assists the board in its overall
responsibility for the group’s internal controls
by reviewing the adequacy and effectiveness
of controls and risk management systems.
The Corporate Assurance and Risk Director
has a direct reporting line to me and is
responsible for providing independent
assurance that our risk management and
internal control processes are operating
effectively. She provides regular oversight
of risk matters that affect our business and
monitors compliance to ensure that any
mitigation actions are properly managed
and completed. She takes comfort from a
number of other sources of internal assurance
when reviewing the effectiveness of the
group’s systems of internal control.
Sector and functional control reviews
During the year the committee reviewed the
control environment in Clean Air and Health.
This gave us an opportunity to learn more
about key financial risks and provide
independent challenge as to how these were
being managed, what control enhancements
were being carried out and understand the
bench strength of the sector finance teams.
In particular, we heard from the Sector Finance
Directors about the main themes arising from
the key control assessment process, which
enabled us to better understand the control
environment in the sectors. We also received
an update from the new Group Financial
Controller on his first impressions of the
group and the finance function.
The committee receives updates from
individuals responsible for maintaining
controls over financial risk areas across the
group, so that we can be sure these are
managed effectively. The Group Financial
Controller presented an overview of the
control framework and the finance policies
which were being revised to clarify
accountabilities and the committee sought
assurance on the actions being taken. The
committee also reviewed the treasury strategy
and policies during the year, including the
changes to the net investment hedging
policy. These policies were recommended to
the board for approval in accordance with
our corporate governance framework. The
committee also reviewed the precious metal
governance framework and controls
associated with the balances of precious
metal held in the businesses.
Our principal risks
Pages 76 to 81
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Johnson Matthey / Annual Report and Accounts 2018
Governance
External auditor
External audit plan
The external audit plan for 2017/18 began
with a review of significant risks and an
assessment of how those risks impacted on
the audit approach which then formed the
basis of the plan. In deriving the key audit
risks, KPMG considered the internal and
external factors impacting the group and the
group’s own risk assessment. These were then
discussed with sector and group management
and translated into audit risks which shaped
the audit approach. Key audit risks were
identified at the initial planning stage and
were reviewed and refined during the course
of the year. The final four risks are referred to
in the Independent auditor’s report on pages
192 to 197. Materiality and the scope were
agreed, as set out on page 192. In assessing
adequacy of coverage, we also looked at local
materiality levels, whether local statutory
accounts were to be signed off and the
number of site visits to be carried out by the
group audit team.
We also discussed the background and
experience of the audit partners responsible
for the largest local teams, independence and
KPMG’s audit quality framework. Following
discussion, we concluded that the proposed
plan was sufficiently comprehensive for the
purpose of the audit of the group’s accounts
and approved the proposed fee after
due challenge.
How we reviewed KPMG’s performance
The committee is committed to ensuring a
high quality audit and this is particularly
important ahead of the audit transition from
KPMG to PwC.
Towards the end of the 2016/17 external
audit, a feedback questionnaire was circulated
to the Executive Directors and senior
management. They were asked to rate how
satisfied they were with KPMG, including its
level of planning, ability to meet objectives,
industry and specialist knowledge, organisation,
ability to challenge management,
independence, level and quality of
communication and value for money. The
results showed an overall level of satisfaction
with KPMG. Stephen Oxley, the lead audit
partner, presented an action plan for the
2017/18 audit to address the areas for further
improvement, including at a sector level.
We also reviewed the FRC’s report
highlighting the principal findings they found
when reviewing a selection of KPMG’s audits
in 2016/17, including Johnson Matthey’s.
This gave us some insight into how the FRC
sees the quality of KPMG’s work and is
relevant to the consideration of audit quality.
108
On a continuous basis throughout the
During the year the committee reviewed
year, we look at the quality of KPMG’s reports
and the performance of Stephen Oxley both
in and outside committee meetings. We pay
particular attention to the way Stephen and
the team interact with and challenge
management as well as the effectiveness of
the relationship between the internal and
external audit teams. We also obtain
feedback from the Chief Executive, the Chief
Financial Officer and the Group Financial
Controller, all of whom have extensive
interactions with KPMG. As noted earlier,
I have regular one to one update meetings
with Stephen to discuss agenda items and
other matters which either Stephen or I feel
are important.
Provision of non-audit services
Last year, in light of EU legislation and
the FRC’s Revised Ethical Standard, the
committee adopted a new policy on the
provision of non-audit services which was
effective from 1st April 2017. The policy
identifies certain types of engagement that
the external auditor shall not undertake,
including tax services, the preparation of
accounting records and risk management
procedures. It also sets out the circumstances
in which a former employee of KPMG can
be employed by Johnson Matthey and the
procedure for obtaining approval for
such employment.
The policy also includes key controls to
ensure that the provision of non-prohibited
services does not create a threat to KPMG’s
auditor independence and objectivity. The
auditor can be invited to provide non-audit
services which, in its position as auditor,
it must or is best placed to undertake and
which do not impact auditor objectivity or
independence. The policy sets out how
approval should be obtained prior to KPMG
being engaged. Services likely to cost £25,000
or less should be approved by the Chief
Financial Officer; services likely to cost more
than £25,000 but £100,000 or less must
be approved by myself as Chairman of the
committee and services likely to cost over
£100,000 must be approved by the
committee. During the year, I approved the
engagement of KPMG to provide assurance
over cyber risk management. The committee
approved the provision of additional
accounting advice on the implementation
of IFRS 15 and the reappointment of KPMG
to provide further independent programme
assurance in relation to the implementation
of new business information systems.
compliance against the policy and the
provision of non-audit services and details
of the non-audit services provided by KPMG
and associated fees. Non-audit fees in the
year were £0.8 million compared to audit
fees of £2.2 million. The non-audit fees
predominantly comprised expenditure on
the provision of independent programme
assurance (a continuing spend from prior
year). More information on fees incurred by
KPMG for non-audit services, as well as the
split between KPMG’s audit and non-audit
fees, can be found in note 10 on the
accounts, page 154.
An additional interim policy on the
engagement of those audit firms tendering
for the external audit was applied during the
year to ensure they were not precluded from
participating in the tender process and to
avoid any independence issue arising in the
run up to the appointment of a new auditor.
Objectivity and independence
The committee is responsible for monitoring
and reviewing the objectivity and
independence of the external auditor to
ensure this is safeguarded. Given the work
outlined above, the committee concluded
that the audit was both independent
and effective.
External audit tender
KPMG (and its predecessor entities) has been
our external auditor since 1986, following a
full tendering process in 1985. We have
undertaken a review of KPMG’s performance
every year since then. Stephen Oxley, our
current lead audit partner, was appointed in
2013/14 and each year since then he has
taken steps to refresh KPMG’s approach to
certain aspects of its audit.
As disclosed in last year’s annual report,
it was always our intention to put the audit
out to tender when Stephen’s term expired,
after completion of the 2017/18 audit. This
approach is in line with EU legislation on
audit firm rotation requirements, which came
into force on 17th June 2016. Under the EU
audit reform transitional arrangements
KPMG’s last possible audit would be for the
year ended 31st March 2020.
The committee was fully responsible
for the operation of the audit tender
process and for recommending two firms
of auditors to the board, together with the
committee’s preference. KPMG was not
invited to participate. Set out on the following
page is a summary of the detailed process
carried out.
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Activity relating to the external audit tender
March 2017
June 2017
The Audit Committee Chairman, Chief Financial Officer and senior management considered who should be invited
to tender for the appointment. The appointment was discussed with various firms.
The Audit Committee Chairman and Chief Financial Officer met with the audit firms who had confirmed their
participation in the tender. We provided an outline of the tender process and discussed the key attributes we would
expect to see in the senior members of the group audit team, including the lead audit partner, and the likely
structure of that team. The objective of this was to ensure each firm put forward the highest quality team to lead
the tender that fits best with our requirements. Each firm was also requested to confirm that it had not carried out
any services for us which would cause an issue with audit independence and that they had processes in place to
ensure their independence throughout the tender process.
September 2017
The Audit Committee Chairman and Chief Financial Officer met with a number of prospective lead audit partners
from each participating firm and decided who would lead the tender from each firm.
November 2017
The committee finalised the selection criteria for the tendering process. These included:
•
•
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•
•
•
•
Quality of audit.
Continuous improvement and innovation in the audit approach, including through data analytics.
Independence.
Geographic coverage.
The team and cultural fit with a particular focus on the lead partner.
Understanding the business and industry.
Ability to challenge management and display rigour in approach.
Value for money.
The committee signed off the tender request.
December 2017
The tender request was issued and a data room opened.
January 2018
Meetings were held with key management, the Chairman and the Chairman of the Audit Committee to allow the
tendering firms to gain an insight to the business, the culture and our requirements. Feedback was gathered to
provide input into the subsequent decision making process.
February 2018
Written tenders were submitted.
Three shortlisted firms gave presentations to a panel comprising all Audit Committee members, the Chairman,
Chief Financial Officer and Group Financial Controller.
A formal decision was made by the committee, having given full consideration to the panel’s recommendation.
The committee recommended two firms to the board for approval, with a stated preference for PwC. The committee
believe that PwC has a strong team with the skills and experience to provide rigour and challenge in the audit.
Proposed appointment of
PricewaterhouseCoopers LLP (PwC)
After considering the committee’s
recommendation, and as announced in
March 2018, the board selected PwC as the
group’s auditor for the financial year
commencing 1st April 2018 subject to the
approval of shareholders at the 2018 Annual
General Meeting (AGM). The lead audit
partner is Mark Gill.
A resolution proposing PwC’s
appointment is included in the notice of
the AGM.
Audit transition
Statement of compliance
The committee will closely monitor the audit
transition from KPMG to PwC and the Chief
Financial Officer and I will meet regularly
with both lead partners from the firms to
discuss progress.
I look forward to reporting on PwC’s
first audit in the 2019 Annual Report and
Accounts.
The committee confirms that, during the
financial year ended 31st March 2018, the
company complied with the applicable
provisions of the Competition and Markets
Authority’s Statutory Audit Services for
Large Companies Market Investigation
(Mandatory Use of Competitive Tender
Processes and Audit Committee
Responsibilities) Order 2014.
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Johnson Matthey / Annual Report and Accounts 2018
Governance
Committee effectiveness
The committee’s annual performance and effectiveness evaluation was externally facilitated by Manchester Square Partners LLP, who held
meetings with all committee members, the Executive Directors and KPMG to seek their views on matters such as committee composition,
its responsibilities and the dynamic and culture of meetings. The report was positive and confirmed that the committee operates effectively
and manages its remit well.
Our priorities
In last year’s annual report we set out our priorities, over and above our business as usual work, for 2017/18. Below we report on the status of
these and set out our priorities for 2018/19.
2017/18 Comments
•
Continue to monitor progress of the investment in business
information systems.
Due to the size of this project, the need to have significant
management input and the value to be delivered on completion,
it was decided that the board would maintain close oversight of the
investment and implementation of business information systems.
The board received three presentations on the topic, two of which
were attended by KPMG, which provided independent programme
assurance on the implementation. The Chief Financial Officer has also
kept me regularly informed on the achievement of key milestones.
•
Plan and conduct the tender of the external audit.
Pages 108 and 109
2018/19
• Monitor and support the external audit transition.
•
•
•
Given the significant impact of precious metal (both customer
and owned metal) held by the company on working capital,
the committee will receive further presentations on how
management will oversee this, including a ‘teach-in’ for the
Non-Executive Directors.
As the group’s new business information systems are deployed,
the committee will pay particular attention to the associated
control processes.
Given the substantial increase in planned capital expenditure,
the committee will review the control framework around the
significant areas of spend.
The Audit Committee Report was approved by the Board of Directors on 30th May 2018 and signed on its behalf by:
Alan Ferguson
Chairman of the Audit Committee
110
Remuneration Report
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Our role is to ensure that Johnson Matthey’s
remuneration arrangements align with shareholders’
interests, reward directors for performance and are
well managed in line with good governance.
Chris Mottershead
Chairman of the Remuneration Committee
The long term incentive awards granted on 1st August 2015 will
lapse on the third anniversary of their grant following compound
annual growth in underlying earnings per share (EPS) of 5.1% over
the three year period to 31st March 2018, which fell below the
threshold target of 6% compound annual growth.
Salary review
The company’s general approach to senior executive salaries is to
consider the delivery and experience of an individual in the context
of comparable rates of pay in similar sized organisations. Executives
are considered for an increase set at the typical rate of increase
applied to the wider workforce in their geographical location.
Reflecting this principle, and taking into account performance
and time in role, both Robert MacLeod and John Walker received an
increase on 1st April 2018 of 2.5%. Anna Manz was awarded an
increase of 5% effective from 1st April 2018 to reflect her strong
performance in her relatively new role, against comparable rates of
pay in similar sized organisations. The committee now considers her
pay to be set at the appropriate rate and expects that future increase
will be in line with those typically awarded to other UK employees.
Incentive plan targets
During the year the committee assessed both the current choice of
performance metrics and the level of challenge within the incentive
plan targets. The committee’s review considered the specific business
targets / metrics included in the one and three-year business plans
along with the degree of stretch contained within them.
With regard to the annual bonus plan, the committee concluded
that given the company’s current clearly identified strategic objectives
it would be appropriate to recognise these through the introduction of
a weighting of 20% to non-financial objectives within the short term
incentive plan for 2018/19. These non-financial objectives will be
specific and focus on deliverables to support our strategy relating to
science, customers, operations and people. Delivery against these
objectives will also be underpinned by achieving a satisfactory health
and safety record over the year. The remainder of the bonus will be
based on financial metrics relating to profit and working capital,
and the targets set with reference to the challenging internal plans
approved by the board.
Our long term variable reward continues to be tied to growth
as measured by increases in underlying EPS. The long term incentive
plan will remain subject to a challenging range of growth targets
that measure how successful we are in delivering on our growth
strategy, underpinned by achieving an acceptable return on invested
capital (ROIC).
111
Introduction
As Chairman of the Remuneration Committee, I am pleased to
present our report for the year ended 31st March 2018. This is my
first report as Chairman of the committee following Colin Matthews
stepping down from the board last year. It is intended to explain the
key matters considered by the committee during the last 12 months
and to set out the matters we expect to consider over the coming year.
We submitted our latest Remuneration Policy to shareholders at
our 2017 Annual General Meeting (AGM), and appreciated the high
level of support we received (92.3% in favour). We also value the
continuing constructive dialogue we have had with a number of our
shareholders and representatives of institutional investors.
This Annual Report on Remuneration sets out how we applied
the Remuneration Policy in 2017/18 and how we intend to apply it in
the forthcoming year.
Our approach to remuneration
The overall objective of Johnson Matthey is to deliver sustained
superior shareholder value using our world class science and our
competitive strengths, contributing to a cleaner, healthier world. The
remuneration strategy focuses on: motivating our talent to achieve the
company’s strategic objectives; to deliver on customer commitments;
to inspire employees; and to drive value for our shareholders through
long term success and growth. This long term focus is supported by
our Remuneration Policy, which includes an incentive structure that is
purposefully weighted towards long term performance and includes
shareholding guidelines for Executive Directors at, or above, 200% of
salary. Our remuneration strategy is also designed to be competitive in
the various markets in which we operate and compete for talent.
Incentive plan outcomes
During the year Johnson Matthey delivered strong sales growth and
continued to successfully implement the board’s strategy through:
growing our Clean Air Sector; expanding the pipeline in our Health
Sector; making targeted investments in our Efficient Natural
Resources Sector; and developing our Battery Materials business for
future growth.
Overall, in terms of the performance against the annual bonus
targets we set for 2017/18, we achieved growth in underlying profit
before tax and reduced the average working capital days during the
year, which resulted in bonuses becoming payable at 69.19% of the
maximum for Robert MacLeod and Anna Manz and 68.67% of the
maximum for John Walker.
In the context of a challenging external environment, and the
company’s overall performance during the year, the committee
considered the level of annual bonus payout appropriate.
Johnson Matthey / Annual Report and Accounts 2018
Governance
The Remuneration Committee is actively engaged in monitoring
In addition, we reviewed the pay levels of employees below the
performance and continuing to ensure that the level of challenge
within our short and long term incentive plans remains appropriate.
In addition, in determining outcomes, the committee also considers
the precise numerical results and the character of the results
themselves, including the manner in which they are achieved.
Board changes
After seven years as Chairman, Tim Stevenson will be stepping down
as Chairman at our 2018 AGM. It was announced in April 2018 that
Patrick Thomas will be appointed as Non-Executive Director and
Chairman Designate on 1st June 2018. On his appointment to the
board Mr Thomas’ remuneration was set in line with our standard
policy for Non-Executive Directors and, on becoming Chairman,
he will be paid an annual Chairman fee of £360,000, which is
subject to review in April each year. Subject to shareholder approval,
Patrick Thomas will become Chairman with effect from the close of
the 2018 AGM.
Other reviews
Following the completion of our triennial review of executive
remuneration, the Remuneration Committee reviewed the services
provided by its remuneration advisors, New Bridge Street. This review
resulted in a change and the appointment of Korn Ferry Hay Group as
new advisors. Korn Ferry Hay Group is a member of the Remuneration
Consultants Group and adheres to its Code of Conduct.
An independent evaluation of the Remuneration Committee’s
performance over the year was conducted by Manchester Square
Partners LLP and formed part of a wider board evaluation discussion
led by the Chairman. The Remuneration Committee was considered
to have operated effectively during the year.
Group employee considerations
During the year we reviewed the company’s new global grading
arrangements for employees below the board together with the new
annual and long term incentive plans associated with each new
grading level. This new grading structure will help the business
manage its talent and enable more structured career pathways,
while new incentive levels help support our remuneration strategy
to provide competitive remuneration in the various markets in which
we operate and compete for talent.
board, particularly in relation to the UK gender pay gap. Our UK
gender pay gap is 9.2%. This is lower than the UK national average of
18.1%. Our gender pay gap is driven by female under-representation
and also issues that are evident in the wider economy including a
lower number of women occupying science, technology and
engineering roles. While it will take some time for there to be
meaningful change and tackle the root causes of our gender
imbalance, the company is fully committed to ensuring a truly
inclusive culture that supports diversity and has already a number of
programmes and actions in place to improve our gender balance.
The year ahead
Looking ahead to the next 12 months, we will monitor the
appropriateness of the performance conditions attached to our annual
and long term incentive plans and their alignment to the evolving
external governance landscape. The Remuneration Committee is also
currently considering the changes to the UK Corporate Governance
Code that are expected to come into effect from 1st January 2019 and
wider regulatory changes, with a view to taking the necessary steps to
ensure we continue to take due account of best practice expectations
and regulatory requirements.
2018 Annual General Meeting
I ask you to support our 2017/18 Annual Report on Remuneration at
our forthcoming AGM on 26th July 2018. We believe that our policy
is simple, transparent and effective, strongly supporting our business
strategy. We welcome an open dialogue with our shareholders and
I will be available at the meeting to answer any questions about the
work of the Remuneration Committee.
Chris Mottershead
Chairman of the Remuneration Committee
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Remuneration overview
Remuneration Policy
The table below sets out the Remuneration Policy for the 2018/19 financial year. Further details are set out in the Directors’ Remuneration Policy
and the Annual Report on Remuneration.
Remuneration element Remuneration structure
Base salary Current salaries as follows:
• Robert MacLeod – £818,000 (2017/18 £798,000)
• Anna Manz – £515,000 (2017/18 £490,000)
• John Walker – £468,250 (2017/18 £456,850)
The 2018/19 salaries shown above include a salary increase effective from 1st April 2018
of 2.5% for Robert MacLeod and John Walker and 5% for Anna Manz.
Benefits Medical, life and income protection insurance, medical assessments, a company car (or
equivalent), matching shares under the all employee share incentive plan and assistance
with tax advice and tax compliance services where appropriate.
Pension contribution 25% of salary cash supplement in lieu of pension.
Annual bonus 180% of salary for Chief Executive and 150% of salary for other Executive Directors.
The bonus for 2018/19 will be substantially based on key financial measures (80% of
maximum opportunity), including underlying profit before tax (PBT) and working capital
performance. It will also include an element attributable to non-financial strategic objectives
(20% of maximum opportunity) focusing on our strategy relating to science, customers,
operations and people.
50% of any bonus earned is deferred in shares for three years.
Long term incentive 200% of salary for the Chief Executive and 175% of salary for other Executive Directors.
Awards vest subject to achieving challenging EPS growth targets (with a ROIC underpin).
Targets for unvested awards require 4% to 10% p.a. underlying EPS growth for 15% to
100% vesting.
Performance is measured over three years with awards vesting in equal tranches over three,
four and five years.
Shareholding guidelines 250% of salary for the Chief Executive and 200% of salary for other Executive Directors.
50% of the shares (net of tax) vesting under the incentive schemes must be retained until
the guideline holding has been achieved.
2017/18 outcomes
The table below sets out the remuneration outcomes for the Executive Directors for 2017/18.
£’000
Robert MacLeod
Anna Manz
John Walker
Salary
Benefits
Annual
bonus 1
Long term
incentive
798
490
457
21
16
22
994
509
470
–
–
–
Pension
Total
200
123
114
2,013
1,138
1,063
1
In accordance with the rules of the plan, 50% of the bonus payable is awarded as shares and deferred for three years.
Annual bonuses for Robert MacLeod and Anna Manz were based on the underlying profit before tax and working capital of the group and paid out
at 69.19% of the maximum. The bonus for John Walker was based on the underlying profit before tax and working capital of the group plus
underlying operating profit of the Clean Air Sector and paid out at 68.67% of the maximum. 50% of the bonus paid to the Executive Directors was
paid in shares and deferred for three years.
The long term incentive plan awards were based on underlying EPS performance to 31st March 2018 and failed to meet the minimum
threshold vesting performance requirements.
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Johnson Matthey / Annual Report and Accounts 2018
Governance
Directors’ Remuneration Policy
Below we publish the Remuneration Policy table, which includes the elements of directors’ remuneration. For each element we describe its purpose
and its link to strategy, how it works, the opportunity, boundaries and performance measures and any clawback or withholding conditions which
may apply. This Remuneration Policy was subject to a shareholder vote at the 2017 AGM, where shareholders voted 92.3% in favour, and applies to
all remuneration for the financial year commencing 1st April 2017 onwards.
Remuneration Policy table
Purpose and link to strategy
Operation (and changes if appropriate) of the element
Potential value of element and performance measures
Maximum opportunity
No salary increase will be awarded which results
in a base salary which exceeds the competitive
market range.
Details of the current salaries for the Executive
Directors are shown in the Annual Report on
Remuneration on page 129.
Base salary
Base salary is the basic pay
for doing the job. Its purpose
is to provide a fair and
competitive level of base pay
to attract and retain
individuals of the calibre
required to lead the business.
Base salaries will be reviewed annually and any
changes normally take effect from 1st April
each year.
In determining salaries and salary increases, the
Remuneration Committee will take account of the
performance of the individual director against a
broad set of parameters including financial,
environmental, social and governance issues.
The Remuneration Committee will further take into
account the length of time in post and the level of
salary increases awarded to the wider Johnson
Matthey workforce.
Salaries across the group are benchmarked against
a comparator group of similarly sized companies
within the FTSE, with a comparable international
presence and geographic spread and operating in
relevant industry sectors.
New appointments or promotions will be paid at a
level reflecting the Executive Director’s level of
experience in the particular role and experience at
board level. New or promoted Executive Directors
may receive higher pay increases than typical for
the group over a period of time following their
appointment as their pay trends toward an
appropriate level for their role.
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Purpose and link to strategy
Operation (and changes if appropriate) of the element
Potential value of element and performance measures
Annual incentive
The annual bonus provides
a strong incentive aligned
to strategy in the short term.
The annual bonus allows the
board to ensure that the
company’s plans are properly
reflected in stretching but
achievable annual budgets.
The annual bonus plays a key
part in the motivation and
retention of Executive
Directors, one of the key
requirements for long term
growth.
Bonus deferral as well as
malus and clawback
provisions ensure that
longer term considerations
are properly taken into
account in the pursuit of
annual targets.
The Remuneration Committee sets annual bonus
performance measures and targets for each new
award cycle. At the end of the year, the
Remuneration Committee determines the extent to
which these have been achieved. The Remuneration
Committee retains the discretion to reduce any
bonus award if, in its opinion, the underlying
financial performance of the company has not been
satisfactory in the circumstances.
Performance measures
Bonuses are based on the achievement of demanding
financial and, where appropriate, non-financial targets.
The Remuneration Committee may use different
performances and weightings for each performance cycle
as appropriate to take into account the strategic needs of
the business. However, a substantial proportion will be
based on key financial measures, including budgeted
underlying profit before tax (PBT).
The budget is set on a robust bottom up process to
achieve full accountability. The target budgeted
underlying PBT is retrospectively published in the
immediately following Annual Report on Remuneration.
Details of last year’s bonus awards are on page 124.
The performance period for annual bonus purposes
matches the financial year (1st April to 31st March).
Maximum opportunity and vesting thresholds
Chief Executive – 180% of base salary.
Other Executive Directors – 150% of base salary.
Threshold vesting will result in a bonus of 15% of
maximum opportunity. On target performance will
result in 50% payment of the maximum opportunity.
Deferral
Of any bonus paid, 50% is paid in cash and the
remaining 50% is deferred into shares for a three
year period as an award under the deferred bonus
plan. No further performance conditions apply to
awards under the deferred bonus plan. Dividends
that accrue on the deferred shares during the vesting
period will be paid in either cash and / or shares at
the time of vesting.
Malus and clawback
The cash and deferred elements of the bonus are
subject to malus and clawback provisions such that
they can be forfeited or recouped in part or in full in
the event of a misstatement of results, error in the
calculation or misconduct by the individual.
Adjustments
The Remuneration Committee retains discretion to
change the performance targets if there is a
significant or material event which causes the
committee to believe the original targets are no
longer appropriate (e.g. to reflect material
acquisitions or disposals).
The Remuneration Committee also retains discretion
to amend the level of annual bonuses determined by
the performance condition to seek to ensure that the
incentive structure for Executive Directors does not
raise environmental, social and governance risks by
inadvertently motivating irresponsible behaviour. For
example, reducing or eliminating bonuses where the
company has suffered reputational damage or where
other aspects of performance have been
unacceptable.
The Remuneration Committee retains the ability to
increase bonus awards from the formulaic outcome
where there is identifiable and exceptional
performance by the Executive Director. Bonus
payments in such circumstances would remain
within the maximum bonus opportunity and
shareholders would be fully informed of the
justification.
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Johnson Matthey / Annual Report and Accounts 2018
Governance
Purpose and link to strategy
Operation (and changes if appropriate) of the element
Potential value of element and performance measures
Performance measures
PSP vesting is currently based on the compound
annual growth rate (CAGR) of underlying EPS over a
three year performance period, subject to a
discretionary ROIC underpin.
However, the Remuneration Committee retains
discretion to amend the targets and the performance
measures for future awards as appropriate to reflect
the business strategy. Wherever possible, the views of
major shareholders will be sought when it is
proposed to make any substantive changes to the
performance measures.
The prospective targets and measures for the year
commencing 1st April 2017 are shown on page 125.
Long term incentive
The Performance Share Plan
(PSP) is a long term incentive
plan designed to ensure that
executives take decisions in
the interest of the longer
term success of the group.
Having a measure that looks
at profitable growth over the
longer term ensures that the
interests of executives are
aligned with shareholder
wishes for long term value.
Shares may be awarded each year and are subject to
performance conditions over a three year
performance period. Subject to performance
conditions being met, the shares will vest in equal
instalments on the third, fourth and fifth anniversary
of the date of award.
The performance targets are set by the
Remuneration Committee based on internal and
external growth forecasts to ensure they remain
appropriate and aligned with shareholder
expectations.
The awards are granted in accordance with the rules
of the plan approved by shareholders. The maximum
award level is 200% of base salary. Awards may be
granted in the form of conditional shares, nil or
nominal cost options or cash (where the awards
cannot be settled in shares). Dividends that accrue
between the third and fifth anniversary of the award
date will be paid in either cash and / or shares at the
time of vesting.
Malus and clawback
Long term incentive plan awards granted since 2014
are subject to malus and clawback provisions that
can apply in the case of a misstatement of results,
error in the calculation or misconduct by the
individual.
Adjustments
The Remuneration Committee has power to adjust the
vesting level of an award based on the underlying
performance of the company.
The Remuneration Committee may adjust the
performance measure to reflect material changes
(e.g. significant acquisitions or disposals, share
consolidation, share buy-backs or special dividends).
Any such change would be fully explained to
shareholders.
Benefits
To provide a market
aligned benefits package.
The purpose of any benefit is
to align with normal market
practices and to remove
certain day to day concerns
from Executive Directors to
allow them to concentrate
on the task in hand.
Benefits include medical, life and income protection
insurance, medical assessments, company sick pay,
and a company car (or equivalent). Other
appropriate benefits may also be provided from time
to time at the discretion of the Remuneration
Committee.
Benefits are not generally expected to be a
significant part of the remuneration package in
financial terms and are there to support the director
in his or her performance in the role. In general
benefits will be restricted to the typical level in the
relevant market for an Executive Director.
Directors’ and officers’ liability insurance is
maintained for all directors.
Car benefits will not exceed a total of £25,000 per
annum.
The cost of medical insurance for an individual
Executive Director and dependents will not exceed
£15,000 per annum.
Company sick pay is 52 weeks’ full pay.
Directors who are required to move for a business
reason may, where appropriate, also be provided
with benefits such as relocation benefits (e.g. the
provision of accommodation, transport or medical
insurance away from their country of residence) and
schooling for dependents. The company may pay the
tax on these benefits.
Directors may be assisted with tax advice and tax
compliance services.
The company will reimburse all reasonable expenses
(including any tax thereon) which the Executive
Director is authorised to incur whilst carrying out
executive duties.
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Purpose and link to strategy
Operation (and changes if appropriate) of the element
Potential value of element and performance measures
Pension
Provides for post-retirement
remuneration, ensures that
the total package is
competitive and aids retention.
All employee share plan
Encourages share ownership.
Shareholding requirements
To encourage Executive
Directors to build a
shareholding in the company
and ensure the interests of
management are aligned
with those of shareholders.
Non-Executive Director fees
Attracts, retains and
motivates Non-Executive
Directors with the required
knowledge and experience.
All Executive Directors will be paid a cash supplement
in lieu of membership in a pension scheme.
The maximum supplement is 25% of base salary.
Executive Directors are entitled to participate up to
the same limits in force from time to time for all
employees.
The minimum shareholding requirement is as
follows:
Chief Executive – 250% of base salary.
Other Executive Directors – 200% of base salary.
There is no requirement for Non-Executive
Directors to hold shares but they are encouraged to
acquire a holding over time.
Details of the current fee levels for the Chairman and
Non-Executive Directors are set out in the Annual
Report on Remuneration on page 129.
The fee levels are set subject to the maximum limits
set out in the Articles of Association.
Executive Directors are entitled to participate in the
company’s all employee share incentive plan under
which regular monthly share purchases are made and
matched with the award of company shares, subject
to retention conditions.
Executive Directors would also be entitled to
participate in any other all employee arrangements
that may be established by the company on the same
terms as all other employees.
Executive Directors are expected to build up a
shareholding in the company over a reasonable
period of time.
Shares that count towards achieving these guidelines
include: all shares beneficially owned by an Executive
Director or a person connected to the executive as
recognised by the Remuneration Committee; deferred
bonus shares and long term incentive awards which
are no longer subject to performance conditions but
have not yet vested.
Executive Directors are expected to retain at least
50% of the net (after tax) vested shares that are
released under the long term PSP and deferred bonus
plans until the required levels of shareholding are
achieved.
Executive Directors are not required to make personal
share purchases should awards not meet the
performance conditions and so a newly appointed
director may take longer to reach the expected level,
depending on the company’s performance against
targets over the period.
Non-Executive Director fees are determined by the
board. The Non-Executive Directors exclude
themselves from such discussions. The fees for the
Chairman are determined by the Remuneration
Committee taking into account the views of the
Chief Executive. The Chairman excludes himself
from such discussions.
Non-Executive Directors are paid a base fee each
year with an additional fee for each committee
chairmanship or additional role held.
Non-Executive Director fees are reviewed every
year. Any increase will take into account the market
rate for the relevant positions within a comparator
group of similarly sized companies with a
comparable international presence and geographic
spread and operating in relevant industry sectors,
the experience of the individuals and the expected
time commitment of the role.
In exceptional circumstances, additional fees may
be payable to reflect a substantial increase in time
commitment.
The company will also reimburse the Chairman and
Non-Executive Directors for all reasonable
expenses (including any tax thereon) incurred
whilst carrying out duties for the company.
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Governance
Selection of Performance Targets
Annual incentive
Long term incentive
Financial performance targets under the annual bonus plan are set by the Remuneration Committee with
reference to the prior year and to the budgets and business plans for the coming year, ensuring the levels to
achieve threshold, target or maximum payout are appropriately challenging.
The performance targets for 2018/19 are substantially based on financial measures (80% of maximum
opportunity) including budgeted underlying PBT and working capital to ensure that there is strong
attention paid to delivery of current operational plans and operational efficiency. In addition, an element of
the bonus is attributable to the achievement of strategic objectives (20% of maximum opportunity)
focusing on our strategy relating to science, customers, operations and people.
Commercial sensitivity precludes the advance publication of the actual bonus targets but these targets will
be retrospectively published in the Annual Report on Remuneration for 2018/19.
EPS targets under the PSP are set to reflect the company’s longer term growth objectives at a level where the
maximum represents genuine outperformance. Underlying EPS is considered a simple and clear measure of
absolute growth in line with the company’s strategy. It is also a key objective of the company to achieve
earnings growth only in the context of a satisfactory performance on ROIC. Accordingly, the Remuneration
Committee makes an assessment of the group’s ROIC over the performance period to ensure underlying EPS
growth has been achieved with ROIC in line with the group’s planned expectations.
Group employee considerations
The Remuneration Committee considers the
directors’ remuneration in the context of the
wider employee population and is kept
regularly updated on pay and conditions
across the group. The company has not
consulted directly with employees with
respect to directors’ remuneration. Increases
in base salary for directors will take into
account the level of salary increases granted
to all employees within the group.
The general principle for remuneration
in Johnson Matthey is to pay a competitive
package of pay and benefits in all markets
and at all job levels in order to attract and
retain high quality and diverse employees.
The proportion of variable pay increases with
progression through management levels with
the highest proportion of variable pay at
Executive Director level, as defined by the
Remuneration Policy.
The key elements of variable pay
There are also a number of country and
cascade down through the next tiers of senior
management with appropriate reductions
in opportunity levels based on seniority.
The group’s senior executives plus senior
and middle managers (1,300 employees)
participate in the annual bonus plan (with
performance conditions similar to those
described in the Remuneration Policy). In
addition, the group’s senior executives and
certain senior management participate in
the long term PSP in line with the same EPS
based performance conditions. Executive
Directors are subject to vesting in three
tranches on their long term incentive plan
awards, and Executive Directors, members
of the Group Management Committee and
senior management are subject to deferral of
annual bonus. Certain senior management
also participate in a long term Restricted
Share Plan (RSP) which has no performance
conditions attached. No Executive Director is
eligible to participate in this RSP.
business dependent arrangements under
which bonuses may be paid to the entire
business workforce where performance
conditions associated with profitability are
met.
Johnson Matthey operates a number of
pension arrangements around the world,
relevant to the local conditions and
arrangements.
The key element of remuneration for
those below senior management grades is
base salary and Johnson Matthey’s policy is
to ensure that base salaries are fair and
competitive in the local markets. General
pay increases take into account local salary
norms, local inflation and business
conditions.
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Remuneration scenarios
Below is an illustration of the potential future remuneration that could be received by each Executive Director for the year commencing
1st April 2018, both in absolute terms and as a proportion of the total package under different performance scenarios. The value of the PSP
is based on the award that will be granted in August 2018.
Value of package
Composition of package
Robert MacLeod
Maximum
Target
Threshold
Below
threshold
Maximum
Target
Threshold
Below
threshold
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
0
20
40
60
80
100
£ thousands
%
Anna Manz
Maximum
Target
Threshold
Below
threshold
Maximum
Target
Threshold
Below
threshold
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
0
20
40
60
80
100
£ thousands
%
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John Walker
Maximum
Target
Threshold
Below
threshold
Maximum
Target
Threshold
Below
threshold
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
0
20
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Base salary
Benefits
Pension
Bonus
PSP
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Johnson Matthey / Annual Report and Accounts 2018
Governance
Approach to recruitment remuneration
The recruitment policy provides an appropriate framework within which to attract individuals of the required calibre to lead a company of
Johnson Matthey’s size, scale and complexity. The Remuneration Committee determines the remuneration package for any appointment to an
Executive Director position, either from within or outside Johnson Matthey.
The following table sets out the various components which would be considered for inclusion in the remuneration package for the
appointment of an Executive Director and the approach to be adopted by the Remuneration Committee in respect of each component.
Area
Overall
Policy and operation
The policy of the board is to recruit the best candidate possible for any board position and to structure pay and
benefits in line with the Remuneration Policy set out in this report. The ongoing structure of a new recruit’s
package would be the same as for existing directors, with the possible exception of an identifiable buy-out
provision, as set out below.
Base salary or fees
Salary or fees will be determined by the Remuneration Committee in accordance with the principles set out in the
policy table on page 114.
Benefits and pension
An Executive Director shall be eligible for benefits and pension arrangements in line with the company’s policy for
current Executive Directors, as set out in the policy table on pages 116 and 117. For new hires the cash supplement
payable will be more aligned to that payable to other employees.
Annual incentive
The maximum level of opportunity is as set out in the policy table on page 115.
The Remuneration Committee retains discretion to set different performance targets for a new externally appointed
Executive Director, or adjust performance targets and measures in the case of an internal promotion, to be assessed
over the remainder of the financial year. In this case any bonus payment would be made at the same time as for
existing directors, and any such award would be pro-rated for the time served in the performance period.
Long term incentive
The maximum level of opportunity is as set out in the policy table on page 116.
Replacement awards
In order to achieve rapid alignment with the company’s and shareholder interests, the Remuneration Committee
retains discretion to grant a PSP award to a new externally appointed Executive Director on or soon after
appointment if they join outside of the normal grant period.
The Remuneration Committee retains discretion to grant replacement buy-out awards (in cash or shares) to a
new externally appointed Executive Director to reflect the loss of awards granted by a previous employer. Where
this is the case, the Remuneration Committee will seek to structure the replacement award such that overall it is
on an equivalent basis to broadly replicate that foregone, using appropriate performance terms. If granted, any
replacement buy-out award would not exceed the maximum set out in the rules of the 2017 Performance
Share Plan Rules (350% of base salary).
If the Executive Director’s prior employer pays any portion of the remuneration that was anticipated to be
forfeited, the replacement awards shall be reduced by an equivalent amount.
Other
The Remuneration Committee may agree that the company will meet certain mobility costs, relocation costs,
including temporary living and transportation expenses, in line with the company’s prevailing mobility policy for
senior executives as described in the policy table on page 116.
In the case of an internal promotion to the board, the company will honour any contractual commitments made prior to the promotion.
Service contracts and policy on payment for loss of office
The following table summarises relevant key provisions of Executive Directors’ service contracts and the treatment of payments on termination
of employment. The full contracts of service of the Executive Directors (as well as the terms and conditions of appointment of the Non-Executive
Directors) are available for inspection at the registered office of the company during normal business hours as well as prior to and during the
forthcoming AGM of the company.
In exceptional circumstances, the Remuneration Committee may authorise, where it considers it to be in the best interests of the company
and shareholders, entering into contractual arrangements with a departing Executive Director, for example a settlement, confidentiality,
restrictive covenant or other arrangement, pursuant to which sums not set out in the following table may become payable. Full disclosure of the
payments will be made in accordance with the remuneration reporting requirements.
The following table describes the contractual conditions pertaining to the contracts for Robert MacLeod, Anna Manz and John Walker and
for any future Executive Director.
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Summary of key provisions of executive directors’ service contracts and treatment of payments on termination
Robert MacLeod Anna Manz John Walker1
Date of service agreement 31st January 2014 25th July 2016 31st January 2014
Date of appointment as director 22nd June 2009 17th October 2016 9th October 2013
Employing company Johnson Matthey Plc
Contract duration No fixed term
Notice period No more than 12 months’ notice, with equal notice from the company and director except for
directors who joined before 1st January 2017 where the director’s notice period is six months and
the notice period from the company is 12 months.
Post-termination restrictions The contracts of employment contain the following restrictions on the director for the following
periods from the date of termination of employment:
• non-compete – six months;
• non-dealing and non-solicitation of client / customers – 12 months;
• non-solicitation of suppliers and non-interference with supply chain – 12 months; and
• non-solicitation of employees – 12 months.
Summary termination – payment The company may, in its absolute discretion, terminate the employment of the director with
in lieu of notice (PILON) immediate effect by giving written notice together with payment of a sum equivalent to the
director’s base salary and the value of their contractual benefits as at the date such notice is given,
in respect of the director’s notice period, less any period of notice actually worked.
The company may elect to pay the PILON in equal monthly instalments. The director is under a duty
to seek alternative employment and to keep the company informed about whether they have been
successful. If the director commences alternative employment, the monthly instalments shall be
reduced (if appropriate to nil) by the amount of the director’s gross earnings from the alternative
employment. A PILON paid to a director who is a US taxpayer (John Walker) would be in equal
monthly instalments.
Termination payment – change of control If, within one year after a change of control, the director’s service agreement is terminated by the
company (other than in accordance with the summary termination provisions), the company
shall pay, as liquidated damages, one year’s base salary, together with a sum equivalent to the
value of the director’s contractual benefits, as at the date of termination, less the period of any
notice given by the company to the director.
Termination – treatment of annual Annual bonus awards are made at the discretion of the Remuneration Committee. Employees,
incentive awards including Executive Directors, leaving the company’s employment will receive a bonus, pro-rata
to service, unless the reason for leaving is resignation or misconduct. Any bonus awarded would
continue to be subject to deferral as set out in the Remuneration Policy.
In relation to deferred bonus awards which have already been made, shares will be released
on the normal vesting date unless one of the following circumstances applies, and subject
to the discretion of the Remuneration Committee:
• the participant leaves as a result of misconduct; or
• the participant, prior to vesting, breaches one of the post-termination restrictions or covenants
provided for their employment contract, termination agreement or similar agreement.
In which case the deferred awards will lapse on cessation of employment.
The Remuneration Committee has the discretion to accelerate vesting of a deferred award
if appropriate to do so to reflect the circumstances of the departure. It is intended that this
would only be used in the event of a departure due to ill health (or death).
Termination – treatment of long term Employees, including Executive Directors, leaving the company’s employment will normally lose
incentive awards their long term incentive awards unless they leave for a specified ‘good leaver’ reason, in which
case their shares will be released on the normal release dates, subject to the performance condition.
The Remuneration Committee has discretion to accelerate vesting, in which case the performance
condition would be assessed based on available information at the time. In either case, unless the
Remuneration Committee determines otherwise, the level of vesting shall be pro-rated to reflect the
proportion of the performance period which has elapsed to the date of leaving. In the post-vesting
deferral period, only those who leave due to misconduct will lose their shares.
Redundancy scheme The director is not entitled to any benefit under any redundancy payments scheme operated
by the company.
Holiday Upon termination for any reason, directors will be entitled to payment in lieu of accrued
but untaken holiday entitlement.
1
John Walker is eligible for continuing post-retirement medical benefits provided he satisfies the conditions of this plan and retires directly from Johnson Matthey.
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Johnson Matthey / Annual Report and Accounts 2018
Governance
Chairman and Non-Executive Directors
The Chairman and each of the Non-Executive Directors have letters of appointment. The letters of appointment do not contain any contractual
entitlement to a termination payment and the Non-Executive Directors can be removed in accordance with the company’s Articles of Association.
Directors are required to retire at each AGM and seek re-election by shareholders.
The details of the service contracts, including notice periods, contained in the letters of appointment in relation to the Non-Executive
Directors who served during the year are set out in the table below. Neither the Chairman or the Non-Executive Directors has provisions in his or
her letter of appointment that relate to a change of control of the company.
Committee Date of Expiry of Notice period Notice period
Non-Executive Director appointments appointment current term by the individual by the company
Tim Stevenson (Chairman) R, N 29th March 2011 31st December 2018 6 months 6 months
Patrick Thomas1 R,N 1st June 2018 31st May 2021 6 months 6 months
Odile Desforges A, R, N 1st July 2013 30th June 2019 1 month 1 month
Alan Ferguson A, R, N 13th January 2011 13th January 2020 1 month 1 month
Jane Griffiths A, R, N 1st January 2017 31st December 2019 1 month 1 month
Chris Mottershead A, R, N 27th January 2015 26th January 2021 1 month 1 month
John O’Higgins A, R, N 16th November 2017 15th November 2020 1 month 1 month
A: Audit Committee R: Remuneration Committee N: Nomination Committee
1 Patrick Thomas was appointed as a Non-Executive Director and Chairman Designate subject to shareholder approval at the 2018 AGM.
External appointments
It is the board’s policy to allow Executive Directors to accept non-executive appointments provided there is no conflict of interest and that the
time spent would not impinge on their work for Johnson Matthey. Details of external directorships held by Executive Directors, together with fees
retained during the year are as follows:
Fees retained
Executive Director Company Role held £’000
Robert MacLeod RELX PLC, RELX NV and RELX Group plc Non-Executive Director 95
Anna Manz ITV plc Non-Executive Director 75
Annual Report on Remuneration
This section provides details of how the 2017 Directors’ Remuneration Policy was implemented during the year and how we intend to apply the
policy in the year ahead.
About the Remuneration Committee
The Remuneration Committee is a committee of the board and comprises all the independent Non-Executive Directors of the company as set out
above including the group Chairman, Tim Stevenson. Details of attendance at committee meetings during the year ended 31st March 2018 is
shown below.
Meeting attendance
5th 31st 18th 16th 30th
Committee Date of April May July November January
role appointment 2017 2017 2017 2017 2018
Colin Matthews1 Chairman 4th October 2012 3 3 3 – –
(until 15th November 2017)
Chris Mottershead Chairman 27th January 2015 3 3 3 3 3
(from 16th November 2017)
Odile Desforges Member 1st July 2013 3 3 3 3 3
Alan Ferguson Member 13th January 2011 3 3 3 3 3
Jane Griffiths Member 1st January 2017 3 3 3 3 3
John O’Higgins Member 16th November 2017 – – – 3 3
Tim Stevenson2 Member 29th March 2011 3 – 3 3 3
1
2
Colin Matthews stood down as Chairman of the Remuneration Committee and retired from the board on 15th November 2017.
Tim Stevenson was unable to attend one meeting due to illness.
Since the end of the year, the committee has met twice. All committee members attended both meetings.
The Remuneration Committee’s terms of reference can be found in the Investors / Corporate governance section of our website and include
determination on behalf of the board of fair remuneration for the Chief Executive, the other Executive Directors and the group Chairman
(in which case the group Chairman does not participate). In addition, the committee receives recommendations from the Chief Executive on
the remuneration of those reporting to him as well as advice from the Chief Human Resources Officer, who acts as secretary to the committee.
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Advisers to the committee
In determining the remuneration structure, the committee appoints and receives advice from independent remuneration consultants on the
latest developments in corporate governance and the pay and incentive arrangements prevailing in comparably sized industrial companies.
Following a review of services provided to the committee, Korn Ferry Hay Group was appointed on 18th December 2017. The total fees paid to
Korn Ferry Hay Group in respect of its services to the committee during the year were £18,670 plus VAT. New Bridge Street (part of Aon Hewitt
Limited) provided advice to the committee in the period 1st April 2017 to 17th December 2017. The total fees paid to New Bridge Street in
respect of its services to the committee during the year were £3,598 plus VAT.
Korn Ferry Hay Group also provides consultancy services to the company in relation to certain employee benefits to those below the board.
Korn Ferry Hay Group is a signatory to the Remuneration Consultants Group Code of Conduct and the committee is satisfied that the advice that
it receives from Korn Ferry Hay Group is objective and independent.
Herbert Smith Freehills provided advice to the company in connection with the drafting of share plan rules and directors’ service contracts
in accordance with the policy determined by the Remuneration Committee. This advice was charged on an hourly basis. The committee is aware
that Herbert Smith Freehills is one of a number of legal firms that provide legal advice and services to the company on a range of matters.
A statement regarding the use of remuneration consultants for the year ended 31st March 2018 is available on our website in the Investors /
Corporate governance section.
Remuneration for the year ended 31st March 2018
Single figure table of remuneration
The table below sets out the total remuneration and breakdown of the elements each director received in relation to the year ended
31st March 2018, together with a prior year comparative. An explanation of how the figures are calculated follows the table.
Base salary / fees Benefits Annual incentive Long term incentive Pension Total
£’000 £’000 £’000 £’000 £’000 £’000
2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017
Executive Directors
Robert MacLeod 798 769 21 21 994 569 – 417 200 195 2,013 1,971
Anna Manz1 490 222 16 7 509 123 – – 123 56 1,138 408
John Walker 457 442 22 20 470 273 – 192 114 110 1,063 1,037
Non-Executive Directors
Tim Stevenson 351 343 – – – – – – – – 351 343
Odile Desforges 64 63 – – – – – – – – 64 63
Alan Ferguson 83 81 – – – – – – – – 83 81
Jane Griffiths2 64 16 – – – – – – – – 64 16
Colin Matthews3 50 73 – – – – – – – – 50 73
Chris Mottershead 71 63 – – – – – – – – 71 63
John O’Higgins4 24 – – – – – – – – – 24 –
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1 Anna Manz was appointed to the board on 17th October 2016.
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3
4
Jane Griffiths was appointed to the board on 1st January 2017.
Colin Matthews stepped down from the board on 15th November 2017.
John O’Higgins was appointed to the board on 16th November 2017.
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Johnson Matthey / Annual Report and Accounts 2018
Governance
Explanation of figures
Base salary / fees
Salary paid during the year to Executive Directors and fees paid during the year to Non-Executive Directors.
Benefits
All taxable benefits such as medical and life insurance, service and car allowances, matching shares under the all
employee share incentive plan and assistance with tax advice and tax compliance services where appropriate.
Annual incentives
Annual bonus awarded for the year ended 31st March 2018. The figure includes any amounts deferred and
awarded as shares.
Long term incentives
The 2017 figure represents the value of shares that satisfied performance conditions on 31st March 2017 and
will be released on 1st August 2017, 1st August 2018 and 1st August 2019. This value is calculated using the
average share price from 1st January 2017 to 31st March 2017 which was 3,100 pence.
The 2018 figure represents the value of the shares that satisfied performance conditions on 31st March 2018
and will be released on 1st August 2018, 1st August 2019 and 1st August 2020. This value is calculated using
the average share price from 1st January 2018 to 31st March 2018 which was 3,184 pence.
Pension
The amounts shown represent the value of the increase over the year of any defined benefit pension the Executive
Director may have in the Johnson Matthey Employees Pension Scheme (JMEPS) plus any cash supplements paid in
lieu of pension membership.
Variable pay – additional disclosures, including bases of calculation and outcomes
1
Annual bonus for the year ended 31st March 2018
The Executive Directors were eligible for a maximum annual bonus opportunity of 180% of base salary for the Chief Executive and 150% of
base salary for the other Executive Directors. The on target bonus opportunity was set at 50% of the maximum opportunity and the
threshold bonus opportunity was 15% of salary.
The performance measures and weightings for the annual bonus were as follows:
Chief Executive
Chief Financial Officer
Sector Chief Executive, Clean Air
Group underlying PBT
Clean Air underlying operating profit
Group working capital days
Percentage of bonus available
80%
80%
55%
–
–
25%
20%
20%
20%
The annual targets are set when budgets are approved in early April, at the start of the new financial year. Budgets are built from the
bottom up and are subject to a rigorous process of challenge before final proposals are considered by the board. Further information is used
in the determination, including a consensus of industry analysts’ forecasts, provided by Vara Research.
Achievement against targets for the year ended 31st March 2018 is set out in the table below:
Actual %
Performance measure Threshold Target Maximum Actual1 of budget
Group underlying PBT2 £ million 458 482 530 497 103.18
(95% budget) (100% budget) (110% budget)
Clean Air underlying £ million 341 359 395 369 102.49
operating profit2 (95% budget) (100% budget) (110% budget)
Group working capital days days 37 35 32 32 92.00
(including metal3) (105% budget) (100% budget) (90% budget)
Group working capital days days 68 65 59 62 95.08
(excluding metal3) (105% budget) (100% budget) (90% budget)
1 All figures in the table have been rounded to the nearest whole number except the actual % of budget.
2
For 2017/18 actual performance for group underlying PBT and Clean Air underlying operating profit is measured using budget foreign exchange rates.
3 Working capital days is measured 50% against total working capital days including precious metal and 50% against working capital days excluding precious metal. This was to ensure
that appropriate focus was put on metal management.
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Based on performance against the above targets, bonuses for the year ended 31st March 2018 were:
Robert MacLeod, Chief Executive
Anna Manz, Chief Financial Officer
John Walker, Sector Chief Executive, Clean Air
£’000
994
509
470
% salary
124.54
103.79
103.00
In accordance with the rules of the plan, 50% of the bonus payable is awarded as shares and deferred for three years. There are no further
performance conditions attached to the deferred element.
2
Long term incentive vesting for the three year performance period ended 31st March 2018
The table below sets out the performance targets for the long term incentive awards made in August 2015 with a three year performance
period which ended 31st March 2018.
Required underlying EPS performance
Threshold 6% CAGR
Maximum 15% CAGR
Proportion of award which may vest
15%
100%
The awards vest on a straight line basis between threshold and maximum. In addition to the EPS performance condition, the Remuneration
Committee considers the performance of ROIC over the performance period to ensure that earnings growth is achieved in a sustainable and
efficient manner.
The performance over the period was a compound annual growth in underlying EPS of 5.1% per annum and so was below the
performance range.
The table below shows the vesting outcomes based on this performance.
Executive Directors
Robert MacLeod
Anna Manz
John Walker
Former Executive Directors
Den Jones1
Larry Pentz2
% of
base salary
awarded
200
–
175
175
175
Shares
awarded
48,946
–
23,541
11,746
8,561
Estimated value
% of award Shares on vesting
to vest to vest £
– – –
– – –
– – –
– – –
– – –
2 Den Jones stood down from the board on 20th July 2016 and left the company on 31st July 2016. The long term incentive shares awarded to Mr Jones in August 2015 (26,412) were,
on leaving, pro-rated to 11,746 based on his completed service since the start of the performance period.
3
Larry Pentz retired from the board on 31st March 2016. The long term incentive shares awarded to Mr Pentz in August 2015 (25,685) were, on leaving, pro-rated to 8,561 based on
his completed service since the start of the performance period.
3
Variable pay awarded during the year ended 31st March 2018
(Long term incentive awards subject to future performance)
In 2017/18 long term incentive awards were made to the Executive Directors in respect of the three year performance period to
31st March 2020. The table below sets out the opportunity and performance targets for these awards.
Required underlying EPS performance
Threshold 4% CAGR
Maximum 10% CAGR
Proportion of award
which may vest
15%
100%
Chief Executive
Other Executive Director
30%
200%
26.25%
175%
The table below sets out the details of the actual conditional long term incentive awards made as a percentage of base salary.
Date of grant
Robert MacLeod 1st August 2017
Anna Manz 1st August 2017
John Walker 1st August 2017
Award size
(% of base salary)
Number of
shares awarded
200
175
175
52,955
28,451
26,521
Face value 1
£
1,595,984
857,470
799,303
1
Face value is calculated using the award share price of 3,013.85 pence, which is the average closing share price over the four week period commencing on 1st June 2017.
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Governance
4
Prior year long term incentive awards and outcomes
The table below shows the history of long term incentive awards granted since 2009.
Compound
% salary annual
% salary awarded to Threshold Stretch growth in
Year of Year of awarded to other Executive EPS growth EPS growth underlying EPS % of award
award vesting 1 Chief Executive Directors target target in the period vested
2009 2012 120 100 3% 10% 19.7% 100
2010 2013 150 120 7% 16% 20.2% 100
2011 2014 175 140 7% 16% 13.3% 75
2012 2015 175 140 7% 16% 6.07% –
2013 2016 175 140 6% 15% 7.85% 33
2014 2017 200 175 6% 15% 7.39% 28
2015 2018 200 175 6% 12% 5.14% –
2016 2019 200 175 4% 10% n/a n/a
2017 2020 200 175 4% 10% n/a n/a
1 Awards from 2014 are subject to tranche vesting and so the year shown is the vesting of the first tranche.
Pension entitlements
No director is currently accruing any pension benefit in the group’s pension schemes. Instead they receive an annual cash payment in lieu of
pension membership equal to 25% of base salary. However, Robert MacLeod and John Walker have each accrued a pension entitlement in
respect of a prior period of pensionable service in one or more of the group’s pension arrangements.
Robert MacLeod ceased pensionable service in JMEPS on 31st March 2011.
John Walker joined JMEPS on 1st September 2012 and ceased pensionable service in this scheme on 9th October 2013. Prior to joining
JMEPS Mr Walker was a member of the US Johnson Matthey Inc. Salaried Employees Pension Plan.
Details of the accrued pension benefits of the Executive Directors as at 31st March 2018 in the UK and US pension schemes are given below:
Robert MacLeod1
Anna Manz
John Walker2
Total accrued annual pension
entitlement at 31st March 2018
£’000
10
–
89
1 Pension payable from age 65 based on pensionable service in the UK pension scheme up to 31st March 2011.
2 Pension payable in respect of pensionable service in the UK and US pension schemes payable from age 65 and 62 respectively. The pension payable from the US pension scheme will be paid
in local currency.
Statement of directors’ shareholding
The table below shows the directors’ interests in the shares of the company, together with their unvested scheme interests,
as at 31st March 2018.
Subject to ongoing Not subject to further
Ordinary shares1 performance conditions2 performance conditions 3
Executive Directors
Robert MacLeod 39,937 154,193 33,051
Anna Manz 2,217 57,448 2,041
John Walker 16,653 75,449 18,444
Non-Executive Directors
Tim Stevenson 4,958 – –
Odile Desforges 1,416 – –
Alan Ferguson 2,078 – –
Jane Griffiths 2,671 – –
Colin Matthews4 1,888 – –
Chris Mottershead 1,868 – –
John O’Higgins 1,500 – –
1
Includes shares held by the director and / or connected persons, including those in the all employee share matching plan and 401k plan. Shares in the all employee share matching plan may
be subject to forfeiture in accordance with the rules of the plan.
2 Represents unvested long term incentive shares within three years of the date of award.
3 Represents unvested deferred bonus shares and unvested long term incentive shares between the third and fifth anniversary of award, where performance conditions have been assessed but
vesting has not occurred.
4
The figures for Colin Matthews are as at 15th November 2017 when he stepped down from the board.
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Directors’ interests as at 30th May 2018 were unchanged from those listed above, other than that the trustees of the all employee share matching
plan have purchased a further 21 shares each for Robert MacLeod and John Walker and a further 24 shares for Anna Manz.
Executive Directors are expected to build up a shareholding in the company. The minimum shareholding requirement for the year ended
31st March 2018 was 200% of base salary for the Chief Executive and 150% of base salary for the other Executive Directors. The table below
shows the extent to which the proposed minimum shareholding requirements have been satisfied:
Robert MacLeod
Anna Manz3
John Walker
Shares held as
at 31st March 2018
(% of base salary)1,2
291%
28%
245%
1 Value of shares as a percentage of base salary is calculated using a share value of 3,184.48 pence, which was the average share price prevailing between 1st January 2018 and 31st March 2018.
2
The director’s total shareholding for the purposes of comparing it with the minimum shareholding requirement includes shares held beneficially by the director and any connected persons
(as recognised by the Remuneration Committee) together with deferred shares awarded under the annual bonus rules for which there are no further performance conditions and any
unvested long term incentive shares between the third and fifth anniversary of award, where performance conditions have been assessed but vesting has not occurred.
3 Anna Manz became an Executive Director on 17th October 2016. She will build her shareholding over time in line with the Remuneration Policy.
Performance graph and comparison to Chief Executive’s remuneration
Johnson Matthey and FTSE 100 Total Shareholder Return rebased to 100
The following chart illustrates the total cumulative shareholder return of the company for the nine year period from 31st March 2009 to
31st March 2018 against the FTSE 100 as the most appropriate comparator group, rebased to 100 at 1st April 2009.
450
400
350
300
250
200
150
100
50
0
March 2009 March 2010
March 2011
March 2012
March 2013 March 2014 March 2015 March 2016
March 2017
March 2018
Johnson Matthey
FTSE 100
As at 31st March 2018, Johnson Matthey was ranked 79 by market capitalisation in the FTSE 100.
Historical data regarding Chief Executive’s remuneration
2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 1 2015/16 1 2016/17 2017/18
Single total figure 1,596 2,095 1,870 3,025 3,855 1,594 1,429 1,971 2,013
of remuneration
Annual incentives 100 100 75 – 71 54 15 40 69
(% of maximum)
Long term incentives – 52 100 100 75 – 33 28 –
(% of award vesting)2
1
The figures for 2014/15 onwards are in respect of Robert MacLeod who was appointed as Chief Executive on 5th June 2014. Prior to this, the figures shown are for the previous Chief Executive,
Neil Carson.
2 Vesting of long term incentive awards whose three year performance period ended in the financial year shown.
The above data is calculated according to the same methodology as applied in the single figure table on page 123.
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Governance
Change in Chief Executive’s remuneration
The table below shows how the remuneration of the Chief Executive has changed over the year ended 31st March 2018. This is then compared to
a group of appropriate employees, being those based in the UK. This comparator group was used because the Remuneration Committee believes
it gives a reasonable understanding of the underlying increases, based on similar annual bonus performance measures, while at the same time
reducing the distortion from currency fluctuations and the distortions that would arise from including all of the many countries in which the
group operates with their different economic conditions.
Chief Executive
Salary An increase of 2.5%
Bonus An increase of 74.8%
Benefits No change in benefits policy.
No change on overall costs
between 2016/17 and 2017/18.
Comparator group 1
An increase of 5.9%
An increase of 54.5%
No change in benefits policy.
No change on overall costs
between 2016/17 and 2017/18.
1
Including promotions.
Relative spend on pay
The table below shows the absolute and relative amounts of distributions to shareholders and the total remuneration for the group for the years
ended 31st March 2017 and 31st March 2018.
Payments to shareholders – special dividends
Payments to shareholders – ordinary dividends
Total remuneration (all employees)1
1 Excludes termination benefits.
Year ended
31st March
2018
£ million
Year ended
31st March
2017
£ million
–
146
693
–
139
645
% change
–
5
7
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Implementation of the Directors’ Remuneration Policy for 2018/19
The table below sets out how the Remuneration Committee intends to apply the Directors’ Remuneration Policy for the year ended
31st March 2019.
Salary Salaries for the Executive Directors for 2018/19 have been increased in line with the budgeted increase for all other
UK employees. The salaries of Robert MacLeod and John Walker have increased by 2.5% (to £818,000 and £468,250
respectively) and Anna Manz’s salary has increased by 5% (to £515,000) to bring her in line with market and reflect
her strong performance in role.
Benefits and pension No change to policy applied in 2018/19.
The maximum limit on pensions has been retained at 25%, the level paid to the current Executive Directors.
However, as set out in the recruitment section of the Directors’ Remuneration Policy, it is the committee’s intention
that pension for future hires would be aligned with the level for other senior managers.
Annual incentives The maximum bonus opportunity for 2018/19 remains unchanged at 180% of salary for the Chief Executive
and 150% of salary for the other Executive Directors.
As explained in the Chairman’s introductory letter, a 20% weighting to non-financial objectives has been introduced
to the 2018/19 bonuses. The remainder of the bonus will be based on underlying profit before tax (60%) and working
capital (20%).
Targets for the Chief Executive and Chief Financial Officer will be based on group performance. For the Sector Chief
Executive, Clean Air, targets will be based on a mix of group and Clean Air Sector performance.
The Remuneration Committee considers the forward looking targets to be commercially sensitive, but full details
of the targets and performance against them will be disclosed in next year’s report.
As set out in the Policy Report, 50% of any bonus paid will be deferred in shares for three years and the payment
of any bonus is subject to appropriate malus and clawback provisions.
Long term incentives Award levels remain unchanged at 200% of salary for the Chief Executive and 175% of salary for the other Executive
Directors. The long term Performance Share Plan awards will be based on EPS growth targets, subject to achieving a
satisfactory level of return on capital employed. The EPS targets will be the same as those applying to the 2017 awards,
namely 15% vesting for 4% p.a. underlying EPS growth, increasing on a straight line basis to 100% vesting for 10% p.a.
underlying EPS growth or above. Awards vest in equal tranches over three, four and five years.
Chairman and Fees for the Non-Executive Directors for 2018/19 have been increased by 2.5% which is broadly in line with the
Non-Executive budgeted increase for all other UK employees. The fees for each Non-Executive Director are shown below.
Director fees Tim Stevenson £360,000 Chairman
Odile Desforges £65,400
Alan Ferguson £84,950 Senior Independent Director and Chairman of Audit Committee
Jane Griffiths £65,400
Chris Mottershead £81,900 Chairman of Remuneration Committee
John O’Higgins £65,400
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Governance
Statement of shareholder voting
We monitor carefully shareholder voting on our Remuneration Policy and its implementation. We recognise the importance of ensuring that our
shareholders continue to support our remuneration arrangements.
The table below shows the results of the poll taken on the resolution to receive and approve the Directors’ Remuneration Policy and the
Annual Report on Remuneration at the July 2017 AGM.
Resolution Number of votes cast For Against Votes withheld
Remuneration Policy 136,108,674 125,583,227 (92.3%)1 10,525,447 (7.7%)1 3,139,449
Remuneration Report 139,189,906 136,587,858 (98.1%)1 2,602,048 (1.9%)1 60,561
1 Percentage of votes cast, excluding votes withheld.
The Remuneration Committee believes that the 92.3% vote in favour of the Directors’ Remuneration Policy and the 98.1% vote in favour of the
Annual Report on Remuneration showed very strong shareholder support for the group’s remuneration arrangements at that time.
This Remuneration Report was approved by the Board of Directors on 30th May 2018 and signed on its behalf by:
Chris Mottershead
Chairman of the Remuneration Committee
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Directors’ Report
for the year ended 31st March 2018
Directors
The names of the directors who held office
during the year are set out on page 92.
The biographies of all the directors
serving at the date of this annual report are
shown on pages 84 and 85.
Indemnification of directors
Details of indemnities granted in favour
of each director of the company and each
director of the company’s subsidiaries, which
were in force during the year and which
remain in force as at the date of approval
of this annual report, can be found in the
Corporate Governance Report on page 94.
Appointment and replacement
of directors
The rules about the appointment and
replacement of directors are contained in our
Articles of Association, which are available
on our website. These include:
•
•
directors may be appointed by a
resolution of the members or a
resolution of the directors; and
if appointed by the directors, the newly
appointed director must retire at the
next Annual General Meeting (AGM)
and is not taken into account in
determining the directors who are
to retire by rotation at the meeting.
At least one third of the board must
retire by rotation at each AGM.
The Articles of Association may only be
amended by a special resolution at a general
meeting of the company.
Notwithstanding the provisions of
the Articles of Association, the board has
agreed that all directors will seek election or
re-election at each AGM in accordance with
the UK Corporate Governance Code 2016.
www.matthey.com/investors/corporate-
governance
Powers of the directors
The powers of the directors are determined by
the Articles of Association, UK legislation
including the Companies Act 2006 (the 2006
Act) and any directions given by the company
in general meeting.
The directors have been authorised by
the company’s Articles of Association to issue
and allot ordinary shares and to make market
purchases of its own shares. These powers
are referred to shareholders for renewal at
each AGM. Further information is set out
under ‘Purchase by the company of its own
shares’ opposite.
Directors’ interests in the
company’s shares
Share capital
Capital structure
The interests of persons who were directors
of the company (and of their connected
persons) at 31st March 2018 in the issued
shares of the company (or in related
derivatives or other financial instruments),
which have been notified to the company in
accordance with the Market Abuse
Regulation, are set out in the Remuneration
Report on page 126. The Remuneration
Report also sets out details of any changes in
those interests between 31st March 2018
and 30th May 2018.
Directors’ interests in contracts
Other than service contracts, no director had
any interest in any material contract with any
group company at any time during the year.
There were no contracts of significance
(as defined in the Financial Conduct
Authority’s Listing Rules) during the year
to which any group undertaking was a party
and in which a director of the company is or
was materially interested.
Dividends
The interim dividend of 21.75 pence per
share (2017: 20.5 pence) was paid in
February 2018. The directors recommend
a final dividend of 58.25 pence per share
in respect of the year (2017: 54.5 pence),
making a total for the year of 80.0 pence
per share (2017: 75.0 pence), payable
on 7th August 2018 to shareholders on
the register at the close of business on
8th June 2018.
Other than as referred to under
‘Employee share schemes’ on page 132,
during the year there were no arrangements
under which a shareholder has waived or
agreed to waive any dividends nor any
agreement by a shareholder to waive
future dividends.
Dividend payments and DRIP
Dividends can be paid directly into
shareholders’ bank accounts. A Dividend
Reinvestment Plan is also available. This
allows shareholders to purchase additional
shares in Johnson Matthey with their
dividend payment. Further information
and a mandate can be obtained from
our registrar, Equiniti, whose details are
set out on page 207 and on our website.
As at 31st March 2018, the issued share
capital of the company was 193,533,430
ordinary shares of 11049⁄53 pence each
(excluding treasury shares) and 5,407,176
treasury shares. There were no purchases,
sales or transfers of treasury shares during
the year.
Share allotments
There were no share allotments during
the year.
Purchase by the company
of its own shares
At the 2017 AGM shareholders authorised the
company to make market purchases of up to
19,353,343 ordinary shares of 11049⁄53 pence
each, representing 10% of the issued share
capital of the company (excluding treasury
shares). Any shares so purchased by the
company may be cancelled or held as treasury
shares. This authority will cease at the date of
the 2018 AGM.
During the year and up until the date of
approval of this annual report, the company
did not make any purchases of its own shares
or propose to, or enter into any options or
contracts to, purchase its own shares (either
through the market or by an offer made to all
shareholders or otherwise), nor did the
company acquire any of its own shares other
than by purchase.
Rights and obligations
attaching to shares
The rights and obligations attaching to the
ordinary shares in Johnson Matthey are set
out in the Articles of Association.
As at 31st March 2018 and as at the
date of approval of this annual report, except
as referred to below, there were no
restrictions on the transfer of ordinary shares
in the company, no limitations on the holding
of securities and no requirements to obtain
the approval of the company, or of other
holders of securities in the company, for a
transfer of securities.
The directors may, in certain
circumstances, refuse to register the transfer
of a share in certificated form which is not
fully paid up, where the instrument of
transfer does not comply with the
requirements of the company’s Articles of
Association, or if entitled under the
Uncertificated Securities Regulations 2001.
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Governance
Also as at 31st March 2018 and as at the date
of approval of this annual report:
•
•
•
•
no person held securities in the
company carrying any special rights
with regard to control of the company;
there were no restrictions on voting
rights (including any limitations on
voting rights of holders of a given
percentage or number of votes or
deadlines for exercising voting rights)
except that a shareholder has no right
to vote in respect of a share unless all
sums due in respect of that share are
fully paid;
there were no arrangements by which,
with the company’s cooperation,
financial rights carried by shares in the
company are held by a person other
than the holder of the shares; and
there were no agreements known to the
company between holders of securities
that may result in restrictions on the
transfer of securities or on voting rights.
Nominees, financial assistance and liens
During the year:
•
no shares in the company were acquired
by the company’s nominee, or by a
person with financial assistance from
the company, in either case where the
company has a beneficial interest in the
shares (and no person acquired shares
in the company in any previous financial
year in its capacity as the company’s
nominee or with financial assistance
from the company); and
•
the company did not obtain or hold a
lien or other charge over its own shares.
Allotment of securities for cash and
placing of equity securities
During the year the company has not allotted,
nor has any major subsidiary undertaking of
the company (broadly an undertaking that
represents at least 25% of the group’s
aggregate gross assets or profit) allotted,
equity securities for cash. During the year the
company has not participated in any placing
of equity securities.
Listing of the company’s shares
Employee share schemes
Johnson Matthey’s shares have a Premium
Listing on the London Stock Exchange and
trade as part of the FTSE 100 index under the
symbol JMAT.
American Depositary Receipt
programme
Johnson Matthey has a sponsored Level 1
American Depositary Receipt (ADR)
programme which BNY Mellon administers
and for which it acts as Depositary. Each
ADR represents two ordinary shares of
the company. The ADRs trade on the US
over-the-counter market under the symbol
JMPLY. When dividends are paid to
shareholders, the Depositary converts such
dividends into US dollars, net of fees and
expenses, and distributes the net amount to
ADR holders. Contact details for BNY Mellon
are set out on page 207.
At 31st March 2018, 4,460 current and
former employees were shareholders in the
company through the group’s employee
share schemes. Through these schemes,
current and former employees held
2,599,390 ordinary shares (1.34% of
issued share capital, excluding treasury
shares as at 31st March 2018). Also as at
31st March 2018, 1,807,792 ordinary shares
had been awarded but had not yet vested
under the company’s long term incentive
plan to 1,269 current and former employees.
Shares acquired by employees through
the company’s employee share schemes rank
equally with the other shares in issue and
have no special rights. Voting rights in respect
of shares held through the company’s
employee share schemes are not exercisable
directly by employees. However, employees
can direct the trustee of the schemes to
exercise voting rights on their behalf. The
trustee of the company’s employee share
ownership trust (ESOT) has waived its right
to dividends on shares held by the ESOT
which have not yet vested unconditionally
to employees.
Interests in voting rights
The following information has been disclosed to the company under the FCA’s Disclosure and
Transparency Rules (DTR 5) in respect of notifiable interests in the voting rights in the
company’s issued share capital:
Total % of total
Nature of holding voting rights 1 voting rights 2
As at 31st March 2018:
Ameriprise Financial Inc. Direct 84,408 0.04%
Indirect 9,727,409 5.03%
BlackRock, Inc. Indirect 20,181,149 9.85%
Financial Instrument (CFD) 209,763 0.10%
Standard Life Investments (Holdings) Limited Indirect 10,829,249 5.60%
1
Total voting rights attaching to the issued ordinary share capital of the company (excluding treasury shares) at the time of
disclosure to the company.
2 % of total voting rights at the date of disclosure to the company.
Other than as stated above, as far as the company is aware, there is no person with a significant
direct or indirect holding of securities in the company. The information provided above was
correct at the date of notification. However, it should be noted that these holdings are likely to
have changed since the company was notified. Notification of any change is not required until
the next notifiable threshold is crossed.
132
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Employment of disabled persons
Information on the company’s policy
applied during the year relating to the
recruitment, employment, training,
career development and promotion of
disabled employees.
Page 53
Research and development activities
An indication of the activities of the
group in the field of research and
development.
Pages 25 to 31
Likely future developments
An indication on likely future
developments in our business.
Pages 12 and 65 to 69
Greenhouse gas emissions
Disclosures relating to greenhouse
gas emissions.
Pages 39, 40 and 45
Use of financial instruments
Information on the group’s financial risk
management objectives and policies,
its exposure to credit risk, liquidity risk,
interest rate risk and foreign currency
risk and its use of financial instruments.
Pages 174 to 180
Contracts with controlling
shareholders
During the year there were no contracts of
significance (as defined in the FCA’s Listing
Rules) between any group undertaking and a
controlling shareholder and no contracts for
the provision of services to any group
undertaking by a controlling shareholder.
Change of control
As at 31st March 2018 and as at the date of
approval of this annual report, there were no
significant agreements to which the
company or any subsidiary was or is a party
that take effect, alter or terminate on a
change of control of the company, whether
following a takeover bid or otherwise.
However, the company and its
subsidiaries were, as at 31st March 2018 and
as at the date of approval of this annual
report, party to a number of commercial
agreements that may allow the
counterparties to alter or terminate the
agreements on a change of control of the
company following a takeover bid. Other
than the matters referred to below, these are
not deemed by the company to be significant
in terms of their potential effect on the group
as a whole.
The group has a number of loan notes
and borrowing facilities which may require
prepayment of principal and payment of
accrued interest and breakage costs if there is
change of control of the company. The group
has also entered into a series of financial
instruments to hedge its currency, interest
rate and metal price exposures which provide
for termination or alteration if a change of
control of the company materially weakens
the creditworthiness of the group.
The Executive Directors’ service
contracts each contain a provision to the
effect that if the contract is terminated by the
company within one year after a change of
control of the company, the company will pay
to the director as liquidated damages an
amount equivalent to one year’s gross base
salary and other contractual benefits less the
period of any notice given by the company to
the director.
The rules of the company’s employee
•
•
•
•
•
share schemes set out the consequences
of a change of control of the company on
participants’ rights under the schemes.
Generally such rights will vest and become
exercisable on a change of control subject
to the satisfaction of relevant performance
conditions. As at 31st March 2018 and as at
the date of approval of this annual report,
there were no other agreements between
the company or any subsidiary and its or
their directors or employees providing for
compensation for loss of office or
employment (whether through resignation,
purported redundancy or otherwise) that
occurs because of a takeover bid.
Branches
The company and its subsidiaries have
established branches in a number of
different countries in which they operate.
Political donations and
expenditure
It is the group’s policy not to make political
donations or to incur political expenditure.
During the year, there were no political
donations made to any EU or non-EU
political party, EU or non-EU political
organisation or to any EU or non-EU
independent election candidate. During the
year, no EU or non-EU political expenditure
was incurred.
Information set out in the
Strategic Report
In accordance with section 414C(11) of the
2006 Act, the directors have chosen to set
out in the Strategic Report the following
information required to be included in the
Directors’ Report:
•
Employee involvement
A description of the action taken by the
company during the year relating to
employee involvement.
Pages 52 to 57
133
Johnson Matthey / Annual Report and Accounts 2018
Governance
Disclosures required by Listing Rule 9.8.4R
Disclosures required by the FCA’s Listing Rule 9.8.4R, can be found on the following pages:
Sub-section of
Information required Listing Rule 9.8.4R Page reference
1. Capitalised interest (1) Page 168
2. Publication of unaudited financial information (2) Not applicable
3. Details of long term incentive schemes established to specifically recruit or retain a director (4) Not applicable
4. Waiver of emoluments by a director (5) (6) Not applicable
5. Allotments of equity securities for cash (7) (8) Page 132
6. Participation in a placing of equity securities (9) Not applicable
7. Contracts of significance (10) Not applicable
8. Contracts for the provisions of services by a controlling shareholder (11) Not applicable
9. Dividend waiver (12) (13) Pages 131 to 132
10. Agreements with controlling shareholder (14) Not applicable
Important events since 31st March 2018
There have been no important events affecting the company or any subsidiary since 31st March 2018.
2018 Annual General Meeting
Our 2018 AGM will be held at 11.00 am on Thursday 26th July 2018 at The Institute of Civil Engineering, One Great George Street, Westminster,
London SW1P 3AA.
The notice of the 2018 AGM, together with an explanation of the resolutions to be considered at the meeting, is set out in a separate
circular to shareholders. This circular is published on our website.
Auditor and disclosure of information
KPMG LLP will sign the 2018 Annual Report and Accounts and then retire as external auditors. Following a comprehensive tender, described
in full on pages 108 and 109, PricewaterhouseCoopers LLP will be recommended for appointment as the company’s external auditors at the
AGM on 26th July 2018.
So far as each person serving as a director of the company is aware, at the date this Directors’ Report was approved by the board there is no
relevant audit information (that is, information needed by the auditor in connection with preparing its report) of which the company’s auditor is
unaware. Each such director confirms that he or she has taken all the steps that he or she ought to have taken as a director in order to make
himself or herself aware of any relevant audit information and to establish that the company’s auditor is aware of that information.
Management report
The Strategic Report and the Directors’ Report together include the ‘management report’ for the purposes of the FCA’s Disclosure and
Transparency Rules (DTR 4.1.8R).
The Directors’ Report was approved by the board on 30th May 2018 and is signed on its behalf by:
Simon Farrant
Company Secretary
134
Responsibility of Directors
The directors are responsible for keeping
adequate accounting records that are
sufficient to show and explain the parent
company’s transactions and disclose with
reasonable accuracy at any time the financial
position of the parent company and enable
them to ensure that its accounts comply
with the Companies Act 2006. They are
responsible for such internal control as they
determine is necessary to enable the
preparation of financial statements that are
free from material misstatement, whether
due to fraud or error, and have general
responsibility for taking such steps as are
reasonably open to them to safeguard the
assets of the group and to detect fraud and
other irregularities.
Under applicable law and regulations,
the directors are also responsible for
preparing a Strategic Report, Directors’
Report, Remuneration Report and Corporate
Governance statement that comply with that
law and those regulations.
The directors are responsible for the
maintenance and integrity of the corporate
and financial information included on the
company’s website. Legislation in the UK
governing the preparation and dissemination
of accounts may differ from legislation in
other jurisdictions.
Statement of directors’
responsibilities in respect of the
Annual Report and Accounts
The directors are responsible for preparing
the annual report and the group and parent
company accounts in accordance with
applicable law and regulations.
Company law requires the directors to
prepare group and parent company accounts
for each financial year. Under company law
they are required to prepare the group
accounts in accordance with International
Financial Reporting Standards (IFRS) as
adopted by the European Union (EU) and
other applicable law and have elected to
prepare the parent company accounts on
the same basis.
Under company law the directors must
not approve the accounts unless they are
satisfied that they give a true and fair view
of the state of affairs of the group and parent
company and of their profit or loss for that
period. In preparing each of the group and
parent company accounts, the directors are
required to:
•
select suitable accounting policies and
then apply them consistently;
• make judgements and estimates that
are reasonable, relevant and reliable;
•
•
•
state whether they have been prepared
in accordance with IFRS as adopted by
the EU;
assess the group and parent company’s
ability to continue as a going concern,
disclosing as applicable, matters related
to going concern; and
use the going concern basis of accounting
unless they either intend to liquidate the
group or the parent company or to cease
operations, or have no realistic
alternative but to do so.
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Responsibility statement of the
directors in respect of the Annual
Report and Accounts
Each of the directors as at the date of the
Annual Report and Accounts, whose names
and functions are set out below:
•
•
•
•
•
•
•
•
•
Tim Stevenson, Chairman
Robert MacLeod, Chief Executive
Anna Manz, Chief Financial Officer
Odile Desforges, Non-Executive Director
Alan Ferguson, Non-Executive Director
Jane Griffiths, Non-Executive Director
Chris Mottershead, Non-Executive
Director
John O’Higgins, Non-Executive Director
John Walker, 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 30th May 2018 and is signed
on its behalf by:
Tim Stevenson
Chairman
135
Accounts
136
Contents
138 Consolidated Income Statement
138 Consolidated Statement of Total Comprehensive Income
139 Consolidated and Parent Company Balance Sheets
140 Consolidated and Parent Company Cash Flow Statements
141 Consolidated Statement of Changes in Equity
142 Parent Company Statement of Changes in Equity
143 Accounting policies
150 Notes on the accounts
191 Reconciliation of non-GAAP measures to GAAP measures
192 Independent auditor’s report
Johnson Matthey / Annual Report and Accounts 2018
The Accounts include
the consolidated
and parent company
accounts and related
notes, prepared in
accordance with
International
Financial Reporting
Standards, as well
as the independent
auditor’s report.
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Johnson Matthey / Annual Report and Accounts 2018
Accounts
Consolidated Income Statement
for the year ended 31st March 2018
Revenue
Cost of sales
Gross profit
Distribution costs
Administrative expenses
Loss on disposal of businesses
Loss on significant legal proceedings
Amortisation of acquired intangibles
Major impairment and restructuring charges
Operating profit
Finance costs
Finance income
Share of loss of joint venture and associate
Profit before tax
Income tax expense
Profit for the year
Attributable to:
Equity shareholders
Non-controlling interests
Earnings per ordinary share attributable to equity shareholders
Basic
Diluted
Consolidated Statement of
Total Comprehensive Income
for the year ended 31st March 2018
Profit for the year
Other comprehensive income:
Items that will not be reclassified to profit or loss:
Remeasurements of post-employment benefit assets and liabilities
Tax on above items taken directly to or transferred from equity
Items that may be reclassified subsequently to profit or loss:
Currency translation differences
Share of currency translation differences of joint venture and associate
Cash flow hedges
Fair value gains / (losses) on net investment hedges
Fair value gains on available-for-sale investments
Other comprehensive (loss) / income for the year
Total comprehensive income for the year
Attributable to:
Equity shareholders
Non-controlling interests
The notes on pages 150 to 190 form an integral part of the accounts.
138
Notes
1,2
2018
£ million
2017
£ million
14,122
(13,214)
12,031
(11,169)
5
6
7
8
1,9
11
11
12
908
(123)
(260)
(7)
(50)
(19)
(90)
359
(43)
5
(1)
320
(22)
298
298
–
298
862
(124)
(225)
–
–
(20)
–
493
(38)
7
–
462
(77)
385
386
(1)
385
pence
pence
13
13
155.2
155.0
201.2
200.8
Notes
2018
£ million
298
2017
£ million
385
17
35
36
36
36
36
36
103
(31)
72
(95)
–
5
6
–
(84)
(12)
286
286
–
286
(18)
2
(16)
163
2
(2)
(21)
7
149
133
518
519
(1)
518
Consolidated and Parent Company Balance Sheets
as at 31st March 2018
Assets
Non-current assets
Property, plant and equipment
Goodwill
Other intangible assets
Investments in subsidiaries
Investments in joint venture and associate
Deferred income tax assets
Available-for-sale investments
Interest rate swaps
Other receivables
Post-employment benefit net assets
Total non-current assets
Current assets
Inventories
Current income tax assets
Trade and other receivables
Cash and cash equivalents – cash and deposits
Other financial assets
Total current assets
Total assets
Liabilities
Current liabilities
Trade and other payables
Current income tax liabilities
Cash and cash equivalents – bank overdrafts
Other borrowings and related swaps
Other financial liabilities
Provisions
Total current liabilities
Non-current liabilities
Borrowings and related swaps
Deferred income tax liabilities
Employee benefit obligations
Provisions
Other payables
Total non-current liabilities
Total liabilities
Net assets
Equity
Share capital
Share premium account
Shares held in employee share ownership trust (ESOT)
Other reserves
Retained earnings
Total equity attributable to equity shareholders
Non-controlling interests
Total equity
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Group
Parent company
Notes
2018
£ million
2017
£ million
2018
£ million
2017
£ million
18
19
20
21
22
33
23
28
25
17
24
25
28
30
26
28
28
30
32
28
33
17
32
26
34
36
1,155
574
295
–
20
48
56
6
38
236
2,428
783
35
1,228
329
15
2,390
4,818
1,235
607
288
–
22
26
58
17
28
117
2,398
772
20
1,139
330
8
2,269
4,667
278
123
166
1,997
–
–
7
6
1,013
226
3,816
124
–
1,377
218
15
1,734
5,550
282
123
137
2,063
–
–
7
17
1,120
107
3,856
124
–
1,139
248
8
1,519
5,375
(1,012)
(149)
(53)
(10)
(12)
(37)
(968)
(134)
(32)
(20)
(15)
(21)
(2,552)
(56)
(11)
(4)
(14)
(5)
(2,579)
(15)
(16)
(2)
(16)
(4)
(1,273)
(1,190)
(2,642)
(2,632)
(951)
(94)
(103)
(14)
(5)
(1,011)
(113)
(112)
(18)
(6)
(951)
(43)
(9)
(17)
(492)
(1,011)
(27)
(10)
(18)
(509)
(1,167)
(1,260)
(1,512)
(1,575)
(2,440)
(2,450)
(4,154)
(4,207)
2,378
2,217
1,396
1,168
221
148
(48)
63
1,994
2,378
–
2,378
221
148
(55)
147
1,776
2,237
(20)
2,217
221
148
(48)
–
1,075
1,396
–
1,396
221
148
(55)
(1)
855
1,168
–
1,168
The accounts were approved by the Board of Directors on 30th May 2018 and signed on its behalf by:
R J MacLeod
A O Manz
Directors
The notes on pages 150 to 190 form an integral part of the accounts.
139
Johnson Matthey / Annual Report and Accounts 2018
Accounts
Consolidated and Parent Company
Cash Flow Statements
for the year ended 31st March 2018
Group
Parent company
Notes
2018
£ million
2017
£ million
2018
£ million
2017
£ million
320
462
332
150
1
7
245
10
(66)
(144)
62
15
(20)
(5)
–
38
(77)
386
1
–
3
(157)
(59)
–
7
–
5
(200)
–
2
–
(14)
–
(146)
(1)
(45)
(204)
(18)
(4)
298
276
(18)
12
(6)
–
43
37
(716)
(679)
–
–
177
11
(37)
(111)
121
(27)
(42)
(3)
–
31
(59)
523
–
–
5
(194)
(66)
–
4
(20)
–
(271)
(6)
–
80
(129)
(4)
(139)
(7)
(42)
(247)
5
9
284
298
5
53
58
(5)
(94)
(41)
(675)
(716)
–
–
113
7
–
(138)
(88)
–
(19)
(5)
(264)
(16)
(10)
(88)
–
264
63
(37)
(36)
–
5
–
–
259
–
–
–
–
–
(146)
(1)
(49)
(196)
(25)
–
232
207
(25)
–
(25)
–
47
22
(764)
(742)
–
–
41
7
–
303
(137)
(3)
(24)
(4)
(38)
(19)
(9)
267
–
38
66
(36)
(64)
(13)
–
–
–
(9)
(6)
–
80
(116)
–
(139)
(7)
(52)
(240)
18
–
214
232
18
36
54
–
(101)
(47)
(717)
(764)
5
14
28
28
Cash flows from operating activities
Profit before tax
Adjustments for:
Share of loss of joint venture and associate
Loss on disposal of businesses
Depreciation, amortisation, impairment losses and loss / (profit)
on sale of non-current assets and investments
Share-based payments
Increase in inventories
(Increase) / decrease in receivables
Increase / (decrease) in payables
Increase / (decrease) in provisions
Contributions in excess of employee benefit obligations charge
Changes in fair value of financial instruments
Dividends received from subsidiaries
Net finance costs / (income)
Income tax paid
Net cash inflow / (outflow) from operating activities
Cash flows from investing activities
Dividends received from joint venture
Dividends received from subsidiaries
Interest received
Purchases of property, plant and equipment
Purchases of intangible assets
Purchases of subsidiaries
Proceeds from sale of non-current assets and investments
Purchases of businesses net of cash acquired
Net proceeds from sale of businesses
Net cash (outflow) / inflow from investing activities
Cash flows from financing activities
Purchase of own shares by ESOT
Proceeds from borrowings falling due within one year
Proceeds from borrowings falling due after more than one year
Repayment of borrowings falling due within one year
Repayment of borrowings falling due after more than one year
Dividends paid to equity shareholders
Settlement of currency swaps
Interest paid
Net cash outflow from financing activities
(Decrease) / increase in cash and cash equivalents in the year
Exchange differences on cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Reconciliation to net debt
(Decrease) / increase in cash and cash equivalents in the year
Decrease in borrowings
Change in net debt resulting from cash flows
Borrowings acquired with subsidiaries
Exchange differences on net debt
Movement in net debt in year
Net debt at beginning of year
Net debt at end of year
The notes on pages 150 to 190 form an integral part of the accounts.
140
Consolidated Statement of Changes in Equity
for the year ended 31st March 2018
Share
capital
£ million
Share
premium
account
£ million
Shares Other
held in reserves
ESOT (note 36)
£ million £ million
Total
Retained attributable to
equity holders
earnings
£ million
£ million
Non-
controlling
interests
£ million
At 1st April 2016
221
148
(55)
Profit for the year
Remeasurements of post-employment
benefit assets and liabilities
Cash flow hedges
Net investment hedges
Available-for-sale investments
Currency translation differences
Tax on other comprehensive income
Total comprehensive income
Dividends paid (note 14)
Purchase of own shares by ESOT
Share-based payments
Cost of shares transferred to employees
Tax on share-based payments
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(6)
–
6
–
At 31st March 2017
221
148
(55)
Profit for the year
Remeasurements of post-employment
benefit assets and liabilities
Cash flow hedges
Net investment hedges
Currency translation differences
Tax on other comprehensive income
Total comprehensive income
Dividends paid (note 14)
Purchase of non-controlling
interests
Share-based payments
Cost of shares transferred to employees
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
7
(2)
–
–
(2)
(21)
7
165
–
149
–
–
–
–
–
147
–
–
5
6
(95)
–
(84)
–
–
–
–
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R
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e
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S
e
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c
A
n
o
i
t
a
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o
f
n
I
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h
t
O
1,541
1,853
386
(18)
–
–
–
–
2
370
(139)
–
17
(12)
(1)
386
(18)
(2)
(21)
7
165
2
519
(139)
(6)
17
(6)
(1)
(19)
(1)
–
–
–
–
–
–
(1)
–
–
–
–
–
Total
equity
£ million
1,834
385
(18)
(2)
(21)
7
165
2
518
(139)
(6)
17
(6)
(1)
1,776
2,237
(20)
2,217
298
103
–
–
–
(31)
370
(146)
(9)
17
(14)
298
103
5
6
(95)
(31)
286
(146)
(9)
17
(7)
–
–
–
–
–
–
–
–
20
–
–
–
298
103
5
6
(95)
(31)
286
(146)
11
17
(7)
2,378
At 31st March 2018
221
148
(48)
63
1,994
2,378
The notes on pages 150 to 190 form an integral part of the accounts.
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Accounts
Parent Company Statement of Changes in Equity
for the year ended 31st March 2018
Other
reserves
(note 36)
£ million
Retained
earnings
£ million
Total
equity
£ million
1,187
133
(21)
(2)
2
3
115
(139)
(6)
15
(4)
1,168
282
98
4
(3)
(17)
364
(146)
15
(5)
874
133
(21)
–
–
3
115
(139)
–
15
(10)
855
282
98
–
–
(17)
363
(146)
15
(12)
1,075
1,396
(1)
–
–
(2)
2
–
–
–
–
–
–
(1)
–
–
4
(3)
–
1
–
–
–
–
At 1st April 2016
Profit for the year
Remeasurements of post-employment benefit assets
and liabilities
Cash flow hedges
Currency translation differences
Tax on other comprehensive income
Total comprehensive income
Dividends paid (note 14)
Purchase of own shares by ESOT
Share-based payments
Cost of shares transferred to employees
Share
capital
£ million
221
Share
premium
account
£ million
148
Shares
held in
ESOT
£ million
(55)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(6)
–
6
At 31st March 2017
221
148
(55)
Profit for the year
Remeasurements of post-employment benefit assets
and liabilities
Cash flow hedges
Currency translation differences
Tax on other comprehensive income
Total comprehensive income
Dividends paid (note 14)
Share-based payments
Cost of shares transferred to employees
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
7
At 31st March 2018
221
148
(48)
The notes on pages 150 to 190 form an integral part of the accounts.
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Accounting policies
for the year ended 31st March 2018
Basis of accounting and preparation
The accounts are prepared in accordance with International Financial Reporting Standards (IFRS) and interpretations issued by the International
Financial Reporting Interpretations Committee (IFRIC) or the Standing Interpretations Committee (SIC) as adopted by the European Union.
For Johnson Matthey, there are no differences between IFRS as adopted by the European Union and full IFRS as published by the International
Accounting Standards Board (IASB) and so the accounts comply with IFRS.
The accounts are prepared on the historical cost basis, except for certain assets and liabilities which are measured at fair value as explained below.
The parent company has not presented its own income statement, statement of total comprehensive income and related notes as permitted by
section 408 of the Companies Act 2006.
Expenses within 2017’s Consolidated Income Statement have been reclassified as follows: increase administrative expenses £22 million, reduce
cost of sales £19 million and reduce distribution costs £3 million.
Basis of consolidation
The consolidated accounts comprise the accounts of the parent company and all its subsidiaries, including the employee share ownership trust,
and include the group’s interest in joint ventures and associates. Entities the group controls are accounted for as subsidiaries. Entities that are
joint ventures or associates are accounted for using the equity method of accounting. Transactions and balances between group companies are
eliminated. No profit is taken on transactions between group companies.
The results of businesses acquired or disposed of in the year are consolidated from or up to the effective date of acquisition or disposal,
respectively. The net assets of businesses acquired are recognised in the consolidated accounts at their fair values at the date of acquisition.
In the parent company balance sheet, businesses acquired from other group companies are recognised at book value at the date of acquisition.
The difference between the consideration paid and the book value of the net assets acquired is reflected in retained earnings.
Significant accounting policies
The group’s and parent company’s significant accounting policies are:
Foreign currencies
Foreign currency transactions are recorded in the functional currency of the relevant subsidiary, joint venture, associate or branch at the
exchange rate at the date of the transaction. Foreign currency monetary assets and liabilities are retranslated into the relevant functional
currency at the exchange rate at the balance sheet date.
Income statements and cash flows of overseas subsidiaries, joint ventures, associates and branches are translated into sterling at the average
rates for the year. Balance sheets of overseas subsidiaries, joint ventures, associates and branches, including any fair value adjustments and
related goodwill, are translated into sterling at the exchange rates at the balance sheet date.
Exchange differences arising on the translation of the net investment in overseas subsidiaries, joint ventures, associates and branches, less
exchange differences arising on related foreign currency financial instruments which hedge the group’s net investment in these operations,
are taken to other comprehensive income. On disposal of the net investment, the cumulative exchange difference is reclassified from equity to
operating profit. The group has taken advantage of the exemption allowed in IFRS 1 ‘First-time Adoption of International Reporting Standards’
to deem the cumulative translation difference for all overseas subsidiaries and branches to be zero at 1st April 2004.
Other exchange differences are taken to operating profit.
Revenue
Revenue comprises all sales of goods and rendering of services at the fair value of consideration received or receivable after the deduction of any
trade discounts and excluding sales taxes. Revenue is recognised when it can be measured reliably and the significant risks and rewards of
ownership are transferred to the customer. With the sale of goods, this occurs:
•
•
•
when the goods are despatched or delivered in line with the International Chamber of Commerce’s International Commercial Terms
(Incoterms®) as detailed in the relevant contract;
when the goods are made available to the customer and ownership transfers before despatch; or
on notification that the goods have been used when they are consignment products located at customers’ premises.
With the rendering of services, revenue is recognised by reference to the stage of completion as measured by costs incurred to date as a
proportion of estimated total costs.
With royalty and licence income, revenue is recognised in accordance with the substance of the relevant agreement. Where royalties or licences
are part of a long-term contract with a single overall profit margin, revenue is recognised by reference to the stage of completion of the contract.
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Accounts
Accounting policies
for the year ended 31st March 2018
Long-term contracts
Where the outcome of a long-term contract can be estimated reliably, revenue and costs are recognised by reference to the stage of completion.
This is measured by contract costs incurred to date as a proportion of estimated total contract costs.
Where the outcome of a long-term contract cannot be estimated reliably, contract revenue is recognised to the extent of contract costs incurred
that it is probable will be recoverable. Contract costs are recognised as expenses in the period in which they are incurred.
When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately.
Finance costs and finance income
Finance costs that are directly attributable to the construction of an asset that necessarily takes a substantial period of time to get ready for its
intended use are capitalised as part of the cost of that asset. Other finance costs and finance income are recognised in the income statement in
the year incurred.
Grants
Grants related to assets are included in deferred income and released to the income statement in equal instalments over the expected useful lives
of the related assets. Grants related to income are deducted in reporting the related expense.
Research and development
Research expenditure is charged to the income statement in the year incurred. Development expenditure is charged to the income statement in
the year incurred unless it meets the recognition criteria for capitalisation. When the recognition criteria have been met, any further
development expenditure is capitalised as an intangible asset.
Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated depreciation and any provisions for impairment. Depreciation is provided at
rates calculated to write-off the cost less estimated residual value of each asset over its useful life. Certain freehold buildings and plant and
equipment are depreciated using the units of production method as this more closely reflects their expected consumption. All other assets are
depreciated using the straight-line method. The useful lives vary according to the class of the asset, but are typically:
•
•
•
leasehold property – 30 years (or the life of the lease if shorter);
freehold buildings – 30 years; and
plant and equipment – 4 to 10 years.
Freehold land is not depreciated.
Goodwill and other intangible assets
Goodwill arises on the acquisition of a business when the fair value of the consideration exceeds the fair value attributed to the net assets
acquired (including contingent liabilities). It is subject to annual impairment reviews. Acquisition-related costs are charged to the income
statement as incurred. The group and parent company have taken advantage of the exemption allowed under IFRS 1 and, therefore, goodwill
arising on acquisitions made before 1st April 2004 is included at the carrying amount at that date less any subsequent impairments.
Other intangible assets are stated at cost less accumulated amortisation and any provisions for impairment. Customer contracts are amortised
when the relevant income stream occurs using either a straight-line method or, where they relate to a long-term contract, a stage of completion
method. All other intangible assets are amortised by using the straight-line method over the useful lives from the time they are first available for
use. The estimated useful lives vary according to the specific asset, but are typically:
•
•
•
•
•
customer contracts and relationships – 1 to 15 years;
capitalised computer software – 3 to 10 years;
patents, trademarks and licences – 3 to 20 years;
acquired research and technology – 4 to 10 years; and
capitalised development currently being amortised – 3 to 8 years.
Intangible assets which are not yet being amortised are subject to annual impairment reviews.
Investments in subsidiaries
Investments in subsidiaries are stated in the parent company’s balance sheet at cost less any provisions for impairment. If a distribution is
received from a subsidiary, the investment in that subsidiary is assessed for an indication of impairment.
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Accounting policies
for the year ended 31st March 2018
Leases
Leases are classified as finance leases whenever they transfer substantially all the risks and rewards of ownership to the group. The assets are
included in property, plant and equipment and the capital elements of the leasing commitments are shown as obligations under finance leases.
The assets are depreciated on a basis consistent with similar owned assets or the lease term if shorter. The interest element of the lease rental is
included in the income statement.
All other leases are classified as operating leases and the lease costs are expensed on a straight-line basis over the lease term.
Precious metal inventories
Inventories of gold, silver and platinum group metals are valued according to the source from which the metal is obtained. Metal which has been
purchased and committed to future sales to customers or hedged in metal markets is valued at the price at which it is contractually committed or
hedged, adjusted for unexpired contango and backwardation. Other precious metal inventories owned by the group, which are unhedged, are
valued at the lower of cost and net realisable value using the weighted average cost formula.
Other inventories
Non-precious metal inventories are valued at the lower of cost, including attributable overheads, and net realisable value. Except where costs are
specifically identified, the first-in, first-out cost formula is used to value inventories.
Cash and cash equivalents
Cash and deposits comprise cash at bank and in hand, including short-term deposits with a maturity date of three months or less from the date
of acquisition. The group and parent company routinely use short-term bank overdraft facilities, which are repayable on demand, as an integral
part of their cash management policy and, therefore, cash and cash equivalents in the cash flow statements are cash and deposits less bank
overdrafts. Offset arrangements across group businesses have been applied to arrive at the net cash and overdraft figures.
Derivative financial instruments
The group and parent company use derivative financial instruments, in particular forward currency contracts and currency swaps, to manage the
financial risks associated with their underlying business activities and the financing of those activities. The group and parent company do not
undertake any speculative trading activity in derivative financial instruments.
Derivative financial instruments are measured at their fair value. Derivative financial instruments may be designated at inception as fair value
hedges, cash flow hedges or net investment hedges if appropriate. Derivative financial instruments which are not designated as hedging
instruments are classified as held for trading, but are used to manage financial risk.
The vast majority of forward precious metal price contracts are entered into and held for the receipt or delivery of precious metal and, therefore,
are not recorded at fair value. If a forward precious metal price contract will be settled net in cash then it is designated and accounted for as a
cash flow hedge.
Changes in the fair value of any derivative financial instruments that are not designated as, or are not determined to be, effective hedges are
recognised immediately in the income statement.
Changes in the fair value of derivative financial instruments designated as fair value hedges are recognised in the income statement, together
with the related changes in the fair value of the hedged asset or liability. Fair value hedge accounting is discontinued if the hedging instrument
expires or is sold, terminated or exercised, the hedge no longer meets the criteria for hedge accounting or the designation is revoked.
Changes in the fair value of derivative financial instruments designated as cash flow hedges are recognised in other comprehensive income to the
extent that the hedges are effective. Ineffective portions are recognised in the income statement immediately. If the hedged item results in the
recognition of a non-financial asset or liability, the amount previously recognised in other comprehensive income is transferred out of equity and
included in the initial carrying amount of the asset or liability. Otherwise, the amount previously recognised in other comprehensive income is
transferred to the income statement in the same period that the hedged item is recognised in the income statement. If the hedging instrument
expires or is sold, terminated or exercised, the hedge no longer meets the criteria for hedge accounting or the designation is revoked, amounts
previously recognised in other comprehensive income remain in equity until the forecast transaction occurs. If a forecast transaction is no longer
expected to occur, the amounts previously recognised in other comprehensive income are transferred to the income statement.
For hedges of net investments in foreign operations, the effective portion of the gain or loss on the hedging instrument is recognised in other
comprehensive income, while the ineffective portion is recognised in the income statement. Amounts taken to other comprehensive income are
reclassified from equity to the income statement when the foreign operations are sold or liquidated.
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Accounts
Accounting policies
for the year ended 31st March 2018
Other financial instruments
All other financial instruments are initially recognised at fair value plus transaction costs. Subsequent measurement is as follows:
•
•
•
•
Borrowings are measured at amortised cost unless they are designated as being fair value hedged, in which case they are remeasured for the
fair value changes in respect of the hedged risk with these changes recognised in the income statement.
Available-for-sale investments which are investments in equity instruments that have a quoted market price in an active market are fair
valued at that price with the gain or loss recognised in other comprehensive income. Investments in equity instruments that do not have a
quoted market price in an active market are valued at fair value if it can be measured reliably with the gain or loss recognised in other
comprehensive income. If the fair value cannot be measured reliably, they are measured at cost.
Other available-for-sale investments are measured at fair value with interest calculated using the effective interest method recognised in
finance income and the remaining gain or loss recognised in other comprehensive income until the investment is derecognised. At that
time, the cumulative gain or loss recognised in other comprehensive income will be transferred to the income statement.
All other financial assets and liabilities, including short term receivables and payables, are measured at amortised cost less any impairment
provision.
Taxation
Current and deferred tax are recognised in the income statement, except when they relate to items recognised directly in equity, in which case
the related tax is also recognised in equity.
Current tax is the amount of income tax expected to be paid in respect of taxable profits using the tax rates that have been enacted or
substantively enacted at the balance sheet date.
Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and
their carrying amounts in the balance sheet. It is provided using the tax rates that are expected to apply in the period when the asset or liability is
settled, based on tax rates that have been enacted or substantively enacted at the balance sheet date.
Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which the temporary
differences can be utilised. No deferred tax asset or liability is recognised in respect of temporary differences associated with investments in
subsidiaries and branches where the group is able to control the timing of the reversal of the temporary difference and it is probable that the
temporary difference will not reverse in the foreseeable future.
Provisions and contingencies
Provisions are recognised when the group has a present obligation as a result of a past event and a reliable estimate can be made of a probable
adverse outcome, for example warranties, environmental claims and restructuring. Otherwise, material contingent liabilities are disclosed unless
the probability of the transfer of economic benefits is remote. Contingent assets are only disclosed if an inflow of economic benefits is probable.
The parent company considers financial guarantees of its subsidiaries’ borrowings and precious metal leases to be insurance contracts. These are
treated as contingent liabilities unless it becomes probable that it will be required to make a payment under the guarantee.
Share-based payments and employee share ownership trust (ESOT)
The fair value of shares awarded to employees under the Performance Share Plan, Restricted Share Plan, long term incentive plan and deferred
bonus is calculated by adjusting the share price on the date of allocation for the present value of the expected dividends that will not be received.
The resulting cost is charged to the income statement over the relevant performance periods, adjusted to reflect actual and expected levels of
vesting where appropriate.
The group and parent company provide finance to the ESOT to purchase company shares in the open market. Costs of running the ESOT are charged
to the income statement. The cost of shares held by the ESOT is deducted in arriving at equity until they vest unconditionally with employees.
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Accounting policies
for the year ended 31st March 2018
Post-employment benefits
The costs of defined contribution plans are charged to the income statement as they fall due.
For defined benefit plans, the group and parent company recognise the net assets or liabilities of the plans in their balance sheets. Assets are
measured at their fair value at the balance sheet date. Liabilities are measured at present value using the projected unit credit method and a
discount rate reflecting yields on high quality corporate bonds. The changes in plan assets and liabilities, based on actuarial advice, are
recognised as follows:
•
•
•
•
•
The current service cost is deducted in arriving at operating profit.
The net interest cost, based on the discount rate at the beginning of the year, contributions paid in and the present value of the net defined
benefit liabilities during the year, is included in finance costs.
Past service costs and curtailment gains and losses are recognised in operating profit at the earlier of when the plan amendment or
curtailment occurs and when any related restructuring costs or termination benefits are recognised.
Gains or losses arising from settlements are included in operating profit when the settlement occurs.
Remeasurements, representing returns on plan assets, excluding amounts included in interest, and actuarial gains and losses arising from
changes in financial and demographic assumptions, are recognised in other comprehensive income.
Critical accounting policies
Certain of the group’s and parent company’s significant accounting policies are considered to be critical because of the level of complexity,
judgement or estimation involved in their application and their impact on the accounts.
Post-employment benefits
The group’s and parent company’s defined benefit plans are assessed annually by qualified independent actuaries. The estimate of the liabilities
of the plans is based on a number of actuarial assumptions.
There is a range of possible values for each actuarial assumption and the point within that range is estimated to most appropriately reflect the group’s
and parent company’s circumstances. Small changes in these assumptions can have a significant impact on the estimate of the liabilities of the
plans and, therefore, may result in a material change to the group’s and parent company’s financial position in the year ending 31st March 2019.
Goodwill, other intangible assets and other assets
The group and parent company have significant intangible assets from both business acquisitions and investments in new products and
technologies. Some of those acquisitions and investments are at an early stage of commercial development and, therefore, carry a greater risk
that they will not be commercially viable. Goodwill and intangible assets not yet ready for use are not amortised, but are subject to annual
impairment reviews. Other intangible assets are amortised from the time they are first ready for use. Other assets are assessed for impairment
when there is a triggering event that provides evidence that an asset may be impaired.
The impairment reviews require the use of estimates of future profit and cash generation based on financial budgets and plans approved by
management covering a three-year period and the pre-tax discount rates used in discounting projected cash flows. The group does not consider
that there is a significant risk that changes in goodwill and other intangible assets could result in a material adjustment to its financial position
in the year ending 31st March 2019.
Tax provisions
Tax provisions are determined based on the tax laws and regulations that apply in each of the jurisdictions in which the group operates. Tax
provisions are recognised where the impact of those laws and regulations is unclear and it is probable that there will be a tax adjustment
representing a future outflow of funds to a tax authority or a consequent adjustment to the carrying value of a tax asset.
Provisions are measured using the best estimate of the most likely amount, being the most likely amount in a range of possible outcomes. The
resolution of tax positions taken by the group can take a considerable period of time to conclude and, in some cases, it is difficult to predict the
outcome. Group current income tax liabilities at 31st March 2018 of £149 million (2017: £134 million) include tax provisions of £86 million
(2017: £89 million) and the estimation of the range of possible outcomes is an increase in those liabilities by £61 million (2017: £64 million)
to a decrease of £50 million (2017: £51 million). The estimates made reflect where the group: faces routine tax audits or is in ongoing disputes
with tax authorities; has identified potential tax exposures relating to transfer pricing; or is contesting the tax deductibility of certain business
costs. The group does not consider that there is a significant risk that changes in tax provisions could result in a material adjustment to its
financial position in the year ending 31st March 2019.
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Accounts
Accounting policies
for the year ended 31st March 2018
Refining process
The group’s and parent company’s refining businesses process significant quantities of precious metal and there are uncertainties regarding the
actual amount of metal in the refining system at any one time. The group’s refining businesses process over four million ounces of platinum
group metals per annum with a market value of around £3.4 billion. The majority of metal processed is owned by customers and the group and
parent company must return pre-agreed quantities of refined metal based on assays of starting materials and other contractual arrangements,
such as, the timing of the return of metal. The group and parent company calculate the profits or losses of their refining operations based on
estimates, including the extent to which process losses are expected during refining. The risk of process losses or gains depends on the nature of
the starting material being refined, the specific refining processes applied, the efficiency of those processes and the contractual arrangements.
Stock takes are performed to determine the volume and value of metal within the refining system compared with the calculated estimates, with
the variance being a profit or a loss. Stock takes are, therefore, a key control in the assessment of the accuracy of the profit or loss of refining
operations. Whilst refining is a complex, large scale industrial process, the group and parent company have appropriate processes and controls
over the movement of material in their refineries and, historically, have not recorded material stock take gains or losses.
During the year ended 31st March 2018, the group and parent company did not perform a full stock take in their UK refineries due to high levels
of customer demand and potential palladium shortages in the market. As a consequence, a stocktake of input materials and finished goods was
performed, as in prior years, alongside additional procedures to support the estimates made as part of calculating the value of work in progress.
The group and parent company do not consider that there is a significant risk of a material adjustment to its financial position in the year ending
31st March 2019 in respect of refining process gains or losses.
Sources of estimation uncertainty
Determining the carrying amounts of certain assets and liabilities at the balance sheet date requires estimation of the effects of uncertain future
events. In the event that actual outcomes differ from those estimated, there may be an adjustment to the carrying amounts of those assets and
liabilities within the next financial year. The group and parent company have made appropriate estimates and the only significant risks of
material adjustments to their financial position during the year ending 31st March 2019 relate to the determination of the discount rate and
inflation assumptions underpinning the valuation of the liabilities of the group’s and parent company’s defined benefit pension plans and, for the
group, to the crystallisation of the contingent liability disclosed in note 32. A description of the discount rate and inflation assumptions, together
with sensitivity analysis, is set out in note 17 to the group and parent company accounts. The group is unable to make a reliable estimate of any
possible financial impact of the contingent liability at this stage.
Judgements made in applying accounting policies
In the course of preparing the financial statements, no judgements have been made in the process of applying the group’s and parent company’s
accounting policies, other than those involving estimations, that have had a significant effect on the amounts recognised in the financial
statements.
Adoption of revised standards and interpretations
In September 2017, the IFRS Interpretations Committee clarified that finance expenses on income tax balances should be reported within
finance costs and certain penalties arising on settlements with tax authorities within administrative expenses. The group had previously reported
finance expenses and penalties on income tax balances as part of income tax expense. With effect from 1st April 2017, the group has updated its
treatment of these balances in accordance with this new guidance. Comparative information has not been restated on the basis that the impact
of the change is not material.
In accordance with amendments to IAS 7 ‘Statement of Cash Flows’, the group and parent company have provided reconciliations between the
opening and closing balances for assets and liabilities arising from financing activities (note 29).
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Accounting policies
for the year ended 31st March 2018
Standards issued but not yet applied
Standards effective from 1st April 2018
IFRS 9 ‘Financial Instruments’ will be adopted from 1st April 2018. IFRS 9 introduces new requirements for recognition, classification and
measurement, a new impairment model for financial assets based on expected credit losses and simplified hedge accounting, replacing the
requirements of IAS 39 ‘Financial Instruments: Recognition and Measurement’.
The group and parent company have completed their reviews of the financial instruments they hold and the way in which those instruments are
used. They have identified differences in accounting treatment, where applicable, and have updated their hedging documentation. The review
has concluded that the new standard is not expected to have a significant impact on the group’s and parent company’s equity on transition.
The key impact of adopting IFRS 9 is to change the group’s and parent company’s financial asset impairment provision processes from the
current ‘incurred loss’ model to a forward looking ‘expected loss’ approach, resulting in earlier recognition of impairments. Other less significant
differences in the group relate to the reclassification of certain financial assets from being valued at amortised cost to fair value through other
comprehensive income.
Changes to the classification and measurement of financial assets are applied retrospectively by adjusting opening retained earnings at
1st April 2018. The group has chosen not to restate comparative information for prior periods. The provisional impact of adopting IFRS 9
on the group’s equity as at 1st April 2018 is a decrease of less than £5 million.
IFRS 15 ‘Revenue from Contracts with Customers’ will be adopted from 1st April 2018, superseding all revenue standards and interpretations in
IFRS. IFRS 15 provides a principles-based approach for revenue recognition and requires that revenue is recognised as the distinct performance
obligations promised within the contract are satisfied either at a point in time or over time.
Whilst some timing differences have been identified as a result of allocating revenue to distinct performance obligations or where the criteria
set out in IFRS 15 for recognising revenue over time are not met, the group and parent company have completed their reviews of major existing
contracts and have concluded that applying IFRS 15 will not have a significant impact on the timing and recognition of revenue once it is applied.
The group has chosen to apply IFRS 15 on a modified retrospective basis, recognising the cumulative effect of initial application as an adjustment
to opening retained earnings for contracts which are not completed at the adoption date. This means that the comparative information continues
to be recognised under existing revenue accounting requirements. The provisional impact of adopting IFRS 15 on the group’s equity as at
1st April 2018 is an increase of less than £5 million.
Standards effective from 1st April 2019
IFRS 16 ‘Leases’, which replaces IAS 17 ‘Leases’, was EU endorsed in October 2017. Whilst lessor accounting is similar to IAS 17, lessee accounting
is significantly different. Under IFRS 16, the group will recognise on the balance sheet a right-of-use asset and a lease liability for future lease
payments in respect of all leases unless the underlying assets are of low value or the lease term is 12 months or less. In the income statement,
rental expense on the impacted leases will be replaced with depreciation on the right-of-use asset and interest expense on the lease liability.
As set out in note 39, the group has operating lease commitments totalling £93 million at 31st March 2018 and, therefore, IFRS 16 will have a
material impact on the group’s balance sheet. The implications of the standard are currently under review and the group has not yet determined
which transition option will be applied. As the impact of transition is dependent on the option chosen, the group is unable to quantify the effect
at this time.
The group and parent company do not consider that any other standards or interpretations issued by the IASB, but not yet applicable, will have a
significant impact on their reported results or net assets.
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a
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r
e
v
o
G
s
t
n
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a
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o
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149
Johnson Matthey / Annual Report and Accounts 2018
Accounts
Notes on the accounts
for the year ended 31st March 2018
1
Segmental information
Effective 1st April 2017, the group was reorganised into four operating sectors – Clean Air, Efficient Natural Resources, Health and New
Markets. Segmental information for the year ended 31st March 2017 has been restated to reflect a change in group structure. The Group
Management Committee (the chief operating decision maker as defined by IFRS 8 ‘Operating Segments’) monitors the results of these
operating sectors to assess performance and make decisions about the allocation of resources. Each operating sector is represented by a
member of the Group Management Committee. These operating sectors represent the group’s reportable segments. Their principal
activities are described on pages 62 to 69. The performance of the operating sectors is assessed on sales excluding precious metals and
underlying operating profit (see note 4). Sales between segments are made at market prices, taking into account the volumes involved.
The group received £1,810 million of revenue from one external customer (2017: £1,835 million) which is 13% (2017: 15%) of the group’s
revenue from external customers. The revenue is generated by the group’s precious metal management activities so has a low margin due to
high precious metal content and is reported in the Efficient Natural Resources sector.
Year ended 31st March 2018
Revenue from external customers
Inter-segment revenue
Total revenue
External sales excluding precious metals
Inter-segment sales
Sales excluding precious metals
Segmental underlying operating profit
Unallocated corporate expenses
Underlying operating profit (note 4)
Loss on disposal of businesses (note 5)
Loss on significant legal proceedings (note 6)
Amortisation of acquired intangibles (note 7)
Major impairment and restructuring charges (note 8)
Operating profit / (loss)
Segmental net assets
Net debt
Post-employment benefit net assets and liabilities
Deferred income tax net liabilities
Provisions and non-current other payables
Investments in joint venture and associate
Unallocated corporate net assets
Net assets
Segmental capital expenditure
Other additions to non-current assets (excluding
financial, deferred tax and post-employment
benefit net assets)
Segmental total additions to non-current assets
Corporate capital expenditure
Total additions to non-current assets
Segment depreciation and amortisation
Amortisation of acquired intangibles (note 7)
Corporate depreciation
Total depreciation and amortisation
150
Efficient
Natural
Resources
£ million
9,237
2,342
Clean Air
£ million
4,248
260
4,508
11,579
2,454
–
2,454
845
111
956
Health
£ million
New
Markets
£ million
Eliminations
£ million
252
–
252
247
–
247
385
18
403
300
12
312
Total
£ million
14,122
–
–
(2,620)
(2,620)
14,122
–
(123)
3,846
–
(123)
3,846
349
158
44
17
–
–
(50)
(3)
–
296
–
–
(7)
(13)
138
–
–
–
(56)
(12)
(7)
–
(9)
(21)
(20)
1,133
1,083
481
208
–
71
11
82
74
3
77
49
–
49
47
7
54
40
–
40
21
–
21
18
–
18
8
9
17
–
–
–
–
–
–
568
(43)
525
(7)
(50)
(19)
(90)
359
2,905
(679)
133
(46)
(56)
20
101
2,378
178
11
189
39
228
150
19
169
6
175
Notes on the accounts
for the year ended 31st March 2018
1
Segmental information (continued)
Year ended 31st March 2017
Revenue from external customers
Inter-segment revenue
Total revenue
External sales excluding precious metals
Inter-segment sales
Sales excluding precious metals
Segmental underlying operating profit
Unallocated corporate expenses
Underlying operating profit (note 4)
Amortisation of acquired intangibles (note 7)
Operating profit
Segmental net assets
Net debt
Post-employment benefit net assets and liabilities
Deferred income tax net liabilities
Provisions and non-current other payables
Investments in joint venture and associate
Unallocated corporate net assets
Net assets
Segmental capital expenditure
Other additions to non-current assets (excluding
financial, deferred tax and post-employment
benefit net assets)
Segmental total additions to non-current assets
Corporate capital expenditure
Total additions to non-current assets
Segment depreciation and amortisation
Amortisation of acquired intangibles (note 7)
Corporate depreciation
Total depreciation and amortisation
t
r
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e
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Efficient
Natural
Resources
£ million
7,643
1,724
9,367
826
93
919
Clean Air
£ million
3,779
175
3,954
2,224
–
2,224
318
163
(3)
315
(8)
155
Health
£ million
New
Markets
£ million
Eliminations
£ million
Total
£ million
12,031
–
–
(1,917)
(1,917)
12,031
241
–
241
236
–
236
52
–
52
368
18
386
292
16
308
12
(9)
3
–
(109)
(109)
–
1,090
1,132
526
209
–
89
3
92
69
3
72
53
–
53
47
8
55
57
–
57
19
–
19
26
24
50
11
9
20
–
–
–
–
–
–
3,578
–
3,578
545
(32)
513
(20)
493
2,957
(716)
5
(87)
(45)
22
81
2,217
225
27
252
40
292
146
20
166
6
172
151
Johnson Matthey / Annual Report and Accounts 2018
Accounts
Notes on the accounts
for the year ended 31st March 2018
1
Segmental information (continued)
The group’s country of domicile is the UK. Revenue from external customers based on the customer’s location and non-current assets based
on the location of the assets are presented below:
Revenue from external customers
Non-current assets
2018
£ million
2017
£ million
2018
£ million
2017
£ million
UK
Germany
Rest of Europe
USA
Rest of North America
China (including Hong Kong)
Rest of Asia
Rest of World
Sub-total
Deferred income tax assets
Available-for-sale investments
Interest rate swaps
Post-employment benefit net assets
Total
2 Revenue
Sale of goods
Rendering of services
Royalties and licence income
Total revenue
4,613
1,347
1,597
2,870
232
1,347
1,295
821
3,640
1,118
1,655
2,216
319
1,124
1,320
639
14,122
12,031
849
276
236
399
33
159
112
18
2,082
48
56
6
236
2,428
839
260
240
495
38
164
124
20
2,180
26
58
17
117
2,398
2018
£ million
13,950
133
39
14,122
2017
£ million
11,853
129
49
12,031
3
Effect of exchange rate changes on translation of foreign subsidiaries’ sales excluding precious
metals and underlying operating profit
Average exchange rates used for translation of results of foreign operations are as follows:
US dollar / £
Euro / £
Chinese renminbi / £
2018
2017
1.328
1.134
8.79
1.308
1.191
8.79
The main impact of exchange rate movements on the group’s sales and operating profit comes from the translation of foreign subsidiaries’
results into sterling.
Sales excluding precious metals
Clean Air
Efficient Natural Resources
Health
New Markets
Inter-segment sales
Sales excluding precious metals
Underlying operating profit
Clean Air
Efficient Natural Resources
Health
New Markets
Unallocated corporate expenses
Underlying operating profit
152
Year ended
31st March
2018
£ million
Year ended 31st March 2017
At this
year’s rates
£ million
At last year’s
rates (restated)
£ million
Change at
this year’s
rates
%
2,454
956
247
312
(123)
3,846
349
158
44
17
(43)
525
2,224
919
236
308
(109)
3,578
318
163
52
12
(32)
513
2,249
922
234
317
(111)
3,611
326
165
51
12
(32)
522
+9
+4
+6
–2
+7
+7
–4
–13
+34
–
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Notes on the accounts
for the year ended 31st March 2018
3
Effect of exchange rate changes on translation of foreign subsidiaries’ sales excluding precious
metals and underlying operating profit (continued)
The group believes that sales excluding precious metals is a better measure of the underlying performance of the group than revenue. Total
revenue can be heavily distorted by year on year fluctuations in the market prices of precious metals. In addition, in many cases, the value of
precious metals is passed directly on to our customers.
Underlying profit and earnings are measures that the group believes provide a better guide to the underlying performance of the group.
These measures exclude amortisation of acquired intangibles, major impairment and restructuring charges, profit or loss on disposal of
businesses, gain or loss on significant legal proceedings together with associated legal costs, significant tax rates changes and, where
relevant, related tax effects, and are reconciled to their equivalent GAAP measures in note 4.
4 Underlying profit reconciliations
Underlying operating profit (note 1)
Loss on disposal of businesses (note 5)
Loss on significant legal proceedings (note 6)
Amortisation of acquired intangibles (note 7)
Major impairment and restructuring charges (note 8)
Operating profit
Underlying profit before tax
Loss on disposal of businesses (note 5)
Loss on significant legal proceedings (note 6)
Amortisation of acquired intangibles (note 7)
Major impairment and restructuring charges (note 8)
Profit before tax
Tax on underlying profit before tax
Tax on loss on significant legal proceedings (note 6)
Tax on amortisation of acquired intangibles (note 7)
Tax on major impairment and restructuring charges (note 8)
Tax thereon
Tax rate changes (note 12)
Income tax expense
Underlying profit for the year
Loss on disposal of businesses (note 5)
Loss on significant legal proceedings (note 6)
Amortisation of acquired intangibles (note 7)
Major impairment and restructuring charges (note 8)
Tax thereon
Tax rate changes (note 12)
Profit for the year attributable to equity shareholders
2018
£ million
2017
£ million
525
(7)
(50)
(19)
(90)
359
486
(7)
(50)
(19)
(90)
320
513
–
–
(20)
–
493
482
–
–
(20)
–
462
(86)
(82)
16
4
21
41
23
–
5
–
5
–
(22)
(77)
400
(7)
(50)
(19)
(90)
41
23
298
401
–
–
(20)
–
5
–
386
5
Loss on disposal of businesses
Profit or loss on disposal of businesses is shown separately on the face of the income statement and excluded from underlying operating
profit. On 31st January 2018, the group sold its UK automotive battery systems business. After costs the net proceeds were £5 million which
resulted in a loss on sale of £7 million.
6
Loss on significant legal proceedings
Gains or losses on significant legal proceedings, together with associated legal costs, are shown separately on the face of the income
statement and excluded from underlying operating profit. The group has recognised a charge of £50 million in connection with the
resolution of a contract dispute lawsuit related to a component supplied by the group in the US.
153
Johnson Matthey / Annual Report and Accounts 2018
Accounts
Notes on the accounts
for the year ended 31st March 2018
7 Amortisation of acquired intangibles
The amortisation of intangible assets which arise on the acquisition of businesses, together with any subsequent impairment of these
intangible assets, is shown separately on the face of the income statement and excluded from underlying operating profit.
8 Major impairment and restructuring charges
Major impairment and restructuring charges are shown separately on the face of the income statement and excluded from underlying
operating profit. As part of the group’s operational efficiency programme announced on 31st March 2017, a restructuring and impairment
charge of £90 million has been incurred in the year (2017: nil). The £90 million comprises £66 million asset write offs, £11 million
provisions and £13 million cash costs incurred. Contained within this £90 million are costs for redundancies and business or plant closures
as part of the optimisation of the manufacturing footprint in Health (including £36 million relating to the closure of the Riverside, US
manufacturing facility and £17 million relating to the exit of certain operations in Portugal).
9 Operating profit
Operating profit is arrived at after charging / (crediting):
Total research and development expenditure
less development expenditure capitalised
Research and development charged
less external funding received – from government grants
– from other organisations
Net research and development
Inventories recognised as an expense
Write-down of inventories recognised as an expense
Reversal of write-down of inventories arising from increases in net realisable value
Net losses on foreign exchange
Net gains on foreign currency forwards held for trading
Depreciation of property, plant and equipment
Amortisation of internally generated intangible assets included in cost of sales
Amortisation and impairment of other intangible assets included in – cost of sales
– distribution costs
– administrative expenses
– amortisation of acquired intangibles
– major impairment and restructuring
charges (note 8)
(note 7)
Operating lease rentals payable – minimum lease payments
10 Fees payable to auditors
Fees payable to the company’s auditor and its associates for:
The audit of these accounts
The audit of the accounts of the company’s subsidiaries
Total audit
Audit-related assurance services
Total audit and audit-related services
Taxation compliance services
All other assurance services
All other services
Total fees payable to the company’s auditor and its associates
2018
£ million
2017
£ million
193
(18)
175
(8)
(4)
163
201
(19)
182
(9)
(5)
168
12,261
26
(5)
10,275
12
(8)
10
(9)
143
9
4
1
2
19
4
19
8
(6)
139
8
2
1
2
20
–
19
2018
£ million
2017
£ million
0.8
1.4
2.2
0.1
2.3
–
0.4
0.3
3.0
0.7
1.4
2.1
0.1
2.2
0.1
0.4
0.1
2.8
Fees payable for services to the group's pension plans for the audit of the pension plan accounts were £0.1 million (2017: £0.1 million).
Audit fees paid to other auditors were £0.1 million (2017: £0.1 million).
154
Notes on the accounts
for the year ended 31st March 2018
11 Net finance costs
Net loss on remeasurement of foreign currency swaps held for trading
Net loss on remeasurement of fair value hedges and related hedged items to fair value
Interest payable on financial liabilities measured at amortised cost
Interest on post-employment benefits
Unwinding of discount on provisions and non-current payables
Total finance costs
Interest receivable on interest rate swaps
Interest receivable on available-for-sale investments, loans and receivables
Total finance income
Net finance costs
12 Taxation
Current tax
Corporation tax on profits for the year
Benefit from previously unrecognised tax losses, tax credits or temporary differences
Adjustment for prior years
Total current tax
Deferred tax
Origination and reversal of temporary differences
Tax rate adjustments
Write-downs, or reversal of previous write-downs, of deferred tax assets
Adjustment for prior years
Total deferred tax
Income tax expense
The tax charge for the year can be reconciled to the profit per the income statement as follows:
Profit before tax
Tax expense at UK corporation tax rate of 19% (2017: 20%)
Effects of:
Overseas tax rates
Expenses not deductible for tax purposes
Unutilised losses
Utilisation of tax losses and incentives
Adjustments for prior years
Innovation – tax incentives
Tax rate adjustments
Disposal of businesses
Irrecoverable withholding tax
Other
Tax expense for the year
t
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A
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o
f
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I
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O
2018
£ million
2017
£ million
(3)
–
(39)
(1)
–
(43)
–
5
5
(5)
(1)
(31)
–
(1)
(38)
4
3
7
(38)
(31)
2018
£ million
2017
£ million
104
(1)
(11)
92
(35)
(25)
(9)
(1)
(70)
22
82
(1)
(12)
69
9
(4)
1
2
8
77
2018
£ million
2017
£ million
320
61
–
13
8
(7)
(12)
(20)
(25)
1
1
2
22
462
92
13
5
3
(10)
(10)
(17)
(3)
–
5
(1)
77
155
Johnson Matthey / Annual Report and Accounts 2018
Accounts
Notes on the accounts
for the year ended 31st March 2018
12 Taxation (continued)
Expenses not deductible for tax purposes in the year ended 31st March 2018 include certain non-deductible costs related to asset write-downs.
Utilisation of tax losses and incentives is mainly the benefit of tax incentives in Macedonia and the recognition of certain other previously
unrecognised tax losses.
Adjustments for prior years includes some overseas tax provision releases following the successful conclusion of overseas tax audit
negotiations and the expiry of relevant statute of limitations.
Tax rate adjustments include £24 million and £1 million relating to the US and UK respectively. The US federal tax rate was reduced from
35% to 21% with effect from 1st January 2018. In line with this change, the rate applying to US deferred tax assets and liabilities at
31st March 2018 has been reduced from 37% to 23% (including state taxes), creating a US tax rate adjustment which is partly reflected
in the Consolidated Income Statement and partly in the Consolidated Statement of Total Comprehensive Income. The net non-underlying
benefit in the Consolidated Income Statement is £23 million (note 4).
13 Earnings per ordinary share
Basic
Diluted
2018
pence
155.2
155.0
2017
pence
201.2
200.8
Earnings per ordinary share have been calculated by dividing the profit attributable to equity shareholders by the weighted average number
of shares in issue during the year.
Weighted average number of shares in issue
Basic
Dilution for long-term incentive plans
Diluted
2018
2017
191,985,992 191,850,710
350,862
246,916
192,232,908 192,201,572
Underlying earnings per ordinary share have been calculated by dividing the underlying profit for the year (note 4) by the weighted average
number of shares in issue during the year.
Underlying earnings per share
Basic
Diluted
14 Dividends
2015/16 final ordinary dividend paid – 52.0 pence per share
2016/17 interim ordinary dividend paid – 20.5 pence per share
2016/17 final ordinary dividend paid – 54.5 pence per share
2017/18 interim ordinary dividend paid – 21.75 pence per share
Total dividends
2018
pence
2017
pence
208.4
208.1
209.1
208.7
2018
£ million
2017
£ million
–
–
104
42
146
100
39
–
–
139
A final dividend of 58.25 pence per ordinary share has been proposed by the board which will be paid on 7th August 2018 to shareholders
on the register at the close of business on 8th June 2018, subject to shareholders’ approval. The estimated amount to be paid is £112 million
and has not been recognised in these accounts.
156
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Notes on the accounts
for the year ended 31st March 2018
15 Employee numbers and costs
The average monthly number of employees during the year was:
Clean Air
Efficient Natural Resources
Health
New Markets
Corporate and Central Research
Average number of employees
2018
5,302
3,670
992
1,538
817
2017
(restated)
4,911
3,846
1,012
1,751
694
12,319
12,214
The number of temporary employees included above at 31st March 2018 is 367 (2017: 359).
The actual number of staff is:
Clean Air
Efficient Natural Resources
Health
New Markets
Corporate and Central Research
At 31st March 2018
At 31st March 2017 (restated)
Actual
employees
Agency
staff
Total
headcount
Actual
employees
Agency
staff
Total
headcount
5,470
3,711
964
1,714
856
554
171
113
429
148
6,024
3,882
1,077
2,143
1,004
4,948
3,821
1,031
1,770
736
416
182
101
374
46
5,364
4,003
1,132
2,144
782
Total
12,715
1,415
14,130
12,306
1,119
13,425
Restated to reflect a change in group structure – see note 1.
Employee benefits expense
Wages and salaries
Social security costs
Pension and other post-employment costs
Termination benefits
Share-based payments
Total employee benefits expense
2018
£ million
2017
£ million
548
59
69
5
17
698
526
56
46
5
17
650
157
Johnson Matthey / Annual Report and Accounts 2018
Accounts
Notes on the accounts
for the year ended 31st March 2018
16 Share-based payments
After considering expected lapses due to leavers and the probability that performance conditions will not be met, the total expense
recognised during the year in respect of equity-settled share-based payments, was £17 million (2017: £17 million).
Further details of the directors’ remuneration under share-based payment plans are given in the Remuneration Report.
Performance Share Plan (PSP)
From 2017, shares are awarded to certain of the group’s executive directors and senior managers under the PSP based on a percentage of
salary and are subject to performance targets over a three-year period.
At 31st March 2018, 357,562 shares awarded in 2017 were outstanding. The minimum release of 15% of the award is subject to achieving
underlying earnings per share (uEPS) growth of 4% compound per annum over the three-year period to 31st March 2020 and the full
release is subject to uEPS growing by at least 10% compound per annum. The number of awarded shares released will vary on a straight-line
basis between these points. Awards will lapse if the uEPS growth is less than the minimum.
Awards to the executive directors are also subject to a deferred release whereby a third is released on the third anniversary of the award date
and the remaining vested shares are released in equal instalments on the fourth and fifth anniversaries of the award date. The Remuneration
Committee is entitled to claw back the awards to the executive directors in cases of misstatement or misconduct.
Activity relating to the PSP during the year was:
Outstanding at the start of the year
Awarded during the year
Forfeited during the year
Outstanding at the end of the year
2018
Number of
allocated
shares
–
370,505
(12,943)
357,562
2017
Number of
allocated
shares
–
–
–
–
The fair value of the shares awarded during the year under the PSP was 2,548.9 pence per share. The fair value was based on the share
price at the date of award of 2,764.0 pence adjusted for the present value of the expected dividends that will not be received at an expected
dividend rate of 2.71%.
Restricted Share Plan (RSP)
From 2017, shares are awarded to certain of the group’s senior managers below the board under the RSP based on a percentage of salary.
Awards under the RSP are not subject to performance targets. The shares are subject only to the condition that the employee remains
employed by the group on the vesting date (three years after the award date).
Activity relating to the RSP during the year was:
Outstanding at the start of the year
Awarded during the year
Forfeited during the year
Released during the year
Outstanding at the end of the year
2018
Number of
allocated
shares
2017
Number of
allocated
shares
–
85,203
(4,858)
(298)
80,047
–
–
–
–
–
The fair value of the shares awarded during the year under the RSP was 2,548.9 pence per share. The fair value was based on the share
price at the date of award of 2,764.0 pence adjusted for the present value of the expected dividends that will not be received at an expected
dividend rate of 2.71%.
158
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Notes on the accounts
for the year ended 31st March 2018
16 Share-based payments (continued)
Long term incentive plan (LTIP)
Prior to 2017, shares were awarded to approximately 1,300 of the group’s executive directors, senior managers and middle managers under
the LTIP based on a percentage of salary and were subject to performance targets over a three-year period.
At 31st March 2018, 1,350,170 shares awarded in 2015 and 2016 (at 31st March 2017: 2,175,761 shares awarded in 2014, 2015 and
2016) were outstanding, together with 20,013 shares awarded in 2014 subject to deferred release as explained below.
For the 2016 awards, the minimum release of 15% of the award is subject to achieving underlying earnings per share (uEPS) growth of 4%
compound per annum over the three-year period to 31st March 2019 and the full release is subject to uEPS growing by at least 10%
compound per annum. The number of awarded shares released will vary on a straight-line basis between these points. Awards will lapse
if the uEPS growth is less than the minimum.
For the 2015 awards, the minimum release of 15% of the award was subject to achieving uEPS growth of 6% compound per annum over
the three-year period to 31st March 2018 and the full release was subject to uEPS growing by at least 12% compound per annum. An
underpin applies to the 2015 award for certain senior employees below the board who are key to supporting and implementing the group’s
strategy. Actual uEPS growth was 5.1% and therefore was below the performance range. However, 65,876 shares will vest in August 2018
as a result of the underpin awarded to certain employees. All other awards will lapse in full.
From 2014 onwards, awards to the executive directors are also subject to a deferred release whereby a third is released on the third
anniversary of the award date and the remaining vested shares are released in equal instalments on the fourth and fifth anniversaries
of the award date. The Remuneration Committee is entitled to claw back the awards to the executive directors in cases of misstatement
or misconduct.
Activity relating to the LTIP during the year was:
Outstanding at the start of the year
Awarded during the year
Forfeited during the year
Released during the year
Expired during the year
Outstanding at the end of the year
2018
Number of
awarded
shares
2017
Number of
awarded
shares
2,175,761
–
(194,782)
(156,849)
(453,947)
2,138,725
881,548
(144,373)
(226,858)
(473,281)
1,370,183
2,175,761
The fair value of the shares awarded during the prior year under the LTIP was 3,066.3 pence per share. The fair value was based on the
share price at the date of award of 3,273.0 pence adjusted for the present value of the expected dividends that will not be received at an
expected dividend rate of 2.18%.
Deferred bonus
A proportion of the bonus payable to executive directors and members of the Group Management Committee is awarded as shares and
deferred for three years. The Remuneration Committee is entitled to claw back the deferred element in cases of misstatement or
misconduct or other relevant reason as determined by it.
Activity relating to the deferred bonus during the year was:
Outstanding at the start of the year
Awarded during the year
Released during the year
Outstanding at the end of the year
2018
Number of
awarded
shares
83,956
24,831
(27,006)
2017
Number of
awarded
shares
69,237
16,008
(1,289)
81,781
83,956
The fair value of the shares awarded during the year under the deferred bonus was 2,481.0 pence per share award (2017: 3,000.4 pence
per share award). The fair value was based on the share price at the date of award of 2,764.0 pence (2017: 3,273.0 pence) adjusted for the
present value of the expected dividends that will not be received at an expected dividend rate of 2.71% (2017: 2.18%).
159
Johnson Matthey / Annual Report and Accounts 2018
Accounts
Notes on the accounts
for the year ended 31st March 2018
16 Share-based payments (continued)
All employee share incentive plan (SIP) – UK and Overseas
Under the SIP, all employees with at least one year of service with the group and who are employed by a participating group company are
entitled to contribute up to 2.5% of base pay each month, subject to a £125 per month limit. The SIP trustees buy shares (partnership
shares) at market value each month with the employees’ contributions. For each partnership share purchased, the group purchases two
shares (matching shares) which are awarded to the employee.
In the UK SIP, if the employee sells or transfers partnership shares within three years of the date of award, the linked matching shares
are forfeited.
In the overseas SIP, partnership shares and matching shares are subject to a three-year holding period and cannot be sold or transferred
during that time.
During the year, 201,476 (2017: 196,276) matching shares under the SIP were awarded to employees. These are nil cost awards on which
performance conditions are substantially completed at the date of grant and, consequently, the fair value of these awards is based on the
market value of the shares at that date.
401k approved savings investment plans (401k plans)
In the US, there are two 401k plans, one for salaried employees and one for hourly employees. Salaried employees may contribute up to
50% of their base pay and hourly employees up to 20% of their base pay, both subject to a statutory limit. Salaried employees choosing
Johnson Matthey Plc share matching are matched 100% of the first 4% contributed and hourly employees are matched 50% of the first 6%
contributed. Employees may contribute after one month of service and are eligible for matching after one year of service.
During the year, 6,560 (2017: 14,870) shares under the 401k plans were awarded to employees. These are nil cost awards on which
performance conditions are substantially completed at the date of grant and, consequently, the fair value of these awards is based on the
market value of the shares at that date.
17 Post-employment benefits
17a Group
Background
Pension plans
The group operates a number of post-employment retirement and medical benefit plans around the world, the forms of which vary with
conditions and practices in the countries concerned. The retirement plans in the UK, US and other countries include both defined
contribution and defined benefit plans.
For defined contribution plans, retirement benefits are determined by the value of funds arising from contributions paid in respect of each
employee and the investment returns on those contributions prior to retirement. The group also makes payments to employees’ personal
pension plans.
For defined benefit plans, which include final salary, career average and other types of plans with committed pension payments, the
retirement benefits are based on factors such as the employee’s pensionable salary and length of service. The majority of the group’s
final salary and career average defined benefit retirement plans are closed to new entrants but remain open to ongoing accrual for
current members.
Regulatory framework and governance
The UK pension plan, the Johnson Matthey Employees Pension Scheme (JMEPS), is a registered arrangement established under trust law
and, as such, is subject to UK pension, tax and trust legislation. It is managed by a corporate trustee, JMEPS Trustees Limited. The trustee
board includes representatives appointed by both the parent company and employees, and includes an independent chairman.
Although the parent company bears the financial cost of the plan, the trustee directors are responsible for the overall management and
governance of JMEPS, including compliance with all applicable legislation and regulations. The trustee directors are required by law to act in
the interests of all relevant beneficiaries and: to set certain policies; to manage the day to day administration of the benefits; and to set the
plan’s investment strategy following consultation with the parent company.
UK pensions are regulated by the Pensions Regulator whose statutory objectives and regulatory powers are described on its website:
www.thepensionsregulator.gov.uk.
The US pension plans are qualified pension arrangements and are subject to the requirements of the Employee Retirement Income Security
Act, the Pension Protection Act 2006 and the Department of Labor and Internal Revenue. The plans are managed by a pension committee
which acts as the fiduciary and, as such, is ultimately responsible for: the management of the plans’ investments; compliance with all
applicable legislation and regulations; and overseeing the general management of the plans.
Other trustee or fiduciary arrangements that have similar responsibilities and obligations are in place for the group’s other funded defined
benefit pension plans outside of the UK and US.
160
Notes on the accounts
for the year ended 31st March 2018
17 Post-employment benefits (continued)
17a Group (continued)
Background (continued)
Benefits
The UK pension plan is segregated into two sections – a legacy section which provides final salary and career average pension benefits and
a cash balance section. The final salary element of the legacy section was closed to future accrual of benefits from 1st April 2010 and the
career average element of the legacy section was closed to new entrants on 1st October 2012 but remains open to future accrual for
existing members. All new entrants join the cash balance section of the plan.
The legacy section provides benefits to members in the form of a set level of pension payable for life based on the member’s length of
service and final pensionable salary at retirement or averaged over their career with the company. The benefits attract inflation-related
increases both before and after retirement.
The cash balance section provides benefits to members at the point of retirement in the form of a cash lump sum. The benefits attract
inflation-related increases before retirement but, following the payment of the retirement lump sum benefit, the plan has no obligation to
pay any further benefits to the member.
The group operates two defined benefit pension plans in the US. The hourly pension plan is for unionised employees and provides a fixed
retirement benefit for life based upon years of service. The salaried pension plan provides retirement benefits for life based on the member’s
length of service and final pensionable salary (averaged over the last five years). The salaried plan benefits attract inflation-related increases
before leaving, but are non-increasing thereafter. On retirement, members in either plan have the option to take the cash value of their
benefit instead of a lifetime annuity in which case the plan has no obligation to pay any further benefits to the member.
The US salaried pension plan was closed to new entrants on 1st September 2013 but remains open to future accrual for existing members.
All new non-unionised US employees now join a defined contribution plan.
Other post-employment benefits
The group’s principal post-employment medical plans are in the UK and US, and are unfunded arrangements that have been closed to new
entrants for over ten years.
Maturity profile
The estimated weighted average durations of the defined benefit obligations of the main plans as at 31st March 2018 are:
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Pensions:
UK
US
Post-retirement medical benefits:
UK
US
Funding
Weighted
average
duration
years
19
12
12
14
Introduction
The group’s principal defined benefit retirement plans are funded through separate fiduciary or trustee administered funds that are
independent of the sponsoring company. The contributions paid to these arrangements are jointly agreed by the sponsoring company and
the relevant trustee or fiduciary body after each funding valuation and in consultation with independent qualified actuaries. The plans’
assets, together with the agreed funding contributions, should be sufficient to meet the plans’ future pension obligations.
161
Johnson Matthey / Annual Report and Accounts 2018
Accounts
Notes on the accounts
for the year ended 31st March 2018
17 Post-employment benefits (continued)
17a Group (continued)
Funding (continued)
UK valuations
UK legislation requires that pension plans are funded prudently and that, when undertaking a funding valuation (every three years), assets
are taken at their market value and liabilities are determined based on a set of prudent assumptions set by the trustee following
consultation with their appointed actuary. The assumptions used for funding valuations may, therefore, differ to the actuarial assumptions
used for IAS 19 accounting purposes.
The last funding valuation of JMEPS was carried out as at 1st April 2015. This valuation showed that there was a deficit of £69 million in the
legacy section of the plan, or £28 million after taking account of the future additional deficit funding contributions from the special
purpose vehicle (SPV) set up in January 2013 called Johnson Matthey (Scotland) Limited Partnership. To address the deficit, the parent
company agreed to continue to make deficit contributions of £23 million per year up to 31st December 2019. The valuation also revealed a
surplus of £2 million in the defined benefit cash balance section.
The SPV was set up to provide additional deficit reduction contributions and to provide greater security to the trustee. The group invested
£50 million in a bond portfolio which is beneficially held by the SPV. The income generated by the SPV is used to make annual distributions
of £3.5 million to JMEPS for a period of up to 25 years. These annual distributions are only payable if the legacy section of JMEPS continues
to be in deficit. This bond portfolio is held as a non-current available-for-sale investment (note 23) and the group’s liability to pay the
income to the plan is not a plan asset under IAS 19, although it is for actuarial funding valuation purposes. The SPV is exempt from the
requirement to prepare audited annual accounts as it is included on a consolidated basis in these accounts.
In accordance with the governing documentation of JMEPS, any future plan surplus would be returned to the parent company by way of a
refund assuming gradual settlement of the liabilities over the lifetime of the plan. As such, there are no adjustments required in respect of
IFRIC 14 – ‘IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction’.
US valuations
The last annual review of the US defined benefit pension plans was carried out by a qualified actuary as at 1st July 2017 and showed a
deficit of $16 million on the projected funding basis. The assumptions used for funding valuations may differ to the actuarial assumptions
used for IAS 19 accounting purposes.
Other valuations
Similar funding valuations are undertaken on the group’s other defined benefit pension plans outside of the UK and US in accordance with
prevailing local legislation.
Risk management
The group is exposed to a number of risks relating to its post-retirement pension plans, the most significant of which are:
Risk
Mitigation
Market (investment) risk
Asset returns may not move in line with the
liabilities and may be subject to volatility.
Interest (discount) rate risk
Liabilities are sensitive to movements in bond
yields (interest rates), with lower interest rates
leading to an increase in the valuation of
liabilities, albeit the impact on the plan’s
funding level will be partially offset by an
increase in the value of its bond holdings.
Inflation risk
Liabilities are sensitive to movements in
inflation, with higher inflation leading to an
increase in the valuation of liabilities.
The group’s various plans have highly diversified investment portfolios, investing in a
wide range of assets that provide reasonable assurance that no single security or type of
security could have a material adverse impact on the plan.
A de-risking strategy is in place to reduce volatility in the plans as a result of the
mismatch between the assets and liabilities. As the funding level of the plans improve
and hit pre-agreed triggers, plan investments are switched from return-seeking assets to
liability-matching assets.
The plans implement partial currency hedging on their overseas assets to mitigate
currency risk.
The group’s defined benefit plans hold a high proportion of their assets in government or
corporate bonds, which provide a natural hedge against falling interest rates.
In the UK, this interest rate hedge is extended by the use of interest rate swaps, such that
approximately 70% of the plan’s interest rate risk is currently hedged. The swaps are held
with several banks to reduce counterparty risk.
Where plan benefits provide inflation-related increases, the plan holds some inflation-linked
assets which provide a natural hedge against higher than expected inflation increases.
In the UK, this inflation hedge is extended by the use of inflation swaps, such that
approximately 70% of the plan’s inflation risk is currently hedged. The swaps are held with
several banks to reduce counterparty risk.
During the year ended 31st March 2018, 34% of eligible pensioners in the UK plan accepted
the offer of a pension increase exchange, which reduced the amount of future inflationary
pension payable in exchange for higher non-increasing pension.
162
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Notes on the accounts
for the year ended 31st March 2018
17 Post-employment benefits (continued)
17a Group (continued)
Funding (continued)
Risk management (continued)
Risk
Mitigation
Longevity risk
The majority of the group’s defined benefit
plans provide benefits for the life of the
member, so the liabilities are sensitive to life
expectancy, with increases in life expectancy
leading to an increase in the valuation of
liabilities.
The group has closed most of its defined benefit pension plans to new entrants, replacing
them with either a cash balance plan or defined contribution plans, both of which are
unaffected by life expectancy.
For the plans where a benefit for life continues to be payable, prudent mortality
assumptions are used that appropriately allow for a future improvement in life
expectancy. These assumptions are reviewed on a regular basis.
Contributions
During the year, total contributions to the group’s post-employment defined benefit plans were £69 million (2017: £70 million), including
deficit contributions of £23 million (2017: £23 million) in respect of JMEPS.
It is estimated that the group will contribute about £65 million to the post-employment defined benefit plans during the year ending
31st March 2019.
IAS 19 accounting
Principal actuarial assumptions
Qualified independent actuaries have updated the IAS 19 valuations of the group’s major defined benefit plans to 31st March 2018. The
assumptions used are chosen from a range of possible actuarial assumptions which, due to the long term nature of the plans, may not
necessarily be borne out in practice.
Financial assumptions
First year's rate of increase in salaries
Ultimate rate of increase in salaries
Rate of increase in pensions in payment
Discount rate
Inflation
– UK Retail Prices Index (RPI)
– UK Consumer Prices Index (CPI)
Current medical benefits cost trend rate
Ultimate medical benefits cost trend rate
2018
UK plans
%
2018
US plans
%
2018
Other plans
%
2017
UK plans
%
2017
US plans
%
2017
Other plans
%
3.75
3.75
2.85
2.70
3.00
2.00
5.40
5.40
3.00
3.00
–
4.00
2.20
2.95
2.95
2.50
2.50
1.50
2.33
1.60
–
–
3.10
3.85
3.05
2.60
3.10
2.10
5.40
5.40
3.00
3.00
–
4.10
2.20
2.95
2.95
2.59
2.59
1.50
2.15
1.61
–
–
Demographic assumptions
The mortality assumptions are based on country-specific mortality tables and, where appropriate, include an allowance for future
improvements in life expectancy. In addition, where credible data exists, actual plan experience is taken into account. The group’s most
substantial pension liabilities are in the UK and the US where, using the mortality tables adopted, the expected lifetime of average members
currently at age 65 and average members at age 65 in 25 years’ time (i.e. members who are currently aged 40 years) is respectively:
Male
Female
Currently aged 65
Aged 65 in 25 years
UK plan
US plans
UK plan
US plans
87
89
86
88
89
91
88
90
163
Johnson Matthey / Annual Report and Accounts 2018
Accounts
Notes on the accounts
for the year ended 31st March 2018
17 Post-employment benefits (continued)
17a Group (continued)
Financial information
Plan assets
Movements in the fair value of plan assets during the year were:
At 1st April 2016
Interest income
Return on plan assets excluding interest
Employee contributions
Company contributions
Benefits paid
Exchange adjustments
At 31st March 2017
Administrative expenses
Interest income
Return on plan assets excluding interest
Employee contributions
Company contributions
Benefits paid
Exchange adjustments
At 31st March 2018
The fair values of plan assets are analysed as follows:
Quoted corporate bonds
Inflation and interest rate swaps
Quoted government bonds
Cash and cash equivalents
Quoted equity
Unquoted equity
Property
Insurance policies
UK
pension
£ million
1,581
59
303
4
56
(55)
–
1,948
–
51
(11)
3
56
(68)
–
1,979
UK post-
retirement
medical
benefits
£ million
US
pensions
£ million
US post-
retirement
medical
benefits
£ million
Other
£ million
Total
£ million
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
255
11
(2)
1
9
(21)
39
292
(1)
11
8
1
10
(15)
(34)
272
–
–
–
–
2
(2)
–
–
–
–
–
1
1
(2)
–
–
39
1
2
–
3
(2)
4
47
–
1
(2)
–
2
(2)
1
47
1,875
71
303
5
70
(80)
43
2,287
(1)
63
(5)
5
69
(87)
(33)
2,298
2018
UK pension
£ million
2018
US pensions
£ million
2018
Other
£ million
2017
UK pension
£ million
2017
US pensions
£ million
2017
Other
£ million
1,093
63
22
60
630
47
64
–
1,979
137
–
87
–
48
–
–
–
272
5
–
–
–
2
–
–
40
47
1,069
73
26
52
654
17
57
–
1,948
143
–
97
1
51
–
–
–
292
1
–
–
–
2
–
–
44
47
The UK plan’s unquoted equities are assets within a pooled infrastructure fund where the underlying assets are a broad range of private
infrastructure investments, diversified by geographic region, infrastructure sector, underlying asset type and development stage. These
infrastructure assets are valued using widely recognised valuation techniques which use market data and discounted cash flows. The same
valuation approach is used to determine the value of the swaps and insurance policies. The UK plan’s property is a unitised fund where the
underlying assets are taken at market value. The valuation of the fund is periodically independently audited.
The defined benefit pension plans do not invest directly in Johnson Matthey Plc shares and no property or other assets owned by the
pension plans are used by the group.
The assets for the cash balance section of the UK plan are held separately from the assets of the legacy section. At 31st March 2018, the
defined benefit obligation related to the contributory cash balance section was £43 million (2017: £33 million) and the fair value of the
plan assets was £44 million (2017: £32 million).
164
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Notes on the accounts
for the year ended 31st March 2018
17 Post-employment benefits (continued)
17a Group (continued)
Financial information (continued)
Defined benefit obligation
Movements in the defined benefit obligation during the year were:
At 1st April 2016
Current service cost – in operating profit
Current service cost – capitalised
Past service (cost) / credit
Interest cost
Employee contributions
Remeasurements due to changes in:
Financial assumptions
Demographic assumptions
Benefits paid
Exchange adjustments
At 31st March 2017
Current service cost – in operating profit
Past service credit
Interest cost
Employee contributions
Remeasurements due to changes in:
Financial assumptions
Demographic assumptions
Benefits paid
Exchange adjustments
At 31st March 2018
UK
pension
£ million
(1,480)
(28)
(1)
(3)
(55)
(4)
(402)
77
55
–
(1,841)
(41)
4
(48)
(3)
93
15
68
–
UK post-
retirement
medical
benefits
£ million
US
pensions
£ million
US post-
retirement
medical
benefits
£ million
Other
£ million
(11)
–
–
–
–
–
(1)
2
–
–
(10)
–
–
–
–
–
1
–
–
(276)
(10)
–
–
(12)
(1)
2
6
21
(42)
(312)
(8)
–
(12)
(1)
(7)
(2)
15
35
(48)
(1)
–
17
(2)
–
(3)
–
2
(7)
(42)
(1)
–
(2)
(1)
4
1
2
5
(70)
(2)
–
–
(2)
–
(5)
2
2
(7)
(82)
(3)
1
(2)
–
3
–
2
(1)
Total
£ million
(1,885)
(41)
(1)
14
(71)
(5)
(409)
87
80
(56)
(2,287)
(53)
5
(64)
(5)
93
15
87
39
(1,753)
(9)
(292)
(34)
(82)
(2,170)
The past service credit in the UK pension plan during the year ended 31st March 2018 is a result of the pension increase exchange exercise,
partially offset by a past service cost in respect of pension enhancements for eligible employees who have been made redundant. In the year
ended 31st March 2017, a past service credit arose in the US post-retirement medical benefits plan due to plan amendments capping the
group’s contribution towards medical coverage by limiting the increase in medical inflation to a cost of living increase and giving retirees a
choice between the current Platinum plan and a Gold plan.
The remeasurement gain due to changes in financial assumptions in the UK pension plan during the year ended 31st March 2018 mainly
reflects a 20 basis-point increase in the real (after inflation) discount rate caused by rising corporate bond yields and falling market-implied
inflation.
Reimbursement rights
A government subsidy is receivable under the US Medicare legislation as the US post-retirement medical benefits plan is actuarially
equivalent to the Medicare Prescription Drug Act and there is an insurance policy taken out to reinsure the pension commitments of one of
the small pension plans which does not meet the definition of a qualifying insurance policy. These are accounted for as reimbursement
rights and are shown on the balance sheet in post-employment benefit net assets.
Movements in the reimbursement rights during the year were:
At 1st April 2016
Return on assets excluding interest
Exchange adjustments
At 31st March 2017 and 31st March 2018
UK
pension
£ million
–
–
–
–
UK post-
retirement
medical
benefits
£ million
–
–
–
–
US
pensions
£ million
–
–
–
–
US post-
retirement
medical
benefits
£ million
6
1
1
8
Other
£ million
Total
£ million
1
–
–
1
7
1
1
9
165
Johnson Matthey / Annual Report and Accounts 2018
Accounts
Notes on the accounts
for the year ended 31st March 2018
17 Post-employment benefits (continued)
17a Group (continued)
Financial information (continued)
Net post-employment benefit assets and liabilities
The net post-employment benefit assets and liabilities are:
At 31st March 2018
Defined benefit obligation
Fair value of plan assets
Reimbursement rights
Net post-employment benefit assets and liabilities
At 31st March 2017
Defined benefit obligation
Fair value of plan assets
Reimbursement rights
Net post-employment benefit assets and liabilities
These are included in the balance sheet as follows:
UK pension plan
UK post-retirement medical benefits plan
US pension plans
US post-retirement medical benefits plan
Other plans
Total post-employment plans
Other long-term employee benefits
Total long term employee benefit obligations
UK
pension
£ million
(1,753)
1,979
–
226
(1,841)
1,948
–
107
2018
Post-
employment
benefit
net assets
£ million
226
–
–
8
2
236
UK post-
retirement
medical
benefits
£ million
US
pensions
£ million
US post-
retirement
medical
benefits
£ million
Other
£ million
Total
£ million
(9)
–
–
(9)
(10)
–
–
(10)
(292)
272
–
(20)
(312)
292
–
(20)
2018
2018
Employee
benefit net
obligations
£ million
–
(9)
(20)
(34)
(36)
(99)
(4)
(103)
Total
£ million
226
(9)
(20)
(26)
(34)
137
(34)
–
8
(26)
(42)
–
8
(34)
2017
Post-
employment
benefit
net assets
£ million
107
–
–
8
2
117
(82)
47
1
(34)
(82)
47
1
(34)
(2,170)
2,298
9
137
(2,287)
2,287
9
9
2017
2017
Employee
benefit net
obligations
£ million
–
(10)
(20)
(42)
(36)
(108)
(4)
(112)
Total
£ million
107
(10)
(20)
(34)
(34)
9
2018
£ million
2017
£ million
(1)
(53)
5
(49)
(19)
(1)
(69)
(1)
(70)
–
(41)
14
(27)
(18)
(1)
(46)
–
(46)
Income statement
Amounts recognised in the income statement for long term employment benefits were:
Administrative expenses
Current service cost
Past service credit
Defined benefit post-employment costs charged to operating profit
Defined contribution plans’ expense
Other long term employee benefits
Charge to operating profit
Interest on post-employment benefits charged to finance costs
Charge to profit before tax
Sensitivity analysis
The calculations of the defined benefit obligations are sensitive to the assumptions used. The following summarises the estimated impact on
the group’s main plans of a change in the assumption while holding all other assumptions constant. This sensitivity analysis may not be
representative of the actual change as it is unlikely that the change in assumptions would occur in isolation of one another.
166
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Notes on the accounts
for the year ended 31st March 2018
17 Post-employment benefits (continued)
17a Group (continued)
Sensitivity analysis (continued)
Financial assumptions
A 0.1% change in the discount rate and inflation assumptions would (increase) / decrease the UK and US pension plans’ defined benefit
obligations at 31st March 2018 as follows:
Effect of discount rate
Effect of inflation
0.1% increase
UK plan
£ million
US plans
£ million
0.1% decrease
UK plan
£ million
US plans
£ million
34
(32)
2
–
(35)
21
(5)
–
Demographic assumptions
A one-year increase in life expectancy would increase the UK and US pension plans' defined benefit obligation by £58 million and
£6 million, respectively.
17b Parent company
The parent company is the sponsoring employer of the group’s UK defined benefit pension plan and the UK post-retirement medical
benefits plan. There is no contractual agreement or stated policy for charging the net defined benefit cost for the plans to the individual
group entities. The parent company recognises the net defined benefit cost for these plans and information is disclosed in note 17a.
18 Property, plant and equipment
18a Group
Cost
At 1st April 2016
Additions
Acquisitions
Reclassifications
Disposals
Exchange adjustments
At 31st March 2017
Additions
Reclassifications
Disposals
Disposal of businesses (note 5)
Exchange adjustments
At 31st March 2018
Accumulated depreciation and impairment
At 1st April 2016
Charge for the year
Reversal of impairment losses
Disposals
Exchange adjustments
At 31st March 2017
Charge for the year
Impairment losses
Disposals
Disposal of businesses (note 5)
Exchange adjustments
At 31st March 2018
Carrying amount at 31st March 2018
Carrying amount at 31st March 2017
Carrying amount at 1st April 2016
Freehold land
and buildings
£ million
Long
and short
leasehold
£ million
Plant and
machinery
£ million
Assets in
the course of
construction
£ million
Total
£ million
524
4
–
15
(1)
46
588
7
21
(12)
–
(26)
578
207
19
–
(1)
19
244
20
7
(8)
–
(13)
250
328
344
317
23
–
–
2
–
2
27
–
–
–
–
(2)
25
12
2
–
–
1
15
1
–
–
–
(1)
15
10
12
11
1,660
38
1
70
(23)
136
1,882
40
114
(25)
(3)
(89)
1,919
1,051
118
(2)
(21)
88
1,234
122
30
(24)
(1)
(59)
1,302
617
648
609
154 2,361
156 198
– 1
(87) –
– (24)
14 198
237 2,734
114 161
(135) –
(1) (38)
– (3)
(6) (123)
209 2,731
5 1,275
– 139
– (2)
– (22)
1 109
6 1,499
– 143
3 40
– (32)
– (1)
– (73)
9 1,576
200 1,155
231 1,235
149 1,086
167
Johnson Matthey / Annual Report and Accounts 2018
Accounts
Notes on the accounts
for the year ended 31st March 2018
18 Property, plant and equipment (continued)
18a Group (continued)
Finance costs capitalised were £4 million (2017: £5 million) and the capitalisation rate used to determine the amount of finance costs
eligible for capitalisation was 3.3% (2017: 3.5%).
The impairment losses for the year ended 31st March 2018 of £40 million were included in major impairment and restructuring charges
(note 8). The impairment includes £30 million as a result of the closure of the Riverside, US manufacturing facility in the Health Sector.
The recoverable amount of the plant is estimated to be nil based on fair value less costs to sell using level 2 inputs (see note 30)
reflecting its specialised nature. The reversal of impairment losses in the prior year represented adjustments to major impairment and
restructuring charges.
18b Parent company
Cost
At 1st April 2016
Additions
Reclassifications
Disposals
At 31st March 2017
Additions
Reclassifications
Disposals
At 31st March 2018
Accumulated depreciation and impairment
At 1st April 2016
Charge for the year
Disposals
At 31st March 2017
Charge for the year
Impairment losses
Disposals
At 31st March 2018
Carrying amount at 31st March 2018
Carrying amount at 31st March 2017
Carrying amount at 1st April 2016
Freehold land
and buildings
£ million
Long
and short
leasehold
£ million
Plant and
machinery
£ million
Assets in
the course of
construction
£ million
Total
£ million
124
2
–
–
126
1
6
(3)
130
50
4
–
54
4
–
–
58
72
72
74
2
–
–
–
2
–
–
–
2
1
–
–
1
–
–
–
1
1
1
1
514
14
7
(7)
528
13
17
(2)
556
322
33
(6)
349
33
1
(1)
382
174
179
192
17
20
(7)
–
30
26
(23)
(2)
31
–
–
–
–
–
–
–
–
31
30
17
657
36
–
(7)
686
40
–
(7)
719
373
37
(6)
404
37
1
(1)
441
278
282
284
Finance costs capitalised were £2 million (2017: £2 million) and the capitalisation rate used to determine the amount of finance costs
eligible for capitalisation was 3.3% (2017: 3.5%).
168
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Notes on the accounts
for the year ended 31st March 2018
19 Goodwill
Cost
At 1st April 2016
Acquisitions (note 37)
Exchange adjustments
At 31st March 2017
Disposal of businesses (note 5)
Exchange adjustments
At 31st March 2018
Impairment
At 1st April 2016 and 31st March 2017
Impairment losses
At 31st March 2018
Carrying amount at 31st March 2018
Carrying amount at 31st March 2017
Carrying amount at 1st April 2016
Group
£ million
Parent
company
£ million
570
7
30
607
(9)
(13)
585
–
11
11
574
607
570
123
–
–
123
–
–
123
–
–
–
123
123
123
The impairment losses for the year ended 31st March 2018 of £11 million were included in major impairment and restructuring charges
(note 8).
Goodwill arising on the acquisition of businesses is allocated, at acquisition, to the cash-generating units (CGUs) that are expected to benefit
from that business combination. Goodwill is allocated as follows:
Clean Air
– Non-light Duty Catalysts
Efficient Natural Resources
– Process Technologies
– Other
Health
– Macfarlan Smith
– Pharmaceutical Materials and Services
New Markets
– Water Technologies
– Other
Group
2017
(restated)
£ million
2018
£ million
Parent company
2018
£ million
2017
(restated)
£ million
85
85
–
–
314
3
117
26
–
29
574
325
3
117
29
11
37
607
113
–
113
–
–
2
–
8
–
2
–
8
123
123
Restated to reflect a change in group structure (see note 1).
New Markets – Other comprises CGUs with goodwill balances individually less than £10 million. The group's UK automotive battery systems
business was sold in January 2018 (note 5). The net assets disposed of included goodwill of £9 million.
The group and parent company test goodwill annually for impairment or more frequently if there are indications that goodwill might be
impaired. The recoverable amounts of the CGUs are determined using value in use calculations which use cash flow projections based on
financial budgets and plans covering a three-year period approved by management. The budgets and plans are based on a number of key
assumptions. Assumptions on the likelihood and timing of new product launches are based on management’s best estimate of what may
happen. Foreign exchange rates are based on actual forward rates at the time the budgets were prepared and are held constant over the
budget and plan years. Other assumptions, such as market share, expected changes to selling prices, product profitability, precious metal
prices and other direct input costs, are based on past experience and management’s expectations of future changes in the markets using
external sources of information where appropriate. These cash flows are then extrapolated using the long term average growth rates for the
relevant products, industries and countries in which the CGUs operate. The cash flows are discounted at the group’s estimated pre-tax
weighted average cost of capital adjusted for the estimated tax cash flows and risk applicable to each CGU.
169
Johnson Matthey / Annual Report and Accounts 2018
Accounts
Notes on the accounts
for the year ended 31st March 2018
19 Goodwill (continued)
The key assumptions are:
Clean Air – Non-light Duty Catalysts
Efficient Natural Resources – Process Technologies
Health
- Macfarlan Smith
- Pharmaceutical Materials and Services
New Markets – Water Technologies
Discount rate
2018
2017
Long term growth rate
2017
2018
9.9%
10.5%
8.1%
8.8%
13.5%
9.5%
9.9%
7.4%
9.2%
11.5%
0.0%
2.4%
2.8%
2.8%
3.0%
1.6%
2.9%
3.2%
3.2%
5.0%
The growth rate for the Clean Air – Non-light Duty Catalysts CGU for years four to ten is expected to be 1.5% (2017: 3.0%). After that,
growth is expected to slow and, therefore, the long term growth rate above is used for year 11 onwards.
With the exception of the Water Technologies CGU, the impairment tests result in headroom of at least 35% over the carrying value of the
relevant CGU’s net assets. The Water Technologies CGU represents a portfolio of water purification products and services, including the MIOX
and Finex businesses acquired during 2016. Goodwill totalling £11 million has been fully impaired reflecting lower growth rate assumptions
for these businesses. The total intangibles impairment in respect of the Water Technologies CGU is £15 million, which has been allocated
against goodwill (£11 million) and other intangible assets (£4 million). Following the impairments, the residual carrying value of the Water
Technologies CGU is £15 million.
20 Other intangible assets
20a Group
Cost
At 1st April 2016
Additions
Acquisitions (note 37)
Disposals
Exchange adjustments
At 31st March 2017
Additions
Disposals
Disposal of businesses
Exchange adjustments
At 31st March 2018
Accumulated amortisation and impairment
At 1st April 2016
Charge for the year
Disposals
Exchange adjustments
At 31st March 2017
Charge for the year
Impairment losses
Disposals
Disposal of businesses
Exchange adjustments
At 31st March 2018
Carrying amount at 31st March 2018
Carrying amount at 31st March 2017
Carrying amount at 1st April 2016
170
Customer
contracts and
relationships
£ million
Computer
software
£ million
Patents,
trademarks
and licences
£ million
Acquired
research and
technology
£ million
Development
expenditure
£ million
Total
£ million
150
–
1
–
13
164
–
–
(5)
(7)
152
89
9
–
8
106
9
1
–
(5)
(4)
107
45
58
61
116
35
–
(1)
4
154
38
(1)
–
(3)
188
45
5
(1)
3
52
5
–
(1)
–
(2)
54
134
102
71
41
13
13
–
4
71
–
–
–
(2)
69
24
4
–
2
30
3
3
–
–
(1)
35
34
41
17
61
–
1
–
2
64
–
–
(11)
–
53
26
7
–
2
35
6
1
–
(11)
–
31
22
29
35
141
19
–
–
16
176
18
–
–
(14)
180
100
8
–
10
118
9
2
–
–
(9)
120
60
58
41
509
67
15
(1)
39
629
56
(1)
(16)
(26)
642
284
33
(1)
25
341
32
7
(1)
(16)
(16)
347
295
288
225
Notes on the accounts
for the year ended 31st March 2018
20 Other intangible assets (continued)
20b Parent company
Cost
At 1st April 2016
Additions
At 31st March 2017
Additions
At 31st March 2018
Accumulated amortisation and impairment
At 1st April 2016
Charge for the year
At 31st March 2017
Charge for the year
Impairment losses
At 31st March 2018
Carrying amount at 31st March 2018
Carrying amount at 31st March 2017
Carrying amount at 1st April 2016
21 Investments in subsidiaries
At 1st April 2016
Additions
At 31st March 2017
Impairment losses
At 31st March 2018
t
r
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Computer
software
£ million
Patents,
trademarks
and licences
£ million
Acquired
research and
technology
£ million
Development
expenditure
£ million
Total
£ million
80
33
113
35
148
19
2
21
2
–
23
125
92
61
7
26
33
–
33
1
1
2
1
3
6
27
31
6
11
–
11
–
11
1
1
2
1
1
4
7
9
10
12
1
13
3
16
8
–
8
1
–
9
7
5
4
110
60
170
38
208
29
4
33
5
4
42
166
137
81
Cost of
investments in
subsidiaries
£ million
Accumulated
impairment
£ million
2,242
13
2,255
–
2,255
(192)
–
(192)
(66)
(258)
Carrying
amount
£ million
2,050
13
2,063
(66)
1,997
Impairment losses in the year ended 31st March 2018 have been recognised following changes to the group’s structure. The subsidiaries are
shown in note 41.
171
Johnson Matthey / Annual Report and Accounts 2018
Accounts
Notes on the accounts
for the year ended 31st March 2018
22 Investments in joint venture and associate
Investment in joint venture
Investment in associate
At end of year
The movements in the year were:
At 1st April 2016
Group’s share of profit / (loss) for the year
Group’s share of other comprehensive income – currency translation differences
Group’s share of total comprehensive income
At 31st March 2017
Group’s share of total comprehensive income – loss for the year
Dividends received
At 31st March 2018
2018
£ million
2017
£ million
5
15
20
6
16
22
Joint venture
£ million
Associate
£ million
Total
£ million
4
1
1
2
6
–
(1)
5
16
(1)
1
–
16
(1)
–
15
20
–
2
2
22
(1)
(1)
20
The group has an 11.1% interest in the ordinary share capital of Shanghai Bi Ke Clean Energy Technology Co Ltd (CECC) and has significant
influence in this entity as CECC requires unanimous board decisions. As a result, this investment is accounted for as an investment in an
associate in the group accounts. In addition, the parent company has a revenue share agreement with CECC which is accounted for as a
non-current available-for-sale investment (note 23).
23 Non-current available-for-sale investments
Quoted bonds purchased to fund pension deficit
Unquoted investments
Group
Parent company
2018
£ million
2017
£ million
2018
£ million
2017
£ million
53
3
56
54
4
58
–
7
7
–
7
7
The quoted bonds are measured at fair value using level 1 inputs (note 30). There is no active market for the unquoted investments since
they are investments in a company that is in the start-up phase and in investment vehicles that invest in start-up companies and are
categorised as level 3 (note 30). The parent company’s investment is the revenue share agreement with CECC (note 22). Movements in the
unquoted investments in the year are shown below (given their size, no additional detail has been provided):
Group
£ million
Parent
company
£ million
6
(2)
4
(1)
3
7
–
7
–
7
At 1st April 2016
Impairment losses
At 31st March 2017
Impairment losses
At 31st March 2018
172
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Notes on the accounts
for the year ended 31st March 2018
24 Inventories
Raw materials and consumables
Work in progress
Finished goods and goods for resale
Group
Parent company
2018
£ million
2017
£ million
2018
£ million
2017
£ million
232
259
292
783
235
257
280
772
31
18
75
124
28
27
69
124
The group also holds customers’ materials in the process of refining and fabrication and for other reasons.
25 Trade and other receivables
Current
Trade receivables
Amounts receivable from long-term contract customers
Amounts receivable from subsidiaries
Prepayments and accrued income
Value added tax and other sales tax receivable
Other receivables
Current trade and other receivables
Non-current
Amounts receivable from subsidiaries
Prepayments and accrued income
Non-current other receivables
26 Trade and other payables
Current
Trade payables
Amounts payable to long term contract customers
Amounts payable to subsidiaries
Accruals and deferred income
Other payables
Current trade and other payables
Non-current
Amounts payable to subsidiaries
Other payables
Non-current other payables
27 Long-term contracts
Contract revenue recognised
Contracts in progress at the year end:
Costs incurred plus recognised profits less recognised losses to date
Amount of advances received
Group
Parent company
2018
£ million
2017
£ million
2018
£ million
2017
£ million
1,049
16
–
85
34
44
1,228
–
38
38
951
14
–
86
44
44
1,139
–
28
28
165
–
1,149
19
11
33
1,377
1,013
–
1,013
164
1
908
16
14
36
1,139
1,120
–
1,120
Group
Parent company
2018
£ million
2017
£ million
2018
£ million
2017
£ million
597
21
–
306
88
1,012
–
5
5
529
31
–
314
94
968
–
6
6
205
–
2,198
110
39
2,552
489
3
492
160
–
2,295
96
28
2,579
506
3
509
Group
Parent company
2018
£ million
2017
£ million
2018
£ million
2017
£ million
42
237
30
61
265
28
2
2
–
1
1
1
173
Johnson Matthey / Annual Report and Accounts 2018
Accounts
Notes on the accounts
for the year ended 31st March 2018
28 Net debt
28a Cash and cash equivalents
Cash and deposits
Bank overdrafts
Cash and cash equivalents
28b Net debt
Non-current borrowings and related swaps
Current borrowings and related swaps
Total borrowings
Cash and deposits
Non-current interest rate swap assets
Net debt
Bank and other loans
1.945% €124 million European Investment Bank (EIB) loan 2019
$50 million KfW IPEX-Bank GmbH (KfW) loan 2020
4.66% €100 million Bonds 2021
€166 million EIB loan 2022
3.26% $150 million Bonds 2022
2.99% $165 million Bonds 2023
2.44% €20 million Bonds 2023
3.57% £65 million Bonds 2024
3.565% $50 million KfW loan 2024
3.14% $130 million Bonds 2025
3.39% $180 million Bonds 2028
Cross currency interest rate swaps designated as net investment hedges
Cross currency interest rate swaps designated as fair value hedges
Interest rate swaps designated as fair value hedges
Non-current borrowings and related swaps
Cash and cash equivalents – bank overdrafts
Other current borrowings and related swaps
Current borrowings and related swaps
Other bank and other loans
Cross currency interest rate swaps designated as net investment hedges
Cross currency interest rate swaps designated as fair value hedges
Other current borrowings and related swaps
Cross currency interest rate swaps designated as cash flow hedges
Interest rate swaps designated as fair value hedges
Non-current interest rate swap – assets
Group
Parent company
2018
£ million
2017
£ million
2018
£ million
2017
£ million
329
(53)
276
330
(32)
298
(951)
(63)
(1,014)
329
6
(1,011)
(52)
(1,063)
330
17
(679)
(716)
(109)
(36)
(87)
(145)
(106)
(117)
(17)
(65)
(36)
(97)
(128)
(7)
–
(1)
(951)
(53)
(10)
(63)
(8)
(2)
–
(10)
6
–
6
(107)
(40)
(86)
(142)
(123)
(132)
(17)
(65)
(40)
(104)
(148)
(7)
–
–
(1,011)
(32)
(20)
(52)
(20)
–
–
(20)
15
2
17
218
(11)
207
(951)
(15)
(966)
218
6
(742)
(109)
(36)
(87)
(145)
(106)
(117)
(17)
(65)
(36)
(97)
(128)
–
(7)
(1)
(951)
(11)
(4)
(15)
(2)
–
(2)
(4)
6
–
6
248
(16)
232
(1,011)
(18)
(1,029)
248
17
(764)
(107)
(40)
(86)
(142)
(123)
(132)
(17)
(65)
(40)
(104)
(148)
–
(7)
–
(1,011)
(16)
(2)
(18)
(2)
–
–
(2)
15
2
17
The 3.26% $150 million Bonds 2022 have been swapped into floating rate US dollars. $100 million of the 3.14% $130 million Bonds 2025
have been swapped into sterling at 2.83%. All borrowings bear interest at fixed rates with the exception of the 2020 KfW loan, the 2022
EIB loan, a loan with a book value of £2 million and the bank overdrafts, which bear interest at commercial floating rates.
The cross currency and interest rate swaps are measured at fair value using level 2 inputs (note 30). The bonds which are designated as
being fair value hedged are remeasured for the fair value changes in respect of the hedged risk using level 2 inputs. The fair values are
estimated by discounting the future contractual cash flows using appropriate market sourced data at the balance sheet date.
174
Notes on the accounts
for the year ended 31st March 2018
29 Movements in assets and liabilities arising from financing activities
29a Group
Non-cash movements
2017
£ million
Cash outflow
£ million
Transfers
£ million
Foreign exchange
Fair value and
movements other movements
£ million
£ million
Non-current assets
Interest rate swaps
Non-current liabilities
Borrowings and related swaps
Current liabilities
Other borrowings and related swaps
Dividends paid to equity shareholders
Interest paid
Net cash outflow from financing activities
29b Parent company
17
(1,011)
(20)
–
1
12
13
146
45
204
(2)
4
(2)
–
(9)
56
–
47
–
(1)
–
(1)
Non-cash movements
2017
£ million
Cash outflow
£ million
Transfers
£ million
Foreign exchange
Fair value and
movements other movements
£ million
£ million
Non-current assets
Interest rate swaps
Non-current liabilities
Borrowings and related swaps
Current liabilities
Other borrowings and related swaps
Dividends paid to equity shareholders
Interest paid
Net cash outflow from financing activities
17
(1,011)
(2)
–
1
–
1
146
49
196
(2)
4
(2)
–
(9)
56
–
47
–
(1)
–
(1)
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2018
£ million
6
(951)
(10)
2018
£ million
6
(951)
(4)
30 Other financial assets and liabilities
Other financial assets
Forward foreign exchange contracts designated as cash flow hedges
Forward foreign exchange contracts and currency swaps held for trading
Other financial assets
Other financial liabilities
Forward foreign exchange contracts designated as cash flow hedges
Forward precious metal price contracts designated as cash flow hedges
Forward foreign exchange contracts and currency swaps held for trading
Foreign exchange swaps designated as hedges of a net investment
in foreign operations
Other financial liabilities
Group
Parent company
2018
£ million
2017
£ million
2018
£ million
2017
£ million
6
9
15
(2)
(3)
(7)
–
4
4
8
(6)
(2)
(6)
(1)
6
9
15
(4)
(3)
(7)
–
4
4
8
(7)
(2)
(7)
–
(12)
(15)
(14)
(16)
175
Johnson Matthey / Annual Report and Accounts 2018
Accounts
Notes on the accounts
for the year ended 31st March 2018
30 Other financial assets and liabilities (continued)
Fair values are measured using a hierarchy where the inputs are:
•
•
•
Level 1 – quoted prices in active markets for identical assets or liabilities.
Level 2 – not level 1 but are observable for that asset or liability either directly or indirectly.
Level 3 – not based on observable market data (unobservable).
Of the other financial assets listed above, all are measured at fair value using level 2 inputs. All other financial liabilities are measured at fair
value using level 2 inputs.
The fair value of forward foreign exchange contracts, forward precious metal price contracts and currency swaps is estimated using
appropriate market sourced data at the balance sheet date.
31 Financial risk management
The group’s and parent company’s activities expose them to a variety of financial risks including credit risk, market risk and liquidity risk.
Market risk includes foreign currency risk, interest rate risk and price risk. The main financial risks managed by the group and parent
company, under policies approved by the board, are credit risk, foreign currency risk, interest rate risk and liquidity risk. The group and
parent company use derivative financial instruments, in particular forward currency contracts and currency swaps, to manage their
financial risks associated with their underlying business activities and the financing of those activities. Some derivative financial instruments
used to manage financial risk are not designated as hedges and, therefore, are classified as ‘held for trading’. The group and parent company
do not undertake any speculative trading activity in financial instruments.
31a Credit risk
Within certain businesses, the group and parent company derive a significant proportion of their revenue from sales to major customers.
Sales to individual customers are frequently high if the value of precious metals is included in the price. The failure of any such company to
honour its debts could materially impact the group’s and parent company’s results. The group and parent company derive significant benefit
from trading with their large customers and manage the risk at many levels. Each sector has a credit committee that regularly monitors its
exposure. The Audit Committee receives a report every six months that details all significant credit limits, amounts due and amounts overdue
within the group and the relevant actions being taken. At 31st March 2018, trade receivables for the group amounted to £1,049 million
(2017: £951 million) (parent company £165 million (2017: £164 million)). £799 million (2017: £691 million) of these receivables at
group level (£115 million (2017: £101 million) at parent company level) arose in Clean Air which mainly supplies the automotive industry
including car and truck manufacturers and component suppliers. Although Clean Air has a wide spread of available customers, the
concentrated nature of this industry means that amounts owed by individual customers can be large. Other parts of the group tend to sell
to a larger number of customers and amounts owed tend to be lower. At 31st March 2018, for the group as a whole, no single outstanding
balance exceeded 2% (2017: 2%) of revenue. No assets have been taken possession of as collateral.
The credit profiles of the group’s and parent company’s customers are obtained from credit rating agencies where possible and are closely
monitored. The scope of these reviews includes amounts overdue and credit limits. Generally, payments in the automotive industry and in
the other markets in which the group operates, are made promptly.
Trade receivables are considered impaired when the amount is in dispute, customers are in financial difficulty or for other reasons which
imply there is doubt over the recoverability of the debt. Trade receivables can be analysed as:
Group
Parent company
2018
£ million
2017
£ million
2018
£ million
2017
£ million
966
885
152
149
62
19
2
83
9
(9)
–
50
9
6
65
7
(6)
1
7
6
–
13
3
(3)
–
11
2
2
15
1
(1)
–
1,049
951
165
164
Amounts neither past due nor impaired
Amounts past due but not impaired
less than 30 days
30 – 90 days
more than 90 days
Total past due but not impaired
Amounts impaired
Specific allowances for bad and doubtful debts
Carrying amount of impaired receivables
Trade receivables net of allowances
176
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Notes on the accounts
for the year ended 31st March 2018
31 Financial risk management (continued)
31a Credit risk (continued)
Movements in the allowances for impairments were:
At beginning of year
Charge for year
Released
Utilised
Exchange adjustments
At end of year
Group
Parent company
2018
£ million
2017
£ million
2018
£ million
2017
£ million
6
5
(2)
–
–
9
7
2
(2)
(2)
1
6
1
2
–
–
–
3
1
–
–
–
–
1
The group’s financial assets included in sundry receivables are all current and not impaired. Of the parent company’s amounts receivable
from subsidiaries £128 million is impaired (2017: £128 million).
The credit risk on cash and deposits and derivative financial instruments is limited because the counterparties with significant balances are
banks with strong credit ratings. The exposure to individual banks is monitored frequently against internally-defined limits, together with
the bank’s credit ratings and credit default swap prices. As at 31st March 2018, the maximum net exposure with a single bank for cash and
deposits was £67 million (2017: £49 million) for the group and £12 million (2017: £22 million) for the parent company, whilst the largest
mark to market exposure for derivative financial instruments to a single bank was £3 million (2017: £10 million) for the group and parent
company. The group and parent company also use money market funds to invest surplus cash thereby further diversifying credit risk and, at
31st March 2018, the group’s and parent company’s exposure to these funds was £171 million (2017: £211 million). The amounts on
deposit at the year end represent the group’s and parent company’s maximum exposure to credit risk on cash and deposits.
The parent company also guarantees some of its subsidiaries’ borrowings, partly through interest netting arrangements, payables and
precious metal leases, and its exposure at 31st March 2018 was £32 million (2017: £28 million).
31b Foreign currency risk
The group operates globally with a significant amount of its profit earned outside the UK. In order to protect the group’s sterling balance
sheet and reduce cash flow risk, the group has financed most of its investment in the US and Europe by borrowing US dollars and euros,
respectively. Although much of this funding is obtained by directly borrowing the relevant currency, a part is achieved through currency
swaps which can be more efficient and reduce costs. To a lesser extent, the group has also financed a portion of its investment in China
using a currency swap.
The group has designated the currency swaps, a US dollar loan and euro loans (fair value of the loans was £167 million (2017: a US dollar
loan and a euro loan with a fair value of £67 million)) as hedges of net investments in foreign operations as they hedge the changes in
values of the subsidiaries' net assets against movements in exchange rates. The change in the value of the net investment hedges from
movements in foreign currency exchange rates is recognised in equity and is offset by an equal and opposite movement in the carrying
value of the net assets of the subsidiaries.
The main currencies of the net debt after taking into account the effect of the currency swaps were:
Sterling
US dollar
Euro
Chinese renminbi
Hong Kong dollar
Swedish krona
Other currencies
Group
Group
Parent company
Parent company
Borrowings
2018
£ million
Borrowings
2017
£ million
Cash
2018
£ million
Cash
2017
£ million
Borrowings
2018
£ million
Borrowings
2017
£ million
Cash
2018
£ million
Cash
2017
£ million
976
608
473
68
53
53
154
911
658
526
68
23
66
124
596
547
273
30
132
–
128
678
500
239
43
94
–
106
977
608
476
45
53
53
125
898
662
526
68
23
66
99
588
537
260
2
132
–
76
689
486
234
2
94
–
73
2,385
2,376
1,706
1,660
2,337
2,342
1,595
1,578
177
Johnson Matthey / Annual Report and Accounts 2018
Accounts
Notes on the accounts
for the year ended 31st March 2018
31 Financial risk management (continued)
31b Foreign currency risk (continued)
The group’s objective is to match foreign currency assets and liabilities at an entity level in order to avoid any impact on the income
statement of the entity resulting from movements in exchange rates.
The group and parent company use forward exchange contracts to hedge foreign exchange exposures arising on forecast receipts and
payments in foreign currencies. These are designated and accounted for as cash flow hedges. The majority of the cash flows are expected to
occur in the year ending 31st March 2019.
The main impact of movements in exchange rates on the group’s results arises on translation of overseas subsidiaries’ profits into sterling.
The group’s largest exposure is to the US dollar and a 5% (6.6 cent (2017: 6.5 cent)) movement in the average exchange rate for the US
dollar against sterling would have had an £11 million (2017: £10 million) impact on underlying operating profit. The group is also exposed
to the euro and a 5% (5.7 cent (2017: 6.0 cent)) movement in the average exchange rate for the euro against sterling would have had a
£10 million (2017: £10 million) impact on underlying operating profit. This exposure is part of the group’s economic risk of operating
globally which is essential to remain competitive in the markets in which it operates.
31c Interest rate risk
The group’s and parent company’s interest rate risk arises from their fixed rate borrowings (fair value risk) and floating rate borrowings
(cash flow risk). Their policy is to optimise interest cost and reduce volatility in reported earnings and equity. They manage their risk by
reviewing the profile of their debt regularly and by selectively using interest rate and cross currency swaps to maintain borrowings in
appropriate currencies and at competitive rates. The group and parent company have designated one (2017: one) US dollar fixed rate to
US dollar floating rate swap as a fair value hedge as it hedges the changes in the fair value of bonds attributable to changes in interest rates.
The losses on the interest rate swaps in the year ended 31st March 2018 were £3 million (2017: £8 million) and the gains on the bonds
attributable to the hedged risk were £3 million (2017: £6 million). The group and parent company have designated the US dollar fixed
interest rate to sterling fixed interest rate cross currency swap as a cash flow hedge as it hedges the movement in the cash flows of the
hedged bond attributable to changes in the US dollar / sterling exchange rate. Its cash flows are expected to occur in 2025 when the bond
which it hedges matures and, therefore, the exchange effect on it is expected to be realised in the income statement in 2025. The interest
element is realised in the income statement each year. At 31st March 2018, 99% (2017: 99%) of the group’s net debt and 90% (2017: 92%)
of the parent company’s net debt were at fixed rates with an average interest rate of 3.1% (2017: 3.1%). The remaining debt is funded on
a floating rate basis. Based on the group’s net debt funded at floating rates, after taking into account the effect of the swaps, a 1% change
in all interest rates would have an immaterial impact on the group’s profit before tax.
31d Fair value of financial instruments
The fair value of financial instruments is approximately equal to book value except for:
Group
US Dollar Bonds 2022, 2023, 2025 and 2028
Euro Bonds 2021 and 2023
Euro EIB loan 2019
Sterling Bonds 2024
KfW US dollar loan 2024
Parent company
Amounts receivable from subsidiaries
Amounts payable to subsidiaries
US Dollar Bonds 2022, 2023, 2025 and 2028
Euro Bonds 2021 and 2023
Euro EIB loan 2019
Sterling Bonds 2024
KfW US dollar loan 2024
2018
2017
Carrying
amount
£ million
Fair
value
£ million
Carrying
amount
£ million
Fair
value
£ million
(448)
(104)
(109)
(65)
(36)
Carrying
amount
£ million
2,162
(2,687)
(448)
(104)
(109)
(65)
(36)
(420)
(118)
(113)
(71)
(35)
(507)
(103)
(107)
(65)
(40)
(503)
(120)
(112)
(74)
(42)
2018
2017
Fair
value
£ million
2,232
(2,701)
(420)
(118)
(113)
(71)
(35)
Carrying
amount
£ million
2,028
(2,801)
(507)
(103)
(107)
(65)
(40)
Fair
value
£ million
2,145
(2,829)
(503)
(120)
(112)
(74)
(42)
The fair values are calculated using level 2 inputs (note 30) by discounting future cash flows to net present values using appropriate market
interest rates prevailing at the year end.
There were no transfers of any financial instrument between the levels of the fair value hierarchy (note 30) during the year.
178
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Notes on the accounts
for the year ended 31st March 2018
31 Financial risk management (continued)
31e Liquidity risk
The group’s and parent company’s policy on funding capacity is to ensure that they always have sufficient long term funding and committed
bank facilities in place to meet foreseeable peak borrowing requirements. At 31st March 2018, the group and parent company had
borrowings under committed bank facilities of nil (2017: nil). The group and parent company also have a number of uncommitted
facilities, including metal leases, and overdraft lines at their disposal.
Undrawn committed bank facilities
Expiring in more than one year but not more than two years
Expiring in more than two years
Group
Parent company
2018
£ million
2017
£ million
2018
£ million
2017
£ million
362
148
510
399
100
499
362
148
510
399
100
499
The maturity analyses for financial liabilities showing the remaining contractual undiscounted cash flows, including future interest
payments, are:
Group as at 31st March 2018
Bank overdrafts
Bank and other loans – principal
Bank and other loans – interest payments
Financial liabilities in trade and other payables
Total non-derivative financial liabilities
Foreign exchange forwards and swaps – payments
Foreign exchange forwards and swaps – receipts
Total derivative financial liabilities
Group as at 31st March 2017
Bank overdrafts
Bank and other loans – principal
Bank and other loans – interest payments
Financial liabilities in trade and other payables
Total non-derivative financial liabilities
Foreign exchange forwards and swaps – payments
Foreign exchange forwards and swaps – receipts
Total derivative financial liabilities
Parent company as at 31st March 2018
Bank overdrafts
Bank and other loans – principal
Bank and other loans – interest payments
Financial liabilities in trade and other payables
Total non-derivative financial liabilities
Foreign exchange forwards and swaps – payments
Foreign exchange forwards and swaps – receipts
Total derivative financial liabilities
Within 1 year
£ million
1 to 2 years
£ million
2 to 5 years
£ million
After 5 years
£ million
Total
£ million
53
10
26
952
1,041
736
(727)
9
–
109
24
1
134
28
(28)
–
–
375
55
2
432
–
–
–
–
461
34
–
495
–
–
–
53
955
139
955
2,102
764
(755)
9
Within 1 year
£ million
1 to 2 years
£ million
2 to 5 years
£ million
After 5 years
£ million
Total
£ million
32
20
34
890
976
991
(977)
14
–
2
26
–
28
–
–
–
–
232
70
2
304
–
–
–
–
760
55
1
816
–
–
–
32
1,014
185
893
2,124
991
(977)
14
Within 1 year
£ million
1 to 2 years
£ million
2 to 5 years
£ million
After 5 years
£ million
Total
£ million
11
4
25
2,539
2,579
789
(783)
6
–
109
24
–
133
29
(29)
–
–
375
55
1
431
–
–
–
–
461
34
489
984
–
–
–
11
949
138
3,029
4,127
818
(812)
6
179
Johnson Matthey / Annual Report and Accounts 2018
Accounts
Notes on the accounts
for the year ended 31st March 2018
31 Financial risk management (continued)
31e Liquidity risk (continued)
Parent company as at 31st March 2017
Bank overdrafts
Bank and other loans – principal
Bank and other loans – interest payments
Financial liabilities in trade and other payables
Total non-derivative financial liabilities
Foreign exchange forwards and swaps – payments
Foreign exchange forwards and swaps – receipts
Total derivative financial liabilities
Within 1 year
£ million
1 to 2 years
£ million
2 to 5 years
£ million
After 5 years
£ million
Total
£ million
16
2
30
2,574
2,622
1,050
(1,038)
12
–
2
26
–
28
2
(2)
–
–
232
70
2
304
–
–
–
–
760
55
506
1,321
–
–
–
16
996
181
3,082
4,275
1,052
(1,040)
12
31f Offsetting financial assets and liabilities
The group and parent company only offset financial assets and liabilities when they currently have a legally enforceable right to offset the
recognised amounts and they intend to either settle on a net basis or realise the asset and settle the liability simultaneously. The following
financial assets and liabilities are subject to offsetting, enforceable master netting arrangements or similar agreements:
Gross
financial
assets /
(liabilities)
£ million
396
15
(120)
(12)
Gross
financial
assets /
(liabilities)
£ million
401
8
(103)
(15)
Gross
financial
assets /
(liabilities)
£ million
254
15
(47)
(14)
Gross
financial
assets /
(liabilities)
£ million
267
8
(35)
(16)
Amounts
set off
£ million
Net amounts
in balance
sheet
£ million
Related
amounts
not set off
£ million
(67)
–
67
–
329
15
(53)
(12)
–
(7)
–
7
Amounts
set off
£ million
Net amounts
in balance
sheet
£ million
Related
amounts
not set off
£ million
(71)
–
71
–
330
8
(32)
(15)
–
(7)
–
7
Amounts
set off
£ million
Net amounts
in balance
sheet
£ million
Related
amounts
not set off
£ million
(36)
–
36
–
218
15
(11)
(14)
–
(7)
–
7
Amounts
set off
£ million
Net amounts
in balance
sheet
£ million
Related
amounts
not set off
£ million
(19)
–
19
–
248
8
(16)
(16)
–
(8)
–
8
Net
£ million
329
8
(53)
(5)
Net
£ million
330
1
(32)
(8)
Net
£ million
218
8
(11)
(7)
Net
£ million
248
–
(16)
(8)
Group as at 31st March 2018
Cash and cash equivalents – cash and deposits
Other financial assets
Cash and cash equivalents – bank overdrafts
Other financial liabilities
Group as at 31st March 2017
Cash and cash equivalents – cash and deposits
Other financial assets
Cash and cash equivalents – bank overdrafts
Other financial liabilities
Parent company as at 31st March 2018
Cash and cash equivalents – cash and deposits
Other financial assets
Cash and cash equivalents – bank overdrafts
Other financial liabilities
Parent company as at 31st March 2017
Cash and cash equivalents – cash and deposits
Other financial assets
Cash and cash equivalents – bank overdrafts
Other financial liabilities
180
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a
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Notes on the accounts
for the year ended 31st March 2018
31 Financial risk management (continued)
31g Capital management
The group's policy for managing capital is to maintain an efficient balance sheet to ensure that the group always has sufficient resources to
be able to invest in future growth. The group has a long term target of a return on invested capital (underlying operating profit divided by
average capital employed over the year) of 20% to ensure focus on efficient use of the group's capital. See the section on return on invested
capital in the Financial Review. The group also has a long term target of net debt (including post tax pension deficits) to EBITDA of between
1.5 and 2.0 times, although in any given year it may fall outside this range depending on future plans. See the section on capital structure
in the Financial Review.
Net debt (including post-tax pension deficits) is reduced for the quoted bonds purchased to fund the UK pension deficit. Since the UK
pension plan is in surplus, the pension deficits do not include the UK plan and, therefore, an amendment has been made to the definition
of net debt (including post-tax pension deficits) to reduce it for these bonds (net of the related deferred tax) only when the UK pension plan
is in deficit.
Average net debt
Average equity
Average capital employed
Net debt
Pension deficits
Related deferred taxation
Net debt (including post-tax pension deficits)
Profit for the year
Add back:
Depreciation and amortisation
Income tax expense
Share of loss of joint venture and associate
Net finance costs
Loss on disposal of businesses
Loss on significant legal proceedings
Major impairment and restructuring charges
Earnings before interest, tax, depreciation and amortisation (EBITDA)
2018
£ million
923
2,276
3,199
(679)
(56)
10
(725)
298
175
22
1
38
7
50
90
681
2017
£ million
879
1,937
2,816
(716)
(56)
13
(759)
385
172
77
–
31
–
–
–
665
Return on invested capital (underlying operating profit (note 4) divided by average capital employed)
Net debt (including post tax pension deficits) to EBITDA
16.4%
1.1 times
18.2%
1.1 times
32 Provisions and contingent liabilities
32a Group provisions
At 1st April 2017
Charge for year
Utilised
Released
Disposal of businesses (note 5)
Exchange adjustments
At 31st March 2018
Restructuring
provisions
£ million
Warranty and
technology
provisions
£ million
Other
provisions
£ million
Total
£ million
12
14
(10)
(1)
–
–
15
11
2
–
(3)
(1)
–
9
16
28
(13)
(2)
–
(2)
27
39
44
(23)
(6)
(1)
(2)
51
181
Johnson Matthey / Annual Report and Accounts 2018
Accounts
Notes on the accounts
for the year ended 31st March 2018
32 Provisions and contingent liabilities (continued)
32a Group provisions (continued)
Current
Non-current
Total provisions
2018
£ million
2017
£ million
37
14
51
21
18
39
The restructuring provisions arise across the group and the majority are expected to be fully utilised by 31st March 2019.
The warranty and technology provisions represent management’s best estimate of the group’s liability under warranties granted and
remedial work required under technology licences, based on past experience in Clean Air, Efficient Natural Resources and New Markets.
Warranties generally cover a period of up to three years.
The other provisions include environmental, onerous contract and legal provisions arising across the group. Amounts provided reflect
management's best estimate of the expenditure required to settle the obligations at the balance sheet date. They are expected to be fully
utilised within the next 15 years.
The group has recognised a charge in connection with the resolution of a contract dispute lawsuit related to a component supplied by the
group in the US (note 6). At 31st March 2018, there is a provision of £18 million in respect of this settlement agreement which is estimated
to be fully utilised over the next two years.
32b Group contingent liabilities
Johnson Matthey has been informed of failures in certain engine systems for which the group supplied a particular coated substrate as a
component for emissions after-treatment. The extent to which, if any, the reported failures are due to the coated substrate supplied by
Johnson Matthey group companies has not been demonstrated. Potential solutions for the reported engine system issues and any associated
costs have not yet been notified to the group. Johnson Matthey has not been contacted by any regulatory authority and no Johnson Matthey
group company has been served with any contract dispute lawsuit, nor has any formal claim for recovery of identified costs been made at
this point. Having reviewed its contractual obligations and the information currently available to it, the group believes that were it to be served
with a contract dispute lawsuit, it would have defensible warranty positions in respect of its supplies of coated substrate for the after-treatment
systems in the affected engines. If required, it will vigorously assert its available contractual protections and defences. The outcome of any
discussions is not certain, nor is the group able to make a reliable estimate of the possible financial impact at this stage, if any.
32c Parent company
At 1st April 2017
Charge for year
Utilised
At 31st March 2018
Current
Non-current
Total provisions
Restructuring
provisions
£ million
Other
provisions
£ million
Total
£ million
2
4
(2)
4
20
2
(4)
18
22
6
(6)
22
2018
£ million
2017
£ million
5
17
22
4
18
22
The restructuring provisions are expected to be fully utilised by 31st March 2019.
The other provisions include onerous contracts, legal provisions and provisions to buy metal to cover positions created by the parent
company selling metal belonging to subsidiaries. Amounts provided reflect management's best estimate of the expenditure required to
settle the obligations at the balance sheet date.
Details of guarantees given by the parent company are disclosed in note 31a.
182
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Notes on the accounts
for the year ended 31st March 2018
33 Deferred taxation
33a Group
At 1st April 2016
(Credit) / charge to income
Acquisitions (note 37)
Tax on items taken directly to or
transferred from equity
Exchange adjustments
At 31st March 2017
(Credit) / charge to income
Tax on items taken directly to or
transferred from equity
Exchange adjustments
At 31st March 2018
Deferred tax assets
Deferred tax liabilities
Property,
plant and
equipment
£ million
Post-
employment
benefits
£ million
Provisions
£ million
Inventories
£ million
Intangibles
£ million
Other
£ million
52
(5)
–
–
7
54
(29)
–
(4)
21
(2)
8
–
(2)
(4)
–
(3)
31
2
30
(17)
(1)
(1)
–
(3)
(22)
(5)
–
2
(13)
1
–
–
(1)
(13)
2
–
1
(25)
(10)
38
(9)
–
–
5
34
(11)
–
(2)
21
19
14
(1)
1
1
34
(24)
–
(1)
9
Total
deferred tax
(assets) /
liabilities
£ million
77
8
(2)
(1)
5
87
(70)
31
(2)
46
2018
£ million
2017
£ million
(48)
94
46
(26)
113
87
Deductible temporary differences, unused tax losses and unused tax credits not recognised on the balance sheet total £147 million
(2017: £120 million) of which £40 million is expected to expire within 5 years, £5 million within 5 to 10 years and £102 million carry no
expiry date.
Deferred tax liabilities have not been recognised on temporary differences of £1,416 million (2017: £1,328 million) associated with
investments in subsidiaries.
33b Parent company
At 1st April 2016
(Credit) / charge to income
Tax on items taken directly to or
transferred from equity
At 31st March 2017
(Credit) / charge to income
Tax on items taken directly to or
transferred from equity
At 31st March 2018
Property,
plant and
equipment
£ million
Post-
employment
benefits
£ million
Provisions
£ million
Inventories
£ million
Other
£ million
Total
deferred tax
liabilities
£ million
8
(6)
–
2
(6)
–
(4)
25
3
(3)
25
3
17
45
–
(1)
–
(1)
(1)
–
(2)
(7)
–
–
(7)
2
–
(5)
9
(1)
–
8
1
–
9
35
(5)
(3)
27
(1)
17
43
Deductible temporary differences, unused tax losses and unused tax credits not recognised on the balance sheet are £2 million
(2017: £2 million) and have no expiry date.
183
Johnson Matthey / Annual Report and Accounts 2018
Accounts
Notes on the accounts
for the year ended 31st March 2018
34 Share capital
Issued and fully paid ordinary shares
At 1st April 2016, 31st March 2017 and 31st March 2018
Number
£ million
198,940,606
221
Details of outstanding allocations under the company’s long-term incentive plans and awards under the deferred bonus which have yet to
mature are disclosed in note 16.
At the last annual general meeting on 28th July 2017, shareholders approved a resolution for the company to make purchases of its own
shares up to a maximum number of 19,353,343 ordinary shares of 11049⁄53 pence each. The resolution remains valid until the conclusion
of this year's annual general meeting. The company will purchase its own shares when the board believes it to be in the best interests of the
shareholders generally and will result in an increase in earnings per share.
The group and parent company’s employee share ownership trust (ESOT) also buys shares on the open market and holds them in trust
for employees participating in the group’s executive long term incentive plans. At 31st March 2018, the ESOT held 1,560,224 shares
(2017: 1,743,333 shares) which had not yet vested unconditionally to employees. Computershare Trustees (CI) Limited, as trustee for the
ESOT, has waived its dividend entitlement.
The total number of treasury shares held was 5,407,176 (2017: 5,407,176) at a total cost of £92 million (2017: £92 million).
35 Tax effects relating to other comprehensive income
Before tax
£ million
2018
Tax
£ million
Net of tax
£ million
Before tax
£ million
2017
Tax
£ million
Net of tax
£ million
Currency translation differences
Cash flow hedges
Fair value gains / (losses) on net investment hedges
taken to equity
Fair value gains on available-for-sale investments
Remeasurements of post-employment benefit
assets and liabilities
Tax rate adjustments
Total other comprehensive income
(95)
5
6
–
103
–
19
1
(1)
–
–
(18)
(13)
(31)
(94)
4
6
–
85
(13)
(12)
165
(2)
(21)
7
(18)
–
131
–
–
–
–
4
(2)
2
165
(2)
(21)
7
(14)
(2)
133
The US federal tax rate was reduced from 35% to 21% with effect from 1st January 2018. In line with this change, the rate applying to
US deferred tax assets and liabilities at 31st March 2018 has been reduced from 37% to 23% (including state taxes), creating a US tax
rate adjustment which is partly reflected in the Consolidated Income Statement and partly in the Consolidated Statement of Total
Comprehensive Income.
184
Notes on the accounts
for the year ended 31st March 2018
36 Other reserves
36a Group
Capital
redemption
reserve
£ million
Foreign
currency
translation
£ million
Available-
for-sale
reserve
£ million
Hedging
reserve
£ million
Total
other
reserves
£ million
At 1st April 2016
Cash flow hedges – losses taken to equity
Cash flow hedges – transferred to income statement
Fair value losses on net investment hedges taken to equity
Fair value gains on available-for-sale investments
Fair value losses on available-for-sale investments transferred
to income statement
Currency translation differences on foreign currency
net investments and related loans taken to equity
At 31st March 2017
Cash flow hedges – losses taken to equity
Cash flow hedges – transferred to income statement
Fair value gains on net investment hedges taken to equity
Currency translation differences on foreign currency
net investments and related loans taken to equity
Tax on items taken directly to or transferred from equity
At 31st March 2018
Cash flow hedges transferred to the income statement are included in:
7
–
–
–
–
–
–
7
–
–
–
–
–
7
–
–
–
(21)
–
–
165
144
–
–
6
(95)
1
56
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–
–
–
–
5
2
–
7
–
–
–
–
–
7
(9)
(8)
6
–
–
–
–
(11)
(3)
8
–
–
(1)
(7)
(2)
(8)
6
(21)
5
2
165
147
(3)
8
6
(95)
–
63
2018
£ million
2017
£ million
(7)
15
8
9
(3)
6
Revenue
Cost of sales
36b Parent company
At 1st April 2016
Cash flow hedges – losses taken to equity
Cash flow hedges – transferred to income statement
Currency translation differences on foreign operations taken
to equity
At 31st March 2017
Cash flow hedges – losses taken to equity
Cash flow hedges – transferred to income statement
Currency translation differences on foreign operations taken
to equity
At 31st March 2018
Capital
redemption
reserve
£ million
Foreign
currency
translation
£ million
Available-
for-sale
reserve
£ million
Hedging
reserve
£ million
Total
other
reserves
£ million
7
–
–
–
7
–
–
–
7
(3)
–
–
2
(1)
–
–
(3)
(4)
3
–
–
–
3
–
–
–
3
(8) (1)
(3) (3)
1 1
– 2
(10) (1)
(5) (5)
9 9
– (3)
(6) –
185
Johnson Matthey / Annual Report and Accounts 2018
Accounts
Notes on the accounts
for the year ended 31st March 2018
37 Acquisitions
In the year ended 31st March 2017, the group made two acquisitions relating to the New Markets Sector: on 1st April 2016, 100% of the
share capital of MIOX Corporation, a developer and supplier of advanced water disinfectant technology and, on 31st May 2016, 100% of the
share capital of Finex Oy, a supplier of advanced polymer resin technology.
The fair value of the combined net assets acquired was £14 million, consideration paid £21 million and goodwill arising £7 million.
The goodwill arising was attributable to opportunities to access expertise and anticipated future synergies and was not expected to be
deductible for tax purposes. There were no acquisition fair value amendments to this goodwill in the year ended 31st March 2018.
38 Precious metal operating leases
The group leases, rather than purchases, precious metals to fund temporary peaks in metal requirements provided market conditions allow.
These leases are from banks for specified periods (typically a few months) and for which the group pays a fee. These arrangements are
classified as operating leases. The group holds sufficient precious metal inventories to meet all the obligations under these lease
arrangements as they fall due. At 31st March 2018, precious metal leases were £184 million (2017: £77 million).
39 Commitments
Capital lease commitments – future capital expenditure
contracted but not provided:
Property, plant and equipment
Other intangible assets
Operating lease commitments:
Future minimum amounts payable under non-cancellable operating leases
Within one year
From one to five years
After five years
Group
Parent company
2018
£ million
2017
£ million
2018
£ million
2017
£ million
20
15
16
41
36
93
16
3
19
38
40
97
–
5
3
8
10
21
2
–
3
9
11
23
The group and parent company lease some of its property, plant and equipment which are used by the group and parent company in their
operations.
40 Transactions with related parties
Transactions between the parent company and its subsidiaries, which are related parties, have been eliminated on consolidation and so are
only disclosed for the parent company’s accounts. The group’s joint venture and associate are related parties. Guarantees of subsidiaries’
liabilities are disclosed in note 31a.
Trading transactions with joint venture: purchases of goods
Trading transactions with associate: rendering of services
Trading transactions with subsidiaries
Sale of goods
Purchases of goods
Income from service charges
Amounts receivable from subsidiaries
Amounts payable to subsidiaries
Loans to subsidiaries
Loans from subsidiaries
Group
Parent company
2018
£ million
2017
£ million
2018
£ million
2017
£ million
–
–
–
–
–
–
–
–
–
5
1
–
–
–
–
–
–
–
–
–
2,189
790
47
295
79
1,867
2,608
5
–
1,848
503
35
198
193
1,830
2,608
The group’s post-employment benefits plans are related parties and the group’s and parent company’s transactions with them are disclosed
in note 17.
186
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Notes on the accounts
for the year ended 31st March 2018
40 Transactions with related parties (continued)
Key management personnel
The key management of the group and parent company consist of the Board of Directors and the members of the Group Management
Committee (GMC). During the year ended 31st March 2018, the GMC had an average of eight members (2017: ten members). The only
transactions with any key management personnel was compensation charged in the year which was:
Short term employee benefits
Share-based payments
Termination benefits
Non-executive directors' fees and benefits
Total compensation of key management personnel
2018
£ million
2017
£ million
6
3
–
1
10
6
3
1
1
11
Balances outstanding at the year end were nil (2017: termination benefits of £1 million). Information on the directors’ remuneration is
given in the Remuneration Report.
41 Related undertakings
A full list of related undertakings at 31st March 2018 (comprising subsidiaries, joint ventures and associates) is set out below. Those held
directly by the parent company are marked with an asterisk (*) and those held jointly by the parent company and a subsidiary are marked
with a cross (+). All the companies are wholly owned unless otherwise stated. All the related undertakings are involved in the principal
activities of the group. Unless otherwise stated, the share class of each related undertaking comprises ordinary shares only.
Entity Registered address
+Johnson Matthey Argentina S.A. Tucumán 1 Piso 4, CP 1049, Buenos Aires, Argentina
Johnson Matthey (Aust.) Ltd 64 Lillee Crescent, Tullamarine VIC 3043, Australia
+Johnson Matthey Holdings Limited 64 Lillee Crescent, Tullamarine VIC 3043, Australia
Johnson Matthey Belgium BVBA Pegasuslaan 5, 1831 Diegem, Belgium
Tracerco Europe BVBA 1731 Zellik, Z3 Doornveld 115, Belgium
The Argent Insurance Co. Limited Clarendon House, 2 Church Street, Hamilton, HM11, Bermuda
Johnson Matthey Brasil Ltda Avenida Macuco, 726, 12th Floor, Edifício International Office,
CEP04523-001, Brazil
Stepac Brazil Ltda Rua Itapolis, n° 1921, Pacaembu, São Paulo, 01245-000, Brazil
Tracerco do Brasil – Diagnosticos de Processos Industriais Ltda Rua Victor Civita, 66, bloco 2, salas 501/502, Condomínio Rio Office
Park, Barra da Tijuca, Rio de Janeiro, CEP 22775-044, Brazil
Johnson Matthey Battery Materials Ltd. 280 Liberté Ave, Candiac Québec J5R 6X1, Canada
Tracerco Radioactive Diagnostic Services Canada Inc. 8908 60 Avenue NW, Edmonton AB, T6E 6A6, Canada
Johnson Matthey Argillon (Shanghai) Emission Control
Technologies Ltd. No. 298, East Rong Le Road, Songjiang District, Shanghai, China
Johnson Matthey Battery Materials (Changzhou) Co., Ltd. 1 Xin Wei Liu Road, Changzhou Export Processing Zone,
Changzhou, Jiangsu Province, China
Johnson Matthey Chemical Process Technologies (Shanghai) Room 1066, Building 1, No 215 Lian He Bei Lu, Fengxian District,
Company Limited Shanghai, China
Johnson Matthey Clean Energy Technologies (Beijing) Co., Ltd 2007C, 20th Floor, No. 21 Building, No.5 Community,
Shu Guang Xi Lane, Chaoyang District, Beijing, China
Johnson Matthey Process Technologies (Beijing) Co., Ltd. Unit No. 2001-2007A, No. 21 Building, Shuguangxi Lane A5,
Chaoyang District, Beijing, China
Johnson Matthey Research & Development (Yantai) Co., Ltd. No. 9 Wuxi Road, Yantai Economic and Technology Development Zone,
Yantai, Shandong Province, China
Johnson Matthey (Shanghai) Catalyst Co., Ltd. 586 Dongxing Road, Songjiang Industry Zone, Shanghai, 201613, China
Johnson Matthey (Shanghai) Chemicals Limited 588 Dongxing Road, Songjiang Industry Zone, Shanghai, 201613, China
Johnson Matthey (Shanghai) Trading Limited Room 1615B, No. 118 Xinling Road, Waigaoqiao Free Trade Zone,
Shanghai, China
Johnson Matthey (Tianjin) Chemical Co., Ltd. Suite 1-1201, BoRun Commercial Plaza, Tianjin Development Zone, China
Johnson Matthey (Zhangjiagang) Environmental Protection
Technology Co., Ltd Room 807, Changjiang Building, ZJG FTZ, China
Johnson Matthey (Zhangjiagang) Precious Metal Technology Co., Ltd. Rm. 1116-1117, The Petrochemical Trading Edifice, Zhangjiagang
Free Trade Zone, Jiangsu Province, China
Qingdao Johnson Matthey Hero Catalyst Company Limited (51.0%) New Material Industrial Park, Shiyuan Road, Qinda Industrial Park,
Chengyang District, Qingdao, 200331, China
187
Johnson Matthey / Annual Report and Accounts 2018
Accounts
Notes on the accounts
for the year ended 31st March 2018
41 Related undertakings (continued)
Entity Registered address
Shanghai Bi Ke Clean Energy Technology Co Ltd (11.1%) Room 427 Building 2 No 351 Guo Shou Jing Road, China (Shanghai)
Pilot Free Trade Zone, China
Shanghai Johnson Matthey Applied Materials Technologies Co., Ltd Area A, 1st Floor, Building 7, 298 East Rong Le Road, Songjiang District,
Shanghai, China
Tracerco China Process Diagnostics & Instrumentation Section G Floor 2, Building 7, No 298 Rong Le East Road, Songjiang
(Shanghai) Co., Ltd. Industry Zone, Shanghai, China
Johnson Matthey A/S Frederikssundvej 274D, DK-2700 Brønshøj, Copenhagen, Denmark
*AG Holding Ltd 5th Floor, 25 Farringdon Street, London, EC4A 4AB, England
*Cascade Biochem Limited 1 5th Floor, 25 Farringdon Street, London, EC4A 4AB, England
*Fuel Cell Today Limited 5th Floor, 25 Farringdon Street, London, EC4A 4AB, England
Ilumink Limited 5th Floor, 25 Farringdon Street, London, EC4A 4AB, England
*JMEPS Trustees Limited 5th Floor, 25 Farringdon Street, London, EC4A 4AB, England
Johnson Matthey Battery Systems Engineering Limited 5th Floor, 25 Farringdon Street, London, EC4A 4AB, England
*Johnson Matthey (CM) Limited 5th Floor, 25 Farringdon Street, London, EC4A 4AB, England
Johnson Matthey Davy Technologies International Limited 5th Floor, 25 Farringdon Street, London, EC4A 4AB, England
*Johnson Matthey Davy Technologies Limited 5th Floor, 25 Farringdon Street, London, EC4A 4AB, England
*Johnson Matthey Fuel Cells Limited 5th Floor, 25 Farringdon Street, London, EC4A 4AB, England
Johnson Matthey Investments Limited 5th Floor, 25 Farringdon Street, London, EC4A 4AB, England
*Johnson Matthey (Nominees) Limited 5th Floor, 25 Farringdon Street, London, EC4A 4AB, England
*Johnson Matthey Precious Metals Limited 5th Floor, 25 Farringdon Street, London, EC4A 4AB, England
Johnson Matthey South Africa Holdings Limited 5th Floor, 25 Farringdon Street, London, EC4A 4AB, England
Johnson Matthey Tianjin Holdings Limited 5th Floor, 25 Farringdon Street, London, EC4A 4AB, England
*Katalco Limited 5th Floor, 25 Farringdon Street, London, EC4A 4AB, England
Matthey Finance Limited 5th Floor, 25 Farringdon Street, London, EC4A 4AB, England
*Matthey Holdings Limited 5th Floor, 25 Farringdon Street, London, EC4A 4AB, England
*Synetix Limited 5th Floor, 25 Farringdon Street, London, EC4A 4AB, England
*Tracerco Limited 5th Floor, 25 Farringdon Street, London, EC4A 4AB, England
Finex Oy Seppolantie 1, Kotka, 48230, Finland
Johnson Matthey Finland Oy Autokatu 6, 20380 Turku, Finland
Kiinteistö Oy Kotkan Huumantie 5 (70.0%) c/o Finex Oy, Seppolantie 1, Kotka, 48230, Finland
Johnson Matthey SAS Les Diamants – Immeuble B, 41 rue Delizy, 93500 Pantin, France
Johnson Matthey Battery Materials GmbH Ostenriederstr. 15, 85368 Moosburg a.d. Isar, Germany
Johnson Matthey Catalysts (Germany) GmbH Bahnhofstrasse 43, 96257 Redwitz an der Rodach, Germany
Johnson Matthey Chemicals GmbH Wardstrasse 17, D-46446 Emmerich am Rhein, Germany
Johnson Matthey GmbH & Co. KG 2 Otto-Volger-Strasse 9b, 65843 Sulzbach, Germany
Johnson Matthey Holding GmbH Bahnhofstrasse 43, 96257 Redwitz an der Rodach, Germany
Johnson Matthey Management GmbH Otto-Volger-Strasse 9b, 65843 Sulzbach, Germany
Johnson Matthey Piezo Products GmbH Bahnhofstrasse 43, 96257 Redwitz an der Rodach, Germany
Johnson Matthey Redwitz Real Estate (Germany) B.V. & Co. KG 2 Bahnhofstrasse 43, 96257 Redwitz an der Rodach, Germany
Johnson Matthey Argillon Power Plant Catalysts Holdings Unit 2-6, 8/F, 909 Cheung Sha Wan Road, Cheung Sha Wan,
(Hong Kong) Limited Kowloon, Hong Kong
Johnson Matthey Hong Kong Limited Unit 2-6, 8/F, 909 Cheung Sha Wan Road, Cheung Sha Wan, Kowloon,
Hong Kong
Johnson Matthey Pacific Limited 3 Unit 2-6, 8/F, 909 Cheung Sha Wan Road, Cheung Sha Wan, Kowloon,
Hong Kong
Johnson Matthey Process Technologies Holdings Hong Kong Limited Unit 2-6, 8/F, 909 Cheung Sha Wan Road, Cheung Sha Wan, Kowloon,
Hong Kong
Johnson Matthey Tracerco Holdings Hong Kong Limited Unit 2-6, 8/F, 909 Cheung Sha Wan Road, Cheung Sha Wan, Kowloon,
Hong Kong
Johnson Matthey Yantai Holdings (Hong Kong) Limited Unit 2-6, 8/F, 909 Cheung Sha Wan Road, Cheung Sha Wan, Kowloon,
Hong Kong
Macfarlan Smith (Hong Kong) Limited Unit 2-6, 8/F, 909 Cheung Sha Wan Road, Cheung Sha Wan, Kowloon,
Hong Kong
Johnson Matthey Chemicals India Private Limited Plot No 6A, MIDC Industrial Estate, Taloja, District Raigad,
Maharashtra 410208, India
Johnson Matthey India Private Limited 103, Ashoka Estate, 24, Barakhamba Road, New Delhi – 110 001, India
188
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Notes on the accounts
for the year ended 31st March 2018
41 Related undertakings (continued)
Entity Registered address
Johnson Matthey Limited 24/26 City Quay, Dublin 2, D02 NY19, Ireland
Stepac L.A. Ltd. Tefen Industrial Park Bldg. #12, Post Box 73, Tefen, Western Galilee,
2495900, Israel
Johnson Matthey Italia S.r.l. No 2, Via Talucchi, Turin, Italy
Johnson Matthey Fuel Cells Japan Limited 5123-3 Kitsuregawa, Sakura-shi, Tochigi, 329-1412, Japan
Johnson Matthey Japan Godo Kaisha 5123-3 Kitsuregawa, Sakura-shi, Tochigi, 329-1412, Japan
Johnson Matthey DOOEL Skopje TIDZ Skopje 1, 1041 Ilinden, Macedonia
*Johnson Matthey Sdn. Bhd. Suite 16-10, Level 16, Wisma UOA II, 21 Jalan Pinang,
50450 Kuala Lumpur, Malaysia
Johnson Matthey Services Sdn. Bhd. Suite 16-10, Level 16, Wisma UOA II, 21 Jalan Pinang,
50450 Kuala Lumpur, Malaysia
Tracerco Asia Sdn. Bhd. Suite 16-10, Level 16, Wisma UOA II, 21 Jalan Pinang,
50450 Kuala Lumpur, Malaysia
Tracerco Asia Services Sdn. Bhd. Suite 16-10, Level 16, Wisma UOA II, 21 Jalan Pinang,
50450 Kuala Lumpur, Malaysia
Johnson Matthey de Mexico, S. de R.L. de C.V. Av. de Margues y Av. de la Canada, 2a Etapa Parque Industrial
Bernardo Quintana, El Marques, Querataro C.P., 76246, Mexico
Johnson Matthey Servicios, S. de R.L. de C.V. Av Ramon Rivera Lara 6620, Parque Industrial Juarez, Chihuahua, Mexico
Intercat Europe B.V. Stationsstraat 50, 3451 BZ, Vleuten, Netherlands
Johnson Matthey Advanced Glass Technologies B.V. Fregatweg 38, 6222 NZ Maastricht, Netherlands
Johnson Matthey B.V. Otto-Volger-Strasse 9b, 65843 Sulzbach/Ts. Germany
Johnson Matthey Holdings B.V. Fregatweg 38, 6222 NZ Maastricht, Netherlands
Johnson Matthey Netherlands B.V. Fregatweg 38, 6222 NZ Maastricht, Netherlands
Johnson Matthey Netherlands 2 B.V. Fregatweg 38, 6222 NZ Maastricht, Netherlands
Matthey Finance B.V.1 Fregatweg 38, 6222 NZ Maastricht, Netherlands
Tracerco Norge AS Kokstadflaten 35, 5257 Kokstad, Norway
Johnson Matthey Battery Systems Spólka z ograniczoną
odpowiedzialnocścią PL 44-109 Gliwice, ul. Einsteina 36, Poland
Johnson Matthey Poland Spólka z ograniczoną odpowiedzialnocścią Złota 59, 00-120 Warszawa, Warsaw, Poland
Macfarlan Smith Portugal, Lda Largo de São Carlos 3, 1200-410 Lisboa, Portugal
Johnson Matthey Catalysts LLC 1 Transportny Proezd, 660027 Krasnoyarsk, Russia
International Diol Company (4.3%) 1st Basic Industrial Road 218, P.O. Box 12021, Jubail Industrial City,
31961, Saudi Arabia
*Anipel Limited 10 Wheatfield Road, Edinburgh, Midlothian, EH11 2QA, Scotland
*Bitrex Limited 10 Wheatfield Road, Edinburgh, Midlothian, EH11 2QA, Scotland
*Johnson Matthey General Partner (Scotland) Limited 10 Wheatfield Road, Edinburgh, Midlothian, EH11 2QA, Scotland
*Johnson Matthey (Scotland) Limited Partnership 2 10 Wheatfield Road, Edinburgh, Midlothian, EH11 2QA, Scotland
Macfarlan Smith Limited Wheatfield Road, Edinburgh, Midlothian, EH11 2QA, Scotland
*Meconic Limited 10 Wheatfield Road, Edinburgh, Midlothian, EH11 2QA, Scotland
Johnson Matthey Singapore Private Limited 80 Robinson Road, #02-00 Singapore 068898
Johnson Matthey (Proprietary) Limited Corner Henderson and Premier Roads, Germiston South Ext 7,
Gauteng, South Africa
Johnson Matthey Research South Africa (Proprietary) Limited Corner Henderson and Premier Roads, Germiston South Ext 7,
Gauteng, South Africa
Johnson Matthey Salts (Proprietary) Limited Corner Henderson and Premier Roads, Germiston South Ext 7,
Gauteng, South Africa
Johnson Matthey Catalysts Korea Limited A-dong 2906-ho, 13 Heungdeok 1-ro, Giheung-gu, Yongin-si,
Gyeonggi-do, South Korea
Johnson Matthey Korea Limited 418, Ideok-ro, Iwol-myeon, Jincheon-gun, Chungcheongbuk-do,
South Korea
Johnson Matthey AB Viktor Hasselblads gata 8, 421 31 Västra Frölunda, Göteborg, Sweden
Johnson Matthey Formox AB SE-284 80, Perstorp, Sweden
Johnson Matthey & Brandenberger AG Glatttalstrasse 18, 8052 Zurich, Switzerland
Johnson Matthey Finance GmbH Hertensteinstrasse 51, 6004 Lucerne, Switzerland
Johnson Matthey Finance Zurich GmbH Glatttalstrasse 18, 8052 Zurich, Switzerland
LiFePO4+C Licensing AG Hertensteinstrasse 51, 6004 Lucerne, Switzerland
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Johnson Matthey / Annual Report and Accounts 2018
Accounts
Notes on the accounts
for the year ended 31st March 2018
41 Related undertakings (continued)
Entity Registered address
Johnson Matthey (Thailand) Limited 1858/12 Interlink Tower, 5th Floor, Bangna-Trad Road,
Bangna Sub-District, Bangna District, Bangkok, Thailand
Johnson Matthey Holdings (Thailand) Limited 1858/12 Interlink Tower, 5th Floor, Bangna-Trad Road,
Bangna Sub-District, Bangna District, Bangkok, Thailand
Johnson Matthey Services (Trinidad and Tobago) Limited Queen's Park Place, 17-20 Queens Park West, Port of Spain, Trinidad
and Tobago
Stepac Ambalaj Malzemeleri Sanayi Ve Ticaret Anonim Sirketi Güzeloba Mah. Rauf Denktaş Cad., No.56/101, Muratpaşa/Antalya, Turkey
JM Holdings UK LLC Corporation Service Company, 2711 Centerville Road, Suite 400,
Wilmington DE 19808, USA
JM Holdings US LLC Corporation Service Company, 2711 Centerville Road, Suite 400,
Wilmington DE 19808, USA
Johnson Matthey Fuel Cells, Inc. Corporation Service Company, 2711 Centerville Road, Suite 400,
Wilmington DE 19808, USA
Johnson Matthey Holdings, Inc. Corporation Service Company, 2711 Centerville Road, Suite 400,
Wilmington DE 19808, USA
Johnson Matthey Inc.4 Corporation Service Company, 2595 Interstate Drive, Suite 103
PA 17110, USA
Johnson Matthey Japan, Inc. Corporation Service Company, 2711 Centerville Road, Suite 400,
Wilmington DE 19808, USA
Johnson Matthey Materials, Inc. CSC Lawyers Incorporating Service, 2730 Gateway Oaks Drive,
Suite 100, Sacramento CA 95833, USA
Johnson Matthey North America, Inc. Corporation Trust Center, 1209 Orange Street, Wilmington
DE 19801, USA
Johnson Matthey Overseas Holdings Inc. Corporation Service Company, 2711 Centerville Road, Suite 400,
Wilmington DE 19808, USA
Johnson Matthey Pharmaceutical Materials, Inc. Corporation Service Company, 2711 Centerville Road, Suite 400,
Wilmington DE 19808, USA
Johnson Matthey Process Technologies, Inc. Corporation Service Company, 2711 Centerville Road, Suite 400,
Wilmington DE 19808, USA
Johnson Matthey Stationary Emissions Control LLC Corporation Service Company, 2711 Centerville Road, Suite 400,
Wilmington DE 19808, USA
Johnson Matthey US 2 LLC Corporation Service Company, 2711 Centerville Road, Suite 400,
Wilmington DE 19808, USA
Matthey Pharmaceutical Alkaloids, LLC (50.0%) Corporation Trust Center, 1209 Orange Street, Wilmington
DE 19801, USA
MIOX Corporation Corporation Service Company, 2711 Centerville Road, Suite 400,
Wilmington DE 19808, USA
Red Maple LLC (50.0%) Corporation Service Company, 2711 Centerville Road, Suite 400,
Wilmington DE 19808, USA
In some jurisdictions in which the group operates, share classes are not defined and in these instances, for the purpose of disclosure, these holdings have been classified as ordinary shares.
1 Ordinary and preference shares
2 Limited partnership, no share capital
3 Ordinary and non-cumulative redeemable preference shares
4 Ordinary and series A preferred stock
190
Reconciliation of non-GAAP measures
to GAAP measures
for the year ended 31st March 2018
The group uses various measures to manage its business which are not defined by generally accepted accounting principles (GAAP). The group’s
management believes these measures provide valuable additional information to users of the accounts in understanding the group’s performance.
Sales excluding precious metals (sales)
The group believes that sales excluding precious metals is a better measure of the underlying performance of the group than revenue. Total
revenue can be heavily distorted by year on year fluctuations in the market prices of precious metals. In addition, in many cases, the value of
precious metals is passed directly on to our customers.
Underlying profit and earnings
These are the equivalent GAAP measures adjusted to exclude amortisation of acquired intangibles, major impairment and restructuring charges,
profit or loss on disposal of businesses, gain or loss on significant legal proceedings together with associated legal costs, significant tax rate
changes and, where relevant, related tax effects. The group believes that these measures provide a better guide to the underlying performance
of the group. These are reconciled in note 4.
Margin
Underlying operating profit divided by sales excluding precious metals.
Working capital days
Non-precious metal related inventories, trade and other receivables and trade and other payables (including any classified as held for sale)
divided by sales excluding precious metals for the last three months multiplied by 90 days.
Free cash flow
Net cash flow from operating activities, after net interest paid, net purchases of non-current assets and investments and dividends received from
joint venture.
Capex
Additions of property, plant and equipment plus additions of other intangible assets.
Capex to depreciation ratio
Capex divided by depreciation. Depreciation is the depreciation charge of property, plant and equipment plus the amortisation charge of other
intangible assets excluding amortisation of acquired intangibles (note 7).
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Working capital (excluding precious metals)
Inventories
Trade and other receivables
Trade and other payables
Total working capital
Less precious metal working capital
Working capital (excluding precious metals)
Free cash flow
Net cash flow from operating activities
Dividends received from joint venture
Interest received
Interest paid
Purchases of non-current assets and investments
Proceeds from sale of non-current assets and investments
Free cash flow
Other
Other non-GAAP measures are reconciled in the relevant note.
2018
£ million
783
1,228
(1,012)
999
(404)
595
2017
£ million
772
1,139
(968)
943
(335)
608
2018
£ million
2017
£ million
386
1
3
(45)
(216)
7
136
523
–
5
(42)
(260)
4
230
191
Johnson Matthey / Annual Report and Accounts 2018
Accounts
Independent auditor’s report
to the members of Johnson Matthey Plc
1. Our opinion is unmodified
Basis for opinion
We have audited the accounts of Johnson Matthey Plc
(“the company”) for the year ended 31st March 2018 which
comprise the Consolidated Income Statement, Consolidated
Statement of Comprehensive Income, Consolidated and
Parent Company Balance Sheets, Consolidated and Parent
Company Cash Flow Statements, Consolidated and Parent
Company Statement of Changes in Equity, and the related
notes, including the Accounting Policies.
In our opinion:
–
–
–
–
the accounts give a true and fair view of the state of
the group’s and of the parent company’s affairs as at
31st March 2018 and of the group’s profit for the year
then ended;
the group accounts have been properly prepared in
accordance with International Financial Reporting
Standards (IFRS) as adopted by the European Union (EU);
the parent company accounts have been properly prepared
in accordance with IFRS as adopted by the EU and as
applied in accordance with the provisions of the Companies
Act 2006; and
the accounts have been prepared in accordance with the
requirements of the Companies Act 2006 and, as regards
the group accounts, Article 4 of the IAS Regulation.
We conducted our audit in accordance with International
Standards on Auditing (UK) (“ISAs (UK)”) and applicable law.
Our responsibilities are described below. We believe that the
audit evidence we have obtained is a sufficient and appropriate
basis for our opinion. Our audit opinion is consistent with our
report to the Audit Committee.
We were appointed as auditor by the shareholders in 1985. The
period of total uninterrupted engagement is for the 33 financial
years ended 31st March 2018. We have fulfilled our ethical
responsibilities under, and we remain independent of the group
in accordance with, UK ethical requirements including the
FRC Ethical Standard as applied to listed public interest entities.
No non-audit services prohibited by that standard were provided.
Overview
Materiality:
group accounts
as a whole
£23 million (2017: £22 million)
5% (2017: 5%) of adjusted profit before tax
Coverage
83% (2017: 84%) of group profit before tax
Risks of material misstatement vs 2017
Recurring risks
Refinery process and stock takes (cid:1) (cid:2)
Taxation accounting (cid:1) (cid:2)
New: Product claims and uncertainties (cid:3)
Carrying value of goodwill and
other intangibles
(cid:4)
192
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Independent auditor’s report
to the members of Johnson Matthey Plc
2. Key audit matters: our assessment of risks of material misstatement
Key audit matters are those matters that, in our professional judgement, were of most significance in the audit of the accounts and include
the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us, including those which had the
greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. We
summarise below the key audit matters (changed from 2017 to include product claims and uncertainties and to remove post-employment
benefits), in decreasing order of significance, in arriving at our audit opinion above, together with our key audit procedures to address those
matters and, as required for public interest entities, our results from those procedures. These matters were addressed, and our results are
based on procedures undertaken, in the context of, and solely for the purpose of, our audit of the accounts as a whole, and in forming our
opinion thereon, and consequently are incidental to that opinion, and we do not provide a separate opinion on these matters.
Group and company
Physical quantities:
Our procedures included:
The risk
Our response
Refinery process and
stock takes
The group refines over
four million ounces of
platinum group metals
per annum with a market
value of £3.4 billion.
Refer to page 105
(Audit Committee Report)
and page 148
(accounting policy).
The group refines a significant amount of
metal as set out in note 1. The year end
metal inventory quantity is determined from:
(i) assay estimates of the metal contained
in the carrier material entering and refined
metal leaving the refining process, and
(ii) estimates of process losses, rolled forward
from (iii) assay estimates of the metal
content in the plants at the time of stock
takes which take place at different times
earlier than the financial year end.
Furthermore, the plants process material
on behalf of third parties, whereby the
group must return pre-agreed recoverable
quantities of refined metal to those parties;
under or over recovery or other loss directly
impacts the group’s own metal inventory.
– Control observations: Assessing through observation,
interview and reperformance on a sample basis the
adequacy of group controls over the assay system, metal
processing and inventory including physical security,
metal receipt and dispatch, metal recording, reconciling
the production and accounting systems, assaying and
stock takes;
– Count attendance and design: Attending certain physical
stock takes to verify the design and implementation of
stock take processes and physical quantities counted;
– Count vs system reconciliation: Seeking to understand
and corroborate the reasons for significant or unusual
movements in inventory quantities between the
accounting records and the physical stock takes; Evaluating
the roll forward of inventory from the point of stock take
to the year end to assess the potential for misstatement;
A full stock take was not performed at the
UK refineries during the year which led to an
increased period between the previous stock
take and the financial year end.
– Benchmarking assumptions: Challenging the assay
estimates taken by management by comparing these
to assay estimates undertaken by customers and third
party umpires;
The year end metal inventory is dependent
upon the physical quantities measured in the
assay samples in (i) and (iii). The risks are
such that a small variation in estimates could
have a material effect on the valuation of
inventory in the accounts.
– Historical comparisons: Assessing provisions for
inventory loss compared to historical trends and stock
take results to assess the likelihood and quantum of
processing loss (if any) of metal between the date of the
stock take and the year end date; and
– Assessing transparency: Considering the adequacy of
the group’s disclosures about the degree of estimation
involved in arriving at the measured inventory.
Our results: As a result we found the valuation of inventory
to be acceptable (2017: acceptable).
Group and company
Subjective estimate:
Our procedures included:
Taxation accounting
Tax provisions of £86 million
(2017: £89 million).
Refer to page 106
(Audit Committee Report),
page 147 (accounting
policy) and pages 155-156
(financial disclosures).
The group operates in multiple jurisdictions
governed by national tax laws and
regulations and is required to estimate
the tax effect of cross border transactions
including transfer pricing arrangements.
Where the precise impact of these laws
and regulations on indirect taxes and the
tax payable on profits arising in those
jurisdictions is unclear, the group seeks to
make reasonable estimates to determine
the tax charge arising.
– Our taxation expertise: With the assistance of our
own local and international tax specialists who have
knowledge of the relevant indirect and direct tax regimes
and experience in their application, analysing and
challenging the assumptions used to determine the tax
charge and provisioning; and benchmarking assumptions;
and assessing correspondence with the relevant tax
authorities including the status of tax authority audits
and inquiries; and
– Assessing transparency: Considering the adequacy of
the group’s disclosures in respect of tax and uncertain
tax positions.
Our results: From the evidence obtained, we found the
level of tax provisioning to be acceptable (2017: acceptable).
193
Johnson Matthey / Annual Report and Accounts 2018
Accounts
Independent auditor’s report
to the members of Johnson Matthey Plc
2. Key audit matters: our assessment of risks of material misstatement (continued)
Group
Subjective estimate:
Our procedures included:
The risk
Our response
Product claims and
uncertainties
Provision of £18 million
included within other
provisions of £27 million.
In addition the group has
a contingent liability for
potential further product
claims for which the
outcome of any discussions
is uncertain, and where
the group is unable to
make a reliable estimate
of any possible financial
consequence at this stage.
Refer to page 106
(Audit Committee Report),
page 148 (accounting
policy) and pages 181-182
(financial disclosures).
The group’s products are complex and
produced to exacting standards. Product
quality issues may be identified subsequent
to delivery to and installation by customers.
Accordingly at any point in time the group
may be exposed to product liability issues
including claims for damages or compensation.
The group holds provisions for the potential
costs associated with these risks. The
assumptions underpinning these provisions
are inherently uncertain.
Dispute outcome:
Where the group is unable to make a reliable
estimate of potential exposures it discloses
these risks as a contingent liability. Should
the group be unable to successfully defend
its position, these risks could give rise to a
future liability.
– Enquiry of lawyers: Inspection of correspondence with
internal and external counsel and formal confirmations
from counsel of open cases;
– Test of detail: In relation to quantified issues, considering
the status of discussions with customers, then testing and
challenging the basis of the group’s calculations including
the rectification or remediation cost estimates; and
– Assessing transparency: Considering the adequacy of
the group’s disclosures in respect of the loss on significant
legal proceedings and contingent liabilities.
Our results: From the evidence obtained, we found the
level of provisioning and disclosure in respect of product
claims to be acceptable.
Group
Forecast-based valuation:
Our procedures included:
The group has significant intangible assets
and goodwill arising from the acquisition of
businesses and investments in new products
and technologies. Some investments and
recent acquisitions are still at an early stage
of commercial development and as such,
carry a greater risk that they will not be
commercially viable.
Recoverability of these assets is based on
forecasting and discounting future cash
flows, which are inherently judgemental.
Carrying value of goodwill
and other intangible assets
Goodwill of £574 million
(2017: £607 million)
and other intangible
assets of £295 million
(2017: £288 million).
In the current year there
was a pre-tax impairment
charge of £11 million
against the carrying value
of the Water Technologies
CGU reflecting lower
growth rate assumptions
for these businesses.
Refer to page 106
(Audit Committee Report),
page 147 (accounting
policy) and page 169-170
(financial disclosures).
– Assessing methodology: Obtaining the discounted cash
flow models and assessing the principles and integrity of
each model;
– Benchmarking assumptions: Challenging the group’s
valuation assumptions for its cash flow projections such
as discount rates and cost inflation, with reference to
internally and externally derived sources;
– Our valuations expertise: Assessing the inputs based
on our own insights and experience and challenging the
appropriateness of the discount rate with the assistance
of our own valuation specialists;
– Sensitivity analysis: Performing breakeven analysis on
the assumptions noted above;
– Historical comparisons: Assessing the group’s historical
forecasting accuracy by comparing the group’s prior year
forecasts with actuals; and
– Assessing transparency: Considering the adequacy of
the group’s disclosures in respect of impairment testing
and whether disclosures about the sensitivity of the
outcome of the impairment assessment to changes in
key assumptions properly reflected the risks inherent
in the valuations.
Our results: As a result of our testing we found the resulting
estimate of the recoverable amount of goodwill and other
intangible assets to be acceptable (2017: acceptable).
We continue to perform procedures over post-employment benefits. However, following our review of our previous year’s audit findings,
we have not assessed this as one of the most significant risks in our current year audit and, therefore, it is not separately identified in our
report for 2018.
194
Independent auditor’s report
to the members of Johnson Matthey Plc
3. Our application of materiality and an overview
of the scope of our audit
Materiality for the group accounts as a whole was set at
£23.0 million (2017: £22.0 million), determined with reference
to a benchmark of group profit before tax, excluding the loss on
disposal of businesses, the loss on significant legal proceedings
and major impairment and restructuring charges as disclosed
on the face of the Consolidated Income Statement, of which it
represents 5% (2017: 5%). We agreed to report to the Audit
Committee any corrected or uncorrected identified profit
misstatements exceeding £0.5 million (2017: £0.5 million), in
addition to other identified misstatements warranting reporting
on qualitative grounds. Materiality for the parent company
financial statements as a whole was set at £20 million (2017:
£20 million) determined with reference to a benchmark of
company total assets, of which it represents 0.4% (2017: 0.4%).
In establishing the overall approach to our audit, we considered
the decentralised nature of the group’s operations, the risk profile
of countries where the group operates, our historical audit findings
and changes taking place within the business. We also considered
the financial significance and risks associated with each business
together with any local statutory audit requirements.
Of the group’s 55 (2017: 57) reporting components, we
subjected 44 (2017: 44) to audits for group reporting purposes,
8 (2017: 10) to specified risk focused audit procedures over
revenue, inventory and receivables and 3 (2017: 3) to specified
risk focused audit procedures over inventory, including in China,
Germany, India, Macedonia, South Africa, the UK and the US.
The components for which we performed specified risk-focused
procedures were not individually financially significant enough
to require an audit for group reporting purposes, but did present
specific individual risks that needed to be addressed. The
components within the scope of our work accounted for 89% of
group revenue, 83% of group profit before tax and 82% of group
total assets.
For the remaining components, we performed analysis at an
aggregated group level to re-examine our assessment that there
were no significant risks of material misstatement within these,
including through examining reports from local auditors on the
results of their statutory audit work. In total these statutory
audits comprise 6% of group revenue, 7% of group profit before
tax and 10% of group total assets.
The group audit team instructed component auditors as to
the significant areas to be covered, including the relevant
risks detailed above and the information to be reported back.
The group team approved component materiality, which ranged
from £0.1 million to £10.5 million (2017: £0.1 million to
£10.5 million), having regard to the mix of size and risk profile
of the group across the components. The work on 43 of the
55 components was performed by the component auditors
and the rest by the group team.
The group audit team visited six component locations (2017: six)
in China, Macedonia, South Africa, the Netherlands, the UK and
the US to assess the audit risk and strategy. Telephone conference
meetings were also held with these component auditors and all
others that were not physically visited. At these visits and meetings,
the findings reported to the group audit team were discussed in
more detail, and any further work required by the group audit
team was then performed by the component auditor.
Adjusted profit before tax Group Materiality
£467 million £23 million
(2017: £462 million) (2017: £22 million)
£23.0 million
Whole financial statements materiality
(2017: £22 million)
£10.5 million
Range of materiality at 55 components
(£0.1 million to £10.5 million)
(2017: £0.1 million to £10.5 million)
Adjusted profit before tax
Group materiality
£0.5 million
Misstatements reported to the Audit Committee
(2017: £0.5 million)
Group revenue Group profit before tax
13
14
11
10
89%
(2017: 90%)
17
16
10
8 83%
(2017: 84%)
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18
16
3
8
82%
(2017: 84%)
76
79
Full scope for group audit purposes 2018
Specified risk-focused audit procedures 2018
Full scope for group audit purposes 2017
Specified risk-focused audit procedures 2017
Residual components
195
Johnson Matthey / Annual Report and Accounts 2018
Accounts
Independent auditor’s report
to the members of Johnson Matthey Plc
4. We have nothing to report on going concern
We are required to report to you if:
–
we have anything material to add or draw attention to in
relation to the directors’ statement on page 135 on the use
of the going concern basis of accounting with no material
uncertainties that may cast significant doubt over the
group’s and company’s use of that basis for a period of at
least 12 months from the date of approval of the financial
statements; or
–
the related statement under the Listing Rules set out on
page 74 is materially inconsistent with our audit knowledge.
We have nothing to report in these respects.
5. We have nothing to report on the other
information in the annual report
The directors are responsible for the other information presented
in the Annual Report together with the financial statements.
Our opinion on the financial statements does not cover the other
information and, accordingly, we do not express an audit opinion
or, except as explicitly stated below, any form of assurance
conclusion thereon.
Our responsibility is to read the other information and, in doing
so, consider whether, based on our financial statements audit
work, the information therein is materially misstated or
inconsistent with the financial statements or our audit
knowledge. Based solely on that work we have not identified
material misstatements in the other information.
Strategic Report and Directors’ Report
Based solely on our work on the other information:
–
–
–
we have not identified material misstatements in the
Strategic Report and the Directors’ Report;
in our opinion the information given in those reports
for the financial year is consistent with the financial
statements; and
in our opinion those reports have been prepared in
accordance with the Companies Act 2006.
Directors’ Remuneration Report
The part of the Directors’ Remuneration Report to be audited
extends from the Single Figure Table of Remuneration on page
123 to, and including, the Statement of directors’ shareholding
on page 126; and in addition comprises the Explanation of
figures on page 124, the Variable pay – additional disclosures,
including bases of calculation and outcomes on pages 124 to 125,
LTIP outcomes on page 126 and the Pension entitlements on
page 126.
In our opinion the part of the Directors’ Remuneration Report to
be audited has been properly prepared in accordance with the
Companies Act 2006.
196
Disclosures of principal risks and longer term viability
Based on the knowledge we acquired during our financial
statements audit, we have nothing material to add or draw
attention to in relation to:
–
–
–
the directors’ confirmation within the viability statement
that they have carried out a robust assessment of the
principal risks facing the group, including those that would
threaten its business model, future performance, solvency
and liquidity;
the principal risks disclosures describing these risks and
explaining how they are being managed and mitigated; and
the directors’ explanation in the viability statement of how
they have assessed the prospects of the group, over what
period they have done so and why they considered that
period to be appropriate, and their statement as to whether
they have a reasonable expectation that the group will be
able to continue in operation and meet its liabilities as they
fall due over the period of their assessment, including any
related disclosures drawing attention to any necessary
qualifications or assumptions.
Under the Listing Rules we are required to review the viability
statement. We have nothing to report in this respect.
Corporate governance disclosures
We are required to report to you if:
–
–
–
we have identified material inconsistencies between the
knowledge we acquired during our financial statements
audit and the directors’ statement that they consider that
the annual report and financial statements taken as a whole
is fair, balanced and understandable and provides the
information necessary for shareholders to assess the group’s
position and performance, business model and strategy; or
the section of the annual report describing the work of the
Audit Committee does not appropriately address matters
communicated by us to the Audit Committee; or
a corporate governance statement has not been prepared
by the company.
We are required to report to you if the Corporate Governance
Statement does not properly disclose a departure from the 11
provisions of the UK Corporate Governance Code specified by the
Listing Rules for our review.
We have nothing to report in these respects.
Based solely on our work on the other information described above:
–
–
with respect to the Corporate Governance Statement
disclosures about internal control and risk management
systems in relation to financial reporting processes and
about share capital structures:
–
–
we have not identified material misstatements therein;
and
the information therein is consistent with the financial
statements; and
in our opinion, the Corporate Governance Statement has
been prepared in accordance with relevant rules of the
Disclosure Guidance and Transparency Rules of the
Financial Conduct Authority.
Independent auditor’s report
to the members of Johnson Matthey Plc
In addition we considered the impact of laws and regulations
in the specific areas of health and safety and anti-bribery
recognising the nature of the group’s activities that may
inadvertently affect the financial statements. With the exception
of any known or possible non-compliance, and as required by
auditing standards, our work in respect of these was limited to
enquiry of the directors and other management and inspection
of regulatory and legal correspondence. We considered the effect
of any known or possible non-compliance in these areas as part
of our procedures on the related financial statement items.
We communicated identified laws and regulations throughout our
team and remained alert to any indications of non-compliance
throughout the audit. This included communication from the
group to component audit teams of relevant laws and regulations
identified at group level, with a request to report on any indications
of potential existence of non-compliance with relevant laws and
regulations (irregularities) in these areas, or other areas directly
identified by the component team.
As with any audit, there remained a higher risk of non-detection
of irregularities, as these may involve collusion, forgery,
intentional omissions, misrepresentations, or the override of
internal controls.
8. The purpose of our audit work and to whom we
owe our responsibilities
This report is made solely to the company’s members, as a body,
in accordance with Chapter 3 of Part 16 of the Companies
Act 2006. Our audit work has been undertaken so that we
might state to the company’s members those matters we are
required to state to them in an auditor’s report and for no other
purpose. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the company and
the company’s members, as a body, for our audit work, for this
report, or for the opinions we have formed.
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Stephen Oxley (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
15 Canada Square
London, E14 5GL
30th May 2018
6. We have nothing to report on the other matters
on which we are required to report by exception
Under the Companies Act 2006, we are required to report to
you if, in our opinion:
–
–
–
–
parent company, or returns adequate for our audit have not
been received from branches not visited by us; or
the parent company financial statements and the part of
the Directors’ Remuneration Report to be audited are not
in agreement with the accounting records and returns; or
certain disclosures of directors’ remuneration specified by
law are not made; or
we have not received all the information and explanations
we require for our audit.
We have nothing to report in these respects.
7. Respective responsibilities
Directors’ responsibilities
the directors are responsible for: the preparation of the financial
statements including being satisfied that they give a true and
fair view; such internal control as they determine is necessary to
enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error; assessing
the group and parent company’s ability to continue as a going
concern, disclosing, as applicable, matters related to going concern;
and using the going concern basis of accounting unless they
either intend to liquidate the group or the parent company or to
cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or other irregularities
(see below), or error, and to issue our opinion in an auditor’s
report. Reasonable assurance is a high level of assurance, but
does not guarantee that an audit conducted in accordance with
ISAs (UK) will always detect a material misstatement when it
exists. Misstatements can arise from fraud, other irregularities or
error and are considered material if, individually or in aggregate,
they could reasonably be expected to influence the economic
decisions of users taken on the basis of the financial statements.
A fuller description of our responsibilities is provided on the
FRC’s website at www.frc.org.uk/auditorsresponsibilities.
Irregularities – ability to detect
We identified areas of law and regulation that could reasonably
be expected to have a material effect on the financial statements
from our experience, through discussion with the directors and
other management (as required by auditing standards), and from
inspection of the group’s regulatory and legal correspondence.
We had regard to laws and regulations in areas that directly
affect the financial statements including financial reporting
(including related company legislation) and taxation legislation.
We considered the extent of compliance with those laws and
regulations as part of our procedures on the related financial
statement items.
197
Contents
200 Basis of reporting – non-financial data
203 Verification of non-financial data
204 GRI Standard Content Index
206 Shareholder information
208 Glossary of terms
209 Index
210 Financial calendar 2018/19
IBC Company details
Other
Information
198
Johnson Matthey / Annual Report and Accounts 2018
Our basis of
non-financial
reporting and
information
for shareholders.
Also includes a summary of
our Global Reporting Initiative
disclosures, a glossary and
an index.
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Johnson Matthey / Annual Report and Accounts 2018
Other Information
Basis of reporting – non-financial data
This report has been prepared in accordance with the GRI Standards:
Core option. It covers the period from 1st April 2017 to 31st March
2018. Our last annual report was published in June 2017.
Johnson Matthey compiles, assesses and discloses non-financial
information for a number of reasons:
•
•
•
•
•
•
where there is a legal obligation (UK Companies Act, mandatory
carbon reporting, UK Modern Slavery Act);
to help drive improved business performance;
to demonstrate to institutional investors that Johnson Matthey’s
business approach is responsible, ethical, sustainable and offers
a sound value proposition;
to demonstrate to our customers that Johnson Matthey’s
business conduct meets or exceeds all of the required standards
and expectations;
to demonstrate to other stakeholders that Johnson Matthey
conducts its business in an ethical, responsible and sustainable
manner; and
to benchmark our corporate performance against peer
group companies.
This report has been developed to incorporate the group’s significant
economic, environmental and social impacts and is set within the context
of the United Nations Brundtland definition of sustainability (1987) and
our own sustainable business goals to 2025. The principles of inclusivity,
materiality and responsiveness help to shape the structure of the report
and in setting priorities for reporting. The report also explains how we
are continuing to build sustainability into our business planning and
decision making processes and how, through our governance processes,
we manage social, environmental and ethical matters across the group.
Performance data covers all sites which are under the financial
control of the group, including all manufacturing, research and
warehousing operations of the parent company and its subsidiaries.
For the purposes of reporting, separate business units resident
at the same location are counted as separate sites. Data from 70 sites
was included in this report, 57 of which are manufacturing sites.
Data from new facilities is included from the point at which
the facility becomes owned by the company and operational. All
non-financial performance data is reported on a financial year basis
unless otherwise stated.
Baseline year data has been restated, where necessary, to
account for changes in best practice methodologies for reporting.
The processes in place to internally and externally verify the reported
non-financial data are described on page 203. Certain employee data
is included in the financial accounts and is also subject to separate
external audit.
Calculation methodologies for KPIs relating to six sustainable business goals to 2025
Definition of employees and contractors
A standard definition of employees and contractors has been implemented in 2017/18 across the group for all reporting of people-related goals:
Employees
Agency workers
Outsourced function
Specialist service
Projects
Continuously site based.
Continuously site based.
Continuously or
regularly site based.
One-off project or regularly
based on site.
One-off project.
Contractors
Contract signed directly
between JM and individual
and paid regular salary
and other benefits by JM.
Person employed by an
agency performing tasks
that would be expected
to be undertaken by a
JM employee.
Facility management –
catering, cleaning or
grounds maintenance;
IT and occupational health
if outsourced.
Work is directly
supervised by JM.
Work is directly
supervised by JM.
Work is supervised
by contractor and
monitored by JM.
Reported as:
employees
Reported as:
temporary worker
Reported as:
contractor
Smallscale building or
ground works; repairing
specialist plant or
equipment; low level
maintenance; small scale
repairs to offices or
other buildings;
stack monitoring.
Work is supervised
by contractor and
monitored by JM.
Reported as:
contractor
Construction work, capital
project work, major
maintenance activities.
Work is supervised
by contractor and
monitored by JM.
Reported as:
contractor
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Health and
safety
1
Goal 1: Health and safety:
Aspire to zero harm
Lost time injury and illness rate (LTIIR) is defined as the number of
lost workday cases per 200,000 hours worked in a rolling year.
A lost workday case is defined as an incident where an employee
or contractor is unable to work for more than one scheduled working
day as a result of a work-related injury or illness.
Total recordable injury and illness rate (TRIIR) is defined as the
number of recordable cases per 200,000 hours worked in a rolling year.
A recordable case (as defined under the US Occupational Safety and
Health Administration (OSHA) Regulations) is defined as a work related
accident or illness that results in one or more of the following: absence
of more than one day; medical treatment beyond first aid; death; loss of
consciousness and restricted work or transfer to another job.
The OSHA severity rate is a calculation that gives a company an
average of the number of lost days per recordable incident.
OSHA severity rate = ([total lost days in the year x 200,000] ÷
total hours worked during the year).
Occupational illness incidence rate in the year = (number of
new occupational illnesses diagnosed in the year) x 1,000 ÷ (average
number of employees in the year).
200,000 hours represents 100 full time equivalent workers
working 40 hours per week for 50 weeks per year.
LTIIR by event type definitions
Slip, trip or fall:
•
•
•
•
A slip injury occurs where there is too little friction or traction
between an individual’s footwear and the walking surface.
A trip injury occurs when the foot hits an object causing a person
to lose balance.
A fall injury is recorded when someone falls from an elevated
surface (e.g. roof), object or temporary work platform
(e.g. ladder) or into an opening in a floor or a hole in the ground.
Struck against is an injury occurring as a result of coming into
contact with a surface or object in which the action was initiated
by the person (e.g. when a screwdriver slips).
Process safety rate definition
Johnson Matthey has adopted International Council of Chemical
Association’s (ICCA) process safety metric. The metric first requires a
determination that the event is to be included in the process safety
event severity rate (PSESR) calculation and then determining the
severity using the severity table.
In determining this rate, 1 point is assigned for each Level 4
incident attribute, 3 points for each Level 3 attribute, 9 points for each
Level 2 attribute, and 27 points for each Level 1 attribute.
The PSESR is recorded as a 12 month rolling number. Total worker
hours include employees, temporary employees and contractors.
Process safety performance indicator (PSPI) 2 =
Process safety event severity rate (PSESR) Level 1 to 4
(Total severity score for all events x 200,000)
=
(Total worker hours)
Theoretically, a process safety event could be assigned a minimum
of 1 point (i.e. the incident meets the attributes of a Level 4 incident
in only one category) or a maximum of 135 points (i.e. the incident
meets the attributes of a Level 1 incident in each of the five categories).
Our
people
2
Goal 2: Our people:
Employee engagement and enablement
Johnson Matthey invites all its permanent and fixed term contract
employees to voluntarily complete its employee survey once every
two years to determine the wellbeing of its staff using a standard
methodology defined and audited by the Korn Ferry Hay Group.
All responses are submitted confidentially to a third party and results
are independently analysed and reported back to JM management.
Through the survey we measure attributes on a scale of 0 to 100%:
•
•
employee engagement = how committed and motivated
employees are to give their best to Johnson Matthey;
employee enablement = how well employees’ jobs and work
environment support peak performance in Johnson Matthey.
Diversity and Inclusion (D&I) plan progress
A detailed roadmap of activities to be completed on JM’s journey
to D&I excellence out to 2025 has been approved. A measurement
tracker has been deployed at both the site and group level to ensure
a consistent methodology to record progress on this journey.
Progress is tracked against the D&I plan using Johnson Matthey’s
in-house methodology.
Low carbon
operations
3
Goal 3: Low carbon operations:
Operational carbon footprint reduction
Our operational carbon footprint, reported in tonnes of carbon
dioxide (CO2) equivalent, includes Scope 1 and Scope 2 emissions.
We report Scope 1 greenhouse gas (GHG) emissions from processes
and energy use and convert the total group energy use to tonnes CO2
equivalent using conversion factors for each emissions source as
published by Defra in July 2017. For the first time in 2017/18 we
have included nitrous oxide (N2O), refrigerant and methane process
emissions to air in our Scope 1 calculations. In this report we have
restated our 2016/17 emissions using this new methodology.
Our Scope 2 emissions are calculated using the ‘dual reporting’
methodology outlined in the GHG Protocol corporate standard 2015
revision, www.ghgprotocol.org. For the location based method of
Scope 2 accounting, for all facilities outside of the US, we use national
carbon intensity factors related to the consumption of grid electricity
in 2015 made available in the 2017 edition of the world CO2 emissions
database of the International Energy Agency. They were purchased
under licence in February 2018 for sole use in company reporting.
For US facilities we use regional carbon factors published by the
Environmental Protection Agency in January 2017, eGRID data 2016.
For the market based method of Scope 2 accounting, we have applied
the hierarchy of sources for determination of appropriate carbon
intensity factors, as outlined in Table 6.3 on page 48 of the GHG
Protocol 2015 edition guidance. We have successfully obtained carbon
intensity factors directly from our grid electricity suppliers in the EU,
USA and Australia. However, it has not been possible to obtain this
from suppliers in China, India, South Africa and non-OECD Europe.
Under the UK mandatory GHG reporting requirements, we are
required to ensure that the quantification of GHG emissions and data
reliability are sufficient to meet our obligation under the UK
Companies Act 2006 (Strategic and Directors’ Reports) Regulations
2013. The data we have presented for our carbon footprint in this
report contains all Johnson Matthey’s material GHG emissions and
therefore meets the requirements of this legislation. We have
included a mandatory GHG report in the table on page 45.
201
Community
engagement
6
Goal 6: Community engagement:
Employee volunteering
This KPI is an annual record of the total number of employee
volunteering days undertaken by permanent employees within their
local communities, in accordance with JM’s global Employee
Volunteering Policy.
The volunteering is recorded in periods of half days. Shorter periods
of volunteering are not included in the data. The recorded volunteering
days may have been completed either on company time or on paid
company leave. Volunteering done on unpaid leave, or outside normal
working hours, is not included in the reported numbers.
The length of a standard day varies slightly from location to
location, between seven and eight hours.
In determining the in-kind contribution of employees’ volunteering
we take the number of volunteering days reported in the year and
multiply it by the group average cost of one day of employee time.
Average cost of one day of total employee benefits
employee time
expense in year
=
Number of working days in year
Number of working days in a year is five days per week for 50 weeks
per year.
Johnson Matthey / Annual Report and Accounts 2018
Other Information
In 2018 we introduced a new methodology for normalising our
carbon emissions based on production output. The denominator is
defined as ‘tonnes of manufactured product sold externally’. Only sold
products manufactured on JM premises are included. For sales of
precious metal containing solutions from our Pgm Services only the
weight of the precious metal is included in the calculation. For all
other products, the total shipped weight of product is included.
Carbon intensity of JM operations = total JM group Scope 1 + Scope 2
GHG emissions
Tonnes of manufactured products
sold externally by JM
Responsible
sourcing
4
Goal 4: Responsible sourcing:
Sustainable supplier assessment and compliance
We will ensure supplier awareness, understanding and acceptance of
the JM Supplier Code of Conduct. We will seek evidence of adherence
to the mandatory requirements of the JM Supplier Code of Conduct –
demonstrated by assessment and, where necessary, audit of suppliers.
These will be quantified on an annual basis.
A strategic supplier is defined using JM in-house criteria.
Sustainable
products
5
Goal 5: Sustainable products:
Sustainability impacts of our products
(a) We will measure the correlation and classification of annualised
sales of Johnson Matthey’s products, services and technologies
against the 169 specific targets of the 17 United Nations
Sustainable Development Goals (UN SDGs).
(b) We have set quantitive targets that focus on the UN SDGs that
are most material to our stakeholders or most relevant to our
business impact. We will measure our progress towards these
targets annually.
Both (a) and (b) are calculated using Johnson Matthey’s in-house
methodology.
202
Verification of non-financial data
The board reviews corporate social responsibility (CSR) and broader
sustainability issues as part of its risk management process.
All data is reviewed by internal sustainability experts and at
appropriate levels of management up to and including the Group
Management Committee. Health and safety data is reviewed by group
health and safety experts and as part of a formal group environment,
health and safety (EHS) internal audit programme.
Certain human resources data forms part of Johnson Matthey’s
accounts which are subject to limited audit.
“Johnson Matthey appointed Carbon Smart to provide third party
assurance of the company’s global reported Scope 1, 2 and 3
greenhouse gas (GHG) emissions, total energy, total waste (solid and
hazardous), water consumption and specified health and safety
indicators for the reporting period 2017/18. Carbon Smart carried out
a limited assurance engagement in accordance with the requirements
of the ISAE 3000 (revised) standard including the specificities of
ISAE 3410 for assuring GHG emissions data, and key health and
safety definitions from the OHSA Regulations.
Johnson Matthey also uses external specialists to review specific
Johnson Matthey’s GHG inventory and quantification of
sustainability issues. Over the past year this has included external
audits or reviews of people management systems, health and safety
(OHSAS 18001) and environmental management systems (such as
ISO 14001, ISO 50001 and RC 4001).
In 2018 we commissioned Carbon Smart Ltd to provide external
assurance and commentary on the company’s sustainability reporting
of our key performance indicators and data pertaining to our 2017/18
environment, health and safety performance. Carbon Smart have
subsequently provided the following summary assurance report:
environmental performance indicators has been completed in
accordance with the WRI / WBCSD GHG Corporate Accounting and
Reporting Standard (revised) best practice reporting principles of
relevance, completeness, consistency, transparency, accuracy and the
subject matter adheres to the ISAE 3410 principles related to both
the quantification of emissions and presentation of disclosures.
The objective of the engagement was to ensure that the assured
Johnson Matthey values in scope were free of material misstatements
to an acceptable, agreed materiality threshold and provide the
relevant, material information required by stakeholders for the
purpose of decision making.
Based on the assurance procedures followed by Carbon Smart
on the described scope of Johnson Matthey’s data across the 2017/18
reporting period, we have found no material evidence to suggest that
the data is not:
•
•
prepared in accordance with the WRI / WBCSD GHG Corporate
Accounting and Reporting Standard (revised) and OHSA
Regulations as relevant;
prepared in accordance with Johnson Matthey’s relevant internal
health and safety and environmental data collection guidelines;
• materially correct and a fair representation of the company’s
GHG emissions, specified environmental impacts and health and
safety incident rates;
•
worthy of the award of limited assurance.
Carbon Smart are independent of Johnson Matthey and have no
business reason for bias in the preparation of this statement; we have
complied with the ethical requirements relevant for the performance
of the ISAE 3000 engagement.
This conclusion should be read with Carbon Smart’s full
assurance statement available at matthey.com/non-fin-assurance.
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Johnson Matthey / Annual Report and Accounts 2018
Other Information
GRI Standard Content Index
General disclosures in accordance with GR1 102
Disclosure GRI code
Organisational profile
Name of the organisation 102-1
Activities, brands, products and services 102-2
Location of headquarters 102-3
Location of operations 102-4
Ownership and legal form 102-5
Markets served 102-6
Scale of the organisation 102-7
Information on employees and other workers 102-8
Supply chain 102-9
Significant changes to the organisation and its supply chain 102-10
Precautionary principle or approach 102-11
External initiatives 102-12
Membership of associations 102-13
Strategy
Statement from senior decision maker 102-14
Key impacts, risks and opportunities 102-15
Page
Front cover
4-5; 15-19; 62-63
Inner back cover
4
131-134
5; 15; 33-35
4-5
48-59
40-42
40-42
43; 47
20-21
20; 55
9-12
14-15; 76-81
Ethics and integrity
Values, principles, standards and norms of behaviour 102-16
Mechanisms for advice and concerns about ethics 102-17
14-15; 16-17; 20-21; 50-53; 53-55; 58
54
Governance
Governance structure 102-18
Delegating authority 102-19
Executive level responsibility for economic, environmental and social topics 102-20
Consulting stakeholders on economic, environmental and social topics 102-21
Composition of the highest governance body and its committees 102-22
Chair of the highest governance body 102-23
Nominating and selecting the highest governance body 102-24
Conflicts of interest 102-25
Role of highest governance body in setting purpose, values and strategy 102-26
Collective knowledge of highest governance body 102-27
Evaluating the highest governance body’s performance 102-28
Identifying and managing economic, environmental and social impacts 102-29
Effectiveness of risk management processes 102-30
Review of economic, environmental and social topics 102-31
Highest governance body’s role in sustainability reporting 102-32
Communicating critical concerns 102-33
Nature and total number of critical concerns 102-34
Remuneration policies 102-35
Process for determining remuneration 102-36
Stakeholders’ involvement in remuneration 102-37
Annual total compensation ratio 102-38
Percentage increase in annual total compensation ratio 102-39
Stakeholder engagement
List of stakeholder groups 102-40
Collective bargaining agreements 102-41
Identifying and selecting stakeholders 102-42
Approach to stakeholder engagement 102-43
Key topics and concerns raised 102-44
Reporting practice
Entities included in the consolidated financial statements 102-45
Defining report content and topic boundaries 102-46
List of material topics 102-47
Restatements of information 102-48
Changes in reporting 102-49
Reporting period 102-50
Date of most recent report 102-51
Reporting cycle 102-52
Contact point for questions regarding the report 102-53
Claims of reporting in accordance with the GRI Standards 102-54
GRI content index 102-55
External assurance 102-56
Go online for our full GRI Index: matthey.com/gri-2017-18
204
76; 88-89
88-89
90-91
20-21
88-89
86; 88
92-94; 99-102
94
90-91; 95
84-85; 92
94-96
16-17; 90-91
95-97
90-91
96
88-89
59
113-118
52; 111-112
111
Information unavailable
Information unavailable
20-21
59
20-21
20-21; 55
21
187-190
200-202
16-17; 21
‘Performance highlights’
22-24
1
200
200
Inner back cover
200
204-205
203
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Specific GRI disclosures for Johnson Matthey’s material topics
GRI code Page
Sustainability leadership
GRI-103 Management approach 2016 103 7; 10
GRI-102 General disclosures 2016 102-14; 102-10 8; 11; 16-17; 78-81
Financial sustainability
GRI-103 Management approach 2016 103 70-75
GRI-201 Economic performance 2016 201-3 17; 22; 60-63
Health and safety
GRI-103 Management approach 2016 103 49
GRI-403 Occupational health and safety 2016 403-1; 403-2; 403-4 17; 50-51
Greenhouse gas emissions
GRI-103 Management approach 2016 103 39-40
GRI-302 Energy 2016 302-1; 302-3; 302-4 44-45
GRI-305 Emissions 2016 305-1; 305-2; 305-3; 305-4 17; 23; 44-45
Air quality
GRI-103 Management approach 2016 103 46
Climate change risk
GRI-103 Management approach 2016 103 40
GRI-201 Economic performance 2016 201-2 44-45
Modern slavery and child labour
GRI-408 Child labour 2016 408-1 40-42
GRI-409 Forced or compulsory labour 2016 409-1 40-42
Products lifecycle management
GRI-103 Management approach 2016 103 42-43
GRI-416 Customer health and safety 2016 416-1; 416-2 43
GRI-417 Marketing and labeling 2016 417-1; 417-2 43
GRI-301 Materials 2016 301-3 43
GRI-306 Effluents and waste 2016 306-2; 306-3; 306-4 46
Water use
GRI-103 Management approach 2016 103 47
GRI-303 Water 2016 303-1; 303-3 47
GRI-306 Effluents and waste 2016 306-1 47
Ethical business practices and compliance
GRI-103 Management approach 2016 103 16-17; 39-43; 54
GRI-205 Anti-corruption 2016 205-1; 205-2; 205-3 90-91
GRI-206 Anti-competitive behaviour 2016 206-1 59
GRI-415 Public policy 2016 415-1 133
GRI-419 Socioeconomic compliance 2016 419-1 59
Resource scarcity
GRI-103 Management approach 2016 103 21; 79
GRI-301 Materials 2016 301-2 46
Employee recruitment and retention
GRI-103 Management approach 2016 103 52
GRI-102 General disclosures 2016 102-8 17; 58-59
GRI-401 Employment 2016 401-1 58
GRI-404 Training and education 2016 404-2; 404-3 59
Responsible sourcing
GRI-103 Management approach 2016 103 40-41
GRI-308 Supplier environmental assessment 2016 308-1; 308-2 17; 41
GRI-414 Supplier social assessment 2016 414-1; 414-2 17; 41
GRI-407 Freedom of association and collective bargaining 2016 407-1 17; 41
Diversity and inclusion
GRI-103 Management approach 2016 103 53-54
GRI-405 Diversity and equal opportunity 2016 405-1; 405-2 17; 53-54
GRI-406 Non-discrimination 2016 406-1 59
Community engagement
GRI-103 Management approach 2016 103 54-55
GRI-413 Local communities 2016 413-1 17; 54-55
205
Johnson Matthey / Annual Report and Accounts 2018
Other Information
Shareholder information
Johnson Matthey share price as at 31st March
2013
2014
2015
2016
2017
2018
2,300p
3,271p
3,386p
2,744p
3,080p
3,042p
Analysis of ordinary shareholders as at 28th April 2018
By location
UK and Eire
USA and Canada
Continental Europe
Asia Pacific
Rest of World
Unidentified
Total
By category
Investment and unit trusts
Pension funds
Individuals
Custodians
Insurance companies
Treasury shares and employee share schemes
Sovereign wealth funds
Charities
Other
Total
By size of holding
1 – 1,000
1,001 – 10,000
10,001 – 100,000
100,001 – 1,000,000
1,000,001 – 5,000,000
5,000,001 and over
Total
Number of shares
Percentage
105,265,610
42,158,113
33,911,797
4,232,847
899,111
12,473,128
52.9
21.2
17.0
2.1
0.5
6.3
198,940,606
100.0
Number of shares
Percentage
88,727,792
26,871,302
12,162,271
7,401,420
6,487,180
7,489,328
8,953,388
1,128,507
39,719,418
44.6
13.5
6.1
3.7
3.3
3.7
4.5
0.6
20.0
198,940,606
100.0
Number
of holdings Percentage
Number
of shares
Percentage
5,337 73.5
1,316 18.1
388 5.4
184 2.5
28 0.4
8 0.1
1,620,211
3,642,360
13,362,352
54,257,942
55,994,152
70,063,589
0.8
1.8
6.7
27.3
28.2
35.2
7,261 100.0
198,940,606
100.0
Johnson Matthey share price five year performance versus FTSE 100
Rebased to 100 at 1st April 2013
By location
200
150
100
50
March 2013
March 2014
March 2015
March 2016
March 2017
March 2018
Johnson Matthey
FTSE 100
206
Rest of World
0.5%
Unidentified
6.3%
Asia Pacific
2.1%
Continental
Europe
17.0%
USA and
Canada
21.2%
UK and
Eire
52.9%
Share dealing services
A telephone and internet dealing service for UK shareholders is
provided by the company’s registrars, Equiniti. For further information,
including Equiniti’s terms and conditions and details of their fees,
log on to www.shareview.co.uk/dealing or call 03456 037 037*
(in the UK); +44 121 415 7560 (outside the UK).
Dividend – pence per share
2014 2015 2016 2017 2018
Interim 17.0 18.5 19.5 20.5 21.75
Final 45.5 49.5 52.0 54.5 58.25
Total ordinary 62.5 68.0 71.5 75.0 80.0
Special – – 150.0 – –
Johnson Matthey has a progressive dividend. The board is proposing
a final dividend for 2017/18 of 58.25 pence to take the total for
the year to 80.0 pence, which is 7% up reflecting continued
confidence in Johnson Matthey’s prospects.
Dividend payments and DRIP
Dividends can be paid directly into shareholders’ bank or building
society accounts. Shareholders wishing to take advantage of this
facility should contact the company’s registrars, Equiniti, or complete
the dividend mandate form attached to their dividend cheque.
A Dividend Reinvestment Plan (DRIP) is also available which allows
shareholders to purchase additional shares in the company. Further
information can be obtained from Equiniti, Aspect House, Spencer
Road, Lancing, West Sussex BN99 6DA. Telephone 0371 384 2268*
(in the UK); +44 121 415 7047 (outside the UK). They can also
be contacted via their website at www.shareview.co.uk.
American Depositary Receipts
Johnson Matthey has a sponsored Level 1 American Depositary Receipt
(ADR) programme which BNY Mellon administers and for which it
acts as Depositary. Each ADR represents two Johnson Matthey ordinary
shares. The ADRs trade on the US over-the-counter (OTC) market
under the symbol JMPLY. When dividends are paid to shareholders,
the Depositary converts such dividends into US dollars, net of fees
and expenses, and distributes the net amount to ADR holders.
For enquiries, BNY Mellon can be contacted on 1-888-BNY-ADRS
(1-888-269-2377) toll free if you are calling from within the US.
Alternatively, they can be contacted by e-mail at
shrrelations@cpushareownerservices.com or via their website at
www.adrbnymellon.com.
Share price and group information
Information on the company’s current share price together with copies
of the group’s annual and half-yearly reports and major presentations
to analysts and institutional shareholders are available on the
Johnson Matthey website: www.matthey.com.
The website’s Investors section contains extensive information and a
number of tools which will be of assistance to investors including
historic share price information downloads and a share price charting
facility.
For capital gains tax purposes the mid-market price of the company’s
ordinary shares on 31st March 1982 was 253 pence.
Enquiries
Shareholders who wish to contact Johnson Matthey Plc on any
matter relating to their shareholding are invited to contact the
company’s registrars, Equiniti, Aspect House, Spencer Road, Lancing,
West Sussex BN99 6DA. Telephone 0371 384 2344* (in the UK);
+44 121 415 7047 (outside the UK) or via their website:
www.shareview.co.uk.
Shareholders may also telephone the company on +44 20 7269 8400
or write to:
The Company Secretary
Johnson Matthey Plc
5th Floor
25 Farringdon Street
London, UK
EC4A 4AB
For other enquiries shareholders may contact the Investor Relations team
at the above address and telephone number, by emailing
jmpr@matthey.com, or via www.matthey.com
* Lines are open 8.30am to 5.30pm Monday to Friday excluding public holidays in England
and Wales.
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By category
By size of holding
Other
20.0%
Investment
and
unit trusts
44.6%
1 – 1,000
0.8%
1,001 – 10,000
1.8%
10,001 –
100,000
6.7%
5,000,001
and over
35.2%
100,001 –
1,000,000
27.3%
Charities
0.6%
Sovereign
wealth funds
4.5%
Treasury shares and
employee share schemes
3.7%
Insurance companies
3.3%
Custodians
3.7%
Individuals
6.1%
Pension funds
13.5%
1,000,001 – 5,000,000
28.2%
207
Johnson Matthey / Annual Report and Accounts 2018
Other Information
Glossary of terms
2006 Act The Companies Act 2006
ADHD Attention Deficit Hyperactivity Disorder
ADR American Depositary Receipt
AGM Annual general meeting
APB Auditing Practices Board
API Active pharmaceutical ingredient
CAGR Compound annual growth rate
Capital expenditure Capital expenditure divided by depreciation
to depreciation Depreciation is the depreciation charge of
ratio property, plant and equipment plus the
amortisation charge of other intangible assets
excluding amortisation of acquired intangibles
CDP Carbon Disclosure Project
CEFIC The Council of European Chemical Industry
CGU Cash-generating unit
ISO 14000 Internationally recognised series of standards
which specify the requirements for an
environmental management system
ISO 50001 International standard giving guidelines on
an energy management system
JM Johnson Matthey
JMEPS Johnson Matthey Employees Pension Scheme
KfW KfW IPEX – Bank GmbH
KPI Key performance indicator
LDV Light duty vehicle
LFP Lithium iron phosphate, a cathode material
LTIIR Lost time injury and illness rate
LTIP Long term incentive plan
Margin Underlying operating profit divided by sales
excluding precious metals
CHP Combined heat and power
NPI New product introduction
CO Carbon monoxide
CO2 Carbon dioxide
COD Chemical oxygen demand
CPI Consumer price index
CSR Corporate social responsibility
D&I Diversity and inclusion
DRIP Dividend Reinvestment Plan
EBITDA Earnings before interest, tax, depreciation
and amortisation
OHSAS 18001 Internationally recognised standard on
occupational health and safety management
OSHA Occupational Safety and Health Administration
OTC Over-the-counter
PARS Prior Approval Required Substances
PBT Profit before tax
Pgm Platinum group metal
PILON Payments in lieu of notice
PSP Performance share plan
EHS Environment, health and safety
PSRM Process safety risk management
EIB European Investment Bank
R&D Research and development
eLNO™ JM’s next generation high energy density
battery material
RC 14001 An internationally recognised standard,
an expansion of ISO 14001
EPS Earnings per share
RDE Real world driving emissions standards
ESG Environment, social and governance
ESOT Employee Share Ownership Trust
EU European Union
FCA Financial Conduct Authority
FRC Financial Reporting Council
Free cash flow Net cash flow from operating activities, after
net interest paid, net purchases of non-current
assets and investments and dividends received
from joint venture
Fuel cell Technology which converts hydrogen or other
fuels (methanol, natural gas) into clean electricity
GAAP Generally accepted accounting principles
GHG Greenhouse gas
GMC Group Management Committee
GRI Global Reporting Initiative
GWP Global warming potential
HDD Heavy duty diesel
HR Human resources
REACH Registration, Evaluation, Authorisation and
Restriction of Chemicals Regulation
EU chemical control legislation which came
into force in June 2007
ROIC Return on invested capital
RPI Retail price index
RSP Restricted share plan
SAICM Strategic Approach to International Chemicals
Management
Sales Sales excluding the value of precious metals
SIC Standing Interpretations Committee
SIP Share incentive plan
SOx Oxides of sulphur
SPV Special purpose vehicle
SVHC Substance of very high concern
The Code The UK Corporate Governance Code, issued
by the FRC
TRIIR Total recordable injury and illness rate
HSRG Health Science Research Group
TSCA Toxic Substances Control Act
IAS International Accounting Standards
UN United Nations
IASB International Accounting Standards Board
UN SDGs United Nations Sustainable Development Goals
IFRIC International Financial Reporting
Interpretations Committee
IFRS International Financial Reporting Standards
Incoterms® The International Chamber of Commerce’s
International Commercial Terms
ISA International Standards on Auditing
VOC Volatile organic compound
Working Non-precious metal related inventories, trade
capital days and other receivables and trade and other
payables (including any classified as held for
sale) divided by sales excluding precious metals
for the last three months multiplied by 90 days
208
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Index
Page
Page
Accounting Policies 143-149
Accounts 137-197
Acquisitions (note 37) 186
Amortisation of acquired intangibles (note 7) 154
Audit Committee Report 103-110
Audit fees (note 10) 154
Auditor’s report 192-197
Balance sheets 139
Basis of reporting – non-financial data 200-202
Board of Directors 84-85
Borrowings (note 28) 174
Capital expenditure (and note 1) 73, 150-151
Capital structure and management (and note 31g) 73, 181
Cash and cash equivalents (note 28) 174
Cash flow hedges transferred to income statement (note 36) 185
Cash flow statements 140
Chairman’s letter 86
Chairman’s statement 6-7
Changes in equity 141-142
Chief Executive’s statement 9-12
Clean Air – performance review 64-65
Commitments (note 39) 186
Community investment and charitable programmes 54-55
Company details IBC
Comprehensive income (and note 35) 138, 184
Contingent liabilities (note 32b) 182
Corporate Governance Code 87
Corporate Governance Report 87-98
Customers 32-37
Deferred taxation (notes 12, 33) 155-156, 183
Depreciation and amortisation (note 9) 154
Directors’ Report 131-134
Dividends (and note 14) 73, 156
Earnings per ordinary share (note 13) 156
Effect of exchange rate changes (note 3) 152-153
Efficient Natural Resources – performance review 66-67
Employee numbers and costs (note 15) 157
Employee share ownership trust (ESOT) (note 34) 184
Environmental performance 44-47
Finance costs / income (note 11) 155
Financial assets and liabilities (note 30) 175-176
Financial calendar 210
Financial review 70-73
Financial risk management (and note 31) 74-75, 176-181
Foreign exchange gains and losses (note 9) 154
Free cash flow 73, 191
Global Reporting Initiative (GRI) 204-205
Glossary of terms 208
Going concern 74
Goodwill (note 19) 169-170
Governance 82-135
Grants (note 9) 154
Group Management Committee 13
Group performance review 60-61
Guarantees (note 31a) 177
Health – performance review 67-68
Health and safety 49-51
How we create value 18-19
Human resources policies 52-54
Human rights policies 41-42
Income statement 138
Intangible assets (note 20) 170-171
Inventories (notes 9, 24) 154, 173
Investments in joint venture and associate (note 22) 172
Investments in available-for-sale assets (note 23) 172
JM in profile 4-5
Key management personnel (note 40) 187
Key performance indicators 22-24
Long-term contracts (note 27) 173
Loss on disposal of businesses (note 5) 153
Loss on significant legal proceedings (note 6) 153
Major impairment and restructuring charges (note 8) 154
Materiality assessment 21
Modern slavery and child labour 41-42
Movements in assets and liabilities arising from
financing activities (note 29) 175
Net debt (note 28) 174
New Markets – performance review 68-69
Nomination Committee Report 99-102
Non-controlling interests 141
Operating leases (notes 9, 38, 39) 154, 186
Operating profit (note 9) 154
Operations 38-47
Other reserves (note 36) 185
Outlook 12
Payables (note 26) 173
People 48-59
Performance highlights Intro pages
Post-employment benefits (and note 17) 72-73, 160-167
Precious metal operating leases (note 38) 186
Product lifecycle performance 43
Property, plant and equipment (note 18) 167-168
Provisions (note 32) 181-182
Receivables (note 25) 173
Reconciliation of non-GAAP measures to GAAP measures 191
Related parties (note 40) 186-187
Related undertakings (note 41) 187-190
Remuneration Report 111-130
Research and development (and note 9) 26-31, 154
Responsibility of directors 135
Responsible sourcing 40-41
Return on invested capital (and note 31g) 61, 73, 181
Revenue (note 2) 152
Risks and uncertainties 76-81
Sales excluding precious metals 191
Science 25-31
Sector performance review 62-69
Sector performance summary 62-63
Clean Air 64-65
Efficient Natural Resources 66-67
Health 67-68
New Markets 68-69
Segmental information (note 1) 150-152
Share-based payments (note 16) 158-160
Share capital (note 34) 184
Shareholder information 206-207
Sources of estimation uncertainty 148
Stakeholder communications 55
Stakeholders 20-21
Standards adopted in year 148
Standards not yet applied 149
Strategic progress and priorities 8
Strategic Report 2-81
Strategy 14-15
Structure 4-5
Subsidiaries (notes 21, 41) 171, 187-190
Sustainable business framework 16-17
Taxation (and notes 12, 33) 72, 155-156, 183
Treasury policies 74-75
Underlying profit reconciliations (note 4) 153
Values Intro pages, 53
Verification of non-financial data 203
Viability 74-75
Working capital 191
209
Johnson Matthey / Annual Report and Accounts 2018
Other Information
Financial calendar 2018/19
2018
7th June
Ex dividend date
8th June
Final dividend record date
2019 (provisional)
5th February
Payment of interim dividend
30th May
Announcement of results for year ending 31st March 2019
26th July
127th Annual General Meeting (AGM)
7th August
6th June
Ex dividend date
7th June
Payment of final dividend subject to declaration at the AGM
Final dividend record date
21st November
Announcement of results for the six months ending
30th September 2018
17th July
128th AGM
6th August
29th November
Ex dividend date
30th November
Interim dividend record date
Payment of final dividend subject to declaration at the AGM
Photography credits
During our 200th anniversary year, JM held a competition, inviting employees to take photographs that represented the JM brand
identity – inspiring science, enhancing life.
Photographs from two of our finalists feature in this report:
Page 48 – photograph by Jasmin Brunner, Moosburg, Germany.
Pages 198-199 (bottom image) – photograph by Nathan Barrow, Sonning, UK.
Congratulations to Jasmin, Nathan and all of our other finalists.
eLNO is a trademark of the Johnson Matthey group of companies.
210
Company details
Registered office
Johnson Matthey Plc
5th Floor
25 Farringdon Street
London EC4A 4AB
Telephone: +44 (0)20 7269 8400
Fax: +44 (0)20 7269 8433
www.matthey.com
E-mail: jmpr@matthey.com
Johnson Matthey Plc is a Public Limited Company registered in England – Number 33774
Professional advisers
Auditor
KPMG LLP
15 Canada Square
London E14 5GL
Brokers
Bank of America Merrill Lynch J. P. Morgan Cazenove
2 King Edward Street 25 Bank Street
London EC1A 1HQ Canary Wharf
London E14 5JP
Lawyers
Herbert Smith Freehills LLP
Exchange House
Primrose Street
London EC2A 2EG
Registrar
Equiniti
Aspect House
Spencer Road
Lancing
West Sussex
BN99 6DA
Telephone: 0371 384 2344 (in the UK)*
+44 (0)121 415 7047 (outside the UK)
www.shareview.co.uk
* Lines are open 8.30am to 5.30pm Monday to Friday excluding public holidays in England and Wales.
This report is printed on paper sourced from responsibly managed forests, certified in
accordance with the FSC® (Forest Stewardship Council) and is recyclable and acid-free.
Pureprint Ltd is a Carbon Neutral Printing Company.
Designed and produced by MAGEE
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2018 Annual Report
and Accounts
www.matthey.com/AR18
Johnson Matthey Plc
5th Floor
25 Farringdon Street
London EC4A 4AB
UK
Tel: +44 20 7269 8400