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2019 Annual Report
and Accounts
Johnson Matthey
Our vision is for a world that’s cleaner and healthier,
today and for future generations.
As a global leader in sustainable technologies, we use our cutting edge
science to create solutions with our customers that make a real difference
to the world around us.
Acting today
We face complex challenges on a global scale; the need
for cleaner air, the drive for improved health and a
responsibility to be smarter and more efficient in the
way we use our planet’s finite natural resources.
For the future Inspiring science,
enhancing life.
In doing this we are:
Through using our expertise in science at the atomic
scale, JM is developing solutions that create value for
our customers and have an impact at the global scale,
making our world cleaner, healthier and fit for
future generations.
• Taking action for sustainable
development.
• Shaping a new era for
clean energy.
• Achieving more from less.
• Providing clean air for all.
• Helping people live longer
and healthier lives.
Taking action for
sustainable development
The world is faced with an unprecedented set
of challenges. As the global population rises,
communities must overcome issues such as air
pollution, climate change, scarcity of natural
resources and ever increasing demands for clean
energy, water, food and access to healthcare.
The challenge
The UN Sustainable Development
Goals (SDGs) provide a blueprint for
meeting the world’s challenges and an
opportunity for governments, industry
and individuals to work together to
create a better future for people and
the planet.
1 7
The UN SDGs set out 17 main goals
with 169 sub targets to achieve the
action needed to make a difference.
Our response
JM’s people and inspiring science are
contributing to achieving the UN SDGs.
In 2018/19 87.3% of our sales came
from products and services that had
a positive impact on the goals.
• Meeting the demand for new
solutions for cleaner energy.
• Making the most of the planet’s
resources by achieving more
from less.
• Enabling a once in a lifetime
transition to low emission
automotive solutions.
• Improving the effectiveness
and accessibility of
healthcare treatments.
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on the UN SDGs
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The challenge
The world is seeking solutions to the
energy trilemma – the need for a
secure supply of clean, affordable
and universally accessible energy.
Hydrogen ticks the box. And with
increasing recognition that hydrogen
will be an important energy vector
comes the challenge of deploying
technology at scale to support the
shift to a hydrogen economy.
10 x
Ten times current global production
of hydrogen will be required to meet
future predictions for its use.
Our response
JM is putting its science at the heart
of solutions that support a cost
effective transition to a secure
and environmentally sustainable
energy system.
• An established portfolio of market
leading technologies for hydrogen
production.
• Scale up of fuel cell technologies
that enable hydrogen to be directly
converted to electricity with water
as the only by product.
Shaping a new era
for clean energy
We are at the start of an energy transition, an
event that hasn’t happened since the industrial
revolution when the use of fossil fuels drove
growth and prosperity. Rapidly growing
demands on the world’s energy resources are
driving the need for new and innovative
solutions to achieve more sustainable energy
generation and storage.
The challenge
Global demand for ‘more’ requires
a circular way of thinking. New raw
materials and resources will be
required, and new challenges in
how to access and transform or
recycle those materials efficiently
must be overcome.
>25%
Of the world’s annual use of platinum
comes from recycled sources.
Our response
JM already helped create one of the
world’s earliest circular economies
in the use, reclaiming, refining and
reuse of platinum. With our scientific
expertise, we are helping our customers
transform, purify, recycle and use
key natural resources such as oil,
gas, biomass and platinum group
metals (pgms) into materials that
build and fuel the modern world,
while reducing the impact of this
activity on the environment.
• Catalysts and process technologies
that drive efficiency in chemicals
production.
• Commercialising technology to
convert municipal waste into jet fuel.
• Innovating and investing to enable
the shift to biobased feedstocks and
renewables.
• Investing in our world leading pgm
recycling capability.
• Applying our expertise in recycling
and efficient transformations to
create solutions to new challenges.
Achieving more from less
In a world where population growth is putting
increased pressure on our natural resources,
the efficient transformation and use of those
natural resources has never been more important.
Providing clean air for all
Air quality remains a major global issue.
Pollution from vehicles is a contributor and
governments around the world continue to set
tighter limits on emissions from transportation.
This, together with heightened public awareness
of vehicle emissions, puts us firmly on the
journey to pollution-free roads.
The challenge
These environmental and social
factors are driving a once in a lifetime
transition in the automotive industry.
Governments, car companies and
consumers are demanding options for
cost effective technological solutions
that will drastically reduce emissions
from our vehicles and deliver cleaner
air for us all.
>3m
Tonnes of pollutants removed by JM’s
emission control catalysts in 2018/19.
Our response
JM is at the very forefront of science
that is enabling lower and zero
emission vehicles. And we’ve
translated that science into the
broadest range of solutions for
automotive industry customers.
• Extending our technology
leadership and manufacturing
capacity in emission control
catalysts for: cars, buses and trucks;
gasoline, diesel and hybrid.
• Innovating and commercialising
eLNO®, our class leading ultra high
energy density battery cathode
material, supported by our
significant ongoing investment
to build manufacturing capacity.
• Ramping up production of fuel
cell technologies.
The challenge
Strong demand means an attractive
market and so for pharmaceutical producers,
the prize is high and the competition is
tough. That’s why they look to partners
who can develop their complex active
pharmaceutical ingredients (APIs) and
manufacture them as flexibly and efficiently
as possible.
>180,000
Lives positively impacted in 2018/19
as a result of recently launched drugs
containing JM’s API products.
Our response
JM is a go-to partner for both innovator
and generic pharmaceutical companies.
We don’t specialise in solutions for
specific treatments and come into
our own when tasked with complex
API development. We can work at all
stages of the drug development cycle,
from conception right through to
scale up and commercial manufacture.
• Enabling a life enhancing cancer
treatment in a new strategic
partnership with Immunomedics.
• Continuing investment of circa
£25 million p.a. in our new product
pipeline to bring new APIs to market.
• Optimising our manufacturing
footprint in the US, Scotland and
China to maximise the flexibility
and efficiency of our assets.
Helping people live longer
and healthier lives
With a growing and increasingly wealthy
population comes the expectation from
individuals that they will lead a longer and
healthier life. And while new healthcare
innovations and individualised treatments can
provide the solution, there is an increasing need
to manage the impact on healthcare costs.
Johnson Matthey
Inspiring science, enhancing life
Watch: Chief Executive Robert MacLeod explores how we’re
tackling some of the world’s most complex challenges
matthey.com/meeting-global-challenges
2018/19 – continued strong performance
Investing in our science
Supporting our people
Gross R&D
spend
£190m
(2017/18: £193m)
Lost time injury and
illness rate1
0.53
(2017/18: 0.522)
Employee engagement
index score3
59%
(62% in 2016 employee opinion survey)
1 For definition see page 234.
3 For definition see page 64.
2 Restated, see page 73.
Delighting our customers
Revenue
up 5%4
£10,745m
(2017/18: £10,274m5)
4 At constant rates (see note 3
on page 77).
Sales6
up 10%7
£4,214m
(2017/18: £3,846m)
6 Sales excluding precious metals.
For definition see page 173.
5 Restated, see note 39 on page 220.
7 At constant rates (see note 3
on page 77).
Running our business better
Operating profit
up 48%8
£531m
(2017/18: £359m)
Underlying9 operating
profit up 8%10
£566m
(2017/18: £525m)
8 At constant rates (see note 3
9 For definition see page 173.
on page 77).
10 At constant rates (see note 3
on page 77).
Average working
capital days11
59
(2017/18: 62 days)
Free cash
outflow12 of
£13m
Operational carbon footprint
(’000 tonnes CO2 equivalent)
414
(2017/18: inflow of £136m)
(2017/18: 445 tonnes)
11 Excluding precious metals.
12 For definition see page 244.
Creating value for our shareholders
Attractive return on
invested capital13
16.4%
(2017/18: 17.0%)
Earnings per share
up 39%
215.2p
(2017/18: 155.2p)
Underlying14 earnings
per share up 10%
228.8p
(2017/18: 208.4)
Progressive dividend –
up 7% to
85.5p
(2017/18: 80.0p)
13 For definition see note 31 on page 205.
14 For definition see note 2 on page 77.
We delivered what we said we would.
We strengthened our platform
for growth.
Contents
Strategic Report
JM in profile
Chairman’s statement
Chief Executive’s statement
4
6
10
13 Group Management Committee (GMC)
14 Our strategy
22 Our business model
24 Our sustainability framework
28 Our stakeholders
30 Our KPIs
Science
34
40
Customers
48 Operations
56
60 People
Environmental management
76
61 A culture for success
69 Health and safety
74 Recognising our people
Financial performance review
77 Group performance review
Sector performance review
78
Clean Air
80
Efficient Natural Resources
82
83 Health
84 New Markets
86
90
Financial review
Treasury policies and going concern
91 Risks and uncertainties
Governance
100 Board of Directors
104 Letter from the Chairman
106 Corporate Governance Report
119 Nomination Committee Report
123 Audit Committee Report
132 Remuneration Report
151 Directors’ Report
155 Responsibilities of Directors
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About this report
Our integrated report for 2019 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 2019.
Sustainability reporting
This report is written to the GRI reporting standard Core option.
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
Accounts
158 Consolidated Income Statement
158 Consolidated Statement of Total Comprehensive Income
159 Consolidated and Parent Company Balance Sheets
160 Consolidated Cash Flow Statement
161 Consolidated Statement of Changes in Equity
162 Parent Company Statement of Changes in Equity
163 Accounting policies
173 Notes on the accounts
223
Independent auditor’s report
Other information
234 Basis of reporting – non-financial data
238 Our framework and our six sustainable business goals
239 Verification of non-financial data
240 GRI Standard Content Index
242 Shareholder information
244 Glossary of terms
245
246 Financial calendar 2019/20
247 Company details
Index
Navigation
Throughout this report you will find a series of easy to identify icons
to help you find further information about the group.
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Principal risk
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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
Johnson MattheyAnnual Report and Accounts 2019
Strategic Report
Strategic
Report
Here we explain how we use our inspiring
science to enhance life.
The Strategic Report from page 2 to page 97 was approved
by the board on 30th May 2019 and is signed on its behalf by:
Robert MacLeod
Chief Executive
2
Johnson MattheyAnnual Report and Accounts 2019 Contents
JM in profile
Chairman’s statement
Chief Executive’s statement
4
6
10
13 Group Management Committee (GMC)
14 Our strategy
22 Our business model
24 Our sustainability framework
28 Our stakeholders
30 Our KPIs
34
Science
Customers
40
48 Operations
56
Environmental management
60 People
76
61 A culture for success
69 Health and safety
74 Recognising our people
Financial performance review
77 Group performance review
Sector performance review
78
Clean Air
80
82
Efficient Natural Resources
83 Health
84 New Markets
86
90
Financial review
Treasury policies and going concern
91 Risks and uncertainties
3
Strategic ReportJohnson MattheyAnnual Report and Accounts 2019
Strategic Report
JM in profile
Johnson Matthey is a
global leader in science
that makes the world cleaner and healthier.
What we do
We use our cutting edge science to create
solutions to our customers’ complex
problems. Our science has a global impact
in areas that include low emission transport,
pharmaceuticals and chemical processing.
We apply it in a way that makes the most
efficient use of the planet’s natural resources.
Our major markets
We serve customers in the global automotive,
chemicals, pharmaceuticals and other
industrial markets. Through the quality of
our science, our problem-solving ability and
strong customer relationships, we hold
leading positions in all our major markets.
Our growth opportunities
We target high growth opportunities that will
deliver attractive returns for our shareholders
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.
Our key highlights
Sales1
excluding precious metals
£4.2bn
Operating profit
reported
£531m
Operating profit
underlying
£566m
Sales by sector
Operating profit (excluding corporate)
excluding precious metals
underlying
New
Markets
8%
Health
6%
Efficient
Natural
Resources
23%
Health
7%
Efficient
Natural
Resources
29%
Clean Air
63%
Clean Air
64%
1 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 and, in many cases, the value of precious metals is passed directly on to our customers.
Our business
Clean Air
Strategy to deliver sustained growth
• A global leader in catalysts and
catalyst systems to reduce emissions
from vehicles and industry.
•
•
Creates 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.
Efficient Natural Resources
Strategy to deliver market
leading growth
•
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Creates value from efficient use and
transformation of critical natural
resources including oil, gas, biomass
and platinum group metals (pgms).
Leading market positions across
four global businesses: Catalyst
Technologies, Pgm Services,
Advanced Glass Technologies and
Diagnostic Services.
•
18 manufacturing facilities in
eight countries.
•
Two technical centres in the UK.
4
Johnson Matthey
Annual Report and Accounts 2019
See pages 80 and 81 for more information
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See pages 82 and 83 for more information
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Over
30
locations
Where we operate
14,800
people
North America
Europe
11 major manufacturing facilities
33% of group sales
23% of employees
14 major manufacturing facilities
47% of group sales
53% of employees
Rest of Asia
6 major manufacturing facilities
8% of group sales
10% of employees
China
5 major manufacturing facilities
7% of group sales
9% of employees
Rest of World
5 major manufacturing facilities
5% of group sales
5% of employees
Health
New Markets
Group functions
Strategy to deliver break out growth
•
Leading provider of solutions to the
complex problems of both generic
and innovator companies.
• Develops and manufactures active
pharmaceutical ingredients (APIs)
for a variety of treatments.
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• Operates in the large and growing
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API market.
Strategy to deliver break out growth in
battery materials, with market leading
cathode material technology
• Accessing new areas of potential
growth aligned to global
priorities of cleaner air, improved
health and more efficient use of
natural resources.
See pages 84 and 85 for more information
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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.
Four manufacturing facilities in
two countries.
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countries.
See pages 83 and 84 for more information
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Johnson Matthey
Annual Report and Accounts 2019
5
Strategic Report
Chairman’s statement
Making a huge contribution
to a more sustainable future
I’m delighted to be writing to you – shareholders,
employees and other interested followers – for the
first time as Chairman of Johnson Matthey.
Johnson Matthey is a remarkable company.
In a world where many companies are just waking up to
sustainability, JM has been punching above its weight on this
for years. We make a huge contribution to a more sustainable
future, through making the world cleaner and healthier. And
we are better qualified to do this than most other companies;
we have catalysts that make your car less polluting, ground
breaking new technology to take your household waste and
turn it into jet fuel and molecules that help combat cancer.
Balancing human prosperity with climate stability –
it’s the challenge facing us all and it needs nations, industry
and individuals to pull together. It is clear that sustainable
technologies play a huge part in tackling this and so will
JM with the work we do at the leading edge of modern
catalysis, process engineering, electrochemistry and synthetic
organic chemistry.
We operate in today’s technology hot spots and that’s
why we will continue to make a measurable contribution
to a sustainable future. The United Nations Sustainable
Development Goals (UN SDGs) provide us with that measure
and this year alone, over 87% of our sales came from products
that tackle those globally shared goals. So it’s not just talk.
JM’s commitment is lived out through our contribution today
and through our investments in sustainable innovations of
the future.
One year in
I’m now one year into my role as Chairman. Before I joined JM
I knew it as a company with deeply talented, competent people
that translate science into sustainable solutions. I’m pleased to
say that over the past year those prior perceptions have been well
and truly confirmed and JM is even better than I had thought.
I have made it a priority to really get under the skin of
JM over the last year. I met the company’s 80 or so senior
leaders at their recent annual conference. I was struck by their
energy, enthusiasm and real engagement in the company and
its future. And all this at a time when JM is undergoing a
fundamental change; professionalising its core systems and
processes to drive efficiency and value, while continuing
to deliver this year’s results and shape new business areas for
accelerated growth.
I’ve also spent time at our corporate R&D centre in
Sonning, UK, visiting our impressive laboratories there and
getting into deep conversation with our brilliant scientists and
engineers about their research work. JM is a community of
very innovative people. Their deep scientific knowledge and
how to use it to solve a customer’s problem is JM’s unique
strength. It is something that takes time to build, is extremely
difficult for others to replicate and it’s in our DNA.
6
Johnson MattheyAnnual Report and Accounts 2019Strategic Report My first year – two minutes
to reflect on 365 days
Q. What makes JM special?
The massive contribution it is already making to a
more sustainable future by applying its brilliant
science. And the potential this holds for the long term.
Q. What are your top three highlights
from your first year?
• Meeting JM’s people, hearing their stories and
feeling their passion and energy for what the
company is doing.
• Working as a board in which there is a real feeling
of a team effort.
•
Sustaining our year on year delivery of dividend
growth for our shareholders.
Q. How many shareholders have you met?
About 30% of our shareholding – a two way dialogue
and having the opportunity to understand their views
first hand is really crucial, particularly at this time of
inflexion as we drive value in Clean Air and invest
appropriately to maximise our success in new areas
like battery materials.
Q. What are the board’s top three priorities
for next year?
• Keep on supporting Robert, the Group Management
Committee and senior leaders in their execution
of strategy by asking the right questions of them
so that we challenge in a constructive way that
drives results.
•
Continue to evolve our risk management
approach by introducing further rigour and more
ongoing discussion.
• Getting across our role in monitoring and shaping
the culture of JM by always thinking about the
tone we are setting and through incorporating
more formalised ‘culture health checks’ in the
board agenda.
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7
Patrick Thomas
Chairman
Customers choose to work with JM because of our world
class technologies and the relationships they have with our
people. That’s how we’ve earned our leading positions in the
vast majority of the markets that we serve. But JM does not
over shout about what it does. We take great pride in being the
company behind the things our customers are most proud of.
We want to make heroes out of our customers – and that’s
what we do.
I’ve also met shareholders, which left me confident
that they are committed for the long term. As you’d expect,
discussions covered a broad range of topics from how we are
looking at our culture, how we think about sustainability and
how we are balancing and prioritising investments across our
business opportunities. I was pleased to hear about their
interest in our R&D and their support for the investments
and changes we are making to grow our business.
We have good mechanisms in place for the board to
understand the views of our shareholders and, alongside these,
I will continue to be available to our major shareholders
throughout the year and look forward to meeting more of you
at our AGM in July.
Strategic ReportJohnson MattheyAnnual Report and Accounts 2019 Chairman’s statement continued
The job of the board
Robert and the senior management team have continued to
deliver our strategy for sustained growth and value creation –
and with that, a strong set of financial results. Our job as a
board is to actively engage in the development of strategy,
provide challenge and ask useful questions. During the year
we have done so across a series of strategic topics – in the
development of our Battery Materials business, for example,
where, by a process of iterative and constructive debate, we
have supported the team as they made huge advancements
this year, in line with our strategic plans for this business.
One area where we are placing increasing focus as a board,
is more active and regular risk management in our meeting
agendas through the coming year. This will provide greater
rigour to ensure we are looking at our business through a risk
management lens at all times and translating this through to
real business results.
The board is deeply involved in upholding governance.
We’ve spent time this year looking at the evolving corporate
governance scene and at our business in the context of the
revised UK Corporate Governance Code. Of particular interest
is corporate culture and I was pleased to learn that work was
already under way prior to my joining JM and ahead of the
revised code which we will report against next year.
We have varied and well balanced expertise, experience and
diversity on our board which was boosted at the beginning of
April 2019 when we welcomed Xiaozhi Liu as a Non-Executive
Director. Her joining coincided with our board visit to JM’s site
in Shanghai and was extremely well received by the local team
as a strong statement of our commitment to the Chinese
market. I am very pleased to welcome Xiaozhi to our board.
We are already benefiting from her experience and perspective,
and from her deep knowledge and understanding of the
evolution of the powertrain in different markets of the world.
With the current dynamics and seismic shifts in the automotive
industry that lie ahead, it is great to have Xiaozhi in the team.
At the end of the AGM in July, Odile Desforges will step
down as a Non-Executive Director after six years as a member
of our board. Odile has contributed significantly, particularly
with her valuable automotive industry insights; we will miss
her and wish her well for the future.
More recently, in May 2019, we announced that
Doug Webb will be joining us as a Non-Executive Director from
2nd September 2019. From July 2020 he will also chair our
Audit Committee, as Alan Ferguson will be stepping down at
that point, after just over nine years on our board. Doug’s strong
background in finance coupled with his deep understanding
of the technology and engineering sectors will complement
the experience of our board and I look forward to working
with him.
I’m pleased that Alan will be with us for just over another
year as we will continue to benefit from his insight and ensure
a smooth handover to Doug. Although somewhat premature,
I’d like to express gratitude to Alan on behalf of the board for
his significant and valuable contributions. Alan will be
succeeded as Senior Independent Director by John O’Higgins.
A culture for success
In my experience, the culture at JM is open and inclusive where
people really enjoy working together. We place huge importance
on creating a culture of doing what’s right and speaking out if
things are not. We put people’s health and safety first and JM,
like any company engaged in potentially hazardous operations,
must manage the associated risks. Nothing we do is worth
getting hurt for and that is the tone I set – talking safety when
I visit our sites and not being afraid to challenge or question on
safety matters. I want everyone in JM to be empowered to do
the same.
JM Awards – January 2019
I was honoured to spend time with so many incredible JM people from
across the world and to celebrate their amazing achievements. The setting
was awe inspiring too – London’s Natural History Museum where we sat
underneath Hope, the iconic blue whale skeleton. What a fitting
environment to celebrate talented people who are making a genuine and
tangible contribution to a more sustainable future.
Explore more
Find out more about the 2019 JM Awards
matthey.com/jm-awards
8
Johnson Matthey
Annual Report and Accounts 2019
Strategic Report I also want to say a huge thank you to every single JM
employee around the world for steering JM through these times
of flux and change to deliver what we promised – growth for
our shareholders, brilliant products and services for our
customers and a continued contribution to a more sustainable
future for all.
My final message is to everyone on our planet, and one
which I make on behalf of the 14,800 people in JM…
This year, we’ve made your world a cleaner and healthier place.
Patrick Thomas
Chairman
A long term view
JM is a company that delivers sustained growth and value,
driving strong returns. Growth comes through innovation and
is supported by our commitment to substantial investment in
R&D. In a business like ours – one with 200+ years of history
– we take a long term view. Our considered investments over
many years in fuel cell technology and, more recently in new
chemical process technologies, pharmaceutical APIs and
battery materials, exemplify this. In that sense we are not
tactical, but with the level and pace of change going on in our
major markets and with our customers, we are, as always,
responding with flexibility and agility.
Underlying earnings per share grew 10% this year and
on a reported basis they were up 39%. In light of our strong
performance, continued delivery against our strategy and
confidence in the group’s future growth prospects, the board
is proposing a 7% increase in the ordinary dividend.
Sustained year on year dividend growth is a hallmark of JM.
I believe we are one of only a handful of companies in the FTSE
that has delivered continued growth in its dividend over the last
30 years.
A successful future ahead
I’d like to finish by personally thanking our shareholders
for placing their confidence in us – and that includes the
several thousand of our employees who own company shares.
I’m pleased to say that your company remains in good shape.
We have a clear strategy, grounded with the world class science
needed to tackle our planet’s most important social and
environmental challenges. That is why I am confident of a
successful future ahead for JM.
Board visit to China – April 2019
We had a hugely valuable visit to some of JM’s major operations in China.
I really enjoyed spending time with our employees on tours of our facilities,
in discussions on our business strategies and over lunchtimes and in the
evenings. It’s given me a much better understanding of JM’s culture and a
much deeper understanding of our markets in China. Our trip was timed to
perfection too, as it coincided with Xiaozhi Liu, our newest Non-Executive
Director, joining the board.
Johnson Matthey
Annual Report and Accounts 2019
9
Strategic Report Chief Executive’s statement
Using our science to make
the world cleaner and healthier
As 2018/19 drew to a close, we sat down with
Robert MacLeod to ask him about progress during the
year, his expectations for 2019/20 and his perspective
on JM’s relevance in today’s changing world.
How have global megatrends developed for JM over
the last year?
We have an inspiring vision at JM – for a world that is cleaner
and healthier, today and for future generations. JM, and what
we bring to the world, is arguably more relevant than ever before.
Over the last 12 months, we have seen public awareness of,
and action on, the world’s global challenges increase. The next
generation is speaking out on global issues such as climate
change and air pollution, and it is these that JM can, and is, using
its science to solve.
Focus continues on air quality and emissions –
how is JM part of the solution?
The need to improve air quality across the world is leading to
tighter emissions standards in many countries. In the longer
term this will inevitably lead to a shift towards zero emission
transportation, with more customers moving to electric vehicles.
However, in the short term the need to significantly reduce
emissions from gasoline and diesel vehicles is presenting an
opportunity for JM; we are part of the solution.
Our Clean Air business is fabulous. It performed strongly
this year despite the weaker global car market. In response to
air quality concerns surrounding diesel cars, car buyers in
Europe are increasingly favouring petrol engines. In addition,
in Europe and Asia, tighter legislation is coming into force for
petrol cars and we have reallocated our R&D spend accordingly
in order that we can meet these more challenging requirements.
Having said that, our R&D investment in diesel technology in
prior years has reaped rewards as we have significantly
extended our leadership in the market for light duty diesel
cars in Europe. Now, around two thirds of all new diesel cars
produced in Europe have JM’s catalysts on them. Tighter
legislation and JM technology means that diesel car emissions
are lower than ever before and, in some cases, these cars
produce less harmful particulate and NOx pollutants than
their petrol counterparts. That means, those people for whom
driving a diesel is the most economic choice, can do it in a less
environmentally damaging way.
In China and India, our car and truck customers are also
getting ready for the introduction of new regulations which
begin to be implemented from July this year.
We are therefore expanding our manufacturing capacity
for emission control catalysts with major new plants in Europe,
China and India; the plants in Europe and China will come on
line in 2019/20.
The global automotive industry is going through a once
in a lifetime transition. Consumer buying patterns are less
predictable and the automotive supply chain, JM included,
is being more considered in making investments. With less
inherent flexibility throughout the supply chain and less
predictable consumer behaviour, JM is supporting our
customers, the car companies, as we navigate this mobility
transition together.
What impact is that having on your other automotive
facing businesses?
The technology used to power our cars is evolving and
diversifying, from primarily internal combustion engines to
hybrids, battery electric and even fuel cells. JM is very well
positioned with our broad portfolio of powertrain technology
solutions – emission control, battery materials, fuel cell components
– and strong relationships with vehicle manufacturers.
In our Battery Materials business we are using our science
and technology expertise to enable the greater adoption of
long range pure battery electric vehicles (BEVs) that meet
consumers’ performance expectations on range, charge time
and safety. We are doing this through great technology which
we are scaling up and commercialising in line with the
predicted acceleration in EV ownership over the next decade.
Our portfolio of leading, ultra high energy density cathode
battery materials, which we call eLNO, are next generation –
so not designed to compete with materials our competitors have
on the market today – and will suit a range of EV applications.
Over the past 12 months, we have made significant
progress in commercialising eLNO. We continue to test our
materials with our target customers and feedback remains very
positive. They are increasingly looking for customised solutions
to their problems and this plays right to our strengths. So we
have been tailoring eLNO and are building application centres
to support our customers’ testing.
10
Johnson MattheyAnnual Report and Accounts 2019Strategic Report Have you delivered operational performance in line
with your plans this year?
Yes, we certainly have; 2018/19 has been another successful
year for Johnson Matthey. We have made further progress in
delivering our strategy of sustained growth and value creation
in line with the plans we laid out in 2017, and on strengthening
the platform that will enable further long term growth.
We have continued to invest in our world class science and
scientists to deliver leading technology into the attractive and
growing markets in which we play.
Delivery of our strategy is underpinned by the fundamental
changes we are making across all aspects of the group. These
are making our business more agile and efficient, and giving us
greater capability to deal with the fast changing world around
us. We have invested in safety, our people, processes and
systems while continuing to target further improvement.
We’ve delivered a strong set of numbers this year, in line
with what we promised, despite a more challenging external
environment. This demonstrates the resilience of the group and
our ability to adapt and flex to support our customers’ needs.
It is also reflected in how we are effectively managing the
continuing uncertainty in relation to Brexit in our business and
with our customers.
If I look across our four sectors, Clean Air performed
strongly and we remain excited by the growth opportunity in
Battery Materials. We made further investments in Health to
develop our pipeline of products. In Efficient Natural Resources,
we continue to drive efficiencies while focusing on high growth
market segments, although some unscheduled downtime at
our UK pgm refinery this year did impact our precious metal
working capital. To support our long term growth, and as we
broaden our presence in sustainable technologies, we are also
developing innovative solutions for fuel cells and battery
materials recycling.
+
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See pages 78 to 85 for more information
r
k
r
And on those ambitions, all geared to sustainable
technologies – what progress are you making there?
k
We are proud of our sustainable technologies and we have six
sustainable business goals to direct our progress. This year we’ve
continued to add to our portfolio of technologies and products,
not to mention all the work that we are doing in our existing
businesses which have a substantial impact upon building a
cleaner, healthier world.
We’ve commercialised a new technology, developed
together with BP, to transform household waste into diesel and
jet fuels. This is an exciting opportunity for us and we have a
licensing agreement with Fulcrum BioEnergy, a biofuel producer,
which plans to build a plant in the US using our technology.
We also announced a new strategic partnership with
Immunomedics for the large scale production of a drug linker
used in a treatment for breast cancer.
+
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See pages 19 and 20 for more information
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All the work we do is about delivering outcomes that are
valued by our customers and contribute to a more sustainable
future for people. We measure our contribution by aligning to
k
the UN SDGs and have set ourselves a goal to double it between
2017 and 2025. We’ve done well this year, increasing our
contribution to over 87% of our sales.
k
+
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See pages 24 to 27
r
11
Robert MacLeod
Chief Executive
In order to manufacture our materials at scale, we have
chosen a site in Konin, Poland for our first 10,000 metric tonnes
commercial plant as it is close to major customers in the BEV
supply chain and we expect to start construction later in 2019/20.
The site has the potential for expansion to 100,000 metric tonnes,
and we are carefully considering how we could scale our
business beyond our initial 10,000 metric tonnes.
At the time we announced our plant location, we also
secured our first long term supply agreement with Nemaska
Lithium for raw materials – another important step in the road
to commercialisation. And we are doing a lot of work to ensure
our raw materials sourcing is responsible and in line with our
sustainability principles. At the other end of the value chain,
we have R&D work under way on battery materials recycling
where we are combining our knowledge of battery materials
with our many decades of experience in recycling pgms.
In addition, we continue to invest in fuel cell technology
which can also be used to power electric vehicles. Fuel cells
use hydrogen as a fuel to generate electricity with the only
by product being water and so tick the box as a solution for
low emission transport. JM has strong technology in this space
and in September 2018 we joined the Hydrogen Council so we
could work with other industrial players in enabling the uptake
of hydrogen as an energy source in transportation, and a wide
range of other applications.
So as you can see, we’ve come a long way and our customers
are happy – one of them said that we were a “preferred cathode
material company to work with” because of our fast response,
willingness to customise the product and our ongoing investment
in the science. It’s great to hear that we’re adding value, which
goes back to the core of our strategy – science and technology
that helps our customers solve complex problems.
+
+
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+
r
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See pages 45 to 47 for our long term view
r
+
+
r
k
+
+
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+
+
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k
k
k
k
k
Strategic ReportJohnson MattheyAnnual Report and Accounts 2019 Chief Executive’s statement continued
+
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k
At the same time, our customers are getting more tuned
in to sustainability. So we are broadening and deepening our
approach throughout our whole value chain. This not only
enables us to give reassurance to our customers but more
excitingly, it unlocks further opportunities for commercial
advantage through innovating new sustainable technologies.
So you will see us up our ambition further in this space –
right through the whole value chain.
You talked earlier about the changes you are making
to be more flexible and agile. Tell us more?
Sure. We have a number of what we call ‘strategy enablers’ –
a series of programmes that are fundamentally changing how
we work. These are bringing consistent approaches and
standard processes across JM; delivering operational efficiency,
allowing us to be more flexible and agile.
We are achieving this in many ways, for example, through
the deployment of a single global enterprise resource planning
(ERP) system (SAP) system. The first implementation was
successfully completed during the year and we will roll it out
across the group over the next few years.
Our procurement programme is also enabling us to drive
further efficiencies and savings. Furthermore, through better
underlying data and standardised processes, we are gaining an
improved understanding of customer and product profitability.
At the same time, we are building capability, not only in
procurement, but in other areas including supply chain, capital
project delivery and change management which is supporting
the delivery of our strategy.
And how are JM employees supporting the strategy?
JM is full of inspiring and talented people. I’ve really enjoyed
spending more time at our sites this year talking to employees
about JM’s strategy and their work, answering their questions
and listening to their feedback on what they think it’s like to
work at JM. In September 2018, we also repeated our employee
opinion survey. This gives us a good steer on where we are
doing well and not so well, and where we need to prioritise.
There were plenty of positives – our people told us that they
have a better understanding and more connection with our
strategy and that we take health and safety and doing the right
thing seriously. But overall, they told us they were less engaged
than two years prior. As I reflected on these results, I am not so
surprised given the broad changes we are making, although it is
something I am determined to reverse. We have actions under
way and we are going to check in on how we are doing by
conducting a pulse survey later this year.
Our people are key in delivering our strategy and vision,
and we are doing a lot to create a culture of success. It started
last year when we refreshed our values to support the delivery
of our strategy, create an inclusive environment and guide us
to act safely, ethically and more sustainably. Since then, we’ve
been taking them deep into JM, holding workshops with our
staff to explore the behaviours that support our values. We’ve
also been embedding them into our people processes – from
performance management and our development programmes,
to recruitment and recognition – and we refreshed our code of
ethics this year to guide us all in doing the right thing. As we
move through different phases of our strategy, I also continue
to evolve the shape and mix of skills in the management team
to ensure we have the right team to deliver on our ambitions.
12
Driving the right behaviours in health and safety is a major
priority and despite our continued focus, disappointingly our
recordable incident rate has remained flat over the last year.
We are injecting new focus on safety leadership and
engagement and will continue our efforts to manage our
process safety risks by building on the improvements we
achieved this year.
+
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See pages 60 to 75
r
r
Finally, what is the group outlook and priorities for
2019/20 and beyond?
k
For the year ending 31st March 2020, we expect growth in
operating performance at constant rates to be within our
medium term guidance of mid to high single digit growth.
k
At current foreign exchange rates (£:$ 1.295, £:€ 1.157,
£:RMB 8.72), translational foreign exchange movements for
the year ending 31st March 2020 are expected to adversely
impact sales and underlying operating profit by £6 million and
£2 million respectively.
Building on the board’s priorities outlined by
Patrick on page 7, our priorities for 2019/20
(pages 16 and 17) are to:
• Continue to develop our science and technology to
create the sustainable technologies of the future.
• Deliver in line with our strategic plans for each of
our sectors so that we delight our customers with
our brilliant products.
• Meet the milestones for our groupwide enabler
programmes to drive further efficiencies.
• Involve and engage all our people in building
our culture of success where we are safe, ethical
and more sustainable.
In doing this, we will continue to strengthen our
platform for growth.
We have an amazing vision, a winning strategy and the
global drivers of our business are fundamentally strong. Today we
face an unprecedented need for new technology to meet global
issues. Working together, inspired thinking and the application
of scientific knowledge can help us to overcome these
challenges and shape a better future for all.
Robert MacLeod
Chief Executive
Johnson MattheyAnnual Report and Accounts 2019Strategic Report From left to right: John Walker, Annette Kelleher, Jane Toogood, Robert MacLeod, Anna Manz, Jason Apter, Simon Farrant
Group Management Committee (GMC)
John Walker, Sector Chief Executive, Clean Air
Robert MacLeod, Chief Executive
Jason Apter, Sector Chief Executive, Health
Joined the GMC and board: October 2013
Joined the GMC and the board: June 2009
Joined the GMC: March 2018
John joined JM in 1984 and has led our Clean
Air Sector since 2009 after heading up its Asian
business for many years. John is directing our
strategy to deliver sustained growth in our
largest business sector.
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.
Jane Toogood, Sector Chief Executive,
Efficient Natural Resources
Joined the GMC: March 2016
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.
Having joined JM as Group Finance Director
in 2009, Robert has been leading JM since
June 2014 when he became Chief Executive.
Robert also has executive level responsibility
for our New Markets Sector, environment,
health and safety and our sustainable business
framework. Currently (since May 2019), our
corporate R&D function is reporting to
Robert while we are in the process of recruiting
a Chief Technology Officer.
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 the group’s strategic planning
and corporate development activities, IT function
and our operational efficiency initiatives.
Jason joined JM in March 2018 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.
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.
Our approach
The following pages demonstrate how our integrated
offer is connected from our strategy to our KPIs.
Our
strategy
Our
business
model
Our
sustainability
framework
Our
stakeholders
Our
KPIs
13
Strategic ReportJohnson MattheyAnnual Report and Accounts 2019 Our strategy
Creating long term value
and a better future
Our strategy is to use our world class science to solve
customers’ complex problems. This creates long term value for
our shareholders and a cleaner, healthier planet for everyone.
A cleaner, healthier
world today and for
future generations
Use our world class
science to solve
customers’ complex
problems
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
14
Johnson Matthey
Annual Report and Accounts 2019
Strategic Report Our
strategy
Our
business
model
Our
sustainability
framework
Our
stakeholders
Our
KPIs
Enabled by
Science and
technology
Rigorous resource
allocation
Efficiency and
excellence
Values-driven culture
Underpinned by being safe,
more sustainable and doing the right thing
By 2025 we will have:
•
•
Enhanced technology leadership in our targeted markets.
Three substantial, growing sectors with sizeable new
opportunities realised through our New Markets Sector.
•
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
Johnson Matthey
Annual Report and Accounts 2019
15
Strategic Report Our strategy continued
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.
Our focus areas
Our progress and priorities
Strategic plan
• Maintain technology leadership through R&D.
• Market share gains (already secured) in Europe.
• Tighter legislation in Europe requiring higher
value products.
• Tighter legislation in Asia (China and India)
driving significantly higher value per vehicle.
• Consistent growth in light and heavy duty catalyst
markets in North America.
• Operational efficiency activities that support
margin and ROIC.
Outcome
World class science creates substantial market
share gains for JM and, coupled with legislative
change, drives sustained growth.
Strategic plan
• Focused investment in R&D to maintain and
extend technology leadership.
• Outperforming in selected, high growth segments.
• Increased efficiency across the business,
including investment in pgm refineries, to
enhance performance.
• Extending capabilities into adjacent markets,
geographies and technologies.
Outcome
Above market growth through leading positions
supported by world class science; enhanced
performance through more efficient operations.
Strategic plan
• Enhancing our capabilities in particle engineering
to improve our position as a partner of choice with
innovator customers.
• Driving value from existing generics business.
• Commercialising our pipeline of new generic and
innovator products.
Outcome
Development partner of choice for customers.
Our pipeline of new generic products adds
circa £100 million to operating profit by 2025.
Strategic plan
• Commercialising our leading eLNO ultra high
energy density next generation cathode material.
• Scale up through demo, pilot and full production
scale; significant ongoing investment to build
manufacturing capacity.
• Continued investment in next generation,
best in class high energy battery materials.
Outcome
JM has market leading product and share of next
generation high energy density battery vehicle market.
Clean Air
Sustained
growth
Efficient
Natural
Resources
Market
leading
growth
Health
Break out
growth
New
Markets
Break out
growth in
battery
materials
16
Progress in 2018/19
• Grew light duty diesel market share
in Europe by 20 percentage points to
circa 65%.
• Maintained margin of circa 14% through
optimised cost base and processes.
• Construction in Poland and China
to expand capacity under way.
• Have won expected business in China
light duty.
+
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Pages 80 and 81
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k
k
k
Priorities for 2019/20
• Maintain
technology
leadership to
support future
growth.
• Complete and
ramp up new
manufacturing
capacity.
• Drive further
efficiencies.
Progress in 2018/19
• Won first licences for new sustainable technologies
Priorities for 2019/20
• Continue
including to convert waste to aviation fuel.
• Ran the business more efficiently through:
– Simplifying product portfolio;
– Operational improvements, including
procurement;
– Delivering cost savings from restructuring
programme.
• Customer survey to drive deeper engagement
and improve customer experience.
• Weaker performance in Advanced Glass Technologies
due to market slowdown and loss of market share.
• Weaker performance in precious metal working
capital due to unscheduled refinery downtime.
investment
in pgm refineries.
• Targeted
investment
in new
technologies
(such as battery
materials
recycling).
• Drive further
efficiencies.
+
Pages 82 and 83
+
r
r
Progress in 2018/19
• Grew generics API pipeline to 46 products;
including one new product which has
launched:
– Substantially on track although delays to
k
k
some products.
• Progressed innovator API pipeline; three
nearing commercialisation.
• Optimised manufacturing footprint:
– Completed closure of Riverside plant in US;
– Ramped up Annan UK plant and made
first commercial sales.
+
Pages 83 and 84
+
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r
Progress in 2018/19
• Continued to test eLNO materials and tailor
them for customers with positive feedback.
k
k
• Started to build the first of our three
announced customer application centres.
• Scaled up eLNO manufacture from lab to
pilot plant.
• Selected site in Poland for first 10,000 metric
tonnes commercial plant; site provides potential
for expansion up to 100,000 metric tonnes.
• Signed first long term supply agreement for
raw materials with Nemaska Lithium.
+
Pages 84 and 85
+
r
r
Priorities for 2019/20
• Complete ramp up
at Annan, UK.
• Progress new
product pipeline
in line with
strategy.
• Enhance
capability.
Priorities for 2019/20
• Further progress
on customer
qualification.
• Start construction
of first
commercial plant
and determine
plans for further
scale up.
• Invest in customer
application centres.
+
+
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k
+
+
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+
r
k
k
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Johnson MattheyAnnual Report and Accounts 2019Strategic Report Our
strategy
Our
business
model
Our
sustainability
framework
Our
stakeholders
Our
KPIs
Strategic plan
• Maintain technology leadership through R&D.
• Market share gains (already secured) in Europe.
• Tighter legislation in Europe requiring higher
value products.
• Tighter legislation in Asia (China and India)
driving significantly higher value per vehicle.
• Consistent growth in light and heavy duty catalyst
markets in North America.
• Operational efficiency activities that support
margin and ROIC.
Outcome
World class science creates substantial market
share gains for JM and, coupled with legislative
change, drives sustained growth.
Strategic plan
• Focused investment in R&D to maintain and
extend technology leadership.
• Outperforming in selected, high growth segments.
• Increased efficiency across the business,
including investment in pgm refineries, to
enhance performance.
• Extending capabilities into adjacent markets,
geographies and technologies.
Outcome
Above market growth through leading positions
supported by world class science; enhanced
performance through more efficient operations.
innovator customers.
• Driving value from existing generics business.
• Commercialising our pipeline of new generic and
innovator products.
Outcome
Development partner of choice for customers.
Our pipeline of new generic products adds
circa £100 million to operating profit by 2025.
Strategic plan
• Commercialising our leading eLNO ultra high
energy density next generation cathode material.
• Scale up through demo, pilot and full production
scale; significant ongoing investment to build
manufacturing capacity.
• Continued investment in next generation,
best in class high energy battery materials.
Outcome
JM has market leading product and share of next
generation high energy density battery vehicle market.
Clean Air
Sustained
growth
Efficient
Natural
Resources
Market
leading
growth
Health
Break out
growth
New
Markets
Break out
growth in
battery
materials
Progress in 2018/19
• Grew light duty diesel market share
in Europe by 20 percentage points to
circa 65%.
• Maintained margin of circa 14% through
optimised cost base and processes.
• Construction in Poland and China
to expand capacity under way.
• Have won expected business in China
light duty.
+
Pages 80 and 81
+
+
+
r
r
r
k
k
k
Priorities for 2019/20
• Maintain
technology
leadership to
support future
growth.
• Complete and
ramp up new
manufacturing
capacity.
• Drive further
efficiencies.
Priorities for 2019/20
investment
in pgm refineries.
• Targeted
investment
in new
technologies
(such as battery
materials
recycling).
• Drive further
efficiencies.
Priorities for 2019/20
• Complete ramp up
at Annan, UK.
• Progress new
in line with
strategy.
• Enhance
capability.
Progress in 2018/19
• Won first licences for new sustainable technologies
• Continue
including to convert waste to aviation fuel.
• Ran the business more efficiently through:
– Simplifying product portfolio;
– Operational improvements, including
– Delivering cost savings from restructuring
procurement;
programme.
• Customer survey to drive deeper engagement
and improve customer experience.
• Weaker performance in Advanced Glass Technologies
due to market slowdown and loss of market share.
• Weaker performance in precious metal working
capital due to unscheduled refinery downtime.
+
+
r
+
+
r
+
+
r
– Substantially on track although delays to
product pipeline
some products.
• Progressed innovator API pipeline; three
nearing commercialisation.
• Optimised manufacturing footprint:
– Completed closure of Riverside plant in US;
– Ramped up Annan UK plant and made
first commercial sales.
+
Pages 83 and 84
+
r
r
Progress in 2018/19
• Continued to test eLNO materials and tailor
them for customers with positive feedback.
k
k
k
• Started to build the first of our three
announced customer application centres.
• Scaled up eLNO manufacture from lab to
pilot plant.
• Selected site in Poland for first 10,000 metric
tonnes commercial plant; site provides potential
for expansion up to 100,000 metric tonnes.
• Signed first long term supply agreement for
raw materials with Nemaska Lithium.
Priorities for 2019/20
• Further progress
on customer
qualification.
• Start construction
of first
commercial plant
and determine
plans for further
scale up.
• Invest in customer
application centres.
+
Pages 84 and 85
+
r
r
k
k
k
Strategic plan
• Enhancing our capabilities in particle engineering
to improve our position as a partner of choice with
• Grew generics API pipeline to 46 products;
including one new product which has
+
Pages 82 and 83
+
r
r
Progress in 2018/19
k
k
launched:
k
Enabled by
Science and
technology
Strategic outcome
• Sustained
market leading
positions.
Progress in 2018/19
• Delivered new market leading
technologies across all four
sectors.
• Identified 12 new growth
opportunities which are at
various stages of investment.
• Won multiple external awards
for our science.
• Rolled out new career
framework to develop
our scientists.
+
+
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Pages 34 to 39
+
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k
k
k
Priorities for 2019/20
• Achieve technology
milestones in:
– Battery materials;
– Battery materials
recycling;
– Gasoline technology
for Euro 7;
– Health new product
pipeline.
• Deliver action plans
for new future
growth opportunities.
Sustainable
business
Strategic outcome
• Sustainability
leadership.
Efficiency and
excellence
Strategic outcome
• £60 million of
savings through
procurement.
• More agile and
efficient.
Values-driven
culture
Strategic outcome
• Peer group
leading health
and safety
performance.
• Engaged and
enabled
workforce.
+
+
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+
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+
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Priorities for 2019/20
• Continue to embed
sustainability into
our businesses and
functions to make continued
progress towards achieving
sustainable business goals.
Progress in 2018/19
• Progress made towards three of
six sustainable business goals;
those relating to:
– Reducing our greenhouse
gas emissions.
– Increasing contribution of
sales to the UN SDGs.
– Number of volunteering days
by our people.
• Those relating to health and safety
and to employee engagement
were broadly unchanged.
+
Pages 24 to 27, 31 to 33 and 238
+
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Delivering
a cleaner,
healthier
world
Progress in 2018/19
• £26 million of procurement
k
k
savings.
• First ERP system roll out.
• First standard customer
satisfaction survey carried out
in one sector.
• Restructuring programme
substantially complete with vast
majority of circa £25 million
annualised cost savings.
+
Pages 43 to 44 and 49 to 53
+
r
r
k
k
Progress in 2018/19
• Improvement in leading indicators
– 50% increase in learning events.
• Process safety risk reduced – 75%
of maximum credible event (MCE)
assessment actions closed.
• Overall behavioural safety
performance flat.
• Second global employee opinion
survey showed marginally lower
engagement score, action plans
in place.
• Rolled out new values and started
to embed into business processes.
+
Pages 60 to 75
+
r
r
Priorities for 2019/20
• Deliver additional savings,
similar to 2018/19,
through procurement.
• Roll out ERP system
as planned.
• Deliver further efficiency
benefits and extend
customer satisfaction survey
to all sectors.
Priorities for 2019/20
• Achieve targeted improvement
in our environment, health and
safety leading indicators.
• Deliver process safety and life
saving policies action plan.
• Improve engagement and
enablement of employees from
targeted actions following 2018
survey feedback as evidenced by
a 2% improvement measured
through a 2019 pulse survey.
• Continue to embed our values
and explain JM’s strategy so
employees are clear on their
role in delivering it.
k
k
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Clean air
for all
Direct impact
of JM‘s products
3.43 million tonnes
of pollutants
removed.
Longer
healthier
lives
Direct impact
of JM‘s products
181,000 lives
positively impacted
by new APIs
launched
since 2015.
Shaping
a new era
of clean
energy
Direct impact
of JM‘s products
10.1 million tonnes
(CO2 equivalent)
of greenhouse
gases removed.
Achieving
more
from less
Direct impact
of JM‘s products
216,000 tonnes
(CO2 equivalent)
of greenhouse
gases avoided.
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17
Strategic ReportJohnson MattheyAnnual Report and Accounts 2019 Our strategy in action
Progressing our strategy
to deliver our vision for
a cleaner, healthier world
Clean Air
Advanced SCR. The special science solution
that means no more dirty diesel
In Europe, diesel cars have received a lot of bad press because of the
impact of their emissions on urban air quality compared with their
petrol counterparts.
Regulators, quite rightly, also responded and set tighter emission
limits to protect our health. Meeting these posed a technical
challenge… exactly the sort of thing that JM loves best!
But for some people, those who drive a lot of miles, the higher fuel
economy of diesel makes diesel powered cars cheaper, over the long
term, to run. Higher fuel economy means CO2 emissions from a diesel
car are lower too. So the incentive was there to clean up diesel and
give consumers a viable choice that was better for their health, the
planet and their pocket.
JM has applied its science and successfully reduced NOx emissions
by a further 50%. In doing so, we have developed the most advanced
catalyst system for diesel vehicles yet. Auto makers agree and have
made it their number one choice. As a result, JM’s market position
has increased by some 20 percentage points, to around 65%.
This all means a new diesel car in 2019 can run just as clean as its
petrol equivalent. So consumers no longer need to choose between
economics and the environment.
18
Johnson Matthey
Annual Report and Accounts 2019
Strategic Report Our
strategy
Our
business
model
Our
sustainability
framework
Our
stakeholders
Our
KPIs
Efficient Natural Resources
Using household waste to power planes –
a new trick for old technology
Fischer Tropsch (FT) technology is not new. First developed in
Germany in the early 20th century, it was used to convert synthesis
gas (a mixture of carbon monoxide, carbon dioxide and hydrogen)
into hydrocarbons. Fast forward many decades and JM joined forces
with fellow British long server, BP, to demonstrate FT technology at
a plant in Alaska.
Together we have brought to market a process to do just that. At its
heart is novel reactor technology and a high activity catalyst which
ensures that turning waste into jet fuel is not only good for the
environment, it’s economically attractive too. The new process is
three times more productive than traditional technology and requires
only half the capital expenditure.
But with fluctuating economics for oil and greater impetus for more
sustainable technologies and circular thinking, JM and BP saw a new
application for FT technology… converting everyday household waste
into high grade aviation fuel.
And that’s why Fulcrum BioEnergy Inc. has licensed it and is building
the first commercial scale plant in Sierra Nevada, USA due to start
production in early 2020. It will convert around 175,000 tonnes of
household waste into some 11 million gallons of fuel each year;
enough to fuel a plane for more than 180 return flights between
London and New York.
Johnson Matthey
Annual Report and Accounts 2019
19
Strategic Report Strategic Report
Health
Helping to change the lives of
people affected by breast cancer
Unique expertise in the development, scale up and manufacture of
complex molecules is what JM brings to both innovator and generic
pharmaceutical customers in the attractive and growing small
molecule API segment.
Linkers are a critical component of ADCs, providing the bridge for the
antibody to selectively deliver the drug to tumour cells and at tumour
sites. This significantly reduces the amount of the drug that enters the
body, minimising harmful side effects.
And that’s why Immunomedics has chosen JM as its strategic
manufacturing partner for the large scale production of the drug
linker used in IMMU-32. IMMU-32 is Immunomedics’ breakthrough
therapy for metastatic triple negative breast cancer. IMMU-32 is
classified as an antibody drug conjugate (ADC) which means that,
unlike typical chemotherapy, it is intended to target and kill only
cancer cells and spare the body’s healthy cells. This significantly cuts
down on side effects experienced by patients.
JM’s role in getting this breakthrough treatment to patients will
be to manufacture the drug linker used in the IMMU-132 ADC.
Thanks to JM’s early R&D work, we have already improved the
productivity of the manufacturing process over 20-fold and have
provided the necessary quantities of API to treat patients in clinical trials.
The IMMU-132 treatment is at the forefront of new cancer therapies
and with one woman losing the battle against this devastating disease
every single day, JM is excited to be contributing our science and
technology through this partnership.
20
Johnson MattheyAnnual Report and Accounts 2019 Our
strategy
Our
business
model
Our
sustainability
framework
Our
stakeholders
Our
KPIs
New Markets
A battery material capable
of powering a revolution
Battery technology is going through a period of transformation, and
this change is bringing a future in which EVs are the norm, closer
every day.
At JM we asked ourselves what it would take to develop a cathode material
that would support a lithium-ion battery to enable electric vehicle usage
on a grand scale. We looked at a number of strategic factors that are crucial
to the success of electric vehicles – total cost of ownership, driving range,
safety, acceleration, recharging – and developed our new cathode material,
eLNO, with these consumer priorities in mind.
But for EV adoption to really take off, consumers – unsurprisingly –
want to pay the same price as they do for a regular vehicle, or close
to it, and they want to have the same refuelling costs, whether their
vehicle uses petrol, diesel, or electricity. Achieving this is a key
differentiator with JM’s eLNO, which has an ultra high energy density
compared with both current materials, and our competitors’ next
generation materials.
And we’re pressing ahead with scaling up of this transformative
product at our pilot facility in the North East of England. We’re also
investing in a 10,000 metric tonnes commercial scale facility
in Poland (with potential to expand to 100,000 metric tonnes),
with the plant due to come online in 2021/22, and we expect to
have our material powering EV platforms soon after.
We are continuing to innovate, as we have done for over
200 years, with science-led products like the advanced SCR,
FT technology, the drug linker for IMMU-32 and eLNO.
All meet a critical need for our customers, for society and consumers, and are helping make
the world a cleaner and a healthier place today and for future generations.
21
Strategic ReportJohnson MattheyAnnual Report and Accounts 2019 Our business model
A better future
We create long term value for our shareholders and society.
Our resources and relationships
Knowhow and intellectual capital
JM’s competitive advantage is its science
and technology. We use our industry
leading capabilities across our sectors to
create sustainable solutions. 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 14,800 people share a passion for
making a difference to the world. They
bring the talent, expertise and innovative
thinking needed to drive growth and
efficiency in JM.
Science
Our science is world class. We invest in it and in our
scientific talent. Our skills and knowledge are
acknowledged across the scientific community and
amongst customers.
We have nine core science capabilities (see page 35)
which provide us with fundamental insights about
materials, their design and then the control of their
activity through chemical and functional manipulation.
Customers
Our science directs where we play. We apply it in
technology driven markets and generate high margins
from it. This drives high returns.
Collaboration and strong customer relationships are crucial
in providing a high quality tailored service. Together, we put
our inspiring science to work to enhance life.
Our customers are mostly other industrial companies,
operating in the transport, energy, chemicals and
healthcare segments.
Operations
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 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.
People
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.
Our people are motivated by working for a company that
is making the world cleaner and healthier. This is an
important differentiator in attracting and retaining the
very best.
Underpinned by our values
Our values provide the strong foundation,
shaping the right culture to deliver our strategy.
Protecting people
and the planet
Acting with
integrity
22
Johnson MattheyAnnual Report and Accounts 2019Strategic Report Our
strategy
Our
business
model
Our
sustainability
framework
Our
stakeholders
Our
KPIs
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 focus on building on a more sustainable business,
drive us towards our vision for a cleaner, healthier world.
Our competitive advantage is in combining
knowledge of the fundamental science with
commercial and scalable solutions, which can
be customised for 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 science.
+
r
+
See pages 34 to 39 for more information
r
We work closely with our customers to develop
solutions which enable them to bring their products
k
to market faster, improve the performance of their
products and reduce their environmental impact.
k
We provide them with functional products 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.
+
+
See pages 40 to 47 for more information
r
r
We invest in our manufacturing capacity to meet
customers’ future demand and have the ability to
flex our cost base if our markets slow.
k
k
We demand high returns from our investments,
with a target of at least 20%, which drives continued
improvement in operational efficiency.
+
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See pages 48 to 59 for more information
r
We are driven by values which means we always
keep each other safe, work with clear intentions
k
and respect, and do the right thing for our people
and our planet.
k
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.
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How we create and share value
For society
Value we create
Value we share
• Cleaner, healthier
world.
Operational
carbon footprint
2.9 tonnes CO2 eq
per tonnes of output
Positive impact of
JM’s products
87.3%
sales from products
contributing to UN SDGs
For shareholders and other stakeholders
Value we create
Value we share
• Attractive returns.
• Taxes paid to
authorities.
Sales growth
10% to £4.2bn
ROIC
16.4%
Underlying operating
profit margin
13.4%
Average working capital
(excluding precious metals)
59 days
Underlying earnings
per share
228.8p
Employee engagement
score of
59%
For our people
Value we create
Value we share
• Strong culture.
• Employment and
opportunities.
Health and safety
lost time injury and
illness rate (LTIIR) of
0.53
For our company
Value we create
Value we share
• Cash to reinvest
in our science,
infrastructure
and people.
Technology leadership
through R&D investment
£190m
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See pages 30 to 33 for key performance indicators
r
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Working
together
Innovating
k
k
and improving
k
Owning
what we do
23
Strategic ReportJohnson MattheyAnnual Report and Accounts 2019 Our sustainability framework
The path to our vision
Through leading edge science and technology.
Our sustainable business
framework is all about
embedding our vision for a
cleaner, healthier world through
all aspects of our business and
supply chains. We have six
goals to 2025 which we use to
measure our progress towards
our vision.
The route to a more sustainable future
brings many challenges that must be
tackled. In setting our vision for a cleaner,
healthier world, we have made it our
business to use our cutting edge science
to create sustainable technologies that
contribute to the solution.
Sustainability is therefore an integral
part of our strategy and governance.
It is at the heart of our brand and our
employee promise. It is engrained in our
company values.
It is clear that society is becoming
more aware and active in the drive for
sustainable development. Consumers want
to know that the things they buy are
produced in a socially and environmentally
responsible way.
This is increasingly impacting business
to business organisations like JM and
that’s why we believe the sustainability
credentials associated with our science-led
solutions will become more and more
attractive to customers and consumers.
At the same time, this increased
demand for sustainable products requires
us to focus beyond our operations and
products and consider the whole of our
value chain.
Therefore, when we reached the
end of our first sustainable business
programme in 2017, we designed the
next leg of our groupwide programme to
address our whole value chain (page 25).
We aligned this with the material issues
faced by our broader stakeholders
(page 27) and oriented our ambitions
with the UN SDGs.
+
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See page 238 for a summary of our performance
+
towards our six sustainable business goals
r
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k
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Our six sustainable business goals
Health and
safety
1
Our
people
Health and
safety
2
1
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For health and safety, aspire to
zero harm.
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kPage 32
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l
a
o
g
M
J
G
D
S
N
U
24
Low carbon
operations
Our
people
Health and
safety
Responsible
sourcing
Low carbon
operations
Our
people
Sustainable
products
Responsible
sourcing
Low carbon
operations
Community
engagement
Sustainable
products
Responsible
sourcing
Community
engagement
Sustainable
products
Community
engagement
3
2
1
4
3
2
5
4
3
6
5
4
6
5
6
Ensure JM is a truly inclusive organisation
that fosters employee engagement and
+
development within a diverse and
global workforce.
r
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+
k
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Read more on pages 60 to 69
kPage 32
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+
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+
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+
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Reduce our greenhouse gas (GHG)
+
emissions per unit of production
output by 25%.
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Read more on pages 52 and 57
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Johnson MattheyAnnual Report and Accounts 2019Strategic Report
Our
strategy
Our
business
model
Our
sustainability
framework
Our
stakeholders
Our
KPIs
Our six goals address our whole value chain
Water
1 2 3 4 5 6
Extraction and
agriculture
Energy
Supplier
n
i
a
h
c
e
u
l
a
v
m
a
e
r
t
s
p
U
–
e
t
a
g
o
t
e
l
d
a
r
C
n
i
a
h
c
e
u
l
a
v
m
a
e
r
t
s
n
w
o
D
–
e
t
a
g
o
t
e
l
d
a
r
C
Before
JM
JM
After
JM
In-use
phase
End
of life /
recycling
Land use
Customer
1 2 3 4 5 6
1 2 3 4 5 6
1 2 3 4 5 6
Wholesale
1 2 3 4 5 6
Consumer
Recycling
1 2 3 4 5 6
Health and
safety
1
Our
Health and
people
safety
2
1
Low carbon
operations
Our
people
Health and
safety
Responsible
sourcing
Low carbon
operations
Our
people
Sustainable
products
Responsible
sourcing
Low carbon
operations
Community
engagement
Sustainable
products
Responsible
sourcing
Community
engagement
Sustainable
products
Community
engagement
3
2
1
4
3
2
5
4
3
6
5
4
6
5
6
Improve sustainable business practices
in our supply chains and, through
collaboration, ensure full compliance
+
with our minimum standards from
strategic suppliers.
r
+
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+
k
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Read more on page 50
kPage 32
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+
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+
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+
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Double the positive impact that JM’s
+
products, services and technologies
make to a cleaner, healthier world.
r
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k
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Read more on pages 26 and 44
kPage 31
r
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+
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+
k
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Increase the use of volunteer hours to
support our community and charity
+
partners through the JM employee
volunteering programme.
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Read more on page 67
kPage 33
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25
Strategic ReportJohnson MattheyAnnual Report and Accounts 2019
Our sustainability framework continued
Sustainable technologies
with impact
Our contribution to the UN SDGs.
The UN SDGs are a collection of 17 global goals set by the United Nations General Assembly in
2015. They contain 169 sub targets to be achieved by 2030. JM is already making a significant
impact. In 2018/19, 87.3% of our sales (2017/18: 86.9%) came from products and services that
positively contributed to the UN SDGs.
How JM products and services support the aims of the UN SDGs
The UN SDGs cover social and economic development issues including poverty, hunger, health, education, global
Responsible
warming, gender equality, water, sanitation, energy, urbanisation, environment and social justice.
sourcing
Low carbon
operations
Health and
safety
Our
people
The figure below shows the breakdown of JM’s sales across its businesses in 2018/19 and their relative contribution
to each of the UN SDGs. The larger the coloured circle, the greater the sales value.
1
2
3
4
Sustainable
products
Community
engagement
5
6
Clean Air
Sustained
growth
• Light Duty Vehicle Catalysts
• Heavy Duty Diesel Catalysts
• Other – Stationary
Efficient
Natural
Resources
Market leading
growth
• Catalyst Technologies
• Pgm Services
• Advanced Glass Technologies
• Diagnostic Services
Health
Break out
growth
• Generics
• Innovators
• Alternative Powertrain
• Medical Device Components
• Life Science Technologies
• Other
New
Markets
Break out
growth in
battery
materials
JM
Total
UN Sustainable
Development Goals
26
Johnson MattheyAnnual Report and Accounts 2019Strategic Report Our
strategy
Our
business
model
Our
sustainability
framework
Our
stakeholders
Our
KPIs
Meeting stakeholders’ expectations
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
2018/19 we carried out an internal review which considered feedback from stakeholders gained through our interactions
with them during the year.
What matters most
Through talking to stakeholders, JM has identified the topics that are ‘material’ to them. Our goals align with those topics.
+
+
r
k
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r
Pages 240 and 241: GRI Standard Content Index
+
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k
k
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. It shows how we have aligned these to our six sustainable business goals.
1 2 3 4 5 6
Low carbon
operations
+
+
r
+
r
+
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1 2 3 4 5 6 Community
engagement
+
+
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+
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+
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Governance
Sustainability
leadership
k
k
kPage 31
Climate
change risk
JM’s ability
to impact
k
k
kPage 33
Ethical business practices
and compliance
Wider
society
Supply
chain
Air
quality
Greenhouse
gas emissions
Our
operations
Financial
sustainability
Health and
safety
Community impact
1 2 3 4 5 6
Sustainable
products
+
+
r
+
r
+
r
Water use
Recruitment
and retention
Environmental
Resource
scarcity
Responsible
sourcing
Product lifecycle
management
Diversity and
inclusion
Modern slavery
and child labour
Social
+
+
r
1 2 3 4 5 6
Health
and safety
+
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+
r
k
k
kPage 31
k
k
kPage 32
1 2 3 4 5 6
Responsible
sourcing
+
+
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+
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+
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1 2 3 4 5 6
Our
people
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+
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+
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27
Strategic ReportJohnson MattheyAnnual Report and Accounts 2019 Our stakeholders
Working together
Shaping our strategy with our stakeholders.
Our key stakeholders
Customers
+
+
r
+
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+
r
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+
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+
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+
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See pages 40 to 47
k
k
k3 See page 94
Investors
k
k
k
+
+
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+
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+
r
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+
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+
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See pages 73 and 118
k
k
k2 See page 94
By working closely with our customers, we aim
to provide them with the best solutions and
excellent service.
Why we engage
Understanding customers’ complex
problems helps us research, develop
and apply our science to give them
the best solutions to their challenges.
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.
By providing open and transparent
information and engaging in two way
dialogue, investors are able to make
informed investment decisions.
k
k
k
Governments
and trade
associations
+
+
+
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r
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r
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.
+
+
r
+
r
+
r
See page 73
k
k
k4 See page 94
Suppliers and
other partners
+
+
k
+
+
k
k
r
r
r
+
+
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+
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+
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See pages 37 and
49 to 51
k
k
k5 See page 94
We work closely with our core suppliers. We also
participate in collaborative scientific programmes
with other companies and academic experts.
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 and society can
provide opportunities for growth.
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.
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.
High levels of engagement and
enablement in a safe, more
sustainable and supportive culture
contributes directly to JM’s success.
Our operations are part of local communities
around the world. We strive to be a good citizen
and provide high quality employment
opportunities.
We engage with communities to
understand how we can make a
positive impact, in line with our
vision for a cleaner, healthier world.
k
k
Our people
k
+
+
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+
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+
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+
+
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+
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+
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See page 60 to 75
k
k
k6 See page 95
Communities
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Johnson MattheyAnnual Report and Accounts 2019Strategic Report Our
strategy
Our
business
model
Our
sustainability
framework
Our
stakeholders
Our
KPIs
Our stakeholders are crucial to our long term success.
Their views inform and help shape our strategy. We work with them as we execute it; they input into it and benefit from the value it
creates. 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.
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Our impact
We provide world class scientific solutions that make
the world cleaner and healthier.
Feedback from investors forms part of the board’s
strategic discussions.
By sharing information about what is technically
possible, we have provided useful insight for
policymakers in areas such as vehicle emissions
legislation.
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.
Working together
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Developing a hydrogen economy
Much of what we do and where we are investing are already
supporting global moves towards greener economies and
will continue to deliver important offerings in the future.
But we can’t go it alone. That’s why we join with others
who share our purpose and complement our expertise.
In September 2018 we became a steering member
of the Hydrogen Council, the largest industry-led effort
seeking to develop the hydrogen economy. A substantial
increase in the use of hydrogen as a source of energy
would make a meaningful contribution to reducing
greenhouse gases.
Being on the Hydrogen Council provides much deeper
insight for JM’s business on different global strategies and
also allows us to forge important alliances and partnerships.
And with JM’s technologies, we have an important role to
play in this area.
Also in September 2018, ITM Power, the energy storage
and clean fuel company, opened its seventh public access
hydrogen refuelling station (HRS) at JM’s site in Swindon, UK,
the home of our fuel cell component manufacturing facility.
The station uses electricity, via a renewable energy
contract, and water to generate hydrogen on site with no
need for deliveries.
This HRS is the first of two stations in the UK to be
deployed as part of the pan European H2ME2 project,
which was funded by the European Fuel Cell and Hydrogen
Joint Undertaking and the Office of Low Emission Vehicles.
More than 60 people, including representatives from
JM, gathered at the opening in Swindon. The opening was
also supported by Toyota, Hyundai and Honda who also
presented and participated in a Q&A session. Following
this, the attendees were invited to take a test drive in a
fuel cell electric vehicle on a short route nearby.
29
Strategic ReportJohnson MattheyAnnual Report and Accounts 2019 Our KPIs
How we measure performance
We have 13 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
£4,214m
£ million
2015
2016
2017
2018
2019
3,164
3,177
3,578
3,846
4,214
Performance in 2018/19
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.
In 2018/19, sales at constant
currency grew by 10% to
£4,214 million (2017/18: 7%)
with good growth across all four
sectors. Growth in Clean Air and
New Markets was double digit.
13.4%
%
2015
2016
2017
2018
2019
228.8p
pence
2015
2016
2017
2018
2019
24
22
20
18
16
14
12
10
8
Target
15.1%
14.2%
14.3%
13.6%
13.4%
180.6
178.7
209.1
208.4
228.8
Cost of capital
6
2015
2016
2017
2018
2019
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 added 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 of equity, excluding post tax pension net
assets, plus net debt for the same period. ROIC for individual
sectors is calculated using average monthly segmental net
assets as the denominator.
* We have changed our definition of ROIC this year to exclude net pension
assets as these are not operating assets.
59 days
days
2016
2017
2018
2019
Average working capital (excluding precious metals)
Average working capital days (as defined on page 189) 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.
70
69
62
59
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In 2018/19, underlying operating
k
margin was broadly stable at 13.4%
(2017/18: 13.6%) as we balanced
improving efficiency with investing
for future growth.
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This year, underlying earnings
k
per share increased by 10% to
228.8 pence. It grew ahead of
underlying operating profit,
benefiting from a lower tax rate.
A reconciliation from underlying
profit for the year to profit for the
year is given in note 4 on page 179.
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The group’s ROIC* decreased from
k
17.0% to 16.4%, mainly a result
of both higher capex, and higher
precious metal working capital
through the year which was due
to unscheduled downtime at our
UK pgm refinery.
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Our average working capital days
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(excluding precious metal)
improved by three days. This
reflects our continued focus on,
and disciplined management of,
working capital across JM.
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Johnson MattheyAnnual Report and Accounts 2019Strategic Report Group non-financial objectives
Science
£190m
£ million
2015
2016
2017
2018
2019
170
188
201
193
190
Customers
Customer satisfaction
(out of 10)
8.3
Our
strategy
Our
business
model
Our
sustainability
framework
Our
stakeholders
Our
KPIs
Performance in 2018/19
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.
The group’s research and
development expenditure was
broadly maintained at £190 million
as we continued to invest in more
efficient and targeted ways.
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Customer satisfaction
Applying our world class science efficiently to solve our
customers’ complex problems creates leading market positions
for JM. We track customer satisfaction as a measure of how we
are maintaining our competitive advantage and to understand
the health of our future business.
We use an external supplier to ensure a consistent and
independent survey. We receive high quality analytics and
feedback which is used to drive clear actions in the business.
In 2018/19 we carried out our first
standardised customer satisfaction
survey with customers representing
circa 80% of sales in Efficient
Natural Resources. Our score of
8.3 out of 10 is above the industry
norm of 7.6 and is a pleasing result.
We will report this KPI as a measure
across all four sectors next year.
% sales from products
contributing to UN SDGs
87.3%
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). A detailed
definition of this KPI is provided on pages 236 and 237.
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In 2018/19 the percentage of sales
from products that positively
contributed to the UN SDGs was
87.3%, up from 86.9% last year.
Our sustainable business goal is
to increase this to >90% by 2025.
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Operations
2.9 tonnes CO2 (eq)
CO2 eq emissions per tonnes of output
2017
2018
2019
3.8
3.4
2.9
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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. It is a measure of the carbon intensity
of our operations. We normalise our carbon emissions
based on production output which we define as ‘tonnes of
manufactured product sold externally’. Only sold products
manufactured on JM premises are included. A detailed
definition of this KPI is provided on pages 235 and 236.
This year the group’s operational
carbon footprint per unit of
production output reduced from
3.4 to 2.9 tonnes CO2 equivalent
per tonnes of output. This is due
to us increasing the proportion of
our electricity that is derived from
renewable sources.
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Strategic ReportJohnson MattheyAnnual Report and Accounts 2019 Our KPIs continued
Group non-financial objectives
Operations (continued)
Performance in 2018/19
% strategic suppliers assessed
since 1st April 2017
17%
% in compliance with JM
Supplier Code of Conduct
76%
People
LTIIR of 0.53
Lost time injury and illness rate
2015
2016
2017
2018
2019
0.45
0.40
0.48
0.52*
0.53
Responsible sourcing – strategic suppliers assessed and in compliance with
JM Supplier Code of Conduct
We seek to ensure sustainable and responsible business
practices in our supply chains through measuring the
percentage of our Tier 1 strategic suppliers assessed and
compliant with JM’s Supplier Code of Conduct. A detailed
definition of this KPI is given on page 236.
Since the programme was
introduced in 2017, we have
assessed 17% of our Tier 1 strategic
suppliers and of those, 76%
were fully compliant with our
Supplier Code of Conduct.
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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 235.
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* Restated, see page 73.
The group’s LTIIR was broadly
flat this year at 0.53. We are
disappointed in our performance
against this lagging indicator; we
understand the drivers of this and
are tackling it. Encouragingly, our
leading indicators of performance
are improving.
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health and safety
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59%
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 page 64.
We use employee engagement as a measure of how
committed and motivated our people are to give their best
to Johnson Matthey.
A detailed definition of this KPI is provided on page 235.
Our employee engagement score
in September 2018 was 59%
(November 2016: 62%). We have
action plans in place that continue
to focus on improving the
effectiveness of our employee
engagement activities with the
aim of increasing our employee
engagement score.
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Johnson MattheyAnnual Report and Accounts 2019Strategic Report Our
strategy
Our
business
model
Our
sustainability
framework
Our
stakeholders
Our
KPIs
Group non-financial objectives
People (continued)
Volunteering days taken
by JM employees
1,116
Volunteering in the community
Caring for others in our communities is part of our culture
and is reflected in our values. That’s why we support
employee volunteering and allow our people two days of
paid volunteering leave each year. We measure the number
of volunteering days taken by JM’s employees per year.
This is part of our wider target of achieving a cumulative total
of 50,000 days between 1st April 2017 and 31st March 2025.
A detailed definition of this KPI is given on page 237.
Performance in 2018/19
In 2018/19 JM employees took
1,116 volunteering days (2017/18:
678 days). This increase is pleasing
as we started to raise awareness of
the benefits of volunteering during
the year. We have also simplified
the process of volunteering with
a global employee online system
for employees to register and track
their volunteering.
When combined with the days
taken in 2018/19, JM employees
have taken 1,794 days of paid
volunteering leave.
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Non-financial information statement
k
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JM has a range of different of policies and standards in place to manage our principal risks, and which form part of our internal control
framework. These are referenced throughout the Strategic Report. The table below shows how we meet the non-financial reporting requirements
contained in sections 414CA and 414CB of the Companies Act 2006. It summarises the material policies identified in line with these reporting
requirements and is intended to help our stakeholders understand our position on non-financial matters.
Reporting requirement
Policies and standards that govern our approach and controls
Relevant principal risk
Page reference
Environmental matters
Employees
• Environment, Health and Safety Policy*
• Policy on animal testing*
• Ethical and Sustainable Procurement Policy*
• Supplier Code of Conduct*
• Code of ethics*
• Equal Opportunities and Training and Development of People Policies*
• Global Flexible Working Policy
• Board Diversity Policy*
• Speak up process
• Environment, Health and Safety Policy*
• Eight lifesaving policies
• Working Together Policy
• Global Parental Leave Policy
• Mental wellbeing commitment
• Investigations Policy
• Corporate Governance Framework
Social matters
• Employee Volunteering Policy
Respect for human rights
• Modern Slavery Statement*
• Code of ethics*
• Data Protection Policy and Employee Privacy Notice
• Ethical and Sustainable Procurement Policy*
• Supplier Code of Conduct*
Anti-corruption and
anti-bribery matters
• Anti-Bribery and Corruption Policy
• Code of ethics*
• Trade and Export Controls Policy
• Investigations Policy
• Financial Crime Policy
• Tax strategy
• Conflict of Interests Policy
• Competition Law Policy
Due diligence and outcome –
Business model
–
* Available on our website
4
6
6
10
10
69
55
50
50 to 51
68
65
69
113, 121
68 to 69
69
69
69
69
69
69
108 to 109
67
51
68
69
50
50 to 51
69
68
69
69
69
88
69
69
–
1 2 3 4 5 6 7
8 9 10 11 12 13
22 to 23
33
Strategic ReportJohnson MattheyAnnual Report and Accounts 2019 Strategic Report
34
Johnson Matthey
Annual Report and Accounts 2019
Science and technology, and our ability to
translate them into solutions for our customers,
are our competitive advantage
Science
Our people deliver world class science which creates differentiation that supports
high margins and leading market positions for JM.
Nine core areas of scientific capability,
developed over many years, form the
foundation of our knowledge, and we
draw on them again and again across our
businesses and products. We interweave
these capabilities into products and
services that solve our customers’
challenging problems. We focus on the
complex and the difficult. And we win
based on our technology. Our scientific
capabilities provide the opportunities
for us to drive growth.
We have over 1,500 dedicated scientists
in Johnson Matthey with wide ranging
expertise who give us a diverse
perspective on the problems we tackle.
These scientists collaborate to
understand the fundamentals of what’s
required, explore innovative solutions and
deliver the outcomes our customers need.
We understand what is happening at the
sub-micron level, so we can address
complex problems at a global scale.
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
Solutions
for
for
customers
customers
Pgm chemistry
and metallurgy
Catalysis and
advanced materials
Electrochemistry
Scale up of complex
manufacturing
35
Strategic ReportJohnson MattheyAnnual Report and Accounts 2019 Science continued
The science behind our products
Our scientists draw on a range of skills to design and produce functional materials, including catalysts, with the required performance.
We design molecules and understand how they react, and we deliver them in a form that our customers can use. We test their
performance from lab scale to manufacturing, ensuring safe handling, operation and disposal.
Clean air for all
Selective catalyst systems to reduce emissions of harmful gases, like NOx, from vehicle exhaust,
combined with filters to remove particulates.
Minimising vehicle emissions to protect health and the environment.
Our science in action
Tackling global
issues
Providing the
solution
Translating
scientific
capabilities
Catalysis and
advanced materials
Material design
and engineering
Surface chemistry
and coatings
Scale up of complex
manufacturing
Fundamental
understanding
Analytical science, models to predict interactions of molecules,
fundamental knowledge of materials at the atomic scale
Collaboration
Universities
Catalysis Hub
Latest thinking on
science fundamentals
Leading edge catalyst
research
Diamond Light Source
Access to UK’s national
synchrotron and
advanced scientific
microscope facilities
Outreach and
start ups for fresh
perspectives
How we innovate
Having people with such a diverse range of scientific knowledge and experience concentrated at our R&D locations creates
opportunities for innovation. We share our knowledge across the company and reach out externally to complement the skill sets
we have:
•
•
•
Supporting PhD students and collaboration with universities to give us access to specialist equipment and science.
Setting challenges and running ideation campaigns to bring people together with different perspectives on a problem.
Investing in organisations and facilities, such as the UK synchrotron facility and Catalysis Hub, to build relationships,
understanding and access to assets needed.
•
Scouting for the best partners where we identify an opportunity to grow.
36
Johnson MattheyAnnual Report and Accounts 2019Strategic Report Catacel SSR – shaping a new era of clean energy
Hydrogen is a versatile energy source which offers an important route
in the transition to clean, low carbon power.
Today it is used primarily in oil refineries to remove sulphur
from fuels and for ammonia and methanol production. But if
future predictions on alternative routes to energy are realised,
ten times the current amount of hydrogen will be required.
JM already supplies catalysts, in the form of pellets, to produce
hydrogen by reacting steam at high temperature and pressure
with methane from natural gas (steam reforming). Using this
existing knowledge and our world class science, we’ve
developed a new high performance engineered catalytic
solution for hydrogen production.
We call it Catacel Structured Steam Reforming (SSR).
Why? Because it is a coated, metal foil based, engineered
catalyst that is an alternative to the conventional ceramic pellet
impregnated with a catalyst.
The outcome for customers is increased plant throughput
of up to 20%, without capital investment of a new plant, less
wear and tear on the reformer reactor tubes and fuel savings.
So how does it work? The design of the catalyst is a balance
between many competing requirements such as its strength, how
heat is transferred, how active it is and how evenly gases flow in
and around it. The engineered structure of Catacel SSR enables
it to stretch many of the limitations imposed by ceramic pellets.
In developing a product like this we draw on a wide range
of skills and our collaborations both in-house and through our
close liaison with universities and research institutes. And by
scaling up the manufacture of the catalyst and designing it as
a drop in substitute, our customers have the choice to move
seamlessly from pellets to Catacel SSR.
The science and technology behind Catacel SSR, and the
customer value it creates, gained external recognition this year
when it was awarded as winner of the IChemE Oil and Gas
Award 2018.
Watch: How Catacel SSR is changing the game for steam reforming
matthey.com/new-era-clean-energy
We recognise that some of the best ideas will come from open innovation. So we look for partnerships and collaboration in the
broader world of innovation.
This means we stimulate thought and hear about new approaches first hand. A few of the ways we have been reaching out to the
wider innovation community include:
#cleanairtech
Smogathon
Axisinnovation
We ran a meet up event called ‘The air
that we breathe’ at London Tech Week
2018 and commissioned a White Paper
on clean air technology. We brought
together over 50 people all focused
on cleaning our air and, together, we
catalysed a clean air tech community,
#cleanairtech, of start ups, like minded
corporations, academics, regulators and
influencers. The group looked at issues
of air quality measurement, the cost of
poor air quality, products and solutions
that are being worked on, and leading
the drive to improve air quality. Such
collaborative working groups give us a
freshness in our approach to tackling
+
some of the world’s biggest problems.
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matthey.com/cleanairtech
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We joined the Poland Smogathon event
in 2018, which focuses on innovations
in air purification. As a partner at the
event, we selected challenges and were
part of the panel reviewing solutions
being pitched by start up companies.
This is a great way of hearing about new
and exciting ideas to tackle air pollution
and support those who present the best
projects. We are also able to share our
expertise in the field of air purification,
providing advice and insights to startups
+
and the broader technical community.
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We have connected with the innovation
ecosystem of Israel, a country renowned
as a source of innovative technology and
business models, seeking out technologies
that relate to our agrochemical and air
purification activities. Tapping into this
ecosystem, which includes universities,
start ups, institutes and accelerators,
helped us understand how we can
contribute. We are now looking to
strengthen our links further and develop
+
mutually beneficial partnerships.
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Johnson Matthey
Annual Report and Accounts 2019
37
Strategic Report Strategic Report
Science continued
Managing science and technology
Our strategy, aligned with our vision
For us, innovation is the realisation
In 2018/19 we invested £190 million in
R&D, including £19 million of capitalised
R&D, which represents around 5% of our
annual sales (2017/18: £193 million,
including £18 million of capitalised R&D,
representing 5% of annual sales). We
maintained our investment this year as
we continued to invest in a more efficient
and targeted way, and in alignment with
our strategic aims. In this way, we
continue to make excellent progress to
sharpen our focus on creating value from
our leading technology.
for a world that’s cleaner and healthier,
helps us focus our science and
technology. We use technology road
mapping as a tool to identify future
growth opportunities for our business
and how to deliver them. Technology
road mapping facilitates high quality
conversations across our sectors and
functions about the future of our
business. It allows us to map our core
capabilities against future opportunity
and helps us identify capabilities we can
add to enable or accelerate progress.
During the last year we have developed
road maps that define market drivers,
products and the capabilities we will
need to innovate across our business.
of value from knowledge, and road maps
help us to identify where and how to
invest in our R&D. Our new product
introduction process supports this and
is used by our businesses in delivering
their strategic plans.
These roadmaps also enable forward
looking conversations with current and
future customers to identify new product
and market opportunities for JM to
extend its competitive advantage through
our world class science and technology.
Gasoline particulate filters –
cleaning the air we breathe
Increasing numbers of petrol (gasoline) vehicles on our roads and the
advent of tighter legislation to control their exhaust emissions bring
new challenges in cleaning the air.
Gasoline direct injection engines are very efficient, meaning less CO2 is emitted. But
there is a downside; more and smaller particles of soot are produced which are harmful
to our health and need to be removed from the exhaust gases. That’s why JM has
developed a three way filter which acts as both a three way catalyst to significantly
reduce harmful gaseous emissions and as a filter to take out the vast numbers of small,
fine particles.
Working closely with our customers, we have developed and designed our
technology to meet their requirements for catalyst activity and filtration efficiency
while minimising the impact on exhaust gas flow.
Many aspects of scientific knowledge must coincide to deliver an engineered
product that is fit for purpose. We use advanced imaging techniques to build up a
picture of the filter structure, in collaboration with academic experts. We use
computers to model how gas flows through the filter walls and along its channels; we
formulate catalyst material with long lasting activity; and we evaluate different coating
techniques to give a highly effective active coated surface which promotes filtration
efficiency but doesn’t block up the filter. And to do all this we rely on cutting edge
capability in computational modelling and advanced microscopy.
As a result, we have developed gasoline particulate filters that meet the Euro 6d
Final legislation, the toughest in the world for particulate number emissions, in both
laboratory testing and when tested in real world driving conditions on the road.
38
Johnson Matthey
Annual Report and Accounts 2019
Active pharmaceutical ingredients –
helping people live longer healthier lives
Our aim is to make the world a cleaner, healthier place, and we are
proud of the positive impact our science can make on the air, the
resources of the world and the health of people around us.
The active pharmaceutical ingredients (APIs) we make are the
power behind life changing therapeutics such as apomorphine
which is used to treat the symptoms of Parkinson’s disease.
Treated with this active ingredient, people with severe
Parkinson’s disease can regain their independence and continue
to do the things they enjoy. Our APIs are also found in drugs
that are used to manage Duchenne muscular dystrophy, a
genetic disorder in children where progressive muscle
degeneration causes weakness. It is the complex API molecules
that cause the therapeutic effect and our ability to manufacture
them reliably and effectively means adults and children can live
more fulfilling lives.
JM helps pharmaceutical customers to develop and bring
to the marketplace the active ingredients for these life changing
drugs. Pharmaceutical ingredients are usually molecules with
complex structures and often require many different reaction
steps and purification. We use our scientific skill and creativity
to find the shortest, most precise and efficient reaction
pathways. And from there we develop effective, reliable routes
to manufacture high quality complex molecules – molecules
that have a profound impact on many people’s lives.
R&D employees
Distribution of R&D expenditure
Gross R&D expenditure
Central Research
17%
Central Research
18%
New
Markets
11%
Health
9%
Clean Air
43%
New
Markets
11%
Health
8%
Efficient
Natural Resources
20%
Efficient
Natural Resources
19%
201
188
193
190
170
Clean Air
44%
£ million
210
175
140
105
70
35
0
%
10
8
6
4
2
0
2015 2016
2017
2018
2019
R&D expenditure / sales
39
Strategic ReportJohnson MattheyAnnual Report and Accounts 2019
40
Johnson Matthey
Annual Report and Accounts 2019
Strategic Report Putting our inspiring science to work for
our customers
Customers
Collaboration and strong relationships with our customers are crucial. Together, we put our inspiring
science to work to enhance life.
Using our science to solve our customers’
complex problems is at the heart of our
strategy. Choosing JM enables our
Health and
Our
safety
people
customers to bring their products and
ideas 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.
2
1
Directed by our vision for a cleaner,
healthier world, we operate in growing
markets. The breadth of our markets and
the depth of our science give us strength.
Sustainable business goals
Sustainable
products
Community
engagement
5
6
Low carbon
operations
And we’re challenging ourselves
to improve. Through our Commercial
Excellence programme (pages 43 and 44),
Responsible
sourcing
we are growing our people, delivering an
enhanced experience all round for our
customers and, at the same time,
creating more value for JM.
3
4
Our products and services do
amazing things when our customers
use them – this is one of the major ways
we make the world cleaner and healthier.
So we are measuring this through our
sustainable business goal 5, and aim to
double the positive impact our products
and services have by 2025.
Our global markets and segments
The markets we serve are directed by our science and driven by our technology. As a result,
we create leading technology positions, often in niches within larger markets.
These markets aggregate into four main global economic
segments through which our science can enable prosperity and
a cleaner, healthier world. 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 monitor the critical raw materials and
commodities used in these spaces. In the case of platinum
group metals (pgms), we are a globally recognised expert in
their market fundamentals and applications.
41
Strategic ReportJohnson MattheyAnnual Report and Accounts 2019 Customers continued
Segment trends and dynamics
Transport
The automotive industry continues to
experience a period of unprecedented
change. Economic weakness coupled with
powertrain shifts and legislative change
(including subsidies) are impacting the
industry. As a result, the total production
of light duty vehicles (LDVs) fell slightly
this year to just under 94 million units1.
The LDV market (covering all powertrains)
is expected to return to growth in the
medium term, ~2.4%1 compound annual
growth (CAGR), with total production
passing 100 million units1 in the early
2020s. However, longer term, LDV
growth is expected to slow with an
increasing proportion of the population
living in cities, and consumer behaviour
shifting towards different vehicle
ownership models, car sharing and
alternative modes of transport, for
example, cycling.
But for those vehicles that are
produced, alternative powertrains are
expected to become an increasing part
of the mix. Analysts expect a move away
from pure internal combustion engine
(ICE) vehicles over time, with hybrid,
battery electric (BEVs) and / or fuel cell
electric vehicles (FCEVs) becoming more
common. These powertrain shifts,
together with the emergence of
innovative vehicle ownership and access
models, along with a rising degree of
connectedness and automation, are
transforming the mobility landscape.
Heavy duty vehicle (HDV) production
was 3.7 million units in 2018/191 and
this remains a cyclical market.
While vehicle production is a growth
driver for JM, next generation, tighter
emission control legislation, particularly
in Asia, is an additional, more significant
opportunity for us.
This mobility transition is not
expected to be quick, with most market
evolution studies showing a gradual
uptake of alternative powertrains in LDVs
through the 2020s. JM assumes BEV
penetration of ~6% by 2025 and notes
the high degree of uncertainty associated
with these projections. 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.
Legislation on sulphur may help
accelerate growth in fuels, but this impact
is still to be determined.
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.
Energy
Healthcare
Fossil fuels are the dominant global
energy source today (~81% 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 the contribution of coal and oil in
the world’s energy mix to fall, with natural
gas expected to become the fastest
growing fossil fuel, maintaining its share
(~20%) of the global energy mix. This
implies strong growth in renewables and
other low carbon fuels (including nuclear).
We maintain a focus on this segment
as it informs us about changes in the
interconnected transport and chemicals
markets. This evolution also touches our
applications in the stationary energy
space, along with several other products
and services.
Global population and life expectancy
continue to rise, with a range of medical
interventions required to service
increasingly old and wealthy populations.
To support this trend, healthcare
spending is expected to grow in the mid
single digits (GDP+) through 20255.
For JM, the active pharmaceutical
ingredient (API) contract development
and manufacturing organisation market
continues to be a focus for our Health
Sector. Growth in this market is expected
to be in the 7-8% CAGR, with some areas
within it growing at 10+%. Outlook in the
US and European regions remains strong.
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.
Chemicals
Critical raw materials
There are a number of competing factors
impacting the oil market. In the near term,
we expect oil prices to continue to recover
from their recent lows followed by much
more modest growth3 towards a plateau
and potential decline in the longer term.
The outlook for natural gas is
expected to be very modest3. However,
short term pricing, especially in North
America, remains subdued.
Downstream products have benefited
from low input prices over recent years,
but those advantages are beginning to
pass. Through 2022/23, refining and
(petro)chemical catalyst growth is
assumed to remain in the 3-4% range4,
with specific rates for each catalytic area.
Growth at 3% is expected in areas such
as ammonia and oxidation processes.
Within these markets, commodity prices
will play an important role in determining
the speed of transition and the
technological solutions that are adopted.
We continue to focus on our
traditional platinum group metal (pgm)
markets and closely watch the evolution
of platinum, palladium and rhodium
prices as they react to changes in the
automotive market. Beyond these
traditional metals, we also track
movements in the key battery cathode
materials (e.g. lithium, cobalt and nickel)
and note the recent decline in pricing for
these elements.
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
JM automotive market assumptions / LMC Automotive.
1
2 McKinsey Energy Insights – Global Energy
3 BP Energy Outlook, 2019 (www.bp.com/en/global/
corporate/energy-economics/energy-outlook.html).
4
IHS Chemicals.
5 EvaluatePharma.
Perspective 2019.
42
Johnson MattheyAnnual Report and Accounts 2019Strategic Report Science and technology enabling change
The four economic segments we serve are undergoing major change as a result of global sustainability megatrends. Science and
technology is enabling and driving the pace of change. We apply our scientific capabilities, via our four sectors, into markets within
these segments. We create new products and services that, through our customers’ business activities, are making the world cleaner
and healthier.
JM science
World class science capabilities
JM sectors
Clean Air
Activity
Catalysts and technologies
that abate emissions.
Segments
served
• Transport.
• Energy.
Impact
Outcome
Efficient Natural
Resources
Products and processes
that transform, conserve
and recycle scarce
resources using less energy
and fewer raw materials.
• Chemicals.
• Energy.
• Transport.
• Healthcare.
Health
New Markets
Core capabilities in
complex chemistry,
manufacturing and
scale up to create active
pharmaceutical ingredients
and other solutions for
niche areas.
• Healthcare.
Applying our science into
emerging opportunities,
such as battery materials
and fuel cells.
• Energy.
• Transport.
• Healthcare.
• Chemicals.
Cleaner air / Cleaner energy / Achieving more from less / Enhanced health and quality of life
Cleaner, healthier world
The segments we serve are amongst
The value we create for customers
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.
Many of the customers we serve
operate in two adjacent segments and /
or markets. 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 adjacent
segments. These insights drive business
development and create JM’s uniqueness
in its markets.
Working with our customers across
a range of markets and understanding
their needs gives us a balanced and
robust business. Through serving broad
markets, the opportunities to apply our
science and technology are greater and our
contribution to a cleaner, healthier world
is increased.
Across our offerings, our customers 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.
We work with customers to codevelop
solutions that maximise this performance
advantage. 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.
Our customer centric approach
to creating value through
commercial excellence
JM’s competitive advantage is our
distinctive, world class scientific and
technical capabilities and how we
translate them into solutions for our
customers. Together with providing them
with high quality products and services,
we continue to deepen our understanding
of their needs and ensure that we
capture our fair share of the value we
create for them.
Our Commercial Excellence
programme, now in its second year,
is focused on driving continuous
improvement through the lens of our
customers to support their growth and
maintain our competitive advantage.
The programme delivers value through:
building commercial capability across
JM; enhancing our ability to make value
based data driven decisions; measuring
and responding to customer satisfaction;
and operating leading sales and marketing
processes to enable us to provide a
seamless service to our customers.
43
Strategic ReportJohnson MattheyAnnual Report and Accounts 2019 Customers continued
The programme is already delivering
In a world where the pace of change
benefits through supporting sales and
market share growth in our sectors.
During the year we launched the JM sales
academy to grow our commercial people,
equipping them with leading skills to
further develop and enhance their
capability. Around 350 customer facing
employees from three sectors have so far
attended the first module across Europe,
the US and Asia. They gave positive
feedback that the knowledge and skills
provided will help improve their job
performance. Furthermore, the new
frameworks and processes developed and
launched through the programme are
already being used by commercial teams to
deliver improved outcomes with customers.
Further modules of the sales academy
will roll out in September 2019, providing
more depth to our strategic account
management process across the group.
We have also developed a framework
for producing and improving propositions
to customers, to increase customer
centricity. The customer value proposition
is designed to identify help communicate
how we can create value for a customer in
a meaningful and impactful way. Well
thought through proposals, and the
propositions in them, support customer
growth and in turn create value for JM.
Over the last year we have
introduced a consistent measure of
customer satisfaction across JM to allow
us to understand what our perceived
strengths are, highlight areas where we
need to improve and deliver even better
outcomes for our customers. We use an
independent external organisation that is
a specialist in running customer feedback
programmes in the business to business
manufacturing market.
Low carbon
operations
We piloted this customer satisfaction
Responsible
sourcing
Our
people
survey across our Efficient Natural
2
4
3
Resources Sector in November 2018,
with a very encouraging response rate
of 58%. The sector received an overall
rating of 8.3 out of 10 from customers,
which is well above an industry norm of
7.6. The survey has provided rich and
insightful information which has
translated into actionable outcomes for
the commercial teams to implement.
Teams have also shared their continuous
improvement feedback actions with their
customers and our proactive approach has
been positively received. During 2019/20
we will survey customers of our three
other sectors, Clean Air, Health and New
Markets, and follow up with a repeat
survey for Efficient Natural Resources,
creating stronger relationships built on
trust, consultation and partnership.
Health and
safety
1
will continue, we are ensuring that we
stay fit and agile to understand our
customers’ complex problems and
continue to provide valuable solutions
to those challenges.
Beyond customer value –
our progress towards a cleaner,
healthier world
The value we create for our customers
drives growth in our business and returns
for our shareholders. But our science-led
products and services have a much
broader positive impact, driving us towards
our vision for a cleaner, healthier world.
We want that positive impact to grow.
That’s why we have a goal to double
the positive contribution of our products
by 2025, aligned to the United Nations
Sustainable Development Goals (UN SDGs).
Thus, our sustainable business goal 5 has
two streams by which we are measuring
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 SDGs. The percentage
measure is a key performance indicator
for the group as detailed on page 31.
Our contribution has increased this year
supported mainly by stronger sales of
emission control catalysts.
The second relates to JM’s vision for
a cleaner, healthier world. Our goal is to
at least double:
•
•
•
•
The tonnes of pollutants (oxides
of nitrogen, carbon monoxide,
hydrocarbons, particulate matter)
removed by our products. Here, the
overall tonnes of pollutants removed
by our products fell very slightly this
year because lower numbers of
vehicles were produced globally
(see page 81).
The number of lives impacted by our
recently launched pharmaceutical
products. Our positive impact was
greater this year due to increased use
of therapies that include our APIs.
The quantity of greenhouse gases
(GHGs) removed or reduced
(CO2 equivalent) by our products.
This year, the tonnes of GHGs
removed by our products was slightly
down due to a lower contribution
from our nitrous oxide abatement
technologies.
The quantity of GHGs avoided
(CO2 equivalent) by our products.
An increased number of tonnes of
GHGs were avoided this year due to
the action of our products. This was
principally due to greater demand
for our fuel cell components.
Sustainable
business goal
Sustainable
business KPIs1
Baseline
2017/18
2018/19
2025 target
Annual sales
giving
contribution
to UN SDGs
Sustainable
products
Community
engagement
5
6
Double the
positive impact
that JM’s
products make
on a cleaner,
healthier world
Annual
aggregation
of product
sustainability
benefits in
key areas
2017/18 sales
data against
UN SDG
indicators
(% of group
sales)
2017/18 data
relating to:
Tonnes of
pollutants
removed
Number
of lives
positively
impacted
Tonnes of
GHGs removed
(CO2 eq)
Tonnes of
GHGs avoided
(CO2 eq)
86.9%
87.3%
>90%
3.54m
3.43m
7.08m
138,000
181,000
920,000
10.6m
10.1m
21.2m
213,000
216,000
426,000
1 For full details and definition, see pages 236 and 237.
+
+
r
+
r
+
Performance against all six of our sustainable business goals is detailed on pages 31 to 33 and on page 238
r
44
k
k
k
Johnson MattheyAnnual Report and Accounts 2019Strategic Report Long term view
Shaping a new era of clean energy
The world is moving towards a lower carbon, more sustainable future. Here we
look at some aspects of this incoming energy revolution and the key role that JM
and its technologies will play within it.
Driving towards a
sustainable future
The world is at the start of an energy
revolution – the biggest energy
transformation since the Industrial
Revolution during which the use of fossil
fuels drove growth and prosperity. It is
only relatively recently that we have started
to understand the implications of the
potential global temperature increases.
The country signatories of the 2015
Paris Agreement committed to aim to
hold increases in global average
temperature to “well below 2°C above
pre-industrial levels and to pursue efforts
to limit the temperature increase to
1.5°C”. Then, in October 2018, the
Intergovernmental Panel on Climate
Change (IPCC) issued a Special Report.
In it, they said that to achieve no, or
limited, overshoot of 1.5°C, global net
anthropogenic CO2 emissions must
decline by about 45% from 2010 levels
by 2030, and reach net zero by around
2050. A number of countries and regions
including France, Sweden, Norway, the
European Union (EU) and New Zealand,
are now committing to, or considering
moves towards, net zero carbon and / or
greenhouse gas (GHG) emissions. In May
2019, the UK Committee on Climate
Change, which is the independent adviser
on climate change to the UK Government,
called for the UK to continue to lead
the global fight against rising global
temperatures by tightening GHG
emission targets to net zero by 2050.
But what will it cost to move towards
net zero, and how does this compare with
the impact if we don’t manage to limit
the global temperature increase?
The Energy Transitions Institute
estimates that reaching net zero CO2
emissions by 2050 would cost around
0.5% of global GDP, or around
0.425 trillion US dollars.
And what do we get in return for this?
Researchers at Stanford University
estimate that the benefits of remaining
within a 1.5ºC temperature increase to be
of the order of tens of trillions of US dollars.
So, on top of the other benefits, there
is a very good economic return on the
climate stabilisation investments.
It is good to hear governments
talking openly about the need to tackle
global temperature increases as high
level commitments, together with
robust and far reaching policy, will be
essential if we are to create the markets
that will deliver the necessary low
carbon technologies.
The good news is that we don’t have
to wait for new technologies to start to
reduce the global carbon footprint –
we can move towards tackling climate
change by a combination of implementing
the technologies we have today and
developing new, low carbon technologies
for the future. For example, the IPCC
report points out that the greater the
emission reductions achieved by 2030,
the better the chance to limit the global
temperature increase to 1.5°C.
So let’s consider the current situation
in some key areas, discuss how we expect
this to evolve and take a look at the
significant contributions that JM’s science
and technologies are making, and will
continue to make, towards a cleaner,
healthier world.
Reducing the carbon footprint
of transportation
Globally, transportation is responsible for
around 25% of CO2 emissions, with the
majority from the on-road movement of
people and goods. Regulators are driving
down the permitted levels of CO2 emitted
from vehicle tailpipes; for example, the
EU recently approved legislation to
reduce the CO2 emissions from passenger
cars by 37.5% from the 2021 baseline
of 95 g/km. Such regulations will be
met by a combination of approaches;
incoming vehicles powered by internal
combustion engines will become more
fuel efficient through innovation in areas
such as engine, tyre and transmission
development, and vehicle light weighting
by using new materials including
composites. However, a more fuel efficient
engine generates lower temperature
exhaust gases and this makes controlling
the associated pollutants more difficult.
JM technology is part of
the solution
JM has risen to this challenge by
developing new emission control
catalysts capable of operating at lower
and lower temperatures, supporting our
customers, the car companies, as they
reduce the CO2 emissions of the vehicles
they produce. Plug-in hybrid electric
vehicles, in particular, carry out an even
higher number of starts at lower
temperatures (cold starts), especially
when driving in the city. And we are
developing emission control catalysts
that are further optimised for cold start
performance for this type of vehicle.
45
Strategic ReportJohnson MattheyAnnual Report and Accounts 2019 Strategic Report
Customers continued
The need for vehicles with lower CO2
emissions will also increase the rate at
which so-called zero emission vehicles
(ZEVs) are introduced. Current legislation
regards ZEVs as vehicles that do not emit
any criteria pollutants, such as carbon
monoxide, unburned hydrocarbons and
oxides of nitrogen (NOx), and that do not
emit any CO2 from their tailpipe. Both
battery electric vehicles (BEVs) and fuel
cell electric vehicles (FCEVs) are ZEVs by
this definition. Of course, the true CO2
footprint of such vehicles needs to
consider factors such as how much CO2
was released when generating the
electricity used to charge the battery or,
in the case of FCEVs, to make the
hydrogen (along with emissions during
the manufacture of the BEV or FCEV
itself, including its powertrain). Over
time, these other life cycle emissions will
reduce further, for example as we use
more renewables to generate electricity
(see later). So the life cycle CO2 benefits
of BEVs and FCEVs over vehicles powered
by internal combustion engines will
increase further.
Enabling battery electric
vehicle uptake
JM is developing next generation battery
materials with improved energy density
(so the mileage of BEVs between charges
can be increased), pulse power (for
improved acceleration) and safety, while
minimising the use of expensive and
relatively scarce raw materials such as
cobalt. JM’s leading ultra high energy
density eLNO family of cathode active
materials is delivering improvements in
all of these critical performance areas.
Raw material sourcing is becoming
increasingly important in the battery
materials area, and here JM’s years of
experience in sourcing platinum group
metals (pgms) will continue to stand us
in good stead. Another similarity between
the battery materials and pgm areas is
the acknowledged need to recycle critical
raw materials; JM is a world leader in the
recycling of pgms, and we are applying
our expertise to explore opportunities
in battery materials recycling.
Such innovations are essential to
drive the kind of BEV uptake that will be
required to meet incoming CO2 regulations,
and, alongside the ongoing reductions
in the carbon intensity of electricity
generation, deliver step changes in the
CO2 profile of transportation.
46
We will, therefore, see significant
increases in the number of BEVs on our
roads as we move towards a lower carbon
future and JM technology will make
important contributions here.
However, some vehicles, such as
long haul trucks, are unlikely to adopt
battery technology since the very high
daily mileages driven by these trucks
would require very large, heavy and
expensive batteries to match the
requirements of these duty cycles.
In addition, tremendous amounts of
energy would need to be transferred to
the battery in a very short time during
battery recharging, in order to meet the
needs of the vehicle owners to maintain
the very high utilisation of these vehicles.
Hydrogen powered fuel cells are
a complementary solution
One alternative with the potential to
enable the decarbonisation of long haul
trucking is the fuel cell powertrain.
Hydrogen (when pressurised in storage
tanks) has a much higher energy density
than batteries and refuelling with
hydrogen can be carried out in a similar
timeframe to filling current fuel tanks.
Fuel cells also match the needs of cars
covering large annual distances, where
the long range and fast refuelling
advantages make a compelling
combination. In addition, we are starting
to see the introduction of fuel cell powered
locomotives, which could provide a
cheaper route than electrification to
decarbonise rail transport.
So fuel cells will work alongside
batteries to play an important role in
reducing the CO2 footprint of ground
transportation. Furthermore, FCEVs also
have a battery, so there are some very
direct synergies between the two
technology approaches.
In the fuel cells area, JM is developing
the platinum containing catalysts and
membranes which make up the
membrane electrode assembly (MEA).
This is the component at the very heart
of a fuel cell within which the input
hydrogen and oxygen are reacted
together electrochemically to produce
water, electricity and heat. In this area
we are focusing on aspects such as
improving the efficiency and long term
durability of the MEA, along with
reducing the platinum content of the
catalyst to lower the cost of fuel cell
systems. Once again, JM will be a critical
part of the solution as fuel cells enable
substantial carbon reductions in
transportation and other applications.
In the broad transition towards
renewable chemicals and fuels, JM’s
expertise in catalysis, purification and
process technology development will
be enablers. Our recently announced
projects, with BP and Fulcrum BioEnergy
to convert waste into aviation fuel, and
with Virent for the production of
renewable feedstocks and fuels, are
testament to this and we continue to
invest and collaborate to explore future
process technology options.
The broader role for hydrogen
in global decarbonisation
Many countries are now looking at
how hydrogen can help their broader
decarbonisation efforts as hydrogen is
an extremely flexible energy vector with
a substantial role to play. For example,
there is a shift away from electricity
generation from fossil fuels (especially
coal) and towards increased use of
renewable sources such as solar and
wind power. The UK, for example, halved
the carbon intensity of its electricity
generation between 2013 and 2017
as a result of decreasing coal use and
increasing renewables. It has plans to
reduce this by a further 90% between
now and 2050. However, increasing the
reliance of electricity generation on
renewables brings with it the need for
large scale and long term energy storage
since the sun doesn’t always shine and
the wind doesn’t always blow.
To ensure the wheels of industry
keep turning and the lights in our homes
stay on, regardless of the weather, we will
need to store and transport very large
amounts of energy. Hydrogen is likely to
play a key role here. That’s because it is
uniquely able to provide underground
storage of a zero carbon fuel at the
multi-terawatt hour scale required for
interseasonal energy storage. This
underground hydrogen storage can be
in depleted gas fields or salt caverns,
depending on local geological conditions.
And for those unfamiliar with a terawatt
hour… one terawatt hour is a billion
kilowatt hours. Boiling the water in a
kettle uses about 0.1 kilowatt hours of
energy; so one terawatt hour of energy
is enough to boil 10 billion kettles!
So hydrogen has great potential
as a large scale source of energy. It also
has great potential to drive substantial
reductions in the carbon emissions
associated with domestic heating, enable
the decarbonisation of high temperature
industrial processes and provide
flexible, dispatchable power generation.
Johnson MattheyAnnual Report and Accounts 2019 Hydrogen has a role to play
Many countries are now looking at
how hydrogen can help their broader
decarbonisation efforts as hydrogen is
an extremely flexible energy vector
with a substantial role to play. That’s
because it is uniquely able to provide
underground storage of a zero carbon
fuel at large scale.
With such a key role to play across
multiple sectors, cost effective production
of low carbon hydrogen at scale is
essential to enable the transition to a
global low carbon economy. Indeed, the
UK’s Committee on Climate Change
recently stated that moving from a 2050
target of 80% carbon emissions reduction
to the recently proposed net zero target
“changes hydrogen from being an option,
to an integral part of the strategy”.
But where is all this low carbon
hydrogen going to come from?
Hydrogen can be produced in different
ways. Today most of it is manufactured
by steam methane reforming (SMR), in
which natural gas at high temperature is
converted to hydrogen and CO2. JM has
developed a new, class leading process
to produce low carbon hydrogen (LCH)
from methane using a process technology
called a gas heated reformer. This
approach gives a higher hydrogen yield
and is more energy efficient than existing
SMR technologies. And, crucially, this
JM process is easier and cheaper to
decarbonise through carbon capture
and storage (CCS), a technique which
captures the CO2 produced along with the
hydrogen, and subsequently stores it.
We are making good progress
with this technology – for example, in
November 2018, JM received a grant
from the UK Department for Business,
Energy and Industrial Strategy (BEIS) to
understand the costs and performance
for our LCH solution at large scale.
Then in March 2019, JM was part of two
consortia that were awarded additional
grants under the BEIS hydrogen supply
competition for low carbon projects to
develop the technology further.
There are several areas in the
hydrogen economy and its associated
value chains which present significant
opportunities for JM. That’s why we
recently joined the Hydrogen Council,
a global initiative of leading energy,
transport and industry companies with
a united vision and long term ambition
for hydrogen to foster the energy
transition. The ambitions of the companies
in the Hydrogen Council are to:
• Accelerate their significant
investment in the development and
commercialisation of the hydrogen
and fuel cell sectors.
•
Encourage key stakeholders to
increase their backing of hydrogen
as part of the future energy mix with
appropriate policies and supporting
schemes.
In September 2018, Robert MacLeod
joined fellow CEOs and senior
representatives of the other 32 members
(which include Air Liquide, Audi, BMW,
Bosch, Daimler, Honda, Hyundai, Shell,
Sinopec, Toyota and 3M) at the annual
Hydrogen Council CEO event in San
Francisco, USA. While there, Robert
joined discussions reflecting on the work
completed by the Council thus far and
meetings on strategy and new ideas to
accelerate the Council’s ambitions.
Low carbon hydrogen
JM has developed a new, class leading
process to produce low carbon
hydrogen from methane. This approach
gives a higher hydrogen yield and is
more energy efficient than existing
technologies. And, crucially, this
JM process is easier and cheaper to
decarbonise through carbon capture
and storage.
The future looks bright
The challenges to tackle climate change issues are
significant, but so are the opportunities.
JM’s expertise in emission control, catalysis, process technology (through, for example,
making industrial processes more energy efficient), hydrogen generation, battery
materials and fuel cells are already supporting global moves towards greener
economies. Driven by our vision and strategy, we will continue to use our inspiring
science to create the solutions that will shape and enable a new era of clean energy.
47
Strategic ReportJohnson MattheyAnnual Report and Accounts 2019 48
Johnson Matthey
Annual Report and Accounts 2019
Strategic Report Our vision for a cleaner, healthier world requires us to
operate our business responsibly and with a relentless
focus on safety, efficiency and excellence
Sustainable business goals
Health and
safety
Health and
safety
Our
people
Our
people
Low carbon
operations
Low carbon
operations
Responsible
sourcing
Responsible
sourcing
Sustainable
products
Sustainable
products
Community
engagement
engagement
Community
1
1
2
2
3
3
ˆ
4
4
5
5
6
6
Operations
This focus on safety, responsible business practices, efficiency and excellence cuts across everything
we do, from common systems and core processes to the way we manage and drive the environmental
performance of our assets. It extends beyond our gates and spans our whole value chain: from
‘before JM’ and how we source raw materials; how we run every aspect of our operations at ‘JM’;
and ‘after JM’, when our products are used by our customers at the end of our products’ useful life.
Before JM – Our value chain
1 2 3 4 5 6
Water
Extraction and
agriculture
Energy
Supplier
Before
JM
The value chain for the
commodities that go into
our products comprises our
suppliers, and we have policies
and processes in place to
manage our key relationships
and risks within both our
Procurement function and
as part of our ethics and
compliance framework.
Land use
Procurement
Our business requires us to purchase a
broad range of materials, goods and
services including:
• Bespoke to commodity raw materials
and metals to support laboratory to
full production scale operations;
• Non-production items (including
technical laboratory equipment,
logistics and warehousing, professional
services, maintenance items,
utilities, IT and telecommunications
and facilities management);
•
Capital expenditure from individual
production equipment to complete
manufacturing facilities.
Leveraging the category management
approach, our role as procurement
business partners is to enable our
business to innovate, identify and
manage related risks, secure optimal
supply and provide commercial agility
to enable best value for the near and
longer term. We also aim to apply JM’s
core values, according to the principles
in our code of ethics, in our supply chains
as well as our own operations.
49
Strategic ReportJohnson MattheyAnnual Report and Accounts 2019
Operations continued
In 2017/18 we launched our
Procurement Excellence programme
to drive further value and efficiency
through a standardised and consolidated
approach across JM. Our annual purchases,
excluding precious metal and substrate,
are about £1.5 billion. These purchases
are made across 118 sites, with historically
each site accountable, for the most part,
for its own purchases. This has, in the
past, limited our ability to leverage our
purchases across the group.
Over the last year we have continued
The Procurement Excellence 2025
strategic programme is enabled by
eight key pillars, aligned with and
embedded in the business, which
include Responsible Sourcing and
Supplier Partnerships.
We are already seeing cost
management and value creation successes
across all of our major spend categories.
We are on track to deliver our goal
of saving more than £60 million over
three years.
1 2 3 4 5 6
to roll out our global procurement
strategy and have begun to execute
against it. We have made excellent initial
progress by bringing together our existing
procurement community and by building
new capability to ensure that we capture
the opportunities in full.
Our Procurement Excellence
programme is forging the concept of a
One Procurement Community, with one
face to market which is able to partner
with the business to leverage the scale
and capabilities of the company and our
value chains to create enhanced value.
Responsible sourcing
Responsible sourcing is a key pillar of our
Procurement Excellence programme, as
well as one of our sustainable business
goals (goal 4). This is how we seek to
understand and appropriately manage
our environmental and social impacts
‘before JM’ in our value chain, and
work to improve sustainable business
practices among our supplier partners.
Some of our suppliers operate in
countries where there are high risks of
human rights, environmental or business
ethics abuses, and we are committed to
ensuring that such abuses do not enter
our supply chain.
We have a JM Supplier Code of
Conduct, issued in 2017 and available
on our website in English, German,
Japanese, Polish and Mandarin to which
we expect all our suppliers to comply.
Our Supplier Sustainable Development
Programme enables us to monitor
whether our suppliers are following our
code of conduct; it also 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 report annually on the
numbers of strategic Tier 1 suppliers
+
assessed and of those, how many meet our
responsible supplier compliance criteria.
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+
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matthey.com/supplier-code-of-conduct
k
k
k
Health and
safety
1
Our
people
2
Low carbon
operations
Responsible
sourcing
Sustainable
products
4
5
Community
Improve sustainable
engagement
business practices in
6
our supply chains
Sustainable
business goal
Sustainable
business KPIs
Baseline
2018/19
2025 target
Tier 1 strategic
suppliers assessed and
compliant with Supplier
Code of Conduct
% of Tier 1 strategic
suppliers assessed
in 2017/18
% of these compliant
with the code
17%
100%
76%
100%
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Performance against all six of our sustainable business goals is detailed on pages 31 to 33 and 238
r
Supplier sustainability assessments 2018/19
Number of suppliers
assessed for this
concern
Number of new
non-conformances
identified in 2018/19
Total number of
non-conformances
open at 31st March
2019
3
+
+
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k
k
k
Sustainable business
topic of concern
Child labour
Forced labour
Wages and working hours
Discrimination
Freedom of association
Health and safety
Environmental
Anti-bribery and corruption
Human rights
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.
78
78
78
78
78
78
78
78
–
–
1
1
–
27
–
5
–
–
1
1
–
31
–
5
Included in these were 13 strategic
Tier 1 supplier assessments which
contribute to our goal 4 target. Over the
last three years we have assessed 17%
of suppliers classified in this way. Of
those assessed, 76% complied with the
expectations of JM’s Code of Conduct.
In 2018/19, we assessed 78
suppliers using a combination of desktop
self-assessment questionnaires and
formal on-site audits. The table above
summarises the governance topics
evaluated for each supplier and where
non-conformances were identified. We
have not identified any incidences of child
labour or forced labour in our value chain.
50
Johnson MattheyAnnual Report and Accounts 2019Strategic Report 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 94) 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
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.
The UK Modern Slavery Act 2015
requires certain UK 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. Steps we are taking include
public policies and codes (including our
code of ethics and Supplier Code of
Conduct), implementing an independent
confidential ‘speak up’ line available to
all stakeholders to report concerns and
+
grievance and running our Supplier
Sustainable Development Programme.
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matthey.com/modern-slavery
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Conflict minerals
The term ‘conflict minerals’ refers to tin,
tungsten, tantalum and gold (3TG) which
originate 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.
+
+
r
k
Our conflict minerals due diligence
process is based on the Organization for
Economic Co-operation and Development
(OECD) Guidelines and 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.
We aim only to use material from
refiners and smelters which conform to
the Responsible Minerals Assurance
Process (RMAP) assessment protocols
and are listed on the RMI (Responsible
Minerals Initiative) database. We have
identified 157 3TG smelters across all tiers
of our supply chain and 97% are listed as
conformant with the RMAP process, an
increase of 8% on the previous year.
We also 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 86
+
customer requests for information, an
increase of 23% on the previous year.
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k
Critical metals for battery materials
During the year we have broadened our
due diligence activities in our minerals
supply chains to include the active
ingredients that go into our cathode
materials for batteries: lithium, cobalt and
nickel. At present, the 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
serious human rights abuses.
We are committed to using only
cobalt, lithium and nickel that have been
ethically sourced. We have worked with
third party experts RCS Global to develop
and implement a world leading due
diligence programme which ensures that
we have full transparency ‘back to mine’
for all the materials that contain lithium,
cobalt and nickel that are going into our
cathode products.
Our critical minerals supplier audit
programme conforms to the standard
laid out in the OECD Due Diligence
Guidance for Responsible Supply Chains
of Minerals from Conflict-Affected and
High-Risk Areas (third edition) and
provides assurance against the standards
laid out in our Supplier Code of Conduct.
All on site audits of JM suppliers for
+
battery materials are completed by
RCS Global to the ISO 19011 standard.
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www.rcsglobal.com
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k
Platinum group metals
We continue to monitor carefully our
supply chains for platinum group metals
(pgms). We work collaboratively with
both our customers and peer pgm
fabricator companies to ensure that our
sourcing from mines in South Africa and
elsewhere is ethical and responsible.
51
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Strategic ReportJohnson MattheyAnnual Report and Accounts 2019 Operations continued
The heart of our value chain: JM’s operations
Customer
1 2 3 4 5 6
JM
‘Gemba’ walks were a clear enabler of
the improvements and Panki realised
efficiency savings in excess of £1 million.
Training is also provided under the
Manufacturing Excellence programme.
Our global manufacturing leadership
programme runs alongside ongoing
training of manufacturing leaders to
identify personnel who are ready for
higher roles.
We are pleased with the results that
Manufacturing Excellence is bringing.
It is developing the next generation of
operational leaders, sharing best practice
and standardising tools and processes
– in short, establishing our factories for
the future.
+
+
r
k
Our own operations are at
the centre of our value chain.
It is here that we have the
greatest control over our
environmental impacts.
+
r
+
Pages 56 to 59 – our environmental performance
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Manufacturing Excellence
k
In 2012, we put in place our Manufacturing
Excellence programme to encourage a
culture of continuous improvement to
drive operational efficiency and reduce
cost. During 2018/19, our production
output of sold product increased by 7%.
Despite this, we have also seen a 6%
improvement in energy efficiency
(36.4 GJ/tonne) and 10% improvement
in water efficiency (18.6 m3/tonne)
across the group. Our waste efficiency
(0.6 tonnes/tonnes of production output)
worsened by 11% this year, mainly due
to an increase in waste for one of our
operations (see waste performance
pages 58 and 59).
There are multiple separate goals
within the overall Manufacturing
Excellence programme. One of the many
methodologies used to bring visibility to
our operations is the adoption of a system
of identifying new opportunities for
improvement by hands-on scrutiny and
review on the factory floor. These are
called ‘gemba’ walks in Lean management,
from a Japanese term, meaning ‘the
actual place’. The concept assists in
collaboratively seeking out improvements.
We also run a recognition programme
known as MEER – Manufacturing
Excellence Efficiency Recognition –
which makes awards to our highest
performing sites at three levels: silver,
gold and platinum. This past year, three
manufacturing sites were awarded with
silver MEER status (West Whiteland in the
US, Clitheroe in the UK, Taloja in India)
and two manufacturing sites were awarded
gold status (Panki in India, Queretaro in
Mexico). The Panki site met strict criteria
within ten stringent improvement goals
– a result of hard work by the team there,
under the guidance of our Group
Continuous Improvement team.
2018/19
JM production output of sold product
7% increase vs 2017/18
Energy efficiency
Water efficiency
Waste efficiency
6% improvement vs 2017/18
10% improvement vs 2017/18
11% less efficient vs 2017/18
52
Johnson MattheyAnnual Report and Accounts 2019Strategic Report 1 2 3 4 5 6
Low carbon operations
Goal 3 – one of our six goals for sustainable business to 2025 – concerns low carbon operation. Here our goal is to reduce our
greenhouse gas emissions by 25% per unit of production output, an ambition that forms part of our approach to low carbon
operations. We are achieving it through a combination of energy efficiency savings through our Manufacturing Excellence
Programme and cost effective, low carbon electricity purchases by our Procurement function.
Sustainable
business goal
Sustainable
business KPIs
Baseline
2018/19
2025 target
Health and
safety
1
Our
people
2
Low carbon
operations
3
Responsible
sourcing
Reduce our greenhouse
Sustainable
products
gas (GHG) emissions
5
per unit of production
output by 25%
4
Annual
Community
GHG emissions
engagement
(Scope 1+2) / tonnes
6
manufactured
product sold
CO2 eq emissions
intensity for 2016/17
2.9
2.8
+
Performance against all six of our sustainable business goals is detailed on pages 31 to 33 and 238
+
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r
Setting ourselves a greenhouse gas
k
emissions target as a function of production
output (intensity target), rather than as
k
an absolute value, allows us to monitor
any operational efficiency improvements
while also growing our business.
Our target considered the operational
plans in our strategy and was based on
an assessment of potential installations
and energy procurement opportunities
across our manufacturing footprint.
We will continue to review in the
coming year.
Renewable energy
28% of the electricity we consumed
during the year came from certified
renewable energy sources for which
JM has the associated Renewable
Energy Certificates, saving us around
47,000 tonnes of GHG emissions,
compared to purchasing grid average
electricity in those countries.
During the year we have continued
to negotiate additional renewable
electricity contracts at key locations, to
increase this percentage even more next
year, in line with our goal 3 for 2025.
Since 1st April 2019, all our UK sites
have been operating on renewable
electricity. The energy source has a
Renewable Energy Guarantee of Origin
(REGO) certificate, the highest form of
renewable energy validation.
We are now buying our electricity
from Drax Power Station in Yorkshire
which has the biggest renewable
generator in the UK and is the largest
decarbonisation project in Europe. It uses
sustainable biomass from forests that
absorb more carbon than is emitted
when the biomass is burnt for power.
Safe use of substances and metals
We seek to replace ‘high hazard’
substances – chemicals with significant
potential to harm human health or the
environment – where safer and
economic alternatives are available.
When replacement is not possible,
through detailed risk assessment backed
by extensive data packages, we ensure
robust risk management measures are
identified and in place. If a true risk
is identified, industry regulators could
take action that effectively eliminates
use of the substances in that market.
We work actively with other companies
to provide regulators with the best
available information on industry practice
such that any regulatory restrictions are
evidence based.
Our policies, especially on new
product innovation, emphasise the need
to investigate whether safer alternatives
are available.
We have set up a dedicated
committee known as PARS (Prior
Approval Required Substances) to review
certain high hazard substances of
relevance to JM in order to rate the risks
in using them to develop new products.
The committee has established its initial
index of substances that need internal
approval before they are used, and
further substance nominations will be
reviewed in the coming months.
Approval to use, if given, will be time
limited. We are driving a more considered
evaluation of the justifications for use for
these high hazard PARS substances and
we will continue to embed our PARS
approach in the coming year, with
further PARS-related training being
rolled out.
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+
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k
Many JM sites handle pgms. As
part of our approach to responsible
operations, we have provided significant
input into a comprehensive user guide
to pgms (‘Safe Use of Platinum Group
Metals in the Workplace’, International
Platinum Group Metals Association (IPA),
2017). The user guide provides practical
advice on workplace monitoring, the
medical surveillance of workers, control
measures, training and regulatory controls.
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.
+
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See more on our safety processes under ‘Health
and safety’ pages 69 to 73
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We use or manufacture only a
very limited number of substances
k
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.
1 e.g. SVHCs under REACH, RoHS or California
Prop 65 listed substances.
2 e.g. controlled by the Montreal Protocol, Stockholm
and Rotterdam Conventions, GHS category 1A/1B
carcinogens, mutagens or reprotoxins, etc.
53
Strategic ReportJohnson MattheyAnnual Report and Accounts 2019 Operations continued
After JM – Our value chain
After
JM
In-use
phase
End
of life /
recycling
Wholesale
Consumer
Recycling
Immediately downstream
of our operations are our
customers. We work closely
and collaboratively with them
to develop the products they
need to go into their own
manufacturing.
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.
So our responsibilities extend far
downstream of our own operations.
More broadly, JM, as a leading global
recycler of pgms, has a significant role in
the value chain of the global pgm
industries. Our pgm recycling and
refining operations process a wide range
of pgm containing materials, including
emission control catalysts at the end of a
vehicle’s life and other pgm containing
catalysts and products.
Product stewardship and toxicology
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 us, move towards
safer chemistries.
We continue to strengthen our
understanding of our toxicology and
communicate the hazards of JM products
to customers. At the same time, we use
that knowledge to move us towards safer,
more sustainable chemistries. We consider
legal compliance simply as a minimum
requirement, as legal developments may
not have kept fully up to speed with the
science as it develops. As we research
and develop our products, we may be
better placed than regulators to react
quickly to new science and take the
right decisions for people and the planet
more rapidly.
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,
and product stewardship is now better
integrated into new product innovation.
We are developing a groupwide product
stewardship IT system to allow sites to
manage inventory and know the
properties of the materials they are
handling. We plan to launch the new
system during 2019/20.
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.
54
Johnson MattheyAnnual Report and Accounts 2019Strategic Report We have procedures in place at
Third party intermediaries
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.
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k
In 2016 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; and 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.
To this end, this year we have built
a new, above-ground freshwater ring
main at our Brimsdown facility in the UK
to replace ageing pipework buried deep
below the plant. It came into operation
early in 2019 and we have already seen a
significant decrease in water withdrawals
at the plant, indicating there was leakage
in the old pipework.
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.
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. We plan to create a separate
audit process for product stewardship.
Product lifecycle regulatory
compliance
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We made good progress during 2018/19.
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). We realise that one scenario
of Brexit is a situation which could mean
there is divergence of regulations. We
would support the chemical industry in
its case for regulatory consistency and
continuity. Regardless of the political
outcome, we would like to see a ‘UK
REACH’ equivalence, with equal
standards that would enable us to secure
access to the EU marketplace. We will
continue to monitor the changes to the
regulations to ensure we maintain our
compliance with the specific regulation.
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
2018/19, 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
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product and service information, labelling
and marketing communications.
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JM uses third party intermediaries (TPIs)
to support our business and our
customers, and has policies and processes
in place to manage the risks, especially
in the area of bribery and corruption.
During the year, we concluded our
strategic review of all our high risk TPIs
and reduced their number by 70%.
The new standards, together with
ongoing monitoring processes, have
been firmly embedded in our sectors
and a corresponding onboarding process
will be undertaken for future TPIs. Our
derisking activities are already bringing
results and are hugely significant in
protecting the reputation of JM.
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Climate change disclosures
and benchmarking
We disclose our environment, social and
governance (ESG) performance through
the Carbon Disclosure Project (CDP)
climate change programme, which looks
at risks and opportunities of climate from
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of institutional investors.
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A changing global climate brings
with it a number of risks and opportunities
for JM, which we continually consider
and review annually as part of our CDP
disclosure. The most significant of these
continues to be tightening clean air
environmental legislation.
JM 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 and through our science and
technology we are enabling solutions to
reduce greenhouse gases (see page 44).
Water is an essential resource,
which is also impacted by climate
change. The World Resources Institute
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.
Policy on animal testing:
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Strategic ReportJohnson MattheyAnnual Report and Accounts 2019 Environmental management
Environmental performance summary
Goal 3: carbon footprint per mass sales
Operational carbon footprint
(Scope 1 and 2 market method)
Energy consumption
Electricity consumption
Natural gas consumption
Total waste sent off site
Total hazardous waste sent off site1
Waste to landfill
Water withdrawal
1 Excludes hazardous waste sent for beneficial reuse.
% change
Tonnes CO2 per tonne sales
thousand tonnes CO2 equivalent
thousands GJ
thousands GJ
thousands GJ
tonnes
tonnes
tonnes
thousands m3
2019
2.9
414
5,144
2,170
2,608
84,824
57,087
3,886
2,630
2018
3.4
445
5,104
2,055
2,722
71,787
44,020
6,271
2,729
% change
-12
-6
+1
+6
-4
+18
+30
-38
-4
All percentages and ratios in this section are calculated on unrounded numbers.
Environmental management
governance
We have group policies, processes and
systems to provide the guiding principles
necessary to ensure that high standards
of environmental protection are achieved
at all our sites.
The company 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.
Regulatory requirements for
environmental protection increase each
year in the territories where JM operates.
This year, as part of our internal
governance programme, we have engaged
third party consultants to undertake a
number of comprehensive compliance
reviews in North America and China.
In addition to these reviews, we have
updated our corporate environmental
standards in part to reflect the changing
regulatory requirements and to tighten
our internal environmental management
standards across the group.
As an example, in addition to our
legal requirements to engage with
regulators this year, our UK pgm refining
facility has invited inspectors from UK
environmental agencies to visit more
frequently to help drive continuous
improvement. This has resulted in the
implementation of a new waste tracking
system to improve internal and external
reporting of waste.
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; 86% of sites are currently
ISO 14001 compliant.
Going beyond this,10% 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 North Macedonia, South Africa
and our major sites in Germany have all
achieved this standard.
Annually we undertake a
comprehensive review of group
environmental performance across all
our manufacturing sites, R&D facilities
and large offices that are under our
financial control.
Energy consumption
Energy mix
Operational carbon footprint
GJ (’000)
5,500
5,366
4,400
3,300
2,200
1,100
0
GJ / tonnes
output
5,064
5,147
5,104
5,144
42.0
38.6
36.4
50
40
30
20
10
0
Renewable energy
generated on site
1%
Other
fossil fuels
7%
Other grid
electricity
purchases
30%
Natural
gas
51%
Tonnes C02
equivalent (’000)
Tonnes /
tonnes output
510
482
469
3.8
445
3.4
414
2.9
600
500
400
300
200
100
0
6
5
4
3
2
1
0
2015 2016
2017
2018
2019
GJ (’000)
GJ / unit production
Certified renewable
electricity from grid
11%
2015 2016
2017
2018
2019
Tonnes C02
equivalent (’000)
Tonnes /
unit production
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Johnson MattheyAnnual Report and Accounts 2019Strategic Report During the year we have introduced
a new software system across JM to
collect and manage key environmental
data. This will enable us to improve the
quality of the information collected and
increase visibility of performance on
demand across JM so that we can take
appropriate action to address any
negative trends more quickly.
Energy consumption
Energy is a valuable resource on which
we spent £64 million in 2018/19. We
recorded a 1% absolute increase in
energy usage within our facilities during
the year but a 6% decrease in energy
consumption per unit of production,
partly through our focus on manufacturing
excellence (see page 52).
Electricity usage across the group
rose by 6% while gas usage declined by
4%. 1.2% of our electricity came from
local solar power facilities that are not
grid connected. In total, 28% (601,427 GJ)
of the electricity we consumed during
the year came from certified renewable
energy sources for which JM owns the
associated Renewable Energy Certificates.
Our electricity consumption increased
principally because the combined heat
and power (CHP) plants which we use to
generate electricity to power our facilities
in Royston and Brimsdown, UK were out
of service during the year. These CHP
plants underwent a significant efficiency
upgrade and are expected to return to
operation in early 2019/20. This should
substantially reduce energy costs but
may have a negative impact on our
operational carbon footprint.
Operational carbon footprint
Scope 1
Scope 2 (market based method)
Scope 2 (location based method)
Scope 3 (from electricity transmission
and distribution)
Total operational carbon footprint
(Scope 1 and 2 market based method)
Total operational carbon footprint
(Scope 1 and 2 location based method)
1 2 3 4 5 6
Thus, our Scope 2 carbon footprint
calculated by the market method is 10%
lower than that calculated by the location
based method.
Our Scope 1 and 2 carbon footprint
calculated by the market method
decreased by 6% in 2018/19 whereas
our carbon footprint calculated using
the location method reduced by 1%.
This was mostly a result of our sites in
the Philadelphia area switching to a
zero carbon electricity contract from
April 2018. As of April 2019, all of our
UK sites are operating on renewable
electricity, so we are expecting the
differential between our carbon footprints
calculated by the two methods to increase
next year. Our focus on procuring
electricity derived from renewable
sources (page 53) means that for the
first time our Scope 1 carbon footprint is
higher than our Scope 2 carbon footprint.
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 licenced 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.
Greenhouse gas emissions
Our headline environmental KPI is a
measure of our operational carbon
footprint. In 2017 we set ourselves the
target of reducing our Scope 1 and 2
carbon footprint by 25% per unit of sold
manufactured product by 2025 (goal 3).
We have enthusiastically embraced
this challenge, and our successes in
procuring low carbon electricity to power
our plants have enabled us to achieve
93% of target after two years.
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) dual reporting
methodology. 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.
Competitive electricity markets for the
supply of grid electricity are operational
at 78% of our sites and at 67% of these
sites, the carbon intensity of electricity
we purchased was lower than the
national or regional average. 21%
of our sites, responsible for 39% of
all our grid electricity purchases, are
purchasing zero carbon grid electricity.
2019
thousand
tonnes CO2
equivalent
2019
% of total
carbon
footprint
2018
thousand
tonnes CO2
equivalent
2018
% of total
carbon
footprint
224
191
272
22
54%
46%
55%
n/a
215
230
279
20
48%
52%
56%
n/a
Scope 2
emissions
from electricity
purchases
46%
414
100%
445
100%
496
100%
494
100%
Scope 1
emissions from
natural gas
combustion
32%
Scope 1
emissions from
other fuels
combustion
5%
Scope 1
emissions from
process reactions
17%
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Strategic ReportJohnson MattheyAnnual Report and Accounts 2019 We also incinerated 3,642 tonnes
of waste within our own facilities,
principally waste sent to our refineries
for precious metal recovery.
Water withdrawal
Water withdrawal decreased this year to
2.6 million m3, a 10% decrease relative
to production output. 92% was supplied
by local municipal water authorities,
6% was abstracted from ground water
and 2% was abstracted from fresh
surface water.
50% of our manufacturing sites
operate their own waste water treatment
facilities treating 1.2 million m3 of waste
water per year, no change since last year.
19% 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 54% of its water
treated on site.
Environmental management continued
We continue to look for ways to
reduce the emissions to air from our
manufacturing activities. In China we
began operating equipment to prevent
volatile organic compounds (VOCs)
emissions from our Shanghai, China
sites. At our Health Sector facility in
West Deptford, USA we implemented
a project to replace the existing air
abatement equipment with more
modern and more reliable equipment.
The investment has led to better control
of local air emissions.
In 2018/19, our reported NOx
(NO + NO2) emissions were 538 tonnes,
up 41% on the previous year due to
increased production in our Catalyst
Technologies business.
Our total SO2 emissions increased by
39% to 62 tonnes due to one of our large
manufacturing sites reporting emissions
for the first time.
Our emissions of VOCs remained
broadly flat at 101 tonnes.
Our emissions to air data covers 56%
of our manufacturing sites and engine
test facilities. Within these numbers, we
believe we have captured the majority
of emissions across the group but will
be working to increase coverage of our
emissions to air reporting over the
coming year to confirm this.
NOx
SOx
VOCs
tonnes
tonnes
tonnes
2019
2018
538
62
101
383
44
100
%
change
+41
+39
+2
Waste disposal
We disposed of 84,824 tonnes of waste
via third parties in 2018/19, an increase
of 18% on the previous year. Over half
of this (54%) is waste from our UK pgm
refinery, largely liquid hazardous waste.
This waste material is designated as
hazardous due to its corrosive nature.
It currently cannot be treated by our
on site effluent treatment plant. The
increase is due to the rerouting of
additional refining effluent waste stream
to tankered waste due to increased levels
of metal contamination.
Of the total waste sent off site for
treatment, 34% was sent for reuse or
recycling. Excluding waste from our UK
pgm refinery, almost 60% of our waste
was reused or recycled off site.
Our total waste sent to landfill this
year decreased by 38%. We now have
only one plant (based in the USA) which
has a significant waste stream which is
being sent to landfill; we continue to
investigate alternative means to treat and
dispose of this material.
70% (57,087 tonnes) of our total
waste sent off site was classified as
hazardous waste. 94% of our hazardous
waste is liquid waste and over half of it
comes from our pgm refinery in the UK.
Only 3,185 tonnes (6%) of our
hazardous waste is solid material that
is not reused after it has been sent off
site. 1,668 tonnes of our hazardous waste
was shipped internationally for disposal,
3% of all our hazardous waste.
Total waste disposed of by third parties
Liquid non-
hazardous waste
9%
Solid
hazardous waste
4%
Solid non-
hazardous waste
18%
Liquid
hazardous waste
69%
Off site
incineration /
treatment
without energy
recovery
56%
Landfill
4%
Reuse
5%
Recycling
29%
Off site
incineration
with energy
recovery
6%
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Johnson MattheyAnnual Report and Accounts 2019Strategic Report
This year we have installed new
waste water treatment at our Shanghai,
China sites. Mechanical vapour
recompression systems have been
installed to reduce the salt content and
eliminate chloride ions in the sites’
waste water. A similar system is being
considered at the Taloja site in India.
A comprehensive waste water monitoring
system has been installed at the Taloja
site to keep track of its waste water
discharge to the common treatment
plant of the industrial zone where the site
operates. The system provides continuous
monitoring and is linked to the local
environment regulator for its monitoring
of the discharge trade effluent quality.
Environmental incidents
JM has a robust and effective management
system that requires all sites to report
environmental incidents to our Group
Environment, Health and Safety
department. All spills that occur on
unmade ground or near drinking water
sources are classified as significant.
During 2018/19 we received one
fine due to power outages at our
precious metal refinery in West Deptford,
USA. It was determined that our process
air emission abatement plants were not
operating correctly during power outages
at the site and this resulted in excess
air emissions. A fine of US $60,000
(approximately £46,000) was issued
by the local regulator.
There was one significant spill
during the year. A fault in the fire
detection system at our Health Sector’s
West Deptford facility resulted in the
site’s fire water and foam deluge system
activating. The system contained
approximately 25,000 gallons of water
and foam of which most was retained in
the storm water pad. A small amount of
the material was not contained and
approximately 20 gallons of the foam
and water mixture made its way into a
local creek. The incident was voluntarily
reported to the local regulator. No action
was taken by the regulator in this case.
Environmental spills
Location
West Deptford, USA
Volume (litres)
Material
Impact
100
Chemicals
Under investigation
Our total effluent increased by 5%
to 1.7 million m3 in 2018/19 due to
increase in reported effluent at Clitheroe.
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 net freshwater consumption
(water withdrawn that is not returned
directly to the environment for reuse at
least as clean as it was when it was
withdrawn) was 2.36 million m3, a 6%
decrease on last year. More information
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disclosure.
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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 2018/19 the group discharged
organic chemicals equivalent to an
average COD of 171 mg/L into water
courses, as regulated by local emission
limits at each manufacturing facility,
a decrease of 9% on the previous year.
This average COD was calculated
from readings collected at sites
representing 79% of our total water
discharged, a 22% increase in coverage
on last year. 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.
Total waste
Water withdrawal
Tonnes
120,000
Tonnes / tonne
1.00
95,8561
90,000
0.72
84,824
0.75
71,787
0.60
60,000
0.54
30,000
0
0.50
0.25
0.00
Thousands m3
2,529
2,605
2,643
2,729
2,630
21.6
20.6
18.6
3,000
2,500
2,000
1,500
1,000
500
0
m3 /
tonne
30
25
20
15
10
5
0
2017
2018
2019
2015 2016
2017
2018
2019
Tonnes
Tonnes /
unit production
Thousands m3
m3 / unit production
1
Includes 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.
59
Strategic ReportJohnson MattheyAnnual Report and Accounts 2019 60
Johnson Matthey
Annual Report and Accounts 2019
Strategic Report Our people are at the heart of JM’s business strategy.
For us to deliver solutions from our world class science
and realise our vision, we are creating a culture in which
people can be successful; one which attracts, retains
and develops the very best talent
Sustainable business goals
Health and
safety
People
Our
people
1
2
Low carbon
operations
Responsible
sourcing
Health and
safety
Health and
safety
Sustainable
products
Our
people
Our
people
Community
engagement
Low carbon
operations
Low carbon
operations
Responsible
Responsible
sourcing
sourcing
Sustainable
Sustainable
products
products
Community
Community
engagement
engagement
3
4
1
1
5
ˆ
2
2
6
3
3
4
4
5
5
6
6
Market, economic and technological trends, and what these are demanding of JM, are having
a significant impact on the people agenda, and for this reason it is a strategic pillar to which all
organisation objectives are aligned.
A culture for success
The environment we create through our
values is fundamental to the success of
our organisation. They shape how people
behave with each other, with our
customers and with our other stakeholders.
Our values drive individual and collective
actions that help create a safe working
environment and an ethical, diverse and
inclusive organisation. When successfully
embedded and lived, they determine the
kind of company that JM is to work for.
Our values are aligned to the needs
of our long term strategy and we are
embedding them into all our people
processes. We define our values as:
•
Protecting people and the planet.
• Acting with integrity.
• Working together.
•
Innovating and improving.
• Owning what we do.
Our culture at JM sets safety,
wellbeing, inclusion and collaboration
as priorities, using our diversity as a
strength and challenging ourselves to be
open, efficient, ethical and personally
responsible. With this culture, we are well
placed to deliver on our vision to make
the world a cleaner, healthier place and
solve the complex problems of our
customers – it is a culture for success.
Our values
Protecting people
and the planet
We practice the
highest standards
of health and safety,
promote wellbeing
for people both
inside and outside
of work, and seek to
safeguard our planet.
Acting with integrity
Working together
Innovating and
improving
Owning what we do
We do the right thing,
for people and for the
world. We do what we
say we’ll do, expect
the same of each other
and speak up when
there’s a problem. We
place importance on
relationships internally
and externally,
treating others with
respect and care.
We encourage
collaboration inside
JM and out, sharing
and embracing diverse
viewpoints. We tackle
problems together, put
our ideas into practice
and take pride in
combining our
contributions to create
something better for
JM and our customers.
We adapt and
embrace new ideas
to make us stronger
and our world cleaner
and healthier. We
are confident and
resilient through
change; growing and
developing ourselves
and JM, to ensure we
are a leader in our
chosen markets.
We take accountability
for our own work, and
know we are also
part of something
bigger. We take the
initiative, seek
clarity and demand
high standards
from ourselves and
our colleagues.
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Strategic ReportJohnson MattheyAnnual Report and Accounts 2019
People continued
A great place to work
Attracting and retaining the best
Executing our strategy needs a workforce
that is highly engaged, diverse and
inclusive with the best talent across our
global organisation.
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 together is very much
encouraged, all within an environment
that promotes growth and development.
We enable this with a people strategy
and key aims which define an aligned set
of global processes, programmes and
systems that support our people to fully
engage with the business priorities
through which we execute our strategy.
These key aims are to:
• Attract and retain the best talent.
• Develop all employees to deliver
high levels of performance and
achieve their career potential.
•
•
•
Create an environment where our
employees are recognised and
rewarded for their overall
contributions to JM.
Foster a culture where values
matter and guide people to do the
right things.
Support employees through an
evolution of change and
transformation.
We are implementing progressive,
global people policies and practices that
will help us realise our vision. We offer
excellent opportunities that enable
people to fully develop and realise their
potential with JM, through contributing
to a more sustainable future, while
having a meaningful career.
Our people policies meet local
statutory requirements and we often go
beyond them to recognise best practice.
Our policies and procedures are a
combination of global, country and some
site specific. When staff are inducted into
JM, we fully explain those that are
relevant to them. We review our people
policies and risks in accordance with our
governance framework, with the board
being responsible for overseeing the
overall people strategy. The Nomination
Committee oversees talent and succession
plans, and decisions. The Remuneration
Committee is responsible for overseeing
and ensuring the Remuneration Policy
is adhered to.
Talent is critical to enable us to maintain
our world class science and leading
market positions. Our headcount has
increased over the last year, reflecting
the growth in our business. In our more
established locations we have remained
stable. The increases have been in India,
North Macedonia and Poland.
Levels of recruitment have increased,
driven by business growth in some
regions (as detailed above) and the need
to build capability in certain functions
such as IT and Information Security,
Procurement and Finance to support our
transformation programmes. In 2018/19,
the total number of internal appointments
and promotions increased from 595 to
874. This reflects a deliberate attempt to
maximise opportunities for our current
employees by offering them further
career development opportunities.
We have been successful in attracting
women into JM; the percentage of
female hires is above our overall
company total of 27%. Currently,
a lower proportion of women in JM
overall occupy science, technology and
engineering roles. We aim to address
that through our diversity and inclusion
aspirations and roadmap to 2025
(pages 65 and 66).
At the same time as hiring for
immediate business requirements, we are
also investing in our future talent pipeline.
Following the successful launch of our
global graduate rotational programme last
year, we are continuing to hire graduates
into science, operations and commercial
disciplines. A new cohort of 37 graduates
are set to join JM in the UK, US and China
in this cycle. Of this group, 58% are female
compared with 39% in the previous year.
Our female graduate diversity compares
very favourably with other chemical and
engineering companies. The number of
females choosing to study STEM subjects
at university undergraduate level remains
low. Although this is a challenge for us,
we are increasing our efforts to position
JM as an employer of choice.
Overall voluntary attrition has
increased slightly this year compared
with last. This is partly due to the
highly competitive new markets we
are operating in and the changes
we are experiencing. We have also
seen an increase in the numbers of
people leaving us in their first two years.
We are addressing this through our work
to define our employee promise and
our broader investments in our people
processes. These are all focused on ensuring
we can attract and retain the skills we
need to deliver our business strategy.
There have been a small number
of restructuring programmes across the
business and this, coupled with retirements
in the year, takes our total employee
turnover to 13.2%.
Employee promise
We have a compelling case to sell as
an employer. We are developing our
employee promise that will help us
attract and retain the very best talent.
It will make the most of our unique
purpose and provide more clarity for
employees on what they can expect from
JM as an employer and what we expect
from them in return. The employee
promise will be launched in the coming
year and will emphasise themes such as
personal autonomy, collaboration and
purpose. We have engaged our existing
workforce in the creation of our
employee promise through workshops
that have been held globally as well as
using insight from the external
recruitment market.
Reward and recognition
We continue to work hard to ensure that
our reward and benefit packages are
competitively aligned with local markets.
We have refreshed our online benefits
portal ‘Elements’ and this is now available
to all employees globally.
Internal and external research is
showing us that employee recognition
can significantly improve engagement
and promote innovation.
We celebrate our achievements
with the annual JM global awards. They
highlight activities that provide inspiring
evidence of our values and how our
employees are living them. This year we
presented eight awards including the
Chief Executive’s Award for Outstanding
Contribution (see pages 74 and 75).
The awards were announced at the
Natural History Museum in London
in January 2019.
A formal event and prestigious
venue are not in themselves essential to
recognition. We are also piloting a more
informal ‘Say thanks’ programme, which
enables employees to give and share
recognition. The ‘Say thanks’ tools include
a recognition portal, e-cards and awards
that can be redeemed in the form of
small gifts.
62
Johnson MattheyAnnual Report and Accounts 2019Strategic Report Number of staff * as at 31st March
2018
2019
Permanent
employees
Temporary
employees
Agency
employees
Permanent
employees
Temporary
employees
Agency
employees
Total
7,728
3,140
2,598
664
926
92
330
67
6,714
3,105
2,376
662
1,415
14,130
12,857
397
13
73
59
542
1,185
51
159
1
1,396
Europe
North America
Asia
Rest of World
Total group
6,460
3,028
2,236
595
12,319
342
20
32
2
396
* For definitions, see page 234
New joiners by gender and age
Male
Female
Aged
under 30
Aged
30 to 50
Aged
over 50
Aged
under 30
Aged
30 to 50
Aged
over 50
456
696
509
777
92
135
Total
1,057
1,608
Aged
under 30
Aged
30 to 50
Aged
over 50
184
293
270
446
38
77
Total
492
816
Total
640
989
Total
779
1,223
Total
130
212
2018
2019
Total
8,296
3,169
2,608
722
14,795
Total
new
joiners
1,549
2,424
Employee turnover by region
Europe
North America
Asia
Rest of World
Total group
2018
Voluntary
employee
turnover
%
7.9%
10.8%
11.6%
4.9%
9.1%
Total
employee
turnover
%
10.8%
15.1%
17.4%
8.1%
12.8%
2019
Voluntary
employee
turnover
%
8.7%
12.5%
13.1%
8.4%
Total
employee
turnover
%
10.7%
18.3%
14.7%
9.8%
Voluntary
leavers
597
382
312
55
1,346
10.4%
13.2%
Voluntary
leavers
526
330
233
29
1,118
Of the total voluntary leavers, 669 (54%) had less than two years’ service (2018: 471, 42%)
New employees in 2018/19
by gender and age
New employees by region
Voluntary employee turnover in 2018/19
by gender and age
Female
aged over 50
3%
Male
66%
Female
34%
Female
aged 30 to 50
19%
Female
aged under 30
12%
Male
aged over 50
5%
Rest of
World
4.2%
Male
aged under 30
29%
Asia
21.5%
Male
aged 30 to 50
32%
North
America
26.3%
Female
aged 30 to 50
18%
Europe
48.0%
Female
aged under 30
9%
Male
aged over 50
6%
Female
aged over 50
3%
Male
70%
Female
30%
Male
aged under 30
25%
Male
aged 30 to 50
39%
63
Strategic ReportJohnson MattheyAnnual Report and Accounts 2019
People continued
Talent management
We have refreshed our approach to talent
management to better define the talent
pools we need for future business
requirements and to support our people
in reaching their full potential, whether
that is in specialist or management
disciplines. This approach to reviewing
our talent and supporting people’s
development is fundamental in enabling
us to understand what talent we have,
what we need for the future and how we
address capability gaps.
We are prioritising the importance
of our performance and development
conversations in JM. We have already
streamlined our performance
management and development processes
into one global approach. We are
monitoring the number of performance
discussions through our management
grade population to evaluate the
effectiveness of this process.
1 2 3 4 5 6
Employee engagement
In a period of change, it is especially
important to know whether our employees
are engaged as we continue to evolve as
an organisation. Every two years we
conduct an employee survey, known as
yourSay, and we welcome employee
feedback and insights. The results of our
2018 survey provided rich data, confirmed
our achievements and highlighted areas
where we still have more work to do.
There were variations across our
four business sectors and functions and
analysis of the data has allowed us to
create new action plans to respond to the
findings and continue to shape future
efforts to support our goal of making
JM the place to work.
The scores on employee
understanding of our strategy have risen
– showing that we have responded well
to calls in 2016 for better clarity and
communication. Our efforts on these
priority areas were recognised and we are
continuing to make improvements. The
results for health and safety and ethics
were once again higher than the industry
norms, and our work-life balance score
has also improved.
However, the ‘employee engagement’
measure – indicating how committed
and motivated our people are – has
dropped by three percentage points since
2016 from 62% to 59%. Our ‘employee
enablement’ score – showing whether
people feel they have the right resources,
support and work environment to
perform at their best – was flat at 63%.
These scores are unsurprising, given the
fundamental changes we are making
across all aspects of JM, and the survey
results have enabled us to chart a course
for improvement.
Employee engagement is a group
non-financial KPI and is one of our
sustainable business goals. In 2019 we
will conduct an interim pulse employee
survey aligned to the key drivers of
engagement and enablement in JM.
Our aim is to improve our scores for
engagement and enablement by two
percentage points as a result of the
targeted actions in response to employees’
feedback in the 2018 survey.
Training and career development
We continue to invest in resources and
programmes to develop capability and
leadership so that we support all
employee groups in being able to fully
realise their career aspirations with
us and perform at the highest levels.
Career development was highlighted
as an important theme in our 2018
employee survey.
Our Aspire leadership development
programmes, launched in 2018, represent
JM’s ambition to develop all levels of
leaders to be great coaches and role
models, which will help to drive the
business performance and growth that
will deliver our vision and strategy. The
programmes align and interconnect and,
to date, we have launched programmes for
our mid level and executive level leaders.
During 2019, we aim to launch our
senior leader programme and will pilot
a new programme for first time leaders.
We launched the R&D career path
earlier this year to further develop our
technical capabilities and to support
people in this function to achieve their
potential and career goals. We are
building a sales academy to strengthen
our commercial capability. In addition,
we are investing in the capability of our
line managers so they can have better
development and career conversations
with their employees.
Average full time equivalent workers*
on JM sites during 2018/19
Gender of people employed
by employment type
Percentage of people employed
by gender
As at 31st March 2019
Europe
North America
Asia
Rest of World
Full time
Part time
%
Male
%
Female
%
Male
%
Female
72%
77%
82%
66%
28%
23%
18%
34%
22%
46%
10%
51%
78%
54%
90%
49%
As at 31st March 2019
Europe
North America
Asia
Rest of World
%
Male
%
Female
69%
77%
82%
65%
31%
23%
18%
35%
Total group
75% 25% 28% 72%
Total group
73% 27%
Temporary
employees
3%
Agency
employees
7%
Contractors
(project staff,
specialists and
outsourced
services)
29%
20,242
* For definitions, see page 234.
Permanent
employees
61%
64
Johnson MattheyAnnual Report and Accounts 2019Strategic Report We also launched two new digital
e-learning platforms in 2018 called
‘myCareer’ and ‘iLearn’. These provide
our employees with on demand learning
tools, materials and resources that are
focused on general business skills, career
and leadership development. The
platforms can be accessed anywhere,
anytime, allowing employees to
continuously learn and take more active
ownership of their development.
Together, our values and employee
behaviours create our distinctive
corporate culture. We have also embedded
values into our performance management
process to ensure we are rewarding and
recognising our role models and we will
continue to embed them across all our
people processes in 2019/20.
1 2 3 4 5 6
Embedding our values and
protecting our culture
Research from GreenBiz and other
organisations shows that people may want
to work for companies with sustainability
credentials. On this, JM offers a compelling
proposition. We emphasise this in our
values, particularly that of protecting
people and the planet, and we show that
in being part of JM, our workforce is
making a real difference to the world.
In the past year, we have been
engaging our workforce in our values
and how we embed them in our everyday
behaviours. We held 27 workshops at
18 of our sites. The workshops revealed a
strong sense of purpose around our vision
but also revealed that there is more to
do to really create a culture within which
people can be successful and feel engaged.
Taking this on board, we created a
values toolkit for managers to help them
communicate our values to their teams
and create a momentum in applying
them day to day – in other words, using
the values to guide the behaviours we
want to see employees now practising.
Diversity and inclusion (D&I)
Our values are critical to creating a
diverse, inclusive and safe environment.
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.
There is significant research that
demonstrates the impact an effective
D&I strategy can have on business
performance. In JM, D&I is integral to the
very essence of who we are. Our unique
vision means that D&I needs to be at
the bedrock of our culture.
We have made progress on this
agenda; as part of our sustainable business
framework, we have set a goal to foster
a truly inclusive culture by 2025; we offer
a range of D&I programmes to raise
awareness and help educate our people;
our revised talent processes provide a
foundation for D&I; and we have been
successful in attracting female candidates
into JM as outlined on page 62.
However, clearer outcomes and
better coordination is needed to fully
embed this agenda and keep pace with
other quality organisations. With this we
have refreshed our ambition:
‘D&I forms the core foundation of
who we are in Johnson Matthey and our
vision for a world that’s cleaner and
healthier; today and for future generations.
D&I enables our innovation and agility
because of the value we place on
diversity of all kinds. Our leadership
team enables strong business
performance because they empower and
engage their teams by role modelling
inclusion in their everyday conversations.
Our shareholders and customers trust us
because our rich diversity is a hallmark
of a sustainable, well run business.’
Gender diversity statistics
The table below shows the gender
breakdown of the group’s employees
as at 31st March 2019.
As at 31st March 2019
Male
Female
Total
Board
GMC
Subsidiary directors
Senior managers*
New recruits
6
7
108
48
1,608
3
3
10
16
816
9
10
118
64
2,424
Total group
9,797
3,602 13,399
* Senior managers is defined as the direct reports of the GMC.
Some individuals are included in more than one category.
Board
Female
33%
GMC
Female
30%
Subsidiary directors
Female
8%
Male
67%
Male
70%
Senior managers*
New recruits
Total group
Female
25%
Female
34%
Female
27%
Male
75%
Male
66%
Male
92%
Male
73%
65
Strategic ReportJohnson MattheyAnnual Report and Accounts 2019
People continued
‘Our reputation for an environment
where difference matters means as an
employer, we stand out from the crowd
and attract a broad talent pool. Integral
to our culture are two fundamental
beliefs that all differences matter and
that all people are valued. Our integrity is
a direct result of ensuring that all voices,
however quiet, are heard. In JM everyone
thrives and brings their full-self to work’.
We have created a refreshed
roadmap to execute our ambition from
which objectives will be cascaded and
monitored via business reviews. This
roadmap outlines the outcomes we will
achieve over a three year period and
specific actions we will take to build
awareness, create more diversity and
embed a culture of inclusion.
To better measure our progress
against our sustainable business goal,
we have introduced a target based upon
the Refinitiv Diversity & Inclusion Index.
This internationally recognised standard
is very comprehensive and helps us
benchmark against the full range of
activities within our D&I agenda. The
+
methodology can be downloaded at:
r
+
r
+
+
r
https://www.refinitiv.com/en/financial-data/indices/
diversity-and-inclusion-index
k
k
k
We are looking to improve our
overall score, from a 2017/18 baseline,
by 40% by 2025. Based on today’s
rankings that would place JM in the top
100 companies globally.
Task force and employee
resource groups
We have a D&I task force made up of
volunteers from around the world who
act as a sounding board and forum
through which we engage the wider
organisation. We also have four employee
resource groups.
Pride in JM launched in October
2017 to support LGBT+ employees and
allies. Good progress has been made over
the last year, with a global committee set
up and a local chapter in Devon, US
being developed.
The Black Employee Network
followed in December 2018, with the
aims of promoting JM as a diverse
employer and improving the recruitment,
retention and development of black
employees at JM.
Supporting UN Sustainable
Development Goal 5 on gender equality,
a Gender Equality Network launched in
March 2019 to advance gender balance
in JM. The group is seeking a greater
balance of male and female employees
across all roles (including leadership and
manufacturing), and the appropriate
facilities for working mothers.
Most recently, in May 2019, our
DiversAbility employee resource group
was launched to support people in JM
who have physical, mental and social
health conditions and help the company
to maximise the use of their talents.
+
+
r
Gender pay gap
In March 2019, we published our second
gender pay gap report, covering UK
employees. Our UK gender pay gap has
narrowed from 9.2% to 8.5% and we
continue to be well placed when
compared with the national average
gender pay gap of 17.9%.
Our gender pay gap is largely down
to female under-representation and the
gender split in our different functions –
we have fewer women than men in our
science, technology and engineering
jobs. This, in turn, reflects a gender bias
in university education; only 24% of UK
graduates studying science, technology,
engineering and maths (STEM) subjects
are women. Our manufacturing jobs,
often with a shift allowance, are also
dominated by men.
As at 31st March 2019, women
represent 27% of UK employees (25%
of senior management and 33% of the
board). We are taking steps to tackle the
root causes of gender imbalance, the pay
gap and female under-representation
through our D&I and talent action plans.
Our efforts were recognised in a
report by independent consultancy
Equileap in 2018, which ranked JM at
number 75 in a listing of top performing
companies. Over 3,000 public companies
were researched and ranked, with scores
based on a wide variety of factors. It was
a significant achievement to have
performed so well against thousands of
other companies, but the report has also
+
reminded us of the work still to be done.
r
+
r
matthey.com/gender-pay-18
k
k
k
Trade union representation
26% of our employees (2017/18: 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 2018/19.
Permanent employees
Represented
% Represented
Rest of
World
662
Asia
2,376
Rest of
World
395
Asia
79
12,857
Europe
6,714
North
America
553
3,335
Europe
North America
Asia
Rest of World
Total group
% represented
34%
18%
3%
60%
26%
North
America
3,105
66
Johnson Matthey
Annual Report and Accounts 2019
Europe
2,308
Strategic Report 1 2 3 4 5 6
Volunteering and STEM –
connecting with our communities
for social impact
If more girls chose to study science at
university, the female talent pool would
grow and with it, female representation
in companies like our own. Through our
school and university outreach activities,
we are encouraging girls to think about
a career in STEM areas.
Volunteering has a part to play here
and JM employees are entitled to two days
of paid volunteering leave a year. There is
a pipeline of scientific talent in JM which
this year we have used to greater effect
through volunteering in schools. 235 days
were dedicated by our employees to
inspire young people in science careers;
60 employees alone from our North of
England sites supported over 700 students
to improve their understanding of, and
interest in, science.
Volunteering leave can be spent in
many other ways and, supported by our
refreshed global volunteering policy, this
year our employees volunteered a total
of 1,116 days around the world – a 65%
increase from last year – and we are
working to improve even further so we
can achieve our sustainable business goal
to donate a cumulative 50,000 volunteer
days by 2025.
But encouraging our employees to
use their volunteering entitlement is just
one part of our community engagement.
The history of our community investment
shows an abiding and consistent desire
to do good, and this will never change.
1,500 hours that made a
difference in San Diego
At our annual JM Awards ceremony in
January, we were proud to announce
a team from San Diego as the winners
of our ‘working together: in our
communities’ award. Through 1,500
hours of community volunteering,
employees in San Diego have worked
with over 1,000 students, cleaned
beaches, worked at local food banks,
and supported hundreds of local
residents who were struggling to
survive. They donated their £5,000
prize to the San Diego Youth Services
shelter for homeless teenagers.
See pages 74 and 75
+
+
r
+
r
+
r
k
k
k
We have donated money through
partnerships, and company time through
volunteering. We have given back to
our communities because it’s the right
thing to do.
During 2018/19 a global team
has formed to create a new strategic
framework for social investment at JM
with a clear and distinct aim; to create
global impact through science education.
In our ambition to improve access
to a quality science education for all, we
are looking at the many reasons for low
uptake of STEM subjects. They include
gender inequality, distance from school
and negative perceptions of what a
career in science can offer. Another issue
is quality of STEM teaching, which may
arise from out of date learning materials,
inadequate science equipment and a lack
of science education standards. Our new
strategic framework will help enable us
to tackle both the barriers to access and
inclusion and the barriers to quality
STEM education.
The passion of our people remains
the foothold of our success and JM is
proud to have matched almost £80,000
Community investment summary
raised by our employees this year – our
best ever match giving performance
and almost double last year’s figure.
Mountains were climbed and marathons
run; one employee completed a parachute
jump and another zip-lined over the river
Clyde in Scotland. The personal goals
achieved by our employees this year have
been a driving inspiration behind JM’s
new social impact ambition. Our direct
company donations in 2018/19 were
£840,000, up 24% on last year. Including
employee volunteering time, our total
community investment in 2018/19 was
£1.1 million (2017/18: £0.83 million).
We believe that science education is
a catalyst for a cleaner, healthier world.
With our sustainable business goal on
volunteering in place, embedded in a
strategic framework and powered by our
people’s drive to deliver solutions, we have
a clear direction ahead of us. Working
together across our sites globally, we aim
to be actively implementing our framework
midway through 2019/20, exploring
new ways of protecting this planet, and
continuing our history of finding solutions
to some of the world’s greatest challenges.
Direct expenditure
Corporate donations to charities
Donations by sites to local charities and community projects
Indirect expenditure
Employee volunteering time
Total group
Investment
in 2018/19
£’000
Investment
in 2017/18
£’000
% change
840
331
509
249
249
1,089
680
300
380
152
152
832
+24
+10
+34
+64
+64
+31
Johnson Matthey
Annual Report and Accounts 2019
67
Strategic Report People continued
Acting with integrity
A strong culture of ‘doing the right thing’
is shaped by our value of acting with
integrity and we believe it is 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 into our strategic advantage.
Our approach to this 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.
Our global code of ethics, ‘Doing the
Right Thing’, is central to the way we act
as a company and one of the main ways
we promote an ethical culture. The code
is available in 22 languages and contains
information and resources that help
our employees to make decisions in
line with our values and demonstrate
the highest standards of integrity and
ethical behaviour.
In December 2018 we published a
refreshed code of ethics – on our website
and in hard copy, bringing it up to date
to reflect new legislation and our
redefined company values, and to bring
scenarios to life so that employees can
easily see how the code applies to ethical
behaviour and choices in real working
situations that are relevant in JM today.
In April 2019 we launched our
online ethics and compliance training for
the year. All employees are required to
take a code of ethics module every year,
reinforcing basics and taking a deeper
dive into a selection of topics chosen
every year.
Everyone is also required to complete
the code acknowledgment each year
confirming that they will work in
accordance with the commitments in the
code. 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.
We have a growing network of
approximately 115 ethics ambassadors
located throughout our business globally.
They are a sounding board for employees
and provide guidance on where to go for
help or to raise a concern. This year, they
played an important role in bringing our
refreshed code of ethics to life, supporting
senior leaders with their responsibilities
for ethics and compliance and promoting
a good ethical culture. They took a key
part in hosting launch events during
which people were encouraged to get
to know their way around the refreshed
code while recycling their paper copies
of the 2015 code.
Within JM 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, 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 those employees directly
employed by JM. 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.
Speak up reports
During 2018/19, 125 speak ups were
received and investigated which, given our
size, is in line with the industry norm in
terms of volume (see table below).
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
Data protection
Discrimination including harassment
and retaliation
Environment, health and safety
Fraud, money laundering and
embezzlement
Employee rights
Insider trading
Misconduct or inappropriate behaviour
Other or general query
Physical assets
Violence or threats
9
8
1
2
10
1
47
8
6
9
1
8
8
1
6
We note the number in the
‘discrimination’ category is high in
relation to the other categories and, upon
investigation, we found a number of
these related to broad employee relations
issues which were subsequently addressed.
Anti-bribery and corruption training
by region
Code of ethics training
by region
number of employees
number of employees
Competition law training
by region
number of employees
Rest of
World
346
Asia
841
Rest of
World
346
Asia
1,391
North
America
1,181
Europe
3,649
North
America
2,062
Europe
5,376
Rest of
World
346
Asia
841
North
America
1,041
Europe
2,580
68
Johnson MattheyAnnual Report and Accounts 2019Strategic Report We view the total number of
speak ups (125) as a positive reflection
of the confidence in the process and
many recommendations arising from
investigations have been actioned in
our businesses.
In order to have an effective ethics
and compliance programme we apply
our compliance programme framework
to each risk area, which includes having
policies and training in place. We keep
the programme under continuous review.
The risk areas include bribery and
corruption, data protection, export
controls and sanctions, conflicts of
interest, competition / anti-trust,
financial crime (including the recently
introduced corporate criminal offence of
failing to prevent the facilitation of tax
evasion), modern slavery (see page 51)
and activities regulated by the UK
Financial Conduct Authority.
A new data protection law came
into force in the EU in May 2018. Known
as the General Data Protection Regulation
or GDPR, it is designed to protect the
personal data and privacy of all EU citizens.
In response, we have developed and
issued our global data protection policy and
are implementing a global programme to
adjust our processes to meet requirements
under the new legislation. This includes
focused training for employees who
handle personal data at work to help
them understand what they should
do to ensure a culture of data privacy
and information security throughout
our organisation.
Supporting employee wellbeing
As we execute our strategy, the
accompanying changes, through growth,
business transformation and new
programmes, all make an impact.
Against this background, employee
wellbeing is particularly important.
An independent global survey across
21 industries showed that employees
are looking to their employers for a
commitment to health and wellbeing.
At the same time, organisations that
actively promote health and safety will
find their employees significantly more
likely to be engaged. In response, we
have developed a global wellbeing
framework to support our employees in
their emotional, financial, physical and
social wellbeing. Our principal themes
for 2019 are: mental health; work-life
harmony; musculoskeletal disorders;
and cancer awareness. We have
introduced a support service called Assist.
This is confidential and globally available
24 hours per day.
This year we have also introduced
global flexible working policies. New
working arrangements will allow
employees to have some level of
influence over how, when and where
they work and provide arrangements
for parental and bereavement leave.
All this represents an improvement
over purely statutory obligations and
marks a significant step forward in
how we look after our people and their
families in an inclusive way.
In the UK, as uncertainty surrounding
the UK’s withdrawal from the EU remains,
we continue to support our employees
who are EU nationals working in the UK
and our UK citizens working in the EU.
We also provide information and take the
opportunity to engage with our people
to help them understand what the
developments and different scenarios could
mean for them. Our Brexit working group
works closely with our HR team to ensure
we are able to navigate the best outcome
for our people.
Mental health
External research indicates that one in
four people will suffer from mental ill
health in the course of any one year.
But indicators of poor mental wellbeing
sometimes go unnoticed, as those who
are suffering can be reluctant to admit
to a change in mental health because
of a fear of stigma or discrimination.
In April 2019 our Chief Executive, on
behalf of the whole company, committed
to creating a climate of greater openness
on mental wellbeing, as well as providing
support to anyone who would like it.
As part of our commitment, we are
taking action in a number of areas. We
are also working with the UK mental
health campaign, Time to Change, and
will be making a public commitment on
its website by signing its employer pledge.
1 2 3 4 5 6
Health and safety
The first of our sustainable business goals
is to aspire to zero harm in matters of
health and safety. The goal has ambitious
KPIs and we track any injuries and
illnesses using common safety indicators.
We have rolling safety programmes
and continue to launch new safety
campaigns and programmes to refresh
awareness and deepen our safety culture
among employees.
We are committed to conducting
all our activities in ways that achieve
high standards of health and safety for
all employees and those affected by
our operations. We want to achieve year
on year improvements in performance as
we progress towards our ‘zero harm’ goal.
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 environment, health and
safety (EHS) activities and draw lessons
from any near miss incidents.
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.
Accompanying our Group
Environmental, Health and Safety Policy,
we have a core group of eight of our
health and safety policies which we call
‘lifesaving policies’. These policies cover
high risk areas, where policy breaches
could endanger life or lead to serious
injury. They are available in local
languages and we have continued to
provide guidance to our sites on how to
implement them, using tools such as
e-learning, gap assessments and internal
audits. All sites have action plans for the
implementation of our lifesaving policies
and good progress is being made against
those plans. In addition, e-learning
modules on three of the policies were
rolled out this year to employees to raise
their awareness.
There are two broad areas of focus
for us in workplace health and safety.
The first is process safety, which is about
how we safely manage our most
hazardous processes. The second area
is occupational health and safety which
is about incidents that happen more
frequently but are less severe, like slips,
trips, falls, cut injuries, sprains and
strains. We have more work to do in our
safety behavioural programmes to drive
more ownership for personal safety
throughout all levels of the organisation.
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Strategic ReportJohnson MattheyAnnual Report and Accounts 2019 People continued
Process safety
We introduced a new process safety risk
management strategy in 2017, followed
by a new process safety severity rate
indicator in April 2018, and early signs
of a reduction in severity rates are
emerging as shown in the chart below.
We still have more work to do to ensure
we are accurately capturing the data and
to maintain our good progress to reduce
the severity rate further.
Our process safety risk management
(PSRM) is based on a framework
developed by the Centre for Chemical
Process Safety (CCPS). We have created
a working infrastructure, with a group
process safety team, subcommittees with
defined responsibilities, selected site
process safety champions and provided
JM specific training; 112 senior managers,
312 site leadership teams and 96 process
safety champions have all been trained.
We have conducted site surveys to
identify sites with process safety risks –
and whether the risks are high, medium
or low – to enable us to target our
process safety efforts. All these sites have
carried out maximum credible event
(MCE) studies. Several high risks were
identified with many actions; around
80% of these have now been completed
which has resulted in significant
reduction of risk. Any process safety
event and its severity rate are logged in
our specialist reporting system to ensure
a standardised approach.
Eight of our high risk sites had a
PSRM audit in 2018/19, providing useful
indications of where approaches to
process safety needed to be strengthened.
We have also created a new protocol for
our process safety audit, based on our
process safety framework and aligned
with the CCPS.
Other activities include: a pilot for
our process safety competency assurance
programme, with individual site
personnel assessments; ongoing roll out
of our risk related process safety and
engineering standards which cover topics
common across JM such as pressure
relief; and implementation of lagging
and leading process safety indicators.
Improving safety behaviour
The second area of focus is ‘behavioural’
– simple accidents like tripping over that
could be avoided with greater awareness
of the risk. Around three quarters of our
injuries are due to behaviour and the
main types are: sprains and strains; slips,
trips and falls; and hand injuries.
Over the last ten years, we have seen
a long term reduction of 50% in lost time
incident rates but the figure has been flat
over the last few years. Among our
efforts to reverse this, we identified the
12 sites that had poor leading and
lagging indicators and put in place
targeted safety improvement plans. All
have now seen a good reduction in injury
rates, and seven out of the 12 sites have
reduced their total recordable injury rate
by more than 40%.
We have continued to emphasise the
benefit of learning events to help bring
down our total recordable injury rates.
This year we reported a greater number
of learning events, where we looked at
near misses, unsafe conditions and unsafe
acts – injuries that had been avoided,
but sometimes only just. There are
valuable lessons to be learnt here and
these events have been successful in
reducing injury rates.
Safety can be improved and
maintained both by a leadership
approach and on the ground through
engaging people in safety, providing
training and raising their awareness.
At the leadership end of the spectrum,
we have an EHS leadership committee
in place which assists the company in
meeting its EHS responsibilities and in
creating a positive safety culture across
the whole of JM. Site visits, having safety
conversations, personal safety messages
and reviews of EHS actions all highlight
the visible involvement of leadership.
At the same time, EHS leadership
training has been integrated into JM
leadership programmes at all levels,
and a global EHS induction programme
for leaders and managers has recently
been developed. Regional EHS
conferences with site operations have
been set up, with the first taking place
in September 2018.
Process safety severity rate
Trade union committee representation
6
5
4
3
2
1
e
t
a
r
y
t
i
r
e
v
e
s
y
t
e
f
a
s
s
s
e
c
o
r
P
0
A pril 2018
M ay 2018
June 2018
Dece m ber 2018
July 2018
October 2018
Septe m ber 2018
A ugust 2018
N ove m ber 2018
January 2019
February 2019
M arch 2019
70
Johnson Matthey
Annual Report and Accounts 2019
23 (43%) of our manufacturing sites have active trade unions
and 74% of them have a trade union representative on their
local health and safety committee. 78% of sites have formal
trade union agreements that cover health and safety topics
(listed in the table on the 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
71
88
82
82
94
82
Strategic Report
At the onsite local level we have
completed the rollout of ‘My Team,
My Responsibility’, a training scheme
that builds on our EHS behaviour
awareness programme and aligns with
our EHS behaviour standard. All sites
have benefited and there have been
some outstanding successes.
Occupational health
Occupational health also remains very
important for us. The number of
occupational illnesses reported each year
remains low, and while the number of
occupational health cases has come down
from 25 in 2013/14 to 21 in 2018/19,
we saw a year on year rise from 2017/18.
We are seeing an increase in work related
stress cases, though the overall number
is small. There is better awareness and
we are encouraging our staff to report
these cases, but we are taking the
increase seriously.
We have identified three factors that
are leading to stress in our workplaces:
work relationships; work pressures; and
organisational change. In the UK alone,
over 11 million working days a year are
lost because of mental health problems,
with one in four people affected.
During the year we began to
introduce a number of programmes and
services globally across JM to support the
health and wellbeing of our people, with
more to follow in 2019/20. These are
explained more fully on page 69.
We tackle occupational health at
both group and site 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 as
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.
Ergonomics remains a focus area.
Lack of correct physical movement – at
a workstation, in a lab or on the factory
floor – can lead to musculoskeletal
disorders. We issue guidance at group
level which is then implemented at site
level. To enhance our assessment of
ergonomic risks, this year we ran a trial
of the Humantech system across 20 of
our sites globally in JM. The system
provides online awareness and risk
assessment training as well as risk
assessment survey records and reporting.
After this successful pilot, we are now
implementing the programme in all
sectors at most of our sites.
We have also updated our policy
and guidance on industrial hygiene –
the recognition and control of
environmental factors that may cause
sickness – and are now rolling them out,
with an emphasis on training and
collaboration among employees.
Driving further 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.
We have an ongoing programme
of regular EHS assurance audits which
are undertaken using global protocols.
In 2018/19, we undertook 26 audits
(including eight process safety audits)
at our manufacturing and R&D facilities
and completed 14 audit action reviews.
A total of 40% of our manufacturing
sites are compliant with BS OHSAS 18001,
the internationally recognised British
Standard that sets out requirements
for good practice in occupational health
and safety management.
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 81%
of employees globally.
My Team, My Responsibility
brings improvement in
EHS culture
In Pennsylvania, US, a behaviour
based safety team ran the ‘My Team,
My Responsibility’ programme for all
the departments at three of our sites.
Around 70 supervisors were trained.
The programme strengthened the
supervisor / employee relationship,
encouraged novel thinking on EHS topics
and raised safety awareness. At the
same time, the employee recognition
scheme was refreshed. As a result of the
programme, the EHS culture maturity
rose from level two to level four and
the people involved were winners in
the ‘protecting people and the planet’
category at our annual JM awards.
See pages 74 and 75
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k
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Johnson Matthey
Annual Report and Accounts 2019
71
Strategic Report People continued
In 2019/20 we will continue to focus
on process safety and occupational health
and safety. We have introduced EHS
personal safety action plans for our
GMC leaders and at all levels down to
our frontline leaders. Their plans include
practical activities to promote a proactive
safety culture by demonstrating more
visible, higher quality safety leadership.
The successful outcome for us is greater
employee engagement and, in turn,
improved EHS performance. We are also
increasing the regularity and quality of our
EHS communications with targeted and
measurable campaigns to drive awareness,
engagement and personal ownership.
1 2 3 4 5 6
Health and safety performance
During the year, reported injuries across
JM were of relatively low severity (none
were life threatening or life altering) but
disappointingly, despite continued focus
on health and safety over the last year,
our lagging indicators of performance
for employees continued to be flat. Our
lost time injury and illness rate (LTIIR)
of 0.53 and total recordable injury and
illness rate (TRIIR) of 0.97 were both
marginally higher than last year
(2017/18: LTIIR 0.521, TRIIR 0.961).
When we analyse our performance
further, we can see that this plateauing
is isolated to a combination of poor
performance at two sites and an increase
in work related stress cases in the UK;
if we exclude occupational related stress
cases this year, our LTIIR was 0.45.
Interventions are already well under way;
both sites are on safety improvement
plans and we are rolling out a range of
wellbeing support services and activities.
There were a total of 80 lost time
accidents and illnesses across the group
during 2018/19. 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.
More positively, in the year we saw
a 50% increase in the number of EHS
learning events that were reported. This
leading performance indicator shows
that we are making progress in increasing
awareness of potential ‘near miss’
incidents and that we are developing and
embedding an EHS culture across JM.
Our leaders also had a greater number
of safety conversations during the year.
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 0.74 to 0.40. Lost time
incidents involving contractors fell during
2018/19 to six (2017/18: eight). This
improvement in performance comes from
focusing on and auditing our lifesaving
policies and was achieved despite a 39%
increase in reported contractor hours
worked from 2,171,462 during 2017/18
to 3,009,338 in 2018/19. This reflects
the increased activity due to increased
capital investment across the group.
There were no contractor fatalities in
2018/19; the last one occurred in
October 2010.
The number of occupational
illnesses reported during 2018/19 was
21, giving a rate of 0.140 illnesses
per 200,000 working hours in a rolling
year in 2018/19 (compared with 0.085
in 2017/18). Of the 21, 13 were in
Europe and eight were in North America.
No contractor illnesses were reported
in 2018/19.
Our overall number of occupational
illnesses remains low although there
has been a noticeable increase in cases
this year, principally due to increased
reporting of work related mental
wellbeing cases which represented 13
of the 21 cases reported. All 13 were in
the UK. We have been aware of the rising
trend in reported cases of mental ill
health in the UK and have focused
efforts to tackle the problem, support
our people and provide proactive
guidance (as described on page 69)
across JM globally.
We have continued to use a
health scorecard system developed
by the UK Chemical Industries
Association to monitor our health
performance. This year 61 sites
completed the scorecard questionnaire,
compared with 64 sites the previous year.
Of these, 64% reported scores of A or B
(which corresponds to best practice);
30% reported C scores (which corresponds
to our current minimum target score);
and 6% reported an average D score
(below our current minimum standards).
Lost time injuries and illnesses
by event type
Lost time injuries and illnesses
by region
Occupational illness cases
Hit by
moving
vehicle
5%
Struck
against object
6%
Other
6%
Exposure to
workplace
stressor
15%
Hit by moving,
flying or falling object
18%
Slip, trip
or fall
26%
North
America
16%
Rest of
World
4%
Asia
5%
Europe
75%
Ergonomics
related
24%
Number
of cases
30
25
20
15
10
5
0
Rate /
200,000
working hours
0.30
0.25
0.20
0.15
0.10
0.05
0.00
2015 2016
2017
Occupational
illness cases
2019
2018
Rate per
200,000 working hours
in a rolling year
72
Johnson Matthey
Annual Report and Accounts 2019
Strategic Report Sustainable
business goal
Health and
safety
1
Our
people
Low carbon
operations
For health and safety,
aspire to zero harm
2
3
Sustainable
business KPIs
Annual TRIIR
Responsible
sourcing
Annual LTIIR
4
Annual OSHA
severity rate
Baseline
2018/19
2025 target
TRIIR in 2016/17
Sustainable
products
Community
engagement
LTIIR in 2016/17
6
Rate in 2016/17
5
0.97
0.53
27.9
0.6
0.2
6.0
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Performance against all six of our sustainable business goals is detailed on pages 31 to 33 and 238
r
r
All scores were in line with the previous
year although within these, occupational
illness leadership was a topic which
k
reported a lower performance and so
is an area we will focus on in the
coming year.
k
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. 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.
The rise in our rate this year comes from
a combination of the increased number
of work related stress cases and the fact
that these cases have required longer
periods of time off work. Excluding work
related stress cases, our OSHA severity
rate is 24.4.
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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 28
and 29.
We are also active members of a
number of trade associations and groups
which help us to understand, inform
and contribute to issues and discussions
that are relevant to our stakeholders.
Associations we have worked with in
2018/19 include the UK Chemical
Industries Association, The European
Chemical Industry Council (CEFIC),
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,
Eurometaux (which represents the
European non-ferrous metals industry),
and Aldersgate Group. In September
2018, we joined the Hydrogen Council
as a steering member (see page 29).
Shareholders are an important
stakeholder group. We meet with our
major shareholders regularly, as described
in the Corporate Governance Report.
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For investors particularly interested
in ethical and socially responsible
investments, we meet with specialists
k
from their organisations to discuss
sustainability and corporate social
responsibility issues where applicable
and participate in key sustainable
investment benchmarking studies. These
include the Carbon Disclosure Project
(CDP), the Dow Jones Sustainability
Index (DJSI) and FTSE4Good.
In March 2018, we received an
‘AAA’ ESG rating from investment index
provider MSCI for the seventh consecutive
year. This is the highest possible rating
for a company’s risk and performance
against a range of environmental, social
and governance factors, and one that
places us above our chemical industry
peers. We are a constituent of the
FTSE4Good UK 50 Index.
Lost time injury and illness
rate (LTIIR)1
Total recordable injury and illness
rate (TRIIR)1
OSHA severity rate
per 200,000 working hours in a rolling year
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
2016
LTIIR
March
2017
March
2018
March
2019
0
March
2016
TRIIR
March
2017
March
2018
March
2019
1 Data for 2017/18 has been restated due to injuries and illnesses that were reported or reclassified after the year end.
At 31st March
2017
2018
2019
OSHA severity
18.51
18.41
27.9
1 Restated due to incidents that were reported after the
year end.
73
Strategic ReportJohnson MattheyAnnual Report and Accounts 2019 People continued
Recognising
our people
Our JM Awards categories are aligned with our values, which guide the behaviours of everyone in the business.
The winners have been recognised as individuals who truly embody the core of what JM is and strives to be.
Protecting people and the planet
This award recognises achievements and significant
contributions to improving health and safety and / or
safeguarding the environment. The winning projects
demonstrated visionary and leading commitment to
enabling a cleaner, healthier world through driving
progress in reducing environmental impact or
improving health, safety and employee wellbeing.
Owning what we do
“Owning what we do” focuses on areas of our
business which link directly with fulfilling our
strategic goals, taking accountability for
driving business performance and leading in
line with our vision, strategy and values. The
winners of this category went the extra mile to
achieve the very highest standards and deliver
what they promised.
Innovating and improving:
operations
This award focuses on how hard
work, including practices,
processes, systems, methods and
business models, has led to
manufacturing and / or value
adding improvements in
efficiency for a team, a site or
the company as a whole.
Working together: in our communities
The winner of this category recognises community investment initiatives
that make a positive impact to local communities.
Acting with integrity
“Acting with Integrity” can take many forms, from engagement
and the way we treat each other, to the decisions we make about
the way we do business. This award recognises an individual who
takes action to ensure JM is doing the right thing. This has been
at the core of JM since its foundation and is key to ensuring we
build and protect our reputation. Our winner advocates integrity,
inclusivity and respect for others through their everyday activities.
74
Johnson Matthey
Annual Report and Accounts 2019
Strategic Report “ As a young female scientist at the start of my career, I found
it a privilege to be part of the awards and meet world class
scientists who pioneer research to protect our planet.
“ The JM Awards has shown me the remarkable things we can
do when we work together, and that we are a global family
which continues to grow, innovate, connect and celebrate
our achievements. ”
Emma Gledhill, Scientist
Innovating and improving:
science and technology
This category recognises the value
that new ideas and innovations in
science and technology bring to
Johnson Matthey and our
customers, and the value created
when we improve our working
practices. Innovations and
improvements can arise from a
single eureka moment, or from
extensive collaborations with
colleagues and customers. However
they emerge, they strengthen our
technology portfolio and enhance
our reputation, and business or
process performance. Our winners
were part of a team that has
shown how an innovative approach
can be used to create valuable
opportunities for Johnson Matthey.
Chief Executive’s award for outstanding contribution
This award pays tribute to the immense contribution our people make
to JM’s success. Today we have an exceptionally diverse and global
workforce and our tradition of engaging, developing and recognising
the best of our people is continued through this award. This peer
nominated award gave our people the opportunity to champion a
colleague and tell us how they have inspired or excelled by taking
initiative and carrying on responsibilities beyond their regular job,
in a way that embodies JM’s culture and values.
Explore more
Find out more about the 2019 JM Awards
matthey.com/jm-awards
Working together: in business
This category recognises the very best examples
of working together in JM. Collaboration can
happen at all levels and is often a part of what
we do day to day; this award was given to
employees that go above and beyond
expectations and that have a real impact on the
success of the company.
A human periodic table
To celebrate the 150th year of chemistry’s most iconic image in true
JM style, we created our very own human periodic table. With a little
help from 150 finalists, judges and guests under one giant blue
whale, we snapped the memorable image from the balcony above
Hintze Hall at London’s Natural History Museum.
Johnson Matthey
Annual Report and Accounts 2019
75
Strategic Report 76
Johnson Matthey
Annual Report and Accounts 2019
Strategic Report Financial
performance
review
Group performance review
Reported results
Year ended 31st March
Revenue1
Operating profit
Profit before tax (PBT)
Earnings per share (EPS)
Ordinary dividend per share
£ million
£ million
£ million
pence
pence
2019
10,745
531
488
215.2
85.5
2018
10,274
359
320
155.2
80.0
% change
+5
+48
+53
+39
+7
Underlying performance2
Year ended 31st March
Sales excluding precious metals (Sales)4
Operating profit
Profit before tax
Earnings per share
£ million
£ million
£ million
pence
2019
4,214
566
523
228.8
2018
3,846
525
486
208.4
% change
% change,
constant rates3
+10
+8
+8
+10
+10
+8
+7
Notes
1 Revenue for the year ended 31st March 2018 has been restated, see note 39 on page 220.
2 Underlying is before profit or loss on disposal of businesses, gain or loss on significant legal proceedings together with associated legal costs, amortisation of acquired intangibles,
major impairment and restructuring charges and, where relevant, related tax effects and significant tax rate changes. For definitions and reconciliation of other non-GAAP
measures, see note 4 on page 179.
3 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 2017/18 results converted at 2018/19 average exchange rates.
4 Revenue excluding sales of precious metals to customers and the precious metal content of products sold to customers.
Summary
Underlying performance2
•
Sales grew 10% and underlying operating profit grew 8%
at constant rates3 driven by strong growth in Clean Air.
• Underlying EPS was up 10% and ahead of operating profit,
benefiting from a lower tax rate.
•
Free cash was an outflow of £13 million, impacted by
platinum group metal (pgm) refinery downtime, driving
higher precious metal working capital and higher capex.
• Average working capital days excluding precious metals
improved by three days to 59 days.
• Return on invested capital (ROIC)*, excluding net pension
assets, decreased from 17.0% to 16.4% mainly due to
higher precious metal working capital.
Reported results
• Reported revenue increased 5%.
• Reported operating profit was £531 million, up 48%. In the
prior year, we recognised a major impairment and restructuring
charge of £90 million, and a legal settlement of £50 million.
• Reported EPS was therefore up 39%, reflecting the higher
operating profit in the current year.
•
Cash inflow from operating activities was £334 million.
• Recommended ordinary dividend up 7% to 85.5 pence for
the full year, reflecting our strong performance and
confidence in the group’s future prospects.
•
Strong balance sheet with net debt of £866 million; net
debt to EBITDA of 1.3 times.
* Underlying operating profit divided by the monthly average of equity, excluding post tax
pension net assets, plus net debt for the same period. We have changed our definition of
ROIC to exclude net pension assets as these are not operating assets.
77
Strategic ReportJohnson MattheyAnnual Report and Accounts 2019 Sector performance review
Performance summary by sector
Clean Air
Efficient Natural Resources
£2,720m
Sales1 +11%2
£393m
Operating profit3 +13%2
£991m
Sales1 +4%2
£181m
Operating profit3 +15%2
Sales1 by business
Sales1 by business
HDD Asia
5%
HDD Europe
12%
HDD Americas
17%
LDV Asia
13%
Other
2%
LDV Americas
13%
LDV Europe
38%
Advanced Glass
Technologies
8%
Pgm Services
28%
Diagnostic Services
7%
Catalyst Technologies
57%
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 14.4%
Return on invested capital 30.0%
Employees 5,919
1 Sales excluding precious metals.
2 At constant rates (see note 3 on page 77).
3 Underlying (see note 2 on page 77).
78
• 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.
• Diagnostic Services – for the oil and gas 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
• Clariant
• BASF
• Lurgi
• Albemarle
• Grace
• UOP
• Heraeus
Margin 18.3%
Return on invested capital 12.6%
Employees 3,645
• Umicore
• Ferro
• DuPont
Johnson MattheyAnnual Report and Accounts 2019Strategic Report Efficient Natural Resources
Health
New Markets
£181m
Operating profit3 +15%2
£257m
Sales1 +3%2
£43m
Operating profit3 -4%2
£362m
Sales1 +17%2
£2m
Operating profit3 -85%2
Sales1 by business
Sales1 by business
Innovators
33%
Generics
67%
Life Science
Technologies
14%
Medical Device
Components
19%
Other
10%
Alternative Powertrain
57%
• Leading provider of solutions to the complex problems of both
generic and innovator companies.
• Develops and manufactures active pharmaceutical ingredients (APIs)
for a variety of treatments.
• Operates in the large and growing outsourced small molecule
API market.
Customer profile
• Generic pharmaceutical companies.
• Innovator pharmaceutical companies.
Major competitors
• Noramco
• Francopia
• Siegfried
• Cambrex
• AMRI
• Alcami
Margin 16.7%
Return on invested capital 9.0%
Employees 858
• Hovione
• Almac
• 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, including eLNO,
our leading ultra high energy density cathode material, 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.
• Heraeus
• Evonik
Major competitors
• Umicore
• BASF
• LG
• BMZ
• WL Gore
• 3M
Margin 0.7%
Return on invested capital 1.1%
Employees 1,934
79
Strategic ReportJohnson MattheyAnnual Report and Accounts 2019 Financial performance review continued
Operating results by sector
Clean Air
Sales
LDV Europe
LDV Asia
LDV Americas
Total Light Duty Vehicle Catalysts
HDD Americas
HDD Europe
HDD Asia
Total Heavy Duty Diesel Catalysts
Other – stationary
Total sales
Underlying operating profit
Margin
Return on invested capital (ROIC)
Reported operating profit
Year ended 31st March
2019
£ million
2018
£ million
% change
% change,
constant rates
1,031
361
346
1,738
476
334
128
938
44
2,720
393
14.4%
30.0%
390
855
351
358
1,564
395
320
131
846
44
2,454
349
14.2%
30.5%
296
+20
+3
-3
+11
+20
+4
-2
+11
-
+11
+13
+32
+21
+3
-4
+12
+19
+4
-1
+11
-
+11
+13
Double digit sales growth in both LDV and HDD catalysts
•
Light Duty Europe sales up 21% with strong growth in both diesel and gasoline.
• Achieved share gains in European light duty diesel and a market share of circa 65% at March 2019.
•
•
•
Light Duty Asia sales grew 3%, ahead of market production.
Light Duty Americas sales were down 4% driven by weaker diesel sales.
Sales of HDD catalysts were up 11% primarily due to continued strength in higher value US Class 8.
• Operating profit was up 13% and margin improved 0.2 percentage points to 14.4%.
Light Duty Vehicle (LDV) Catalysts
Sales of diesel catalysts were up 22%
Our LDV Catalyst business provides catalysts
for emission control after-treatment
systems that reduce emissions for cars
and other light duty vehicles powered by
diesel and gasoline. The business grew
12%, well ahead of the decline in global
vehicle production.
In Europe, where diesel accounts for
around 85% of our LDV business, sales
grew 21% primarily driven by our diesel
market share gains.
reflecting our market share gains and
were significantly ahead of diesel market
production which declined 9% year on
year. As expected, we achieved the circa
20 percentage point increase in our
market share from 45% to circa 65% by
the end of the financial year. There was
also a small benefit from higher value
sales of more complex catalyst systems.
In Western Europe, diesel accounted
for 35% of new passenger car sales in
2018/19 compared with 42% in the last
financial year. Light duty commercial
vehicles remain largely diesel today.
When these are included, the overall
share of diesel sales in Western Europe
was 42% for 2018/19, compared with
49% in 2017/18. These trends do not
change our assumption of a diesel share
of around 25% of total light duty vehicles
and 20% of cars in 2025.
Sales of gasoline catalysts were up
18%, well ahead of market production.
Growth was driven by an improved sales
mix with an increased number of high
value coated gasoline particulate filters
(GPFs) sold in the period. We expect
the number of vehicles with coated
GPFs to increase in the medium term,
significantly increasing our sales value
per gasoline vehicle.
80
Johnson MattheyAnnual Report and Accounts 2019Strategic Report The World Harmonised Light Duty
Testing Procedure (WLTP) was introduced
from September 2018. There was some
disruption to phasing of European
automotive production and sales, but we
experienced no material impact on our
business in the year. In the longer term,
due to the different technical requirements
to meet these standards, some auto
original equipment manufacturers (OEMs)
have changed solutions. Consequently, as
we previously indicated, our anticipated
five percentage point market share gain
in gasoline will not be achieved by
2020/21. We continue to increase R&D
spend on gasoline catalysts given the
development of the market.
Sales in Asia LDV grew at 3%, ahead
of the decline in market production.
Within this, sales in China declined 5%,
broadly in line with the market which
slowed significantly during the second
half of our financial year. China currently
represents a small portion of our Clean
Air Sector and therefore the impact
of the Chinese market decline was
not material. Over the medium term,
our Asian business will double in size
as we capture growth from tightening
legislation, particularly in China and India.
Sales in Americas LDV were down
4% while market production was flat.
This was driven by a weaker performance
in diesel following strong growth in the
prior year and the ramp down of a platform.
Heavy Duty Diesel (HDD) Catalysts
Our HDD Catalyst business provides
catalysts for emission control
after-treatment systems that reduce
emissions for trucks, buses and non-road
equipment. The business had another
good year with sales growing 11%,
significantly ahead of global market
production, driven by strong growth in
the higher value US Class 8 market.
The Americas HDD Catalyst business
grew sales 19%. Sales of catalysts for
Class 8 trucks were broadly in line with
market production of 22% and we
continue to expect high levels of
production to peak in the middle of the
2019 calendar year.
Sales in our European HDD Catalyst
business grew 4%, ahead of the market.
This outperformance was driven by the
increase in the proportion of sales
related to higher value non-road
extruded products.
Estimated LDV sales and production (number of light duty vehicles)*
Year ended 31st March
2019
millions
2018
millions
%
change
North America
Total Europe
Asia
Global
Sales
Production
Sales
Production
Sales
Production
Sales
Production
20.6
16.9
20.4
22.0
43.4
47.2
93.0
91.8
20.8
16.9
20.8
22.2
44.8
48.8
95.8
94.0
Estimated HDD truck sales and production (number of trucks)*
-1
-
-2
-1
-3
-3
-3
-2
%
change
+15
+16
+1
-1
-2
-1
+2
+2
Year ended 31st March
2019
thousands
2018
thousands
615
624
506
645
2,257
2,298
3,515
3,710
535
540
502
653
2,297
2,314
3,450
3,631
North America
Total Europe
Asia
Global
* Source: LMC Automotive.
Sales
Production
Sales
Production
Sales
Production
Sales
Production
Sales in the Asian HDD Catalyst
business were broadly flat, in line with
the market. In China, sales fell 10%,
also in line with the market. This followed
a period of strong production growth
driven by increased demand for trucks
as a result of loading limit legislation.
We continue to see strong sales growth
in India from a low base.
Underlying operating profit
Operating profit grew 13% and margin
improved by 0.2 percentage points,
benefiting from volume leverage.
ROIC
ROIC, excluding net pension assets, was
down slightly at 30.0% reflecting higher
precious metal working capital.
Outlook
We expect a year of more modest growth
in 2019/20, weighted to the first half
as we realise the benefit of annualised
share gains, partly offset by reinvestment
into R&D, our ERP system and new
manufacturing capacity. We anticipate
that these investments for growth and
efficiency will lead to a slightly lower
margin than in 2018/19. Beyond
2019/20, we expect sales and operating
profit growth to be increasingly driven
by the introduction of new legislation
in China and India.
81
Strategic ReportJohnson MattheyAnnual Report and Accounts 2019 Financial performance review continued
Efficient Natural Resources
Sales
Catalyst Technologies
Pgm Services
Advanced Glass Technologies
Diagnostic Services
Total sales
Underlying operating profit
Margin
Return on invested capital (ROIC)
Reported operating profit
Year ended 31st March
2019
£ million
2018
£ million
% change
% change,
constant rates
567
281
75
68
991
181
18.3%
12.6%
175
564
253
82
57
956
158
16.5%
11.8%
138
-
+11
-9
+21
+4
+15
+27
+1
+10
-9
+24
+4
+15
Growth in sales and margin improved
•
Sales growth driven by double digit growth in catalyst refills and higher average pgm prices, partly offset by lower catalyst first fills.
• Operating profit grew strongly and margin improved by 1.8 percentage points to 18.3%, benefiting from higher average pgm
prices and net benefits from improved efficiency partly offset by reinvestment in the safety and resilience of our pgm refineries
and weaker performance in Advanced Glass Technologies.
Catalyst Technologies
Our Catalyst Technologies business
licenses technology and manufactures
speciality catalysts and additives for the
chemicals and oil and gas industries.
Sales were broadly flat with double digit
growth in refill catalysts offset by lower
sales from first fill catalysts while
licensing was stable at a low level.
Refill catalysts and additives is
recurring business which makes up the
majority of sales within our Catalyst
Technologies business. Sales grew
double digit, outperforming our markets
in aggregate. We saw very strong
performance in methanol but weaker
performance in ammonia, primarily
driven by the phasing of customers’
orders. There was also good growth,
above the market, in catalysts for
petrochemical and hydrogen plants.
Sales of catalyst first fills were
significantly down. These are one-off in
nature and driven by the start up of new
plants. Sales of methanol first fills were
lower following increased activity in
2017/18 as industry capacity came on
stream and hydrogen first fills were also
down reflecting a large order in 2017/18.
Our licensing business is dependent
on new plant builds and income is
recognised over the period of construction.
In the year, licensing income was stable
and activity around new plant builds,
particularly for the technologies we
license, remains subdued. We signed
five new licences in the period which
include our newly developed technologies
such as mono ethylene glycol and waste
to aviation fuel. Whilst we do not expect
a material recovery in licensing income
in the near term, we are pleased with
our progress in developing and
commercialising new technologies.
Pgm Services
Our Pgm Services business primarily
provides a strategic service to the group,
mainly supporting Clean Air with security
of metal supply in a volatile market.
This business is expected to grow at
low single digits over the medium term.
It comprises our pgm refining and
recycling activities and produces chemical
and industrial products containing pgms.
In the period, sales grew 10%. We
saw strong growth in our refining and
trading businesses due to higher and
more volatile average pgm prices.
Average palladium and rhodium prices
were up 20% and 83% respectively,
while the platinum price declined 11%
compared to the same period last year.
Sales of chemical products grew slightly
driven by growth in Clean Air which uses
pgm materials in its catalyst products.
However, sales of industrial products
containing pgms were down.
In the period, we had unscheduled
downtime in one of our pgm refineries
which, in conjunction with higher
average pgm prices, resulted in a
significant increase in precious metal
working capital. We expect to make
progress in reducing our precious metal
working capital in our refineries during
2019/20 and anticipate being at
normalised levels by the end of 2020/21.
We are improving the performance of
our refineries and, as previously stated,
we are investing to ensure our assets
operate effectively and reliably, improving
returns. This programme amounts to
around £100 million over three years
and is already included within our group
capex guidance.
Advanced Glass Technologies
Advanced Glass Technologies mainly
provides black obscuration enamels
and silver paste for automotive glass
applications. Sales declined primarily
driven by the automotive segment
reflecting a slowdown in global car
production and weaker performance in
China, partly due to destocking in the
supply chain. Demand for non-automotive
enamels and ceramics was also lower.
82
Johnson MattheyAnnual Report and Accounts 2019Strategic Report Diagnostic Services
Underlying operating profit
ROIC
Diagnostic Services provides specialised
detection, diagnostic and measurement
solutions for our customers in the
petroleum industry. Our Diagnostic
Services business grew strongly. The
higher oil price drove greater activity in
the upstream oil and gas industry leading
to higher capital investment and
increased operating expenditure by our
customers. This resulted in improved
demand for our services.
Operating profit was up 15% and margin
improved by 1.8 percentage points,
benefiting by around £16 million from
higher pgm prices, around £7 million
of savings from the restructuring
programme and further net benefits
from improved efficiency across the
sector of which around £5 million will
not repeat. This was partly offset by
higher operating costs in the pgm
refineries and investment in their safety
and resilience.
ROIC, excluding net pension assets was
up by 0.8 percentage points to 12.6%
reflecting higher operating profit.
Outlook
In 2019/20, we expect sales growth with
operating profit growth ahead of sales as
we continue to drive efficiencies in our
business and maintain our focus on
higher growth segments.
Health
Sales
Generics
Innovators
Total sales
Underlying operating profit
Margin
Return on invested capital (ROIC)
Reported operating profit / (loss)
Year ended 31st March
2019
£ million
2018
£ million
% change
% change,
constant rates
171
86
257
43
16.7%
9.0%
50
173
74
247
44
18.0%
8.4%
(12)
-1
+16
+4
-3
n/a
-2
+14
+3
-4
Sales growth with operating profit slightly down
• Generics sales were broadly flat whilst Innovators continued to grow.
• Operating profit was slightly down as expected and margin was 1.3 percentage points lower. This was mainly due to a weaker
product mix because of a continued decline in high margin products as they moved through their lifecycle and net costs
associated with footprint optimisation.
•
There are 46 molecules in our generic API pipeline, which includes one launch in the year. We remain on track to deliver an
additional £100 million of operating profit by 2025.
Generics
Our Generics business develops and
manufactures generic active
pharmaceutical ingredients (APIs) for a
variety of treatments. Sales were broadly
flat, with a mixed performance across
the business.
Sales of controlled APIs grew slightly.
We saw sales growth in bulk opiates in
Europe with strong demand from one
key customer following a weaker prior
year. Sales of speciality opiates also grew,
primarily driven by buprenorphine with
higher volumes supported by increased
capacity from the ramp up of our
manufacturing site in Annan, UK. Our
sales of APIs for ADHD treatments were
flat. Although we saw a reduction in
pricing and volumes of certain high
margin ADHD APIs as they move through
their natural lifecycle, we benefited from
a new customer launch following a
recent product approval.
Our non-controlled APIs declined
as expected. This primarily reflected a
reduction in sales of dofetilide as new
competitors for our customer entered
the market.
Innovators
Our Innovators business performed well.
We saw growth from sales of APIs where
our customers are increasing volumes as
they move into late stage testing ahead
of commercialisation.
In the period, we also announced a
strategic manufacturing partnership with
Immunomedics for the manufacture of a
drug linker used in the production of an
immuno-oncology treatment for triple
negative breast cancer. The drug is
currently under review with the US Food
and Drug Administration (FDA).
API product pipeline
We continued to invest in our new
product pipeline across both our
Generics and Innovators businesses, and
this is substantially on track. We have
46 products in our pipeline of generic
APIs (31st March 2018: 39 products),
which includes one product that launched
in the year and four that moved into
regulatory stage. Within our pipeline
of innovator APIs, three products are
nearing commercial launch with new
drug approvals (NDAs) filed with the
FDA by our customers.
83
Strategic ReportJohnson MattheyAnnual Report and Accounts 2019 Financial performance review continued
Underlying operating profit
ROIC
Outlook
Operating profit was slightly down and
margin decreased by 1.3 percentage
points. This mainly reflected a significant
decline in high margin products as they
moved through their natural lifecycle.
Operating profit was also impacted by net
costs associated with the optimisation of
our manufacturing footprint due to the
closure of Riverside, US and ramp up of
Annan, UK. Whilst the optimisation
delivered savings of £15 million in the
year and will deliver significant benefits
over the medium term, associated
one-off costs in the period outweighed
early savings.
New Markets
Sales
Alternative Powertrain
Medical Device Components
Life Science Technologies
Other
Total sales
Underlying operating profit
Margin
Return on invested capital (ROIC)
Reported operating loss
Return on invested capital, excluding net
pension assets, improved 0.6 percentage
points to 9.0% due to footprint
optimisation.
In 2019/20, we expect sales to be broadly
stable whilst operating profit will grow
double digit, primarily due to cost savings
associated with footprint optimisation.
Year ended 31st March
2019
£ million
2018
£ million
% change
% change,
constant rates
206
70
49
37
362
2
0.7%
1.1%
(15)
156
74
45
37
312
17
5.3%
7.9%
(20)
+32
-5
+10
-1
+16
-85
+29
+33
-6
+12
-1
+17
-85
Strong sales growth; commercialisation of eLNO on track
•
Sales growth driven by strong demand for our non-automotive battery systems and fuel cells.
• Operating profit declined 85% due to further investment in our Battery Materials business and weaker profitability in
Medical Device Components.
•
Continued progress in commercialising eLNO with board approval for the initial capital investment and site selection
for our first commercial plant.
Alternative Powertrain
Commercialisation of eLNO
Our Alternative Powertrain business
provides battery systems for a range of
applications, fuel cell technologies and
battery materials for automotive
applications. Our battery materials
business comprises lithium iron
phosphate (LFP) materials as well as
eLNO, our portfolio of leading ultra high
energy density materials. Alternative
Powertrain sales grew over 30% driven
by significant growth in battery systems
for e-bikes and continued momentum
in fuel cells.
We are making good progress in the
development and commercialisation of
eLNO which will compete with future
materials such as NMC 811.
We continue to test our materials
with our target customers and feedback
remains very positive. It is especially
pleasing that as the market for
cathode materials develops, auto
OEMs are increasingly looking for
customised solutions to solve their
specific problems, which plays to our
strengths in science and technology.
Consequently, we have been tailoring
eLNO for our customers and now have
a portfolio of materials. As we progress
through various stages of testing, we will
work with customers to test eLNO in their
own specific applications. To facilitate
this, we are constructing three customer
application centres – two in the UK and
one in Japan. One of the UK centres will
be completed in 2019 and the remaining
two centres will be completed in 2020.
84
Johnson MattheyAnnual Report and Accounts 2019Strategic Report Underlying operating profit
Operating profit declined 85% and
margin reduced by 4.6 percentage points
to 0.7%. This was impacted by higher
costs in our Battery Materials business as
we continue to build strategic customer
relationships to support commercialisation
of eLNO. The margin was further affected
by the quality issues and dual sourcing
in Medical Device Components and a
strong increase in lower margin Battery
Systems sales.
ROIC
ROIC declined to 1.1% reflecting lower
operating profit.
Outlook
New Markets is expected to deliver sales
and operating profit growth in 2019/20.
In scaling up, we have moved from
lab scale to our pilot plant which is now
complete. We recently selected a site in
Poland for the first 10,000 metric tonnes
commercial plant, which has the potential
for expansion to 100,000 metric tonnes,
and we are carefully considering how we
scale beyond our initial 10,000 metric
tonnes. We also signed our first long term
supply agreement for raw materials with
Nemaska Lithium.
Lithium iron phosphate
In battery materials, sales of lithium iron
phosphate remained at a low level and
were flat year on year.
Fuel Cells
Fuel Cells is now profitable, with
improved demand for non-automotive
applications and new business wins in
China resulting in sales growth of 41%.
We are also investing in new capacity to
support growth in demand.
Medical Device Components
Our Medical Device Components business
leverages our science and technology to
develop products found in devices used
in medical procedures. Sales declined
6% due to quality issues which have
now been resolved and an increase in
dual sourcing from our customers.
Life Science Technologies
Our Life Science Technologies business
provides advanced catalysts to the
pharmaceutical and agricultural
chemicals markets. Sales grew 12%
in the period, supported by sales to
two large customers.
85
Strategic ReportJohnson MattheyAnnual Report and Accounts 2019 Financial review
Overall, we have had a good year and, despite
challenges in some of our end markets, we are doing
exactly as we said.
At constant rates, our sales excluding precious metals were up 10% and underlying operating profit was up 8%.
Underlying EPS was up 10% and the board has recommended an increase of 7% in the final dividend. Further aspects
of the group’s financial performance in 2018/19 are outlined below.
IFRS 15 and related statements
Research and development (R&D)
IFRS 15, Revenue from Contracts with Customers, is effective for
annual reporting periods beginning on or after 1st January 2018
and replaces IAS 18, Revenue. IFRS 15 provides a principles-based
approach for revenue recognition. As part of considering the
impact of IFRS 15 we have also performed a detailed review of
how we account for commodity contracts, which has resulted
in a change to the way we are presenting our accounts.
We have concluded that swaps and sale and repurchase
agreements entered into by our Platinum Group Metals Services
business within Efficient Natural Resources should not be
included within statutory revenue. Consequently, we have
excluded these transactions from statutory revenue in 2019,
and we have also fully restated the prior year financial
statements to reflect these changes. This results in both years
now being presented on a consistent basis.
The impact of these restatements is to reduce revenue and
cost of sales by £3.9 billion for the year ended 31st March 2018.
There is no impact on sales excluding precious metals, operating
profit, working capital, cashflows or net assets. The overall
impact on equity is less than £5 million. Historic business
performance measures communicated by Johnson Matthey
are unchanged. Full details are given in note 39 on page 220.
IFRS 16
IFRS 16 is effective from 1st April 2019 and replaces IAS 17,
Leases. There is no impact on the year ended 31st March 2019.
Upon transition, the group will recognise right-of-use assets
and lease liabilities of approximately £75 million on the
balance sheet.
For the year ending 31st March 2020, we anticipate an
increase in underlying operating profit of £2 million and an
additional interest cost of £3 million. Consequently, the group
estimates that profit before tax will be reduced by approximately
£1 million for the year ending 31st March 2020 as a result of
adopting IFRS 16.
Corporate
Corporate costs in the period were £53 million, an increase
of £10 million from 2017/18 due to higher legal costs and
costs associated with building further capability within group
functions. Corporate costs are expected to be slightly higher
in 2019/20.
We invested £190 million in R&D in the period, including
£19 million of capitalised R&D, around 5% of sales. Spend
was broadly flat partly due to more focused investment. Key
areas of spend included next generation technologies in Clean
Air, improving the efficiency and resiliency of our refineries in
Efficient Natural Resources, our Health API product pipeline
and investment in our eLNO battery material.
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. The group does not
hedge the impact of translation effects on the income statement.
The principal overseas currencies, which represented 85%
of non-sterling denominated underlying operating profit in the
year ended 31st March 2019, were:
Share of 2018/19
non-sterling denominated
underlying operating profit
Average exchange rate
Year ended 31st March
2019
2018
% change
US dollar
Euro
Chinese renminbi
39%
37%
9%
1.310
1.134
8.81
1.328
1.134
8.79
-1
–
–
Overall, for the year as a whole, the impact of exchange
rates decreased sales by £3 million and increased underlying
operating profit by £1 million, following a £27 million and a
£4 million decrease respectively in our first half.
If current exchange rates (£:$ 1.295, £:€ 1.157,
£:RMB 8.72) are maintained throughout the year ending
31st March 2020, foreign currency translation will have a
negative impact of approximately £2 million on underlying
operating profit. A one cent change in the average US dollar
and euro exchange rates each have an impact of approximately
£2 million 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
£16 million in the period in Efficient Natural Resources.
86
Johnson MattheyAnnual Report and Accounts 2019Strategic Report Initiative
£ million
Procurement
Restructuring
Footprint optimisation
Total
Total
60
25
20
105
Achieved in
the year
Achieved
to date
26
12
15
53
28
24
15
67
Major impairment and restructuring charges
We had no major impairment and restructuring charges in
the year ended 31st March 2019. Cash spend in relation to
ongoing restructuring in 2018/19 was £8 million.
Our group restructuring programme is expected to deliver
annualised cost savings of around £25 million and is substantially
complete, having delivered £24 million of savings in 2018/19.
The closure of our manufacturing plant in Riverside, US,
is now complete and we expect to deliver annualised cost
savings of £20 million, having delivered £15 million of savings
in 2018/19.
See below for a breakdown showing the cost, cash costs
and cost savings achieved to date:
Anna Manz
Chief Financial Officer
Year ended 31st March 2019
£ million
Group restructuring programme
Health – Closure of Riverside, US
Total
Reconciliation of underlying operating profit to operating
profit (£ million)
Year ended 31st March
Year ended 31st March 2018
£ million
Impairment
and
restructuring
credit
(1)
(7)
(8)
Cash costs
5
3
8
Impairment and
restructuring
charge
Cash costs
Underlying operating profit
Loss on disposal of businesses1
Loss on significant legal proceedings1
Amortisation of acquired intangibles
Major impairment and
restructuring charges1
Operating profit
2019
566
(12)
(17)
(14)
8
531
2018
525
(7)
(50)
(19)
(90)
359
1 For further details on these items please see notes 5 and 6 on page 179 and note 8
on page 180.
Summary of efficiency initiatives
Global procurement – as our global procurement process
builds, we are beginning to realise benefits and are on track to
deliver the expected £60 million of savings over three years, with
three quarters benefiting the income statement. In 2018/19,
we achieved £26 million of savings, of which £19 million
benefited the income statement. We anticipate a similar level
of savings in 2019/20.
Group restructuring programme – this is substantially
complete with delivery of the vast majority of annualised cost
savings of around £25 million.
Health footprint optimisation – closure of our manufacturing
plant in Riverside, US, is now complete as we build our platform
for breakout growth.
Group restructuring programme
Health – Closure of Riverside, US
New Markets – Impairment of Water
Total
43
36
11
90
19
4
–
23
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 1st February 2019, the group sold its water
disinfection business, Miox. After costs, the net proceeds were
£2 million which resulted in a loss on sale of £12 million. In the
prior year, 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.
Finance charges
Net finance charges in the period amounted to £43 million,
up from £38 million in 2017/18. This was primarily driven by
higher precious metal funding costs following downtime during
the first half in one of our pgm refineries.
We anticipate that net finance charges will be significantly
higher in 2019/20 due to higher average net debt as we invest
for future growth, higher precious metal funding costs and the
impact of IFRS 16.
87
Strategic ReportJohnson MattheyAnnual Report and Accounts 2019 Financial review continued
Taxation
The effective tax rate on reported profit for the year was
15.3%, up from 6.9% for the year ended 31st March 2018.
The tax charge on underlying profit before tax was
£83 million, an effective tax rate of 15.9%, down from
17.7% for the year ended 31st March 2018. This decrease
was primarily due to changes in the US tax legislation and
the mix of profits by country.
We currently expect the tax rate on underlying profit for
the year ending 31st March 2020 to be around 16%.
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.
Through implementation of our tax strategy we plan to:
• 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 have taken steps to put
in place adequate procedures to prevent the facilitation of
tax evasion.
Post-employment benefits
IFRS – accounting basis
At 31st March 2019, 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 £159 million.
The cost of providing post-employment benefits in the
period was £56 million, down from £69 million last year,
primarily reflecting a decrease in the current service cost due
to a change derisking the UK plan.
On 26th October 2018, the High Court ruled that UK
defined benefit pension schemes should be amended to
equalise pension benefits for men and women in relation
to guaranteed minimum pensions. The past service credit
includes a charge of £1 million in respect of this ruling. The
additional liabilities have been treated as a plan amendment
and, therefore, this past service cost has been reflected in
the income statement.
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 2018 revealed a deficit of £34 million,
or a surplus of £9 million after taking account of the future
additional deficit funding contributions from the special
purpose vehicle set up in January 2013. The valuation results
as at 1st April 2018 allowed for the equalisation of Guaranteed
Minimum Pension.
The last triennial actuarial valuation of the cash balance
section as at 1st April 2018 revealed a surplus of £0.2 million.
In order to reduce the company’s long term pension risk
exposure a number of changes to the UK pension scheme
became effective from 1st July 2018, including:
•
•
Contributions from those employees who remain in the
career average section increased and will further rise over
the next few years to help fund the increased cost of
providing these benefits.
The accrual rate in the career average section reduced
from 1/80th to 1/100th for each year of future service
after this date.
• New benefit levels with varying employee contribution
rates were introduced in the cash balance section.
•
Employees in the career average section were given the
option of switching to the cash balance section.
The latest actuarial valuations of our two US pension schemes
showed a deficit of £2 million at 1st July 2018, an improvement
from an £11 million deficit at 1st July 2017.
Capital expenditure
Capital expenditure was £323 million in the year, 2.1 times
depreciation and amortisation (excluding amortisation of
acquired intangibles). In the period, projects included:
•
Clean Air manufacturing plants in Poland, China and India.
This increased capacity will drive efficiency and improve
flexibility, enabling us to support demand from tightening
legislation in Europe and Asia.
88
Johnson MattheyAnnual Report and Accounts 2019Strategic Report •
Investment in development and commercialisation of eLNO.
We completed our pilot plant and began construction of
three customer application centres – two in the UK and
one in Japan. We selected a site in Poland for the first
10,000 metric tonnes commercial plant, which has the
potential for expansion to 100,000 metric tonnes. The first
commercial plant is on track to start production in 2021/22
and supply platforms in production in 2022/23.
• Upgrading our core IT business systems.
•
•
Investment in our Health manufacturing and development
facilities in Annan, UK and continued investment in our
API product pipeline.
Improving the efficiency and resilience of our pgm
refineries within Efficient Natural Resources.
Capital expenditure for 2019/20 is expected to be up to
£500 million as our investments into growth projects increase.
Key projects include:
•
•
Investment in eLNO as we continue to commercialise our
market-leading ultra high energy battery cathode material.
Clean Air plants in Poland, China and India to meet the
growing demand.
• Upgrade of our IT systems as we continue to roll out our
single global ERP system, with eight roll outs in 2019/20.
Depreciation and amortisation (excluding amortisation of
acquired intangibles) is expected to increase by around
£16 million in 2019/20 primarily as we depreciate our
investment in upgrading our core IT systems.
Free cash flow and working capital
Free cash flow was an outflow of £13 million. This was due to a
working capital outflow of £224 million, of which £198 million
related to precious metal primarily reflecting downtime at one
of our pgm refineries during the first half.
Excluding precious metal, working capital days improved
to 48 days compared to 50 days at 31st March 2018, better
than our target for year-end working capital days excluding
precious metal of 50 to 60 days.
Average working capital days excluding precious metals
improved by three days to 59 days, despite planned inventory
build ahead of the first implementation of SAP and the UK’s
planned withdrawal from the European Union.
Dividend
The board has recommended an increase of 7% in the final
dividend to 62.25 pence per share. Together with the interim
dividend of 23.25 pence per share this gives a total ordinary
dividend for the year ended 31st March 2019 of 85.5 pence
per share (2017/18: 80.0 pence per share). Subject to approval
by shareholders, the final dividend will be paid to shareholders
on 6th August 2019, with an ex dividend date of 6th June 2019.
Return on invested capital (ROIC)
ROIC excluding net pension fund assets slightly declined to
16.4% from 17.0% at 31st March 2018 driven by higher
precious metal working capital. ROIC including net pension
fund assets would have been 15.4% compared with 16.4%
at full year 2017/18.
Capital structure
Net debt at 31st March 2019 was £866 million. This is a
decrease of £170 million from 30th September 2018 and an
increase of £187 million from 31st March 2018. Net debt
increases to £912 million when adjusted for the post tax
pension deficits. The group’s net debt (including post tax
pension deficits) to EBITDA was 1.3 times (31st March 2018:
1.1 times). Our target range is 1.5 to 2.0 times, as this ensures
we have flexibility to invest further in the future growth of
the business.
Contingent liabilities
The group is involved in various disputes and claims which arise
from time to time in the course of its business including, for
example, in relation to commercial matters, product quality
or liability, employee matters and tax audits. The group is also
involved from time to time in the course of its business in
legal proceedings and actions, engagement with regulatory
authorities and in dispute resolution processes. These are
reviewed on a regular basis and, where possible, an estimate
is made of the potential financial impact on the group. In
appropriate cases a provision is recognised based on advice,
best estimates and management judgement. Where it is too
early to determine the likely outcome of these matters, no
provision is made. Whilst the group cannot predict the outcome
of any current or future such matters with any certainty, it
currently believes the likelihood of any material liabilities to
be low, and that such liabilities, if any, will not have a material
adverse effect on its consolidated income, financial position
or cash flows.
On a specific matter, Johnson Matthey previously disclosed
that it had been informed by two customers of failures in
certain engine systems for which the group supplied a particular
coated substrate as a component for their customers’ emissions
after-treatment systems. The particular coated substrate was
sold to only these two customers. Johnson Matthey has not
been contacted by any regulatory authority about these engine
system failures. The reported failures have not been demonstrated
to be due to the coated substrate supplied by Johnson Matthey.
In the period, we settled with one of these customers on
mutually acceptable terms with no admission of fault. Under
this settlement, Johnson Matthey recognised a charge of
£17 million in the year ended 31st March 2019 and made
the associated cash settlement post year end. This charge
has been excluded from underlying operating profit.
Having reviewed its contractual obligations and the
information currently available to it, the group believes it has
defensible warranty positions in respect of its supplies of coated
substrate for the after-treatment systems in the affected
engines remaining at issue (as it believes it had in respect of the
matter settled in the period). If required, it will vigorously assert
its available contractual protections and defences. The outcome
of any discussions relating to the matters raised is not certain,
nor is the group able to make a reliable estimate of the possible
financial impact at this stage, if any. While Johnson Matthey
works with all its customers to ensure appropriate product
quality, we have not received claims in respect of other emissions
after-treatment components from these or any other customers.
Our vision is for a world that’s cleaner and healthier; today and
for future generations. We are committed to improving air quality
and we work constructively with our customers to achieve this.
89
Strategic ReportJohnson MattheyAnnual Report and Accounts 2019 Treasury policies
and going concern
Treasury policies and financial
risk management
Group Treasury is a centralised function
within JM 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 2019 the group had
cash and cash equivalents of £378 million
and £597 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 2019
are illustrated in the chart below.
Of the committed bank facilities,
£114 million have a final maturity date
within the 15 months to 30th June 2020
(the going concern period). These will
be refinanced in the first quarter of
2019/20 for a further three years with
long term relationship banks. In addition,
£107 million term debt matures in
December 2019 which was pre-financed
in 2018/19
Going concern
Interest rate risk
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 for the
foreseeable future and so determine that
it is appropriate to prepare the accounts
on a going concern basis.
Foreign currency risk
JM’s operations are located in over 30
locations, 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
2019 are shown on pages 192 and 207.
At 31st March 2019 the group had net
borrowings of £866 million of which 94%
was at fixed rates with an average
interest rate of 3.1%. The remaining 6%
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 JM’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.
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.
+
+
r
+
r
Pages 93 to 96: Our principal risks
+
r
Maturity profile of debt facilities
k
k
k
2,000
1,800
1,600
1,400
1,200
1,000
800
600
400
200
0
Net debt at 31st March 2019
March
2019
March
2020
March
2021
March
2022
March
2023
March
2024
March
2025
March
2026
March
2027
March
2028
March
2029
Private placement notes
KfW loans
EIB loans
Committed bank facilities
90
Johnson MattheyAnnual Report and Accounts 2019Strategic Report Risks and uncertainties
A holistic approach to managing risk
The effective management of risk enables JM to:
Risk is central to the creation and delivery of our strategy.
We have an established risk management and internal controls
framework to identify, assess, mitigate and monitor the risks
and uncertainties facing our business which enables us to
create and protect value. Our approach to risk provides
meaningful challenge to our sectors, functions and to our
Group Management Committee (GMC) and board, to help
them make informed decisions.
During the year we have:
•
•
•
Scrutinised our forward looking risks which confirmed our
coverage of emerging risk.
Conducted a JM-wide root cause analysis on our group and
sector risks and uncertainties which has informed our audit
plan and controls assessment.
Explicitly identified and considered opportunities,
including them as part of our mitigations.
• Reviewed the link between our principal risks and the policies
and processes identified to mitigate them so that we could
focus our key control questionnaire on confirming these
policies and processes were embedded.
•
•
Implemented a ‘named owner’ requirement for individual
controls to further embed our requirements for
transparency, ownership and accountability of risk.
Invested in skills and technology to further improve our
risks forecasting and management capability.
Risk management framework
• Deliver our strategic objectives.
•
•
•
•
Improve our decision making, planning and prioritisation.
Pursue opportunities while continuing to mitigate our risks
in a rapidly changing external environment.
Implement controls to mitigate or prevent risks
from materialising.
Consider risk and reward and implement controls in the
areas that matter most to us.
•
Comply with UK Corporate Governance Code requirements.
Risk management framework and process
The risk management framework incorporates both a top down
approach to identify the company’s principal risks and a bottom
up approach to identify operational risks.
Our board has overall responsibility for JM’s risk
management process. Together with the GMC, they perform
a robust assessment of the principal risks facing the business
twice a year. The GMC also focuses on selected risks. The risk
reviews are embedded within the relevant business and / or
functional review to ensure that the risks and our response
to them is considered in the context of our strategy, our values
and our strategic objectives.
Top
down
Board
3 Has overall responsibility for the approach to risk management and internal control
3 Owns principal risks and uncertainties
3 Determines risk appetite
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 to our principal risks
Audit Committee
3 Oversees process and review of controls testing
Group Management Committee (GMC)
3 Champions risk management
3 Carries out top down identification and review
3 Develops company strategy in line with board risk appetite
3 Reports on principal risks and uncertainties to the board and on process to the Audit Committee
Sector level
3 Carries out top down review activities
3 Responsible for ensuring that sites and functional areas have developed risk registers
3 Reviews and challenges risk registers
3 Carries out continuous monitoring
3 Reports to GMC on sector risk and issues
Bottom
up
Site / Functional areas / Programmes / Projects
3 Carries out risk identification, assessment and mitigation
3 Reports top risks to sector and Corporate Assurance and Risk
3 Carries out regular reviews on effectiveness of existing controls and progress with control implementation
91
Strategic ReportJohnson MattheyAnnual Report and Accounts 2019 Risks and uncertainties continued
Functional leaders, sector and site teams are responsible
for identifying and assessing their risks, considering the
likelihood of occurrence and the potential impact to JM. Sector
risks are aggregated and analysed for trends and anomalies
across the sectors and group; this is fed back to sector
leadership teams so that insights can be incorporated in key
activities such as strategic planning and budgeting.
The role of the Corporate Assurance and Risk team is to
constructively challenge and assist sectors and functions in
considering the range of risks identified and their materiality.
The team particularly focuses on the progress of mitigating
projects and programmes, their implementation and their likely
effectiveness in reducing risk in line with our risk appetite.
We are developing robust qualitative and quantitative
modelling techniques to identify and assess any risks that may
impede delivery of our strategic objectives. All risks are described,
analysed and reported using a standardised framework across the
business. Likelihood of occurrence and the potential impact to
the company are considered and scored using impact measures
including financial, operational, reputational and people factors.
The effectiveness and adequacy of controls are assessed regularly
with assigned owners and reported at least twice a year.
+
+
r
k
Evolution of our framework during 2018/19
We continually strive to improve risk management and have
made the following enhancements over the last 12 months:
•
To ensure greater transparency in our assessment of
emerging risks and in response to the 2018 UK Corporate
Governance Code, we conducted specific risk sessions
to ensure our GMC and board understood the new
requirements, our approach and their role.
• We applied greater scrutiny on defining and assessing the
effectiveness of mitigating activity.
• We applied additional analysis on sub sector risks such as
root cause and correlation against their likely principal risks
to provide additional information as to where our risks are
originating from and how we can effectively mitigate them.
• We further embedded the bottom up risk management
process to ensure that our sector risks are adequately
consolidated and reviewed by sector and group leadership
twice a year.
• We continually reviewed internal and external environment
changes / movements at the board and GMC to ensure that
the top down risk management process is fully informed.
• We identified and considered likely opportunities to
leverage and ultimately create value.
• We continued to lead open and honest conversations
with the business to drive deeper, more informed and
challenging discussions.
+
See pages 110 and 111 to read how these risks relate to the board activities
+
r
r
Our principal risks and uncertainties
k
We critically assess our principal risks to ensure that we continually
k
reflect on the challenges facing our business and the changes that
we need to make in response.
We consider our principal risks and uncertainties alongside
our strategic and business plans to ensure our risk coverage and
analysis supports decision making, and to inform our audit
efforts. This year we sought external advice to ensure we were
managing our cyber risk effectively. We also gave specific and
detailed consideration as to whether metal liquidity and supply
should be considered a principal risk.
Ensuring a reliable supply of platinum group metals remains
an area of importance for JM. This includes anticipating our
customers’ demands at the same time as having a detailed
understanding of metal mining and supply. While the gross risk
associated with metal supply, price and liquidity is significant, we
concluded that the risk is being adequately mitigated through a
number of activities including persistent monitoring of triggers
that may cause deviation from our forecasts.
We sought external assurance on our plans to modernise
and improve our IT infrastructure, specifically to gain assurance
that the modernised estate would have the resilience to respond
to the scale, sophistication and impact of future cyber threats.
Risk process
Identification
of risk
Assessment and
evaluation
Risk
management
process
Monitoring and
reporting
Determination
of response
92
Johnson MattheyAnnual Report and Accounts 2019Strategic Report We have concluded that for the most part, our key areas of
risk remain unchanged. In all cases, we continue to review and
refine the documented mitigations for each risk. We continue
to report whether the risk profile is increasing, decreasing or
remaining constant. This provides our board and our shareholders
with greater transparency and useful insight into our risks and
what we are doing about them.
Changes, additions and remarks on our principal risks and
uncertainties in 2018/19:
• As a result of our root cause analyses, we have broadened
the scope of our former principal risk, ‘failure of significant
sites’, specifically to recognise the vital nature of our day to
day manufacturing activity, associated risks, and extensive
associated controls. We have created a new ‘failure to
maintain operations’ principal risk in which ‘failure of
critical sites’ has been included.
• Metal liquidity and supply – acknowledging the critical
nature of metal raw materials to our manufacturing
operations, we decided to assess whether ‘metal liquidity
and supply’ should be a principal risk in its own right. While it
was agreed that it should not, additional controls have been
agreed to provide further assurance and will be managed
under our ‘sourcing of strategic materials’ principal risk.
• Brexit – although JM relies extensively on an agile,
flexible supply chain, we have paid significant attention to
the potential impact a ‘no-deal’ Brexit may bring. Our well
established Brexit working group, which is composed of a
number of functional and sector experts, has assessed the
implications of a ‘no-deal’. A number of mitigating activities
were put in place ahead of 29th March 2019 in preparation
for this eventuality, for example through building inventory.
As part of the preparations, the project team conducted
scenario analysis to assess the impact of individual risks and
combinations of risks, and as the probability of a hard Brexit
(without a transition agreement recognising the existing
trading rules) increased, the working group approved the
acceleration of the project team’s contingency plans, with
the primary objective of ensuring the continuity of the
European business across the whole business model. To that
end, we remain comfortable that our current contingency
planning will be effective should the UK exit the EU without
a deal. We remain vigilant and alert to changes in the UK
and EU’s stance on Brexit and the potential implications
these may have on our operations.
• Battery Materials – recognising the significant strategic
potential of our Battery Materials business, we are creating
a leading practice risk and governance capability to focus
on managing programme and business risks. Our priority
is to ensure that business and programme risks receive
appropriate management attention and are addressed
quickly and effectively in this complex environment.
•
Emerging risks – understanding future risks and our
ability to respond is supported by all our principal risks,
but with specific analysis of our three forward-looking
risks; ‘future growth’, ‘existing market outlook’ and
‘maintaining competitive advantage’. As well as providing
us with assurance that our strategy is effective and
achievable, these risks have played a central role and
source of insight for our viability modelling. The viability
statement is shown on page 97.
The following table sets out the principal risks and uncertainties facing the group, the mitigating actions we have in place. It also
details any profile changes for each principal risk during the course of the year.
Our risks are not listed from greatest to lowest risk. We list our strategic risks first followed
by operational risks. To help understand the potential impact of our risks on our strategy,
each risk has a GMC owner who is responsible for the risk and to ensure controls are
adequate and prioritised effectively. Additionally, each risk is linked to one or more of our
strategy pillars – Science, Customers, Operations, People, which are annotated below.
Key
S Science
O Operations
C Customers
P People
1 Existing market outlook
Risk and impact
The impact of change in the key
business assumptions is either
unplanned or unforeseen and we
are not agile enough to respond.
This risk would include legislative
changes caused by Brexit, other
market movements outside of
our predictions, and other trends
such as the imposition of tariffs,
US protectionism or Chinese and
global slowdown.
GMC owner
Anna Manz
Mitigation
• Understanding the key drivers and ‘severe yet plausible’ scenarios.
• Integrate strategic risk within the strategic planning process to
enable improved consideration of different market outcomes.
• Define triggers and having formed plans in response to them.
• Monitoring changes to those drivers and adjusting business
plans accordingly.
• Technology road mapping to understand our response to
evolution in our markets and associated scientific and
technological requirements.
S C P
Changes since 2018
annual report
Market conditions have become
more uncertain since last year with
the possibility of a global slowdown.
We monitor global economic factors
closely so that we can understand
the potential effects of slower global
or regional economies on our
businesses and implement plans
to respond. Although a global
slowdown appears more likely by
consensus, JM’s portfolio infers a
degree of protection, given the
variety of our investments.
93
Strategic ReportJohnson MattheyAnnual Report and Accounts 2019 Risks and uncertainties continued
2 Future growth
Risk and impact
Failure to deliver planned growth
and value creation as outlined at
Capital Markets Day in September
2017 through ineffective execution.
GMC owner
Robert MacLeod
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 projects and talent
identified to support realisation of the strategy.
• Project management office (PMO) to ensure appropriate
governance is in place and plans are delivering to expected
timelines.
3 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 or
effectively as our competitors.
GMC owner
Jane Toogood
Mitigation
• Investment in our customer understanding capability.
• Continual engagement and feedback with our customers
at multiple levels within our business and theirs.
• Research and development and capital investment processes
to ensure resource is prioritised against the areas of greatest
opportunity.
• Benchmark efficiency of business processes.
4 Environment, health and safety (EHS)
Risk and impact
Our business operations are subject
to a wide range of challenging
health, safety and environmental
laws, standards and regulations from
government and non-governmental
bodies around the world.
If we fail to operate safely we could
injure our people and breach
applicable laws which could
adversely impact our employees,
result in lost production time and
potentially attract negative interest
from the media and regulators.
GMC owner
Robert MacLeod
Mitigation
• Carry out robust process safety audits on high risk sites to
enhance and assure the work we do to make our manufacturing
processes as safe as possible.
• Implement safety culture programme and behavioural standards.
• Implement process safety programme.
• Determine the cause of incidents and accidents and develop
remediation plans.
• Ensure, through ongoing investment, that equipment continues
to be appropriate.
• Continued training and awareness activities.
5 Sourcing of strategic materials
Risk and impact
Due to the nature of our
operations, JM has limited suppliers
from which to source certain
strategic raw materials including
precious metals. Any significant
breakdown in the supply of these
materials would lead to an inability
to manufacture and satisfy
customer demand.
Mitigation
• Model alternative supply strategies with expected demand.
• Continually investigate alternative materials as part of research
and development.
• Review critical suppliers annually, and apply appropriate
mitigating actions.
• Include long term demand for precious metal in JM’s ten year
strategic plan.
• Invest in pgm refining business.
GMC owner
John Walker
• Further strengthen supplier relationship management and
review regularly to discuss supplier capacity constraints.
Key
S Science
O Operations
C Customers
P People
S C O P
Changes since 2018
annual report
In executing our organic growth
strategy, we are making major
capital investments and so we are
significantly enhancing our capital
project delivery programme to
manage this risk.
S C O
Changes since 2018
annual report
We are delivering major capability
building programmes including
Commercial, Procurement and
Manufacturing Excellence. This
enables more effective capital
allocation decisions. These
programmes and processes are now
largely established and our focus is on
ensuring these are embedded and
their benefits realised.
O P
Changes since 2018
annual report
Health and safety continue to be our
absolute priority across the business.
Execution and embedding of all EHS
plans continue to be tracked and
monitored on a regular basis.
As part of our commitment to
make the world cleaner and
healthier, we are extending our
understanding of the impact of
our operations with further focus
through our environmental and
sustainability programmes.
S C O
Changes since 2018
annual report
This risk now includes additional
mitigations to enhance assurance
over metal liquidity and supply. This
includes additional modelling and
stress testing of the market and our
metal demands of our current and
future operations.
94
Johnson MattheyAnnual Report and Accounts 2019Strategic Report Key
S Science
O Operations
C Customers
P People
P
Changes since 2018
annual report
We are continuing to invest in our
leadership through development
programmes to ensure we have the
skills and capabilities to deliver our
strategy and are growing talent
through robust succession planning
to build our future leaders.
We carried out a global employee
survey, identified improvement
areas and developed action plans
which are now in progress. These
plans include a programme
focused on supporting our people’s
health and wellbeing.
O
Changes since 2018
annual report
Level of risk remains consistent as
we continue to execute our security
improvement roadmap.
6 People
Risk and impact
To successfully execute our
strategy and deliver growth, we
need to ensure that we have the
breadth and depth of leadership
and the appropriate skills and
capabilities to drive a healthy,
motivated and engaged workforce.
GMC owner
Annette Kelleher
Mitigation
• Leadership development programmes.
• Embed JM values and behaviours in all internal processes
including hiring and performance reviews.
• Develop high level capability plans to support
strategic plans.
• Conduct global employee opinion survey every two years
followed by development and delivery of targeted action plans.
• Wellbeing programme.
7 Security of metal and highly regulated substances
Mitigation
• Continue execution of the security improvement roadmap.
• Implement group security policies across all sites.
• Carry out inventory stock takes.
• Ongoing security awareness campaigns and training.
• Security audits.
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.
GMC owner
Jane Toogood
8 Intellectual capital management
Risk and impact
Failure to adequately manage our
own, and third party, intellectual
capital, knowledge and information
could lead to a loss in business
advantage, loss of freedom to operate
and reputational damage associated
with litigation.
Mitigation
• Implement business intellectual capital management strategy.
• Use intellectual capital lawyers to provide specialist guidance.
• Portfolio management of intellectual capital through new
technology solution.
• Invest in cyber security (see risk 13).
GMC owner
Simon Farrant
9 Failure to maintain operations
Risk and impact
We may experience interruptions
and / or delays in the manufacturing
and supply of our products resulting
in lost sales affecting our reputation
and revenue growth.
GMC owner
John Walker
Mitigation
• Ensure regular maintenance of critical machinery.
• Continue to invest in infrastructure.
• Adhere to high technical standards.
• Implement Procurement Excellence programme.
• Insurance coverage in place.
• Implement Group Business Continuity Policy and manual
across all sites.
• Continue to develop comprehensive response plans and
test annually.
S O
Changes since 2018
annual report
We have continued to develop
market leading products using
our world class science capabilities.
We protect our inventions and
knowhow, although our markets
remain challenging, crowded
and litigious.
C O
Changes since 2018
annual report
We have broadened the scope of our
original risk, ‘failure of significant
sites’, to recognise the vital nature
of our day to day manufacturing
activities, associated risks and
extensive associated controls. We
are investing in our pgm refineries
and our preventative maintenance
planning work.
95
Strategic ReportJohnson MattheyAnnual Report and Accounts 2019 Risks and uncertainties continued
Mitigation
• Implement refreshed code of ethics supported by training,
and tone from the top set by senior leadership.
• Suite of legal compliance policies and procedures in place.
• Use internal and external subject matter experts to identify
risks, set standards and provide advice and training.
• Implement ethical working practices certification.
Mitigation
• Strategic PMO to drive appropriate governance across all
workstreams.
• Implement project management framework across all
key initiatives.
• Expert third party assurance on key change programmes,
including ERP (SAP) go-live at key sites, assured by expert
third parties.
• Communicate with and engage employees to drive
functional engagement.
Mitigation
• Monitor and report quality performance, taking corrective
action where required.
• Implement quality management system.
• Continue to develop robust manufacturing systems supported
by standardised processes.
• Robust supplier contract terms and conditions.
10 Ethics and compliance
Risk and impact
Failure to comply with ethical and
regulatory compliance standards
leading to reputational damage,
possible criminal / legal exposure
for the company or for individuals.
GMC owner
Simon Farrant
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 group wide
standardisation of some activities,
directed by strong functional leaders,
to ensure best practice is used and
maintained across the group.
The risk is that we fail to deliver
transformational change, fail to
achieve efficiencies and have a
disengaged workforce.
GMC owner
Robert MacLeod
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 are crucial to ensuring
they operate as intended.
Should a product fail to perform as
expected, we could be responsible for
harming consumers or exposed to
liability claims. This could lead to loss
of future business, reputational
damage and loss of licence to operate.
GMC owner
Jason Apter
Key
S Science
O Operations
C Customers
P People
C O P
Changes since 2018
annual report
This risk is continually assessed
given the evolving regulatory
and business background.
O P
Changes since 2018
annual report
This risk has been updated as
we continue to evolve the way in
which we run our business. We
are managing this risk through
our upgraded PMO which ensures
we have targeted action plans,
employee communications and
wellbeing programmes to support
our workforce.
S C O
Changes since 2018
annual report
Risk remains consistent as the
regulatory environment continues
to tighten and our customers are
experiencing greater scrutiny. JM
has continued to make significant
progress in embedding a global
quality management system
supported with training and
regular communications.
13 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
• Deliver of our cyber security and infrastructure improvement
investment to increase resilience.
• Implement key policies and standards across JM.
• Continue to invest in information systems, monitoring and
assurance to support our data security strategy.
• Input and assurance from third party specialists.
O P
Changes since 2018
annual report
We are continuing to invest heavily
in our IT infrastructure to provide
better visibility and controls to
support a more efficient business.
GMC owner
Anna Manz
96
Johnson MattheyAnnual Report and Accounts 2019Strategic Report 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. We are, however,
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, and that the
combination of factors required to
impose this stress is both extremely
significant, and very unlikely.
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.
Viability
In accordance with provision C.2.2 of
the 2016 Corporate Governance Code,
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;
The board and GMC perform a
robust assessment of the principal
risks facing the business twice a year.
The GMC also focuses on selected
risks at each of its meetings;
In October and April, 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
are conducted by the Corporate
Assurance and Risk team, the results
of which were presented to and
discussed by the GMC. This includes
assessment of root cause, controls
effectiveness, and assurance.
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 Chief Executive
and Chief Financial Officer in full 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 2022
is an appropriate period over which to
assess the group’s viability. As part of our
long term strategy 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 as we are confident
with the accuracy of the forecast over
this period.
In making the assessment, we have
considered a number of severe but
plausible stress scenarios linked to the
group’s principal risks, specifically risks
1, 2 and 3. We have analysed the impact
of the following three hypothetical stress
scenarios plus all of them occurring at
the same time.
Scenario 1: The impact of change in key
business assumptions is either unplanned
or unforeseen and JM is not agile enough
to respond. Under this scenario we
evaluated the impact of a downgrade
in the global economic outlook and
potential for recession in key markets
and from adverse events and movements
in commodity markets. As well as the
possible impact from a faster than
expected uptake of electric vehicles.
Scenario 2: Failure to grow through new
opportunities as a result of ineffective
execution. This scenario assesses failing
to deliver new growth in new markets
and technologies.
Scenario 3: Failure to maintain
competitive advantage in existing
markets and, as a result, not meeting
customers’ evolving needs as effectively
as competitors. This scenario assesses
the impact from a hard Brexit, cyber
and intellectual property related risks
including poor management of capital
projects, significant production losses
due to downtime at a major site and the
inability to improve certain businesses
or sites.
97
Strategic ReportJohnson MattheyAnnual Report and Accounts 2019 Governance
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.
98
Johnson MattheyAnnual Report and Accounts 2019Governance Contents
100 Board of Directors
104 Letter from the Chairman
106 Corporate Governance Report
119 Nomination Committee Report
123 Audit Committee Report
132 Remuneration Report
151 Directors’ Report
155 Responsibilities of Directors
99
GovernanceJohnson MattheyAnnual Report and Accounts 2019
Board of Directors
One team
An experienced team delivering
our strategic vision.
Patrick Thomas – Chairman
Appointed to board: June 2018
Experience and contribution
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 also Chief Executive
Officer of its predecessor, Bayer MaterialScience,
prior to its demerger from Bayer AG. He is a
fellow of the Royal Academy of Engineering.
Patrick has deep experience of leading
international specialty chemical businesses.
He also brings a track record of driving
growth through science and innovation
across global markets.
Other current appointments
Non-Executive Director at Akzo Nobel N.V
and Aliaxis S.A. and a member of the advisory
board of Deutsche-Africa Linien Hamburg,
and a Council Member of Gerson Lehrman
Group Network.
International experience
Belgium, Germany, UK
Sector experience
Automotive, Chemicals, Manufacturing,
Oil and Gas, Pharmaceuticals, Technology
RN
Anna Manz – Chief Financial Officer
Appointed to board: October 2016
Experience and contribution
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.
Anna has strong credentials in financial
leadership and brings international experience
and deep commercial awareness to the board.
She also leads the group’s activities in respect
of our risks and controls and has been at the
centre of the work to drive efficiency and
effectiveness across our business.
Other current appointments
Non-Executive Director at ITV plc.
International experience
China, India, Ireland, Kenya, Korea, Nigeria,
Singapore, UK, US
Sector experience
Chemicals, Consumer, Media
100
Robert MacLeod – Chief Executive
Appointed to board: June 2009
Experience and contribution
Robert was appointed as 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.
Having been with JM for 10 years and as
Chief Executive for 5 years, Robert has a proven
track record of delivering success and driving
change for the organisation. He has strong
experience across JM, its culture and its markets
and as Chief Executive, has led our Health and
New Markets teams.
Other current appointments
Non-Executive Director at RELX PLC.
International experience
UK, US
Sector experience
Chemicals, Oil and Gas, Professional Services
Johnson MattheyAnnual Report and Accounts 2019Governance Alan Ferguson – Senior Independent Director
Appointed to board: January 2011
Experience and contribution
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
plc. Before joining BOC, he worked for Inchcape
plc for 22 years and was Group Finance Director
from 1999 until 2005. From 2011 to 2018 he was
a Non-Executive Director and Chairman of the
Audit Committee at The Weir Group PLC. He is a
Chartered Accountant and sits on the Business
Policy Panel of the Institute of Chartered
Accountants of Scotland.
Alan brings recent and relevant financial
experience to the board, making him ideally
suited to chairing the Audit Committee and acting
as its financial expert. He also brings experience
of the precious metals and automotive sectors.
Other current appointments
Non-Executive Director of AngloGold Ashanti
Limited. Non-Executive Director, Chairman of
the Audit Committee and Senior Independent
Director at Croda International Plc and Marshall
Motor Holdings plc.
International experience
South Africa, UK
Sector experience
Automotive, Chemicals, Manufacturing,
Metals and Mining
Xiaozhi Liu – Non-Executive Director
Appointed to board: April 2019
Experience and contribution
Xiaozhi is the founder and Chief Executive
of ASL Automobile Science & Technology,
a position she has held since 2009. She is also a
Non-Executive Director of Autoliv Inc, an
automotive safety supplier, and Fuyao Glass
Industry Group Co., Ltd, a glass manufacturing
company in China.
Xiaozhi has deep knowledge and perspective
on technology driven businesses in China and
globally, and brings strong experience of the
automotive sector, particularly in China, as well
as in Europe and the US.
Other current appointments
Chief Executive of ASL Automobile Science &
Technology, Non-Executive Director of Autoliv Inc,
Fuyao Glass Industry Group Co., Ltd and
InBev SA/NV.
International experience
China, Sweden, US
Sector experience
Automotive, Battery Technologies
Key
Chairman of the Committee
N Member of the Nomination Committee
A Member of the Audit Committee
R Member of the Remuneration Committee
N
A R
John Walker – Sector Chief Executive, Clean Air
Appointed to board: October 2013
Experience and contribution
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 in October 2013
(subsequently renamed Clean Air Sector in
April 2017).
John therefore has a wealth of experience and
knowledge of the automotive market as well as
the wider JM group. He also brings broad
international experience to the board, from a
variety of geographies.
International experience
Australia, China, France, Germany, India, Japan,
Malaysia, UK, US
Sector experience
Automotive, Chemicals, Manufacturing
N
A R
Odile Desforges – Non-Executive Director
Appointed to board: July 2013
Experience and contribution
Odile’s automotive industry experience began
with the French Government’s Transport
Research Institute and developed with Renault
SA and AB Volvo. She was previously 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.
Odile has a long and distinguished career in
the automotive industry. She brings executive
experience in purchasing, product planning,
development and engineering to the board.
Other current appointments
Non-Executive Director of Safran SA,
Dassault Systèmes, Imerys and Faurecia.
International experience
France, Japan, Sweden, UK
Sector experience
Aerospace, Automotive, Battery Technologies,
Defence, Manufacturing, Technology
As at the date of approval of this
annual report, the Board of Directors
of Johnson Matthey is as detailed on
pages 100 to 102. Tim Stevenson retired
as Chairman on 26th July 2018.
N
A R
101
GovernanceJohnson MattheyAnnual Report and Accounts 2019 Key
Chairman of the Committee
N Member of the Nomination Committee
A Member of the Audit Committee
R Member of the Remuneration Committee
Jane Griffiths – Non-Executive Director
Appointed to board: January 2017
Experience and contribution
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, and a sponsor of the J&J Women’s
Leadership Initiative.
Jane brings significant experience and
understanding of the management of global
strategy to the board, particularly across the
pharmaceutical sector, together with a strong
interest in diversity.
Other current appointments
Director of Johnson & Johnson Innovation Limited.
International experience
Africa, Europe, Middle East, UK
Sector experience
Pharmaceuticals
N
A R
Board of Directors continued
N
A R
John O’Higgins – Non-Executive Director
Appointed to board: November 2017
Experience and contribution
John was previously Chief Executive of Spectris
plc, a position he held from January 2006 to
September 2018. 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 Exite Technologies Inc.
John brings extensive business and industrial
experience to the board, including experience
of battery technologies. He has a track record
of portfolio analysis and realignment, driving
growth both organically and through mergers
and acquisitions, as well as improving
operational efficiencies.
Other current appointments
Havelock Acquisitions Limited, Trustee of the
Wincott Foundation.
International experience
Belgium, China, Germany, UK, US
Sector experience
Automotive, Chemicals, Energy, Manufacturing,
Oil and Gas, Technology
Chris Mottershead – Non-Executive Director
Appointed to board: January 2015
Experience and contribution
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.
Chris brings a wealth of relevant industrial and
academic knowledge to the board, as well as
experience in energy technology and related
global sustainability issues. As Chair of the
Remuneration Committee, Chris is a sounding
board for JM’s Human Resources function.
Other current appointments
Non-Executive Director of The Carbon Trust
and TEDI London.
International experience
UK, US
Sector experience
Energy, Oil and Gas, Technology
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).
N
A R
102
Johnson MattheyAnnual Report and Accounts 2019Governance The board at a glance
Attendance
Patrick Thomas
Tim Stevenson
Robert MacLeod
Odile Desforges
Alan Ferguson
Jane Griffiths
Anna Manz
Chris Mottershead
John O’Higgins
John Walker
Role
Chairman
Chairman
Chief Executive
Non-Executive Director
Non-Executive Director
Non-Executive Director
Chief Financial Officer
Non-Executive Director
Non-Executive Director
Executive Director
Date of
appointment
to board
Number of
meetings
eligible to
attend
Number of
meetings
attended
1st June 20181
29th March 20112
22nd June 20094
1st July 2013
13th January 2011
1st January 2017
17th October 2016
27th January 2015
16th November 2017
9th October 2013
9
43
11
11
11
11
11
11
11
11
9
4
11
105
11
11
11
105
11
106
%
attended
100%
100%
100%
91%
100%
100%
100%
91%
100%
91%
1. Patrick Thomas was appointed Chairman of the board on 26th July 2018.
2. Tim Stevenson was appointed Chairman of the board on 19th July 2011.
3. Tim Stevenson retired from the board on 26th July 2018.
4. Robert MacLeod was appointed Chief Executive on 5th June 2014.
5. Odile Desforges and Chris Mottershead were unable to attend one ad hoc meeting of the board, which was arranged at short notice to consider the appointment of
Xiaozhi Liu as a Non-Executive Director of the company. Both were provided with papers in advance and had the opportunity to pass on any comments to the Chairman
ahead of the meeting.
6.
John Walker was unable to attend one board meeting held by telephone due to personal commitments.
Since the end of the year, the board has met twice and all board members attended both meetings, including Xiaozhi Liu following her
appointment in April 2019.
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 120, 124 and 142 respectively.
Diversity as at 31st March 2019
Gender diversity
Male
67%
Female
33%
Tenure
7-9 years 22%
Industry experience
Other 9%
Technology 12%
Professional Services 3%
Mining 3%
Manufacturing 15%
Pharmaceuticals 6%
Non-Executive Director skills
Automotive 14%
Battery Technologies 3%
Chemicals 17%
Energy 6%
Oil and Gas 12%
4-6 years 33%
0-3 years 45%
Leadership
Finance
Health and safety
People
Role
Chairman 11%
Non-Executive 56%
Executive 33%
Nationality
American 11%
Irish 11%
French 11%
British 67%
6
Strategy
6
6
Risk
5
4
5
Commercial
Technology
6
4
The above table shows some of the skills held by our Non-Executive Directors
following a self-assessment, whereby each Non-Executive Director was asked
to identify their areas of strength.
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103
GovernanceJohnson MattheyAnnual Report and Accounts 2019 Letter from the Chairman
Evolve
and grow the company
effectively with a
world class board.
Patrick Thomas
Chairman
The UK Corporate Governance Code
In this annual report we are reporting against the Financial Reporting
Council’s UK Corporate Governance Code 2016 requirements. We
report on how we have applied it’s main principles and complied with
its relevant provisions. Except in one respect (which is explained on
page 118), Johnson Matthey has complied with all relevant provisions
throughout the year ended 31st March 2019 and from that date up
to the date of approval of this annual report. Next year, we will report
against the requirements of the UK Corporate Governance Code 2018.
Patrick Thomas
Chairman
On behalf of the board, I am pleased to present my first Corporate
Governance Report as Chairman of Johnson Matthey. The board is
accountable to shareholders for good governance and this section
of the annual report provides you with an insight into how the board
operates, our corporate governance structures and processes and
their effectiveness throughout the year ended 31st March 2019.
A board with strong leadership and a framework of effective
controls and risk management is key to the success of a company.
We have taken steps to refresh the board’s leadership during the year,
resulting in the appointment of Xiaozhi Liu and we will welcome
Doug Webb to the board in September 2019. I am committed to
maintaining high standards of corporate governance and I welcome
the Financial Reporting Council’s recent changes to the UK Corporate
Governance Code. As a board, we have reviewed the requirements of
the UK Corporate Governance Code 2018 and plans are in place to
ensure compliance for 2019/20.
The board has an important role in defining the culture of the
group and understanding the current culture provides a deeper
insight into the organisation. I have found the culture at Johnson
Matthey to be open, engaged and innovative. My board colleagues
and I share a common purpose in leading by example and acting
with integrity, in order to demonstrate the values and behaviours
that make JM a company to be proud of.
My role is to ensure that Johnson Matthey has a board which works
effectively under my leadership and I am pleased to say that one year
into my term, I believe we have an effective board. I have encouraged
open and constructive debate at our meetings, to enable the board to
develop JM’s strategy and support its operations, customers and people.
You can read more about our board’s effectiveness on pages 114 to 115.
I have now met with approximately 30% of our shareholding and I am
committed to engaging with our shareholders and all our stakeholders.
I look forward to meeting more of you in the year ahead.
104
Johnson MattheyAnnual Report and Accounts 2019Governance +
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UK Corporate Governance Code
The UK Corporate Governance Code 2016 (the code) sets standards of
good practice in relation to leadership, effectiveness, remuneration,
accountability and relations with shareholders. This Corporate
Governance Report is structured to report against these principles of
the code. 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.
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108 Company purpose
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113 Terms of appointment of the Non-Executive Directors
113 Diversity
113
Time commitment of the Chairman and the
Non-Executive Directors
113 Directors’ conflicts of interest
114
Evaluation of the board, board committees and directors
115 Review of the Chairman’s performance
Governance highlights
In our Corporate Governance Report you will see
key steps we have taken on:
• Board succession planning.
•
Internal evaluation of the board and its committees.
• Welcoming a new auditor.
The board’s focus this year
• Refining strategy and investing in its execution.
•
•
Environment, health and safety (EHS) matters.
Supporting the new Chairman.
The board’s focus
areas for 2019 / 20
•
•
•
•
•
Culture.
Continued focus on EHS.
Execution of strategic priorities.
Sustainability.
Continued monitoring of financial performance.
115 Review of the Executive Directors’ performance
• Reviews of principal risks.
115 Annual re-election of directors
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and internal control systems
116 The Audit Committee
116 Viability statement
117 Stakeholders
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118 Share capital
118 2019 AGM
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Compliance with the UK Corporate Governance Code 2016
105
GovernanceJohnson MattheyAnnual Report and Accounts 2019 Corporate Governance Report
Introduction
Our board is responsible to our shareholders for setting a strategy that delivers the company’s purpose, underpinned by values and behaviours
that shape the culture and the way JM conducts its business. An appropriate and well managed governance framework is integral to this.
The key elements of our governance framework and associated processes are set out in this 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.
The activities outlined below enable our 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 also provide an opportunity to meet with and hear the views of
employees. Through these activities, the board develops a sound and balanced insight into the group, which supports it in its role to provide
entrepreneurial leadership and set strategy.
Strategic review
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 sector
senior management. They give the board an opportunity to discuss and challenge the
strategic direction of our business.
The board also reviews our key group functions. These reviews are attended by the
relevant functional head and enable the board to assess the strength of these functions and
their ability to support the delivery of the group’s strategic objectives.
Teach-ins
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
our Non-Executive Directors’ ability to challenge, debate and contribute to strategy at
board meetings.
During the year the board received a teach-in on the management of our company’s
and our customers’ precious metal.
Our financial calendar
May
June
July
August
September
30th May
6th June
17th July
6th August
19th September
Announcement
of results for
year ended
31st March 2019
Ex dividend date
7th June
Final dividend
record date
128th Annual
General Meeting
(AGM)
Payment of final
dividend subject to
declaration at the
AGM
Capital Markets Day
2019
April
106
Johnson MattheyAnnual Report and Accounts 2019Governance Site visits
The board holds two board meetings each year at operational sites. As part of this, the board
tours the site and receives presentations from management on the business, including its
successes and challenges. Enabling the board to see our operations on the ground and to
meet the teams allows our directors to hear first hand about customers, business issues, risks
and strategy as well as environment, health and safety and sustainability.
Our Non-Executive Directors also undertake visits to our sites independent of the
Executive Directors, either individually or collectively, to further enhance their knowledge
and understanding, meeting with management and other employees.
Chilton (April 2018)
The board visited our site in Chilton, UK
and toured the new Battery Materials
pilot plant.
Scotland (October 2018)
The board met with local management
at our Health sites in both Edinburgh
and Annan. The tours of two sites with
differing technology enabled the board
to gain further insight into our
manufacturing processes.
China (April 2019)
The board received
presentations on our
Clean Air and Efficient
Natural Resources
strategies in China and
toured plants in
Songjiang (Shanghai)
and Zhangjiagang.
Meeting with
the workforce
As part of the board site visits, the board meets with employees over lunch and dinner,
providing an opportunity for open discussion. This gives the board insight into our culture.
Leadership conference (April 2019)
The Chairman attended for part of our 2019 leadership conference, which gave him an opportunity to get a feel for the group’s culture,
hear more about JM’s priorities in action and meet employees from across all our sectors and functions.
October
November
December
January
February
March
2020 (provisional)
4th February
Payment of
interim dividend
21st November
Announcement of
results for the six
months ending
30th September 2019
28th November
Ex dividend date
29th November
Interim dividend
record date
107
GovernanceJohnson MattheyAnnual Report and Accounts 2019 Corporate Governance Report continued
Leadership
Our governance framework at 31st March 2019
Chief Executive
Robert MacLeod
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.
Executive Directors
Robert MacLeod, Anna Manz,
John Walker
Key responsibilities
• Have specific executive
responsibilities.
• Discharge duties in respect of
the group as a whole.
Company Secretary
Simon Farrant
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.
Chairman
Patrick Thomas
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.
• Is available to shareholders should they have concerns.
• Leads the annual appraisal of the Chairman’s performance.
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 culture,
values and behaviours.
• Ensures good governance.
Company purpose
Johnson Matthey’s vision is for a world that
is cleaner and healthier; today and for future
generations. JM uses its position as a global
leader in sustainable technologies to create
solutions for our customers that make a real
difference to the world around us. To deliver
this, the board has set its strategy through
four sectors which, enabled by our science,
create long term value for our shareholders.
This is underpinned by the values and
behaviours that shape the culture and the
way we conduct business.
Governance framework
JM’s corporate governance framework and
processes support the execution of strategy by
clarifying roles and responsibilities, providing
a mechanism for decision making ensuring
that risk is appropriately managed and is
supported by an internal control framework.
The group’s principal decision making
body is the board. It is accountable to
shareholders for the group’s financial and
operational performance and has responsibility
for setting the group’s strategic direction and
for ensuring that the group manages risk
effectively. The board is supported by three
principal committees: the Nomination
Committee, the Audit Committee and the
Remuneration Committee.
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
108
Chief Executive’s roles are separate, and this
division of responsibilities is clearly
established in a written statement within our
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
five sub-committees – the Environment,
Health and Safety Leadership Committee, the
OneJM Policy Committee, the Finance and
Administration Committee, the Legal Risk
Committee and the Metal Steering
Committee. For further details on these
committees, please refer to our corporate
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Johnson MattheyAnnual Report and Accounts 2019Governance 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.
• Maintains an appropriate relationship with our external auditor, including recommending
reappointment or a requirement to tender.
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Nomination Committee
Membership
Five independent Non-Executive Directors and the group Chairman.
Chaired by Patrick Thomas.
Role
• Considers structure, size, composition, diversity and succession needs of the board.
• Oversees succession planning for senior executives.
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Remuneration Committee
Membership
Five independent Non-Executive Directors and the group Chairman.
Chaired by Chris Mottershead.
Role
• Sets remuneration policy for Executive Directors, Senior Management and the Chairman
and determines the application of that policy.
• Reviews and monitors the level and structure of remuneration for senior executives.
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Disclosure Committee
Membership
The Chief Executive, Chief Financial Officer
and the Company Secretary.
Chaired by Robert MacLeod.
Role
• Identifies and controls inside
information or information which
could become inside information.
• Determines 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
• Oversee the concerns raised pursuant
to the Speak Up Policy, including the
effective review and investigation of
these concerns.
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Group Management Committee
Membership
Chief Executive, Chief Financial Officer, Sector Chief Executives, Chief HR Officer, Chief Technology Officer, Chief EHS and
Operations Officer and General Counsel and Company Secretary.
Chaired by Robert MacLeod.
Role
• Responsible 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
Chief EHS and
Operations Officer.
Role
Assists the company
in discharging its EHS
responsibilities and in
creating a positive EHS
culture across the group.
OneJM Policy
Committee
Chaired by General
Counsel and
Company Secretary.
Finance and
Administration
Committee
Chaired by Chief
Financial Officer.
Legal Risk Committee
Chaired by General
Counsel and
Company Secretary.
Metal Steering
Committee
Chaired by
Chief Financial Officer.
Role
Sets a policy framework
for the group and
oversees and approves
Johnson Matthey
group policies.
Role
Responsible for certain
of the group’s finance
and corporate
restructuring matters.
Role
Reviews contract
and litigation risk
for the group.
Role
Manages the risk and
mitigating actions
in relation to
the company’s
precious metal.
109
GovernanceJohnson MattheyAnnual Report and Accounts 2019
Corporate Governance Report continued
Principal board activities
Each year the company undertakes a bottom
to top strategic planning exercise in order to
review the components of each sector’s
strategy that contribute to the group’s long
term strategy. This process allows the board
to discuss the business model, review market
trends, consider how the group is equipped
to manage and respond to risks and
opportunities and ensure that resources are
appropriately allocated in order to create
value for our shareholders. The board sets its
annual agenda plan by reference to its
strategy, ensuring there is sufficient time to
discuss and develop strategic proposals and
monitor performance.
Our board met 11 times during the year,
seven times in person and four times
by telephone. Since the end of the financial
year, the board has met twice. The attendance
of members at board meetings during the
year is set out on page 103. 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 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 table to the right.
Links to the group’s principal risks as set out
on pages 93 to 96 are also highlighted in
the table.
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Pages 28 to 29: Our stakeholders
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Areas of focus for
2019/20 are expected
to include:
• Our culture.
• Continued focus on EHS.
• Execution of our strategic priorities.
• Sustainability.
• Continued monitoring of financial
performance.
• Reviews of our principal risks.
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Science
Role of the board
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 the Fuel Cells strategy, including investment in the UK and China.
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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.
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Customers
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Operations
k
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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 ensure that the needs of our customers
are integral to our strategy.
• Reviewed and approved proposals on our Procurement Excellence programme.
• Reviewed arrangements and actions around the impact of a potential hard Brexit for JM, including how this could
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.
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Strategy
in Annan, UK.
• Reviewed the company’s strategy and the timeline for key company decisions.
• Reviewed and approved the Clean Air strategy, including investment in India.
• Reviewed and approved the Efficient Natural Resources strategy including investment in our refineries.
• Reviewed and approved the Health strategy, including investment in manufacturing and development facilities
• Reviewed and approved the strategy for Battery Materials, including investment in a commercial scale eLNO
manufacturing plant in Poland and three customer application centres.
R&D
Efficiency
Financial
• Reviewed and approved proposals on our Commercial Excellence programme to capture a fair share of the value
we create for customers.
• 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.
Operational
affect our customers.
Risk
control systems.
Governance
• Reviewed progress on the development and implementation of a groupwide enterprise resource planing (ERP) system.
• Reviewed cyber security and improvement to our infrastructure, including investment in IT systems.
• Received updates on strategic metal.
• Reviewed the board’s responsibilities in relation to assessing and monitoring risk management and internal
• Reviewed our principal risks and risk appetite, and agreed mitigating actions and assurance activities.
• Reviewed the key features of the UK Corporate Governance Code 2018 and plans to ensure compliance for 2019/20.
• Reviewed the company’s compliance with the UK Corporate Governance Code 2016.
• Reviewed and approved a revised group corporate governance framework, including committee terms of reference.
• Recommended to shareholders the adoption of new Articles of Association.
• Reviewed directors’ conflicts of interest and Non-Executive Directors’ independence.
Culture
Leadership
Directors.
responses and actions and the outcome of safety audits.
• Reviewed the responses and action plan following the global employee survey.
• Reviewed the HR function strategy and received an update on the Finance function within JM.
• Received an update on legal, ethics and compliance matters.
• Considered board succession and approved the appointments of Xiaozhi Liu and Doug Webb as a Non-Executive
• Reviewed the key findings and action plans following the board and committee effectiveness review for 2017/18.
• Undertook an internal review of board and committee effectiveness for 2018/19.
To establish the culture, values and ethics of
the company.
• Reviewed and approved a refreshed global code of ethics – ‘Doing the Right Thing’.
• Reviewed EHS performance at each meeting and considered significant incidents, including management
To ensure the board is effective, with an
appropriate balance of skills, experience
and independence .
To undertake a rigorous annual performance
evaluation.
To ensure remuneration promotes the long
term success of the company.
People
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Johnson MattheyAnnual Report and Accounts 2019Governance To set the company’s strategic aims and to
take responsibility for the long term success
of the company.
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 ensure that the needs of our customers
are integral to our strategy.
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.
To ensure the board is effective, with an
appropriate balance of skills, experience
and independence .
To undertake a rigorous annual performance
evaluation.
To ensure remuneration promotes the long
term success of the company.
Outcome
Strategy
• Reviewed the company’s strategy and the timeline for key company decisions.
• Reviewed and approved the Clean Air strategy, including investment in India.
• Reviewed and approved the Efficient Natural Resources strategy including investment in our refineries.
• Reviewed and approved the Health strategy, including investment in manufacturing and development facilities
in Annan, UK.
• Reviewed and approved the strategy for Battery Materials, including investment in a commercial scale eLNO
manufacturing plant in Poland and three customer application centres.
To approve major capital projects.
• Reviewed and approved the Fuel Cells strategy, including investment in the UK and China.
To ensure the long term success of the company.
R&D
• Reviewed innovation and endorsed the approach taken to grow and develop the research and development portfolio.
Efficiency
• 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.
Operational
• Reviewed and approved proposals on our Procurement Excellence programme.
• Reviewed arrangements and actions around the impact of a potential hard Brexit for JM, including how this could
affect our customers.
• Reviewed progress on the development and implementation of a groupwide enterprise resource planing (ERP) system.
• Reviewed cyber security and improvement to our infrastructure, including investment in IT systems.
• Received updates on strategic metal.
Risk
• Reviewed the board’s responsibilities in relation to assessing and monitoring risk management and internal
control systems.
• Reviewed our principal risks and risk appetite, and agreed mitigating actions and assurance activities.
Governance
• Reviewed the key features of the UK Corporate Governance Code 2018 and plans to ensure compliance for 2019/20.
• Reviewed the company’s compliance with the UK Corporate Governance Code 2016.
• Reviewed and approved a revised group corporate governance framework, including committee terms of reference.
• Recommended to shareholders the adoption of new Articles of Association.
• Reviewed directors’ conflicts of interest and Non-Executive Directors’ independence.
Principal risks
1
4
7
2
5
8
3
6
9
10
11
12
13
1
4
7
2
5
8
3
6
9
10
11
12
13
1
4
7
2
5
8
3
6
9
10
11
12
13
Culture
• Reviewed and approved a refreshed global code of ethics – ‘Doing the Right Thing’.
• Reviewed EHS performance at each meeting and considered significant incidents, including management
responses and actions and the outcome of safety audits.
• Reviewed the responses and action plan following the global employee survey.
• Reviewed the HR function strategy and received an update on the Finance function within JM.
• Received an update on legal, ethics and compliance matters.
1
4
7
2
5
8
3
6
9
10
11
12
Leadership
• Considered board succession and approved the appointments of Xiaozhi Liu and Doug Webb as a Non-Executive
13
Directors.
• Reviewed the key findings and action plans following the board and committee effectiveness review for 2017/18.
• Undertook an internal review of board and committee effectiveness for 2018/19.
In undertaking these activities, the board considers its duties as set out in law and the interests of its key stakeholders,
including what will promote the success of the company for the benefits of its members.
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GovernanceJohnson MattheyAnnual Report and Accounts 2019 Corporate Governance Report continued
Culture
Effectiveness
Succession planning
Effective succession planning is fundamental
to board effectiveness and the delivery of our
strategic plans. 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 develop a strong
pipeline of talent.
The board recognises the need to recruit
Non-Executive Directors with the right
technical skills and sectoral knowledge in
order to develop the company’s strategy in
accordance with its purpose. All Non-Executive
Directors must be independent, be prepared
to question, challenge and critique in all
areas and have the potential to chair our
committees. During the year the board,
through the Nomination Committee,
recruited Xiaozhi Liu, who was appointed
as a Non-Executive Director in April 2019,
and Doug Webb, who was appointed as a
Non-Executive Director and Audit Committee
Chair Designate from 2nd September 2019.
Succession plans are prepared for all
of our sector and group functions, with
support from HR. The GMC reviewed these in
detail during the year, including development
plans for their teams. These plans were then
discussed with the Nomination Committee.
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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 senior
management and visiting the group’s major
sites in order to gain an understanding of
group strategy, individual businesses, key
customers and stakeholders.
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Through the mix of topics discussed by
the board, and the activities referred to on
pages 106 to 107, the directors gain an
insight into JM’s culture, issues and operating
environment for the sectors and functions.
During the year, the Chief HR Officer
presented JM’s people ambition to the board,
to be one of the best performing, most
trusted and admired speciality chemicals
companies in the world. To deliver this
ambition, we need a highly engaged, diverse
and inclusive workforce, with the best talents
across the organisation. The board and senior
management are committed to building
employee engagement based on our culture
and values, where all forms of diversity are
valued, to provide challenging work and
development opportunities and a proactive
infrastructure of support.
Throughout the year, we have heard and
seen how our values and desired behaviours
as described on page 61 have started to be
shared and embedded across the
organisation, through presentations to the
board, the refreshed code of ethics, visiting
sites and meeting with employees. We were
also updated on the results of JM’s second
global employee survey during the year.
A culture of high engagement is important
to the board and we were pleased to see a
high participation rate of 82%.
The 2016 employee survey told us that
our people wanted more communication and
clarity on our strategy and it was positive to
see that the scores on understanding strategy
had improved. We were disappointed to see
that the overall engagement score had
reduced slightly since our 2016 survey and
we will maintain oversight of the actions and
plans to improve this. During 2018/19 work
has already begun to define our culture in
further detail, building on our values and to
determine the most effective way to regularly
monitor culture across the group, including
through engagement with the workforce. We
will report on this in further detail in our
2020 Annual Report and Accounts.
Our board’s composition
As at the date of this annual report, our
board comprised the Chairman, three
Executive Directors and six independent
Non-Executive Directors.
Our board continues to comprise a
majority of independent Non-Executive
Directors and 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 and
create long term shareholder value. 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 2019. 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 and the
Chairman was determined to be independent
on appointment to the board.
Information on the company’s procedures
for authorising potential conflicts of interest
is set out under ‘Directors’ conflicts of
interest’ on the following page.
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Johnson MattheyAnnual Report and Accounts 2019Governance Terms of appointment of the
Non-Executive Directors
Our Non-Executive Directors are appointed for
specified terms, subject to annual election by
our shareholders and to the provisions of the
Companies Act 2006 (the 2006 Act) relating to
the removal of a director. Following review and
recommendation from the Nomination
Committee, the board approved the extension
of Odile Desforges’ term of appointment from
June 2019 until the end of the company’s AGM
in July 2019.
The board also approved the extension of
Alan Ferguson’s term of appointment, which is
due to end in January 2020, until the end of the
company’s AGM in July 2020.
The terms of appointment of the
Chairman and Non-Executive Directors at the
date of this report are set out in the table below.
Diversity
Our board believes that diversity is important for
board effectiveness and that the board should
reflect the diversity of its workforce,
shareholders and communities. The board
continues to take an interest in diversity at all
levels of the group, to create an inclusive culture
where diversity is valued. 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. 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.
To embed diversity and inclusion across
the group, management is committed to
developing policies and processes that prevent
bias in relation to recruitment and promotion,
including actively discussing diversity in
succession planning and talent management,
promoting industrial and scientific careers to
women and developing flexible employment
policies for everyone.
Directors’ conflicts of interest
We have established procedures 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.
In April 2019, 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
independent of the matter. Prior to her
appointment, Xiaozhi told us that she is also
a Non-Executive Director at Fuyao Glass
Industry Group Co., Ltd, (Fuyao) a global
automotive glass manufacturing company in
China. Fuyao is a customer of our Advanced
Glass Technologies business. The board has
considered and authorised this potential
conflict of interest in accordance with its
Articles of Association and ensured that
adequate controls are in place.
All conflicts and 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.
Diversity is also considered as part of
the board effectiveness review, referred to on
page 114. For further details on our Diversity
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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. 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 and are periodically reviewed. The
board has put in place procedures to ensure
that directors seek prior approval from the
board before accepting any additional external
appointment or significant commitment.
During the year, the board approved an
additional external appointment for John
O’Higgins, having considered the expected
time commitments of the role and his other
directorships. After review, the board was
comfortable that John could continue to
dedicate sufficient time to Johnson Matthey.
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Chairman and Non-Executive Directors - Terms of appointment as at the date of this report
Odile Desforges
Jane Griffiths
Alan Ferguson
John O’Higgins
Chris Mottershead
Patrick Thomas
Xiaozhi Liu
13th January 2011
31st M arch 2012
31st M arch 2013
31st M arch 2014
31st M arch 2015
31st M arch 2016
31st M arch 2017
31st M arch 2018
31st M arch 2019
31st M arch 2020
31st M arch 2021
1st A pril 2022
Date of initial appointment/expiry
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GovernanceJohnson MattheyAnnual Report and Accounts 2019 Corporate Governance Report continued
Evaluation of the board, board
committees and directors
This year, the Chairman, supported by the
Company Secretary, led an internal review of
the board and its committees, following an
external review by independent consultants,
Manchester Square Partners LLP, in 2017/18.
An annual review provides opportunities to
reflect on the range and effectiveness of our
discussions, to consider each director’s own
contribution and performance, and to
identify areas for further improvement.
The review comprised a questionnaire
devised by Independent Audit, a specialist
corporate governance consultancy, covering
certain key topics. The Chairman then held
individual discussions with each member of
the board, the Company Secretary and the
Chief HR Officer regarding the board and its
effectiveness. These conversations were
open, honest and confidential. The
Chairman, with the support of the Company
Secretary, compiled the results which were
presented to the board for discussion, on an
unattributed basis.
Overall, the board is considered to be
an effective team, with strong engagement,
high participation and a strong basis of
openness and trust. Board members feel well
supported and the quality of papers to support
discussions has improved from previous years.
Board committees were considered to be
effectively chaired, and to work well, with
a clear understanding of relevant issues.
Below, we provide an update on the
actions undertaken from the 2017/18
external review and further insight from
the 2018/19 review.
2017/18
Action
2018/19
Insight and update
Strategy
As part of the 2017/18 review, it was
agreed that whilst not losing focus on
strategic direction, the board’s role should
evolve towards refining and monitoring
execution of agreed strategies. Sufficient
time should be allowed for iterative
discussions, including investment
decisions, whilst maintaining time for
discussing customers, suppliers, talent
development, culture and compliance.
Risk
management
This would need to be continuously
monitored as the business evolves to
ensure early identification and mitigation
of emerging risks.
The board’s agenda plan ensures there is sufficient time for updates
from all sectors and functions, to enable an understanding of how
strategy is implemented and to monitor capital projects.
When areas of the business seek investment, the Chairman, with the
support of the Company Secretary, ensures that this is clearly presented
in the broader strategic context. This ensures that the board has an
opportunity to challenge and seek clarification at an early stage, before
approving investment decisions.
The 2018/19 review showed that the board values time to consider and
debate different scenarios and assumptions in order to refine strategy.
The board has reviewed and challenged each of its principal risks
throughout the year and considered emerging risks.
The 2018/19 review showed that further work is needed to embed a risk
management culture and ensure adequate time is allocated on the
board’s agenda to consider the ‘what ifs’ that could impact our business.
Board
composition
The 2017/18 review identified the need
for further international experience on
the board. In considering succession
planning, the board would also have
regard to other elements of diversity.
During 2018/19, the board developed a skills matrix to provide further
insight of the skills and experiences needed to support the board in
discharging its responsibilities. This reinforced the need for further
international experience on the board, culminating in the appointment
of Xiaozhi Liu.
Board
dynamics
As we deliver our strategy, the
Non-Executive Directors must continue
to further their challenge, support and
contribution to the Executives. In this
context the board agreed to consider
whether more time together and with
management would be beneficial.
People
Site visits are an important part of
employee engagement and potential
further opportunities for these should
be found.
The 2018/19 review recognised the board’s work on leadership and
succession planning during the year.
The board will continue to have regard to diversity in all appointments to
the board and intends to review its board Diversity Policy during 2019/20.
The board determined that in order to deliver, monitor and challenge
strategy, the number of board meetings would be increased, with an
additional meeting being held in December. The length of meetings has
also been extended to ensure there is sufficient time for full discussion.
Board telephone calls were previously held to update the Non-Executive
Directors on relevant matters between meetings. These have since been
formalised into telephone board meetings with agendas and papers and
are used to provide early introductions to strategic topics.
The continued use of ‘teach-ins’ on major business areas, explicitly
separated from consideration of strategy, will also support this.
All Non-Executive Directors are encouraged to visit our sites when
travelling during the year.
The 2018/19 review recognised that further work is needed to ensure
the culture amongst the workforce is in line with our values and the
board is considering ways in which it can enhance engagement with
the workforce, through site visits and other means. Further details on
this will be reported in the 2020 Annual Report and Accounts.
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Johnson MattheyAnnual Report and Accounts 2019Governance Following the board’s discussion of the
2018/19 review, an action plan will be
agreed. These actions are likely to be in the
areas of:
• Stakeholder engagement, particularly with
the workforce.
• Developing our culture and rewarding the
right behaviours.
• Risk management, including crisis
management.
We will report on the actions and progress
made next year.
The board’s intention is to undertake a
similar review in 2019/20 in order to monitor
progress and to undertake an externally
facilitated evaluation process in 2020/21 and
at least every three years, in accordance with
the requirements of the code.
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 2019, the Non-Executive
Directors, led by Alan Ferguson, met without
Patrick Thomas being present to discuss his
performance during his first year as
Chairman. Key considerations were his
overall leadership of the board, the setting
of tone and the effectiveness of structuring
and facilitating discussions. The views of
Executive Directors and the Company
Secretary were also taken into account.
The outcome was subsequently reported
to the board that Patrick’s leadership of the
board was effective and encouraged open
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 2018 in order to
review the Executive Directors’ performance
and regular discussions were held with the
Remuneration Committee throughout the year.
Each of the directors was considered to be
effective in discharging their responsibilities.
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Annual re-election of Directors
In accordance with the code, all directors
retire at each AGM and offer themselves for
election or re-election by shareholders.
Xiaozhi Liu joined the board as a
Non-Executive Director on 2nd April 2019
and, as required by our Articles of
Association, will retire at the 2019 AGM and
offer herself for election. Odile Desforges will
step down from the board at the end of the
2019 AGM and therefore not offer herself for
re-election. All other directors will be
offering themselves for re-election.
As at the date of approval of this annual
report, our six Non-Executive Directors
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,
including details of their contributions to the
board, can be found on pages100 to 102.
Our 2019 AGM circular outlines why
the board believes each director should be
elected or re-elected. 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.
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Fair, balanced and
understandable 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 process to determine whether the
2018/19 annual report is fair, balanced and
understandable was reviewed by the Audit
Committee and was considered to be
effective. The board considered the results
of an assessment by management and was
satisfied that all key events and issues
reported to the board during the year had
been adequately disclosed or reflected within
the annual report. The directors concluded
that the 2018/19 annual report 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.
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GovernanceJohnson MattheyAnnual Report and Accounts 2019 Corporate Governance Report continued
Risk management and
internal control
The board is responsible for determining
the nature and extent of the principal risks
it is willing to take in achieving its strategic
objectives, that is, the risks that could
threaten JM’s strategy, performance, solvency
or liquidity. Details of these risks and the
mitigating actions are set out on pages 93 to 96.
The board is also 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). Our risk
management and internal control systems
are groupwide and comprise 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. These 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 Guidance on Risk
Management, Internal Control and Related
Financial and Business Reporting issued by
the Financial Reporting Council in September
2014 (FRC Guidance) and the requirements
of the code) for identifying, evaluating and
managing the principal risks faced by the
group as well as emerging risks and trends.
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.
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.
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.
Review of effectiveness of the
group’s risk management and
internal control systems
The board delegates responsibility to the
Audit Committee to keep under review the
adequacy and effectiveness of internal
controls and risk management systems and it
ensures they are properly scrutinised. 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 pages
128 to 129.
To ensure the board effectively manages
risk, the board agenda plan, together with
that of the Audit Committee, ensure that all
significant areas of risk, risk appetite and the
related risk management and internal control
systems are reviewed and considered during
the course of the year. The board also considers
emerging risks.
The board, in part through the Audit
Committee, is satisfied that it has reviewed
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 123 to 131), 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.
Viability statement
The directors have assessed the prospects
of the company over a three year period
following a robust assessment of the
principal risks affecting the company, the
business model and strategic plans. 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 the three year period under review.
Risk governance
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Assesses the principal risks and determines risk appetite.
Is responsible for the approach to risk management and internal control.
Board
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Risk management function
Provides independent advice
and challenge on our risks.
•
Reviews the adequacy and effectiveness of internal controls and risk
management systems.
Audit Committee
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Reviews each principal risk, the risk appetite and mitigations in place.
Champions risk management.
Group Management Committee
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Johnson MattheyAnnual Report and Accounts 2019Governance 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 what matters to them and so their views can be appropriately considered in decision making.
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Information on how we manage relations with our shareholders is set out on the following page.
The board is committed to engaging with the workforce in order to understand the culture, issues and challenges
across our businesses. Meeting with local management, both formally and informally, allows a deeper insight of
views and provides opportunities to receive informal feedback. In receiving presentations on strategy, we ensure that
the Sector Chief Executive or key functional head, and where relevant, members of their teams, attend the board
meeting so their views can be heard and considered.
During 2018 we undertook our second global employee engagement survey and the Chief HR Officer presented the
results of this to us. It was pleasing to see that 82% of employees participated in the survey (an increase from 75% in
November 2016). A culture of transparency is important to the board and senior management, particularly during
periods of change. The result of the employee survey confirmed areas where there is more to do, and this is taken
into account as the board develops, and reviews strategy.
The board continues to enhance ways in which it engages with the workforce, to ensure their views are taken into
account in decision making. Plans are in place to develop engagement mechanisms further during 2019.
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 on pages 68 and 69. The board receives regular reports on speak up
matters which provide further insight into the culture across the group.
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Understanding our customers’ needs helps us to deliver the best solutions for them. The board considers this as part
of its strategy and in reviewing capital investment proposals.
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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.
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GovernanceJohnson MattheyAnnual Report and Accounts 2019 Corporate Governance Report continued
Relations with
shareholders
Dialogue with our shareholders
Our board welcomes the opportunity to
openly engage with shareholders and help
them to understand our business. Recognising
the importance of effective dialogue on an
ongoing basis, whether with major
institutional investors, private shareholders
or employee shareholders, the board takes
responsibility for ensuring that such dialogue
takes place.
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 so these
can be fully considered. Since his
appointment, the Chairman has met with
approximately 30% of our shareholding,
comprising a range of institutional investors,
to discuss matters on strategy, performance
and governance. He is committed to
engaging with our shareholders on a regular
basis.
Contact with major shareholders is
principally maintained by the Chief Executive
and the Chief Financial Officer, who have a
regular dialogue with institutional shareholders
on performance, plans and objectives
through a programme of one to one and
group meetings. Our Investor Relations
department acts as a focal point for contact
with investors throughout the year. During
the year, the Investor Relations department,
together with members of the board and
senior management, held over 250 meetings
with institutions and potential investors. The
Chairman, Senior Independent Director and
the other Non-Executive Directors continue to
be available to discuss matters if requested.
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. All board members are
provided with a range of analysts’ and
brokers’ briefings on a regular basis and six
monthly brokers’ reports.
The board considers that the
arrangements for communicating with
shareholders remain practical and efficient.
They allow all our directors to keep in touch
with shareholders’ opinions and views in
order to reach a balanced understanding
of major shareholders’ objectives, issues
and concerns.
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While the board recognises that the
Annual General Meetings
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.
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. Our next Capital Markets
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2019 AGM
The AGM is an important part of effective
communication with shareholders. Our AGM
takes place in London with the Notice sent to
shareholders and published on our website at
least 20 working days beforehand. The Notice
sets out a balanced and clear explanation of
each proposed resolution.
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. A ‘vote withheld’ is
not legally a vote and not counted in the
calculation of the proportion of the votes
cast. 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.
Asset reunification
The board is committed to proactively
seeking to unite shareholders promptly with
their shares and dividend payments.
Share capital
Details of the company’s share capital, including
the rights and obligations attached to the shares
are set out in the Directors’ Report on pages 151
and 152.
Our 2019 AGM will be held on 17th July 2019. 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
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Compliance with the UK Corporate Governance Code 2016
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.
During the year the Senior Independent Director did meet with some major shareholders,
however, 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.
Johnson MattheyAnnual Report and Accounts 2019Governance Nomination Committee
Report
Chairman of the Nomination Committee
Patrick Thomas
Members
Alan Ferguson
Odile Desforges
Jane Griffiths
John O’Higgins
Chris Mottershead
Xiaozhi Liu
(Appointed 2nd April 2019)
Key objective:
To lead the process for board appointments and ensure
the development of a diverse pipeline for succession.
Responsibilities:
•
To review the structure, size and composition of
the board.
•
To ensure adequate succession planning for board
and GMC members.
2019/20 priority:
•
Ensuring the continued effectiveness of the board
as a whole as we work with new board members
in new roles.
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Strengthening
our leadership
We have focused on succession planning to ensure
the board and senior management has the right
capabilities to develop and execute our strategy.
This was my first year as Chairman of the board and the Nomination
Committee, having joined Johnson Matthey’s board in June 2018.
The committee has spent considerable time focusing on board
succession planning and evaluating the directors’ skills and expertise
in order to identify the criteria for future appointments and, in April
2019, we welcomed Xiaozhi Liu to the board as a Non-Executive
Director. Odile Desforges will step down from the board in July 2019,
having been a member for six years and on behalf of the board
I would like to thank Odile for her commitment and contributions
to the board during this time.
In September 2019, Doug Webb will join the board as a
Non-Executive Director and following our Annual General Meeting
(AGM) will take over Alan Ferguson’s responsibilities for chairing the
Audit Committee. In July 2020, Alan Ferguson reaches the end of his
third term of appointment in January 2020 and you can read more
about why we decided to extend his term of appointment for a
further six months in this report. He is also appointed as Senior
Independent Director and from July 2020, John O’Higgins will hold
this position on the board.
During the year, we also reviewed succession planning and talent
management for the Group Management Committee (GMC) and
their direct reports, recognising the importance these roles play in
delivering the group’s strategy and embedding the desired culture
across JM.
Role
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, including the
group’s processes for identifying and developing the future senior
management pipeline.
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Composition
As at the date of this annual report our committee has seven
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. The Company Secretary acts as secretary
to the committee.
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GovernanceJohnson MattheyAnnual Report and Accounts 2019 Governance
Nomination Committee Report continued
Committee meetings during the year
Our committee meets immediately prior to or following board meetings and on other occasions as needed. We met seven times during the year.
The attendance of members at meetings during the year is set out below.
Patrick Thomas
Tim Stevenson
Odile Desforges
Alan Ferguson
Jane Griffiths
Chris Mottershead
John O’Higgins
Date of
appointment
to committee
Number of
meetings eligible
to attend
Number of
meetings attended
1st June 20181
29th March 20112
1st July 2013
13th January 2011
1st January 2017
27th January 2015
16th November 2017
5
33
7
7
7
7
7
5
3
64
7
7
64
7
%
attended
100%
100%
86%
100%
100%
86%
100%
1 Patrick Thomas was appointed Chairman of the board and the committee on 26th July 2018.
2 Tim Stevenson was appointed Chairman of the board and the committee on 19th July 2011.
3 Tim Stevenson retired from the board and the committee on 26th July 2018.
4 Odile Desforges and Chris Mottershead were unable to attend one ad hoc meeting of the committee, which was arranged at short notice to consider the appointment of
Xiaozhi Liu as a Non-Executive Director of the company. Both were provided with papers in advance of the meeting and had the opportunity to pass on any comments to
the Chairman of the committee, ahead of the meeting.
Since the end of the year, the committee has met twice and all members attended, including Xiaozhi Liu following her appointment in April 2019.
Committee activities
Our principal activities during the year, and up to the date of approval of this annual report, were as follows:
Chairman succession
Non-Executive Director
succession
Board skills matrix
My appointment to the board took effect in June 2018 and I became Chairman in July 2018,
after Tim Stevenson stepped down from the board. I have since received a full induction into
Johnson Matthey’s business. Further details on my induction are included in this report on
page 122.
Recommended to the board that Odile Desforges’ term of appointment be extended from
30th June 2019 until the end of the company’s AGM on 17th July 2019.
Considered succession planning for Alan Ferguson, who will have served on the board for
nine years in January 2020.
Having conducted a search process for two new Non-Executive Directors with assistance
from EgonZehnder, recommended to the board the appointments of Xiaozhi Liu as a
Non-Executive Director and of Doug Webb as a Non-Executive Director and
Audit Committee Chairman Designate.
Recommended to the board that John O’Higgins be appointed as Senior Independent Director
from the end of the company’s 2020 AGM.
Reviewed the directors’ skills and experience by way of a self-assessment to ensure that the
board as a whole remains balanced and to identify any areas for development or gaps within
succession planning.
Talent management framework
Reviewed the group’s progress and priorities for talent management, development, culture and
values, which form an integral part of the group’s people strategy.
Succession planning and senior
management changes
Reviewed the 2019 succession and development plans in respect of the GMC including the
Chief Executive and other senior executives in each sector and group function. Discussed GMC
membership and responsibility changes.
Review of performance and
effectiveness during 2018/19
Undertook an internal review of the committee’s performance and effectiveness.
Nomination Committee Report
Reviewed and approved the 2019 Nomination Committee Report.
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Johnson Matthey
Annual Report and Accounts 2019
Committee activities
In adopting its Diversity Policy, the
The committee recognises the
The graph below shows an estimate of how the
committee has spent its time during the year.
Governance
5%
Board
composition
and succession
planning
30%
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board has not set express gender or other
related diversity quotas or measurable
objectives, however, the board and the
committee seek to encourage applications
from a diverse range of candidates, subject to
the selection criteria being met. The board’s
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Diversity Policy is available on our website.
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The policy requires the board to satisfy
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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. On behalf of the
board, 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 Diversity
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 four women on
our board, which represents 40% of our total
board membership. During the year the board
has continued to promote diversity at all levels
of the organisation and in the boardroom,
to promote an inclusive culture across JM.
The gender balance of the board as at
31st March 2019 is shown on page 103 and
of those in senior management positions
and their direct reports, on page 65. For
further details on diversity and inclusion
across JM, including our Equal Opportunities
Policy, see page 65.
Succession planning
A key role of the 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.
The committee has continued to focus
on active talent management, mobility across
the group and diversity. We have discussed
succession planning and development for key
senior management roles and identified areas
for external recruitment. We were pleased to
see that performance management and
development has been enhanced, with a
globally consistent framework of career paths,
a common, globally applied job grading system,
progressive mobility policies, and a new suite
of leadership development programmes.
Senior management
succession and talent
65%
Board appointments
In considering board composition, we assess
the range and balance of skills, experience,
diversity, knowledge and independence on
the board to identify any gaps and consider
the need to refresh the board. If we feel that
it is necessary to appoint a new director, the
capabilities and characteristics required for
the appointment are determined and
objective selection criteria are set accordingly.
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.
Board skills matrix
This year, I led a detailed review of the skills
and capabilities held by the current board
members. This comprised a self-assessment
from each board member of the skills, areas
of functional expertise and sectoral
experience they have. The results were
compiled by the Company Secretary and used
to consider any gaps, areas for future
development and skills needed in future
appointments to the board, in order to
support, challenge and develop the group’s
strategy. The skills held by our Non-Executive
Directors are summarised on page 103.
Boardroom diversity
The benefits of diversity, in its broadest
sense, on the board are carefully considered
when making any new board appointment.
All appointments to the board are made on
merit, against agreed objective selection
criteria. We also consider board balance and
composition, the required mix of skills,
background and experience as well as the
need to maintain board cohesiveness,
diversity and a positive culture.
importance of setting the tone and culture of
the organisation from the top and the role of
the GMC and senior leaders in demonstrating
and embedding the expected behaviours.
JM’s refreshed values were launched in April
2018 and over 1,300 managers have since
attended interactive workshops to learn more
about these. The committee will continue to
monitor the cultural factors that impact
talent strategies and influence a positive and
productive culture, creating a career destination
of choice for current and future talent.
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Non-Executive Director succession
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The committee recommended to the board
that Odile Desforges’ term of appointment
be extended from 30th June 2019 to the
end of the company’s AGM in July 2019,
enabling her to attend the AGM and answer
any questions our shareholders may have,
before she stands down from the board after
six years.
In light of Odile stepping down, the
committee recommended that a further
Non-Executive Director be appointed to
the board. Having reviewed the skills and
expertise of the current board members,
the committee sought an individual with
international experience and in particular,
knowledge of the China commercial markets.
The committee felt that Xiaozhi Liu’s
executive experience and extensive
knowledge of the automotive sector, including
in China, as well as her technology perspective
would be a positive enhancement of the
board’s knowledge, particularly as the group’s
automotive powertrain strategy evolves.
In considering Xiaozhi’s appointment,
the committee discussed her existing
commitments to ensure she would be able
to dedicate sufficient time to JM. As part of
these discussions, it was noted that Xiaozhi
will step down from her role as Non-Executive
Director of Fuyao Glass Industry Group Co., Ltd
in October 2019, when her appointment
expires. Her current appointments are set
out on page 101.
The committee also commenced
succession planning for Alan Ferguson,
including his role as Chairman of the Audit
Committee and as Senior Independent
Director, His term of appointment is due
to come to an end in January 2020, after
nine years on the board.
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GovernanceJohnson MattheyAnnual Report and Accounts 2019 Nomination Committee Report continued
In searching for a new Non-Executive Director,
the committee sought an individual with
recent and relevant financial experience and a
background in technology or innovation. The
committee recommended that Doug Webb be
appointed as a Non-Executive Director due to
his long and extinguished career as a Chief
Financial Officer. His experience of the
engineering and IT sectors will also provide
further expertise to support the board’s
discussions. We look forward to Doug joining
the board in September 2019. Given his
extensive corporate financial management
experience, Doug will be appointed as Audit
Committee Chairman from July 2020.
EgonZehnder was engaged to support
the search process for both Non-Executive
Director roles. EgonZehnder is a signatory to
the Enhanced Code of Conduct for Executive
Search Firms and has no connection with the
company, other than in Non-Executive
Director recruitment.
The committee recommended that
John O’Higgins be appointed as Senior
Independent Director from the end of the
company’s 2020 AGM, when Alan Ferguson
steps down from the board. In considering
Alan’s successor for this role, the committee
felt it was important to appoint an individual
with previous experience of engaging with a
range of shareholders, to ensure they are well
placed to understand shareholders views.
It was felt that John O’Higgins has strong
experience of this, having previously held the
role of Chief Executive at Spectris plc.
Having identified successors for Alan
Ferguson’s roles, the committee decided to
extend his term of appointment until the end
of the July 2020 AGM. This extends Alan
Ferguson’s appointment on the board beyond
nine years and prior to taking this decision,
the committee rigorously reviewed his
independence. Notwithstanding his length
of tenure, the committee feels that Alan
continues to demonstrate challenge
and he probes management to ensure they
are held accountable. His knowledge, skills
and experience remain important to the
committee and he initiates and supports
productive discussions. Extending Alan’s
appointment to July 2020 will ensure
continuity in oversight of the 2019/20
external audits and allow Doug to spend
time understanding JM’s business and the
work of the Audit Committee, before he
takes on his additional responsibilities.
Chairman induction
To ensure that I had an effective introduction to Johnson Matthey, I received a detailed
induction by the Chief Executive and Company Secretary. This included site visits and
introductions to key staff including the GMC and their immediate teams. During 2019/20
I will continue to visit more sites, and meet more of our people and shareholders.
Timeline of induction events
Date
Action
June 2018
Met with the Sector Chief Executives and their respective
executive committee members for an introduction to Clean Air,
Efficient Natural Resources and New Markets and toured JM’s
site at Royston
June 2018
Met with the heads of each corporate function to understand
their priorities
June 2018
June 2018
Met with the General Counsel and Company Secretary who
provided an overview of directors’ duties and obligations and
JM’s governance procedures
Toured our Technology Centre at Sonning, JM’s largest R&D
facility, to learn about our research and technical support for
our sectors
June 2018
Met with Tim Stevenson, the former Chairman, to ensure a
successful transition of duties
September 2018
Joined the Clean Air executive team on their leadership conference
April 2019
Attended part of JM’s leadership conference and met with
employees across all sectors and functions
Ongoing
Meeting with a range of institutional investors to discuss and
understand their views on strategy, performance and governance
Committee effectiveness
In January 2019, I led an internal review
on the effectiveness of our board and its
committees. This was a lighter approach for
the committee than in previous years, given
that a detailed external review was carried
out during 2017/18. The review covered the
committee’s role, responsibilities and operations.
The review showed that the committee
continues to operate effectively, in particular,
in setting the tone and culture with
management. The recent challenges in
recruiting for certain executive roles was
noted, reinforcing the importance of
continuing to develop internal talent.
Further details on the outcomes of the
board evaluation, including how the actions
will influence board composition, are set out
on page 114.
The Nomination Committee Report
was approved by the Board of Directors on
30th May 2019 and signed on its behalf by:
Patrick Thomas
Chairman of the Nomination Committee
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Johnson MattheyAnnual Report and Accounts 2019Governance Audit Committee Report
Chairman of the Audit Committee
Alan Ferguson
Members
Odile Desforges
Jane Griffiths
John O’Higgins
Chris Mottershead
Xiaozhi Liu
(Appointed 2nd April 2019)
Key objective:
To provide oversight of financial reporting and
internal controls.
Responsibilities:
•
To monitor the integrity of the company’s
financial reporting.
•
•
To review the effectiveness of internal
financial controls.
To maintain the relationship with the
external auditor.
2019/20 priorities:
•
To monitor controls associated with the new ERP
system and cyber risk.
•
To monitor progress to increase the use of data
analytics by our assurance providers.
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The committee welcomed
PwC as its new auditor
during the year
This report shares some of the committee’s
discussions during the year and provides insight
into its essential role in maintaining the integrity
of financial reporting and reviewing the
effectiveness of internal controls.
During the year as part of our programme of deeper dives, we looked
in more detail at the effectiveness of the control environment of
the Efficient Natural Resources and Battery Materials businesses.
We also spent time understanding and challenging the controls around
the implementation of our new enterprise resource planning (ERP)
system and how the group manages and controls precious metal. These
detailed reviews provide the committee with a deeper insight into the
risk management systems and controls in place across the group.
Following a successful tender last year, we welcomed
PricewaterhouseCoopers LLP (PwC) as our new auditor in July 2018,
led by Mark Gill, the lead audit partner. The committee has spent
time this year overseeing a smooth transition from KPMG LLP
(KPMG), our former auditor.
As Chairman of the committee, I am pleased to say that the
committee continues to operate well and that it remains informed
of relevant changes and developments in the external audit market.
Looking ahead to next year, we will continue to monitor the control
processes associated with our new global ERP system, as its rollout
across the group is accelerated, and will start to focus on how our
assurance providers can make better use of data analytics, when
undertaking their work on our control environment.
Role
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
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Composition
Our committee currently comprises six members; myself as Chairman
and all of our independent Non-Executive Directors. We welcomed
Xiaozhi Liu to the committee in April 2019. This is my eighth 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 100 to 102.
This diversity 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.
The secretary to the committee is Simon Farrant, Company Secretary.
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GovernanceJohnson MattheyAnnual Report and Accounts 2019 Governance
Audit Committee Report continued
Committee meetings during the year
We met five times during the year. Attendance at these meetings was as follows:
Alan Ferguson
Odile Desforges
Jane Griffiths
Chris Mottershead
John O’Higgins
Date of
appointment
to committee
13th January 20111
1st July 2013
1st January 2017
27th January 2015
16th November 2017
Number of
meetings
eligible
to attend
Number of
meetings
attended
5
5
5
5
5
5
5
5
5
5
%
attended
100%
100%
100%
100%
100%
1. Alan Ferguson was appointed Chairman of the committee on 19th July 2011.
Since the end of the year, the committee
has met twice and all members attended,
including Xiaozhi Liu following her
appointment in April 2019. 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.
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.
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 in order to ensure
that the interests of shareholders are properly
protected in relation to financial reporting
and internal control.
Our meetings were also attended by the
lead audit partner and other representatives
from the external auditor. 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, the committee
meets 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. On a more
frequent basis, I meet with the Chief Financial
Officer, the Group Assurance and Risk Director,
other senior management and with the
auditors. 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 but has an
appropriate degree of challenge.
Committee activities
In order to discharge our responsibilities, our principal activities during the year, and up to the date of approval of this annual report, were as follows:
Responsibility
Activity
Published financial information
To monitor the
integrity of the
reported financial
information and to
review significant
financial issues
and judgements
• 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, assumptions and sensitivities in support of preparing the accounts on a going concern
basis and assessed the long term viability of the group.
• Reviewed the financial reporting framework of the parent company financial statements and agreed the
adoption of FRS 101.
• Assessed the process which management put in place to support the board when giving its assurance that
the 2019 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’.
• Reviewed reports from the General Counsel on litigation and on the speak up (whistleblowing) procedures.
• Reviewed reports on credit controls and credit risks.
• Approved the 2019 Audit Committee Report.
• Reviewed and recommended the approval of elements of the 2019 Annual Report and Accounts to the board.
• Reviewed and challenged the payment practices, policies and performance of the company and certain
UK subsidiaries.
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Johnson MattheyAnnual Report and Accounts 2019 Responsibility
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
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
• Received reports from the Group Assurance and Risk Director on the corporate assurance and risk reviews
and risk management processes.
• Monitored progress against the 2018/19 corporate assurance and risk plan and agreed the 2019/20 plan.
• Reviewed the assurance framework to determine whether risk management and internal controls effectively
meet the group’s needs and manage risk exposure.
• Reviewed an assessment of the control environment based on the results of the key control questionnaire
and management’s plans to address areas requiring further improvement. Determined that the system of
internal controls could be relied upon.
• Monitored the effectiveness of the Corporate Assurance and Risk function, including the results of a
self-assessment against the Institute of Internal Auditors’ standards.
• Reviewed precious metal governance and controls.
• Received reports from the Efficient Natural Resources and Battery Materials Finance Directors.
• Received reports in respect of security audits and the implementation of the new global ERP system.
• Approved, after due challenge and discussion, PwC’s proposed terms of engagement, audit plan and fees
for 2018/19.
• Considered reports from the auditors, including their views on our accounting judgements, control
observations and on the audit transition.
• Approved the provision of permissible non-audit services from PwC in respect of immigration services.
• Received updates on external audit market reviews and reviewed our response to the Competition and
Markets Authority consultation on the audit market study.
• Met with the external auditors without management present.
• Met with the local audit partner as part of the board’s visit to China.
• Considered and reviewed indicators of audit quality and recommended the reappointment of PwC
as auditor.
These activities are covered in more detail on the following pages.
Committee activities
The graph below shows an estimate of how the committee has spent its time during the year.
Governance
5%
Financial reporting,
including external audit
40%
Internal
audit and risk
55%
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GovernanceJohnson MattheyAnnual Report and Accounts 2019 Audit Committee Report continued
Published financial information
Significant issues considered by the committee in relation to the group’s and company’s accounts
Acting independently from management to ensure that the interests of shareholders are properly protected in relation to financial reporting is
fundamental to our role. In preparing the accounts, there are a number of areas which require management to exercise a particular judgement or
a high degree of estimation. The committee assesses whether the judgements and estimates made by management are reasonable and appropriate.
Significant current year issue
in relation to the accounts
Work undertaken
Outcome
Further
information
Revenue from contracts with customers
IFRS 15 supersedes all revenue standards
and provides a principle based approach
for revenue recognition and requires
that revenue is recognised as the
distinct performance obligations
promised within a contract are satisfied
either at a point in time or over time.
IFRS 15 is applied for the first time in
these accounts.
Earlier in the year work was undertaken
by management to assess the impact
of IFRS 15 on the transactions carried
out within the business. JM took
professional advice as it worked through
this process. It was concluded that the
impact on equity would be less than
£5 million. Following further work
being undertaken it was agreed that
IFRS 15 requires a number of transaction
sets to be shown net rather than gross
which had a significant impact on
revenue and cost of sales and lead to a
gross up of certain interest and balance
sheet items. As a result it was decided
to apply the standard on a fully
retrospective basis. The conclusion on
the impact on equity was unchanged.
This work also highlighted that JM’s
treatment of certain transactions sets in
the 2018 accounts under IAS 18 should
have been similarly accounted for on a
net basis and so these were restated.
Significant recurring issues
in relation to the accounts
Refining process and stock takes
When setting process loss provisions
and agreeing commercial terms with
customers, key estimates are made of
the amount of precious metal that
may be lost during the refining and
fabrication processes. In addition,
refining stock takes involve key
estimates regarding the volumes of
precious metal bearing material in the
refining system and the subsequent
sampling and assaying to assess the
precious metal content.
126
Note 39 on page 220.
As management worked through the
impact of the introduction of IFRS 15 the
Committee was kept up to date on the
process and the conclusions arising from
it. Papers were received from
management, PwC our auditors and
KPMG our former auditors. These were
reviewed and discussions were had with
all parties before the Committee could
satisfy itself as to the conclusions
recommended by management which
were supported by PwC.
We agreed with
management on the
treatment of certain
transaction sets under
both IFRS 15 and, for the
2018 comparative, IAS 18.
This resulted in a
restatement and we
reviewed the associated
disclosures and were
satisfied with them.
Whilst there is no
economic exposure from
these adjustments, we
will learn from the
issues identified.
Further
information
Accounting policies
section on page 171.
Work undertaken
Outcome
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. This
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 PwC, who
reported their 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.
Johnson MattheyAnnual Report and Accounts 2019Governance Significant recurring issue
in relation to the accounts
Work undertaken
Outcome
Further
information
Impairment of goodwill, other intangibles and other assets
Key judgements are made in
determining the appropriate level of
cash generating unit (CGU) for the
group’s impairment analysis. Key
estimates are made in relation to the
assumptions used in calculating
discounted cash flow projections to
value the 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.
Taxation
Key estimates are made in determining
the tax charge included in the accounts,
where the precise impact
of tax laws and regulations is unclear.
Post-employment benefits
Key estimates are made in relation to
the assumptions used when valuing
post-employment benefit obligations.
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 net assets of all
material CGUs. The key
assumptions were
discussed and assessed
for their reasonableness.
The impairment reviews were also an
area of focus for PwC, who reported
their findings to us.
There were no material
impairments of goodwill
or other assets in the year.
Accounting policies
section on pages 166
and 177.
Notes 16, 17 and 18 on
pages 184 to 187.
We concluded that
management’s key
judgements, estimates
and assumptions were
reasonable and
appropriate.
We concluded that the
estimates and disclosures
were reasonable and
appropriate.
Accounting policies
section on pages 169
and 171.
We concluded that the
assumptions used are
appropriate for the
group’s post-employment
benefit plans.
Accounting policies
section on page 170.
Note 30 on pages 195
to 203.
We reviewed explanatory papers from
management which included the
appropriateness of the tax provisions and
relevant disclosures. These were
challenged and discussed.
This was also an area of focus for PwC,
who, reported their findings to us and we
reviewed these.
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
PwC’s assessment of the reasonableness
of these assumptions.
Claims and uncertainties
The business is exposed to potential
claims and uncertainties, and how
to deal with these often involves
significant judgement.
We reviewed and challenged
information provided by management
in relation to legal claims and
uncertainties in accordance with
relevant accounting standards.
We concurred with
management’s
conclusions around
provisioning and the
contingent liability
disclosures.
Accounting policies
section on page 170.
Note 36 on page 215.
127
GovernanceJohnson MattheyAnnual Report and Accounts 2019 Audit Committee Report continued
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
2019 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 detailed reviews
by senior managers with responsibility for
key sections and a separate independent
review. Key sections are also reviewed by our
external advisers. Following our review, we
confirmed to the board that the process put
in place by management was satisfactory.
The board’s assessment on whether the 2019
Annual Report and Accounts is fair, balanced
and understandable is set out on page 115.
Going concern and viability statement
We reviewed the matters, assumptions and
sensitivities in support of assessing both the
going concern basis and 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 and mitigating
actions. As part of this, we considered the
risks associated with the UK’s exit from
the European Union (Brexit). Due to its
importance, the board has received regular
updates from the company’s Brexit working
group on the plans being implemented to
manage our business. Further details on
our going concern and viability, and the
scenarios considered, are set out on page 97.
Following review, we concluded that the
group would be able to continue in operation
and meet its liabilities as they fall due over a
period of at least three years. The committee
therefore recommended to the board that
the accounts be prepared on a going concern
basis and that the viability statement be
approved. Further information can be found
on page 116.
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 Group Assurance and Risk Director,
who has a direct reporting line to me, 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, makes
recommendations to address key issues and
ensures that any mitigation actions are
properly managed and completed.
Key control questionnaire
The company’s key control questionnaire is
an annual, bottom up process that requires
management of our material businesses to
certify the existence and effectiveness of key
controls, which are set out in our policies.
This year, the questionnaire was expanded
to include certain non-financial controls,
in order to provide further insight on the
controls needed to keep our people safe,
ensure our businesses are compliant with
the standards and regulations expected of
us and protect our assets (both physical and
intellectual). The results are reviewed at
sector, function and group levels against the
principal risks and the risk of financial
misstatement. This detailed review process,
as shown in the diagram below, provides a
comprehensive insight into the effectiveness
of the group controls, the risk culture and its
risk management systems.
The committee assessed the
effectiveness of the process and considered
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.
Sector and functional control reviews
The committee receives updates from
individuals responsible for maintaining
controls over financial risk areas across the
group, so that we can gain confidence that
these are managed effectively. During the
year, we received an update from the new
Global Head of Security and Business
Continuity on his first impressions of JM and
his plans to enhance controls in this area.
As deployment of the group’s new ERP
system commenced, we considered the controls
in place and will continue to maintain
oversight of these during 2019/20. The
committee also spent time reviewing the
precious metal governance framework and
controls associated with the balances of
precious metal held in the businesses,
including strategic metal holdings and the
treatment of process losses.
It was important for the committee to
understand and challenge the key financial
risks and controls within our Battery Materials
business, including the strength of its newly
established finance team as they manage
these. This year we also heard from the
Sector Finance Director of Efficient Natural
Resources about the main themes arising
from the key control questionnaire and internal
audits, helping us to better understand the
control environment in that sector.
These sector and functional reviews
allow us to meet with, challenge and probe
management. This provides the committee
with both a better understanding of the
control framework in these areas, but also
provides exposure to levels of management
below the group team. This is important in
assessing the depth and quality of
management within the organisation.
Key control questionnaire process
Questionnaire
completed
by businesses
Output reviewed
with Sector
Output reviewed
with Function
Sector level reviews with
Chief Financial Officer,
Group Financial Controller
and Group Assurance
and Risk Director
Findings shared
with Audit
Committee
Actions tracked
at business and
group level,
including
periodic
reporting to
the committee
128
Johnson MattheyAnnual Report and Accounts 2019Governance Corporate assurance and risk
Corporate assurance and risk effectiveness
Audit transition
The Group Assurance and Risk Director is
present at every Audit Committee meeting
and we have the opportunity to ask detailed
questions and challenge her. She provides
regular reports on internal audit and security
reviews undertaken during the period,
including the key findings, the actions to
address the findings and progress made
by management in implementing them.
We pay 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
our sites, irrespective of site location, size
and activity.
Corporate assurance and risk annual plan
We spend a significant amount of time
reviewing the corporate assurance and risk
annual plan to ensure it is comprehensive,
reflects the challenges and changes to our
business, and provides the appropriate level
of assurance. In reviewing the 2019/20 plan,
we considered the group’s risk profile, the
maturity of existing internal controls,
including where these had been enhanced
and standardised across the group, and the
work planned by sector management or the
group function to review the controls in
place, as required by policies. 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 questionnaire process, speak up
concerns, previous internal audit findings,
including environment, health and safety
audits, as well as input from JM’s strategy
team. We were pleased to see the plan
include group wide and multi-site audits,
as well as site specific audits.
The plan was mapped against the
principal risks and root causes, which allowed
us to see how much coverage there would be
on each risk. This year, the majority of our
plan covers operational, legal, regulatory and
commercial risk areas. The committee believes
the 2019/20 plan addresses Johnson Matthey’s
key risks, where additional assurance is
needed and that its coverage is appropriate
for the size and nature of the group. On the
basis of our review, we approved the plan.
The committee reviews the effectiveness
of the Corporate Assurance and Risk team
throughout the year using a variety of inputs
including audit reports, interaction with
committee members and management, and
monitoring progress of the internal audit plan.
We pay attention to whether the function has
adequate standing across the group, is free
from management influence or other
restrictions and is sufficiently resourced.
We discuss the calibre, knowledge and
experience of individual auditors. The
performance of the function is reviewed
annually. During the 2018/19 financial year,
the committee considered the results of a
self-assessment against the Institute of
Internal Auditor’s standards of integrity,
objectivity, confidentiality and competence.
Following our assessment, improvement
actions were identified, the progress of which
is monitored by the committee.
Risk management
Working with the board, the risk assurance
processes (including the assurance
framework and key control questionnaire)
were reviewed and refined. We concentrate
primarily on reviewing the mitigating
controls and the levels of assurance over
these, whereas the board is directly
responsible for managing risks. The board
may ask for additional assurance to be
provided and this can be carried out by the
Corporate Assurance and Risk function which
reports back on this to the committee.
Speak up issues
The committee receives an update on the
speak up (whistleblowing) process, where
we review the procedures to ensure they
are proportionate and independent. The
committee was pleased to see that based
on the number of speak ups, the organisation
is comfortable raising matters through this
channel.
External auditor
Tenure
In July 2018, following a successful tender
and in line with EU legislation on audit
firm rotation, we welcomed PwC as our
new auditor.
During the year we have overseen a smooth
transition from the former auditor KPMG,
which included PwC shadowing KPMG
through our full year results process for
2017/18 and attending one of our
committee meetings prior to formal
appointment. The Chief Financial Officer and
I have met regularly with both lead partners
from the firms to ensure that there was a
smooth handover. We would like to thank
KPMG for the service given to the group over
many years.
Bringing in a new auditor has brought
fresh energy to the role, new questions have
been asked and areas have been reassessed.
We are pleased with the way the change has
been managed as well as the output, which
we consider to be a robust audit.
External audit plan
PwC performed detailed audit planning
activities and reviewed KPMG’s audit files
at material locations in order to develop
an understanding of the group, the
operating environment, and the financial
reporting process.
In developing the external audit plan for
2018/19, PwC performed a risk assessment
to identify the risks of material misstatement
to the financial statements. This considered
the nature, magnitude and likelihood of each
risk identified and the relevant controls in
place, in order to identify the audit risks.
The key audit matters are referred to in the
independent auditor’s report on pages 225 to
227 and formed the basis of the plan.
In determining the scope of coverage,
consideration was given to management
reporting, the group’s legal entity structure,
the financial results as at 31st March 2018
and the forecast for 2018/19. Details of the
coverage and the agreed scope are set out in
the independent auditor’s report on page 224.
The committee was pleased that the plan
included an increased alignment with sector
reporting when compared with previous years.
This had been a matter discussed during the
audit tender process. The procedures to be
performed at a global level and the planned site
visits were also reviewed. Materiality was agreed
at approximately 5% of underlying profit.
Following discussion and challenge,
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.
129
GovernanceJohnson MattheyAnnual Report and Accounts 2019 Audit Committee Report continued
How we reviewed PwC’s performance
The committee is committed to ensuring a
high quality audit is performed and, as part
of the tender process carried out last year,
recommended that PwC be appointed due
to its strong team with the skills, experience
and independence to provide rigour and
challenge in the audit. The committee reviews
the ongoing effectiveness and quality of the
external auditor and audit process throughout
the year, based on its reports to the
committee, the performance of Mark Gill
and his team both in and outside committee
meetings, how they interact with and
challenge management and how they are
building relationships with the internal audit
teams. We have also met with key members of
Mark’s team, and the Chief Financial Officer
and I met with the audit partner in China,
one of our key geographical locations. It is
intended that the Chief Financial Officer and
I continue to meet with local audit partners
when visiting group sites, as this allows us to
reassure ourselves of their capability to deliver
the audit quality we expect.
In addition to this, the committee feels
it is important to understand management’s
opinion of audit quality and effectiveness
and a feedback questionnaire on the external
auditors is completed annually by the
Executive Directors and senior management.
Provision of non-audit services
In light of legislation and the FRC’s Revised
Ethical Standard, the committee has adopted
a policy on the provision of non-audit
services which identifies certain types of
engagement that the external auditor must
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 PwC can be employed by Johnson Matthey
and the procedure for obtaining approval
for such employment. The policy includes
key controls to ensure that the provision
of non-prohibited services does not create
a threat to PwC’s auditor independence
and objectivity.
The auditor can be invited to provide
non-audit services which, in its position as
auditor, it 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 PwC
being engaged. Services likely to cost
£25,000 or less must 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 committee
Chairman. Services likely to cost over
£100,000 must be approved by the
committee. During the year, the committee
approved the engagement of PwC to provide
certain immigration advisory services. The
engagement cost approximately £150,000.
These services have been provided to the
group since 2017, following a competitive
selection process. Plans are in place for PwC
to cease providing these services by
December 2019.
Compliance against the policy and the
provision of non-audit services and details
of the non-audit services provided by PwC
and associated fees were reviewed during
the year. Non-audit fees in the year were
£0.5 million compared with audit fees of
£2.6 million. The non-audit fees
predominantly comprised global immigration
services. More information on fees incurred
by PwC for non-audit services, as well as the
split between PwC’s audit and non-audit fees,
can be found in note 10 on the accounts,
page 180.
The committee will review the policy
on the provision of non-audit services later
this year.
Objectivity and independence
The committee is responsible for monitoring
and reviewing the objectivity and independence
of the external auditor to ensure this is
safeguarded. The committee considered
the information provided by the auditor,
confirming its staff involved with the audit
have no links or connections to JM and that
the FRC’s Revised Ethical Standard were
complied with. The committee concluded
that PwC was independent.
Proposed re-appointment of PwC
Given the work undertaken by the committee
in assessing PwC’s performance and
independence, a resolution proposing PwC’s
re-appointment as the company’s auditor and
authorising the Audit Committee to determine
its remuneration is included in the Notice of
the 2019 Annual General Meeting.
Statement of compliance
The committee confirms that during the
financial year ended 31st March 2019, 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. As detailed in our report last
year, we undertook an audit tender in 2018
and PwC was appointed as external auditor
in July 2018. 2018/19 is the first year we
have been audited by PwC.
Committee effectiveness
The committee’s performance was reviewed
as part of the board’s 2018/19 internal
review. The committee was considered to be
operating effectively, helping to ensure the
integrity of financial reporting and that
effective oversight of the external and
internal auditors is maintained. Given the
changing landscape in which JM is operating
and as the new ERP system is rolled out, the
development of the assurance functions will
be reviewed to ensure they adjust their
approaches to the advantages of a much
simpler systems landscape. More details on
how the review was carried out can be found
on page 114.
130
Johnson MattheyAnnual Report and Accounts 2019Governance Our priorities
In last year’s annual report we set out our priorities, over and above our business as usual work, for 2018/19. Below, we report on the status of
these and set out our priorities for 2019/20.
2018/19
Comments
• The committee will monitor and support the external audit
• Page 129.
transition.
• Given the significant impact on working capital of precious
metal (both customer and owned metal) held by the company,
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 global ERP system is 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.
• A ‘teach-in’ on the management of metal was delivered to the
board in May 2018. The committee has also reviewed strategic
metal holdings, metal liquidity ranges and process losses during
the year.
• Page 106.
• We received a specific update on the global ERP system controls
as well as updates through internal and external audit. In
addition, the board received an update from a specialist team
from KPMG, who have provided assurance on this.
• Due to the significance of the group’s capital projects, this was
predominantly reviewed by the board during 2018/19. The
board received an update from the Capital Projects Director
during the year and considered the control framework for the
project management office in approving new requests for capex.
2019/20
• The committee will continue to monitor control processes associated with the new global ERP system, as the rollout accelerates.
• The committee will review the progress being made in increasing controls over the management of cyber risk, given the significance of
this risk.
• The committee will monitor the company’s progress to increase its use of data analytics by our assurance providers.
The Audit Committee Report was approved by the Board of Directors on 30th May 2019 and signed on its behalf by:
Alan Ferguson
Chairman of the Audit Committee
131
GovernanceJohnson MattheyAnnual Report and Accounts 2019 Balancing reward
and performance
The purpose of this report is 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.
Introduction
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 is divided into two parts.
The first part sets out the statement of remuneration policy, which
summarises our policies and practices (the Remuneration Policy);
and the second part sets out how the Remuneration Policy has been
applied (the Implementation Report) in 2018/19 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.
Our remuneration strategy focuses on: motivating our talent to
achieve the company’s strategic objectives; delivering on customer
commitments; inspiring employees; and driving 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.
We also give consideration to how performance is delivered
when determining incentive plan outcomes with appropriate
consideration given to any environmental, social and governance
risks to ensure that the performance delivered is sustainable and
fully aligned with our company values.
Our remuneration strategy is also designed to be competitive
in the various markets in which we operate and compete for talent.
Governance
Remuneration Report
Chairman
Chris Mottershead
Members
Patrick Thomas
Alan Ferguson
Odile Desforges
Jane Griffiths
John O’Higgins
Xiaozhi Liu
(Appointed 2nd April 2019)
Key Objective:
To ensure that our remuneration arrangements align
with shareholders’ interests, reward directors and senior
executives for performance and are well managed in line
with good governance.
Responsibilities:
•
Sets remuneration policy for Executive Directors,
Senior Management and the Chairman and
determines the application of that policy.
• Oversight of workforce remuneration policies and
their alignment with culture.
2019/20 Priorities:
•
Triennial review of Directors’ Remuneration Policy.
132
Johnson MattheyAnnual Report and Accounts 2019 2019 Incentive plan outcomes
During the year Johnson Matthey delivered strong sales growth and
continued to successfully implement the board’s strategy through:
sustained growth in our Clean Air sector; expanding the pipeline in
our Health Sector; market leading growth in our Efficient Natural
Resources Sector; and developing our Battery Materials business for
future growth. We have also made a number of key capital investments
in both our Clean Air Sector and Battery Materials business in line
with our strategy.
During 2017/18 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 annual
incentive plan for 2018/19.
These non-financial objectives focused on deliverables to support
our strategy relating to science, customers, operations and people.
Delivery against the objectives was also underpinned by demonstrating
expected leadership behaviours and achieving a satisfactory health
and safety record over the year. As this is the first year of having
non-financial objectives our approach to defining and reporting on
these will evolve over the next few years. The remainder of the bonus
is based on financial metrics relating to profit and working capital.
Further details on the performance against the targets is set out
within our Implementation Report.
Overall, we achieved growth in underlying profit before tax and
reduced the average working capital days excluding precious metals
during the year. The Committee’s evaluation of each executive
director’s achievements against their individual strategic objectives
is set out on page 145.
As a result of the financial achievements over the year, and the
committee’s evaluation of individual strategic objectives, the bonuses
becoming payable are 44.8% of the maximum for Robert MacLeod,
47.8% of the maximum for Anna Manz and 46.7% of the maximum
for John Walker.
In the context of a challenging market environment, and the
progress made against our long term strategy, the committee
considered the level of annual bonus payout appropriate.
The long term incentive awards granted on 1st August 2016 will
be eligible to vest on the third anniversary of their grant subject to
satisfying challenging three-year underlying earnings per share (EPS)
growth performance targets. As a result of achieving annualised
growth EPS of 7.7% over the three year period to 31st March 2019,
which was above the threshold target of 4% compound annual
growth, and achieving a satisfactory return on invested capital (ROIC)
over the performance period particularly given the current level of
capital investment, it is expected that vesting will take place at 66.8%
of the maximum.
Applying Remuneration Policy in 2020
The 2020 Annual General Meeting (AGM) will mark the third
anniversary of the introduction of our current Remuneration Policy.
In line with the current regulatory framework, we will be required
to seek shareholder approval for an updated remuneration policy
at that AGM.
With regards to the operation of our current remuneration policy
for the final time in 2019/20, this will operate on broadly the same
basis as in 2018. The key points to note are set out below.
Salary review: the executive directors received salary increases at a
rate of 2.5% of their basic salaries with effect from 1st April 2019.
This rate of increase was consistent with the increase typically
awarded across UK employees.
Annual bonus: the annual bonus structure will continue to operate
using the same overall framework as in 2019 with bonuses earned
based on performance against a challenging range of targets relating
to (i) underlying profit before tax (ii) working capital days and
(iii) individual strategic targets.
Long term incentive awards: the performance targets to operate will
be the same as those used for the 2018 awards. Vesting will be based
on the satisfaction of challenging three-year EPS growth targets and
delivering a satisfactory ROIC.
However, reflecting wider market practice, a two year holding period
will apply to the shares that vest in relation to the awards to be
granted in 2019.
2018 UK Corporate Governance Code
The 2018 Code will apply to Johnson Matthey for the first time from
the start of the 2019/20 financial year. As a result, the committee has
considered the new remuneration-related provisions included in the
code and intends to update its existing policy to take account of the
changes with effect from the 2020 AGM.
For example, the committee intends to include a minimum
two-year holding period on future vested long term incentive plan
awards (with this approach being voluntarily adopted for the 2019
awards outside of the current policy), along with establishing an
appropriate policy on share ownership post-cessation of employment.
The new policy will be finalised following a consultation exercise with
our shareholders as part of our triennial review of executive
remuneration and will become effective, subject to shareholder
approval, with effect from our AGM in July 2020.
The committee additionally recognises the requirements and
expectations in relation to executive director pension provisions, with
this aspect of remuneration also to form part of our review process.
Group employee considerations
During the year the company’s UK pension plan was reviewed to
mitigate increasing costs as well as ensure risk was appropriately and
effectively managed.
In addition, we reviewed the pay levels of employees below the
board, particularly in relation to the UK gender pay gap.
Our UK gender pay gap reduced from 9.2% to 8.5% but we
realise that there is still more work to be done. It will take some time
for the current gap to be narrowed and to tackle the root causes of
our gender imbalance, however the company is fully committed to
ensuring a truly inclusive culture that supports diversity and already
has a number of programmes and actions in place to improve our
gender balance.
2019 Annual General Meeting
I ask you to support our 2018/19 Annual Report on Remuneration
at our forthcoming AGM on 17th July 2019. 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
133
GovernanceJohnson MattheyAnnual Report and Accounts 2019 Remuneration Report continued
Remuneration overview
Remuneration Policy
The table below sets out the remuneration policy for the 2019/20 financial year. Further details are set out in the Directors’ Remuneration
Policy on page 135 and the Annual Report on Remuneration on page 142.
Remuneration element
Remuneration structure
Base salary
Current annual salaries are as follows:
Robert MacLeod – £838,500 (2018/19 £818,000)
Anna Manz – £528,000 (2018/19 £515,000)
John Walker – £480,000 (2018/19 £468,250)
Benefits
The 2019/20 salaries shown above include a salary increase effective from 1st April 2019
of 2.5% for Robert MacLeod, Anna Manz and John Walker.
Medical, life and income protection insurance, medical assessments, a car cash allowance, 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 the Chief Executive and 150% of salary for other Executive Directors. The bonus
for 2019/20 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, 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. However, reflecting wider market practice, a two year holding period will apply to the
shares that vest in relation to the awards to be granted in 2019.
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.
2018/19 outcomes
The table below sets out the remuneration outcomes for the Executive Directors for 2018/19.
£’000
Robert MacLeod
Anna Manz
John Walker
Salary
818
515
468
Benefits
28
22
64
Annual
bonus1
660
369
328
Long term
incentive
1,073
592
519
Pension
205
129
117
Total
2,784
1,627
1,496
1
In accordance with the rules of the plan, 50% of the bonus payable is awarded as shares and deferred for three years and are not subject to any further performance conditions.
Annual bonuses for Robert MacLeod and Anna Manz were based on the underlying profit before tax and working capital of the group plus
strategic objectives and paid out at 44.8% of the maximum for Robert and 47.8% of maximum for Anna. 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 strategic objectives
and paid out at 46.7% 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 2019 and vested at 66.8% of the
maximum following underlying EPS growth over the performance period of 7.7% per annum. In light of the challenging external market
conditions in place during the three year performance period, the Committee was satisfied that the vesting result was appropriate. In reaching
this conclusion, the Committee also took account of the fact that the company’s ROIC over the period was good taking into account the level
of current capital investment. The shares will be released in equal tranches in 2019, 2020, 2021.
134
Johnson MattheyAnnual Report and Accounts 2019Governance 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.
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.
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
Key outcomes
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 143.
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.
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.
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.
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 143.
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.
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.
Threshold vesting will result in
a bonus of 15% of maximum
opportunity. On target performance
will result in 50% payment of the
maximum opportunity.
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GovernanceJohnson MattheyAnnual Report and Accounts 2019 Remuneration Report continued
Purpose and link to strategy
Key outcomes
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 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.
Directors’ and officers’ liability insurance is maintained for all directors.
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.
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 2018 are shown on
page 146.
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.
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.
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.
In relation to any future
Executive Director appointments
it is not anticipated that they would
receive a pension supplement
greater than the typical cost of
providing pension benefits in their
local country.
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.
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.
Pension
Provides for
post-retirement
remuneration, ensures
that the total package
is competitive and
aids retention.
136
Johnson MattheyAnnual Report and Accounts 2019Governance Purpose and link to strategy
Key outcomes
All employee share plan
Encourages share
ownership.
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.
Shareholding requirements
Potential value of element
and performance measures
Executive Directors are entitled
to participate up to the same
limits in force from time to time
for all employees.
To encourage
Executive Directors to
build a shareholding
in the company and
ensure the interests
of management are
aligned with those
of shareholders.
Executive Directors are expected to build up a shareholding in the company over
a reasonable period of time.
The minimum shareholding
requirement is as follows:
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.
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.
Non-Executive Director fees
Attracts, retains
and motivates
Non-Executive
Directors with the
required knowledge
and experience.
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.
Details of the current fee levels for
the Chairman and Non-Executive
Directors are set out in the
Annual Report on Remuneration
on page 150.
The fee levels are set subject to
the maximum limits set out in the
Articles of Association.
137
GovernanceJohnson MattheyAnnual Report and Accounts 2019 Remuneration Report continued
Selection of performance targets
Annual 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 2019/20 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 and relating to our 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 2019/20.
Long term incentive
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 key elements of variable pay
There are also a number of country and
The Remuneration Committee considers
the directors’ remuneration, along with the
remuneration of the GMC with effect from
1st April 2019, 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.
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 (approximately
1,350 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 GMC
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.
138
Johnson MattheyAnnual Report and Accounts 2019Governance 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 2019, 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 2019.
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
%
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
40
60
80
100
£ thousands
%
Base salary
Benefits
Pension
Bonus
PSP
139
GovernanceJohnson MattheyAnnual Report and Accounts 2019
Remuneration Report continued
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 135.
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 136 and 137. 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 135.
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 136.
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.
Replacement awards 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 136.
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.
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 table on the following page 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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Johnson MattheyAnnual Report and Accounts 2019Governance 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:
Summary termination
– payment in lieu of
notice (PILON)
Termination payment
– change of control
Termination – treatment
of annual incentive awards
Termination – treatment of
long term incentive awards
– 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.
The company may, in its absolute discretion, terminate the employment of the director with 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.
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.
Annual bonus awards are made at the discretion of the Remuneration Committee. Employees, 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).
Employees, including Executive Directors, leaving the company’s employment will normally lose 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.
141
GovernanceJohnson MattheyAnnual Report and Accounts 2019 Remuneration Report continued
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, 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.
Non-Executive Director
Patrick Thomas1 (Chairman)
Odile Desforges3
Alan Ferguson3
Jane Griffiths
Chris Mottershead
John O’Higgins
Xiaozhi Liu2
Committee
appointments
R, N
A, R, N
A, R, N
A, R, N
A, R, N
A, R, N
A, R, N
Date of appointment
Expiry of current term
Notice period
by the individual
Notice period
by the company
1st June 2018
1st July 2013
13th January 2011
1st January 2017
27th January 2015
16th November 2017
2nd April 2019
31st May 2021
17th July 2019
23rd July 2020
31st December 2019
26th January 2021
15th November 2020
1st April 2022
6 months
1 month
1 month
1 month
1 month
1 month
1 month
6 months
1 month
1 month
1 month
1 month
1 month
1 month
A: Audit Committee R: Remuneration Committee N: Nomination Committee
1 Patrick Thomas was appointed as Chairman of the board on 26th July 2018, after Tim Stevenson stepped down from the role on the same date.
2 Xiaozhi Liu was appointed to the board as a Non-Executive Director on 2nd April 2019.
3 The expiry of the current term was extended during 2018/19.
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:
Executive Director
Robert MacLeod
Anna Manz
Company
RELX PLC
ITV plc
Role held
Non-Executive Director
Non-Executive Director
Fees retained
£’000
108
76
Annual Report on Remuneration
This section provides details of how the 2017 Directors’ Remuneration Policy was implemented during 2018/19 and how we intend to apply the
Policy in 2019/20.
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 Patrick Thomas. Details of attendance at committee meetings during the year ended 31st March 2019 is shown below.
Chris Mottershead1
Odile Desforges
Alan Ferguson
Jane Griffiths
John O’Higgins
Tim Stevenson2
Patrick Thomas2
Date of appointment
to committee
Number of meetings
eligible to attend
Number of meetings
attended
27th January 2015
1st July 2013
13th January 2011
1st January 2017
16th November 2017
29th March 2011
1st June 2018
5
5
5
5
5
3
2
5
5
5
5
5
3
2
%
attended
100%
100%
100%
100%
100%
100%
100%
1 Chris Mottershead was appointed as Chairman of the committee on 16 November 2017.
2 Patrick Thomas was appointed as Chairman of the Board on 26th July 2018, after Tim Stevenson stepped down from the role on the same date.
Since the end of the year, the committee has met twice. All committee members attended both meetings, including Xiaozhi Liu who was
appointed on 2nd April 2019.
The Remuneration Committee’s terms of reference, which were updated during the year, can be found in the Investor Relations / 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 HR Officer, who acts
as secretary to the committee.
142
Johnson MattheyAnnual Report and Accounts 2019Governance 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.
Korn Ferry are now our sole advisor in relation to the advice to the Remuneration Committee and were appointed by the Remuneration
Committee based on a review of leading advisors in the market. The total fees paid to Korn Ferry in respect of its services to the committee
during the year were £40,457 plus VAT. The fees paid to Korn Ferry are based on the standard market rates Korn Ferry have for Remuneration
Committee advisory services.
Korn Ferry also provides consultancy services to the company in relation to certain employee benefits to those below the board. Korn Ferry
is a signatory to the Remuneration Consultants Group Code of Conduct.
Herbert Smith Freehills is the committee’s legal advisor., There was no requirement during 2018/19 for Herbert Smith Freehills to provide
advice to the committee. 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 2019 is available on our website.
r
r
+
+
r
matthey.com/corporate-governance
k
k
k
Remuneration for the year ended 31st March 2019
Single figure table of remuneration*
(this table is auditable along with any subsequent information marked with a *)
The table below sets out the total remuneration and breakdown of the elements each director received in relation to the year ended 31st March 2019,
together with a prior year comparative. An explanation of how the figures are calculated follows the table.
Base salary / fees
£’000
Benefits
£’000
Annual incentive
£’000
Long term incentive
£’000
Pension3
£’000
Total
£’000
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
Executive Directors
Robert MacLeod
Anna Manz
John Walker
Non-Executive Directors1
Patrick Thomas2
Tim Stevenson2
Odile Desforges
Alan Ferguson
Jane Griffiths
Chris Mottershead
John O’Higgins
818
515
468
256
116
65
93
65
89
65
798
490
457
–
351
64
83
64
71
24
28
22
64
–
–
–
–
–
–
–
21
16
22
–
–
–
–
–
–
–
660
369
328
994
509
470
1,073
592
519
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
205
129
117
200
123
114
2,784
1,627
1,496
2,013
1,138
1,063
–
–
–
–
–
–
–
–
–
–
–
–
–
–
256
116
65
93
65
89
65
–
351
64
83
64
64
24
1 Xiaozhi Liu joined the board as Non-Executive Director on 2nd April 2019.
2 Patrick Thomas was appointed as Chairman of the Board on 26th July 2018, after Tim Stevenson stepped down from the role on the same date.
3 Represents a cash allowance in lieu of a pension.
Payments to former directors*
There were no payments made to, or in respect of, any former director in 2018/19 that haven’t been previously disclosed.
Payments for loss of office*
There were no payments for loss of office made to, or in respect of, any director in 2018/19.
143
GovernanceJohnson MattheyAnnual Report and Accounts 2019 Remuneration Report continued
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 2019. The figure includes any amounts deferred and awarded
as shares.
Long term incentives The 2018 figure represents the value of 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.
The 2019 figure represents the value of the shares that satisfied performance conditions on 31st March 2019 and will
be released on 1st August 2019, 1st August 2020 and 1st August 2021. This value is calculated using the average
share price from 1st January 2019 to 31st March 2019 which was 3,058 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 2019
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
Percentage of bonus available
Group
underlying PBT
Clean Air underlying
operating profit
Group working
capital days
Strategic objectives1
60%
60%
40%
–
–
20%
20%
20%
20%
20%
20%
20%
1
Individual strategic objectives were introduced as part of the Executive Directors’ bonus structure for 2018/19.
Performance targets under the annual bonus plan are set 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. Financial 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.
In relation to the range of profit targets set for the Group as a whole and for the Clean Air sector (i.e. threshold at 95% of the targeted
profit number and maximum at 105%), the range was set following consideration of the challenging nature of the bonus target number
(which was circa 7.5% above the targets set for 2017/18), the increasing size and complexity of the Group and our 2017/18 strategy which
included targeting an increased investment in our Health and Battery Materials businesses. In light of these factors, and the continuing
challenging external environment, the Remuneration Committee was comfortable that the ranges of financial targets set were similarly
challenging to those operated in prior years.
The strategic objectives are set based on well defined key deliverables that support our strategy relating to science, customers,
operations and people.
Achievement against the performance targets for the year ended 31st March 2019 are set out in the tables below.
Financial targets1
Performance measure
Group underlying PBT2
£ million
Clean Air underlying operating profit2
£ million
Group total working capital days3
Group working capital days
(excluding metal3)
days
days
Threshold
499
(95% of Target)
368
(95% of Target)
34
(105% of Target)
62
(105% of Target)
Target
525
387
33
59
Maximum
551
(105% of Target)
406
(105% of Target)
31
(95% of Target)
56
(95% of Target)
Actual
520
Actual %
of target
99.1
388
100.3
36
59
110.2
100.5
1 All figures in the table have been rounded to the nearest whole number except the actual % of target.
2 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 and 50% against working capital days excluding precious metal. This is to ensure that appropriate
focus is put on metal management.
144
Johnson MattheyAnnual Report and Accounts 2019Governance
Strategic objectives1
Robert MacLeod
Anna Manz
John Walker
Objective
Summary
Outcome
Implement the Battery Materials strategy,
including the further commercialisation
of the eLNO technology, delivery of the
2018/19 milestones and progress toward
the three-year milestone objectives.
Implement the Procurement Excellence
strategy and deliver the 2018/19 milestones
plus define and progress toward the
three-year milestone objectives.
Achieve the Procurement Excellence
deliverables for Clean Air for 2018/19 and
progress toward the 2019/20 objectives in
line with Procurement Excellence Strategy.
Key 2018/19 milestone achieved with good
progress on the Battery Materials strategy for
the first commercial plant and scale-up
options, as well as enhancing our technology
leadership in the market.
Procurement Excellence programme
overdelivering versus plan with significant
cost savings achieved. Strong progress
made in identifying further potential
savings for 2019/20.
Procurement Excellence programme
overdelivering versus plan with significant
cost savings achieved in Clean Air. Strong
progress made in identifying further
potential savings for 2019/20.
Objective
Successful delivery of the 2018/19 major
capital projects.
Deliver agreed IT security plans.
Summary
Outcome
Objective
Summary
Outcome
Objective
Summary
Outcome
Objective
Summary
Outcome
Overall
Outcome
Ensure that the sector’s key capital
projects are delivered in line with their
business plans.
The key capital projects in Clean Air are
the investments in China and Poland and
both of these are progressing.
The Group’s capital projects capability
has been significantly enhanced, while
major capital projects are progressing,
in particular the two new plants in
Clean Air China and Poland.
A strategic programme of work (Cyber
Security Infrastructure Improvement
Plan) has been fully mobilised to ensure
continued resilience of the IT estate,
and the plans are on track and agreed
milestones for 2018/19 achieved.
Deliver the executive leadership people
strategy which includes:
• strengthening leadership capabilities
across JM;
• implementing robust individual
development plans, upgrade talent
as required; and
• identify any talent gaps / deficiencies
in the leadership structures and take
action to address.
Considerable work to upgrade talent
across JM with key external recruits,
including a new CEO for the Battery
Materials business. Talent gaps have
been clearly articulated and strategies
agreed to address over time. Individual
development plans are in place and new
leadership programmes were introduced
to enhance capability and prepare future
internal succession.
Implement the Commercial Excellence
strategy and deliver the 2018/19 milestones
plus define and progress toward the
three-year milestone objectives.
Commercial Excellence roadmap is
delivering to plan. This plan included
the successful introduction of a Sales
Academy and a pilot Customer Satisfaction
survey in Efficient Natural Resources.
Robert has set high standards regarding
his expectations of his executives in terms
of how they lead, how they develop
commercial business and how they
develop talent.
70% achievement2
Successfully roll out global ERP system
in line with plan.
Successfully roll out global ERP system
in line with plan.
The initial roll out of our single global
ERP system was executed in accordance
with our plan, deployed in one of our
largest and most complex plants. It was
initially challenging as expected, but
issues were addressed, and production
output is now higher than before this
first go live.
The initial roll out of our single global
ERP system was executed in accordance
with our plan with deployment in one
of our largest and most complex plants
in Clean Air. It was initially challenging
as expected, but issues were addressed,
and production output is now higher
than before this first go live.
Implement a plan to further mitigate
metal working capital risk in China.
Implement a plan to further mitigate
metal working capital risk in China.
Developed and led the implementation
of a rigorous plan to address metal
working challenges in China with good
early progress made to date.
Good progress has been made executing
the plan to mitigate China working
capital risks.
Anna, through her commitment and
energy has made a significant impact
in driving change across JM.
Deliver key new business wins in line with
2018/19 strategic plan.
Where business bids were determined, good
progress has been made on key business
wins which are in line our strategic plan.
John embraced and led the execution of
some significant operational challenges
across Clean Air and set the standard for
further ERP deployments.
85% achievement2
70% achievement2
1 Each strategic objective has an equal weighting. For Robert MacLeod and Anna Manz each objective had a 25% weighting and for John Walker each objective had a
20% weighting.
2 The achievement figures are out of the maximum bonus %, which for strategic objectives has a 20% weighting overall.
145
GovernanceJohnson MattheyAnnual Report and Accounts 2019
Remuneration Report continued
Based on performance against the above targets, bonuses for the year ended 31st March 2019 were:
Robert MacLeod, Chief Executive
Anna Manz, Chief Financial Officer
John Walker, Sector Chief Executive, Clean Air
£’000
660
369
328
% salary
80.7
71.7
70.1
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 2019*
The table below sets out the performance targets for the long term incentive awards made in August 2016 with a three year performance
period which ended on 31st March 2019. After the performance period, shares are no longer subject to performance conditions and where
the performance conditions are met the shares will vest in equal instalment on the third, fourth and fifth anniversary of the award.
Required underlying EPS performance
Threshold 4% CAGR
Maximum 10% 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 7.7% per annum as a result a vesting of 66.8%
of maximum was achieved.
The table below shows the vesting outcomes based on this performance.
% of base salary
awarded
Shares
awarded
% of award
to vest
Shares
to vest
Estimated value
on vesting
£
Executive Directors
Robert MacLeod
Anna Manz
John Walker
200
175
175
52,529
28,997
25,387
66.8%
66.8%
66.8%
35,089
19,370
16,959
1,072,921
592,272
518,537
3
Variable pay awarded during the year ended 31st March 2019*
(Long term incentive awards subject to future performance)
In 2018/19 long term incentive awards were made to the Executive Directors in respect of the three year performance period to 31st March 2021.
The table below sets out the opportunity and performance targets for these awards.
Required underlying EPS performance
Threshold 4% CAGR
Maximum 10% CAGR
1 Represent a % of base salary
Proportion of award
which may vest
Chief Executive1
Other Executive
Director1
15%
100%
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.
Robert MacLeod
Anna Manz
John Walker
Date of grant
Award size
(% of base salary)
Number of
shares awarded
Face value1
£
1st August 2018
1st August 2018
1st August 2018
200
175
175
43,883
24,174
21,980
£1,635,980
£901,219
£819,425
1 Face value is calculated using the award share price of 3,728.05 pence, which is the average closing share price over the four week period commencing on 31st May 2018.
146
Johnson MattheyAnnual Report and Accounts 2019Governance 4
Prior year long term incentive awards and outcomes
The table below shows the history of long term incentive awards granted since 2009.
Year of award
Year of vesting1
% salary
awarded to
Chief Executive
% salary
awarded to
other Executive
Directors
Threshold EPS
growth target
Stretch EPS growth
target
Compound
annual growth in
underlying EPS
in the period
% of award vested
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
120
150
175
175
175
200
200
200
200
200
100
120
140
140
140
175
175
175
175
175
3%
7%
7%
7%
6%
6%
6%
4%
4%
4%
10%
16%
16%
16%
15%
15%
12%
10%
10%
10%
19.7%
20.2%
13.3%
6.07%
7.85%
7.39%
5.14%
7.66%
n/a
n/a
100
100
75
–
33
28
–
67
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 he 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 2019 in the UK and US pension schemes are given below:
Robert MacLeod1
Anna Manz
John Walker2
Total accrued annual
pension entitlement at
31st March 2019
£’0003
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.
3 No Director would gain any additional benefit by retiring early in line with the scheme rules.
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 2019.
Executive Directors
Robert MacLeod
Anna Manz
John Walker
Non-Executive Directors
Patrick Thomas
Tim Stevenson4
Odile Desforges
Alan Ferguson
Jane Griffiths
Chris Mottershead
John O’Higgins
Ordinary shares1
Subject to ongoing
performance
conditions2
Not subject to
further performance
conditions3
48,790
2,356
17,088
4,257
4,958
1,416
2,078
2,671
2,809
1,500
149,367
81,622
73,888
30,787
8,861
16,870
–
–
–
–
–
–
–
–
–
–
–
–
–
–
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 Represents the ordinary shares at 26th July 2018, when Tim Stevenson stepped down as Chairman of the board.
147
GovernanceJohnson MattheyAnnual Report and Accounts 2019 Remuneration Report continued
Directors’ interests as at 30th May 2019 were unchanged from those listed above, other than that the trustees of the all employee share matching
plan have purchased a further 24 shares each for Robert MacLeod, Anna Manz and John Walker.
Executive Directors are expected to build up a shareholding in the company. The minimum shareholding requirement for the year ended
31st March 2019 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 2019
(% of base salary)1,2
297%
67%
222%
1 Value of shares as a percentage of base salary is calculated using a share value of 3,057.68 pence, which was the average share price prevailing between 1st January 2019 and
31st March 2019.
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 (this is not subject to continued employment, but the passage of time).
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 ten year period from 31st March 2009 to
31st March 2019 against the FTSE 100 as the most appropriate comparator group, rebased to 100 at 1st April 2009.
500
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
March 2019
Johnson Matthey
FTSE 100
As at 31st March 2019, Johnson Matthey was ranked 73 by market capitalisation in the FTSE 100.
148
Johnson MattheyAnnual Report and Accounts 2019Governance Historical data regarding Chief Executive’s remuneration
Single total figure
of remuneration
Annual incentives
(% of maximum)
Long term incentives
(% of award vesting)2
2009/10
2010/11
2011/12
2012/13
2013/14
2014/151
2015/161
2016/17
2017/18
2018/19
1,596
2,095
1,870
3,025
3,855
1,594
1,429
1,971
2,013
2,784
100
100
75
–
–
52
100
100
71
75
54
–
15
33
40
28
69
–
45
67%
1 The figures for 2014/15 and 2015/16 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 143.
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 2019. 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.
Salary
Bonus
Benefits
Chief Executive
Comparator group1
An increase of 2.5%
A decrease of 33.6%
An increase of 7.37%
A decrease of 12.4%
No change in benefits policy.
No change on overall costs
between 2017/18 and 2018/19.
No change in benefits policy.
No change on overall costs
between 2017/18 and 2018/19.
1 This includes a long term incentive buy-out for certain management employees, some market adjustments and 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 2018 and 31st March 2019.
Payments to shareholders – special dividends
Payments to shareholders – ordinary dividends
Total remuneration (all employees)1
1 Excludes termination benefits.
Year ended
31st March
2019
£ million
–
156
730
Year ended
31st March
2018
£ million
–
146
693
% change
–
7%
5%
149
GovernanceJohnson MattheyAnnual Report and Accounts 2019 Remuneration Report continued
Implementation of the Directors’ Remuneration Policy for 2019/20
The table below sets out how the Remuneration Committee intends to apply the Directors’ Remuneration Policy for the year ended 31st March 2020.
Salary
Benefits
Pension
Salaries for the Executive Directors for 2019/20 all increased by 2.5%, which is lower than the budgeted increase for
all other UK employees.
No change to policy applied in 2019/20.
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 2019/20 remains unchanged at 180% of salary for the Chief Executive and
150% of salary for the other Executive Directors.
2019/20 bonus will be based on underlying profit before tax (60%), working capital (20%) and 20% weighting to
non-financial objectives.
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 Annual Report on Remuneration.
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.
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 2018
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.
Long term incentives
Chairman and
Non-Executive
Director fees
Fees for the Non-Executive Directors for 2019/20 have been increased in line with the Executive Director increases
at 2.5%. This is lower than the increase for all other UK employees. The fees for each Non-Executive Director are
shown below.
Patrick Thomas
Odile Desforges
Alan Ferguson
Jane Griffiths
Chris Mottershead
John O’Higgins
£367,500
£67,000
£98,000
£67,000
£84,000
£67,000
Chairman
Senior Independent Director and Chairman of Audit Committee
Chairman of Remuneration Committee
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 tables below show the results of the polls taken of the resolution to approve the Remuneration Policy at the July 2017 AGM and
Directors’ Annual Report on Remuneration at the July 2018 AGM.
Resolution
Remuneration Policy
Remuneration Report
Number of
votes cast
For
Against
136,108,674
141,911,225
125,583,227 (92.3%)
134,247,743 (94.60%)1
10,525,447 (7.7%)
7,663,482 (5.40%)1
Votes withheld
3,139,449
130,436
1 Percentage of votes cast, excluding votes withheld.
The Remuneration Committee believes that the 92.3% vote in favour of the Directors’ Remuneration Policy at the 2017 AGM and the 94.6%
vote in favour of the Annual Report on Remuneration at the 2018 AGM showed 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 2019 and signed on its behalf by:
Chris Mottershead
Chairman of the Remuneration Committee
150
Johnson MattheyAnnual Report and Accounts 2019Governance Directors’ Report
for the year ended 31st March 2019
Directors
Powers of the directors
Dividend payments and DRIP
The names of the directors who held office
during the year are set out on page 103.
The biographies of all the directors
serving at the date of this annual report are
shown on pages 100 to 102.
Indemnification of directors
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
they may incur to a third party in relation to
a relevant occupational pension scheme.
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.
r
+
r
+
+
r
www.matthey.com/investors/corporate-governance
k
k
k
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
The interests of persons who were directors
of the company (and of their connected
persons) at 31st March 2019 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 147. The Remuneration
Report also sets out details of any changes
in those interests between 31st March 2019
and 30th May 2019.
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 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 23.25 pence per
share (2018: 21.75 pence) was paid in
February 2019. The directors recommend
a final dividend of 62.25 pence per share in
respect of the year (2018: 58.25 pence),
making a total for the year of 85.50 pence
per share (2018: 80.0 pence), payable
on 6th August 2019 to shareholders on
the register at the close of business on
7th June 2019.
Other than as referred to under
‘Employee share schemes’ on page 152,
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.
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 243 and on our website.
Share capital
Capital structure
As at 31st March 2019, the issued share
capital of the company was 193,533,430
ordinary shares of 110 49⁄53 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 2018 AGM, shareholders authorised
the company to make market purchases
of up to 19,353,343 ordinary shares of
110 49⁄53 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 2019 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 2019 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.
151
GovernanceJohnson MattheyAnnual Report and Accounts 2019 Directors’ Report continued
The directors may, in certain
Listing of the company’s shares
Employee share schemes
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.
Also as at 31st March 2019 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.
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 243.
At 31st March 2019, 4,499 current and former
employees were shareholders in the company
through the group’s employee share schemes.
Through these schemes, current and former
employees held 2,544,207 ordinary shares
(1.31% of issued share capital, excluding
treasury shares as at 31st March 2019). Also as
at 31st March 2019, 1,544,170 ordinary shares
had been awarded but had not yet vested
under the company’s long term incentive plan
to 1,126 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 Financial Conduct
Authority (FCA) Disclosure and Transparency Rules (DTR 5) in respect of notifiable interests in
the voting rights in the company’s issued share capital:
As at 31st March 2019:
Ameriprise Financial Inc.
BlackRock, Inc.
Standard Life Aberdeen plc affiliated
investment management entities with
delegated voting rights on behalf of multiple
managed portfolios
Nature of
holding
Total
voting rights1
% of total
voting rights2
84,408
9,727,409
20,181,149
209,763
0.04%
5.03%
9.85%
0.10%
Direct
Indirect
Indirect
Financial
Instrument
(CFD)
Indirect
15,314,781
7.91%
1. Total voting rights attaching to the issued ordinary share capital of the company (excluding treasury shares) at the
date 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.
No changes in interests in the voting rights of the company’s issued share capital have been
notified to the company in accordance with DTR 5 between 31st March 2019 and 30th May 2019.
152
Johnson MattheyAnnual Report and Accounts 2019Governance Contracts with controlling
shareholders
During the year there were no contracts of
significance (as defined in the FCA 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 2019 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 2019 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 2019 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.
Disclosures required by Listing Rule 9.8.4R
Disclosures required by the FCA Listing Rule 9.8.4R, can be found on the following pages:
Information required
1. Capitalised interest
2. Publication of unaudited financial information
3. Details of long term incentive schemes established to specifically recruit or retain a director
4. Waiver of emoluments by a director
5. Allotments of equity securities for cash
6. Participation in a placing of equity securities
7. Contracts of significance
8. Contracts for the provisions of services by a controlling shareholder
9. Dividend waiver
10. Agreements with controlling shareholder
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.
• 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.
• Research and development activities
An indication of the activities of the group
in the field of research and development.
• Likely future developments
An indication on likely future developments
in our business.
• Greenhouse gas emissions
Disclosures relating to greenhouse gas
emissions.
• 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.
Sub-section of
Listing Rule 9.8.4R
(1)
(2)
(4)
(5) (6)
(7) (8)
(9)
(10)
(11)
(12) (13)
(14)
Page reference
Page 185
Not applicable
Not applicable
Not applicable
Page 152
Not applicable
Not applicable
Not applicable
Page 151
Not applicable
153
GovernanceJohnson MattheyAnnual Report and Accounts 2019 Directors’ Report continued
Important events since
31st March 2019
There have been no important events
affecting the company or any subsidiary
since 31st March 2019.
2019 Annual General Meeting
Our 2019 AGM will be held at 11.00 am on
Wednesday 17th July 2019 at The Institute
of Civil Engineering, One Great George Street,
Westminster, London SW1P 3AA.
The Notice of the 2019 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.
Articles of Association
The Articles of Association may only be
amended by a special resolution at a general
meeting of the company. The company’s
current Articles of Association were adopted
on 21 July 2010. A special resolution seeking
to amend the Articles of Association is being
put to the shareholders at the 2019 AGM.
Further information on the changes proposed
is set out in the Notice of the 2019 AGM and
on our website.
Auditor and disclosure
of information
The auditor of the company is
PricewaterhouseCoopers LLP.
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 2019 and is signed
on its behalf by:
Simon Farrant
Company Secretary
154
Johnson MattheyAnnual Report and Accounts 2019Governance Responsibilities of Directors
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.
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.
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:
• Patrick Thomas, 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
• Xiaozhi Liu, Non-Executive Director
Under applicable law and regulations,
• Chris Mottershead, Non-Executive Director
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.
The directors consider that the Annual
Report and Accounts taken as a whole is fair,
balanced and understandable and provides
the information necessary for shareholders
to asses the group’s and the company’s
position and performance, business model
and priorities.
• 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 2019 and is signed
on its behalf by:
Patrick Thomas
Chairman
155
GovernanceJohnson MattheyAnnual Report and Accounts 2019 Accounts
Accounts
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.
156
Johnson MattheyAnnual Report and Accounts 2019 Contents
158 Consolidated Income Statement
158 Consolidated Statement of Total Comprehensive Income
159 Consolidated and Parent Company Balance Sheets
160 Consolidated Cash Flow Statement
161 Consolidated Statement of Changes in Equity
162 Parent Company Statement of Changes in Equity
163 Accounting policies
173 Notes on the accounts
223
Independent auditor’s report
157
Notes on the accounts continuedfor the year ended 31st March 2019AccountsJohnson MattheyAnnual Report and Accounts 2019
Consolidated Income Statement
for the year ended 31st March 2019
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
Tax expense
Profit for the year
Earnings per ordinary share
Basic
Diluted
Notes
1,2
5
6
7
8
1,9
12
12
13
2019
£ million
10,745
(9,729)
1,016
(126)
(324)
(12)
(17)
(14)
8
531
(107)
64
–
488
(75)
413
2018
Restated1
£ million
10,274
(9,366)
908
(123)
(260)
(7)
(50)
(19)
(90)
359
(63)
25
(1)
320
(22)
298
pence
pence
15
15
215.2
214.6
155.2
155.0
Consolidated Statement of Total Comprehensive Income
for the year ended 31st March 2019
Profit for the year
Other comprehensive income
Items that will not be reclassified to the income statement
Remeasurements of post-employment benefit assets and liabilities
Fair value losses on equity investments at fair value through other comprehensive income
Tax on items that will not be reclassified to the income statement
Items that may be reclassified to the income statement
Exchange differences on translation of foreign operations
Fair value losses on other investments at fair value through other comprehensive income
Amounts credited to hedging reserve
Fair value (losses) / gains on net investment hedges
Other comprehensive income for the year
Total comprehensive income for the year
1 See note 39.
Notes
2019
£ million
413
2018
£ million
298
30
21
14
31
31
31
31
(69)
(3)
13
(59)
22
(1)
4
(1)
24
(35)
378
103
–
(31)
72
(95)
–
5
6
(84)
(12)
286
The notes on pages 173 to 222 form an integral part of the accounts.
158
Johnson MattheyAnnual Report and Accounts 2019Accounts Consolidated and Parent Company Balance Sheets
as at 31st March 2019
Assets
Non-current assets
Property, plant and equipment
Goodwill
Other intangible assets
Investments in subsidiaries
Investments in joint venture and associate
Investments at fair value through other
comprehensive income
Other receivables
Interest rate swaps
Deferred income tax assets
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
Cash and cash equivalents – money market funds
Other financial assets
Assets held for sale
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
Shares held in employee share ownership trust (ESOT)
Other reserves
Retained earnings2
Total equity
Group
2019
Notes
£ million
Parent company
2018
Restated1
£ million
2019
£ million
2018
Restated1
£ million
16
17
18
19
20
21
23
24
29
30
22
23
24
24
26
27
24
24
26
28
24
29
30
28
27
31
31
1,271
578
336
–
20
52
39
13
58
209
1,155
574
295
–
20
56
38
6
48
236
2,576
2,428
1,316
37
1,553
90
347
22
7
3,372
5,948
924
35
1,304
203
171
15
–
2,652
5,080
312
123
207
1,912
–
7
1,010
13
–
199
3,783
430
–
1,314
11
347
23
–
2,125
5,908
278
123
166
1,997
–
7
1,113
6
–
226
3,916
209
–
1,333
82
171
15
–
1,810
5,726
(1,647)
(130)
(59)
(184)
(13)
(20)
(1,228)
(149)
(70)
(38)
(12)
(37)
(2,596)
(64)
(33)
(107)
(14)
(23)
(2,693)
(56)
(46)
(4)
(14)
(5)
(2,053)
(1,534)
(2,837)
(2,818)
(1,073)
(91)
(106)
(9)
(5)
(951)
(94)
(103)
(14)
(5)
(1,066)
(39)
(10)
(1)
(489)
(951)
(43)
(9)
(17)
(492)
(1,284)
(1,167)
(1,605)
(1,512)
(3,337)
(2,701)
(4,442)
(4,330)
2,611
2,379
1,466
1,396
221
148
(45)
87
2,200
2,611
221
148
(48)
63
1,995
2,379
221
148
(45)
8
1,134
1,466
221
148
(48)
–
1,075
1,396
1 See note 39.
2 The parent company’s profit for the year is £263 million (2018 £282 million).
The accounts were approved by the Board of Directors on 30th May 2019 and signed on its behalf by:
R J MacLeod
A O Manz
Directors
The notes on pages 173 to 222 form an integral part of the accounts.
159
AccountsJohnson MattheyAnnual Report and Accounts 2019 Consolidated Cash Flow Statement
for the year ended 31st March 2019
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 reversals / losses and
profit / loss on sale of non-current assets
Share-based payments
Increase in inventories
Increase in receivables
Increase in payables
(Decrease) / increase in provisions
Contributions in excess of employee benefit obligations charge
Changes in fair value of financial instruments
Net finance costs
Income tax paid
Net cash inflow from operating activities
Cash flows from investing activities
Dividends received from joint venture and associate
Interest received
Purchases of property, plant and equipment
Purchases of intangible assets
Proceeds from sale of non-current assets
Net proceeds from sale of businesses
Net cash outflow from investing activities
Cash flows from financing activities
Proceeds from borrowings
Repayment of borrowings
Dividends paid to equity shareholders
Settlement of currency swaps
Interest paid
Net cash outflow from financing activities
Increase in cash and cash equivalents
Exchange differences on cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Free cash flow
Net cash inflow from operating activities
Dividends received from joint venture and associate
Interest received
Interest paid
Purchases of property, plant and equipment
Purchases of intangible assets
Proceeds from sale of non-current assets
Free cash flow
Reconciliation to net debt
Increase in cash and cash equivalents
Increase in borrowings
Change in net debt resulting from cash flows
Exchange differences on net debt2
Other non-cash movements2
Movement in net debt
Net debt at beginning of year
Net debt at end of year
1 See note 39.
2 2018 re-presented to separately analyse fair value movements in net debt relating to hedging instruments.
The notes on pages 173 to 222 form an integral part of the accounts.
160
2019
Notes
£ million
2018
Restated1
£ million
488
–
12
166
10
(394)
(246)
416
(24)
(40)
(2)
43
(95)
334
–
61
(215)
(86)
1
2
(237)
245
(2)
(156)
(2)
(108)
(23)
74
–
304
378
334
–
61
(108)
(215)
(86)
1
(13)
74
(241)
(167)
(26)
6
(187)
(679)
(866)
320
1
7
245
10
(66)
(144)
62
15
(20)
(5)
38
(77)
386
1
23
(157)
(59)
7
5
(180)
30
(14)
(146)
(1)
(65)
(196)
10
(4)
298
304
386
1
23
(65)
(157)
(59)
7
136
10
(16)
(6)
54
(11)
37
(716)
(679)
31
24
24
Johnson MattheyAnnual Report and Accounts 2019Accounts
Consolidated Statement of Changes in Equity
for the year ended 31st March 2019
Share
premium
account
£ million
Shares
held in
ESOT
£ million
Other
reserves
(note 31)
£ million
Total
attributable
to equity
holders
£ million
Non-
controlling
interests
£ million
At 1st April 2017
Impact of adoption of IFRS 15 (note 39)
At 1st April 2017 (restated)
Profit for the year
Remeasurements of post-employment
benefit assets and liabilities
Exchange differences on translation
of foreign operations
Amounts credited to hedging reserve
Fair value gains on net investment hedges
taken to equity
Tax on other comprehensive income
Total comprehensive income
Dividends paid (note 31)
Share-based payments
Cost of shares transferred to employees
Purchase of non-controlling interests
At 31st March 2018 (restated)
Impact of adoption of IFRS 9 (note 39)
At 31st March 2018 (restated)
Profit for the year
Remeasurements of post-employment
benefit assets and liabilities
Fair value losses on investments at fair value
through other comprehensive income
Exchange differences on translation
of foreign operations
Amounts credited to hedging reserve
Fair value losses on net investment hedges
taken to equity
Tax on other comprehensive income
Total comprehensive income
Dividends paid (note 31)
Share-based payments
Cost of shares transferred to employees
Tax on share-based payments
Reclassification
Share
capital
£ million
221
–
221
–
–
–
–
–
–
–
–
–
–
–
148
–
148
(55)
–
(55)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
7
–
221
–
221
148
–
148
(48)
–
(48)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3
–
–
At 31st March 2019
221
148
(45)
Retained
earnings
£ million
1,776
1
1,777
298
103
–
–
–
(31)
370
(146)
17
(14)
(9)
1,995
–
1,995
413
2,237
1
2,238
298
103
(95)
5
6
(31)
286
(146)
17
(7)
(9)
2,379
(1)
2,378
413
(69)
(69)
–
–
–
–
13
357
(156)
17
(10)
1
(4)
(4)
22
4
(1)
13
378
(156)
17
(7)
1
–
2,200
2,611
147
–
147
–
–
(95)
5
6
–
(84)
–
–
–
–
63
(1)
62
–
–
(4)
22
4
(1)
–
21
–
–
–
–
4
87
Total
equity
£ million
2,217
1
2,218
298
103
(95)
5
6
(31)
286
(146)
17
(7)
11
2,379
(1)
2,378
413
(69)
(4)
22
4
(1)
13
378
(156)
17
(7)
1
–
2,611
(20)
–
(20)
–
–
–
–
–
–
–
–
–
–
20
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
The notes on pages 173 to 222 form an integral part of the accounts.
161
AccountsJohnson MattheyAnnual Report and Accounts 2019
Total
equity
£ million
1,168
282
98
(3)
4
(17)
364
(146)
15
(5)
855
282
98
–
–
(17)
363
(146)
15
(12)
1,075
1,396
263
263
(63)
–
11
211
(156)
15
(8)
1
(4)
(63)
5
10
215
(156)
15
(5)
1
–
1,134
1,466
Parent Company Statement of Changes in Equity
for the year ended 31st March 2019
Share
capital
£ million
Share
premium
account
£ million
Shares
held in
ESOT
£ million
Other
reserves
(note 31)
£ million
Retained
earnings
£ million
At 1st April 2017
221
148
(55)
Profit for the year
Remeasurements of post-employment benefit assets
and liabilities
Exchange differences on translation of foreign operations
Amounts credited to hedging reserve
Tax on other comprehensive income
Total comprehensive income
Dividends paid (note 31)
Share-based payments
Cost of shares transferred to employees
At 31st March 2018
Profit for the year
Remeasurements of post-employment benefit assets
and liabilities
Amounts credited to hedging reserve
Tax on other comprehensive income
Total comprehensive income
Dividends paid (note 31)
Share-based payments
Cost of shares transferred to employees
Tax on share-based payments
Reclassification
At 31st March 2019
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
7
221
148
(48)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3
–
–
221
148
(45)
(1)
–
–
(3)
4
–
1
–
–
–
–
–
–
5
(1)
4
–
–
–
–
4
8
The notes on pages 173 to 222 form an integral part of the accounts.
162
Johnson MattheyAnnual Report and Accounts 2019Accounts Accounting policies
for the year ended 31st March 2019
Basis of accounting and preparation – group
The accounts are prepared on a going concern basis in accordance with International Financial Reporting Standards (IFRS) issued by the
International Accounting Standards Board (IASB) and interpretations issued by the International Financial Reporting Interpretations Committee
(IFRIC) or the Standing Interpretations Committee (SIC) as adopted by the European Union (EU).
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 group accounts comprise the accounts of the parent company and 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 recognised 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.
Basis of accounting and preparation – parent company
The accounts are prepared on a going concern basis in accordance with Financial Reporting Standard (FRS) 101, Reduced Disclosure Framework,
issued in September 2015. The parent company applies the recognition, measurement and disclosure requirements of IFRS as adopted by the
EU, but makes amendments where necessary to comply with the Companies Act 2006 and has set out below the FRS 101 disclosure exemptions
available to the Company:
• the requirements of paragraphs 45(b) and 46 to 52 of IFRS 2, Share-based Payment;
• the requirements of paragraphs 62, B64(d), B64(e), B64(g), B64(h), B64(j) to B64(m), B64(n)(ii), B64(o)(ii), B64(p), B64(q)(ii), B66 and
B67 of IFRS 3, Business Combinations;
• the requirements of paragraph 33(c) of IFRS 5, Non-current Assets Held for Sale and Discontinued Operations;
• the requirements of IFRS 7, Financial Instruments: Disclosures;
• the requirements of paragraphs 91 to 99 of IFRS 13, Fair Value Measurement;
• the requirements of the second sentence of paragraph 110 and paragraphs 113(a), 114, 115, 118, 119(a) to (c), 120 to 127 and 129 of IFRS 15,
Revenue from Contracts with Customers;
• the requirement in paragraph 38 of IAS 1, Presentation of Financial Statements, to present comparative information in respect of: paragraph
79(a)(iv) of IAS 1; paragraph 73(e) of IAS 16, Property, Plant and Equipment; paragraph 118(e) of IAS 38, Intangible Assets; and paragraphs
76 and 79(d) of IAS 40, Investment Property;
• the requirements of paragraphs 10(d), 10(f), 16, 38A, 38B, 38C, 38D, 40A, 40B, 40C, 40D, 111 and 134 to 136 of IAS 1, Presentation of
Financial Statements;
• the requirements of IAS 7, Statement of Cash Flows;
• the requirements of paragraphs 30 and 31 of IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors;
• the requirements of paragraphs 17 and 18A of IAS 24, Related Party Disclosures;
• the requirements in IAS 24, Related Party Disclosures, to disclose related party transactions entered into between two or more members of a
group, provided that any subsidiary which is a party to the transaction is wholly owned by such a member; and
• the requirements of paragraphs 130(f)(ii), 130(f)(iii), 134(d) to 134(f) and 135(c) to 135(e) of IAS 36, Impairment of Assets.
The parent company has not presented its own income statement, statement of total comprehensive income and related notes as permitted
by Section 408(3) of the Companies Act 2006. Profit for the year is disclosed in the parent company balance sheet and statement of changes
in equity.
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.
163
AccountsJohnson MattheyAnnual Report and Accounts 2019 Accounting policies continued
for the year ended 31st March 2019
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 recognised in operating profit.
Revenue
Revenue represents income derived from contracts for the provision of goods and services by the parent company and its subsidiaries to
customers in exchange for consideration in the ordinary course of the group’s activities.
Performance obligations
Upon approval by the parties to a contract, the contract is assessed to identify each promise to transfer either a distinct good or service or a series
of distinct goods or services that are substantially the same and have the same pattern of transfer to the customer. Goods and services are distinct
and accounted for as separate performance obligations in the contract if the customer can benefit from them either on their own or together
with other resources that are readily available to the customer and they are separately identifiable in the contract.
The group typically sells licences to its intellectual property together with other goods and services and, since these licences are not generally
distinct in the context of the contract, revenue recognition is considered at the level of the performance obligation of which the licence forms
part. Revenue in respect of performance obligations containing bundles of goods and services in which a licence with a sales or usage-based
royalty is the predominant item is recognised when sales or usage occur.
Transaction price
At the start of the contract, the total transaction price is estimated as the amount of consideration to which the group expects to be entitled in
exchange for transferring the promised goods and services to the customer, excluding sales taxes. Variable consideration, such as trade discounts,
is included based on the expected value or most likely amount only to the extent that it is highly probable that there will not be a reversal in the
amount of cumulative revenue recognised. The transaction price does not include estimates of consideration resulting from contract
modifications until they have been approved by the parties to the contract. The total transaction price is allocated to the performance obligations
identified in the contract in proportion to their relative stand-alone selling prices. Many of the group’s and parent company’s products and
services are bespoke in nature and, therefore, stand-alone selling prices are estimated based on cost plus margin or by reference to market data
for similar products and services.
164
Johnson MattheyAnnual Report and Accounts 2019Accounts Accounting policies continued
for the year ended 31st March 2019
Significant accounting policies (continued)
Revenue (continued)
Revenue recognition
Revenue is recognised as performance obligations are satisfied as control of the goods and services is transferred to the customer.
For each performance obligation within a contract, the group and parent company determine whether it is satisfied over time or at a point in
time. Performance obligations are satisfied over time if one of the following criteria is satisfied:
• the customer simultaneously receives and consumes the benefits provided by the group’s and parent company’s performance as they perform;
• the group’s and parent company’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced;
• the group’s and parent company’s performance does not create an asset with an alternative use to the group and parent company and they
have an enforceable right to payment for performance completed to date.
If the over time criteria are met, revenue is recognised using an input method based on costs incurred to date as a proportion of estimated total
contract costs. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised immediately as an
expense.
The majority of the metal processed by the group’s and parent company’s refining businesses is owned by customers and, therefore, revenue is
recognised over time on the basis that the group and parent company are enhancing an asset controlled by the customer.
If the over time criteria for revenue recognition are not met, revenue is recognised at the point in time that control is transferred to the customer,
which is usually when legal title passes to the customer and the business has the right to payment, for example, 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 or on notification that the goods have been used when they are consignment products located at customers’ premises. Most of the
group’s and parent company’s contracts satisfy the point in time criteria.
In the event that the group and parent company enter into bill-and-hold transactions at the specific request of customers, revenue is recognised
when the goods are ready for transfer to the customer and when the group and parent company are no longer capable of directing those goods
to another use.
Revenue includes sales of precious metal to customers and the precious metal content of products sold to customers.
Linked contracts under which the group and parent company sell or buy precious metal and commit to repurchase or sell the metal in the future
are accounted for as finance transactions and no revenue is recognised in respect of the sale leg.
No revenue is recognised by the group or parent company in respect of non-monetary exchanges of precious metal on the basis that the
counterparties are in the same line of business.
Consideration payable to customers
Consideration payable to customers in advance of the recognition of revenue in respect of the goods and services to which it relates is capitalised
and recognised as a deduction to the revenue recognised upon transfer of the goods and services to the customer.
Costs to fulfil a contract
Contract fulfilment costs in respect of over time contracts are expensed as incurred. Contract fulfilment costs in respect of point in time contracts
are accounted for under IAS 2, Inventories.
Contract receivables
Contract receivables represent amounts for which the group and parent company have an unconditional right to consideration in respect of
unbilled revenue recognised at the balance sheet date.
Contract liabilities
Contract liabilities represent the obligation to transfer goods or services to a customer for which consideration has been received, or consideration
is due, from the customer.
165
AccountsJohnson MattheyAnnual Report and Accounts 2019 Accounting policies continued
for the year ended 31st March 2019
Significant accounting policies (continued)
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. 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.
166
Johnson MattheyAnnual Report and Accounts 2019Accounts Accounting policies continued
for the year ended 31st March 2019
Significant accounting policies (continued)
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.
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.
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 the group pays a fee which is expensed on a straight-line basis
over the lease term in finance costs. The group holds sufficient precious metal inventories to meet all the obligations under these lease
arrangements as they fall due.
All other leases are classified as operating leases and the lease costs are expensed on a straight-line basis over the lease term in operating profit.
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 is valued at the price at which it is contractually committed. 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 and short-term deposits with a maturity date of three months or less from the date of
acquisition. Money market funds comprise investments in funds that are subject to an insignificant risk of changes in fair value. 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
policies and, therefore, cash and cash equivalents include cash and deposits, money market funds and bank overdrafts. Offset arrangements
across group businesses have been applied to arrive at the net cash and overdraft figures.
Financial instruments – accounting policies applied since 1st April 2018
Investments and other financial assets
The group and parent company classify their financial assets in the following measurement categories:
• those measured at fair value either through other comprehensive income or through profit or loss; and
• those measured at amortised cost.
At initial recognition, the group and parent company measure financial assets at fair value plus, in the case of financial assets not measured at
fair value through profit or loss, transaction costs that are directly attributable to their acquisition.
The group and parent company subsequently measure equity investments at fair value and have elected to present fair value gains and losses on
equity investments in other comprehensive income. There is, therefore, no subsequent reclassification of cumulative fair value gains and losses to
profit or loss following disposal of the investments.
The group and parent company subsequently measure trade and other receivables and contract receivables at amortised cost, with the exception
of trade receivables that have been designated as at fair value through other comprehensive income because the group has certain operations
with business models to hold trade receivables for collection or sale. All other financial assets, including short-term receivables, are measured at
amortised cost less any impairment provision.
For trade and contract receivables, the group and parent company apply the simplified approach permitted by IFRS 9, Financial Instruments,
which requires expected lifetime losses to be recognised from initial recognition.
167
AccountsJohnson MattheyAnnual Report and Accounts 2019 Accounting policies continued
for the year ended 31st March 2019
Significant accounting policies (continued)
Financial instruments – accounting policies applied since 1st April 2018 (continued)
Derivative financial instruments
The group and parent company use derivative financial instruments, in particular forward currency contracts, currency swaps and interest rate
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. For currency swaps designated as instruments in cash flow or net investment
hedging relationships, the impact from currency basis spreads is included in the hedge relationship and may be a source of ineffectiveness
recognised in the income statement. Derivative financial instruments which are not designated as hedging instruments are classified as at fair
value through profit or loss, but are used to manage financial risk. 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. 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.
Cash flow hedges
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. If a forward
precious metal price contract will be settled net in cash, it is designated and accounted for as a cash flow hedge.
Fair value hedges
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.
Net investment hedges
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.
Financial liabilities
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. All other financial liabilities, including short-
term payables, are measured at amortised cost.
Precious metal sale and repurchase agreements
The group and parent company undertake linked contracts to sell or buy precious metal and commit to repurchase or sell the metal in the future.
An asset representing the metal which the group and parent company have committed to sell or a liability representing the obligation to
repurchase the metal are recognised in trade and other receivables or trade and other payables, respectively.
168
Johnson MattheyAnnual Report and Accounts 2019Accounts Accounting policies continued
for the year ended 31st March 2019
Significant accounting policies (continued)
Financial instruments – accounting policies applied until 31st March 2018
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.
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.
169
AccountsJohnson MattheyAnnual Report and Accounts 2019 Accounting policies continued
for the year ended 31st March 2019
Significant accounting policies (continued)
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.
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 plan 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.
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.
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 significant risks of material adjustment to the group’s and parent company’s financial position during
the year ending 31st March 2020 relate to the valuation of the liabilities of the defined benefit pension plans and tax provisions. The group and
parent company have considered other estimates that, whilst not deemed to represent a significant risk of material adjustment to the group’s and
parent company’s financial position during the year ending 31st March 2020, represent important accounting estimates.
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. A description of those discount rate and inflation assumptions, together with sensitivity analysis, is set out in note 30 to the group
and parent company accounts.
170
Johnson MattheyAnnual Report and Accounts 2019Accounts Accounting policies continued
for the year ended 31st March 2019
Sources of estimation uncertainty (continued)
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 2019 of £130 million (2018: £149 million) include tax provisions of £102 million
(2018: £86 million) and the estimation of the range of possible outcomes is an increase in those liabilities by £60 million (2018: £61 million)
to a decrease of £61 million (2018: £50 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.
Goodwill and other intangible 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 and are assessed for impairment when there
is a triggering event that provides evidence that they are impaired.
The impairment reviews require the use of estimates of future profit and cash generation based on financial budgets and plans approved by
management, generally covering a three-year period, and the pre-tax discount rates used in discounting projected cash flows.
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 £3.7 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.
Stocktakes 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. Stocktakes 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.
Judgements made in applying accounting policies
The group and parent company use precious metal owned by customers in their production processes. It has been determined that this metal is
not controlled by the group or parent company and, therefore, it is not recognised on the balance sheet.
The group and parent company manage precious metal inventories by entering into physically settled forward sales and purchases of metal
positions in line with a well established hedging policy. The own use exemption has been adopted for these transactions and, therefore, the
group and parent company do not fair value such physically settled contracts.
In the course of preparing the accounts, no other 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 accounts.
171
AccountsJohnson MattheyAnnual Report and Accounts 2019 Accounting policies continued
for the year ended 31st March 2019
Changes in accounting policies
Standards effective from 1st April 2018
IFRS 9, Financial Instruments, and IFRS 15, Revenue from Contracts with Customers, became effective from 1st April 2018. The impact of
adoption is set out in note 39.
Standards effective from 1st April 2019
IFRS 16, Leases
IFRS 16 is effective from 1st April 2019. Whilst lessor accounting is similar to IAS 17, lessee accounting is significantly different. Under IFRS 16,
the group and parent company 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. The new standard will
primarily impact the accounting for the group’s and parent company’s operating leases as their activities as a lessor are not significant.
The group and parent company will apply the simplified transition approach and will not restate comparative amounts for the year ended
31st March 2019. All right-of-use assets will be measured at the amount of the lease liability on adoption (adjusted for any prepaid or accrued
lease expenses).
As at 31st March 2019, the group has non-cancellable operating lease commitments of £76 million (see note 35), of which approximately
£2 million relates to short-term leases which will be recognised in the income statement on a straight-line basis under IFRS 16.
For the remaining lease commitments, the group expects to recognise right-of-use assets and lease liabilities of approximately £75 million on
1st April 2019. The discounted lease liabilities include cancellable lease term extension options which are not included in the operating lease
commitments note, but are expected to be exercised. The group estimates that profit before tax will be reduced by approximately £1 million in
the year ending 31st March 2020 as a result of adopting IFRS 16.
It is unclear whether contracts entered into by the group and parent company to lease metal from third parties constitute leases as defined by
IFRS 16. Specifically, it is not clear whether the leased metal represents a defined asset given its fungible nature. However, on the basis that there
is no alternative accounting standard applicable to these transactions, the group and parent company will continue to recognise the expense in
the income statement on a straight-line basis, with no recognition on the balance sheet.
IFRIC 23, Uncertainty over Income Tax Treatments
IFRIC 23 is effective from 1st April 2019. The interpretation clarifies how to recognise and measure current and deferred income tax assets and
liabilities where there is uncertainty over a tax treatment. The group does not expect IFRIC 23 to have a material impact on its reported results or
net assets.
The group does not consider that any other standards or interpretations issued, but not yet effective, will have a significant impact on its reported
results or net assets.
Non-GAAP measures
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. The principal non-GAAP measures are as follows:
• Sales – note 1
• Underlying operating profit – note 1
• Working capital days (excluding precious metals) – note 22
• Net debt – note 24
• Return on invested capital (ROIC) – note 31
• Net debt (including post tax pension deficits) to underlying EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) – note 31
172
Johnson MattheyAnnual Report and Accounts 2019Accounts Notes on the accounts
for the year ended 31st March 2019
1 Segmental information
The group has four operating sectors, Clean Air, Efficient Natural Resources, Health and New Markets, and a corporate headquarters that
retains certain costs that have not been allocated to the operating sectors. 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 78 to 85. The performance of the
operating sectors is assessed on sales and underlying operating profit.
Sales
Definition: Revenue excluding sales of precious metals to customers and the precious metal content of products sold to customers.
Purpose: The group believes that sales is a better measure of the growth of the group than revenue. Total revenue can be heavily distorted
by year on year fluctuations in the market prices of precious metals and, in many cases, the value of precious metals is passed directly on
to customers.
Underlying operating profit
Definition: Operating profit excluding profit or loss on disposal of businesses (note 5), gain or loss on significant legal proceedings, together
with associated legal costs (note 6), amortisation of acquired intangibles (note 7) and major impairment and restructuring charges (note 8).
Purpose: The group believes that underlying operating profit provides a better guide to the underlying performance of the group.
Sales between segments are made at market prices, taking into account the volumes involved.
Revenue, sales and underlying operating profit by segment
The group did not receive revenue from any individual external customer which represents more than 10% of the group’s total revenue
from external customers during the year ended 31st March 2019. Following the restatement of the prior year comparative for revenue
(see note 39), no individual customer represented more than 10% of revenue during the year ended 31st March 2018.
Year ended 31st March 2019
Revenue from external customers
Inter-segment revenue
Revenue
External sales
Inter-segment sales
Sales
Underlying operating profit (note 4)
Year ended 31st March 2018
Revenue from external customers
Inter-segment revenue
Revenue
External sales
Inter-segment sales
Sales
Underlying operating profit (note 4)
1 See note 39.
Efficient
Natural
Resources
£ million
5,074
2,608
7,682
880
111
991
181
Efficient
Natural
Resources
Restated1
£ million
5,389
2,342
7,731
845
111
956
158
Clean Air
£ million
4,948
210
5,158
2,719
1
2,720
393
Clean Air
£ million
4,248
260
4,508
2,454
–
2,454
349
Health
£ million
New Markets
£ million
Corporate
£ million
Eliminations
£ million
259
–
259
256
1
257
43
464
9
473
359
3
362
2
–
–
–
–
–
–
(53)
Total
£ million
10,745
–
–
(2,827)
(2,827)
10,745
–
(116)
(116)
–
4,214
–
4,214
566
Health
New Markets
Corporate
Eliminations
£ million
£ million
£ million
£ million
Total
Restated1
£ million
252
–
252
247
–
247
44
385
18
403
300
12
312
17
–
–
–
–
–
–
(43)
–
(2,620)
10,274
–
(2,620)
10,274
–
(123)
(123)
–
3,846
–
3,846
525
173
AccountsJohnson MattheyAnnual Report and Accounts 2019
1 Segmental information (continued)
Reconciliation from underlying operating profit to operating profit by segment
Year ended 31st March 2019
Efficient
Natural
Resources
£ million
Clean Air
£ million
393
–
–
(3)
–
390
181
–
–
(6)
–
175
Efficient
Natural
Resources
£ million
Clean Air
£ million
349
–
(50)
(3)
–
296
158
–
–
(7)
(13)
138
Health
£ million
New Markets
£ million
Corporate
£ million
Total
£ million
43
–
–
–
7
50
2
(12)
–
(5)
–
(15)
(53)
–
(17)
–
1
(69)
566
(12)
(17)
(14)
8
531
Health
£ million
New Markets
£ million
Corporate
£ million
Total
£ million
44
–
–
–
(56)
(12)
17
(7)
–
(9)
(21)
(20)
(43)
–
–
–
–
(43)
525
(7)
(50)
(19)
(90)
359
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
Year ended 31st March 2018
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
Other segmental information
Year ended 31st March 2019
Segmental net assets
1,339
1,243
496
235
108
3,421
Efficient
Natural
Resources
£ million
Clean Air
£ million
Health
£ million
New Markets
£ million
Corporate
£ million
Total
£ million
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
Net assets
Capital expenditure
Other additions to non-current assets (excluding
financial, deferred tax and post-employment
benefit net assets)
Total additions to non-current assets
Depreciation and amortisation
Amortisation of acquired intangibles (note 7)
Total depreciation and amortisation
(866)
103
(33)
(34)
20
2,611
323
3
326
157
14
171
124
3
127
69
3
72
53
–
53
49
6
55
29
–
29
19
–
19
48
–
48
9
5
14
69
–
69
11
–
11
174
Notes on the accounts continuedfor the year ended 31st March 2019Johnson MattheyAnnual Report and Accounts 2019Accounts
1 Segmental information (continued)
Year ended 31 March 2018
Segmental net assets
1,133
1,084
481
208
101
3,007
Efficient
Natural
Resources
Restated1
£ million
Clean Air
£ million
Health
New Markets
Corporate
£ million
£ million
£ million
Total
Restated1
£ million
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
Net assets
Capital expenditure
Other additions to non-current assets (excluding
financial, deferred tax and post-employment
benefit net assets)
Total additions to non-current assets
Depreciation and amortisation
Amortisation of acquired intangibles (note 7)
Total depreciation and amortisation
1 See note 39.
(679)
133
(46)
(56)
20
2,379
217
11
228
156
19
175
71
11
82
74
3
77
49
–
49
47
7
54
40
–
40
21
–
21
18
–
18
8
9
17
39
–
39
6
–
6
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:
UK
Germany
Rest of Europe
USA
Rest of North America
China (including Hong Kong)
Rest of Asia
Rest of World
Sub-total
Investments at fair value through other comprehensive income
Interest rate swaps
Deferred income tax assets
Post-employment benefit net assets
Total
1 See note 39.
Revenue from
external customers
2019
£ million
2018
Restated1
£ million
Non-current assets
2019
2018
£ million
£ million
1,838
1,252
1,869
2,567
205
1,199
1,267
548
1,793
1,198
1,510
2,520
212
1,342
1,190
509
10,745
10,274
924
266
257
440
32
183
124
18
2,244
52
13
58
209
2,576
849
276
236
399
33
159
112
18
2,082
56
6
48
236
2,428
175
Notes on the accounts continuedfor the year ended 31st March 2019AccountsJohnson MattheyAnnual Report and Accounts 2019
2 Revenue
Principal products and services
The group’s principal products and services by operating sector and sub-sector, together with information regarding performance
obligations and revenue recognition, are shown in the table below:
Sector
Sub-sector
Primary industry
Principal products and services
Performance obligations
Revenue recognition
Clean Air
Efficient
Natural
Resources
Light Duty
Catalysts
Heavy Duty
Catalysts
Automotive
Automotive
Catalyst
Technologies
Chemicals /
oil and gas
Catalysts for cars and other light
duty vehicles
Catalysts for trucks, buses and
non-road equipment
Point in time
Point in time
Speciality catalysts and additives
Point in time
Process technology licences
Over time
Platinum Group
Metal Services
Various
Advanced Glass
Technologies
Diagnostic
Services
Automotive
Oil and gas
Engineering design services
Over time
Platinum Group Metal refining and
recycling services
Precious metal and other precious
metal products
Platinum Group Metal chemical and
industrial products
Precious metal pastes and enamels
Detection, diagnostic and
measurement solutions
Over time
Point in time
Point in time
Point in time
Over time
Health
Generics
Pharmaceuticals
Active pharmaceutical ingredients
Point in time2
Innovators
Pharmaceuticals
Active pharmaceutical ingredients
Point in time
New
Markets
Alternative
Powertrain
Medical Device
Components
Life Science
Technologies
Automotive
Consumer goods
Pharmaceuticals
Pharmaceuticals /
agriculture
Battery materials and fuel cell
technologies
Battery systems for a range
of applications
Products found in devices used
in medical procedures
Advanced catalysts
Point in time
Point in time
Point in time
Point in time
1 Revenue recognition depends on whether the licence is distinct in the context of the contract.
2 Revenue is recognised over time on one significant contract.
On despatch
or delivery
On despatch
or delivery
On despatch
or delivery
Based on costs
incurred or
straight-line over
the licence term1
Based on costs
incurred
Based on costs
incurred
On despatch
or delivery
On despatch
or delivery
On despatch
or delivery
Based on costs
incurred
On despatch
or delivery
On despatch
or delivery
On despatch
or delivery
On despatch
or delivery
On despatch
or delivery
On despatch
or delivery
176
Notes on the accounts continuedfor the year ended 31st March 2019Johnson MattheyAnnual Report and Accounts 2019Accounts
2 Revenue (continued)
Revenue from external customers by principal products and services
Metal
Heavy Duty Catalysts
Light Duty Catalysts
Catalyst Technologies
Platinum Group Metal Services
Advanced Glass Technologies
Diagnostic Services
Generics
Innovators
Alternative Powertrain
Medical Device Components
Life Science Technologies
Other
Revenue
Revenue from external customers by point in time and over time
performance obligations
Revenue recognised at a point in time
Revenue recognised over time
Revenue
Revenue from external customers by principal products and services
Metal
Heavy Duty Catalysts
Light Duty Catalysts
Catalyst Technologies
Platinum Group Metal Services
Advanced Glass Technologies
Diagnostic Services
Generics
Innovators
Alternative Powertrain
Medical Device Components
Life Science Technologies
Other
Revenue
Revenue from external customers by point in time and over time
performance obligations
Revenue recognised at a point in time
Revenue recognised over time
Revenue
1 See note 39.
2019
Efficient
Natural
Resources
£ million
Clean Air
£ million
Health
£ million
New Markets
£ million
Total
£ million
2,229
938
1,737
–
–
–
–
–
–
–
–
–
44
4,948
4,948
–
4,948
4,194
–
–
504
233
75
68
–
–
–
–
–
–
5,074
4,869
205
5,074
3
–
–
–
–
–
–
171
85
–
–
–
–
259
233
26
259
105
–
–
–
–
–
–
–
–
206
70
46
37
464
464
–
464
6,531
938
1,737
504
233
75
68
171
85
206
70
46
81
10,745
10,514
231
10,745
2018
Efficient
Natural
Resources
Restated!
£ million
Clean Air
£ million
Health
New Markets
£ million
£ million
Total
Restated!
£ million
1,794
846
1,564
–
–
–
–
–
–
–
–
–
44
4,248
4,248
–
4,248
4,544
–
–
478
228
82
57
–
–
–
–
–
–
5,389
5,213
176
5,389
5
–
–
–
–
–
–
173
74
–
–
–
–
252
217
35
252
85
–
–
–
–
–
–
–
–
153
69
41
37
385
385
–
385
6,428
846
1,564
478
228
82
57
173
74
153
69
41
81
10,274
10,063
211
10,274
177
Notes on the accounts continuedfor the year ended 31st March 2019AccountsJohnson MattheyAnnual Report and Accounts 2019 2 Revenue (continued)
Unsatisfied performance obligations
At 31st March 2019, for contracts that had an original expected duration of more than one year, the group had unsatisfied performance
obligations of £323 million, representing contractually committed revenue to be recognised at a future date. Of this amount, £38 million is
expected to be recognised within one year and £285 million is expected to be recognised after one year.
Payment terms
The group supplies goods and services on payment terms that are consistent with those standard across the industry and it does not have
any contracts with a material financing component. Where revenue is recognised over time, payment terms are generally consistent with
the timeframe over which revenue is recognised.
3 Effect of exchange rate movements on translation of sales and underlying operating profit of foreign operations
Average exchange rates used for translation of the results of foreign operations
US dollar / £
Euro / £
Chinese renminbi / £
2019
2018
1.310
1.134
8.81
1.328
1.134
8.79
The main impact of exchange rate movements on the group’s sales and underlying operating profit comes from the translation of the results
of foreign operations into sterling.
Sales
Clean Air
Efficient Natural Resources
Health
New Markets
Inter-segment sales
Sales (note 1)
Underlying operating profit
Clean Air
Efficient Natural Resources
Health
New Markets
Corporate
Underlying operating profit (note 4)
Year ended
31st March
2019
£ million
Year ended 31st March 2018
At last year’s
At this year’s
rates
rates
£ million
£ million
Change at
this year’s
rates
%
2,720
991
257
362
(116)
2,454
956
247
312
(123)
2,451
956
250
310
(124)
4,214
3,846
3,843
393
181
43
2
(53)
566
349
158
44
17
(43)
525
349
158
45
17
(43)
526
+11
+4
+3
+17
+10
+13
+15
–4
–85
+8
178
Notes on the accounts continuedfor the year ended 31st March 2019Johnson MattheyAnnual Report and Accounts 2019Accounts
4 Underlying profit reconciliations
Underlying profit and earnings are non-GAAP measures that the group believes provide a better guide to the underlying performance of the group.
These measures exclude profit or loss on disposal of businesses, gain or loss on significant legal proceedings, together with associated legal costs,
amortisation of acquired intangibles and major impairment and restructuring charges, and are reconciled to their equivalent GAAP measures below.
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 disposal of businesses (note 5)
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 13)
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 13)
Profit for the year
2019
£ million
2018
£ million
566
(12)
(17)
(14)
8
531
523
(12)
(17)
(14)
8
488
525
(7)
(50)
(19)
(90)
359
486
(7)
(50)
(19)
(90)
320
(83)
(86)
4
3
3
(2)
8
–
–
16
4
21
41
23
(75)
(22)
440
(12)
(17)
(14)
8
8
–
413
400
(7)
(50)
(19)
(90)
41
23
298
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 1st February 2019, the group sold its water disinfection business, Miox. After costs, the net proceeds were £2 million which
resulted in a loss on sale of £12 million. Net assets sold comprise intangible assets (£9 million), property, plant and equipment (£2 million)
and working capital (£3 million). In the prior year, 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 and 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. In April 2019, the group paid £17 million in respect of a settlement with a
customer on mutually acceptable terms with no admission of fault relating to failures in certain engine systems for which it supplied a
component in the US. The settlement has been recognised in the year ended 31st March 2019 on the basis that it confirms that the group
had a present obligation at the year end. In the prior year, the group 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.
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.
179
Notes on the accounts continuedfor the year ended 31st March 2019AccountsJohnson MattheyAnnual Report and Accounts 2019 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 was incurred in the prior year. The £90 million comprised £66 million asset write offs, £11 million provisions and
£13 million cash costs incurred. Contained within the £90 million were 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). The group is at an advanced stage of negotiations to sell the
Riverside site for £7 million, net of costs, and an equivalent amount of the prior year impairment has been reversed during the year ended
31st March 2019.
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 governments
– from other organisations
Net research and development charged
Inventories recognised as an expense1
Write-down of inventories recognised as an expense
Reversal of write-down of inventories from increases in net realisable value
Net losses on foreign exchange
Net gains on foreign currency forwards at fair value through profit or loss
2019
£ million
2018
£ million
190
(19)
171
(12)
(2)
157
8,715
25
(5)
10
(6)
193
(18)
175
(8)
(4)
163
8,413
26
(5)
10
(9)
Depreciation of property, plant and equipment
142
143
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 (note 7)
– major impairment and restructuring charges (note 8)
Amortisation and impairment of other intangible assets
Operating lease rentals payable – minimum lease payments
1 2018 restated. See note 39.
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 fees
Audit-related assurance services
Other assurance services
Other services
Total non-audit fees
Total fees payable to the company’s auditor and its associates
6
2
1
6
14
–
29
17
9
4
1
2
19
4
39
19
2019
£ million
2018
£ million
0.9
1.7
2.6
0.2
–
0.3
0.5
3.1
0.8
1.4
2.2
0.1
0.4
0.3
0.8
3.0
Fees payable for services to the group’s pension plans for the audit of the pension plan accounts were £0.1 million (2018: £0.1 million).
Audit fees paid to other auditors were £nil (2018: £0.1 million).
180
Notes on the accounts continuedfor the year ended 31st March 2019Johnson MattheyAnnual Report and Accounts 2019Accounts 11 Employee numbers and costs
Average number of employees
Clean Air
Efficient Natural Resources
Health
New Markets
Corporate
Average number of employees
The number of temporary employees included above at 31st March 2019 is 526 (2018: 367).
2019
2018
5,679
3,602
879
1,855
973
5,302
3,670
992
1,538
817
12,988
12,319
At 31st March 2019
At 31st March 2018
Actual
employees
Agency
staff
Total
headcount
Actual
employees
Agency
staff
Total
headcount
5,919
3,645
858
1,934
1,043
629
163
8
343
253
6,548
3,808
866
2,277
1,296
5,470
3,711
964
1,714
856
554
171
113
429
148
6,024
3,882
1,077
2,143
1,004
13,399
1,396
14,795
12,715
1,415
14,130
Year-end headcount
Clean Air
Efficient Natural Resources
Health
New Markets
Corporate
Total
Employee benefits expense
Wages and salaries
Social security costs
Post-employment costs
Share-based payments
Termination benefits
Employee benefits expense
12 Net finance costs
Net loss on remeasurement of foreign currency swaps held at fair value through profit or loss
Interest payable on financial liabilities held at amortised cost and interest on related swaps
Interest payable on other liabilities
Interest on post-employment benefits
Total finance costs
Interest receivable on financial assets held at amortised cost
Interest receivable on other assets
Interest on post-employment benefits
Total finance income
Net finance costs
1 See note 39.
2019
£ million
2018
Restated1
£ million
593
64
56
17
1
731
548
59
69
17
5
698
2019
£ million
2018
Restated1
£ million
(1)
(37)
(69)
–
(107)
3
58
3
64
(3)
(30)
(29)
(1)
(63)
4
21
–
25
(43)
(38)
181
Notes on the accounts continuedfor the year ended 31st March 2019AccountsJohnson MattheyAnnual Report and Accounts 2019
13 Tax expense
Current tax
Corporation tax on profit 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
Recognition of previously unrecognised deferred tax assets
Adjustment for prior years
Total deferred tax
Tax expense
The tax expense can be reconciled to profit before tax in the income statement as follows:
Profit before tax
Tax expense at UK corporation tax rate of 19% (2018: 19%)
Effects of:
Overseas tax rates
Expenses not deductible for tax purposes
Losses and other temporary differences not recognised
Recognition or utilisation of previously unrecognised tax assets
Adjustment for prior years
Patent box / Innovation box
Other tax incentives
Tax rate adjustments
Disposal of businesses
Irrecoverable withholding tax
Other
Tax expense
2019
£ million
2018
£ million
84
–
(7)
77
6
(1)
(5)
(2)
(2)
75
104
(1)
(11)
92
(35)
(25)
(9)
(1)
(70)
22
2019
£ million
2018
£ million
488
93
2
3
7
(6)
(9)
(19)
(4)
(1)
(2)
6
5
75
320
61
–
13
8
(7)
(12)
(17)
(3)
(25)
1
1
2
22
Losses and other temporary differences not recognised includes current year tax losses arising in Canada, Brazil and China which are not
expected to be used in the foreseeable future.
Recognition or utilisation of previously unrecognised tax assets is mainly the recognition of tax incentives in Poland.
Adjustments for prior years is mainly current and deferred tax adjustments in respect of Macedonia.
Other tax incentives includes research and development tax incentives in the US, China and Japan and other tax incentives in Poland.
Tax rate adjustments in the prior year included £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 was reduced from 37% to 23% (including state taxes), creating a US tax rate adjustment which was partly
reflected in the consolidated income statement and partly in the consolidated statement of comprehensive income.
Irrecoverable withholding tax and other include movements on certain global tax provisions where the ultimate outcome cannot be
ascertained with certainty.
182
Notes on the accounts continuedfor the year ended 31st March 2019Johnson MattheyAnnual Report and Accounts 2019Accounts
14 Tax on other comprehensive income
Items that will not be reclassified to the income statement
Remeasurements of post-employment benefit assets
and liabilities
Fair value losses on equity investments at fair value through
other comprehensive income
Tax rate adjustments
Items that may be reclassified to the income statement
Exchange differences on translation of foreign operations
Amounts credited to hedging reserve
Fair value (losses) / gains on net investment hedges
Fair value losses on other investments at fair value through
other comprehensive income
Total other comprehensive income
Before tax
£ million
2019
Tax
£ million
Net of tax
£ million
Before tax
£ million
2018
Tax
£ million
Net of tax
£ million
(69)
(3)
–
22
4
(1)
(1)
(48)
13
–
–
1
(1)
–
–
13
(56)
103
(3)
–
23
3
(1)
(1)
(35)
–
–
(95)
5
6
–
19
(18)
–
(13)
1
(1)
–
–
(31)
85
–
(13)
(94)
4
6
–
(12)
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 was reduced from 37% to 23% (including state taxes), creating a US tax
rate adjustment which was partly reflected in the consolidated income statement and partly in the consolidated statement of
comprehensive income.
15 Earnings per ordinary share
Basic
Diluted
2019
pence
215.2
214.6
2018
pence
155.2
155.0
Earnings per ordinary share have been calculated by dividing profit for the year 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
2019
2018
192,128,811
559,693
191,985,992
246,916
192,688,504
192,232,908
Underlying earnings per ordinary share have been calculated by dividing 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
2019
pence
2018
pence
228.8
228.2
208.4
208.1
183
Notes on the accounts continuedfor the year ended 31st March 2019AccountsJohnson MattheyAnnual Report and Accounts 2019 16 Property, plant and equipment
Group
Cost
At 1st April 2017
Additions
Reclassification between categories
Disposals
Disposal of businesses (note 5)
Exchange adjustments
At 31st March 2018
Additions
Reclassification between categories
Reclassification as held for sale
Transfer from other intangible assets (note 18)
Disposals
Disposal of businesses (note 5)
Exchange adjustments
At 31st March 2019
Accumulated depreciation and impairment
At 1st April 2017
Charge for the year
Impairment losses
Disposals
Disposal of businesses (note 5)
Exchange adjustments
At 31st March 2018
Charge for the year
Impairment (reversals) / losses
Reclassification as held for sale
Reclassification between categories
Disposals
Exchange adjustments
At 31st March 2019
Carrying amount at 31st March 2019
Carrying amount at 31st March 2018
Carrying amount at 1st April 2017
Freehold land
and buildings
£ million
Long and
short
leasehold
£ million
Plant and
machinery
£ million
Assets in
the course of
construction
£ million
Total
£ million
588
7
21
(12)
–
(26)
578
10
13
(7)
–
–
–
13
607
244
20
7
(8)
–
(13)
250
19
(6)
(1)
(1)
–
7
268
339
328
344
27
–
–
–
–
(2)
25
1
1
–
–
(3)
–
1
25
15
1
–
–
–
(1)
15
1
–
–
1
(3)
1
15
10
10
12
1,882
40
114
(25)
(3)
(89)
1,919
60
63
–
11
(40)
(2)
45
2,056
1,234
122
30
(24)
(1)
(59)
1,302
121
–
–
(5)
(37)
33
1,414
642
617
648
237
114
(135)
(1)
–
(6)
209
164
(77)
(1)
–
–
–
1
296
6
–
3
–
–
–
9
1
1
–
5
–
–
2,734
161
–
(38)
(3)
(123)
2,731
235
–
(8)
11
(43)
(2)
60
2,984
1,499
143
40
(32)
(1)
(73)
1,576
142
(5)
(1)
–
(40)
41
16
1,713
280
200
231
1,271
1,155
1,235
Finance costs capitalised were £4 million (2018: £4 million) and the capitalisation rate used to determine the amount of finance costs
eligible for capitalisation was 3.2% (2018: 3.3%).
In the prior year, impairment losses of £40 million were included in major impairment and restructuring charges (note 8). The impairment
included £30 million relating to the closure of the Riverside, US, manufacturing facility in Health. The recoverable amount of the plant was
estimated to be nil based on fair value less costs to sell using level 2 inputs (see note 33) reflecting its specialised nature.
The group is at an advanced stage of negotiations to sell the Riverside site for £7 million, net of costs, and an equivalent amount of the prior
year impairment has been reversed during the year ended 31st March 2019.
184
Notes on the accounts continuedfor the year ended 31st March 2019Johnson MattheyAnnual Report and Accounts 2019Accounts
16 Property, plant and equipment (continued)
Parent company
Cost
At 31st March 2018
Additions
Reclassification between categories
Transfer from other intangible assets (note 18)
Disposals
At 31st March 2019
Accumulated depreciation and impairment
At 31st March 2018
Charge for the year
Reclassification between categories
Disposals
At 31st March 2019
Carrying amount at 31st March 2019
Carrying amount at 31st March 2018
Freehold land
and buildings
£ million
Long and
short
leasehold
£ million
Plant and
machinery
£ million
Assets in
the course of
construction
£ million
Total
£ million
130
–
(1)
–
–
129
58
4
(1)
–
61
68
72
2
–
1
–
–
3
1
–
1
–
2
1
1
556
31
9
11
(15)
592
382
33
–
(15)
400
192
174
31
29
(9)
–
–
51
–
–
–
–
–
51
31
719
60
–
11
(15)
775
441
37
–
(15)
463
312
278
Finance costs capitalised were £2 million (2018: £2 million) and the capitalisation rate used to determine the amount of finance costs
eligible for capitalisation was 3.2% (2018: 3.3%).
17 Goodwill
Cost
At 1st April 2017
Disposal of businesses (note 5)
Exchange adjustments
At 31st March 2018
Exchange adjustments
At 31st March 2019
Impairment
At 1st April 2017
Impairment losses
At 31st March 2019 and 31st March 2018
Carrying amount at 31st March 2019
Carrying amount at 31st March 2018
Carrying amount at 1st April 2017
Group
£ million
Parent
company
£ million
607
(9)
(13)
585
4
589
–
11
11
578
574
607
123
–
–
123
–
123
–
–
–
123
123
123
The impairment losses in the year ended 31st March 2018 of £11 million were included in major impairment and restructuring charges
(note 8).
185
Notes on the accounts continuedfor the year ended 31st March 2019AccountsJohnson MattheyAnnual Report and Accounts 2019
17 Goodwill (continued)
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
– Heavy Duty Catalysts
Efficient Natural Resources
– Catalyst Technologies
– Diagnostic Services
– Other
Health
– Pharma Materials EU
– Innovators
New Markets1
Group
Parent company
2019
£ million
2018
£ million
2019
£ million
2018
£ million
85
85
–
–
267
50
3
117
27
29
578
264
50
3
117
26
29
574
113
–
–
–
2
8
113
–
–
–
2
8
123
123
1 New Markets comprises CGUs with goodwill balances individually less than £10 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 generally 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, including market share, expected changes to selling prices, product profitability, precious metal prices and other direct
input costs, based on past experience and management’s expectations of future changes in the markets using external sources of
information where appropriate. Unallocated corporate costs are split between CGUs using a revenue-based methodology. 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.
The key assumptions are:
Clean Air
– Heavy Duty Catalysts
Efficient Natural Resources
– Catalyst Technologies
– Diagnostic Services
Health
– Pharma Materials EU
– Innovators
Discount rate
Long term growth rate
2019
2018
2019
2018
9.5%
9.9%
–1.0%
0.0%
10.3%
10.3%
10.5%
n/a
8.6%
9.2%
8.1%
8.8%
2.7%
1.3%
4.0%
3.0%
2.4%
n/a
2.8%
2.8%
Different long-term growth rates are used for the Clean Air – Heavy Duty Catalysts CGU because of expected macroeconomic trends in the
industry in which the business operates. The growth rate for years four to ten is expected to be 1% (2018: 1.5%). After that, growth is
expected to slow and, therefore, the long term growth rate above is used for year 11 onwards.
The impairment tests result in headroom of at least 50% over the carrying value of the net assets of the material CGUs.
186
Notes on the accounts continuedfor the year ended 31st March 2019Johnson MattheyAnnual Report and Accounts 2019Accounts
18 Other intangible assets
Group
Cost
At 1st April 2017
Additions
Disposals
Disposal of businesses (note 5)
Exchange adjustments
At 31st March 2018
Additions
Transfer to property, plant and equipment (note 16)
Disposals
Disposal of businesses (note 5)
Exchange adjustments
At 31st March 2019
Accumulated amortisation and impairment
At 1st April 2017
Charge for the year
Impairment losses
Disposals
Disposal of businesses (note 5)
Exchange adjustments
At 31st March 2018
Charge for the year
Disposals
Disposal of businesses (note 5)
Exchange adjustments
At 31st March 2019
Carrying amount at 31st March 2019
Carrying amount at 31st March 2018
Carrying amount at 1st April 2017
Parent company
Cost
At 31st March 2018
Additions
Transfer to property, plant and equipment (note 16)
Disposals
Disposal of businesses
At 31st March 2019
Accumulated amortisation and impairment
At 31st March 2018
Charge for the year
Disposals
Disposal of businesses
At 31st March 2019
Carrying amount at 31st March 2019
Carrying amount at 31st March 2018
Customer
contracts and
Relationships
£ million
Computer
Software
£ million
Patents,
trademarks
and licences
£ million
Acquired
research and
technology
£ million
Development
expenditure
£ million
Total
£ million
164
–
–
(5)
(7)
152
–
–
–
–
–
152
106
9
1
–
(5)
(4)
107
6
–
–
1
114
38
45
58
154
38
(1)
–
(3)
188
63
(11)
(9)
–
–
231
52
5
–
(1)
–
(2)
54
9
(9)
–
–
54
177
134
102
71
–
–
–
(2)
69
6
–
–
(13)
1
63
30
3
3
–
–
(1)
35
4
–
(5)
1
35
28
34
41
64
–
–
(11)
–
53
–
–
–
(1)
–
52
35
6
1
–
(11)
–
31
4
–
(1)
–
34
18
22
29
176
18
–
–
(14)
180
19
–
–
(1)
8
206
118
9
2
–
–
(9)
120
6
–
–
5
131
75
60
58
629
56
(1)
(16)
(26)
642
88
(11)
(9)
(15)
9
704
341
32
7
(1)
(16)
(16)
347
29
(9)
(6)
7
368
336
295
288
Computer
Software
£ million
Patents,
trademarks
and licences
£ million
Acquired
research and
technology
£ million
Development
expenditure
£ million
Total
£ million
148
62
(11)
(9)
–
190
23
6
(9)
–
20
170
125
33
6
–
–
(13)
26
6
1
–
(5)
2
24
27
11
–
–
–
(1)
10
4
1
–
(1)
4
6
7
16
7
–
–
(1)
22
9
6
–
–
15
7
7
208
75
(11)
(9)
(15)
248
42
14
(9)
(6)
41
207
166
187
Notes on the accounts continuedfor the year ended 31st March 2019AccountsJohnson MattheyAnnual Report and Accounts 2019
19 Investments in subsidiaries
At 1st April 2017
Impairment losses
At 31st March 2018
Additions
Disposals
At 31st March 2019
Cost of
investments
in subsidiaries
£ million
Accumulated
impairment
£ million
Carrying
amount
£ million
2,255
–
2,255
12
(97)
2,170
(192)
(66)
(258)
–
–
2,063
(66)
1,997
12
(97)
(258)
1,912
Impairment losses in the year ended 31st March 2018 were recognised following changes to the group’s structure. The subsidiaries are
shown in note 38.
20 Investments in joint venture and associate
Investment in joint venture
Investment in associate
Investments in joint venture and associate
The movements in the year were:
At 1st April 2017
Group’s share of loss for the year
Dividends received
At 31st March 2018 and 31st March 2019
2019
£ million
2018
£ million
5
15
20
5
15
20
Joint venture
£ million
Associate
£ million
Total
£ million
6
–
(1)
5
16
(1)
–
15
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 investment at fair value through other comprehensive income (note 21).
During the year ended 31st March 2019, the group made purchases from its joint venture and associate totalling £1 million (2018: £nil).
21 Non-current investments at fair value through other comprehensive income
Quoted bonds purchased to fund pension deficit
Unquoted investments
Group
Parent company
2019
£ million
2018
£ million
2019
£ million
2018
£ million
52
–
52
53
3
56
–
7
7
–
7
7
188
Notes on the accounts continuedfor the year ended 31st March 2019Johnson MattheyAnnual Report and Accounts 2019Accounts 21 Non-current investments at fair value through other comprehensive income (continued)
There is no active market for the unquoted investments and, therefore, they are categorised as level 3 (note 33). The group’s unquoted
investment was impaired by £3 million during the year as the group expects to realise a nominal amount from its sale. The parent
company’s investment is the revenue share agreement with CECC (note 20). Movements in the unquoted investments in the year
are shown below:
At 1st April 2017
Impairment losses
At 31st March 2018
Impairment loss
At 31st March 2019
22 Inventories
Raw materials and consumables
Work in progress
Finished goods and goods for resale
Inventories
Group
£ million
Parent
company
£ million
4
(1)
3
(3)
–
7
–
7
–
7
Group
Parent company
2018
Restated1
£ million
2019
£ million
2018
Restated1
£ million
232
400
292
924
42
311
77
430
31
103
75
209
2019
£ million
277
750
289
1,316
The group also holds customers’ materials in the process of refining and fabrication and for other reasons.
Working capital days (excluding precious metals)
Definition: Non-precious metal related inventories, trade and other receivables and trade and other payables (including any classified as
held for sale) divided by sales for the last three months multiplied by 90 days.
Purpose: A measure of efficiency in the business with lower days driving higher returns and a healthier liquidity position for the group.
Inventories
Trade and other receivables (note 23)
Trade and other payables (note 27)
Total working capital
Less: Precious metal working capital
Working capital (excluding precious metals)
Average working capital days (excluding precious metals)
1 See note 39.
Group
2019
£ million
1,316
1,553
(1,647)
1,222
(590)
632
59
2018
Restated1
£ million
924
1,304
(1,228)
1,000
(404)
596
62
189
Notes on the accounts continuedfor the year ended 31st March 2019AccountsJohnson MattheyAnnual Report and Accounts 2019
23 Trade and other receivables
Current
Trade receivables
Contract receivables
Amounts receivable from subsidiaries
Prepayments
Value added tax and other sales tax receivable
Advance payments to customers
Amounts receivable under precious metal sale and repurchase agreements
Other receivables
Current trade and other receivables
Non-current
Amounts receivable from subsidiaries
Prepayments
Advance payments to customers
Non-current trade and other receivables
1 See note 39.
Group
Parent company
2019
£ million
2018
Restated1
£ million
2019
£ million
2018
Restated1
£ million
1,204
43
–
109
33
5
97
62
1,553
–
18
21
39
1,049
36
–
85
34
1
56
43
1,304
–
21
17
38
206
–
945
33
5
–
75
50
1,314
1,009
–
1
1,010
165
–
1,049
19
11
–
56
33
1,333
1,113
–
–
1,113
Of the parent company’s amounts receivable from subsidiaries, £131 million is impaired (2018: £128 million). Future expected credit
losses on amounts receivable from subsidiaries are immaterial.
The fair value of the precious metal contracted to be sold by the group under sale and repurchase agreements is £113 million
(2018: £60 million).
190
Notes on the accounts continuedfor the year ended 31st March 2019Johnson MattheyAnnual Report and Accounts 2019Accounts 24 Net debt
Definition: Cash and cash equivalents, borrowings and related swaps.
Purpose: Management of capital and committed borrowing facilities.
Cash and cash equivalents
Cash and deposits
Money market funds
Bank overdrafts
Cash and cash equivalents
Net debt
Non-current borrowings and related swaps
Bank overdrafts
Other current borrowings and related swaps
Total borrowings
Cash and deposits
Money market funds
Non-current interest rate swaps
Net debt
Group
Parent company
2019
£ million
2018
Restated1
£ million
2019
£ million
2018
Restated1
£ million
90
347
(59)
378
(1,073)
(59)
(184)
(1,316)
90
347
13
203
171
(70)
304
(951)
(70)
(38)
(1,059)
203
171
6
11
347
(33)
325
(1,066)
(33)
(107)
(1,206)
11
347
13
82
171
(46)
207
(951)
(46)
(4)
(1,001)
82
171
6
(866)
(679)
(835)
(742)
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
1.40% €77 million Bonds 2025
2.54% £45 million Bonds 2025
3.39% $180 million Bonds 2028
1.81% €90 million Bonds 2028
Other bank and other loans repayable in one to two years
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
–
(38)
(86)
(143)
(116)
(127)
(17)
(65)
(38)
(100)
(68)
(45)
(138)
(80)
(7)
(5)
–
–
(109)
(36)
(87)
(145)
(106)
(117)
(17)
(65)
(36)
(97)
–
–
(128)
–
–
(7)
–
(1)
–
(38)
(86)
(143)
(116)
(127)
(17)
(65)
(38)
(100)
(68)
(45)
(138)
(80)
–
–
(5)
–
Non-current borrowings and related swaps
(1,073)
(951)
(1,066)
1.945% €124 million EIB loan 2019
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 swaps
(107)
(77)
–
–
(184)
8
5
13
–
(36)
(2)
–
(38)
6
–
6
(107)
–
–
–
(107)
8
5
13
(109)
(36)
(87)
(145)
(106)
(117)
(17)
(65)
(36)
(97)
–
–
(128)
–
–
–
(7)
(1)
(951)
–
(2)
–
(2)
(4)
6
–
6
1 See note 39.
The 3.26% $150 million Bonds 2022 have been swapped into floating rate US dollars. The 1.40% €77 million Bonds 2025 and the 1.81%
€90 million Bonds 2028 have been swapped into floating rate euros. $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 KfW loan 2020, the EIB loan 2022 and the bank overdrafts, which bear
interest at commercial floating rates.
191
Notes on the accounts continuedfor the year ended 31st March 2019AccountsJohnson MattheyAnnual Report and Accounts 2019 25 Movements in assets and liabilities arising from financing activities
Non-current assets
Interest rate swaps
Non-current liabilities
Borrowings and related swaps
Current liabilities
Other borrowings and related swaps
Non-cash movements
2018
Restated1
£ million
Cash
(inflow)/
outflow
Foreign
exchange
movements
Fair value and
other
movements
Transfers
2019
£ million
£ million
£ million
£ million
£ million
6
–
(1)
–
8
13
(951)
(202)
110
(26)
(4)
(1,073)
(38)
(39)
(109)
(241)
–
–
(26)
2
6
(184)
Dividends paid to equity shareholders
Interest paid
Net cash outflow from financing activities
156
108
23
Non-current assets
Interest rate swaps
Non-current liabilities
Borrowings and related swaps
Current liabilities
Other borrowings and related swaps
Other financial liabilities3
Dividends paid to equity shareholders
Interest paid
Net cash outflow from financing activities
2017
Restated1
£ million
17
(1,011)
(20)
(1)
Non-cash movements
Cash
(inflow)/
outflow
Restated1
£ million
Foreign
exchange
movements2
Fair value and
other
movements2
Transfers
£ million
£ million
£ million
2018
Restated1
£ million
(2)
4
(2)
–
–
–
58
–
–
58
(9)
6
(2)
(951)
(38)
–
–
–
(11)
–
–
(16)
1
(15)
146
65
196
1 See note 39.
2 2018 re-presented to separately analyse fair value movements in net debt relating to hedging instruments.
3 Foreign exchange swaps designated as hedges of a net investment in foreign operations.
26 Other financial assets and liabilities
Other financial assets
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 at fair value through profit or loss
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 at fair value through profit or loss
Other financial liabilities
Group
Parent company
2019
£ million
2018
£ million
2019
£ million
2018
£ million
5
1
16
22
(3)
–
(10)
(13)
6
–
9
15
(2)
(3)
(7)
(12)
5
1
17
23
(4)
–
(10)
(14)
6
–
9
15
(4)
(3)
(7)
(14)
192
Notes on the accounts continuedfor the year ended 31st March 2019Johnson MattheyAnnual Report and Accounts 2019Accounts 27 Trade and other payables
Group
Parent company
2019
£ million
2018
Restated1
£ million
2019
£ million
2018
Restated1
£ million
Current
Trade payables
Contract liabilities
Amounts payable to subsidiaries
Accruals
Amounts payable under precious metal sale and repurchase agreements
Other payables
637
85
–
332
525
68
597
59
–
269
222
81
Current trade and other payables
1,647
1,228
Non-current
Amounts payable to subsidiaries
Other payables
Non-current other payables
1 See note 39.
–
5
5
–
5
5
229
17
1,734
112
483
21
2,596
486
3
489
205
13
2,152
97
198
28
2,693
489
3
492
The fair value of the precious metal contracted to be repurchased by the group under sale and repurchase agreements is £502 million
(2018: £216 million).
28 Provisions
Group
At 1st April 2018
Charge for the year
Utilised
Released
Exchange adjustments
At 31st March 2019
Current
Non-current
Total provisions
Restructuring
provisions
£ million
Warranty and
technology
provisions
£ million
Other
provisions
£ million
Total
£ million
15
–
(8)
(4)
–
3
9
3
(1)
(1)
–
10
27
2
(14)
(1)
2
16
51
5
(23)
(6)
2
29
2019
£ million
2018
£ million
20
9
29
37
14
51
The restructuring provisions are expected to be fully utilised by 31st March 2020.
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 lease 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.
During the prior year, the group 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 2019, there is a provision of £9 million (2018: £18 million) in respect of this
settlement agreement which is estimated to be fully utilised by 31st March 2020.
193
Notes on the accounts continuedfor the year ended 31st March 2019AccountsJohnson MattheyAnnual Report and Accounts 2019
28 Provisions (continued)
Parent company
At 1st April 2018
Charge for the year
Utilised
At 31st March 2019
Current
Non-current
Total provisions
Restructuring
provisions
£ million
Other
provisions
£ million
Total
£ million
4
–
(3)
1
18
7
(2)
23
22
7
(5)
24
2019
£ million
2018
£ million
23
1
24
5
17
22
The restructuring provisions are expected to be fully utilised by 31st March 2020.
The other provisions include onerous contracts 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.
29 Deferred taxation
Group
Property,
plant and
equipment
£ million
Post-
employment
benefits
£ million
Provisions
£ million
Inventories
£ million
Intangibles
£ million
Other
£ million
Total
deferred tax
(assets) /
liabilities
£ million
At 1st April 2017
(Credit) / charge to the income statement
Tax on items taken directly to or
transferred from equity
Exchange adjustments
At 31st March 2018
Charge / (credit) to the income statement
Disposal of businesses (note 5)
Tax on items taken directly to or
transferred from equity
Exchange adjustments
At 31st March 2019
54
(29)
–
(4)
21
8
–
–
1
30
–
(3)
31
2
30
7
–
(13)
(1)
23
(22)
(5)
–
2
(25)
1
–
–
(1)
(25)
(13)
2
–
1
(10)
(8)
–
–
–
(18)
34
(11)
–
(2)
21
(1)
–
–
1
21
Deferred tax assets
Deferred tax liabilities
34
(24)
–
(1)
9
(9)
1
–
1
2
87
(70)
31
(2)
46
(2)
1
(13)
1
33
2019
£ million
2018
£ million
(58)
91
33
(48)
94
46
Deductible temporary differences, unused tax losses and unused tax credits not recognised on the balance sheet total £157 million (2018:
£147 million), of which £25 million is expected to expire within 5 years, £12 million within 5 to10 years, £20 million after 10 years and
£100 million carry no expiry date.
Deferred tax liabilities have not been recognised on temporary differences of £1,672 million (2018: £1,416 million) associated with
investments in subsidiaries.
194
Notes on the accounts continuedfor the year ended 31st March 2019Johnson MattheyAnnual Report and Accounts 2019Accounts
29 Deferred taxation (continued)
Parent company
At 1st April 2017
(Credit) / charge to the income statement
Tax on items taken directly to or transferred
from equity
At 31st March 2018
Charge / (credit) to the income statement
Tax on items taken directly to or transferred
from equity
At 31st March 2019
Property,
plant and
equipment
£ million
Post-
employment
benefits
£ million
Provisions
£ million
Inventories
£ million
Intangibles
£ million
Other
£ million
2
(6)
–
(4)
5
–
1
25
3
17
45
6
(11)
40
(1)
(1)
–
(2)
1
–
(1)
(7)
2
–
(5)
(6)
–
(11)
–
–
–
–
1
–
1
8
1
–
9
(1)
1
9
Total
deferred tax
(assets) /
liabilities
£ million
27
(1)
17
43
6
(10)
39
Deductible temporary differences, unused tax losses and unused tax credits not recognised on the balance sheet are £2 million
(2018: £2 million) and have no expiry date.
30 Post-employment benefits
Group
Background
Pension plans
The group operates a number of post-employment retirement and medical benefit plans around the world. 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.
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.
195
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30 Post-employment benefits (continued)
Group (continued)
Background (continued)
Benefits
The UK defined benefit 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 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 majority of the benefits attract
inflation-related increases both before and after retirement. 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.
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. All new employees join the cash balance section of the plan.
During the year, employees in the career average element of the legacy section were given the option of switching to the cash balance
section, with 57% electing to switch.
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 2019 are:
Pensions:
UK
US
Post-retirement medical benefits:
UK
US
Funding
Introduction
Weighted
average
duration
Years
20
12
12
14
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.
196
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30 Post-employment benefits (continued)
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,
Employee Benefits, accounting purposes.
In January 2013, a special purpose vehicle (SPV), Johnson Matthey (Scotland) Limited Partnership, was set up to provide deficit reduction
contributions and 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 on a funding basis. This bond portfolio is held as a
non-current investment at fair value through other comprehensive income (note 21) 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.
A funding valuation of JMEPS was carried out as at 1st April 2018 and showed that there was a deficit of £34 million in the legacy section of
the plan. To address this deficit, the parent company agreed to make a contribution of £23 million prior to 31st December 2019, of which
£6 million was paid during the year ended 31st March 2019. At 31st March 2018, £43 million remained available within the SPV for future
distribution which created an overall surplus of £9 million in the legacy section of the plan at that date. The valuation also showed a surplus
in the cash balance section of the plan.
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 2018 and showed that
there was a deficit of $3 million on the projected funding basis. To address this deficit, the parent company made a contribution of $3 million
in November 2018. 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.
197
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30 Post-employment benefits (continued)
Group (continued)
Funding (continued)
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
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.
Liabilities are sensitive to movements in
inflation, with higher inflation leading to an
increase in the valuation of liabilities.
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.
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. During the year ended 31st March 2019, 57%
of the members of the career average element of the legacy section of JMEPS elected to
switch to the cash balance section as part of a pension plan review.
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 £75 million (2018: £69 million), including
deficit contributions of £23 million (2018: £23 million) in respect of JMEPS.
It is estimated that the group will contribute approximately £67 million to the post-employment defined benefit plans during the year
ending 31st March 2020.
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 2019. 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.
198
Notes on the accounts continuedfor the year ended 31st March 2019Johnson MattheyAnnual Report and Accounts 2019Accounts
30 Post-employment benefits (continued)
Group (continued)
IAS 19 accounting (continued)
Principal actuarial assumptions (continued)
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
Demographic assumptions
2019
UK plan
%
2019
US plans
%
2019
Other plans
%
2018
UK plan
%
2018
US plans
%
2018
Other plans
%
3.85
3.85
2.95
2.40
3.10
2.10
5.40
5.40
3.00
3.00
–
3.80
2.20
2.95
2.95
2.45
2.45
1.50
1.82
1.60
–
–
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
–
–
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
Financial information
Plan assets
Movements in the fair value of plan assets during the year were:
Currently age 65
Age 65 in 25 years
UK plan
US plans
UK plan
US plans
87
89
86
88
89
91
88
90
At 1st April 2017
Administrative expenses
Interest income
Return on plan assets excluding interest
Employee contributions
Company contributions
Benefits paid
Exchange adjustments
At 31st March 2018
Administrative expenses
Interest income
Return on plan assets excluding interest
Employee contributions
Company contributions
Benefits paid
Exchange adjustments
At 31st March 2019
UK pension –
legacy section
£ million
UK pension –
cash balance
section
£ million
UK post-
retirement
medical
benefits
£ million
US post-
retirement
medical
benefits
£ million
US
pensions
£ million
Other
£ million
Total
£ million
1,916
–
50
(11)
2
44
(66)
–
1,935
(3)
53
68
2
36
(66)
–
2,025
32
–
1
–
1
12
(2)
–
44
–
1
3
5
18
(3)
–
68
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
292
(1)
11
8
1
10
(15)
(34)
272
(1)
11
7
1
16
(16)
21
311
–
–
–
–
1
1
(2)
–
–
–
–
–
1
2
(3)
–
–
47
–
1
(2)
–
2
(2)
1
47
–
1
4
–
3
(2)
(1)
52
2,287
(1)
63
(5)
5
69
(87)
(33)
2,298
(4)
66
82
9
75
(90)
20
2,456
199
Notes on the accounts continuedfor the year ended 31st March 2019AccountsJohnson MattheyAnnual Report and Accounts 2019
30 Post-employment benefits (continued)
Group (continued)
Financial information (continued)
Plan assets (continued)
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
2019
UK
pension –
legacy section
£ million
2019
UK
pension –
cash balance
section
£ million
2019
2019
2018
US pensions
£ million
Other
£ million
UK
pension –
legacy section
£ million
2018
UK
pension –
cash balance
section
£ million
2018
2018
US pensions
£ million
Other
£ million
1,089
86
20
43
680
42
65
–
2,025
67
–
–
1
–
–
–
–
68
156
–
110
12
33
–
–
–
311
5
–
–
–
2
–
–
45
52
1,050
63
22
59
630
47
64
–
1,935
43
–
–
1
–
–
–
–
44
137
–
87
–
48
–
–
–
272
5
–
–
–
2
–
–
40
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.
Defined benefit obligation
Movements in the defined benefit obligation during the year were:
At 1st April 2017
Current service cost
Past service credit
Interest cost
Employee contributions
Remeasurements due to changes in:
Financial assumptions
Demographic assumptions
Benefits paid
Exchange adjustments
At 31st March 2018
Current service cost
Past service credit
Interest cost
Employee contributions
Remeasurements due to changes in:
Financial assumptions
Demographic assumptions
Benefits paid
Exchange adjustments
UK pension –
legacy section
£ million
UK pension –
cash balance
section
£ million
UK post-
retirement
medical
benefits
£ million
US post-
retirement
medical
benefits
£ million
US
pensions
£ million
Other
£ million
(1,808)
(28)
4
(47)
(2)
91
14
66
–
(1,710)
(12)
7
(46)
(2)
(132)
3
66
–
(33)
(13)
–
(1)
(1)
2
1
2
–
(43)
(17)
–
(2)
(5)
(6)
1
3
–
(10)
–
–
–
–
–
1
–
–
(9)
–
–
–
–
–
–
–
–
(312)
(8)
–
(12)
(1)
(7)
(2)
15
35
(292)
(8)
2
(12)
(1)
(5)
(3)
16
(23)
(42)
(1)
–
(2)
(1)
4
1
2
5
(34)
–
–
(1)
(1)
(1)
1
3
(4)
(82)
(3)
1
(2)
–
3
–
2
(1)
(82)
(3)
–
(2)
–
(9)
1
2
2
Total
£ million
(2,287)
(53)
5
(64)
(5)
93
15
87
39
(2,170)
(40)
9
(63)
(9)
(153)
3
90
(25)
At 31st March 2019
(1,826)
(69)
(9)
(326)
(37)
(91)
(2,358)
200
Notes on the accounts continuedfor the year ended 31st March 2019Johnson MattheyAnnual Report and Accounts 2019Accounts
30 Post-employment benefits (continued)
Group (continued)
Financial information (continued)
Defined benefit obligation (continued)
The past service credit in the legacy section of the UK pension plan during the year ended 31st March 2019 includes a credit of £8 million
as a result of the breaking of the salary linkage on the accrued pensions of employees who elected to switch from the career average section
to the cash balance section with effect from 1st July 2018. It also includes a charge of £1 million in respect of a High Court ruling that UK
defined benefit pension plans should be amended to equalise pension benefits for men and women in relation to guaranteed minimum
pensions. The additional liabilities have been treated as a plan amendment and, therefore, this past service cost has been reflected in the
income statement.
The remeasurement loss due to changes in financial assumptions in the legacy section of the UK pension plan during the year ended 31st
March 2019 mainly reflects a 40 basis-point decrease in the real (after inflation) discount rate caused by falling corporate bond yields and
rising 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:
UK pension –
legacy section
£ million
UK pension –
cash balance
section
£ million
UK post-
retirement
medical
benefits
£ million
US post-
retirement
medical
benefits
£ million
US
pensions
£ million
Other
£ million
Total
£ million
At 1st April 2017 and 1st April 2018
Return on assets excluding interest
Exchange adjustments
At 31st March 2019
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
8
(1)
1
8
1
–
–
1
9
(1)
1
9
Net post-employment benefit asset and liabilities
The net post-employment benefit assets and liabilities are:
UK pension –
legacy section
£ million
UK pension –
cash balance
section
£ million
UK post-
retirement
medical
benefits
£ million
US post-
retirement
medical
benefits
£ million
US
pensions
£ million
Other
£ million
Total
£ million
At 31st March 2019
Defined benefit obligation
Fair value of plan assets
Reimbursement rights
(1,826)
2,025
–
Net post-employment benefit assets and liabilities
199
At 31st March 2018
Defined benefit obligation
Fair value of plan assets
Reimbursement rights
(1,710)
1,935
–
Net post-employment benefit assets and liabilities
225
(69)
68
–
(1)
(43)
44
–
1
(9)
–
–
(9)
(9)
–
–
(9)
(326)
311
–
(15)
(292)
272
–
(20)
(37)
–
8
(29)
(34)
–
8
(26)
(91)
52
1
(38)
(82)
47
1
(34)
(2,358)
2,456
9
107
(2,170)
2,298
9
137
201
Notes on the accounts continuedfor the year ended 31st March 2019AccountsJohnson MattheyAnnual Report and Accounts 2019
30 Post-employment benefits (continued)
Group (continued)
Financial information (continued)
Net post-employment benefit asset and liabilities (continued)
These are included in the balance sheet as follows:
UK pension – legacy section
UK pension – cash balance section
UK post-retirement medical benefits
US pensions
US post-retirement medical benefits
Other
Total post-employment plans
Other long-term employee benefits
Total long-term employee benefit obligations
2019
Post-
employment
benefit
net assets
£ million
2019
2019
Employee
benefit net
obligation
£ million
Total
£ million
2018
Post-
employment
benefit
net assets
£ million
2018
2018
Employee
benefit net
obligation
£ million
Total
£ million
199
(1)
(9)
(15)
(29)
(38)
107
225
1
–
–
8
2
236
199
–
–
–
8
2
209
–
(1)
(9)
(15)
(37)
(40)
(102)
(4)
(106)
225
1
(9)
(20)
(26)
(34)
137
–
–
(9)
(20)
(34)
(36)
(99)
(4)
(103)
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
2019
£ million
2018
£ million
(4)
(40)
9
(35)
(21)
–
(56)
3
(53)
(1)
(53)
5
(49)
(19)
(1)
(69)
(1)
(70)
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.
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 2019 as follows:
Effect of discount rate
Effect of inflation
Demographic assumptions
0.1% increase
0.1% decrease
UK plan
£ million
US plans
£ million
UK plan
£ million
US plans
£ million
37
(34)
4
–
(38)
20
(4)
–
A one-year increase in life expectancy would increase the UK and US pension plans’ defined benefit obligation by £63 million and £6
million, respectively.
202
Notes on the accounts continuedfor the year ended 31st March 2019Johnson MattheyAnnual Report and Accounts 2019Accounts
30 Post-employment benefits (continued)
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 above.
31 Share capital and other reserves
Share capital
Issued and fully paid ordinary shares
At 1st April 2017, 31st March 2018 and 31st March 2019
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 34.
At the last annual general meeting on 26th July 2018, 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 110 49/53 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 2019, the ESOT held 1,439,984 shares (2018:
1,560,224 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 (2018: 5,407,176) at a total cost of £92 million (2018: £92 million).
Dividends
2016/17 final ordinary dividend paid – 54.5 pence per share
2017/18 interim ordinary dividend paid – 21.75 pence per share
2017/18 final ordinary dividend paid – 58.25 pence per share
2018/19 interim ordinary dividend paid – 23.25 pence per share
Total dividends
2019
£ million
2018
£ million
–
–
112
44
156
104
42
–
–
146
A final dividend of 62.25 pence per ordinary share has been proposed by the board which will be paid on 6th August 2019 to shareholders
on the register at the close of business on 7th June 2019, subject to shareholders’ approval. The estimated amount to be paid is £120 million
and has not been recognised in these accounts.
Other reserves
Capital redemption reserve: The capital redemption reserve represents the cumulative nominal value of the company’s ordinary shares
repurchased and subsequently cancelled.
Foreign currency translation reserve: The foreign currency translation reserve comprises all foreign currency differences arising from the
translation of the financial statements of foreign operations.
Fair value through other comprehensive income reserve: The fair value through other comprehensive income reserve represents the
equity movements on financial assets held within this category.
Hedging reserve: The hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging
instruments. All amounts recorded in reserves at year end in relation to cash flow and net investment hedges relate to continuing hedge
relationships.
203
Notes on the accounts continuedfor the year ended 31st March 2019AccountsJohnson MattheyAnnual Report and Accounts 2019
31 Share capital and other reserves (continued)
Other reserves (continued)
Group
Hedging reserve1
Capital
redemption
reserve
£ million
Foreign
currency
translation
reserve
£ million
Fair value
through other
comprehensive
income
reserve
£ million
Forward
currency
contracts
£ million
Cross
currency
contracts
£ million
Forward
metal
contracts
£ million
Total
other
reserves
£ million
7
–
–
–
–
–
–
–
7
–
7
–
–
–
–
–
–
–
–
–
7
144
–
–
–
–
6
(95)
1
56
–
56
–
–
–
–
(1)
–
22
1
4
82
7
–
–
–
–
–
–
–
7
(1)
6
–
–
–
–
–
(4)
–
–
–
2
(4)
5
3
–
(2)
–
–
(1)
1
–
1
(4)
1
–
1
–
–
–
–
–
(6)
(10)
–
10
–
–
–
–
(6)
–
(6)
7
–
(5)
–
–
–
–
–
–
(1)
(4)
(1)
(3)
–
–
2
–
–
–
(2)
–
(2)
1
–
–
3
–
–
–
(1)
–
1
147
(8)
3
10
–
6
(95)
–
63
(1)
62
4
1
(5)
4
(1)
(4)
22
–
4
87
At 1st April 2017
Cash flow hedges – gains / (losses) taken to equity
Cash flow hedges – transferred to revenue
(income statement)
Cash flow hedges – transferred to foreign exchange
(income statement)
Cash flow hedges – transferred to inventory
(balance sheet)
Fair value gains on net investment hedges taken
to equity
Exchange differences on translation of foreign
operations taken to equity
Tax on above items taken directly to or transferred
from equity
At 31st March 2018
Impact of adoption of IFRS 9 (note 39)
At 31st March 2018 (restated)
Cash flow hedges – (losses) / gains taken to equity
Cash flow hedges – transferred to revenue
(income statement)
Cash flow hedges – transferred to foreign exchange
(income statement)
Cash flow hedges – transferred to inventory
(balance sheet)
Fair value losses on net investment hedges taken
to equity
Fair value losses on investments at fair value
through other comprehensive income
Exchange differences on translation of foreign
operations taken to equity
Tax on above items taken directly to or transferred
from equity
Reclassification
At 31st March 2019
1 2018 re-presented to separately analyse the individual components of the hedging reserve.
204
Notes on the accounts continuedfor the year ended 31st March 2019Johnson MattheyAnnual Report and Accounts 2019Accounts
31 Share capital and other reserves (continued)
Other reserves (continued)
Parent company
Hedging reserve1
Capital
redemption
reserve
£ million
Foreign
currency
translation
reserve
£ million
Fair value
through other
comprehensive
income
reserve
£ million
Forward
currency
contracts
£ million
At 1st April 2017
Cash flow hedges – gains / (losses) taken to equity
Cash flow hedges – transferred to revenue
(income statement)
Cash flow hedges – transferred to foreign exchange
(income statement)
Cash flow hedges – transferred to inventory
(balance sheet)
Exchange differences on translation of foreign
operations taken to equity
At 31st March 2018
Cash flow hedges – (losses) / gains taken to equity
Cash flow hedges – transferred to revenue
(income statement)
Cash flow hedges – transferred to foreign exchange
(income statement)
Cash flow hedges – transferred to inventory
(balance sheet)
Tax on items taken directly to or transferred from
equity
Reclassification
At 31st March 2019
7
–
–
–
–
–
7
–
–
–
–
–
–
7
(1)
–
–
–
–
(3)
(4)
–
–
–
–
–
4
–
3
–
–
–
–
–
3
–
–
–
–
–
–
3
(3)
3
3
–
(1)
–
2
(2)
1
–
–
–
–
1
1 2018 re-presented to separately analyse the individual components of the hedging reserve.
Capital
Cross
currency
contracts
£ million
(6)
(10)
–
10
–
–
(6)
7
–
(5)
–
–
–
(4)
Forward
metal
contracts
£ million
(1)
(3)
–
–
2
–
(2)
1
–
–
3
(1)
–
1
Total
other
reserves
£ million
(1)
(10)
3
10
1
(3)
–
6
1
(5)
3
(1)
4
8
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.
Return on invested capital (ROIC)
Definition: Underlying operating profit divided by average equity, excluding post tax pension net assets, plus net debt for the same period.
Purpose: The group has a long-term target of a return on invested capital of 20% to ensure focus on efficient use of the group’s capital.
Underlying operating profit (note 4)
Average net debt
Average equity
Average capital employed
Less: Average pension net assets
Less: Average related deferred taxation
Average capital employed (excluding post tax pension net assets)
ROIC (excluding post tax pension net assets)
ROIC
2019
£ million
2018
£ million
566
1,128
2,541
3,669
(251)
41
525
923
2,276
3,199
(125)
14
3,459
3,088
16.4%
17.0%
15.4%
16.4%
205
Notes on the accounts continuedfor the year ended 31st March 2019AccountsJohnson MattheyAnnual Report and Accounts 2019
31 Share capital and other reserves (continued)
Net debt (including post tax pension deficits) to underlying EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation)
Definition: Net debt, including post tax pension deficits and quoted bonds purchased to fund the UK pension (excluded when the UK
pension plan is in surplus), divided by underlying EBITDA for the same period.
Purpose: The group has a long-term target of net debt (including post tax pension deficits) to underlying EBITDA of between 1.5 and
2.0 times, although in any given year it may fall outside this range depending on future plans.
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.
Net debt
Add: Pension deficits
Add: Related deferred tax
Net debt (including post tax pension deficits)
Operating profit
Add back:
Depreciation and amortisation
Loss on disposal of businesses (note 5)
Loss on significant legal proceedings (note 6)
Major impairment and restructuring charges (note 8)
Underlying EBITDA
Net debt (including post tax pension deficits) to underlying EBITDA
2019
£ million
2018
£ million
(866)
(56)
10
(912)
531
171
12
17
(8)
723
1.3
(679)
(56)
10
(725)
359
175
7
50
90
681
1.1
32 Financial risk management
The group’s activities expose it 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 financial risks are managed by the group under policies approved by the board. The group
uses derivative financial instruments, including forward currency contracts, interest rate swaps and currency swaps, to manage the financial
risks associated with its 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 at fair value through profit or loss. The group does not
undertake any speculative trading activity in financial instruments.
Credit risk
Within certain businesses, the group derives a significant proportion of its revenue from sales to major customers. Sales to individual
customers are large 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 results. The group derives significant benefit from trading with its customers and manages 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 overdue within the group, and the relevant actions being taken. At 31st March 2019,
trade receivables for the group amounted to £1,204 million (2018: £1,049 million), of which £928 million (2018: £799 million) are in
Clean Air which mainly supplies car and truck manufacturers and component suppliers in the automotive industry. Although Clean Air has a
wide range of 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 2019, no single
outstanding balance exceeded 2% (2018: 2%) of revenue.
The credit profiles of the group’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. The group’s exposure to credit risk is influenced mainly by the individual
characteristics of each customer. However, risk associated with the industry and country in which customers operate may also influence the
credit risk. The credit quality of customers is assessed by taking into account financial position, past experience and other relevant factors.
Generally, payments are made promptly in the automotive industry and in the other markets in which the group operates.
From 1st April 2018, the group has applied the simplified approach to measuring expected credit losses under IFRS 9, Financial
Instruments, which requires lifetime expected credit losses to be recognised from initial recognition for trade and contract receivables.
Lifetime expected credit losses for trade and contract receivables are calculated based on historical loss rates and the group reviews a broad
range of forward-looking information to provide assurance that its historical loss information remains appropriate. Trade receivables are
specifically 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. They are written off when there is no reasonable expectation of recovery, based on an estimate of the
financial position of the counterparty.
206
Notes on the accounts continuedfor the year ended 31st March 2019Johnson MattheyAnnual Report and Accounts 2019Accounts
32 Financial risk management (continued)
Credit risk (continued)
Movements in the allowance for credit losses are as follows:
At 1st April
Charge for the year
Utilised
Released
At 31st March
2019
£ million
2018
£ million
9
9
(2)
(1)
15
6
5
–
(2)
9
For contract receivables, the allowance for expected credit losses is immaterial as the probability of default is insignificant.
Trade receivables can be analysed as:
Amounts not past due
Amounts past due:
less than 30 days
30 – 90 days
more than 90 days
Total past due
Lifetime expected credit losses
Amounts specifically impaired
Specific allowances for bad and doubtful debts
Carrying amount of impaired receivables
Trade receivables net of allowances
2019
£ million
1,094
2018
£ million
966
80
23
10
113
(3)
12
(12)
–
62
19
2
83
–
9
(9)
–
1,204
1,049
The group’s financial assets included in other receivables are all current and not impaired.
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 each
bank’s credit rating and credit default swap prices. At 31st March 2019, the maximum net exposure with a single bank for cash and deposits
was £30 million (2018: £67 million), whilst the largest mark to market exposure for derivative financial instruments to a single bank was
£7 million (2018: £3 million). The group also uses money market funds to invest surplus cash thereby further diversifying credit risk and, at
31st March 2019, the group’s exposure to these funds was £347 million (2018: £171 million). The amounts on deposit at the year end
represent the group’s maximum exposure to credit risk on cash and deposits. Expected credit losses on cash and cash equivalents are immaterial.
Foreign currency risk
The group operates globally with a significant amount of its profit earned outside the UK. The main impact of movements in exchange rates on
the group’s results arises on translation of overseas subsidiaries’ profits into sterling. The largest exposure is to the US dollar and a 5% (6.6 cent
(2018: 6.6 cent)) movement in the average exchange rate for the US dollar against sterling would have had a £13 million (2018: £11 million)
impact on underlying operating profit. The group is also exposed to the euro and a 5% (5.7 cent (2018: 5.7 cent)) movement in the average
exchange rate for the euro against sterling would have had a £12 million (2018: £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.
The group matches foreign currency assets and liabilities (where these differ to the functional currency of the relevant subsidiary) to avoid
the risk of a material impact on the income statement resulting from movements in exchange rates. The group does, however, have foreign
exchange exposure on movements through equity related to cash flow and net investment hedges. A 10% depreciation or appreciation in
the US dollar and euro exchange rates against sterling would increase / (decrease) other reserves as follows:
Cash flow hedges
Net investment hedges
10% depreciation
10% appreciation
2019
£ million
2018
£ million
2019
£ million
2018
£ million
6
20
8
21
(7)
(25)
(9)
(25)
For the net investment hedges, these movements would be offset in other reserves by an equal and opposite movement on the retranslation
of the net assets of the overseas subsidiaries.
207
Notes on the accounts continuedfor the year ended 31st March 2019AccountsJohnson MattheyAnnual Report and Accounts 2019
32 Financial risk management (continued)
Foreign currency risk (continued)
Investments in foreign operations
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.
The group has designated US dollar and euro loans and a cross currency swap as hedges of net investments in foreign operations as they
hedge changes in the value 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. All critical terms of the hedging instruments and hedged items
matched during the year and, therefore, hedge ineffectiveness was immaterial. The hedge ratio is 1:1.
Carrying value of hedging instruments at 31st March 2019
Change in carrying value of hedging instruments recognised in equity during the year
Change in fair value of hedged items during the year used to determine hedge effectiveness
US dollar and
euro loans1
£ million
Cross currency
swap2
£ million
(158)
(3)
3
(5)
2
(2)
Total
£ million
(163)
(1)
1
1 The designated hedging instruments are the 4.66% €100 million Bonds 2021, $75 million of the 3.26% $150 million Bonds 2022 and €17 million of the 2.44%
€20 million Bonds 2023.
2 The designated hedging instrument is a cross currency swap expiring in 2025 whereby the group pays 2.609% fixed on €77 million and receives 2.83% fixed on £65 million.
Forecast receipts and payments in foreign currencies
The group uses forward foreign 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 group’s policy is to hedge between 50% and 80%
of forecast receipts and payments in foreign currencies.
For hedges of forecast receipts and payments in foreign currencies, the critical terms of the hedging instruments match exactly with the
terms of the hedged items and, therefore, the group performs a qualitative assessment of effectiveness. Ineffectiveness may arise if the
timing of the forecast transaction changes from what was originally estimated or if there are changes in the credit risk of the group or the
derivative counterparty. Hedge ineffectiveness was immaterial during the year. The hedge ratio is 1:1.
Carrying value of hedging instruments at 31st March 2019 – assets
– liabilities
Change in carrying value of hedging instruments recognised in equity during the year
Change in fair value of hedged items during the year used to determine hedge effectiveness
Notional amount1
Sterling /
US dollar
£ million
Sterling /
euro
£ million
Other
£ million
Total
£ million
1
(1)
(3)
3
34
2
(1)
1
(1)
106
2
(1)
(2)
2
5
(3)
(4)
4
1 The notional amount is the sterling equivalent of the net currency amount purchased or sold.
The weighted average exchange rates on sterling / US dollar and sterling / euro forward foreign exchange contracts are 1.33 and 1.14, respectively.
The hedged, highly probable forecast transactions denominated in foreign currencies are expected to occur over the next 12 months.
Foreign currency borrowings
The group has designated a US dollar fixed interest rate to sterling fixed interest rate cross currency swap as a cash flow hedge. This swap
hedges the movement in the cash flows on $100 million of the 3.14% $130 million bonds 2025 attributable to changes in the US dollar /
sterling exchange rate. The currency swap has similar critical terms as the hedged item, such as reference rate, reset dates, payment dates,
maturity and notional amount. As all critical terms matched during the year, hedge ineffectiveness was immaterial. The hedge ratio is 1:1.
The interest element of the swap is recognised in the income statement each year.
Carrying value of hedging instruments at 31st March 20191
Change in carrying value of hedging instruments recognised in equity during the year
Change in fair value of hedged items during the year used to determine hedge effectiveness
Cross currency swap
£ million
8
7
(7)
1 The designated hedging instrument is a cross currency swap expiring in 2025 whereby the group pays 2.83% fixed on £65 million and receives 3.14% fixed on $100 million.
208
Notes on the accounts continuedfor the year ended 31st March 2019Johnson MattheyAnnual Report and Accounts 2019Accounts
32 Financial risk management (continued)
Interest rate risk
The group’s interest rate risk arises from fixed rate borrowings (fair value risk) and floating rate borrowings (cash flow risk). Its policy is to
optimise interest cost and reduce volatility in reported earnings and equity. The group manages its risk by reviewing the profile of debt
regularly and by selectively using interest rate swaps to maintain borrowings at competitive rates. At 31st March 2019, 94% (2018: 99%) of
the group’s net debt was at fixed rates with an average interest rate of 3.1% (2018: 3.1%). The remaining debt is floating rate. Based on the
group’s net debt at floating rates, after taking into account the effect of the swaps, a 1% change in all interest rates during the current or
prior years would have had an immaterial impact on the group’s profit before tax.
The group has designated four (2018: one) fixed rate to floating interest rate swaps as fair value hedges as they hedge the changes in fair
value of bonds attributable to changes in interest rates. All hedging instruments have maturities in line with the repayment dates of the
hedged bonds and the cash flows of the instruments are consistent. All critical terms of the hedging instruments and hedged items matched
during the year and, therefore, hedge ineffectiveness was immaterial. The hedge ratio is 1:1.
Carrying value of hedging instruments at 31st March 20191
Amortised cost
Fair value adjustment
Carrying value of hedged items at 31st March 20191
Change in carrying value of hedging instruments recognised in profit or loss during the year
Change in fair value of hedged items during the year used to determine hedge effectiveness
£ million
5
(259)
(5)
(264)
6
(6)
1 The hedged items are the 3.26% $150 million Bonds 2022, 1.40% €77 million Bonds 2025 and 1.81% €90 million Bonds 2028. Interest rate swaps have been contracted
with aligned notional amounts and maturities to the bonds with the effect that the group pays an average floating rate of six-month Libor plus 0.64% on the US dollar
bonds and six-month Euribor plus 0.94% on the euro bonds.
Price risk
The group enters into forward precious metal price contracts for the receipt or delivery of precious metal. The group has policies in place
to ensure that sales and purchases are matched and, therefore, that it is not exposed to price risk in respect of these contracts.
Liquidity risk
The group’s policy on funding capacity is to ensure that it always has sufficient long-term funding and committed bank facilities in place
to meet foreseeable peak borrowing requirements. At 31st March 2019, the group had borrowings under committed bank facilities of £nil
(2018: £nil). The group also has a number of uncommitted facilities and overdraft lines at its disposal.
Undrawn committed bank facilities
Expiring in more than one year but not more than two years
Expiring in more than two years
2019
£ million
2018
£ million
175
422
597
362
148
510
The maturity analyses for financial liabilities showing the remaining contractual undiscounted cash flows, including future interest
payments, at current year exchange rates and assuming floating interest rates remain at the latest fixing rates are:
At 31st March 2019
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
Forward foreign exchange contracts – payments
Forward foreign exchange contracts – receipts
Currency swaps – payments
Currency swaps – receipts
Cross currency interest rate swaps – payments
Cross currency interest rate 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
59
184
31
1,562
1,836
227
(223)
612
(602)
2
(2)
14
–
131
27
1
159
–
–
–
–
2
(2)
–
–
403
59
2
464
–
–
–
–
4
(5)
(1)
–
529
36
–
565
–
–
–
–
68
(67)
1
59
1,247
153
1,565
3,024
227
(223)
612
(602)
76
(76)
14
209
Notes on the accounts continuedfor the year ended 31st March 2019AccountsJohnson MattheyAnnual Report and Accounts 2019
32 Financial risk management (continued)
Liquidity risk (continued)
At 31st March 2018
Bank overdrafts
Bank and other loans – principal2
Bank and other loans – interest payments2
Financial liabilities in trade and other payables
Total non-derivative financial liabilities
Forward foreign exchange contracts – payments
Forward foreign exchange contracts – receipts
Currency swaps – payments
Currency swaps – receipts
Cross currency interest rate swaps – payments
Cross currency interest rate swaps – receipts
Total derivative financial liabilities2
1 See note 39.
2 2018 re-presented to separately analyse swaps.
Offsetting financial assets and liabilities
Within 1 year
Restated1
£ million
1 to 2 years
2 to 5 years
After 5 years
£ million
£ million
£ million
70
36
27
1,169
1,302
185
(182)
551
(545)
18
(16)
11
–
109
25
1
135
–
–
28
(28)
2
(2)
–
–
375
57
2
434
–
–
–
–
4
(5)
(1)
–
455
35
–
490
–
–
–
–
70
(69)
1
Total
Restated1
£ million
70
975
144
1,172
2,361
185
(182)
579
(573)
94
(92)
11
The group offsets financial assets and liabilities when it currently has a legally enforceable right to offset the recognised amounts and it
intends 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:
As at 31st March 2019
Non-current interest rate swaps
Cash and cash equivalents – cash and deposits
Other financial assets
Cash and cash equivalents – bank overdrafts
Other financial liabilities
Non-current borrowings and related swaps
As at 31st March 2018
Cash and cash equivalents – cash and deposits
Other financial assets
Cash and cash equivalents – bank overdrafts
Other financial liabilities
Gross
financial
assets /
(liabilities)
£ million
13
95
22
(64)
(13)
(1,073)
Gross
financial
assets /
(liabilities)
Restated1
£ million
207
15
(74)
(12)
Amounts
set off
£ million
Net amounts
in balance
sheet
£ million
Related
amounts
not set off
£ million
–
(5)
–
5
–
–
13
90
22
(59)
(13)
(1,073)
(5)
–
(10)
–
10
5
Amounts
set off
Restated1
£ million
Net amounts
in balance
sheet
Restated1
£ million
Related
amounts
not set off
£ million
(4)
–
4
–
203
15
(70)
(12)
–
(7)
–
7
Net
£ million
8
90
12
(59)
(3)
(1,068)
Net
Restated1
£ million
203
8
(70)
(5)
1 See note 39. The gross amounts of cash and deposits and bank overdrafts have also been decreased by an additional £18 million as part of the same restatement.
210
Notes on the accounts continuedfor the year ended 31st March 2019Johnson MattheyAnnual Report and Accounts 2019Accounts
33 Fair values
Fair value of financial instruments
Certain of the group’s financial instruments are held at fair value. The fair value of a financial instrument is the price that would be received
to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the balance sheet date.
Fair value hierarchy
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).
The fair value of forward foreign exchange contracts, interest rate swaps, forward precious metal price contracts and currency swaps is
estimated by discounting the future contractual cash flows using forward exchange rates, interest rates and prices at the balance sheet date.
The fair value of money market funds is calculated by multiplying the net asset value per share by the investment held at the balance sheet date.
There were no transfers of any financial instrument between the levels of the fair value hierarchy during the current or prior years.
Financial instruments measured at fair value
Non-current
Quoted bonds purchased to fund pension deficit
Unquoted investments
Investments at fair value through other comprehensive income
Interest rate swaps
Borrowings and related swaps
Current
Trade receivables2
Other receivables3
Cash and cash equivalents – money market funds
Other financial assets
Other borrowings and related swaps
Other financial liabilities
Financial instruments not measured at fair value
Non-current
Borrowings and related swaps
Current
Cash and cash equivalents – cash and deposits
Cash and cash equivalents – bank overdrafts
Other borrowings and related swaps
1 See note 39.
2 Trade receivables held in a part of the group with a business model to hold trade receivables for collection or sale.
3 Other receivables with cash flows that do not represent solely the payment of principal and interest.
2019
£ million
2018
Restated1
£ million
Fair value
hierarchy
Level
Note
52
–
52
13
(5)
173
9
347
22
–
(13)
53
3
56
6
(8)
160
10
171
15
(2)
(12)
(1,068)
(943)
90
(59)
(184)
203
(70)
(36)
1
3
2
2
2
2
2
2
2
2
21
24
24
23
23
24
26
24
26
24
24
24
24
211
Notes on the accounts continuedfor the year ended 31st March 2019AccountsJohnson MattheyAnnual Report and Accounts 2019
33 Fair values (continued)
The fair value of financial instruments, excluding accrued interest, is approximately equal to book value except for:
US Dollar Bonds 2022, 2023, 2025 and 2028
Euro Bonds 2021, 2023, 2025 and 2028
Euro EIB loan 2019
Sterling Bonds 2024 and 2025
KfW US dollar loan 2024
2019
2018
Carrying
amount
£ million
Fair
value
£ million
Carrying
amount
£ million
Fair
value
£ million
(481)
(251)
(107)
(110)
(38)
(477)
(264)
(108)
(118)
(39)
(448)
(104)
(109)
(65)
(36)
(420)
(118)
(113)
(71)
(35)
The fair values are calculated using level 2 inputs by discounting future cash flows to net present values using appropriate market interest
rates prevailing at the year end.
34 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 (2018: £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 2019, 684,015 shares awarded in 2017 and 2018 were outstanding (31st March 2018: 357,562 awarded in 2017). The
minimum release of 15% of the award is subject to achieving underlying earnings per share (uEPS) growth of 4% compound per annum
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
Released during the year
Outstanding at the end of the year
2019
Number of
shares
2018
Number of
shares
357,562
350,211
(23,647)
(111)
–
370,505
(12,943)
–
684,015
357,562
The fair value of the shares awarded during the year under the PSP was 3,442.6 pence per share (2018: 2,548.9 pence per share). The fair
value was calculated using a modified Black Scholes model based on the share price at the date of award of 3,667.0 pence (2018: 2,764.0 pence)
adjusted for the present value of the expected dividends that will not be received at an expected dividend rate of 2.11% (2018: 2.71%).
212
Notes on the accounts continuedfor the year ended 31st March 2019Johnson MattheyAnnual Report and Accounts 2019Accounts
34 Share-based payments (continued)
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
2019
Number of
shares
2018
Number of
shares
80,047
99,543
(15,270)
(2,629)
–
85,203
(4,858)
(298)
161,691
80,047
The fair value of the shares awarded during the year under the RSP was 3,442.6 pence per share (2018: 2,548.9 pence per share).
The fair value was calculated using a modified Black Scholes model based on the share price at the date of award of 3,667.0 pence
(2018: 2,764.0 pence) adjusted for the present value of the expected dividends that will not be received at an expected dividend rate
of 2.11% (2018: 2.71%).
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 2019, 693,691 shares awarded in 2016 (31st March 2018: 1,350,170 shares awarded in 2015 and 2016) were outstanding,
together with 10,007 shares awarded in 2014 subject to deferred release (2018: 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 uEPS growth of 4% compound per annum over the
three-year period to 31 March 2019 and the full release is subject to uEPS growing by at least 10% compound per annum. The number of
awarded shares released varies on a straight-line basis between these points. Awards lapse if the uEPS growth is less than the minimum.
Actual uEPS growth was 7.7% and, therefore, 67% (463,392 shares) will vest in August 2019.
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
Forfeited during the year
Released during the year
Expired during the year
Outstanding at the end of the year
2019
Number of
shares
2018
Number of
shares
1,370,183 2,175,761
(55,357) (194,782)
(72,702) (156,849)
(538,426) (453,947)
703,698 1,370,183
213
Notes on the accounts continuedfor the year ended 31st March 2019AccountsJohnson MattheyAnnual Report and Accounts 2019
34 Share-based payments (continued)
Deferred bonus
A proportion of the bonus payable to executive directors and senior managers 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
2019
Number of
shares
2018
Number of
shares
81,781
41,542
(41,698)
83,956
24,831
(27,006)
81,625
81,781
The fair value of the shares awarded during the year under the deferred bonus was 3,371.0 pence per share (2018: 2,481.0 pence per
share). The fair value was calculated using a modified Black Scholes model based on the share price at the date of award of 3,667.0 pence
(2018: 2,764.0 pence) adjusted for the present value of the expected dividends that will not be received at an expected dividend rate of
2.11% (2018: 2.71%).
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, 190,284 (2018: 201,476) 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, 5,488 (2018: 6,560) 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.
214
Notes on the accounts continuedfor the year ended 31st March 2019Johnson MattheyAnnual Report and Accounts 2019Accounts
35 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
2019
£ million
2018
£ million
2019
£ million
2018
£ million
60
13
18
40
18
76
20
15
16
41
36
93
5
2
4
8
5
17
–
5
3
8
10
21
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.
At 31st March 2019, precious metal leases were £372 million (2018: £184 million) at year end prices.
36 Contingent liabilities
The group is involved in various disputes and claims which arise from time to time in the course of its business including, for example, in
relation to commercial matters, product quality or liability, employee matters and tax audits. The group is also involved from time to time in
the course of its business in legal proceedings and actions, engagement with regulatory authorities and in dispute resolution processes.
These are reviewed on a regular basis and, where possible, an estimate is made of the potential financial impact on the group. In
appropriate cases a provision is recognised based on advice, best estimates and management judgement. Where it is too early to determine
the likely outcome of these matters, no provision is made. Whilst the group cannot predict the outcome of any current or future such
matters with any certainty, it currently believes the likelihood of any material liabilities to be low, and that such liabilities, if any, will not
have a material adverse effect on its consolidated income, financial position or cash flows.
On a specific matter, the group previously disclosed that it had been informed by two customers of failures in certain engine systems for
which the group supplied a particular coated substrate as a component for their customers’ emissions after-treatment systems. The
particular coated substrate was sold to only these two customers. The group has not been contacted by any regulatory authority about these
engine system failures. The reported failures have not been demonstrated to be due to the coated substrate supplied by the group. In the
period, we settled with one of these customers on mutually acceptable terms with no admission of fault. Under this settlement, the group
recognised a charge of £17 million in the year ended 31st March 2019 and made the associated cash settlement post year end. This charge
has been excluded from underlying operating profit.
Having reviewed its contractual obligations and the information currently available to it, the group believes it has defensible warranty
positions in respect of its supplies of coated substrate for the after-treatment systems in the affected engines remaining at issue (as it
believes it had in respect of the matter settled in the period). If required, it will vigorously assert its available contractual protections and
defences. The outcome of any discussions relating to the matters raised is not certain, nor is the group able to make a reliable estimate of
the possible financial impact at this stage, if any. While the group works with all its customers to ensure appropriate product quality, we
have not received claims in respect of other emissions after-treatment components from these or any other customers. Our vision is for a
world that’s cleaner and healthier; today and for future generations. We are committed to enabling improving air quality and we work
constructively with our customers to achieve this.
215
Notes on the accounts continuedfor the year ended 31st March 2019AccountsJohnson MattheyAnnual Report and Accounts 2019 37 Transactions with related parties
The group has a related party relationship with its joint venture and associate (note 20), its post-employment benefit plans (note 30) and its
key management personnel (below).
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 2019, the GMC had an average of 6 members (2018: 8 members). The only
transactions with any key management personnel was compensation charged in the year which was:
Short term employee benefits
Share-based payments
Non-executive directors' fees and benefits
Total compensation of key management personnel
2019
£ million
2018
£ million
6
5
1
12
6
3
1
10
Balances outstanding at the year end were £nil (2018: £nil). Information on directors’ remuneration is given in the Remuneration Report.
38 Related undertakings
A full list of related undertakings at 31st March 2019 (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.
Johnson Matthey (Aust.) Ltd
+ Johnson Matthey Holdings Limited
Johnson Matthey Belgium BVBA
Tracerco Europe BVBA
The Argent Insurance Co. Limited
Johnson Matthey Brasil Ltda
Tucumán 1 Piso 4, CP 1049, Buenos Aires, Argentina
64 Lillee Crescent, Tullamarine VIC 3043, Australia
64 Lillee Crescent, Tullamarine VIC 3043, Australia
Pegasuslaan 5, 1831 Diegem, Belgium
1731 Zellik, Z3 Doornveld 115, Belgium
Clarendon House, 2 Church Street, Hamilton, HM11, Bermuda
Avenida Macuco, 726, 12th Floor, Edifício International Office, CEP04523-001,
Brazil
Stepac Brazil Ltda
Tracerco do Brasil – Diagnosticos de Processos
Rua Itapolis, n° 1921, Pacaembu, São Paulo, 01245-000, Brazil
Estrada dos Bandeirantes, 1793, Curicica, Jacarepagua,
Industriais Ltda
Rio de Janeiro, Brazil
Johnson Matthey Battery Materials Ltd.
Tracerco Radioactive Diagnostic Services Canada Inc.
Johnson Matthey Argillon (Shanghai) Emission
280 Liberté Ave, Candiac Québec J5R 6X1, Canada
8908 60 Avenue NW, Edmonton AB, T6E 6A6, Canada
No. 298, East Rong Le Road, Songjiang District, Shanghai, China
Control Technologies Ltd.
Johnson Matthey Battery Materials (Changzhou) Co.,
1 Xin Wei Liu Road, Changzhou Export Processing Zone, Changzhou, Jiangsu
Ltd.
Province, China
Johnson Matthey Chemical Process Technologies
Room 1066, Building 1, No 215 Lian He Bei Lu, Fengxian District, Shanghai, China
(Shanghai) Company Limited
Johnson Matthey Clean Energy Technologies
2007C, 20th Floor, No. 21 Building, No.5 Community, Shuguangxili Lane,
(Beijing) Co., Ltd
Chaoyang District, Beijing, China
Johnson Matthey Process Technologies (Beijing)
Unit No. 2001-2007A, No. 21 Building, Shuguangxili Lane A5, Chaoyang District,
Co., Ltd.
Beijing, China
Johnson Matthey Research & Development (Yantai)
No. 9 Wuxi Road, Yantai Economic and Technology Development Zone, Yantai,
Co., Ltd.
Shandong Province, China
Johnson Matthey (Shanghai) Catalyst Co., Ltd.
Johnson Matthey (Shanghai) Chemicals Limited
Johnson Matthey (Shanghai) Trading Limited
Johnson Matthey (Tianjin) Chemical Co., Ltd.
Johnson Matthey (Zhangjiagang) Environmental
586 Dongxing Road, Songjiang Industry Zone, Shanghai, 201613, China
588 Dongxing Road, Songjiang Industry Zone, Shanghai, 201613, China
Room 1615B, No. 118 Xinling Road, Shanghai Pilot Free Trade Zone, China
Suite 1-1201, BoRun Commercial Plaza, Tianjin Development Zone, China
No. 9 Dongxin Road, Jiangsu Yangtze River International Chemical Industrial Park,
Protection Technology Co., Ltd
Jiangsu Province, China
Johnson Matthey (Zhangjiagang) Precious Metal
Rm. 1116-1117, The Petrochemical Trading Edifice, Zhangjiagang Free Trade Zone,
Technology Co., Ltd.
Jiangsu Province, China
Qingdao Johnson Matthey Hero Catalyst Company
New Material Industrial Park, Shiyuan Road, Qinda Industrial Park, Chengyang
Limited (51.0%)
District, Qingdao, 200331, China
Shanghai Bi Ke Clean Energy Technology Co Ltd
Room 427 Building 2 No 351 Guo Shou Jing Road, China (Shanghai) Pilot Free
(11.1%)
Trade Zone, China
Shanghai Johnson Matthey Applied Materials
Area A, 1st Floor, Building 7, 298 East Rongle Road, Songjiang District, Shanghai,
Technologies Co., Ltd
Tracerco China Process Diagnostics &
Instrumentation (Shanghai) Co., Ltd.
China
Section G Floor 2, Building 7, 298 East Rongle Road, Songjiang District, Shanghai,
China
216
Notes on the accounts continuedfor the year ended 31st March 2019Johnson MattheyAnnual Report and Accounts 2019Accounts 38 Related undertakings (continued)
Entity
Registered address
Johnson Matthey A/S
* AG Holding Ltd
* Cascade Biochem Limited1
Ilumink Limited
* JMEPS Trustees Limited
Johnson Matthey Battery Systems Engineering
Limited
Frederikssundvej 274D, DK-2700 Brønshøj, Copenhagen, Denmark
5th Floor, 25 Farringdon Street, London, EC4A 4AB, England
5th Floor, 25 Farringdon Street, London, EC4A 4AB, England
5th Floor, 25 Farringdon Street, London, EC4A 4AB, England
5th Floor, 25 Farringdon Street, London, EC4A 4AB, England
5th Floor, 25 Farringdon Street, London, EC4A 4AB, England
* Johnson Matthey (CM) Limited (dissolved on
5th Floor, 25 Farringdon Street, London, EC4A 4AB, England
28th May 2019)
Johnson Matthey Davy Technologies International
5th Floor, 25 Farringdon Street, London, EC4A 4AB, England
Limited
* Johnson Matthey Davy Technologies Limited
* Johnson Matthey Fuel Cells Limited
Johnson Matthey Investments Limited
* Johnson Matthey (Nominees) Limited
* Johnson Matthey Precious Metals Limited
Johnson Matthey South Africa Holdings Limited
Johnson Matthey Tianjin Holdings Limited
Matthey Finance Limited
* Matthey Holdings Limited
* Tracerco Limited
Finex Oy
Johnson Matthey Finland Oy
Kiinteistö Oy Kotkan Huumantie 5 (70.0%)
Johnson Matthey SAS
Johnson Matthey Battery Materials GmbH
Johnson Matthey Catalysts (Germany) GmbH
Johnson Matthey Chemicals GmbH
Johnson Matthey GmbH & Co. KG2
Johnson Matthey Holding GmbH
Johnson Matthey Management GmbH
Johnson Matthey Piezo Products GmbH
Johnson Matthey Redwitz Real Estate (Germany) B.V.
& Co. KG2
5th Floor, 25 Farringdon Street, London, EC4A 4AB, England
5th Floor, 25 Farringdon Street, London, EC4A 4AB, England
5th Floor, 25 Farringdon Street, London, EC4A 4AB, England
5th Floor, 25 Farringdon Street, London, EC4A 4AB, England
5th Floor, 25 Farringdon Street, London, EC4A 4AB, England
5th Floor, 25 Farringdon Street, London, EC4A 4AB, England
5th Floor, 25 Farringdon Street, London, EC4A 4AB, England
5th Floor, 25 Farringdon Street, London, EC4A 4AB, England
5th Floor, 25 Farringdon Street, London, EC4A 4AB, England
5th Floor, 25 Farringdon Street, London, EC4A 4AB, England
Seppolantie 1, Kotka, 48230, Finland
Autokatu 6, 20380 Turku, Finland
c/o Finex Oy, Seppolantie 1, Kotka, 48230, Finland
Les Diamants – Immeuble B, 41 rue Delizy, 93500 Pantin, France
Ostenriederstr. 15, 85368 Moosburg a.d. Isar, Germany
Bahnhofstrasse 43, 96257 Redwitz an der Rodach, Germany
Wardstrasse 17, D-46446 Emmerich am Rhein, Germany
Otto-Volger-Strasse 9b, 65843 Sulzbach/Ts, Germany
Bahnhofstrasse 43, 96257 Redwitz an der Rodach, Germany
Otto-Volger-Strasse 9b, 65843 Sulzbach/Ts, Germany
Bahnhofstrasse 43, 96257 Redwitz an der Rodach, Germany
Bahnhofstrasse 43, 96257 Redwitz an der Rodach, Germany
Johnson Matthey Hong Kong Limited
Johnson Matthey Pacific Limited3
Johnson Matthey Process Technologies Holdings
Unit 2-6, 8/F, 909 Cheung Sha Wan Road, Cheung Sha Wan, Kowloon, Hong Kong
Unit 2-6, 8/F, 909 Cheung Sha Wan Road, Cheung Sha Wan, Kowloon, Hong Kong
Unit 2-6, 8/F, 909 Cheung Sha Wan Road, Cheung Sha Wan, Kowloon, Hong Kong
Hong Kong Limited
Johnson Matthey Tracerco Holdings Hong Kong
Unit 2-6, 8/F, 909 Cheung Sha Wan Road, Cheung Sha Wan, Kowloon, Hong Kong
Limited
Macfarlan Smith (Hong Kong) Limited
Johnson Matthey Chemicals India Private Limited
Unit 2-6, 8/F, 909 Cheung Sha Wan Road, Cheung Sha Wan, Kowloon, Hong Kong
Plot No 6A, MIDC Industrial Estate, Taloja, District Raigad, Maharashtra 410208,
Johnson Matthey India Private Limited
Johnson Matthey Limited
Stepac L.A. Ltd.
Johnson Matthey Italia S.r.l.
Johnson Matthey Fuel Cells Japan Limited
Johnson Matthey Japan Godo Kaisha
Johnson Matthey DOOEL Skopje
* Johnson Matthey Sdn. Bhd.
India
103, Ashoka Estate, 24, Barakhamba Road, New Delhi – 110 001, India
13-18 City Quay, Dublin 2, D02 ED70, Ireland
Tefen Industrial Park Bldg. #12, Post Box 73, Tefen, Western Galilee, 2495900, Israel
No 2, Via Talucchi, Turin, Italy
5123-3 Kitsuregawa, Sakura-shi, Tochigi, 329-1412, Japan
5123-3 Kitsuregawa, Sakura-shi, Tochigi, 329-1412, Japan
TIDZ Skopje 1, 1041 Ilinden, Macedonia
Suite 16-03, Level 16, Wisma UOA II, 21 Jalan Pinang, 50450 Kuala Lumpur,
Malaysia
Johnson Matthey Services Sdn. Bhd.
Suite 16-03, Level 16, Wisma UOA II, 21 Jalan Pinang, 50450 Kuala Lumpur,
Tracerco Asia Sdn. Bhd.
Suite 16-03, Level 16, Wisma UOA II, 21 Jalan Pinang, 50450 Kuala Lumpur,
Tracerco Asia Services Sdn. Bhd.
Suite 16-03, Level 16, Wisma UOA II, 21 Jalan Pinang, 50450 Kuala Lumpur,
Malaysia
Malaysia
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,
Johnson Matthey Servicios, S. de R.L. de C.V.
Intercat Europe B.V.
Johnson Matthey Advanced Glass Technologies B.V.
Johnson Matthey B.V.
Johnson Matthey Holdings B.V.
Johnson Matthey Netherlands B.V.
Johnson Matthey Netherlands 2 B.V.
Matthey Finance B.V.1
Tracerco Norge AS
El Marques, Querataro C.P., 76246, Mexico
Av Ramon Rivera Lara 6620, Parque Industrial Juarez, Chihuahua, Mexico
Fregatweg 38, 6222 NZ Maastricht, Netherlands
Fregatweg 38, 6222 NZ Maastricht, Netherlands
Otto-Volger-Strasse 9b, 65843 Sulzbach/Ts, Germany
Fregatweg 38, 6222 NZ Maastricht, Netherlands
Fregatweg 38, 6222 NZ Maastricht, Netherlands
Fregatweg 38, 6222 NZ Maastricht, Netherlands
Fregatweg 38, 6222 NZ Maastricht, Netherlands
Kokstadflaten 35, 5257 Kokstad, Norway
217
Notes on the accounts continuedfor the year ended 31st March 2019AccountsJohnson MattheyAnnual Report and Accounts 2019 38 Related undertakings (continued)
Entity
Registered address
Johnson Matthey Battery Systems Spólka z
PL 44-109 Gliwice, ul. Einsteina 36, Poland
ograniczoną odpowiedzialnocścią
Johnson Matthey Poland Spólka z
ograniczoną odpowiedzialnocścią
RPGZ VI Spółka z ograniczoną
odpowiedzialnocścią
Macfarlan Smith Portugal, Lda
Johnson Matthey Catalysts LLC
International Diol Company (4.3%)
* Johnson Matthey General Partner (Scotland)
Limited
Ul. Alberta Einsteina 6, 44-109, Gliwice, Poland
Ul. Pilotów 2E, 31-462, Krakow, Poland
Largo de São Carlos 3, 1200-410 Lisboa, Portugal
1 Transportny Proezd, 660027 Krasnoyarsk, Russia
1st Basic Industrial Road 218, P.O. Box 12021, Jubail Industrial City, 31961, Saudi Arabia
10 Wheatfield Road, Edinburgh, Midlothian, EH11 2QA, Scotland
* Johnson Matthey (Scotland) Limited
10 Wheatfield Road, Edinburgh, Midlothian, EH11 2QA, Scotland
Partnership2
* Macfarlan Smith Limited
* Meconic Limited
Johnson Matthey Singapore Private Limited
Johnson Matthey (Proprietary) Limited
Johnson Matthey Research South Africa
(Proprietary) Limited
Johnson Matthey Salts (Proprietary) Limited
Johnson Matthey Catalysts Korea Limited
Johnson Matthey Korea Limited
Johnson Matthey AB
Johnson Matthey Formox AB
Johnson Matthey & Brandenberger AG
Johnson Matthey Finance GmbH
Johnson Matthey Finance Zurich GmbH
LiFePO4+C Licensing AG
Johnson Matthey (Thailand) Limited
10 Wheatfield Road, Edinburgh, Midlothian, EH11 2QA, Scotland
10 Wheatfield Road, Edinburgh, Midlothian, EH11 2QA, Scotland
4 Shenton Way, #15-01 SGX Centre 2, 068807, Singapore
Corner Henderson and Premier Roads, Germiston South Ext 7, Gauteng, South Africa
Corner Henderson and Premier Roads, Germiston South Ext 7, Gauteng, South Africa
Corner Henderson and Premier Roads, Germiston South Ext 7, Gauteng, South Africa
A-dong 2906-ho, 13 Heungdeok 1-ro, Giheung-gu, Yongin-si, Gyeonggi-do, South Korea
101-2803, Lotte Castle, 109, Mapo-daero, Mapo-gu Seoul, South Korea
Viktor Hasselblads gata 8, 421 31 Västra Frölunda, Göteborg, Sweden
SE-284 80, Perstorp, Sweden
Glatttalstrasse 18, 8052 Zurich, Switzerland
Hertensteinstrasse 51, 6004 Lucerne, Switzerland
Glatttalstrasse 18, 8052 Zurich, Switzerland
Hertensteinstrasse 51, 6004 Lucerne, Switzerland
1858/12 Interlink Tower, 5th Floor, Debaratna Road, Kwang Bangna Tai, Khet Bangna,
Bangkok 10260, Thailand
Johnson Matthey Holdings (Thailand)
1858/12 Interlink Tower, 5th Floor, Debaratna Road, Kwang Bangna Tai, Khet Bangna,
Limited
Bangkok 10260, Thailand
Johnson Matthey Services (Trinidad and
Queen's Park Place, 17-20 Queens Park West, Port of Spain, Trinidad and Tobago
Tobago) Limited
Stepac Ambalaj Malzemeleri Sanayi Ve
Güzeloba Mah. Rauf Denktaş Cad., No.56/101, Muratpaşa/Antalya, Turkey
Ticaret Anonim Sirketi
JM Holdings UK LLC
JM Holdings US LLC
Johnson Matthey Fuel Cells, Inc.
Johnson Matthey Holdings, Inc.
Johnson Matthey Inc.4
Johnson Matthey Japan, Inc.
Johnson Matthey Materials, Inc.
Corporation Service Company, 2711 Centerville Road, Suite 400, Wilmington DE 19808, USA
Corporation Service Company, 2711 Centerville Road, Suite 400, Wilmington DE 19808, USA
Corporation Service Company, 2711 Centerville Road, Suite 400, Wilmington DE 19808, USA
Corporation Service Company, 2711 Centerville Road, Suite 400, Wilmington DE 19808, USA
Corporation Service Company, 2595 Interstate Drive, Suite 103 PA 17110, USA
Corporation Service Company, 2711 Centerville Road, Suite 400, Wilmington DE 19808, USA
CSC Lawyers Incorporating Service, 2730 Gateway Oaks Drive, Suite 100,
Sacramento CA 95833, USA
Johnson Matthey North America, Inc.
Johnson Matthey Overseas Holdings Inc.
Johnson Matthey Pharmaceutical Materials,
Corporation Trust Center, 1209 Orange Street, Wilmington DE 19801, USA
Corporation Service Company, 2711 Centerville Road, Suite 400, Wilmington DE 19808, USA
Corporation Service Company, 2711 Centerville Road, Suite 400, Wilmington DE 19808, USA
Inc.
Johnson Matthey Process Technologies, Inc.
Johnson Matthey Stationary Emissions
Corporation Service Company, 2711 Centerville Road, Suite 400, Wilmington DE 19808, USA
Corporation Service Company, 2711 Centerville Road, Suite 400, Wilmington DE 19808, USA
Control LLC
Johnson Matthey US 2 LLC
Matthey Pharmaceutical Alkaloids, LLC
Corporation Service Company, 2711 Centerville Road, Suite 400, Wilmington DE 19808, USA
Corporation Trust Center, 1209 Orange Street, Wilmington DE 19801, USA
(50.0%)
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
218
Notes on the accounts continuedfor the year ended 31st March 2019Johnson MattheyAnnual Report and Accounts 2019Accounts 39 Changes in accounting policies and restatements
This note explains the impact on the group’s and parent company’s accounts of the adoption of IFRS 9, Financial Instruments, and IFRS 15,
Revenue from Contracts with Customers, that have been applied from 1st April 2018 and the restatement of prior year comparatives for
location swaps, sale and repurchase agreements and cash and borrowings.
IFRS 9
IFRS 9 introduces new requirements for recognition, classification and measurement of financial assets and financial liabilities, 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.
Impact of adoption
Under IFRS 9, changes to the classification and measurement of financial assets have been applied retrospectively by adjusting opening
retained earnings at 1st April 2018. The group has chosen not to restate comparative information for prior periods. The impact of adopting
IFRS 9 on the group’s equity as at 1st April 2018 is a decrease of £1 million (and was immaterial for the parent company).
Classification and measurement
The group and parent company have classified their financial instruments in the appropriate IFRS 9 categories as at 1st April 2018 and, as a
result, £160 million of trade receivables were reclassified from being valued at amortised cost to fair value through other comprehensive
income because they are held in a part of the group with a business model to hold trade receivables for collection or sale. Derivative
financial instruments that did not qualify for hedge accounting under IAS 39 were classified in the fair value through profit or loss category
and gains and losses have been recognised in the income statement for the year. There is no change in the classification of these financial
instruments under IFRS 9 as they fail the contractual cash flow characteristics test.
The group and parent company have reclassified their financial assets as follows:
Financial assets
IFRS 9
IAS 39
Quoted bonds purchased to
fund pension deficit
Unquoted investments
Trade receivables
Trade receivables2
Other receivables
Other receivables3
Cash and cash equivalents –
cash and deposits
Cash and cash equivalents –
money market funds3
Derivatives
1 See below.
FVTOCI4
FVTOCI4
Amortised cost
FVTOCI4
Amortised cost
FVTPL5
Available for sale
Available for sale
Loans and receivables
Loans and receivables
Loans and receivables
Loans and receivables
Amortised cost
Loans and receivables
FVTPL5
FVTPL5
Loans and receivables
Held for trading
Group
Parent company
2019
IFRS 9
£ million
2018
Restated1
IAS 39
£ million
2019
IFRS 9
£ million
2018
Restated1
IAS 39
£ million
52
–
1,031
173
226
9
90
347
35
53
3
889
160
159
10
203
171
21
–
7
206
–
2,084
–
11
347
36
–
7
165
–
2,262
–
82
171
21
2 Trade receivables reclassified to fair value through other comprehensive income on adoption of IFRS 9 because they are held in a part of the group with a business model to
hold trade receivables for collection or sale.
3 Other receivables and money market funds reclassified to fair value through profit or loss on adoption of IFRS 9 because the cash flows do not represent solely the payment
of principal and interest.
4 Fair value through other comprehensive income.
5 Fair value through profit or loss.
Impairment of financial assets
Trade and contract receivables are subject to IFRS 9’s new expected credit loss model and, as they do not contain a significant financing
element, expected credit losses are measured using the simplified approach, which requires expected lifetime losses to be recognised from
initial recognition. Whilst cash and deposits are also subject to the impairment requirements of IFRS 9, there was no identified impairment
loss on these balances.
Hedge accounting
Derivative financial instruments designated as part of cash flow hedges, fair value hedges and net investment hedges under IAS 39 at
31st March 2018, continue to qualify for hedge accounting under IFRS 9 at 1st April 2018 and are, therefore, treated as continuing hedges.
219
Notes on the accounts continuedfor the year ended 31st March 2019AccountsJohnson MattheyAnnual Report and Accounts 2019
39 Changes in accounting policies and restatements (continued)
IFRS 15
IFRS 15 supersedes all revenue standards and interpretations in IFRS. It provides a principles-based approach for revenue recognition and
requires that revenue is recognised as the distinct performance obligations promised within a contract are satisfied either at a point in time
or over time. Following the detailed review of the transactions performed in the year ended 31st March 2018, the group has concluded that
all swaps (location and form) and sale and repurchase agreements will be excluded from revenue under IFRS 15.
The impact on the financial statements as a result of the move to IFRS 15 has led the group to conclude that the group and parent company
should apply IFRS 15 on a fully retrospective basis, which means that the comparative information for the year ended 31st March 2018 has
been restated. The following expedients have been used in accordance with paragraph C5:
• revenue in respect of completed contracts with variable consideration reflects the transaction price at the date the contracts were completed; and
• the transaction price allocated to unsatisfied and partially unsatisfied performance obligations as at 31st March 2018 is not disclosed.
The group and parent company have not shown the amount of the adjustments relating to periods before those presented on the basis that
it is not practicable to do so. Movements in inventories, receivables and payables in the consolidated cash flow statement for the year ended
31st March 2018 have not been restated on the same basis. The overall impact on equity is less than £5 million as a result of the re-presentation of
the financial statements as at 31st March 2018 and there is no impact on sales excluding precious metals, profit, working capital, net debt
or net assets. We have taken the same approach to the parent company accounts and restated those accordingly.
Impact of adoption
The group has noted that the presentation of sales and purchases of certain commodity forward contracts varies across its industry peer
group. In conjunction with its adoption of IFRS 15, the group has reviewed its accounting for a number of such contracts held by the
Platinum Group Metal Services business. The group regularly enters into contracts whereby metal is transferred with a separate agreement
to buy back the metal, either in a different location and/or in a different form. IFRS 15 requires the presentation of swap transactions
(regardless of whether they are a location or form swap) with counterparties of a similar nature to the group to be excluded from revenue.
It further clarifies that transactions with a linked sale and future repurchase (sale and repurchase agreements) are excluded from revenue
and treated as finance transactions.
The impact of applying this presentation of form and location swaps to the financial statements is to reduce revenue and cost of sales for
the year ended 31st March 2018 by £840 million with no impact on sales excluding precious metals, profit, working capital, net debt or net
assets. This change has also decreased inventories by £2 million and increased receivables by £2 million as at 31st March 2018. Location
swaps are also non-revenue transactions under IAS 18. Had the group not restated under IFRS 15, the financial impact of restating location
swaps and other, smaller errors identified during the process, would be to decrease revenue and cost of sales by £621 million, with no
impact on reported profit, net assets or net debt.
IFRS 15 provides new guidance in respect of principal versus agent considerations which is relevant to the sale of metal and substrate in
Clean Air and to the sale of metal in Efficient Natural Resources. Revenue from refining metal owned by customers in Efficient Natural
Resources continues to be recognised over time on the basis that the group is enhancing an asset controlled by the customer. Revenue in
respect of the sale of the company’s metal and substrate continues to be recognised on a gross basis reflecting the fact that the group is
the principal. Where the group refines metal owned by customers and control of the metal remains with the customer during the process,
the revenue recognised does not include the value of the metal controlled by the customer. The impact on the group’s income statement
is to increase revenue and cost of sales by £2 million, with no net impact on profit. The impact on the group’s balance sheet is to reduce
inventory by £18 million, increase contract receivables £20 million, increase accruals £2 million, decrease contract liabilities £1 million
and increase opening retained earnings £1 million. There is no impact on the parent company accounts.
Restatements
Sale and repurchase agreements
The group has restated the financial statements to exclude revenue and cost of sales derived from sale and repurchase agreements
and account for these as finance transactions. Application of this change in presentation to the financial statements for the year ended
31st March 2018 reduces revenue and cost of sales by £3,010 million. This change has also increased inventories by £161 million, creditors
by £215 million and receivables by £54 million as at 31st March 2018. This change also increased finance costs and finance income by
£20 million, respectively.
The re-presentation of the financial statements has no impact on sales excluding precious metals, profit, working capital, net debt or net
assets and, therefore, historic business performance measures communicated by the group are unchanged.
Cash and borrowings
The group’s consolidated balance sheet and cash flow statement have been restated to increase cash and deposits by £45 million, bank overdrafts
by £17 million and other current borrowings and related swaps by £28 million at 31st March 2018 to better reflect the group’s cash pooling
arrangements. In addition, money market funds of £171 million have been shown separately from cash and deposits. The parent company
balance sheet has also been restated to increase cash and deposits by £35 million and bank overdrafts by £35 million at 31st March 2018.
220
Notes on the accounts continuedfor the year ended 31st March 2019Johnson MattheyAnnual Report and Accounts 2019Accounts
39 Changes in accounting policies and restatements (continued)
Impact on the group accounts
Consolidated Income Statement
Revenue
Cost of sales
Gross profit
Finance costs
Finance income
Profit before tax
Consolidated Balance Sheet
Total non-current assets
Current assets
Inventories
Current income tax assets
Trade and other receivables
Cash and cash equivalents – cash and deposits
Cash and cash equivalents – money market funds
Other financial assets
Total current assets
Total assets
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
Total non-current liabilities
Total liabilities
Net assets
Year ended 31st March 2018
As previously
reported
£ million
IFRS 15
£ million
Location
swaps and
sale and
repurchase
agreements
£ million
Restated
£ million
14,122
(13,214)
(217)
217
(3,631)
3,631
10,274
(9,366)
908
(43)
5
320
–
–
–
–
–
908
(20)
20
–
(63)
25
320
As at 31st March 2018
As previously
reported
£ million
IFRS 15
£ million
2,428
–
783
35
1,228
329
–
15
2,390
4,818
(1,012)
(149)
(53)
(10)
(12)
(37)
(1,273)
(1,167)
(2,440)
2,378
(20)
–
22
–
–
–
2
2
(1)
–
–
–
–
–
(1)
–
(1)
1
Location
swaps and
sale and
repurchase
agreements
£ million
–
161
–
54
–
–
–
215
215
(215)
–
–
–
–
–
(215)
–
Cash and
borrowings
£ million
Restated
£ million
–
2,428
–
–
–
(126)
171
–
45
45
–
–
(17)
(28)
–
–
(45)
924
35
1,304
203
171
15
2,652
5,080
(1,228)
(149)
(70)
(38)
(12)
(37)
(1,534)
–
(1,167)
(215)
(45)
(2,701)
–
–
2,379
221
Notes on the accounts continuedfor the year ended 31st March 2019AccountsJohnson MattheyAnnual Report and Accounts 2019
39 Changes in accounting policies and restatements (continued)
Impact on the parent company accounts
Parent Company Balance Sheet
Other receivables
Other
Total non-current assets
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents – cash and deposits
Cash and cash equivalents – money market funds
Other financial assets
Total current assets
Total assets
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
Total non-current liabilities
Total liabilities
Net assets
As at 31st March 2018
Location
swaps and
sale and
repurchase
agreements
£ million
Cash and
borrowings
£ million
Ageing
reclassification
£ million
As previously
reported
£ million
IFRS 15
£ million
1,013
2,803
3,816
124
1,377
218
–
15
1,734
5,550
(2,552)
(56)
(11)
(4)
(14)
(5)
(2,642)
(1,512)
(4,154)
1,396
–
–
–
(2)
2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
87
54
–
–
–
141
141
(141)
–
–
–
–
–
(141)
–
(141)
–
–
–
–
–
–
(136)
171
–
35
35
–
–
(35)
–
–
–
(35)
–
(35)
–
100
–
100
–
(100)
–
–
–
(100)
–
–
–
–
–
–
–
–
–
–
–
Restated
£ million
1,113
2,803
3,916
209
1,333
82
171
15
1,810
5,726
(2,693)
(56)
(46)
(4)
(14)
(5)
(2,818)
(1,512)
(4,330)
1,396
222
Notes on the accounts continuedfor the year ended 31st March 2019Johnson MattheyAnnual Report and Accounts 2019Accounts
Independent auditor’s report
to the members of Johnson Matthey Plc
Report on the audit of the financial statements
Opinion
In our opinion:
• Johnson Matthey Plc’s Group financial statements and parent company financial statements (the “financial statements”) give a true and fair
view of the state of the Group’s and of the parent company’s affairs as at 31 March 2019 and of the Group’s profit and cash flows for the year
then ended;
• the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as
adopted by the European Union;
• the parent company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standards, comprising FRS 101 “Reduced Disclosure Framework”, and applicable law); and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group
financial statements, Article 4 of the IAS Regulation.
We have audited the financial statements, included within the Annual Report, which comprise: the consolidated and parent company balance
sheets as at 31 March 2019; the consolidated income statement and consolidated statement of total comprehensive income; the consolidated
cash flow statement; the consolidated and parent company statement of changes in equity for the year then ended; and the notes to the financial
statements, including the Accounting Policies.
Our opinion is consistent with our reporting to the Audit Committee.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities under
ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial statements section of our report. We believe that the
audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We remained independent of the Group in accordance with the ethical requirements that are relevant to our audit of the financial statements
in the UK, which includes the FRC’s Ethical Standard, as applicable to listed public interest entities, and we have fulfilled our other ethical
responsibilities in accordance with these requirements.
To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC’s Ethical Standard were not provided to the
Group or the parent company.
Other than those disclosed in note 10 to the financial statements, we have provided no non-audit services to the Group or the parent company
in the period from 1 April 2018 to 31 March 2019.
223
AccountsJohnson MattheyAnnual Report and Accounts 2019 Independent auditor’s report continued
to the members of Johnson Matthey Plc
Our audit approach
Overview
• Overall Group materiality: £25 million, based on 5% of profit before tax, adjusted for loss on disposal
of businesses, loss on significant legal proceedings, major impairment and restructuring charges.
• Overall parent company materiality: £15 million, based on 1% of total assets capped at the allocated
Materiality
Group component materiality.
Audit scope
Key audit
matters
• We conducted an audit or specified procedures at 77 components which together accounted for 80%
of Group profit before taxation.
• In addition to the UK reporting units, the US and China components were visited by members of the
Group engagement team during the year.
• Carrying value of goodwill and capitalised development costs (Group)
• Claims, uncertainties and other provisions (Group)
• Taxation accounting (Group)
• Refinery metal accounting (Group, Company)
• Precious metals management - accounting for hedged metal (Group, Company)
The scope of our audit
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements.
Capability of the audit in detecting irregularities, including fraud
Based on our understanding of the Group and industry, we identified that the principal risks of non-compliance with laws and regulations related
to the failure to comply with international tax regulations, environmental regulations, health and safety regulations (EHS), and anti-bribery
and corruption laws, and we considered the extent to which non-compliance might have a material effect on the financial statements. We also
considered those laws and regulations that have a direct impact on the preparation of the financial statements such as the Companies Act 2006.
We evaluated management’s incentives and opportunities for fraudulent manipulation of the financial statements (including the risk of override
of controls), and determined that the principal risks were related to posting inappropriate journal entries and management bias in accounting
estimates. The Group engagement team shared this risk assessment with the component auditors so that they could include appropriate audit
procedures in response to such risks in their work. Audit procedures performed by the Group engagement team and/or component auditors
included:
• Discussions with management, internal audit and the Group’s legal advisors, including consideration of known or suspected instances of
non-compliance with laws and regulations and fraud; and
• Identifying and testing significant manual journal entries and auditing assumptions and judgements made by management in making
significant accounting estimates.
There are inherent limitations in the audit procedures described above, and the further removed non-compliance with laws and regulations is
from the events and transactions reflected in the financial statements, the less likely we would become aware of it. Also, the risk of not detecting
a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate
concealment by, for example, forgery or intentional misrepresentations, or through collusion.
We did not identify any key audit matters relating to irregularities, including fraud. As in all of our audits, we addressed the risk of management
override of internal controls, including testing journals and evaluating whether there was evidence of bias by the directors that represented a risk
of material misstatement due to fraud, and the risk of fraud in revenue recognition.
224
Johnson MattheyAnnual Report and Accounts 2019Accounts Independent auditor’s report continued
to the members of Johnson Matthey Plc
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud)
identified by the auditors, 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. These matters, and any comments we make on the results of our procedures thereon, were
addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a
separate opinion on these matters. This is not a complete list of all risks identified by our audit.
Key audit matter
How our audit addressed the key audit matter
Carrying value of goodwill and capitalised development costs
Refer to the Significant issues considered by the Audit Committee
on page 127 and notes 17 and 18 to the financial statements.
The Group holds goodwill of £578 million (2018: £574 million) and
capitalised development costs of £75 million (2018: £60 million) at
31 March 2019.
The Group has significant goodwill arising from the acquisition
of businesses and investments in new products and technologies.
The Group also has significant capitalised development costs which
are at an early stage of their commercial life cycle and as such, carry
a greater risk that they will not be commercially viable.
The impairment reviews performed by management contain a
number of significant judgements and estimates. Changes in these
assumptions can result in materially different impairment charges or
available headroom. Certain assets are subject to annual impairment
assessment, while others with a finite life are reviewed if a triggering
event has been identified.
We obtained management’s value in use goodwill impairment models
and tested and evaluated the reasonableness of key assumptions,
including CGU identification, operating cash flow forecasts and key
inputs to these forecasts, long term growth rates, and discount rates.
We obtained the impairment trigger assessment and value in use
impairment models over generic drug development performed by
management to assess the key assumptions considered, including
operating cash flow forecasts and key inputs to these forecasts,
perpetuity growth rates, and discount rates.
We tested the mathematical integrity of the forecasts and carrying values in
management’s impairment models and confirmed that management’s
estimate of each CGU’s recoverable amount is appropriately based on the
higher of fair value less costs of disposal and value in use.
We agreed the forecast cash flows to management’s approved budget,
assessed how these budgets are compiled and understood key related
judgements and estimates, including short-term growth rates and cost
allocations. For each material CGU we either performed independent
testing of the assumptions (as explained below) or corroborated them
to supporting evidence. We have assessed the reasonableness of cash
flow forecasts in the context of the individual impairment analyses.
We engaged our valuations experts where necessary to assess the long
term growth rate and discount rate for each CGU by comparison with
third party information, past performance and relevant risk factors.
We performed our own independent sensitivity analysis to assess
whether a reasonable downside change in the key assumptions could
give rise to a material impairment.
We assessed management’s historical forecasting accuracy by comparing
the prior year forecasts with actual results. This informed the
assumptions applied to our independent sensitivity analysis.
As a result of our work, we agreed with management’s conclusions on
the recoverability of the goodwill and capitalised development costs.
We have assessed management’s disclosures in light of the impairment
testing performed and we considered the disclosures made to be reasonable.
225
AccountsJohnson MattheyAnnual Report and Accounts 2019 Independent auditor’s report continued
to the members of Johnson Matthey Plc
Key audit matter
How our audit addressed the key audit matter
Claims, uncertainties and other provisions
Refer to the Significant issues considered by the Audit Committee
on page 127 and notes 28 and 36 to the financial statements
This risk covers product liability issues and other litigious matters
across the Group.
Due to the complex nature of the products offered by Johnson
Matthey, the Group at any point in time may be exposed to product
liability issues including claims for damages or compensation. The
assumptions underpinning these claims and the identification
of when such claims arise are inherently judgemental. Careful
consideration needs to be given as to how they are estimated
and subsequently accounted for.
The Group is also involved in various legal proceedings, including
actual or threatened litigation and regulatory investigations.
The Group discloses such risks as contingent liabilities where it is unable
to make a reliable estimate of potential exposures or where it believes
a possible obligation is not probable. If the Group is unable to defend
against such claims, these risks could give rise to a future liability.
Taxation accounting
Refer to the Significant issues considered by the Audit Committee on
page 127 and to the Accounting Policies in the financial statements
The Group holds tax provisions of £102 million (2018: £86 million).
The Group operates in a number of international jurisdictions, and as
a result there is risk of uncertain tax exposures around the Group and
heightened risk around estimates in determining the tax effect of
cross border transactions including transfer pricing arrangements.
Where the precise impact of the tax laws and regulations on taxes payable
on profit arising in those jurisdictions is unclear, the Group seeks to make
reasonable estimates to determine the tax charges that may arise.
For litigation provisions, we read the summary of major litigation matters
provided by management and held discussions with the Group’s general
counsel. For a sample of matters, we obtained and reviewed correspondence
with external legal counsel with respect to matters included in the summary.
We have circularised external legal counsel to independently assess legal
exposures and expected outcome for material cases across the Group.
We reviewed board minutes and made inquiries of management to address
the risk of undisclosed claims and uncertainties. We performed audit
procedures to identify any third party legal counsel used by management
and as appropriate included them in our circularisation.
We have assessed the underlying assumptions underpinning product liability
claims by considering past history in settlement of such claims as evidence of
likely settlement of open matters. We applied professional scepticism in
auditing both the likely outcome and quantification of claims, including
performing audit procedures over claims management determined to be
immaterial and requesting management provide further support.
We have assessed the level of provisioning and contingent liability
disclosures, where relevant, in response to known claims.
Based on the procedures outlined, we are satisfied that management’s
provisioning estimates were adequately supported and appropriate
disclosures have been provided.
We engaged our tax specialists in support of our audit of tax and
obtained an understanding of the Group’s tax strategy and risks. We
recalculated the Group’s tax provisions and determined whether the
treatments adopted were in line with the Group’s tax policies and had
been applied consistently.
We evaluated the key underlying assumptions and judgements, including
considering the status of tax authority audits and enquiries through
examining the latest correspondence and enquiring of management. We
considered the basis and support in particular for provisions not subject to
tax audit in comparison with our experience for similar situations.
We evaluated the consistency of management’s approach to identifying
triggering events to reassess or record a provision for an exposure.
We also evaluated the consistency of management’s approach to
establishing or changing prior provision estimates and validated that
changes in prior provisions reflected a change in facts and circumstances.
Our in-scope components performed audit work on the local tax expense
and completeness of the corresponding liability or asset position and we
performed analytical procedures at a Group level on any large markets
that were out of scope.
We also considered the adequacy of the Group’s disclosures in respect of
tax and uncertain tax positions.
We are satisfied that management’s provisions with respect to uncertain
tax matters have been prepared on a reasonable basis that represent
management’s current best estimate of the most likely outcome.
We consider management’s disclosures with respect to tax matters
to be appropriate.
226
Johnson MattheyAnnual Report and Accounts 2019Accounts Independent auditor’s report continued
to the members of Johnson Matthey Plc
Key audit matter
Refinery metal accounting
How our audit addressed the key audit matter
Refer to the Significant issues considered by the Audit Committee on
page 126 and to the Accounting Policies in the financial statements
We evaluated the design and operation of key controls at the main
refining locations over stock takes, and metal assaying procedures.
The Group refines a significant amount of metal. Complex estimates are
applied in determining the year-end inventory balances including:
We tested that the metal balance sheet was prepared and reviewed on
a monthly basis.
(i) Estimation of the level of metal contained in the carrier material
entering the refining process, and the refined metal that leaves the
refining process;
(ii) Estimates of the metal at the refineries at the time of stock takes, and
the subsequent sampling and assaying to assess the precious metal
content on stock take date;
(iii) Estimates of the process losses of precious metals that may be lost
during the refining and fabrication process, and the adequacy of
these provisions at year-end; and
(iv) Estimates of the net realisable value of unhedged metal held at
year-end.
As part of its refining activities, the Group processes material on behalf
of third parties, whereby the Group must return pre-agreed recoverable
quantities of refined metal to those parties at an agreed date. As such,
the Group’s year-end metal inventory is reduced or increased dependent
on its ability to recover metal as part of its refining operations.
The majority of metal processed at refineries is owned by customers and
is not held on the financial balance sheet of Group. As such, the Group
performs a metal balance sheet reconciliation to ensure quantities of
precious metals held at year-end are appropriately understood, classified
and reconciled. This ensures that only the Group owned inventory is
recorded on the balance sheet, and that the price allocated to this owned
inventory is at the lower of cost and net realisable value.
The refining process and its associated estimates are deemed a significant
risk, as a small variation in underlying estimates or classification could
result in a material change to the quantity or valuation of inventory.
Precious metals management – accounting for hedged metal
Refer to the Significant issues considered by the Audit Committee on
page 126 and note 39 in the financial statements
The Group operates a Precious Metals Management (“PMM”) division
that is responsible for sourcing precious metal and managing price
exposures and inventory levels of the significant quantities of precious
metals that are processed and converted into manufactured goods.
Whilst PMM sources metal on the Group’s account and sells this to
customers, it also obtains metal by entering into metal leasing
contracts with financial institutions and manages significant quantities
of customer owned metal. To execute its strategy and comply with the
Group’s risk management policies, PMM operates a number of trading
desks that enter into spot, forward and swap transactions with
customers, suppliers and financial institutions. PMM is not mandated
to enter into speculative trades for the purpose of making a profit.
The accounting for these transactions is complex and as part of the
Group’s adoption of IFRS 15 – Revenue from Contracts with Customers
(“IFRS 15”) together with management we have performed a detailed
review of the activities of PMM and reassessed the required accounting
for these transactions, under both IAS 18 – Revenue (“IAS 18”) and
IFRS 15. This review has concluded that certain commodity contracts
(principally swaps and sale and repurchase agreements) should not be
included within revenue in the current year or the prior year.
The prior year financial statements have therefore been restated, and
the impact of both the adoption of IFRS 15 and other prior year items
requiring restatement have been separately disclosed.
We tested the classification of precious metals at year-end on the metal
balance sheet, to determine if metal was owned by the Group or the
customer. Our procedures included sending confirmations to customers,
and testing the customer metal that was in the refining process, but not
contractually due.
We assessed management’s policy for recognising stock take gains and
losses arising from the stock takes that occurred during the year. We
performed site visits and attended physical stock counts at sites to verify
existence of stock and adherence to the Group’s stock take processes, and
the reasonableness of stock take gains and losses that have been recorded.
We assessed provisions for inventory process 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.
We tested that all unhedged metal was being held at the lower of cost
and net realisable value, on an individual metal by metal methodology,
with reference to external metal price data.
We considered the adequacy of the Group’s disclosures about the degree
of estimation involved in arriving at the measured inventory.
We are satisfied with the quantity and valuation of inventory, and that
such balances were adequately supported and in line with relevant
Group accounting policies.
As PMM uses a number of different commodity contracts we gained an
understanding of each type and evaluated how these were accounted
for, including consideration of:
• the application of the ‘own use’ exemption for valuing financial
instruments, and how metal inventory was recorded and valued at
year-end; and
• how ‘sale and repurchase’ and ‘swap’ transactions are accounted for
under the Group’s accounting policies, IAS 18 and IFRS 15.
We reviewed management’s exercise to disaggregate the commodity
contracts and identify whether or not such transactions should be
included within revenue in both the current and prior year.
We agreed a sample of trades to external evidence to provide support
that the trades had occurred, were accurately recorded and were
correctly classified.
We considered management’s allocation of adjustments between those
arising from the implementation of IFRS 15 and from other
restatements, and the associated disclosures made in the financial
statements. We believe the allocation of the adjustments and associated
disclosures is appropriate.
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to the members of Johnson Matthey Plc
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a
whole, taking into account the structure of the Group and the parent company, the accounting processes and controls, and the industry in which
they operate.
The Group is structured across four sectors, Clean Air, Efficient Natural Resources, Health, and New Markets, as well as the Corporate central unit.
The financial statements are a consolidation of approximately 315 Business Units. We have identified each individual Business Unit as a
component, or a series of Business Units where they map to one legal statutory entity. These components comprise the Group’s operating
businesses and holding companies across the four sectors and Corporate.
Based on our risk and materiality assessments, we determined which components required an audit of their complete financial information
having considered the relative significance of each entity to the Group, locations with significant inherent risks and the overall coverage obtained
over each material line item in the consolidated financial statements. We identified one component which, in our view, required an audit of its
complete financial information, due to its size or its risk characteristics. We performed audits of complete financial information at a further 60
components.
In addition to those full scope components, we performed specified procedures at 16 components over specific financial statement line items
including revenue, trade and other receivables and deferred income, cash, intangibles, inventory, metal inventory, accruals, fixed assets and
depreciation, cost of sales and operating expenses. This ensured that appropriate audit procedures were performed to achieve sufficient coverage
over these financial statement line items.
The total 77 in-scope components are located in numerous countries around the world. We used local teams in these countries to perform the
relevant audit procedures. Of these, one component has been determined to be financially significant based on its contribution to the Group.
This financially significant component is located in the UK.
The Group consolidation, financial statement disclosures and corporate functions were audited by the Group audit team. This included our work
over consolidation, litigation provisions, taxation, goodwill, post-retirement benefits, earnings per share and treasury related balances.
This scope of work, together with additional procedures performed at the Group level, accounted for 84% of Group revenue and 80% of Group
profit before taxation. This provided the evidence we needed for our opinion on the consolidated financial statements taken as a whole. This was
before considering the contribution to our audit evidence from performing audit work at the Group level, including disaggregated analytical
review procedures, which covers certain of the Group’s smaller and lower risk components that were not directly included in our Group audit
scope.
We issued formal written instructions to all component auditors setting out the audit work to be performed by each of them. The Group audit
team visited reporting units in the UK, US, and China during the course of the year in order to attend local management meetings. Throughout
the year, the Group audit team held regular meetings with all reporting units at all stages of the audit to direct and supervise the work of these
local teams and to ensure that we had a full and comprehensive understanding of the results of their work – particularly insofar as it related to
the identified areas of focus. The Group engagement team also reviewed selected audit working papers for certain component teams.
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to the members of Johnson Matthey Plc
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together
with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the
individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate on the
financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Overall
materiality
How we
determined it
Rationale for
benchmark
applied
Group financial statements
Parent company financial statements
£25 million
£15 million
5% of profit before tax, adjusted for loss on disposal
of businesses, loss on significant legal proceedings
and major impairment and restructuring charges.
Adjusted (underlying) profit before tax is used as the
materiality benchmark excluding amortisation of
acquired intangibles. Management uses this measure as
it believes that it reflects the underlying performance of
the Group and this is how the directors are measured
on their performance. We did not adjust profit before
tax to add back amortisation of acquired intangibles as
in our view this is a recurring item.
1% of total assets but materiality level is capped based on an
allocated Group component materiality.
We considered total assets to be an appropriate benchmark for
the parent company given that, whilst it does have trading
businesses it is the ultimate holding company, holds material
investments in subsidiary undertakings, incurs corporate costs
and enters into financing on behalf of the Group. The
materiality level was capped at £15 million given the overall
Group materiality level.
For each component in the scope of our Group audit, we allocated a materiality that is less than our overall Group materiality. The range of
materiality allocated across components was between £1 million and £15 million. Certain components were audited to a local statutory audit
materiality that was also less than our overall Group materiality.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £1.26 million, for both the
Group and parent company audits, as well as misstatements below those amounts that, in our view, warranted reporting for qualitative reasons.
Going concern
In accordance with ISAs (UK) we report as follows:
Reporting obligation
Outcome
We are required to report if we have anything material to add or draw
attention to in respect of the directors’ statement in the financial
statements about whether the directors considered it appropriate to
adopt the going concern basis of accounting in preparing the financial
statements and the directors’ identification of any material uncertainties
to the Group’s and the parent company’s ability to continue as a going
concern over a period of at least twelve months from the date of
approval of the financial statements.
We have nothing material to add or to draw attention to. However,
because not all future events or conditions can be predicted, this
statement is not a guarantee as to the Group’s and the parent
company’s ability to continue as a going concern. For example,
the terms on which the United Kingdom may withdraw from
the European Union are not clear, and it is difficult to evaluate
all of the potential implications on the Group’s and the parent
company’s trade, customers, suppliers and the wider economy.
We are required to report if the directors’ statement relating to Going
Concern in accordance with Listing Rule 9.8.6R(3) is materially
inconsistent with our knowledge obtained in the audit.
We have nothing to report.
Reporting on other information
The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’ report thereon.
The directors are responsible for the other information. Our opinion on the financial statements does not cover the other information and,
accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form of assurance thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether
the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to
be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are required to perform procedures
to conclude whether there is a material misstatement of the financial statements or a material misstatement of the other information. If, based
on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report based on these responsibilities.
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AccountsJohnson MattheyAnnual Report and Accounts 2019 Independent auditor’s report continued
to the members of Johnson Matthey Plc
Reporting on other information (continued)
With respect to the Strategic Report and Directors’ Report, we also considered whether the disclosures required by the UK Companies Act 2006
have been included.
Based on the responsibilities described above and our work undertaken in the course of the audit, the Companies Act 2006 (CA06), ISAs
(UK) and the Listing Rules of the Financial Conduct Authority (FCA) require us also to report certain opinions and matters as described
below (required by ISAs (UK) unless otherwise stated).
Strategic Report and Directors’ Report
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic Report and Directors’ Report
for the year-ended 31 March 2019 is consistent with the financial statements and has been prepared in accordance with applicable legal
requirements. (CA06)
In light of the knowledge and understanding of the Group and parent company and their environment obtained in the course of the audit,
we did not identify any material misstatements in the Strategic Report and Directors’ Report. (CA06)
The directors’ assessment of the prospects of the Group and of the principal risks that would threaten the solvency or liquidity of the Group
We have nothing material to add or draw attention to regarding:
• The directors’ confirmation on page 91 of the Annual Report 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 or liquidity.
• The disclosures in the Annual Report that describe those risks and explain how they are being managed or mitigated.
• The directors’ explanation on page 97 of the Annual Report as to how they have assessed the prospects of the Group, over what period
they have done so and why they consider 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.
We have nothing to report having performed a review of the directors’ statement that they have carried out a robust assessment of the
principal risks facing the Group and statement in relation to the longer-term viability of the Group. Our review was substantially less in scope
than an audit and only consisted of making inquiries and considering the directors’ process supporting their statements; checking that the
statements are in alignment with the relevant provisions of the UK Corporate Governance Code (the “Code”); and considering whether the
statements are consistent with the knowledge and understanding of the Group and parent company and their environment obtained in the
course of the audit. (Listing Rules)
Other Code Provisions
We have nothing to report in respect of our responsibility to report when:
• The statement given by the directors, on page 115, that they consider the Annual Report taken as a whole to be fair, balanced and
understandable, and provides the information necessary for the members to assess the Group’s and parent company’s position and
performance, business model and strategy is materially inconsistent with our knowledge of the Group and parent company obtained in
the course of performing our audit.
• The section of the Annual Report on pages 123 to 131 describing the work of the Audit Committee does not appropriately address matters
communicated by us to the Audit Committee.
• The directors’ statement relating to the parent company’s compliance with the Code does not properly disclose a departure from a relevant
provision of the Code specified, under the Listing Rules, for review by the auditors.
Directors’ Remuneration
In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies
Act 2006. (CA06)
Responsibilities for the financial statements and the audit
Responsibilities of the directors for the financial statements
As explained more fully in the Responsibility of Directors, the directors are responsible for the preparation of the financial statements in
accordance with the applicable framework and for being satisfied that they give a true and fair view. The directors are also 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.
In preparing the financial statements, the directors are responsible for assessing the Group’s and the 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 the directors
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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to the members of Johnson Matthey Plc
Auditors’ responsibilities for the audit of the financial statements
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 error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is
not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements
can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at: www.frc.org.uk/
auditorsresponsibilities. This description forms part of our auditors’ report.
Use of this report
This report, including the opinions, has been prepared for and only for the parent company’s members as a body in accordance with
Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility
for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our
prior consent in writing.
Other required reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• we have not received all the information and explanations we require for our audit; or
• adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from
branches not visited by us; or
• certain disclosures of directors’ remuneration specified by law are not made; 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.
We have no exceptions to report arising from this responsibility.
Appointment
Following the recommendation of the Audit Committee, we were appointed by the directors on 26 July 2018 to audit the financial statements for
the year-ended 31 March 2019 and subsequent financial periods. This is therefore our first year of uninterrupted engagement.
Mark Gill (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
30 May 2019
231
AccountsJohnson MattheyAnnual Report and Accounts 2019 Other Information
Other information
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.
232
Johnson MattheyAnnual Report and Accounts 2019 Contents
234 Basis of reporting – non-financial data
238 Our framework and our six sustainable business goals
239 Verification of non-financial data
240 GRI Standard Content Index
242 Shareholder information
244 Glossary of terms
245
246 Financial calendar 2019/20
247 Company details
Index
233
Other InformationJohnson MattheyAnnual Report and Accounts 2019
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 2018 to 31st March
2019. Our last annual report was published in June 2018.
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 239. 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.
These definitions are using in goals 1 and 2, and the “People” section on pages 60 to 75 of this report.
Reported as “Employees”
Reported as “Contractors”
Permanent
employees
Temporary
employees
Agency employees
Outsourced function
Specialist service
Projects
Continuously site
based.
Continuously site
based.
Continuously site
based.
Continuously or
regularly site based.
One-off project or
regularly based on site.
One-off project.
Contract signed
directly between JM
and individual and
paid regular salary and
other benefits by JM.
Fixed term contract
signed directly
between JM and
individual. Paid
regular salary and
other benefits by JM.
Person employed by
an agency
performing tasks that
would normally be
expected to be
undertaken by a JM
employee.
Facility management
– catering, cleaning
or grounds
maintenance; IT and
occupational health,
if outsourced.
Construction work,
capital project work,
major maintenance
activities.
Small scale building
or ground works;
repairing specialist
plant or equipment;
low level
maintenance; small
scale repairs to
offices or other
buildings;
stack monitoring.
Work is directly
supervised by JM.
Work is directly
supervised by JM.
Work is directly
supervised by JM.
Work is supervised by
contractor and
monitored by JM.
Work is supervised by
contractor and
monitored by JM.
Work is supervised by
contractor and
monitored by JM.
234
Johnson MattheyAnnual Report and Accounts 2019Other Information Health and
safety
1
Our
people
2
Low carbon
operations
Health and
Responsible
safety
sourcing
Our
Sustainable
people
products
Community
Low carbon
operations
engagement
Responsible
sourcing
Sustainable
products
Community
engagement
3
4
1
2
5
3
6
4
5
6
Goal 1: Health and safety:
Goal 2: Our people:
Aspire to zero harm
Employee engagement and enablement
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 is the number of new
occupational illnesses diagnosed in the year per 200,000 hours
worked in a rolling 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
Health and
safety
Our
people
+
+
r
k
• A slip injury occurs where there is too little friction or traction between
an individual’s footwear and the walking surface.
1
2
• 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).
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; and
• employee enablement = how well employees’ jobs and work
environment support peak performance in Johnson Matthey.
Diversity and inclusion (D&I) progress
A detailed roadmap of activities to be completed on JM’s journey
to D&I excellence out to 2025 has been approved. To measure our
progress we have introduced a target based upon the Refinitiv
Diversity & Inclusion Index. This internationally-recognised standard
is very comprehensive and helps us benchmark against the full range
of activities within our D&I agenda. Their scoring methodology can be
+
downloaded at:
r
+
r
https://www.refinitiv.com/en/financial-data/indices/diversity-and-inclusion-index
k
k
Low carbon
operations
3
Responsible
sourcing
Sustainable
products
Community
engagement
4
5
6
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 2018. We include carbon dioxide
(CO2), nitrous oxide (N2O), refrigerant and methane (CH4) process
emissions to air in our Scope 1 calculations.
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 2016
made available in the 2018 edition of the world CO2 emissions
database of the International Energy Agency. They were purchased
under licence in November 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.
235
Other InformationJohnson MattheyAnnual Report and Accounts 2019 Basis of reporting – non-financial data continued
Our
people
Our total operational carbon footprint is based on:
Health and
safety
• Scope 1 emissions – generated by the direct burning of fuel
4
1
(predominantly natural gas) and process derived greenhouse
gas emissions (CO2, N2O, CH4 and refrigerants).
Low carbon
operations
3
2
Responsible
sourcing
• Scope 2 emissions – generated from grid electricity and steam
use at our facilities.
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 57.
Since 2016/17 we have used a carbon intensity target,
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 business, 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
Health and
safety
1
Our
people
2
Low carbon
operations
Responsible
sourcing
Sustainable
products
Community
engagement
3
4
5
6
Goal 4: Responsible sourcing:
Sustainable supplier assessment and compliance
Our ambition is to ensure all our Tier 1 strategic suppliers understand,
accept and comply with the terms of JM’s Supplier Code of Conduct,
which can be found on our website in a variety of languages at
matthey.com/supplier-code-of-conduct.
We use a risk-based approach to determine what level of
assessment and audit is required to monitor a supplier’s performance.
All suppliers counted under this target are required to complete a
bespoke self-assessment questionnaire and return key certificates and
policy documents to demonstrate their adherence. This questionnaire
is scored by JM using our in-house methodology. Selected suppliers
may then be subject to onsite audit, by JM in-house auditors, to verify
the responses received within the self-assessment questionnaire.
A strategic supplier is defined using JM in-house criteria.
236
Sustainable
products
Community
engagement
5
6
Goal 5: Sustainable products:
Sustainability impacts of our products
We have established two streams by which we measure and track
the positive impact of our products towards a cleaner, healthier world:
(a) We use a sales lens to quantify product impacts. We measure the
correlation and classification of annualised sales of JM’s products,
services and technologies against the United Nations Sustainable
Development Goals (UN SDGs). Sales are excluding precious
metals and reflect external sales only. By increasing the absolute
and percentage of JM’s sales that contribute to the UN SDGs, we
will be increasing our global impact.
A judgement is made as to whether the products or services
within each of JM’s business units contribute to the UN SDGs
either directly, or by enabling another product to contribute.
This is done by considering their attributes and intended purpose,
and cross-referencing these against the 169 target descriptors of
the 17 UN SDGs. Where appropriate, consideration is also given
to the 232 indicators that have been released to accompany the
UN SDG targets.
(b) We have set four quantitative key performance indicators (KPIs)
that capture the sustainability benefits our products bring to
society when used by our customers. These are aligned with
JM’s vision and strategy, and focus on the UN SDGs that are
most material to our stakeholders or most relevant to our
business impact. The KPIs include:
• The tonnes of pollutants (oxides of nitrogen, carbon monoxide,
hydrocarbons and particulate matter) removed using our products
and services. This includes pollutants removed by both our
automotive and stationary emission control technologies, as sold
and used in a given year. The calculation is based on the efficacy
of our products to remove pollutants in order to meet legislative
requirements. This KPI contributes to both UN SDG 3 – Good Health
and Wellbeing and UN SDG 11 – Sustainable Cities and Communities.
• The number of lives positively impacted by innovation in JM’s
pharmaceutical products. This includes chronic and non-chronic
illnesses treated by our pharmaceutical products, as sold and used
in a given year. The calculation is based on our market share of
various therapies by volume and considers products we have
launched since April 2015. This KPI contributes to UN SDG 3 –
Good Health and Wellbeing.
• The tonnes of greenhouse gases removed using our products and
services, expressed as tonnes of carbon dioxide equivalent (CO2 eq).
This includes CO2 eq removed by Johnson Matthey’s installations of
nitrous oxide abatement catalyst in nitric acid plants, as operating
in a given year. Calculations are made using the ACM0019 Case 2
methodology of the Clean Development Mechanism, United
Nations Framework Convention on Climate Change (UNFCCC).
This KPI contributes to UN SDG 13 – Climate Action.
Johnson MattheyAnnual Report and Accounts 2019Other Information • The tonnes of greenhouse gases avoided using our products
and services, expressed as tonnes of carbon dioxide equivalent
(CO2 eq). This includes CO2 eq avoided from the use of JM’s
battery materials and fuel cell components in key applications.
The calculation is based on emission savings compared to
conventional technologies used in their respective applications
and considers any CO2 associated with fuelling the products.
This KPI contributes to UN SDG 13 – Climate Action.
Both (a) and (b) are calculated using Johnson Matthey’s in-house
methodology.
Health and
safety
1
Our
people
2
Low carbon
operations
Responsible
sourcing
Sustainable
products
Community
engagement
3
4
5
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
employee time
total employee benefits
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.
237
Other InformationJohnson MattheyAnnual Report and Accounts 2019 Our framework and our six sustainable business goals
Our sustainable business framework is 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 goals and our progress towards them is summarised in the table below.
Sustainable
business goal
Sustainable
business KPIs
Baseline measure
Baseline
2018/19
Health and
safety
1
Health and
safety
1
Our
people
2
Health and
safety
1
Our
people
2
Our
people
2
Low carbon
operations
3
Low carbon
operations
Responsible
sourcing
3
4
Health and
safety
1
Our
people
For health and safety,
aspire to zero harm
Low carbon
operations
2
3
Annual LTIIR
4
Annual OSHA severity rate
Annual TRIIR
Responsible
sourcing
TRIIR in 2016/17
Sustainable
products
Community
engagement
5
LTIIR in 2016/17
6
Rate in 2016/17
Ensure JM is truly inclusive,
Low carbon
fostering employee
operations
engagement and
3
development within a
diverse global workforce
4
Responsible
sourcing
Employee engagement
index score (%)
Sustainable
products
Employee enablement
5
index score (%)
Diversity and inclusion
plan implementation (%)
2016/17
Community
engagement
2016/17
6
Refinitiv Diversity &
Inclusion score in 2018
Reduce our greenhouse
Responsible
sourcing
gas (GHG) emissions
4
per unit of production
output by 25%
5
Sustainable
products
Annual GHG emissions
Community
engagement
(Scope 1+2) / tonnes
6
manufactured
product sold
Sustainable
Improve sustainable
products
business practices in our
6
5
supply chains
Community
engagement
Tier 1 strategic suppliers
assessed and compliant with
Supplier Code
of Conduct
Health and
safety
1
Our
people
2
Low carbon
operations
Responsible
sourcing
Sustainable
products
4
5
Community
engagement
Double the positive impact
that JM’s products
6
make on a cleaner,
healthier world
Annual sales giving
contribution to UN SDGs
Annual aggregation of
product sustainability
benefits in key areas
1.00
0.48
18.51
62%
0.97
0.53
27.9
59%
2025
target
0.6
0.2
6.0
73%
63%
63%
72%
45%
45%
78%
3.8
2.9
2.8
11%
17%
100%
73%
76%
100%
86.92
87.3
>90%
3.54m2
3.43m
7.08m2
138,000
181,000
920,000
10.6m
10.1m
21.2m
213,000
216,000
426,000
CO2 eq emissions
intensity for 2016/17
% of Tier 1 strategic
suppliers assessed
in 2017/18
% of these compliant
with the code
2017/18 sales data
against UN SDG indicators
(% of group sales)
2017/18 data relating to:
Tonnes of
pollutants removed
Number of lives
positively impacted
Tonnes of GHGs
removed (CO2 eq)
Tonnes of GHGs
avoided (CO2 eq)
Health and
safety
1
Our
people
2
3
Low carbon
operations
Responsible
sourcing
Sustainable
products
Community
engagement
5
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
678
1,794
(cumulative
total)
50,000
1 Restated due to injuries and illnesses that were reported or reclassified after the year end.
2 Restated to reflect updated methodology as described on pages 235 to 237.
238
3
4
Johnson MattheyAnnual Report and Accounts 2019Other Information 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 and are subject to limited audit.
Johnson Matthey also uses external specialists to review specific 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).
Independent greenhouse gas and health and safety assurance statement
Independent assurance
Assurance conclusion
Based on the assurance procedures followed by Carbon Smart on the
scope of Johnson Matthey’s data across the 2018/19 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 their GHG emissions,
specified environmental impacts and health and safety incident rates.
• Worthy of the award of limited assurance
This conclusion should be read with Carbon Smart’s full assurance
statement available at matthey.com/non-fin-assurance-2019.
In 2018/19 we appointed consultancy Carbon Smart to provide
independent external assurance of both our 2018/19 emissions and
our key metrics quantifying our environmental, health and safety
performance. Carbon Smart has provided the following summary
assurance statement:
“Carbon Smart confirms that Johnson Matthey’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 have received 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.“
Objectives and methodology
The objectives of this engagement were to ensure that the Johnson
Matthey values in scope were free of material misstatements within
an acceptable, agreed materiality threshold and to provide the
relevant, material information required by stakeholders for the
purpose of decision making.
Johnson Matthey’s GHG inventory and quantification of
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. The subject matter also adheres to
the ISAE 3410 principles related to both the quantification of emissions
and presentation of disclosures.
Carbon Smart has been independently appointed by Johnson
Matthey and no member of the assurance team has a business reason
for bias with regards to the limited assurance engagement. Carbon
Smart applies quality control and management approaches equivalent
to ISO 9001 International Standard as encompassed its Quality and
Ethics Policies.
239
Other InformationJohnson MattheyAnnual Report and Accounts 2019 GRI Standard Content Index
This report has been prepared in accordance with GRI Standard: Core Option
General disclosures in accordance with GR1 102
Disclosure
Organisational profile
Name of the organisation
Activities, brands, products and services
Location of headquarters
Location of operations
Ownership and legal form
Markets served
Scale of the organisation
Information on employees and other workers
Supply chain
Significant changes to the organisation and its supply chain
Precautionary principle or approach
External initiatives
Membership of associations
Strategy
Statement from senior decision maker
Key impacts, risks and opportunities
Ethics and integrity
Values, principles, standards and norms of behaviour
Mechanisms for advice and concerns about ethics
Governance
Governance structure
Delegating authority
Executive level responsibility for economic, environmental and social topics
Consulting stakeholders on economic, environmental and social topics
Composition of the highest governance body and its committees
Chair of the highest governance body
Nominating and selecting the highest governance body
Conflicts of interest
Role of highest governance body in setting purpose, values and strategy
Collective knowledge of highest governance body
Evaluating the highest governance body’s performance
Identifying and managing economic, environmental and social impacts
Effectiveness of risk management processes
Review of economic, environmental and social topics
Highest governance body’s role in sustainability reporting
Communicating critical concerns
Nature and total number of critical concerns
Remuneration policies
Process for determining remuneration
Stakeholders’ involvement in remuneration
Annual total compensation ratio
Percentage increase in annual total compensation ratio
Stakeholder engagement
List of stakeholder groups
Collective bargaining agreements
Identifying and selecting stakeholders
Approach to stakeholder engagement
Key topics and concerns raised
Reporting practice
Entities included in the consolidated financial statements
Defining report content and topic boundaries
List of material topics
Restatements of information
Changes in reporting
Reporting period
Date of most recent report
Reporting cycle
Contact point for questions regarding the report
Claims of reporting in accordance with the GRI Standards
GRI content index
External assurance
240
GRI code
Page
102-1
102-2
102-3
102-4
102-5
102-6
102-7
102-8
102-9
102-10
102-11
102-12
102-13
102-14
102-15
102-16
102-17
102-18
102-19
102-20
102-21
102-22
102-23
102-24
102-25
102-26
102-27
102-28
102-29
102-30
102-31
102-32
102-33
102-34
102-35
102-36
102-37
102-38
102-39
102-40
102-41
102-42
102-43
102-44
102-45
102-46
102-47
102-48
102-49
102-50
102-51
102-52
102-53
102-54
102-55
102-56
247
4-5; 41-43
247
5
151-154
41-42
4-5; 148; 175-178; 242-243
63-65; 181
49-51
none
not disclosed
50, 55
73
6-12
24-29; 91-96
61; 65; 68;112
68-69
91; 108-109
108-109
109-111
27-29
100-103; 108-109
100
112-113; 119-122
113
108-112
100-103
114-115
109-111
116
110-111
2; 239
68; 109; 117
68
132-138
132-133; 142-143
150
not disclosed
not disclosed
28-29; 117
66
not disclosed
28-29; 73; 117-118
27
216-218
234-237
27
73; 238
none
1
1
246
247
1; 240
240-241
229-231; 239
Johnson MattheyAnnual Report and Accounts 2019Other Information Specific GRI disclosures for Johnson Matthey’s material topics
Sustainability leadership
GRI-103 Management approach 2016
GRI-102 General disclosures 2016
Financial sustainability
GRI-103 Management approach 2016
GRI-201 Economic performance 2016
Health and safety
GRI-103 Management approach 2016
GRI-403 Occupational health and safety 2016
Greenhouse gas emissions
GRI-103 Management approach 2016
GRI-302 Energy 2016
GRI-305 Emissions 2016
Air quality
GRI-103 Management approach 2016
Climate change risk
GRI-103 Management approach 2016
GRI-201 Economic performance 2016
Modern slavery and child labour
GRI-103 Management approach 2016
GRI-408 Child labour 2016
GRI-409 Forced or compulsory labour 2016
Products lifecycle management
GRI-103 Management approach 2016
GRI-416 Customer health and safety 2016
GRI-417 Marketing and labeling 2016
GRI-301 Materials 2016
GRI-306 Effluents and waste 2016
Water use
GRI-103 Management approach 2016
GRI-303 Water 2016
GRI-306 Effluents and waste 2016
Ethical business practices and compliance
GRI-103 Management approach 2016
GRI-205 Anti-corruption 2016
GRI-206 Anti-competitive behaviour 2016
GRI-415 Public policy 2016
GRI-419 Socioeconomic compliance 2016
Resource scarcity
GRI-103 Management approach 2016
GRI-301 Materials 2016
Employee recruitment and retention
GRI-103 Management approach 2016
GRI-102 General disclosures 2016
GRI-401 Employment 2016
GRI-404 Training and education 2016
Responsible sourcing
GRI-103 Management approach 2016
GRI-308 Supplier environmental assessment 2016
GRI-414 Supplier social assessment 2016
GRI-407 Freedom of association and collective bargaining 2016
Diversity and inclusion
GRI-103 Management approach 2016
GRI-405 Diversity and equal opportunity 2016
GRI-406 Non-discrimination 2016
Community engagement
+
GRI-103 Management approach 2016
GRI-413 Local communities 2016
r
+
r
+
+
r
GRI code
Page
103
102-14; 102-29
6; 14-27; 30-33; 239
6-12; 109-111
103
201-3
86-90; 123-131; 223-231
195-203
103
403-1; 403-2; 403-4
32; 61; 69-73; 234-235; 238-239
70; 72-73; 238
103
302-1; 302-3; 302-4
305-1; 305-2; 305-3; 305-4
31; 52-53; 57; 234-236; 238-239
52; 56-57
31; 56-57
103
103
201-2
103
408-1
409-1
103
416-1; 416-2
417-1; 417-2
301-3
306-2; 306-3; 306-4
103
303-1; 303-3
306-1
103
205-1; 205-2; 205-3
206-1
415-1
419-1
103
301-2
103
102-8
401-1
404-2; 404-3
103
308-1; 308-2
414-1; 414-2
407-1
103
405-1; 405-2
406-1
103
413-1
44; 57-58; 236; 238
45-47; 55
CDP disclosure
50-51
50
50
53-55; 239
53-55
55
not disclosed
56; 58-59
55; 58-59; 234; 239
58-59
59
61; 68-69; 96; 109-111
68
not disclosed
153
55; 59
94
not disclosed
32; 62-65; 74-75; 234-235; 238
63-65; 181
62-63
64-65
32;49-51; 236; 238
50
50
50
65-66; 235; 238
64-65
50; 68
33; 67; 237-238
not disclosed
matthey.com/gri-2018-19
k
k
k
241
Other InformationJohnson MattheyAnnual Report and Accounts 2019 Shareholder information
Johnson Matthey share price as at 31st March
2014
2015
2016
2017
2018
2019
3,271p
3,386p
2,744p
3,080p
3,042p
3,142p
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
101,861,528
45,859,596
25,432,034
5,282,639
1,259,570
19,245,239
198,940,606
Number
of shares
85,394,241
29,476,617
12,816,752
4,822,183
6,946,853
7,474,649
6,401,014
1,055,536
44,552,761
Percentage
51.2
23.1
12.8
2.6
0.6
9.7
100.0
Percentage
42.9
14.8
6.5
2.4
3.5
3.8
3.2
0.5
22.4
198,940,606
100.0
Number
of shares
1,538,629
3,468,914
12,727,092
58,223,768
49,135,163
73,847,040
Percentage
0.8
1.7
6.4
29.3
24.7
37.1
Number
of holdings
Percentage
5,116
1,255
376
194
28
8
6,977
73.3
18.0
5.4
2.8
0.4
0.1
100.0
198,940,606
100.0
Johnson Matthey share price five year performance versus FTSE 100
Rebased to 100 at 1st April 2014
By Location
140
120
100
80
60
40
March 2014
March 2015
March 2016
March 2017
March 2018
March 2019
Johnson Matthey
FTSE 100
242
Rest of World
0.6%
Unidentified
9.7%
Asia Pacific
2.6%
USA and
Canada
23.1%
Continental
Europe
12.8%
UK and
Eire
51.2%
Johnson MattheyAnnual Report and Accounts 2019Other Information 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
2015
2016
2017
2018
2019
Interim
Final
Total ordinary
Special
18.5
49.5
68.0
–
19.5
52.0
71.5
150.0
20.5
54.5
75.0
–
21.75
58.25
80.0
–
23.25
62.25
85.5
–
Johnson Matthey has a progressive dividend. The board is proposing
a final dividend for 2018/19 of 62.25 pence to take the total for the
year to 85.5 pence, which is 7% up reflecting our strong performance,
continued delivery against our strategy and confidence in the group’s
future growth 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
jmir@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.
By Category
By Size of holding
Other
22.4%
Investment
and
unit trusts
42.9%
Charities
0.5%
Sovereign
wealth funds
3.2%
Treasury shares and
employee share schemes
3.8%
Insurance companies
3.5%
1 – 1,000
0.8%
1,001 – 10,000
1.7%
10,001 –
100,000
6.4%
5,000,001
and over
37.1%
100,001 –
1,000,000
29.3%
Custodians
2.4%
Individuals
6.5%
Pension funds
14.8%
1,000,001 – 5,000,000
24.7%
243
Other InformationJohnson MattheyAnnual Report and Accounts 2019 Glossary of terms
2006 Act
ADHD
ADR
AGM
APB
API
BEV
CAGR
Capital
expenditure to
depreciation
ratio
CCS
CDP
CEFIC
CGU
CH4
CHP
CO
CO2
COD
CPI
CSR
D&I
DRIP
EBITDA
EHS
EIB
eLNO®
The Companies Act 2006
Attention Deficit Hyperactivity Disorder
American Depositary Receipt
Annual general meeting
Auditing Practices Board
Active pharmaceutical ingredient
Battery electric vehicle
Compound annual growth rate
Capital expenditure 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
Carbon capture and storage
Carbon Disclosure Project
The Council of European Chemical Industry
Cash-generating unit
Methane
Combined heat and power
Carbon monoxide
Carbon dioxide
Chemical oxygen demand
Consumer price index
Corporate social responsibility
Diversity and inclusion
Dividend Reinvestment Plan
Earnings before interest, tax, depreciation and
amortisation
Environment, health and safety
European Investment Bank
JM’s portfolio of next generation ultra high energy
density battery material
Earnings per share
Environment, social and governance
Employee Share Ownership Trust
European Union
Financial Conduct Authority
Fuel cell electric vehicle
Financial Reporting Council
EPS
ESG
ESOT
EU
FCA
FCEV
FRC
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
Technology which converts hydrogen or other fuels
(methanol, natural gas) into clean electricity
Generally accepted accounting principles
Greenhouse gas
Group Management Committee
Gasoline particulate filter
Global Reporting Initiative
Global warming potential
Heavy duty diesel
Heavy duty vehicle
Human resources
Health Science Research Group
International Accounting Standards
International Accounting Standards Board
Internal combustion engine
International Financial Reporting
International Financial Reporting Standards
The International Chamber of Commerce’s
International Commercial Terms
International Standards on Auditing
Fuel cell
GAAP
GHG
GMC
GPF
GRI
GWP
HDD
HDV
HR
HSRG
IAS
IASB
ICE
IFRIC
IFRS
Incoterms®
ISA
244
ISO 14000
ISO 19001
ISO 50001
JM
JMEPS
KfW
KPI
LCH
LDV
LFP
LTIIR
LTIP
Margin
Internationally recognised series of standards which
specify the requirements for an environmental
management system
International standard giving guidelines for
management systems auditing
International standard giving guidelines on an
energy management system
Johnson Matthey
Johnson Matthey Employees Pension Scheme
KfW IPEX – Bank GmbH
Key performance indicator
Low carbon hydrogen
Light duty vehicle
Lithium iron phosphate, a cathode material
Lost time injury and illness rate
Long term incentive plan
Underlying operating profit divided by sales
excluding precious metals
Membrane electrode assembly
Oxides of nitrogen
New product introduction
MEA
NOx
NPI
OHSAS 18001 Internationally recognised standard on occupational
OSHA
OTC
PARS
PBT
Pgm
PILON
PSP
PSRM
R&D
RC 14001
RDE
REACH
ROIC
RPI
RSP
SAICM
Sales
SIC
SIP
SMR
SOx
SPV
SVHC
Terawatt hour
The Code
TPI
TRIIR
TSCA
UN
UN SDGs
VOC
Working
capital days
ZEV
health and safety management
Occupational Safety and Health Administration
Over-the-counter
Prior Approval Required Substances
Profit before tax
Platinum group metal
Payments in lieu of notice
Performance share plan
Process safety risk management
Research and development
An internationally recognised standard, an expansion
of ISO 14001
Real world driving emissions standards
Registration, Evaluation, Authorisation and
Restriction of Chemicals Regulation
EU chemical control legislation which came into
force in June 2007
Return on invested capital
Retail price index
Restricted share plan
Strategic Approach to International Chemicals
Management
Sales excluding the value of precious metals
Standing Interpretations Committee
Share incentive plan
Steam methane reforming
Oxides of sulphur
Special purpose vehicle
Substance of very high concern
Billion kilowatt hours
The UK Corporate Governance Code, issued by the FRC
Third party intermediary
Total recordable injury and illness rate
Toxic Substances Control Act
United Nations
United Nations Sustainable Development Goals
Volatile organic compound
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
Zero emission vehicle
Johnson MattheyAnnual Report and Accounts 2019Other Information Index
Accounting policies
Accounts
Amortisation of acquired intangibles (note 7)
Audit Committee Report
Audit fees (note 10)
Auditor’s report
Balance Sheets
Basis of reporting – non-financial data
Board of Directors
Borrowings (note 24)
Business model
Capital expenditure (and note 1)
Capital structure
Cash and cash equivalents (note 24)
Cash flow hedges transferred to income statement
(note 31)
Cash Flow Statement
Chairman’s letter
Chairman’s statement
Changes in accounting policies and restatements
Changes in equity
Chief Executive’s statement
Clean Air – performance review
Commitments (note 35)
Community investment and charitable programmes
Company details
Comprehensive income (and note 14)
Contingent liabilities (and note 36)
Corporate Governance Code
Corporate Governance Report
Customers
Deferred taxation (notes 13, 29)
Depreciation and amortisation (note 9)
Directors’ Report
Dividends (and note 31)
Earnings per ordinary share (note 15)
Effect of exchange rate changes (note 3)
Efficient Natural Resources – performance review
Employee numbers and costs (note 11)
Employee share ownership trust (ESOT) (note 31)
Environmental performance
Fair values (note 33)
Financial assets and liabilities (note 26)
Financial calendar
Financial review
Financial risk management (and note 32)
Foreign exchange gains and losses (note 9)
Free cash flow
Global Reporting Initiative (GRI)
Glossary of terms
Going concern
Goodwill (note 17)
Governance
Grants
Group Management Committee
Group performance review
Guarantees (note 28)
Health – performance review
Health and safety
Human resources policies
Human rights
Income Statement
Intangible assets (note 18)
Inventories (notes 9, 22)
Page
163-172
156-231
179
123-131
180
223-231
159
234-237
100-102
191
22-23
88-89, 173-175
89
191
204
160
104
6-9
219-222
161-162
10-12
80-81
215
67
247
158, 183
89, 215
105
106-118
41-47
182, 194-195
180
151-154
89, 151, 203
183
178
82-83
181
203
56-59
211-212
192
246
86-89
90, 206-210
180
89
240-241
244
90
185-186
98-155
166
13
77
193-194
83-84
69-73
62-67
50-51
158
187
180, 189
Page
188
188-189
4-5
216
30-33
87, 179
179
87, 180
27
51
192
Investments in joint venture and associate (note 20)
Investments through other comprehensive income (note 21)
JM in profile
Key management personnel (note 37)
Key performance indicators
Loss on disposal of businesses (and note 5)
Loss on significant legal proceedings (note 6)
Major impairment and restructuring charges (and note 8)
Materiality assessment
Modern slavery and child labour
Movements in assets and liabilities arising from
financing activities (note 25)
Net debt (and note 24)
New Markets – performance review
Net finance costs (note 12)
Nomination Committee Report
Non-controlling interests
Operating leases (notes 9, 35)
Operating profit (note 9)
Operations
Other reserves (note 31)
Outlook
Payables (note 27)
People
Performance highlights
Post-employment benefits (and note 30)
Product lifecycle regulatory compliance
Product stewardship
Property, plant and equipment (note 16)
Provisions (note 28)
Receivables (note 23)
Related parties (note 37)
Related undertakings (note 38)
Remuneration Report
Research and development (and note 9)
Responsibility of Directors
Responsible sourcing
Return on invested capital (and note 31)
Revenue (note 2)
Risks and uncertainties
Science
Sector performance review
Sector performance summary
Segmental information (note 1)
Share-based payments (note 34)
Share capital (and note 31)
Shareholder information
Sources of estimation uncertainty
Stakeholder communications
Stakeholders
Strategic Report
Strategy
Structure
Subsidiaries (notes 19, 38)
Sustainability framework
Sustainable business goals
Taxation (and notes 13, 14, 29)
Trade and other payables (note 27)
Trade and other receivables (note 23)
Treasury policies
Underlying profit reconciliations (note 4)
Values
Verification of non-financial data
Viability
89, 191
84-85
181
119-122
161
180, 215
180
49-59
203-206
12
193
61-75
Intro pages
88, 195-203
55
54
184-185
193-194
190
216
216-218
132-150
35-39, 180
155
49-51
89, 205
176-178
91-96
35-39
78-85
78-79
173-175
212-214
118, 203-206
242-243
170
73
28-29
2-97
14-21
4-5
188, 216-218
24-27
24-25, 234-238
88, 182-183, 194-195
193
190
90
179
22-23, 61
239
97
245
Other InformationJohnson MattheyAnnual Report and Accounts 2019 Financial calendar 2019/20
2019
6th June
Ex dividend date
2020 (provisional)
4th February
Payment of interim dividend
7th June
Final dividend record date
28th May
Announcement of results for year ending 31st March 2020
17th July
128th Annual General Meeting (AGM)
6th August
4th June
Ex dividend date
5th 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 2019
23rd July
129th AGM
4th August
28th November
Ex dividend date
29th November
Interim dividend record date
Payment of final dividend subject to declaration at the AGM
246
Johnson MattheyAnnual Report and Accounts 2019Other Information Company details
Registered Office
Johnson Matthey Plc
5th Floor
25 Farringdon Street
London EC4A 4AB
Telephone: +44 (0)20 7269 8400
www.matthey.com
E-mail: jmpr@matthey.com
Johnson Matthey Plc is a Public Limited Company registered in England – Number 33774
J. P. Morgan Cazenove
25 Bank Street
Canary Wharf
London E14 5JP
Professional Advisers
Auditor
PricewaterhouseCoopers LLP
1 Embankment Place
London WC2N 6RH
Brokers
Citigroup Global Markets Limited
Citigroup Centre
33 Canada Square
London EC14 5LB
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.
247
Other InformationJohnson MattheyAnnual Report and Accounts 2019 eLNO is a trademark of Johnson Matthey Public Limited Company.
Printed by Pureprint Group Limited, a Carbon Neutral Printing Company. Pureprint Group Limited is
FSC certified and ISO 14001 certified showing that it is committed to all round excellence and improving
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www.matthey.com/AR19
Johnson Matthey Plc
5th Floor
25 Farringdon Street
London EC4A 4AB
UK
Tel: +44 20 7269 8400