Johnson Matthey Annual Report 2020

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FY2020 Annual Report · Johnson Matthey

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2020 Annual Report
2020 Annual Report

and Accounts
and Accounts

Our report for 2020

Unless otherwise stated, performance data is for the year ended 31st March 2020.

Sustainability reporting

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This report is written to the Global Reporting Initiative (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

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to help you find further information about the group.

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Principal risk

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Contents

2019/20 in numbers

Governance

Strategic Report

JM in profile
Chair’s statement
Our COVID-19 commitments
Chief Executive’s statement

4
6
9
10
13 Group Management Committee (GMC)
14 Markets and opportunities
16 Our strategy
20 Our science in action
22 Our business model
24 Our sustainability framework
28 Our stakeholders
32
34 Our KPIs

Section 172 statement

37 Non-financial information statement

38 Responsible business

39 Health and safety
41 People
46
Environment
49 Responsible sourcing
Sustainable products
50
52
Community and social impact
Financial performance review
53 Group performance review
Sector performance review
54
Clean Air
56
57
Efficient Natural Resources
58 Health
60 New Markets
61
65 Going concern and treasury policies

Financial review

67 Risks and uncertainties

Viability

Cautionary statement

Letter from the Chair
Corporate Governance Report

78 Board of Directors
81
82
92 Nomination Committee Report
95 Audit Committee Report
103 Remuneration Report
123 Directors’ Report
127 Responsibilities of Directors

Accounts

130 Consolidated Income Statement
130 Consolidated Statement of Total Comprehensive Income
131 Consolidated and Parent Company Balance Sheets
132 Consolidated Cash Flow Statement
133 Consolidated Statement of Changes in Equity
134 Parent Company Statement of Changes in Equity
135 Accounting policies
145 Notes on the accounts
203

Independent auditors’ report

Other information

216 Basis of reporting – non-financial data
219

Independent greenhouse gas and health & safety
assurance statement

220 Additional environmental performance information
222 GRI Standard Content Index
224 Shareholder information
226 Glossary of terms
227
228 Financial calendar 2020/21
228 Company details

Index

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.

Johnson Matthey / Annual Report and Accounts 2020

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.

Inspiring science, enhancing life

2019/20 in numbers – good progress prior to COVID-19; confident in the
strength of our business

Investing in our science
Gross R&D spend

Supporting our people
Lost time injury and illness rate1
Employee engagement index score3

Delighting our customers
Revenue
Sales4 *
Operating profit
Underlying operating profit6,*

Running our business better
Average working capital days6,*
Free cash inflow / outflow6,*
Operational carbon footprint

Year ended 31st March

2020

2019

Change

£199 million

£190 million

+5%

0.35
63

0.572
59

-39%
+4

£14,577 million
£4,170 million
£388 million
£539 million

£10,745 million
£4,214 million
£531 million
£566 million

63 days
£52 million inflow
391,459 tonnes
CO2 equivalent

59 days
£13 million outflow
423,123 tonnes7
CO2 equivalent

+36%
-2%5
-27%
-6%5

+4 days

-7%

Creating value for our shareholders
Return on invested capital6,*
Earnings per share
Underlying earnings per share6,*
Ordinary dividend per share

13.3%
132.3p
199.2p
55.625p

16.4%
215.2p
228.8p
85.5p

-39%
-13%
-35%

* The group uses various non-GAAP measures which are not defined by generally accepted accounting principles (GAAP) as we believe these provide valuable additional

information in understanding the group’s performance. For further details, see note 35 on page 198.

1 For definition see page 217.

2 Restated, see page 40.

3 For definition see page 42.

4 Sales excluding precious metals. For definition see page 198.

5 At constant rates (see note 2 on page 53).

6 For definition see page 198.

7 Restated, see page 216.

Johnson Matthey / Annual Report and Accounts 2020

Strategic Report

Strategic
Report

Here we explain how we use our inspiring
science to enhance life.

Johnson Matthey / Annual Report and Accounts 2020

38 Responsible business

Financial review

67 Risks and uncertainties

Viability

Contents

JM in profile
Chair’s statement
Our COVID-19 commitments
Chief Executive’s statement

Section 172 statement

37 Non-financial information statement

Strategic Report

Johnson Matthey / Annual Report and Accounts 2020

Strategic Report

in profile

We put our inspiring
science to work

tackling the world’s
big challenges

Our vision is for
a world that’s
cleaner and
healthier; today
and for future
generations.

• Catalysis

• Characterisation and modelling

• Chemical synthesis

• Electrochemistry

• Material design and engineering

• Platinum group metals (pgms)

and specialist metallurgy

• Process optimisation

• Product formulation

• Surface chemistry and coatings

Clean air for all

Achieving more
with less

Affordable, accessible
healthcare

A new era of clean
energy

Our key highlights

Sales1
excluding precious metals

£4.2bn

Sales by sector

excluding precious metals

New
Markets
9%

Health
5%

Eﬃcient
Natural
Resources
23%

Operating profit

reported

£388m

Operating profit

underlying

£539m

Operating profit (excludes £38 million
of corporate costs)

underlying

Health
5%

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.

Eﬃcient
Natural
Resources
44%

Clean Air
63%

Clean Air
51%

Johnson Matthey is a global leader in science
that makes the world cleaner and healthier.

The world is facing a set of complex
challenges: climate change; 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.

Using our expertise in science at the
atomic scale, JM is developing the
solutions that create value for our
customers and have an impact globally,
making the world cleaner and healthier;
today and for future generations.

delivered through four
global sectors

to solve our customers’
complex problems.

Clean Air

See page 56 for more information

Efficient Natural
Resources

See page 57 for more information

Health

See page 58 for more information

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New Markets

See page 60 for more information

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A global leader in catalysts and catalyst systems to reduce
emissions from vehicles and industry, serving the automotive
and energy markets.

Products and processes that transform, conserve and recycle scarce
resources using less energy and fewer raw materials across the
chemicals, energy, automotive and pharmaceutical markets.

Core capabilities in complex chemistry, manufacturing and scale up
to create active pharmaceutical ingredients (APIs) and other
solutions for niche areas primarily in the pharmaceutical market.

Applying our science into emerging opportunities, such as battery
materials and fuel cells, enabling the once in a generation shifts
occurring in the automotive, chemicals and energy markets.

Where we operate

Over 30 countries
~15,350 people

North America
11 major manufacturing facilities
30% of group sales

Europe
14 major manufacturing facilities
49% of group sales

18% of employees

57% of employees

Rest of Asia
6 major manufacturing facilities
8% of group sales

China
5 major manufacturing facilities
7% of group sales

Rest of World
5 major manufacturing facilities
6% of group sales

10% of employees

8% of employees

7% of employees

Strategic ReportJohnson Matthey / Annual Report and Accounts 20206

Chair’s
statement

Making a huge contribution
to a more sustainable future

Patrick Thomas
Chair

As I write to you this year, my thoughts are with you all and I hope you are safe and well.

I also want to extend the board’s sincere gratitude to every
single JM employee for their immense efforts and contribution
over the past few months and, indeed, throughout 2019/20.
As I reflect on the past year, I am pleased with the many

changes we are making to strengthen our business, improving
our efficiency and effectiveness in such a changing and volatile
business environment. I call this the ‘known unknown’, but
I doubt that anyone was planning for the ‘unknown unknown’
brought about by the global COVID-19 pandemic.

Robert and the whole leadership team have really stepped
up to the challenge and the rapid and decisive action they have
taken is to be commended. At times of crisis like this, some
leadership teams struggle and some get stronger; the board has
seen the strength of response at JM.

Our fast response to COVID-19 has ensured JM is in a
strong position financially with a solid cash position and a
strong balance sheet. One must also remember that JM is a
highly resilient and diverse business. The nature of our portfolio
means we serve a range of end markets and geographies
which will be impacted by COVID-19 to varying degrees and
timescales. The actions we have taken to protect our people,
maintain good liquidity and a strong balance sheet mean that
we are well positioned to navigate COVID-19 and take advantage
of the opportunities that will emerge. We have also announced
the acceleration of certain strategic initiatives to drive further
efficiency which will deliver savings over the next three years.
However, the economic situation remains extremely dynamic,
especially in our largest market, automotive.

The ongoing uncertainty has required us to take short term

The board is acutely aware of its accountability to maintain

action without losing sight of the long term, and our strong
values have guided us well. As the crisis evolved, it was important
for us to make clear commitments to all of our stakeholders at
such a worrying time.

Read more: Our COVID-19 commitments on page 9

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Taking decisions for all our stakeholders

We have prioritised – without compromise – the health, safety
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and financial security of our employees, customers, suppliers,
shareholders and communities. And we have played our part
in keeping the economy going through supplying countless
products that the world’s pharmaceutical, food and energy
supply chains are reliant on right now.

Who knew that JM’s technologies performed a critical role
in ventilators? Or that Bitrex, a bitter tasting product that stops
accidental swallowing of household cleaning products, is used
to make sure medical grade face masks are correctly fitted?
The board members were united in wanting to do their
bit alongside JM’s 15,000 employees. Each director is adding a
portion of their salaries or fees for April, May and June to a new,
£1 million science education fund that JM has specially created
in the wake of COVID-19. We know that science will help
provide the solution to winning the fight against COVID-19, and
other global challenges. The new fund will be used to break down
the barriers that prevent people choosing to study science.

the long term financial health of JM and its responsibilities to
stakeholders. We have spent significant time considering this
year’s final dividend and have taken a decision which we believe
balances the interests of all our stakeholders.

Notwithstanding the strong financial position of the group,

in light of the current uncertainty and to balance the needs of
all stakeholders, we are proposing a final dividend for the year
of 31.125 pence, representing half the level of the 2018/19
final dividend. This is not intended to be a rebasing; the board
remains committed to a progressive divided and anticipates
restoring future dividend payments to levels seen prior to the
COVID-19 pandemic when circumstances permit.

JM’s sustainable technologies are even more relevant

The big growth drivers of JM’s business are stronger than ever
and the need to balance human prosperity with climate stability
has moved even further up the agenda over the last year.
Through its science, JM continues to make a huge contribution
to a sustainable future – driving down pollution, lowering
carbon footprints for our customers and creating molecules to
combat cancer – and we are orienting our investments towards
the sustainable technologies that will be needed in the not too
distant future.

Strategic ReportJohnson Matthey / Annual Report and Accounts 20207

“The ongoing uncertainty has required us to take short term action without
losing sight of the long term, and our strong values have guided us well.
As the crisis evolved, it was important for us to make clear commitments
to all of our stakeholders at such a worrying time.”

We use a risk lens to get the right balance of capital
allocation across the portfolio, particularly to our investments
that relate to our ability to meet automotive industry demands
as the shift to lower carbon transportation continues. We are
investing significant resources into our eLNO battery materials
technology and focusing carefully on the risk management
of the market, technology and capital investment elements.
As our Clean Air business matures, our investments in new
world class manufacturing plants in Europe and Asia will provide
the physical and metaphorical ‘catalyst’ to move the business
model into a new mode to maximise value over the next decade.

Read more: Risks and uncertainties on pages 67 to 74

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Hydrogen, as a source of clean energy, is a necessary
element in the transition to a clean, low carbon economy
and JM has a unique competitive advantage for this transition.
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Over the last year, customers, governments, regulators and
investors around the world increasingly have been seeing the
importance of hydrogen and are coming to JM as a trusted
expert in hydrogen production and fuel cell technologies.
These aren’t technologies that are still at a research scale;
JM has well developed, scalable technologies in customer
applications today. We have increased investment this year
to accelerate our hydrogen strategy and in October, the board
witnessed JM’s capabilities first hand when we visited our
Fuel Cells business in Swindon, UK.

We also spent time at our operations in China and five of
us visited several US sites giving us ample opportunity to meet
employees from all sectors. The technical competence of our
people always impresses me, and my recent visits reinforce how
deeply rooted it is right across JM. It is unusual for a company
to be able to make that depth of technical expertise available to
customers all around the world; the ability to do so is a genuine
hallmark of JM.

We have met many more stakeholders and
strengthened ways to understand their issues

The board makes it a priority to meet as many of JM’s employees
as we can as it is one of the most valuable ways of assessing the
success of strategy delivery and getting a real feel for the culture
of the organisation.

This year, as part of our response to the new UK Corporate
Governance Code, we expanded and formalised our workforce
engagement mechanisms so we can better understand the
issues on the ground.

We spent time discussing how best to achieve this and,

following a pilot session to test effectiveness, we introduced a
programme of country engagement forums. We will run these
regularly with employees from the UK, China, US and Germany
and members of the board will be directly involved.

I’ve also met more of our shareholders this year. Discussions

focused mostly on how we are managing and prioritising
investments across our business opportunities and there was
increased interest in our sustainability credentials and our role
in enabling a hydrogen economy. JM’s shareholders are among
the most engaged I have met and show a genuine interest in
the company. In January we also hosted an investor lunch
where the board committee chairs and I met with around 25%
of our top 20 institutional shareholders.

So, we have good mechanisms in place for the board to
understand the views of shareholders, employees, customers
and our other stakeholders. Alongside these, I will continue to
be available to our major shareholders throughout the year,
despite not having the opportunity to meet with some you
in person at our AGM in July – which this time will be
conducted virtually.

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Read more: Our stakeholders on pages 28 to 31

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Read more: Our Section 172 statement on pages 32 to 33

Strategic ReportJohnson Matthey / Annual Report and Accounts 20208

Chair’s statement continued

We have continued to create and shape the right
culture and support strategy execution

Every interaction the board and I have had with employees
and shareholders has taught us something about the company
that is new and gives valuable insights on the potential of the
organisation and on its culture.

In my experience, the culture at JM is open and innovative
where people enjoy working together and are really connected
with the amazing things the company does for the world. My
board colleagues and I appreciate the role we play in defining
culture and leading by example, especially when it comes to
safety and doing the right thing. Throughout the year, we took
time to agree how to evolve our culture to keep pace with
strategy. We are developing and improving our understanding
of how we can assess, monitor and test the culture of the
organisation, particularly as it goes through such significant
change as we accelerate our strategic initiatives. We still have
room for improvement, but our site visits and other interactions
with employees are extremely valuable, together with the
feedback we get from employee surveys.

Read more: Our culture ambition on page 41

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Robert and the leadership team have made good progress

this year in executing our strategy for sustained growth and
value creation, which has set us up well to be able to prioritise
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and accelerate our plans in the current climate. As a board, we
have continued to engage in the development of strategy and
ask the really challenging questions.

During the year, we have probed further into the strategies

for each of our sectors and have increased the time spent on
active and regular risk management in our meeting agendas.
Exploring the risk landscape and being more rigorous in using
risk as a lens in business decisions, especially on capital
investments, has translated into specific mitigating actions,
particularly in the eLNO investments.

Board changes have brought new perspectives
and experience

Succession planning, not only at board level, is something
we have spent more time on to ensure we have the depth of
leadership capability required to support the cultural and
business change.

At the board level, we have a good breadth of varied and

strong skills, experience and diversity which bring richness
to our discussions. During the last 12 months we welcomed
Xiaozhi Liu and Doug Webb as Non-Executive Directors. As
I reported in my statement last year, Doug will take over from
Alan Ferguson as Chair of the Audit Committee upon Alan’s
retirement from the board at the end of the AGM in July which
has allowed a good amount of time for a thorough onboarding
and handover. I’d like to thank Alan for his wise counsel and
contributions. We will all miss his challenge and his immense
knowledge of the business. I’m pleased to say, though, that
Doug has shown himself to provide equal challenge since he
joined the team.

At the end of March, after a 36 year career with JM,
including over six years as an Executive Director of the board,
John Walker retired from the company. John led the Clean Air
business successfully for a decade, and on behalf of the company
and its stakeholders, I want to thank him for all he has done for
JM. I am impressed by how professionally he has managed his
handover to Joan Braca, ensuring that the Clean Air business
remains set for continued success for many years to come.
This year, at the end of March, Simon Farrant, Legal

Counsel and Company Secretary also retired after 26 years
in JM during which he has successfully driven the compliance
and governance agenda. Simon has contributed more than you
could ask of any Company Secretary and I thank him for his
many years of support.

Good governance is more important than ever

At this time of change and volatility, compounded by the
COVID-19 pandemic, where we need to maintain financial
strength, our priority is on good governance and retaining our
dynamic risk management processes. This focus will ensure
we ask the right questions of Robert and the team to support
them in driving results for the short and medium term. We will
build on our work last year on succession planning and culture
to support business change and continue to set the tone on
environment, health and safety with a focus this year on
process safety improvement.

Read more: Corporate Governance Report on pages 82 to 91

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Resilient for today with a successful future ahead

I’d like to personally thank our shareholders – including the
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several thousand employees who own company shares – for
their strong interest in the long term opportunities that are
key to the future of JM and for their interest in how we are
managing the transition in our portfolio.

I also want to thank all our people for their dedication
to safe operations, improving efficiency and embracing the
accelerated strategic changes taking place across JM.

These are challenging and dynamic times but JM is in good

shape and we have a sound approach to maintain financial
strength in the short term. This means we can optimise value
creation long term and make the world we all share, a cleaner,
healthier place.

Patrick Thomas
Chair

Strategic ReportJohnson Matthey / Annual Report and Accounts 2020Our COVID-19 commitments

Johnson Matthey / Annual Report and Accounts 2020

Johnson Matthey has a clear vision – for a world that’s
cleaner and healthier; today and for future generations.

We have a strong set of values at the heart of our work, and these have guided
our COVID-19 response.

That’s why we’ve outlined a number of commitments to support our people,
customers, suppliers, shareholders and communities.

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People
We are ensuring the health,
safety, and wellbeing of our
15,000 people.

• Upholding the highest standards of safety in all

working practices.

•

Pledging to make no member of staff redundant as a
direct result of the impact of COVID-19 until the end
of June.

Committing not to use the UK Government’s scheme
for furloughed staff during April, May and June.

Customers and
the relief effort
We are providing vital products
in the world’s most critical
sectors and supply chains.

• Keeping operations running for customers where it’s safe

to do so.

•

Producing:

– products used in ventilators.

– ingredients used in chronic pain relief medication.

– catalysts used in the production of food and energy.

Suppliers
We are helping our value
chain and suppliers navigate
a difficult period.

• Maintaining our payment terms to support all

our suppliers.

•

Pledging to support any small supplier that is suffering
hardship and requests early payment terms as a result
of the impact of COVID-19 during April, May and June.

Communities
Our communities are at
the heart of the fight
against COVID-19, and
we are playing our part.

• Matching all donations made by our employees to funding

local relief efforts.

•

Coordinating a local volunteering programme across JM.

• Manufacturing goggles and visors for community medical

staff and donated spare PPE.

Science
We are looking longer term,
creating a £1 million fund
for STEM education.

•

Creating a special fund for local and regional science
education programmes.

Supporting the fight against COVID-19, future outbreaks,
and other global challenges.

Improving access to a quality science education, and
supporting our vision for a cleaner and healthier world.

Chief Executive’s
statement

Guided by our values and supporting all
our stakeholders in unprecedented times

Robert MacLeod
Chief Executive

Undoubtedly, the world is in a very different place today compared to 12 months ago. Throughout the
year we have witnessed a shift in the urgency for action against climate change and net zero targets
set by several countries around the world. Then, towards the end of the year, there has been the
emergence of COVID-19.

This has brought unprecedented challenges to individuals and
to all businesses but I am pleased at the way JM has stepped up
to those challenges. In the early part of 2020, we started to see
the spread of the virus in China. The actions we put in place
there to look after our people and manage our operations in
line with customer demand stood us in good stead as the virus
took hold across the rest of the world during March. Our priority
has been, and continues to be, the health and safety of our
people, customers, suppliers and communities where we operate,
and I would like to say a heartfelt thank you to all our employees
for their dedication and efforts over the past few months.

We are playing our part to combat this pandemic, supplying

crucial, but often hidden, components into many of the value
chains providing vital products in the health, food or energy
sectors. In addition, our people around the world have applied
their initiative in numerous ways, from manufacturing goggles
and visors and offering them to healthcare professionals, to
lending unused gas storage tanks to hospitals for storing
oxygen. JM and its people are also providing financial support
and volunteering their time to help charity partners and
communities as we work together through COVID-19.

It goes without saying that we have not experienced
anything quite like this in our lifetime. However, we have been
fortunate in being able to draw on our strong set of company
values to guide our decisions, and ensure we consider our
response and commitments to all our stakeholder groups.

Read more: Our COVID-19 commitments on page 9

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We have taken immediate and decisive action to
protect our long term financial health
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Our immediate response to COVID-19 was to assess the
risks and take decisive action to maintain good liquidity
and a strong balance sheet. These measures, which included
cost reduction, tightly managing our operations to optimise
working capital and postponing non-strategic capex, also
positively impacted our cash flow. In mid-March, we
concluded the refinancing of £1 billion of our bank facilities.

We acted quickly, temporarily stopping production at our

Clean Air plants, managing our raw materials purchases across
the group and controlling intakes into our pgm refineries, all
of which preserved our cash position. The effects of COVID-19
did, however, affect our performance towards the end of the
year, adversely impacting our underlying operating profit by
about £60 million overall.

Following the temporary closure of numerous automotive

original equipment manufacturer (OEM) production plants
due to government mandated closures and lower consumer
demand, our Clean Air plants are now gradually resuming
production across all regions. Across the remainder of our
business, the vast majority of our plants are operational and
we have adopted new working practices in line with local
guidelines. Alongside maintaining our operations where it is
safe to do so, we are balancing obligations to our stakeholders
through maintaining payment terms with suppliers and offering
support to small suppliers who may be facing hardship.

Accelerating our strategy to drive efficiency

These are challenging times, but we are well positioned in
an uncertain world. We have a resilient and diverse portfolio,
serving a range of end markets and geographies. As you would
expect, we continue to assess the potential impacts and future
scenarios in the wake of COVID-19 – we give more details on
this on pages 65 and 66. This is a huge shock to the global
system rather than a new structural challenge for our business.
We expect that our markets will recover and we are continuing
with our strategic investments, but a sustained economic
slowdown is likely, and the way we navigate through this period
will be critical to keeping JM healthy and in good shape.

We are also building on our recent investments to drive

efficiency across our manufacturing footprint and our
operations, accelerating areas of our strategy to drive further
efficiency and strengthen our business. There are two areas of
particular focus:

Strategic ReportJohnson Matthey / Annual Report and Accounts 202011

Consolidating Clean Air footprint

In Clean Air, we have been investing in new world class plants in
Europe and Asia. These plants are identical and highly flexible,
allowing us to drive efficiency and increase agility across our
global footprint by consolidating some of our existing older
capacity in Europe into this new capacity.

Driving organisational efficiency

In recent years we have been investing into our corporate
functions. For example, we are rolling out our single global
ERP (enterprise resource planning) system, and have invested
into our global procurement and IT functions to increase our
capability and standardise our processes. This is allowing us to
review our group operating model to remove duplication of
activities between the corporate centre and the sectors, and
reduce complexity across the organisation. A simplified
organisation will enable faster decision making and reduce costs.

We know, from our recent employee opinion survey, that

this duplication can sometimes stifle their ability to do their
jobs. By bringing forward this work to make the way we operate
clearer and simpler, we hope to remove barriers for our people
and create more fulfilling roles.

We are taking a coordinated approach to these initiatives to
manage the risk and drive delivery of the change.
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Business transition risk on page 74

In total, the acceleration of our strategic initiatives will deliver
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annualised savings of at least £80 million over the next three
years of which at least £30 million will benefit 2020/21. We go
into more detail on the breakdown of the savings, along with
the associated costs, on pages 61 and 62.

Pushing forward with our strategy – global trends
remain firmly in place as drivers for growth

These developments do not change the global trends that
will drive our longer term growth. Addressing climate change
remains a priority and commitments to net zero are gathering
pace across the world. The impact of the rising global
population, increasing longevity and natural resource
challenges also remain top of national and international
agendas. With our continued investment in strategic growth
projects and leading sustainable technologies, we remain
uniquely positioned to address these key global trends,
delivering significant value for our shareholders and society.
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Future growth risk on page 71

We made progress in the year against our strategic
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plans and are well placed in the medium term

The group made good progress in 2019/20 and excluding the
effects of COVID-19 we delivered operating performance
slightly ahead of market expectations.

In Clean Air, we continued to benefit from tightening
light duty legislation, especially in Europe and Asia, maintained
our strong market shares in our key segments and continued
to invest in our new, highly efficient world class plants.

However, operating profit was down, primarily driven by a
weak global heavy duty market, the impact of COVID-19,
and inefficiencies within our manufacturing footprint due
to phasing of the completion of our new plant in Poland.
As COVID-19 spread, many of our OEM customers ceased
production which had a knock on impact on our business at
the end of the year. Although they are gradually ramping up
their plants, visibility on the path of recovery remains low.

Efficient Natural Resources, boosted by both strong pgm

prices and success in developing and commercialising new
technologies, posted higher sales with significant growth in
operating profit. However, the stronger pgm prices presented
us with the challenge of managing high metal working capital.
Thanks to a fantastic cross-JM team, we made strong progress
in reducing the volume of precious metal working capital in
our pgm refineries while ensuring continued supply to our
Clean Air business and external customers.

Our Health Sector had a tough year overall because of a
temporary disruption in the opioid addiction therapy market,
although we are well placed for recovery thanks to new
multi-year supply agreements with generic partners. We
made further progress towards delivering an additional
circa £100 million of operating profit from our pipeline of
generic and innovator APIs by 2025, albeit subject to timing
of individual drug launches. During the year we took the
decision to deprioritise certain generic molecules and refocus
our resources on the most attractive opportunities. Just after
year end, we got the great news one of our customers received
regulatory approval for its therapy for triple negative breast
cancer which contains a drug linker manufactured by JM.

In New Markets, the Battery Materials team made significant
progress with the development and commercialisation of eLNO,
our portfolio of leading ultra high energy density cathode
materials. We moved to full cell testing with two global
automotive and two non-automotive customers, collaborating
more intensively with them, which gives us further confidence
that we have the materials our customers seek. We also broke
ground on our first commercial plant in Konin, Poland, which
is expected to be on stream in 2022 and supplying platforms in
production in 2024. As part of the commercialisation process,
we are also securing sources of renewable energy for the site
in Poland. To further support development of eLNO, and our
customers, we are also refocusing our business in lithium iron
phosphate (LFP) battery cathode materials to concentrate on
the high value segment of that market.

It is not only our technologies for battery powered vehicles

that gathered pace this year. There is increasing momentum
around the significant role that hydrogen will play in enabling
the energy transition to a clean, net zero economy. Stemming
from our science, we have a unique competitive advantage for
this transition, with a number of market leading solutions
across the hydrogen value chain including hydrogen production
technologies and fuel cells.

We have developed a new, market leading process to
produce low carbon hydrogen (LCH) or ‘blue’ hydrogen and we
are already starting to commercialise this technology. We are
collaborating on one of the UK’s leading low carbon hydrogen
projects which will use our LCH technology in a refinery for the
first time.

Strategic ReportJohnson Matthey / Annual Report and Accounts 202012

Chief Executive’s statement continued

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Fuel cell technologies will also play a key role in
decarbonisation of transportation, or other power hungry
applications, and it is an area we have built up considerable
expertise over many years. Today, we supply fuel cells for
non-automotive and automotive applications, including
commercial vehicles in China, and we are working with a
number of customers, including major automotive OEMs,
on a variety of applications as this market develops. Not only
did we see sales in our fuel cells business increase this year,
we continue to invest in our technology and have committed
£15 million to double our manufacturing capacity across the
UK and China.

We are actively engaging with industry groups in the

hydrogen space, contributing our unique expertise and
experience to the decisions that are shaping this evolving market.

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Read more: Our operational performance in 2019/20 on pages 53 to 60

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Read more about JM and hydrogen on page 33

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We stayed focused on safety and sustainable business
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Health and safety are the bedrock of our licence to do business.
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An improved performance this year – equivalent to over 1,000
fewer lost days due to injuries and incidents – signals progress
in our work to embed a culture of working safely and making
sure we look after personal wellbeing across JM. Through our
efforts on process safety we have continued to reduce the
risks across our business arising from the hazardous processes
we operate.

More broadly, our sustainable business framework and its

six goals have continued to keep us true to our vision for a cleaner,
healthier world. This year almost 86% of our sales came from
products and technologies that make a positive contribution to
the United Nations Sustainable Development Goals (UN SDGs).

Read more: Our sustainability performance in Responsible business on
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pages 38 to 52

Read more: Our sustainable business framework on pages 24 to 27

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In the leadership team, we said goodbye to some
colleagues and welcomed new ones
k
At the end of the year, JM said farewell and best wishes for
retirement to the two longest serving members of my leadership
team. John Walker, Sector Chief Executive, Clean Air retired
after 36 years at JM, including a decade successfully leading
our Clean Air Sector. Simon Farrant, General Counsel and
Company Secretary also retired after 26 years’ service. Under
his leadership, JM’s reputation for integrity has been upheld
and remains a source of competitive advantage. I’d like to
thank both John and Simon, on behalf of everyone in JM, for
their huge contributions to the company over many years.

During the year we welcomed three new members to the

JM team; Joan Braca as our Sector Chief Executive for Clean Air,
Christian Günther, Chief Executive of Battery Materials and
Maurits van Tol as Chief Technology Officer. We are already
benefiting from their individual strengths and a stronger collective
leadership team. Each has brought a refreshing new and
diverse perspective and dynamic to the Group Management
Committee (GMC) which is proving invaluable, especially as
we navigate the current climate.

And we continued to listen and respond to what our
people say so we can build a culture for success

As Patrick has already highlighted, we have moved further
forward in shaping our culture for success, engaging our people
at all levels in conversations about the behaviours and actions
we need to dial up in order to deliver our strategy and achieve
our vision. We have a clear view now of what that looks like
– more emphasis on our purposeful vision, really driving and
shaping the markets of the future and relentlessly driving for
better performance. And we will use our strategy acceleration
actions as a way to exemplify the culture that we are aiming for.

Read more: Our culture for success on page 41
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We have continued to do even more this year to help our

people achieve personal success through their work at JM.
Much of what we do is shaped by the feedback they give us,
k
including through our company-wide survey and in our pulse
check this year, we got a clear steer on what people feel good
about and where we need to focus next. People told us they
were more engaged than before, which is a positive step.
On the other hand, it was clear that people still feel there are
barriers preventing them from doing their best work and our
enablement score was flat. As I have already mentioned, our
work on the group operating model is targeting precisely this
and so I hope that people experience a positive shift as a result
of those changes.

As we continue to move through the phases of our strategy,
and in particular this period of accelerated change, the leadership
team and I know that it will be unsettling for people in many
parts of JM. Regrettably, we believe the impact of these changes
will be fewer jobs across JM and we will be consulting with
employee groups regarding estimated reductions of around
2,500 jobs globally over the next three years. The decisions
we will take are the right ones for the future success of JM.
I recognise it is difficult for our people and I give them my
assurance that we will be transparent and open about our
plans and we will act in line with our values.

Outlook for 2020/21 and priorities for the year

As I write to you towards mid-June, given the ongoing
uncertainty, we are unable to provide financial guidance for the
year ending 31st March 2021. Looking at each of our sectors:

Clean Air has a direct link to consumer demand. Following
automotive OEM shutdowns earlier in the year, we are now
seeing our customers gradually reopen their plants. Production
in China is recovering towards prior year levels, and Europe
and the US are now also gradually ramping up. However,
visibility on the path of recovery remains low. This significant
uncertainty has led to a wide range of forecasts for automotive
and truck production for the coming year. External data
currently suggests a decline of circa 25% in light duty for
Europe and the US, but better in Asia, while for heavy duty
the declines are slightly more. Although the actual outcomes
could be materially different. We have a flexible cost base in
Clean Air, enabling us to manage different levels of activity,
with circa 75% of costs before mitigation being variable.

Efficient Natural Resources serves a diverse range of end
markets and is subject to a broader range of variables. It is later
cycle than Clean Air, so while we have seen little impact so far
on the business from macroeconomic weakness, we expect
this will come through as lower demand begins to affect the
industries it serves and because of volatile feedstock dynamics.

Strategic ReportJohnson Matthey / Annual Report and Accounts 202013

Group Management Committee (GMC)

Joan Braca,
Sector Chief
Executive, Clean Air
Joined the GMC:
October 2019

Christian Günther,
Chief Executive,
Battery Materials
Joined the GMC:
November 2019

Joan joined JM in October 2019
to lead our Clean Air Sector.
Having joined from Tate & Lyle,
and with previous experience in
the speciality chemicals industry
with Dow Chemical and the Rohm
& Haas Company, Joan is now
directing our strategy to deliver
sustained growth in our largest
business sector.

Christian joined the company
in November 2019 to lead our
Battery Materials business having
previously been at Tasnee in
Saudi Arabia, and before that at
McKinsey & Company. Christian
leads the business’ strategy for
breakout growth through the
commercialisation of JM’s leading
battery cathode materials technology.

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.

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 corporate
development activities, Procurement
and IT functions.

Robert MacLeod,
Chief Executive
Joined the GMC
and the board:
June 2009

Having joined JM as Group Finance
Director in 2009, Robert has been
leading JM since June 2014 when he
became Chief Executive. Robert also
has executive level responsibility for
environment, health and safety and
our sustainable business framework.
Currently, our Health Sector is
reporting to Robert while we are
in the process of recruiting a
Sector Chief Executive in this area.

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
has responsibility for security
across JM and chairs the Brexit
working group.

Maurits van Tol,
Chief Technology
Officer
Joined the GMC:
October 2019

Maurits joined JM in October 2019
and is responsible for R&D and
innovation. Previously at Borealis
and DSM, Maurits has a strong
background combining science
with business. Maurits leads
strategy development to deliver
value from our science and protect
the value of our investment in R&D
through intellectual property.

Pgm prices will also influence operating performance. Operating
leverage is greater here as the sector operates with a larger
number of sites and higher fixed costs.

Health is relatively unaffected by changes in the macroeconomic
environment. We expect to benefit from new supply agreements
for APIs used in generic opioid addiction therapies as well as our
continued work with innovator customers.

In New Markets, in our Battery Materials business,
commercialisation of eLNO remains on track.

Our newly announced efficiency initiatives will deliver additional
annualised savings of at least £80 million by 2022/23 for a
cash cost of circa £80 million, with initial savings of at least
£30 million supporting operating performance in 2020/21.
We have a strong balance sheet and liquidity position and
expect to generate further cash through precious metal
working capital improvements as we continue to reduce
refinery backlogs. We remain committed to our investment
in our strategic growth projects which will support our
medium term growth.

Building on the board’s priorities outlined by Patrick on
page 81, our strategic priorities for 2020/21 are to:

1. Navigate COVID-19, maintaining focus on financial

strength

– Maintain a strong balance sheet and liquidity position.

– Generate further cash through precious metal working

capital improvements.

2. Accelerate our strategy to drive efficiency

– Finalise plans and commence consolidation of our

Clean Air footprint.

– Review our group operating model to remove duplication

and reduce complexity across the organisation.

3. Continue to invest in strategic projects for medium term
growth, including growth driven by climate change

– Invest and build new growth opportunities to plan,
prioritising Battery Materials, Health new product
pipeline and Hydrogen.

In addition, we will continue to support our people, and in
particular our leaders. We will enable them to manage business
and cultural change and deliver our process safety improvement
plans to further reduce risk in our hazardous processes.

So, to conclude

We have navigated the immediate impact of COVID-19, acting
quickly and decisively to protect our stakeholders and our business.
At the same time, we continue to execute against our
strategy and are accelerating this to take Johnson Matthey to
the next stage of its evolution, creating a simpler organisation
and enabling a greater focus on driving growth.

In an uncertain world, our science remains at the heart
of JM and we are well positioned for future success with our
leading sustainable technologies. As we drive towards our
vision to create a cleaner, healthier world, I remain confident
in the future.

Robert MacLeod
Chief Executive

Strategic ReportJohnson Matthey / Annual Report and Accounts 202014

Markets and opportunities

We serve markets where our inspiring science can have the greatest impact in solving our customers’
complex challenges.

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
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).

Read more about our business model to use our
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science to create value on pages 22 and 23

The four main economic segments
we serve are undergoing major change
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as a result of global sustainability trends:
The journey to pollution free roads; a
growing and ageing population; the
need for a secure supply of clean energy;
and the continued demand for ‘more’,
which is challenging the supply of
natural resources.

The world is an increasingly uncertain
place, even more so in light of COVID-19.

But even against this backdrop, these
trends are continuing at pace, alongside
the opportunities they represent for JM.
With the discussion about climate
change intensifying, external support
continues to rise for zero emission vehicles
and the technology and infrastructure that
will enable cleaner energy generation and
storage, as well as the sustainable sourcing
of the critical raw materials to drive
change. And the world has never been
more awake to the necessity of supporting
and protecting an aging population.

The impact of COVID-19

The COVID-19 outbreak will have a
significant impact on economies globally
and, as for all companies, this is inevitably
having a knock on effect for JM and its
end markets. This is likely to be most
pronounced in transport, where many
automotive operations slowed or stopped
due to government mandated closures
and as consumer demand weakened.
Our immediate response was to
take decisive action to maintain our
strong balance sheet and strengthen our
liquidity through cost reduction, tightly
managing our operations to optimise

working capital, deferring non-strategic
capex, and optimising working capital
by reacting quickly and temporarily
stopping production at our Clean Air
plants. We are now gradually resuming
production in Clean Air across all regions.
Future scenarios are uncertain,
but JM is well positioned with a resilient
and diverse business portfolio which is
exposed to a range of end markets and
geographies and our flexible cost base,
particularly in Clean Air where circa 75%
of our costs are variable, enables us to
adapt quickly to changes in demand,
reduce our costs and preserve cash.

Across the group, we have been

investing to drive efficiency across our
manufacturing footprint and our
operations. We are now able to accelerate
to a number of these initiatives. We are
consolidating our Clean Air footprint and
optimising our group operating model to
create further organisational efficiency
across the group. We are confident in our
ability to manage the business through
this difficult time and deliver on our
strategy to achieve sustained growth and
value creation.

Transport

JM sectors

Clean Air

New Markets

Key scientific
capabilities
• Catalysis
• Electrochemistry

Outlook

Opportunity for JM

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.

• Consolidating our Clean Air footprint to drive

efficiency and increase agility.

• Innovating and commercialising eLNO, our

portfolio of ultra high energy density battery
cathode materials.

• Ramping up production of fuel cell technologies

in Europe and beyond.

In the short term, the impact of COVID-19 means sales
will be lower in 2020, with demand likely to be uncertain
for some years to come.

Following automotive original equipment
manufacturers (OEM) shutdowns, we are now seeing
our customers gradually reopen their plants. Production
in China is recovering towards prior year levels, and
Europe and the US are now also gradually ramping up.
However, visibility on the path of recovery remains low.
This significant uncertainty has led to a wide range of
forecasts for automotive and truck production for the
coming year.

Read more: Speak up reports on page 221

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Anti-bribery and corruption risks

GRI 205

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We believe the most significant compliance
risk that JM faces is bribery and corruption
based on JM’s business activities and
global reach. In February 2020 we
launched our refreshed policy on
Anti-Bribery and Corruption and a
separate Gifts, Hospitality and Charitable
Donations policy. These global policies
reflect JM’s continued zero tolerance
approach to bribery and corruption and
provide key guidance that reflects the
bribery and corruption risks we
encounter at JM today. Further policy
training and role specific guidance,
including additional focus work in China,
continues to be rolled out.

JM uses third party intermediaries

(TPIs) to support our business and
customers and has policies and processes
in place to manage the risks, especially
in the area of 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.

Modern slavery

GRI 408

In line with the UK Modern Slavery
Act 2015, we make an annual public
statement, which is posted on our
website, describing the steps we have
taken during the year to ensure that
slavery and human trafficking are not
taking place, either in our businesses or
our supply chains.

These steps include public policies
and codes (including our Code of Ethics
and Supplier Code of Conduct), our
supply chain due diligence programme
and an independent confidential ‘speak up’
+
line available to all stakeholders to report
concerns and grievances.
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After completing their online training, all staff are required to complete an online code acknowledgment confirming that they
will work in accordance with the commitments in the code. In 2019/20, 66% employees completed this online code
acknowledgment (2018/19: 62%). In addition, particularly for employees working in our manufacturing plants, we provide
classroom training on the code and record code acknowledgment completion locally. We are putting in place mechanisms to
enable us to centrally capture this information in future.

matthey.com/modern-slavery

Celebrating Ethics Week at JM

This year we celebrated our first ever Ethics Week at JM.
The week was an opportunity to get everyone at JM to think
about ethics and the importance of doing the right thing.

Our global network of ethics ambassadors took the
lead and organised a range of fun and engaging activities to
ensure the ethics message reached everyone across JM sites.
From quizzes and games to lunch and learns, the activities
encouraged employees to consider what doing the right
thing means in their role at JM.

We heard first hand from our sector chief executives,
who provided insights on topics including leadership values,
organisational reputation, good decision making and speaking
out as well as speaking up. Employees also got the opportunity
to ask questions of JM’s senior leaders via a live yam jam.
This truly global effort helped to shine a spotlight on
ethics across JM and employee feedback was very positive.
So much so, Ethics Week is now a firm fixture in JM’s annual
calendar of events.

Strategic ReportJohnson Matthey / Annual Report and Accounts 202046

Responsible business continued

Health and

safety

Our
people

Low carbon
operations

Responsible
sourcing

Sustainable
products

JM measures key environmental
Community
indicators using an electronic reporting
engagement
system and this data is used internally
to drive performance improvements.
This data is externally assured.

Reduce our greenhouse gas (GHG)
emissions per unit of production
output by 25%.

Environment

JM’s products and services have an
overwhelmingly positive impact on the
environment when they are used.

We reinforce the positive impact of the
products we sell with a responsible
approach to environmental management.
JM’s manufacturing processes
generate greenhouse gases (GHGs)
through the burning of fossil fuels to
generate the elevated temperatures
required. Some of our processes also
produce emissions that could, if not
managed effectively, affect the local
environment. These gases include nitric
oxides and volatile organic chemicals.

JM consumes water for a variety of

reasons, whether as a raw material in
the production process, or for heating or
cooling operations. In addition, certain
operations generate waste, some of which
can be hazardous and requires specialist
treatment by external companies. Wherever
possible we recover and recycle waste
materials containing platinum group metals.

Read more: Full details of our environmental
performance in these areas is included in the
Additional non-financial performance information
section on pages 220 and 221

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Managing environmental performance

We have group policies, processes
and systems which, together with our
environmental strategy, ensure that our
environmental performance is managed
to a high standard. A total of 85% of
JM manufacturing sites operate
environmental management systems
that meet the ISO14001:2014 standard.
There are corporate standards set out
in five key areas of environmental
performance which are assessed during
regular EHS audits. Our EHS Leadership
Committee is responsible for agreeing
the group’s approach to carbon, GHG
reduction strategy and reviewing
environmental performance.

Many of JM’s operations are covered

by environmental permit or licence.
JM, as a minimum standard, ensures it
complies with all conditions placed on
its businesses by the regulatory bodies.

Read more: Independent greenhouse gas and
health & safety assurance statement on page 219

Climate change

Addressing climate change requires a
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transition to a low carbon world, in the
energy and mobility sectors, and also
across other industries. JM fully recognises
the Intergovernmental Panel on Climate
Change (IPCC) science on climate change,
is a signatory of the Paris Climate Pledge
to keep global temperature rise below 2°C
and is committed to the United Nations
Sustainable Development Goals (UN SDGs).
We have identified six of the UN SDGs
for our particular focus, including SDG13
(Climate Action). We are proud of the
contribution many of our products
make to directly enable the transition
to a low carbon economy (read more
on pages 50 and 51).

This year we have taken the first steps
to aligning our reporting to the Task Force
on Climate-related Financial Disclosures
(TCFD) framework and we are committed
to implementing these voluntary
recommendations in full by 2021.

Governance

Our governance processes cover the
breadth of matters relating to
environment, health and safety,
including climate change.

The board is responsible for
oversight of our strategic direction and
progress against our strategic priorities
to ensure we are positioned to deliver
long term sustainable business
performance. During discussions on
strategy, the board considers the market
drivers we are exposed to in our diverse
business portfolio, including market
responses to climate change, the
resulting opportunities and challenges
that can impact our business strategies
and how we are responding. The board
also reviews our sustainability and
environmental risks and performance
(and also risks and performance relating
to health and safety) against our targets.
The Audit Committee supports the

board and the Group Management
Committee (GMC) by conducting regular
reviews of our risk processes, and controls
against our principal risks.

The GMC champions strategy
development and risk management in
line with the board’s expectations on
risk appetite, supported by individual
sector management teams for review
and execution, and addressing
sector-specific dynamics.

Our diverse business portfolio means

we consider climate change impacts
predominantly via market responses and
an environmental sustainability lens.
We are further analysing the validity of
an independent risk for climate change.

Strategy – Markets

Climate change results in different
impacts on our diverse business portfolio.
Our products, such as battery materials,
fuel cells and hydrogen production
technologies, represent opportunities as
the mobility and energy markets respond
to climate change by moving away from
fossil fuels to more diverse power sources.
Other areas, such as our Health Sector,
are less directly exposed to climate change
dynamics. Other markets are at risk of
declining over time, such as the demand
for our automotive emission control
catalysts, if the mobility sector transitions
heavily into electrified powertrains.

The rate and extent of change of

our key markets in response to climate
change is the subject of extensive ongoing
scenario planning. For example, we have
framed our scenario planning for the
mobility sector to include different
climate change scenarios, the impact
of vehicle emission regulations and
other market factors such as car sharing
and urbanisation.

The diversity of our business

portfolio and the strength of our science,
operations and commercial activities
builds resilience and positions us strongly
to serve future demands.

Strategy – Operations

Regulations: Conducting the transition
to a low carbon economy at pace may
continue to drive additional regulatory
requirements, both nationally and
internationally. We monitor developments
in this area and manage our activities to
remain in compliance.

Energy: We actively monitor our energy
use and implement energy efficiency
programmes across all of our operating
sites. Energy costs are included in budget
planning cycles. During 2020/21 we are
extending energy forecasting to include
GHG forecasting, including energy
procurement strategies and options
into the forecast, to better plan
mitigating actions.

Strategic ReportJohnson Matthey / Annual Report and Accounts 2020
47

GRI 201-2

TCFD-related references

Governance: Disclose the organisation’s governance around climate-related risks and opportunities

Describe the board’s oversight of climate-related risks and opportunities.

Describe management’s role in assessing and managing risks and
opportunities.

Page 46: Climate change
Pages 86 and 87: Board committees
Pages 90 and 91: Board risk oversight

Page 46: Climate change
Page 13: Group Management Committee
Pages 16 to 19: Our strategy

Strategy: Disclose the actual and potential impacts of climate-related risks and opportunities on the organisation’s
businesses, strategy and financial planning where such information is material

Describe the climate-related risks and opportunities the organisation
has identified over the short, medium and long term.

Page 46: Climate change
Pages 67 to 74: Risks and uncertainties

Describe the impact of climate-related risks and opportunities on the
organisation’s businesses, strategy and financial planning.

Page 46: Climate change
Pages 16 to 19: Our strategy
Pages 67 to 74: Risks and uncertainties

Describe the resilience of the organisation’s strategy, taking into
consideration different climate-related scenarios, including a 2°C or
lower scenario.

Page 46: Climate change
Pages 16 to 19: Our strategy
Pages 67 to 74: Risks and uncertainties

Risk: Disclose how the organisation identifies, assesses, and manages climate-related risks

Describe the organisation’s processes for identifying and assessing
climate-related risks.

Describe the organisation’s processes for managing climate-related risks.

Describe how processes for identifying, assessing, and managing
climate-related risks are integrated into the organisation’s overall
risk management.

Page 46: Climate change
Pages 16 to 19: Our strategy
Pages 67 and 68: Risk management approach

Pages 46: Climate change
Pages 67 and 68: Risk management approach

Page 46: Climate change
Pages 67 and 68: Risk management approach

Metrics and targets: Disclose the metrics and targets used to assess and manage relevant climate-related risks and
opportunities where such information is material

Disclose the metrics used by the organisation to assess climate-related risks
and opportunities in line with its strategy and risk management process.

Page 46: Climate change
Pages 24 and 25: Sustainable business framework
goals to 2025

Disclose Scope 1, Scope 2 and, if appropriate, Scope 3 greenhouse
gas (GHG) emissions, and the related risks.

Page 48: Greenhouse gas reduction
Page 48: Greenhouse gas disclosure

Describe the targets used by the organisation to manage climate-related
risks and opportunities and performance against targets.

Page 46: Climate change
Pages 24 and 25: Sustainable business framework
goals to 2025

During 2019/20 we took a strategic

decision to maximise the amount of
renewable energy sourced for our first
commercial battery cathode materials
manufacturing plant located in Konin,
Poland. The use of low carbon energy
to manufacture key components is
beneficial to the whole lifecycle carbon
footprint of an electric vehicle and
ensures our business grows with minimal
carbon impact.

Physical impacts: Climate change
increases the risk of extreme weather
events which can impact our operations
or supply chains. We manage this
disruption via our business continuity
plans, which detail actions and alternate
supply routes for various situations.
Where there is an exposure to extreme
weather events, such as hurricanes on
the eastern seaboard of the USA, we have
designated shelter areas for employees.

The impact of climate change on water
availability is also important. We
periodically assess our sites for water risks
and manage our water use responsibly.

Risks

Climate change is incorporated into our
risk management process as a driver of
certain principal risks, especially ‘Future
growth’, ‘Environment, health and safety’
and ‘Failure of operations’ and is
considered when building those risks.
We are also considering the validity of
an independent risk for climate change.
We recognise that effective management
of climate change risks are crucial to
deliver our growth strategy and inspire
confidence in our stakeholders.
+

Future growth risk on page 71, Environment,
health and safety risk on page 71 and Failure
of operations risk on page 73

Metrics and targets

We follow the Greenhouse Gas Protocol
when calculating our GHG emissions,
dividing them into three scopes.
Our Scope 1 emissions are from the
burning of natural gas and other fuels
as an energy source for our processes
and facilities. Some of our processes
also generate GHGs, and these are also
included in Scope 1. Scope 2 emissions
relate to our electricity purchases. Scope 3
emissions cover the different elements
of our value chain.

Goal 3 of our sustainable business

framework includes a target for our
Scope 1 and 2 emissions intensity of
2.8 tonnes CO2 equivalent per tonne
of manufactured product sold by 2025.
In 2019/20 our emissions intensity was
3.2. Using an intensity metric allows us
to focus on the efficiency of our GHG
footprint even in the face of changing
product mix and demand. We remain
on track to meet the goal.

Strategic ReportJohnson Matthey / Annual Report and Accounts 202048

Responsible business continued

During 2019/20 we also set a
renewable energy target, where 60%
of our electricity must be certified
renewable by 2025.

Greenhouse gas reduction

GRI 305

We lower our own contribution to GHG
emissions with a combination of energy
efficiency initiatives and low carbon /
renewable electricity purchases.

In addition to our sustainable business
goal 3 (see above and page 35), we also
recognise that our absolute emissions
of GHGs are an important metric. Since
the launch of our sustainable business
framework in 2017, we have achieved:

•

16% reduction in absolute Scope 1
and 2 emissions.

12% reduction in absolute Scope 1
emissions.

20% reduction in absolute Scope 2
(market based method) emissions.

This rate of reduction of our

GHG emission intensity and our absolute
Scope 1 and 2 emissions are key parts

of fulfilling our Paris Pledge for Action
commitment.

We are currently assessing possible

approaches to limit our value chain
(Scope 3) emissions.

Renewable energy

We aim to source 60% of our electricity
demand globally from renewable sources
by 2025, and we continue to identify
cost effective renewable electricity
supply contracts. Since 1st April 2019,
all our UK sites have been operating on
grid-connected certified renewable
electricity. Across JM globally in 2019/20,
26% of our electricity came from
certified renewable sources where the
energy source has a Renewable Energy
Guarantee of Origin (REGO) certificate,
the highest form of renewable energy
validation (2018/19 restated*: 24%).

* Restated following review and reclassification of data

submitted by some sites after the year end.

A total of 1.2% of our electricity came
from local solar power facilities that are
not grid connected.

Where we are not using renewable

electricity, we actively manage our
electricity purchasing to minimise the
carbon footprint. Competitive electricity
markets for the supply of grid electricity
are operational at 72% of our sites. At
69% of these sites, the carbon intensity
of electricity we purchased was lower
than the national or regional average.
We are investigating the potential
of power purchase agreements to help
accelerate our access to renewable
electricity, particularly in geographies
with lower availability of renewable
power over the existing grid. We have
committed to maximising the amount
of renewable energy for our first battery
materials plant, currently under
construction in Poland, from start up
in 2022.

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 the world’s largest companies on
+
behalf of institutional investors.
r

matthey.com/cdp-investor

Greenhouse gas disclosure – Operational carbon footprint

2019/20

2018/19

Global

UK only

Global
(excl UK)

Global

UK only

Global
(excl UK)

% change
(global)

Scope 1 (tonnes CO2 eq)

199,125

59,669

139,456

220,317*

58,907

161,410

Scope 2 – market based method
(tonnes CO2 eq)

Scope 2 – location based method
(tonnes CO2 eq)

Total operational carbon footprint –
Scope 1 and 2 market based method
(tonnes CO2 eq)

Total operational carbon footprint –
Scope 1 and 2 location based method
(tonnes CO2 eq)

Total Scope 1 and 2 carbon intensity –
market based (tonnes CO2 eq /tonnes sales)

Scope 3 – electricity transmission and
distribution losses (tonnes CO2 eq)

192,334

3,761

188,572

202,813*

11,049

191,764

252,757

40,407

212,350

277,861*

50,898

226,963

391,459

63,430

328,028

423,123*

69,956

353,174

-10%

-5%

-9%

-7%

451,882

100,076

351,806

498,178*

109,805

388,373

-9%

3.2

2.6

3.3

3.0

Not
measured

20,461

2,879

17,582

22,183*

3,818

18,365

+8%

-8%

Scope 3 – business travel (tonnes CO2 eq)

9,015

4,613

4,401

Not
measured

Energy efficiency and consumption

GRI 302

2019/20

2018/19

Global

UK only

Global
(excl UK)

Global

UK only

Global
(excl UK)

Total energy consumption (GJ)

4,879,064

1,519,125

3,359,939

5,201,603* 1,542,040

3,659,563

Total energy efficiency (GJ/tonne)

39.6

62.0

34.0

36.8*

Not
measured

* Restated following review and reclassification of data submitted by some sites after the year end.

% change
(global)

-6%

+10%

Strategic ReportJohnson Matthey / Annual Report and Accounts 2020Efficient use of energy is a key lever to
minimise our GHG impact and lower costs.
Where we are sourcing renewable / low
carbon energy, we also recognise that using
less of what is generated makes it more
available for use by others, further helping
the transition to a low carbon economy.
We spent £68 million on energy
in 2019/20 (2018/19: £72 million*,
restated). Energy use within our facilities
decreased by 6%, with electricity use
across the group decreasing by 6% and
gas usage by 5%. This was due partly to
the Riverside, US site closure during
2018/19, and due to lower use at our
Clitheroe, UK site which did not run
its generator for four months due to
maintenance, and partly due to lower
production output at some sites.

Our energy efficiency declined by

10% this year. Total mass of product
produced in 2019/20 was lower than the
prior year, but despite the lower output,
some of our energy intensive assets – such
as furnaces – had to be kept running for
operational efficiency and safety reasons.
We have also progressed various

projects around the world that directly
benefit energy efficiency. These include
installing high efficiency compressors in
Japan and Brimsdown, UK, improved
efficiency of a gas oven in Shanghai,
China, and better drying equipment
management in Mexico. We restarted our
combined heat and power unit in Royston,
UK, which resulted in less grid electricity
being procured. Going forward, the recent
introduction of an automated meter
reading system there will also help identify
additional energy saving opportunities.

Read more: Energy generation and consumption
on page 221

Due to the varied nature of JM’s
businesses, the principal risks in our
supply chains depend on the nature of
the business. However, JM’s supply chains
include metals identified as conflict
minerals and other materials, containing
minerals such as cobalt, which originate
in parts of the world where there are well
documented reports of serious human
rights abuses, including modern slavery
(see page 45) and conflict minerals
(see below). Consequently, we place
particular emphasis on how we manage
and mitigate them.

Supplier sustainability assessment

GRI 308 and GRI 414

We procure goods and services globally
and our supply chains are multi-tiered.
Supply failure is a principal risk 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.
+

Supply failure risk on page 72

Our JM Supplier Code of Conduct is
k
k
available in multiple languages on our
website. We expect all our suppliers to
comply with this code as a condition of
contracting. During the year we have
updated our Supplier Code of Conduct to
incorporate more aspects of sustainability,
particularly GHG management, material
provenance and global data protection.

We plan to launch this revised code

during 2020 and, with it, a broader,
more robust supplier due diligence
programme. In preparation for this, we
have temporarily paused our existing
programme, except for our work with
suppliers of critical metals to support the
strategy of our Battery Materials business
and conflict minerals as detailed below.
As a result, under the definition of our
+
goal 4 framework, no further current
suppliers were audited during 2019/20.
r

k
Responsible
sourcing

Sustainable
products

Community
engagement
+

Improve sustainable business practices
in our supply chains and, through
collaboration, ensure full compliance
with our minimum standards from
strategic suppliers.

Responsible sourcing

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
(see pages 44 and 45).

matthey.com/supplier-code-of-conduct

k
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.

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 only use material from refiners

and smelters which conform to the
Responsible Minerals Assurance Process
(RMAP) assessment protocols and are
listed on the Responsible Minerals
Initiative (RMI) database. We have
identified over 150 3TG smelters across
all tiers of our supply chain and 100%
are currently listed as conformant with
the RMAP process.

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 104
+
customer requests for information, an
increase of 21% on the previous year.
r

matthey.com/conflict-minerals

k
Critical metals for battery materials

We are committed to using only raw
materials that have been ethically
sourced in our cathode products. At
present, the DRC holds about 50% of the
global reserves of cobalt and 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.

In 2018 we partnered 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
our raw materials that contain lithium,
cobalt and nickel. During 2019 RCS
Global performed on-site audits of
several prospective Tier 1 suppliers of
cobalt and nickel for our eLNO portfolio
of battery materials as part of our
pre-qualification process. We have also
rolled out the due diligence programme
to our suppliers of critical raw materials
for our lithium iron phosphate (LFP)
family of battery materials.

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 our suppliers are
completed by RCS Global to the
ISO 19011 standard.

To further our commitment to

transparency in the battery materials
supply chain, in early 2020 we joined
the Global Battery Alliance (GBA).

Health and

safety

Our

people

Low carbon
operations

Strategic ReportJohnson Matthey / Annual Report and Accounts 2020
50

Responsible business continued

Together with 41 other global
organisations, we agreed to ten guiding
principles for a creation of sustainable
battery value chains globally by 2030.
Further details are set out GBA’s ‘A Vision
for a Sustainable Battery Value Chain
in 2030’.

We also joined the Cobalt
Institute and will align our corporate
reporting framework and policies
with the Cobalt Industry Responsible
+
Assessment Framework (CIRAF)
guidance during 2020/21.
r

www.rcsglobal.com

k
Platinum group metals

Johnson Matthey Plc and Johnson
Matthey Inc are accredited as good
delivery refiners on the London Platinum
and Palladium Markets (LPPM). We
have implemented their responsible
platinum and palladium guidance for
all material handled through our UK
and US refineries. During the year
we have partnered with third party
experts to ensure our pgm due
diligence programme complies fully
with the standard.

Our Platinum and Palladium Supply
Chain Policy Statement, which is available
+
on our website, sets out our commitments
and the steps that we take to fulfil them.
r

https://matthey.com/platinum-and-palladium-
supply-chain

In addition to following LPPM’s
guidance, we work collaboratively with
customers through the International
Platinum Group Metals Association (IPA)
to ensure that the pgms we source globally
are obtained ethically and responsibly.

Health and

safety

Our

people

Low carbon

operations

Responsible
sourcing

Sustainable
products

Community
engagement

Double the positive impact that JM’s
products, services and technologies
make to a cleaner, healthier world.

Sustainable products

Our business strategy is to use our
science and technology capabilities to
create products and services to solve
our customers’ complex problems
that are vital to making the world
cleaner and healthier; today and for
future generations.

Goal 5 of our sustainable business
framework measures our impact and in
2019/20, 85.9% of our sales came from
products and services that positively
contributed to the UN SDGs (2018/19:
87.3%). Our sustainable business goal 5
is to increase this to >90% by 2025.

This year, sales of products that have
a direct impact on the UN SDGs made up
a lower proportion of group sales, in
particular as a result of lower sales of
emission control catalysts and active
pharmaceutical ingredients. Parts of the
business with limited contribution to the
UN SDGs, such as some areas within our
PGM Services business and also our
formaldehyde technologies, contributed
a greater proportion to total group sales.

We also measure the positive impact
that our key products have had on people
and the planet over the last 12 months
(see table opposite).

Across our portfolio, through our

investments in new opportunities,
there are new products, services and
technologies in the pipeline that we
expect will make a positive contribution
to the UN SDGs in future years.

Product stewardship and toxicology

The products we sell to our customers
often form an important part of the
end product supplied to the user –
a JM emission control catalyst being an
important part of a car, for example.
And while we do not manufacture the
end product itself, we are concerned with
the whole life of the JM product within it,
with our responsibilities extending far
downstream of our own operations.

This ‘whole life’ responsibility is what

we call product lifecycle management.
We set ourselves high standards; 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 other
external stakeholders want assurance
that the potential impacts – on the
environment, our employees and
downstream users – are well managed.

Effective product lifecycle

management is essential to our business
to identify and mitigate any risk to our
portfolio. Our social licence to operate
depends on our compliance with
chemicals regulations and on our
voluntary stewardship of our products
all the way down the value chain.

We aim to design-in green chemistries

at the start of a product’s life and we
are increasingly integrating product
stewardship into new product innovation
and development.

We have well established systems
to ensure the effective management of
our products throughout their lifecycle.
Our groupwide policies and guidance are
aligned with the global framework set by
the Strategic Approach to International
Chemicals Management (SAICM) to
promote chemical safety around the world.
We have procedures in place at group

and sector level to identify regulatory
obligations, both future and current,
and create the documentation necessary
to ensure compliance. Our internal
committees assess hazard and exposure
data to identify opportunities for risk
reduction in our operations. Finally, business
compliance with lifecycle management
policies forms part of our EHS audits.

Safe use of substances

GRI 416

We seek to replace ‘high hazard’ substances
– chemicals with significant potential, if
poorly managed, 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
in place. We also work actively with
other companies to provide regulators
with the best available information on
industry practice such that any regulatory
restrictions can be properly evidence based.
Potential new products are assessed

at an early stage of their development
against safety and regulatory criteria.
Higher hazard chemistries are subject to
more detailed risk assessments and senior
level review to potentially grant time-limited
approvals for their use. Our policies,
especially on new product innovation,
emphasise the need to investigate
whether safer alternatives are available.
We use or manufacture only a very

limited number of substances considered
regulated1, or of international concern2.
As a proportion of our portfolio,
approximately 5% of products consist of,
or use in their production, such substances.

1 e.g. SVHCs (substances of very high concern) 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.

Strategic ReportJohnson Matthey / Annual Report and Accounts 2020The positive impact of our products in 2019/20

Clean air for all

2.96 million tonnes

of pollutants removed

(2018/19: 3.35 million tonnes*)
2025 target 7.18 million tonnes

The total tonnes of air pollutants
(oxides of nitrogen, carbon monoxide,
hydrocarbons and particulate matter)
removed by our emission control catalyst
products fell this year as fewer vehicles
were produced globally.

Of the tonnes of pollutants removed,
particulate matter represents only a small
amount because of its low mass. However,
the sheer number of small particulates
produced by vehicles is cause for substantial
public health concern and has been the
target of tightening legislation globally.

Over the past year, we estimate that our
products removed almost double the
mass of particulate matter from gasoline
direct injection vehicles compared with
the prior year as the number of our
particulate filter products sold increased.

Tightening emission legislation in
Europe and Asia over the coming years is
likely to increase demand for particulate
filter products.

* Restated due to adjustment in scope of vehicles

included in certain small markets.

Shaping a new era
of clean energy

9.8 million tonnes

(CO2 equivalent) removed

(2018/19: 10.1 million)
2025 target 21.2 million tonnes

The quantity of greenhouse gases (GHGs)
removed by our products (CO2 equivalent)
was slightly reduced due to a lower
contribution from our technologies that
are used by customers to abate nitrous
oxide, a highly potent GHG, from their
chemical manufacturing plants.

Two of the customer plants we
supply were shut down in the year.
This was partially offset by two new
installations, but these were only in
partial operation for the year.

Achieving more from less

225,000 tonnes

(CO2 equivalent) of GHGs avoided

(2018/19: 216,000 tonnes)
2025 target 426,000 tonnes

The quantity of GHGs avoided (CO2
equivalent) by our products increased this
year due to greater demand for our fuel
cell technologies, reflecting the ongoing
transition to cleaner power generation
choices. In addition, we have supplied
our lithium iron phosphate battery
cathode materials to new automotive
applications during the year.

Ongoing investments in both our
next generation ultra high energy density
battery cathode materials, eLNO, and
our fuel cell components for automotive
applications will continue to drive our
contribution in this area.

Longer, healthier lives

323,000 lives

positively impacted

(2018/19: 154,000*)
2025 target 920,000 lives

The number of lives impacted by our
recently launched pharmaceutical products
increased this year as we benefited from
a further expanded therapy base. New
therapies containing our APIs included an
extended release treatment for Attention
Deficit Hyperactive Disorder (ADHD) and
an exclusive treatment for Duchenne
Muscular Dystrophy.

We continue to work with
our partners and invest in R&D to
develop and manufacture target
molecules efficiently at scale,
which will continue to increase our
contribution to people’s health.

* Restated to reflect updated market data.

Product regulatory compliance

During the year we put in place
preparations to manage regulatory
compliance in the event of the UK taking
a hard / no-deal exit from the EU, based
on our best understanding of the
regulatory frameworks that would be in
place at that time. We also actively liaised
with representatives in UK government
providing our industry perspective and
expertise to inform their decision making.
It increasingly appears that the UK will
have its own REACH-like regulation and
JM is advocating for a pragmatic approach
to data requirements and regulatory
deadlines to ensure our industry can
comply in an efficient manner.

Internally, we are assessing the financial,
operational and supply chain implications
of compliance with a UK-REACH regulation
and continue to provide support to UK
government departments in their
preparations for the post-transition period.

We work within trade associations

and consortia as an effective way to
support the application of best scientific
methods to increase the understanding
of our chemistries and products, and to
communicate this within our supply chains.
During the year we joined two new
voluntary European Industry initiatives,
one led by Cefic and one jointly led by
Eurometaux and the European Chemicals
Agency, to further improve the quality
of the hazard, risk assessment and risk
management information submitted in
REACH registrations.

Regulations continue to be amended

and new regulations are proposed that
impact our operations and supply chains.
We monitor and assess the impacts to
ensure JM is well prepared. Efforts are
ongoing to track, prepare and comply
with developing legislative requirements
in China, Russia and India, for example.
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 2019/20, there
were no notifications of significant end
user health effects involving our products.
We did not identify any non-compliance
with regulations or voluntary codes
concerning health and safety impacts
of products and services or product
+
and service information, labelling and
marketing communications.
r

Policy on animal testing: matthey.com/
stewardship-testing

Strategic ReportJohnson Matthey / Annual Report and Accounts 202052

Responsible business continued

Health and

safety

Our

people

Low carbon

operations

Responsible

sourcing

Sustainable
products

Community
engagement

Increase the use of volunteer days to
support our community and charity
partners through the JM employee
volunteering programme.

Community and social impact

At Johnson Matthey we have a long
tradition of supporting our local
communities. Our initiatives are
designed to empower our employees
to achieve JM’s vision through means
beyond the reach of their jobs.

Goal 6 of our sustainable business
framework aims to increase their reach
even further through volunteering.

Our global volunteering policy grants
employees two days each year to volunteer
in their community with organisations they
care about. We also double funds that our
employees raise for charities of their choice
through our match giving programme
(up to £1,000 per employee per year).

This year our employees volunteered
2,682 days – well over double the previous
year (2018/19: 1,116 days). This is thanks
to a new global network of community
investment ambassadors who have
successfully mobilised volunteering,
creating forces of good within their
communities. In December we celebrated
International Volunteer Day and employees
collectively volunteered over 500 days
across 23 countries.

JM is also pleased to have donated

£77,000 to match money raised by
employees in 2019/20.

In the community, our people lead

the way and we’ve been inspired by their
contributions to science, technology and
engineering education over the years.
Increasingly, the world needs science to
make it cleaner and healthier and while
we continue to respond to this demand
with our technology, we are now ready
to respond further.

Our reformed approach to social
impact, which we will roll out in 2020/21,
will support learners, particularly those at
a socioeconomic disadvantage, to access
better science education. We’ll do this by
building stronger connections between
people and science – tackling key areas
like perceptions, careers and teaching – to
open more eyes to the thrill and important
impact of our world changing industry.
COVID-19 is just one of many
global issues highlighting the role
of science in society more generally.

Community investment summary

Direct expenditure

Corporate donations to charities
Donations by sites to local charities and

community projects

Indirect expenditure

Employee volunteering time

Total group

* Restated to include updated data following year end.

New science labs in India

In May 2019, 25 of our people travelled to India for
a leadership training module. During the trip they
volunteered at a disadvantaged school in Gurgaon.
The group taught lessons to 75 students, who in return
delivered presentations about air pollution. More than
£16,000 was donated to the school from JM, some of
which was raised (and matched) by the JM team. These
funds have been used to construct a new science lab and
computer space. The school’s first science exhibition took
place thanks to the new room, and in March this year a
second science lab was constructed in one of the other
school buildings, benefiting 120 additional students.

There are shortages of specific skills in
science which must be addressed and,
through our outreach, we’re committed
to promoting the science jobs that lack
supply, so that our industry is best
positioned to tackle future challenges.
In the short term, to support our

communities through COVID-19, we’re
listening to our employees again. Our
people have been eager to aid relief by
using their paid volunteer leave, which
we’ve encouraged where safe. This
has included supporting vulnerable
neighbours, delivering safety leaflets
and making safety masks for healthcare
workers. To meet their efforts, JM has
committed to match employees’ personal
donations to the small and frontline
charities in their communities that are
most in need of support. We have also
announced our dedicated £1 million fund
for science education aimed at improving
access to science education for children
and young people. This fund is being
strengthened further by personal donations
committed by our Board of Directors.

Investment
in 2019/20
£’000

Investment
in 2018/19
£’000

940

305
635

573

% change

+12%

-8%
+25%

840

331
509

251*

+128%

1,513

1,091*

+39%

Strategic ReportJohnson Matthey / Annual Report and Accounts 2020
53

Financial
performance review

Group performance review

Reported results

Year ended 31st March

Revenue
Operating profit
Profit before tax (PBT)
Earnings per share (EPS)
Ordinary dividend per share

£ million
£ million
£ million
pence
pence

2020

14,577
388
305
132.3
55.625

2019

10,745
531
488
215.2
85.5

% change

+36
-27
-38
-39
-35

Underlying performance1

Year ended 31st March

Sales excluding precious metals (sales)3
Operating profit
Profit before tax
Earnings per share

£ million
£ million
£ million
pence

2020

4,170
539
455
199.2

2019

4,214
566
523
228.8

% change

% change,
constant rates2

-1
-5
-13
-13

-2
-6
-14

Notes
1 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. For definitions and reconciliations of other non-GAAP measures, see note 35 on page 198.

2 Unless otherwise stated, sales and operating profit commentary refers to performance at constant rates. Growth at constant rates excludes the translation impact of foreign

exchange movements, with 2018/19 results converted at 2019/20 average exchange rates.

3 Revenue excluding sales of precious metals to customers and the precious metal content of products sold to customers.

Summary

Reported results

• Reported revenue increased 36%
driven by higher average precious
metal prices.

• Reported operating profit declined
27% driven by a restructuring and
impairment charge of £140 million
and a circa £60 million impact
related to COVID-19.

• Reported EPS declined 39%,

reflecting lower operating profit
and higher net finance charges.

•

Cash inflow from operating activities
was £598 million.

Underlying performance¹

•

Sales declined 2% driven by Clean Air and Health, partly offset by higher sales in
Efficient Natural Resources and New Markets.

• Underlying operating profit declined 6% primarily driven by a circa £60 million

impact related to COVID-19. Excluding COVID-19, underlying operating profit
grew 5%.

• Of the circa £60 million, circa £30 million reflected lower demand in Clean Air,

and the remainder was due to higher trade debtor provisions across the group and
delayed sales due to logistical challenges in our other businesses.

• Underlying EPS declined 13% reflecting lower underlying operating profit and
higher net finance charges. Net finance charges grew primarily driven by
increased average precious metal borrowings due to higher precious metal prices,
on which we pay higher interest on average than the rest of our borrowings.

•

Strong balance sheet with net debt of £1.1 billion; net debt to EBITDA of 1.6 times.

• Return on invested capital (ROIC) decreased from 16.4% to 13.3% mainly due

to increased capital expenditure, higher average precious metal working capital
through the year and lower underlying operating profit.

Strategic ReportJohnson Matthey / Annual Report and Accounts 202054

Sector performance review

Overview of our sectors

Clean Air

£2,618m

Sales1 -4%2

Sales1 by business

HDD Asia
4%
HDD Europe
11%

HDD Americas
17%

LDV Americas
12%

Efficient Natural Resources

£295m

£1,079m

Operating profit3 -25%2

Sales1 +8%2

£256m

Operating profit3 +40%2

Sales1 by business

Advanced Glass
Technologies
6%

PGM Services
36%

Other – stationary
2%

LDV Europe
40%

LDV Asia
14%

Diagnostic Services
6%

Catalyst Technologies
52%

Heavy Duty Diesel (HDD)
Catalysts 32%

Light Duty Vehicles (LDV)
Catalysts 66%

A global leader providing catalysts to reduce harmful emissions
from vehicles.

Creating value from efficient use and transformation of critical natural
resources including oil, gas, biomass and platinum group metals (pgms).

• Light Duty Vehicles – catalysts for gasoline and diesel light duty

• Catalyst Technologies – manufactures speciality catalysts and

vehicles, including hybrids.

• Heavy Duty Diesel – catalyst systems for diesel powered trucks and

buses and non-road machinery.

• Other – catalyst systems for stationary equipment.

13 manufacturing facilities and nine technical centres globally.

additives, licenses process technology and delivers services to the
chemical and oil & gas industry.

• PGM Services – focused on platinum group metals. Activities cover
recycling, refining, fabrication of end products and compounds,
and trading.

• Advanced Glass Technologies – precious metal pastes and enamels

primarily for the automotive industry.

• Diagnostic Services – for the oil and gas industry.

18 manufacturing facilities globally and six UK technical centres.

Customer profile
• Car companies.
• Heavy duty truck and engine manufacturers.
• Local Chinese producers.
• Global customer base.

Major competitors

• BASF

• Umicore

• Cataler

Margin 11.3%

Return on invested capital 18.4%

Employees 6,226

1 Sales excluding precious metals.

2 At constant rates (see note 2 on page 53).

3 Underlying (see note 35 on page 198).

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

• Albemarle
• Grace
• Heraeus

Margin 23.8%

Return on invested capital 17.2%

Employees 3,988

• Umicore
• Ferro

Strategic ReportJohnson Matthey / Annual Report and Accounts 202055

Health

£223m

Sales1 -15%2

Sales1 by business

Innovators
40%

£27m

New Markets

£389m

Operating profit3 -38%2

Sales1 +7%2

Sales1 by business

Life Science
Technologies
13%

Medical Device
Components
18%

Generics
60%

£-1m

Operating loss3 n/a2

Other
8%

Alternative Powertrain
61%

Leading provider of solutions to the complex problems of both generic
and innovator companies.

Accessing new areas of potential growth aligned to global priorities of
cleaner air, improved health and more efficient use of natural resources.

Develops and manufactures active pharmaceutical ingredients (APIs)
for a variety of treatments.

Operates in the large and growing outsourced small molecule
API market.

Four manufacturing facilities and three technical centres.

• 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.

• Hovione
• Almac

Customer profile
• Generic pharmaceutical companies.
• Innovator pharmaceutical companies.

Major competitors

• Noramco
• Francopia
• Siegfried

• Cambrex
• AMRI
• Alcami

Margin 12.1%

Return on invested capital 5.3%

Employees 907

1 Sales excluding precious metals.

2 At constant rates (see note 2 on page 53).

3 Underlying (see note 35 on page 198).

Customer profile
• Automotive and heavy duty vehicle companies.
• Lithium-ion cell manufacturers.
• Fuel cell manufacturers.
• High performance cordless tool and niche transport manufacturers.
• Medical device companies.
• Pharmaceutical, fine chemical and agrochemical companies.

Major competitors

• Umicore
• BASF
• LG

• BMZ
• WL Gore
• 3M

• Heraeus
• Evonik

Margin -0.2%

Return on invested capital -0.3%

Employees 1,952

Strategic ReportJohnson Matthey / Annual Report and Accounts 202056

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

2020
£ million

2019
£ million

% change

% change,
constant rates

1,046
381
315

1,742

443
277
111

831

2,618

295
11.3%
18.4%
236

1,031
361
346

1,738

476
334
128

938

2,720

393
14.4%
30.0%
390

+1
+5
-9

–

-7
-17
-13

-11

-4

-25

-40

+2
+4
-11

–

-10
-16
-14

-13

–

-4

-25

Sales outperformed in a weak market

•

In light duty, Europe sales grew 2% and Asia sales grew 4%, both well ahead of markets that declined, as we benefited from
tightening legislation which increased the value per vehicle.

• Globally, heavy duty sales declined 13% which was broadly in line with the market.

•

Strong market shares were maintained in our key light duty diesel and heavy duty segments.

• Operating profit was down as guided, primarily driven by a weak global heavy duty market, COVID-19 related costs,

infrastructure investment and one-off costs in the first half associated with manufacturing inefficiencies.

Light Duty Vehicle (LDV) catalysts

In Western Europe, diesel accounted

Heavy Duty Diesel (HDD) catalysts

In LDV catalysts, we provide catalysts for
emission control after-treatment systems
for cars and other light duty vehicles
powered by diesel and gasoline. Global
sales were flat year on year, but well
ahead of the decline in global light duty
vehicle production of 10%, which was
more pronounced in the second half as
COVID-19 affected the global automotive
market. Our customers first began to
close their plants in China towards the
end of January and then in Europe and
the US from the middle of March.
In Europe, diesel accounts for
around 80% of our LDV business. Sales
of diesel catalysts were flat as we
outperformed a market that declined,
driven by the annualisation of our diesel
market share gains. We maintained a
market share of circa 65% in light duty
diesel vehicles.

for 31% of new passenger car sales in
2019/20, compared with 35% 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 39% for 2019/20, compared with
42% in 2018/19.

Sales of gasoline catalysts were up

in both Europe and Asia, significantly
ahead of markets that declined 7% and
13% respectively. Growth was primarily
driven by increased value per vehicle
with the implementation of tighter
legislative standards.

Americas LDV declined, driven by
weaker performance in diesel largely due
to the ramp down of a platform.

In HDD catalysts, we provide catalysts for
emission control after-treatment systems
that reduce emissions for trucks, buses
and non-road equipment. Global sales
were down 13%, broadly in line with the
decline in market production of 11%.

In Americas, the high value Class 8

truck cycle peaked in September, then
declined sharply in the second half.
Our Class 8 sales declined as expected,
slightly behind the market due to
product mix.

Our European and Asian HDD
businesses also declined broadly in line
with their respective markets. Over the
medium term, tightening legislation in
China and India will drive a significant
uplift in value.

Strategic ReportJohnson Matthey / Annual Report and Accounts 202057

Consolidating Clean Air footprint

Underlying operating profit

We have been investing in our world
class plants in Europe and Asia and this
is enabling us to drive further efficiency
and agility across the sector by
consolidating some of our existing older
capacity in Europe into these new, more
efficient plants. In the year, this gave rise
to an impairment charge of £61 million
on our older manufacturing assets, taken
outside of underlying operating profit.

Operating profit declined 25% and margin
declined 3.1 percentage points. This was
primarily driven by a weak global heavy
duty market, circa £40 million of COVID-19
related costs (including circa £10 million
higher trade debtor provisions) and
higher costs of circa £20 million from
investment in infrastructure and start up
costs for new plants. There were also
one-off costs of circa £15 million which

included additional freight costs and
inefficiencies within our manufacturing
footprint due to phasing of the
completion of our new plant in Poland.

ROIC

ROIC was down 11.6 percentage points
to 18.4% reflecting lower operating profit
and higher invested capital from our new
plants which are not yet yielding returns.

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

2020
£ million

2019
£ million

% change

% change,
constant rates

556
389
70
64

1,079

256
23.8%
17.2%
250

567
281
75
68

991

181
18.3%
12.6%
175

-2
+38
-7
-6

+41

+43

-3
+36
-7
-7

+40

Significant growth in operating profit and margin expansion

•

Sales grew 8% primarily driven by strong performance in PGM Services.

Significant operating profit growth and margin expanded 5.5 percentage points. This reflected higher average pgm prices and
strength in our PGM Services trading business in a more volatile price environment, partly offset by higher refining operating
costs and further investment in our refineries.

Catalyst Technologies

Our Catalyst Technologies business
licenses key process technology and
manufactures high value speciality
catalysts and additives for the chemical
and oil and gas industries. We saw a
small impact from COVID-19 in the year,
with the vast majority of our Catalyst
Technology plants maintaining operations.
Sales were slightly down driven by refill
additives and copper zeolites to Clean Air,
partly offset by strong growth in first fill
catalysts and licensing.

Refill catalysts and additives sales
were slightly lower

This is recurring business which makes
up the majority of sales within Catalyst

Technologies. Refill additives declined
due to feedstock dynamics driving lower
volumes. In refill catalysts, sales were
stable. We saw good performance in
ammonia and formaldehyde, ahead of
the market. However, we saw lower sales
in methanol following strong demand in
the prior period and in hydrogen refill
catalysts due to the lower oil price.

First fill catalysts almost doubled

First fill catalysts are lumpy in nature
and driven by the start up of new plants.
They are a lead indicator of future refill
catalyst demand. In the year, we saw
strong sales growth driven by methanol
and ammonia catalysts with new plants
in Asia coming onstream.

Licensing saw good growth

Our licensing business is dependent
on new plant builds and revenue is
recognised over the period of construction.
We saw good performance in the period
driven by formaldehyde and methanol
following recent licence wins in these
segments. We also began to recognise
income from our newly developed
mono ethylene glycol technology as
we started work on the first project
following the licence win last year. In
the year, we signed four new licenses
and are pleased with the progress
we are making in developing and
commercialising technologies.

Strategic ReportJohnson Matthey / Annual Report and Accounts 202058

Financial performance review continued

PGM Services

Refinery backlog volumes improved

Diagnostic Services

PGM Services is the world’s leading
secondary refiner of platinum group
metals and provides a strategic service to
the group, mainly supporting Clean Air
with security of metal supply in a volatile
market. It comprises our pgm refining,
recycling and trading activities and
produces chemical compounds and
industrial products containing pgms.
Towards the end of the year, our pgm
refineries continued to operate albeit
at lower capacity due to compliance
with local guidelines and new working
practices in light of COVID-19.

PGM Services sales grew strongly,
up 36%

In the year, sales grew 36%. We saw
strong growth in our refinery and trading
businesses due to higher and more
volatile average pgm prices. Average
palladium and rhodium prices were up
56% and 137% respectively, whilst the
platinum price increased 5%, compared
with the same period last year. Sales of
chemical products grew driven by Clean
Air which uses pgm materials in its
catalyst products. However, sales of
industrial products containing pgms
were down.

Following unscheduled downtime in one
of our pgm refineries in 2018/19 which
resulted in higher precious metal working
capital, we made strong progress this
year in reducing the volume of precious
metal working capital in our refineries
whilst ensuring continued supply to
our Clean Air business and external
customers. Our progress has been faster
than expected and, as a result of the
work we have done to improve our
precious metal working capital efficiency,
we now expect to remove at least a
further £300 million1 of precious metal
working capital volume from our
backlogs by the end of 2020/21.

As previously announced, the

£100 million investment in our new
refinery is underway. This will further
reduce precious metal working capital,
ensure our assets operate effectively and
reliably, and strengthen our position as
a long term supplier to our customers.

Advanced Glass Technologies

Advanced Glass Technologies mainly
provides black obscuration enamels
and silver paste for automotive glass
applications. Sales were lower largely
driven by the automotive segment as
a result of the slowdown in global car
production, impacted by COVID-19.

Diagnostic Services provides specialised
detection, diagnostic and measurement
solutions for our customers in the
petroleum industry. Sales were down
as we saw an impact from the declining
oil price and COVID-19.

Underlying operating profit

Operating profit grew significantly,
up 40%, and margin expanded 5.5
percentage points. This was primarily
driven by a £47 million benefit from
higher average pgm prices and strength
in our PGM Services trading business in
a more volatile price environment, partly
offset by higher refinery operating costs
as we continue to work down our backlogs
and further investment in our refineries.

ROIC

ROIC increased 4.6 percentage points to
17.2% reflecting higher operating profit.

Notes:
1 Based on 31st March 2020 prices.

Health

Sales
Generics
Innovators

Total sales

Underlying operating profit
Margin
Return on invested capital (ROIC)
Reported operating profit

Year ended 31st March

2020
£ million

2019
£ million

% change

% change,
constant rates

134
89

223

27
12.1%
5.3%
10

171
86

257

43
16.7%
9.0%
50

-22
+5

-13

-37

-80

-23
+2

-15

-38

Performance affected by temporary disruption in the opioid addiction therapy market

• Generics declined as expected, affected by temporary disruption in the opioid addiction therapy market and lower sales of

ADHD APIs. We have now agreed new multi-year supply agreements for opioid addiction therapies with generic partners from
which we will begin to see the benefit in 2020/21.

•

Innovators grew driven by a customer who received regulatory approval for a novel immuno-oncology treatment.

• Operating profit declined materially driven by weaker sales performance, partly offset by stock build to meet higher customer

demand in 2020/21 and a net benefit from footprint optimisation.

• We made further progress towards delivering an additional circa £100 million of operating profit from our pipeline of generic
and innovator APIs by 2025 although this may be delayed a year given the inherent uncertainty around the timing of individual
drug launches.

Strategic ReportJohnson Matthey / Annual Report and Accounts 202059

Underlying operating profit

Operating profit declined 38% driven
by weaker business performance
including temporary disruption in the
opioid addiction therapy market and
lower ADHD sales. This was partly offset
by stock build to meet higher demand
from customers in 2020/21 which led to
a greater absorption of fixed costs into
inventory on the balance sheet and a net
benefit from footprint optimisation.

ROIC

ROIC declined 3.7 percentage points
to 5.3% mainly driven by lower
operating profit.

Health

Given the nature of our Health business
in providing critical products and
services into the pharmaceutical sector,
COVID-19 had limited impact in the year.
We maintained the vast majority of our
operations although we experienced
some delays to shipment of orders
following increased border controls.

Generics

Our Generics business develops and
manufactures generic active
pharmaceutical ingredients (APIs) for a
variety of treatments. Sales were down
significantly, with a mixed performance
across the business.

Agreed new multi-year
supply agreements for opioid
addiction therapies

Sales of controlled APIs were lower.
Speciality opiates were broadly flat in
the year. Following a strong first half,
sales declined in the second half due to
developments in the opioid addiction
therapy market which drove lower
demand in the short term for APIs used
in generic opioid addiction therapies.
Although these developments affected
our performance in the year, we have now
agreed new multi-year supply agreements
with generic partners and we will start to
see the benefit from these in 2020/21.
Sales of APIs for ADHD treatments
declined as one of our customers moved
to dual sourcing for some high margin
APIs. Sales of bulk opiates in Europe
were stable.

Our non-controlled APIs declined
as expected. This primarily reflected a
continued reduction in sales of dofetilide
as new competitors for our customer
entered the market.

Innovators

Our Innovators business provides custom
development and manufacturing
services for active ingredients of new
drugs during their lifecycle, including
for initial clinical evaluation and
subsequently for commercial supply
post regulatory approval.

Recent regulatory approval
for our customer’s novel
immuno-oncology treatment

Our Innovators business grew slightly.
This was primarily driven by higher sales
in relation to our strategic partnership
with Immunomedics for the manufacture
of a drug linker used in the production
of an immuno-oncology treatment
for triple negative breast cancer.
Immunomedics has recently received
approval for this therapy from the FDA
(Food and Drug Administration) and is
now increasing volumes to support
commercial demand.

API product pipeline

In the year, we continued to develop our
new product pipeline across both our
Generics and Innovators businesses. We
made further progress towards delivering
an additional circa £100 million of
operating profit from this by 2025
although it may be delayed a year given
the inherent uncertainty around the
timing of individual drug launches.

We recently undertook a strategic
review of our new product introduction
process. Following this review, we made
organisational changes, improved the
new product introduction process
and took the decision to deprioritise
21 generic molecules and refocus our
resources on the most attractive
opportunities. This gave rise to an
impairment charge of £20 million
in relation to previously capitalised
development expenditure, taken outside
of underlying operating profit.

Overall, our pipeline now comprises
54 molecules which includes generic APIs,
innovator APIs and new applications.
This includes four launched molecules
and eight generics which are awaiting
regulatory approval.

Specifically within Innovators, at the
start of the year, we had four projects in
late stage testing programmes. Of these,
two projects – including Immunomedics
– have now been approved, one project
did not receive approval and has been
cancelled and the remaining opportunity
is still in late stage testing.

Strategic ReportJohnson Matthey / Annual Report and Accounts 202060

Financial performance review continued

New Markets

Sales
Alternative Powertrain
Medical Device Components
Life Science Technologies
Other

Total sales

Underlying operating (loss) / profit
Margin
Return on invested capital (ROIC)
Reported operating loss

Year ended 31st March

2020
£ million

2019
£ million

% change

% change,
constant rates

237
72
50
30

389

(1)
-0.2%
-0.3%
(62)

206
70
49
37

362

2
0.7%
1.1%
(15)

+15
+2
+1
-19

n/a

+16
-
-
-20

n/a

Strong sales growth and continued progress in commercialising eLNO

•

Sales up 7% driven by strong demand for fuel cells and non-automotive battery systems.

• Operating profit declined as we invested in the development of our Battery Materials business and recognised an £8 million

one-off impairment in the first half in relation to our demo plant.

•

Significant progress in commercialising eLNO as we broke ground on our first commercial plant and now have four customers
in full cell testing.

Alternative Powertrain

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. Sales grew
16%, with continued momentum in Fuel
Cells and Battery Systems for e-bikes.

Significant progress in
commercialising eLNO

We are making significant progress with
the development and commercialisation
of our portfolio of eLNO materials, which
will compete with future ultra high energy
density materials such as NMC 811.
Feedback from testing with customers
remains positive, specifically our ability
to provide tailored solutions. In the year,
we moved to full cell testing with four
customers – two global automotive original
equipment manufacturers (OEMs) and
two non-automotive customers. Alongside
this full cell testing, we continue to work
with a number of automotive OEMs and
cell manufacturers in the validation phase.

We broke ground on our first

commercial plant in Konin, Poland,
which is expected to be on stream in
2022 and supplying platforms in
production in 2024. Our total investment
to first commercial production will
amount to circa £350 million, although

we are seeing some upward pressure
as we finalise the design and build in
more flexibility to meet our customers’
requirements. Beyond this, scale up is
likely to be phased as we match capacity
to market demand. As part of the
commercialisation process, we are also
securing sources of renewable energy
for the site in Poland.

Refocusing Lithium Iron Phosphate
to support eLNO

We are focusing our science and innovative
solutions on cathode materials that are
truly market leading, principally eLNO
our ultra-high energy density cathode
material and our higher performing
lithium iron phosphate (LFP). Sales
of LFP grades for lower performance
requirements declined in the year and
we are now refocusing our LFP business
to the high value segment and exiting
the much larger lower value segment of
the market, to better support our eLNO
customers and the development of this
business. These changes gave rise to an
impairment charge of £57 million in
the year, taken outside of underlying
operating profit.

Fuel Cells saw significant growth
in sales as we invest for growth

Sales in Fuel Cells grew 23% to £33 million
and we delivered good operating profit
growth driven by increased demand for
both non-automotive and automotive
applications in Asia. Today, our fuel cells

are now powering several hundred
commercial vehicles and buses in China.
We continue to invest in line with
market demand and have committed
circa £15 million to double our capacity
in the UK and China.

Medical Device Components

Our Medical Device Components business
leverages our science and technology to
develop products found in devices used
in medical procedures. Sales were flat
in the year. At the end of the year, we
saw a small increase in sales as some of
our products are vital components used
within ventilators.

Life Science Technologies

Our Life Science Technologies business
provides advanced catalysts to the
pharmaceutical and agricultural
chemicals markets. Sales were flat in
the year.

Underlying operating profit

Operating profit declined as we invested
in the development of our Battery
Materials business and recognised an
£8 million one-off impairment in the
first half in relation to our demo plant.

ROIC

ROIC decreased to -0.3% reflecting
the operating loss as we invest in
Battery Materials.

Strategic ReportJohnson Matthey / Annual Report and Accounts 202061

Financial
review

Resilient performance and
accelerating strategic initiatives

Anna Manz
Chief Financial Officer

In the year, we delivered a resilient performance and remain well positioned with our strong balance
sheet. We have a strong track record of delivering efficiency and are now accelerating our strategy
to drive further efficiency across the business, building upon the investments we have made in new
manufacturing facilities and in our systems and processes.

Corporate

Corporate costs in the period were £38 million, a decrease of
£15 million from 2018/19 due to lower legal costs and share
based payments.

Research and development (R&D)

We invested £199 million in R&D in the year, including £23 million
of capitalised R&D, around 5% of sales. Spend increased 5% as
we invested in next generation technologies in Clean Air, the
efficiency and resilience of our refineries in Efficient Natural
Resources, our Health API product pipeline and our eLNO
cathode material.

If current exchange rates (£:$ 1.233, £:€ 1.110,
£:RMB 8.81) are maintained throughout the year ending
31st March 2021, foreign currency translation will have a
positive impact of approximately £11 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.

Reconciliation of underlying operating profit to
operating profit

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 the non-sterling denominated underlying operating
profit in the year ended 31st March 2020, were:

(£ million)

Underlying operating profit
Profit / (loss) on disposal of businesses1
Loss on significant legal proceedings1
Amortisation of acquired intangibles
Major impairment and
restructuring charges1
Operating profit

Year ended 31st March

2020

539
2
–
(13)

(140)
388

2019

566
(12)
(17)
(14)

8
531

1 For further detail on these items please see pages 152, 199 and 200.

Share of 2019/20
non-sterling denominated
underlying operating profit

Average exchange rate
Year ended 31st March

2020

2019

% change

Summary of efficiency initiatives

US dollar
Euro
Chinese renminbi

40%
33%
12%

1.271
1.143
8.85

1.310
1.134
8.81

-3
+1
–

Initiative
£ million

Overall for the year, the impact of exchange rates increased

sales by £36 million and increased underlying operating profit
by £5 million, following a £47 million and an £8 million
increase respectively in our first half.

Procurement1
Restructuring
Health footprint optimisation

Previous initiatives beginning 2017

Clean Air footprint
Groupwide organisational efficiency

New initiatives

Total efficiency initiatives

Delivered
to date

Annualised
benefits by
2022/23

71
25
20

116

–
–

–

116

100
25
20

145

30
50

225

1 Around three quarters of procurement initiatives will benefit the income statement,

of which around two thirds will be reinvested to drive growth.

Strategic ReportJohnson Matthey / Annual Report and Accounts 202062

Financial review continued

Major impairment and restructuring charges

As we accelerate our strategy to drive efficiency, we will deliver
annualised savings of at least £80 million over the next three
years to 2022/23. Related to these new savings, we will be
taking total impairment and restructuring charges of around
£240 million by 2022/23. Of this, around £80 million is
expected to be cash.

During the year we recognised impairment and

restructuring charges of £140 million. These comprised the
consolidation of our Clean Air footprint, our Lithium Iron
Phosphate (LFP) business in Battery Materials and our Health
product pipeline.

In Clean Air, we will consolidate some of our existing older

capacity in Europe into our new, more efficient plants. In the
year, this resulted in an impairment charge of £61 million on
our older manufacturing assets.

We impaired our Lithium Iron Phosphate (LFP) business
in Battery Materials, which gave rise to an impairment charge
of £57 million in the period.

A strategic review of Health’s new product introduction

process was undertaken during the year which resulted in
organisational changes and the deprioritisation of the
development of 21 molecules. Development expenditure which
had been capitalised in respect of the terminated molecules
totalling £20 million has been written off during the year.

Future restructuring costs of around £100 million relate to
the simplification of our organisation and consolidation of our
Clean Air footprint.

See the table for a breakdown showing the impairment and restructuring charge and cash costs:

£ million

Clean Air footprint
Groupwide organisational efficiency
Battery Materials LFP
Health product pipeline
Other restructuring costs

Total

1 Annualised benefits from 2020/21 of at least £30 million.

Includes cash costs of circa £80 million.

Profit / (loss) on disposal of businesses

Taxation

Annualised
benefits by
2022/23¹

Total
restructuring
costs

Restructuring
costs
2019/20

Future
restructuring
costs²

30
50
–
–
–

(91)
(70)
(57)
(20)
(2)

(61)
–
(57)
(20)
(2)

(30)
(70)
–
–
–

(240)

(140)

(100)

Profit / (loss) on disposal of businesses is shown separately
on the face of the income statement and excluded from
underlying operating profit. In the year, we released a £2 million
provision in relation to the disposal of Johnson Matthey Gold
and Silver Refining Holdings in March 2015. In the year ended
31st March 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.

Finance charges

Net finance charges in the year amounted to £86 million,
up from £43 million in 2018/19. This was primarily driven
by increased average precious metal borrowings due to higher
precious metal prices, on which we pay higher interest on
average than the rest of our borrowings.

The effective tax rate on reported profit for the year ended
31st March 2020 was 16.4%, up from 15.3% in the prior year.
The tax charge on underlying profit before tax for the
year ended 31st March 2020 was £72 million, an effective
underlying tax rate of 15.7%, broadly unchanged from 15.9%
in the prior year. This was around 2% lower than expected due
to profit mix across different tax jurisdictions following the
impact of COVID-19. The current year tax charge includes
increases in provisions for uncertain tax positions, £12 million
of which was recognised in the first half and relates to
reassessments of prior years.

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 to tax 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.

Strategic ReportJohnson Matthey / Annual Report and Accounts 202063

Through implementation of our tax strategy, we plan to:

• 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.

• 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. We have a zero tolerance approach
to tax evasion and the facilitation of tax evasion.

• 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.

The board approves our tax strategy each year. The tax

strategy satisfies the requirements of paragraph 16(2)
Schedule 19 Finance Act 2016.

Post-employment benefits

IFRS – accounting basis

At 31st March 2020, 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 £262 million.

The cost of providing post-employment benefits in the
year was £49 million, down from £56 million last year. The
post-employment benefits cost also included a past service
credit of £20 million, which compared to a £9 million credit
in the prior period.

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 group’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 surplus of £1 million at 1st July 2019,
an improvement from a £2 million deficit at 1st July 2018.

Capital expenditure

Capital expenditure was £465 million in the year, 3.1 times
depreciation and amortisation (excluding amortisation of
acquired intangibles). In the period, projects included:

•

Clean Air manufacturing plants in Europe and Asia.
This increased capacity will enable us to consolidate our
manufacturing footprint to drive efficiency and improve
flexibility, and support demand from tightening legislation
in these regions.

Investment in the development and commercialisation of
eLNO. We broke ground on our first commercial plant in
Konin, Poland for the first 10,000 metric tonnes which
has the potential for expansion to 100,000 metric tonnes.
We are on track to start production in 2022 and supply
platforms in production in 2024.

• Upgrade to our core IT business systems.

•

Investment in our Health manufacturing facilities and
continued investment in our API product pipeline.

Investment in the efficiency and resilience of our refineries
within Efficient Natural Resources.

Capital expenditure for 2020/21 is expected to be up to

£400 million as our investment into strategic growth projects
continues. Key projects include:

•

Investment in eLNO as we continue to commercialise our
ultra high energy battery cathode material.

Completion of our new Clean Air plants in China and India.

Investment in the efficiency and resilience of our refineries
within Efficient Natural Resources.

• Upgrade to our IT systems as we continue to roll out our

single global ERP system.

Depreciation and amortisation (excluding amortisation

of acquired intangibles) is expected to increase to around
£200 million in 2020/21. This increase is largely due to the
depreciation of our new Clean Air plants and our investment
to upgrade our core IT systems.

Strategic ReportJohnson Matthey / Annual Report and Accounts 202064

Financial review continued

Accelerating reduction of precious metal
working capital

We have a disciplined approach to managing precious metal
working capital and have accelerated our actions in this
area. In the year, we made substantial progress in reducing
precious metal volumes amounting to £345 million1 which
was achieved through:

•

Progressing backlog reduction, with £162 million of
precious metal volume removed.

• Optimising precious metal volumes across our businesses,
particularly between Clean Air and Efficient Natural
Resources, and reviewing commercial terms with pgm
collectors as well as our Clean Air customers. This removed
£49 million of precious metal volume.

•

Substantial inflows of £134 million as a result of supply
chain management in Clean Air, reducing metal at every
stage so we were not sitting on excess inventory, as
demand slowed due to the impact of COVID-19.

We are focused on further reducing precious metal working

capital. We are now targeting at least a further £300 million2
reduction in precious metal backlogs by 31st March 2021,
although we expect this to be offset by higher demand in
Clean Air depending on the path of recovery.

Notes:
1 Based on 2019/20 blended prices.

2 Based on 31st March 2020 prices.

Free cash flow and working capital

Free cash flow was an inflow of £52 million, an improvement
on the prior year. This was primarily due to better net working
capital where we saw an outflow of £1 million compared to an
outflow of £224 million in the prior year.

Excluding precious metal, working capital days increased to
52 days at 31st March 2020 compared to 48 days in the prior year.
Average working capital days excluding precious metals

increased by four days to 63 days. We are targeting an
improvement in average non precious metal working capital to
between 50 and 60 days over the medium term.

Dividend

The group has a strong balance sheet, good cash generation
and liquidity headroom. However, given the heightened
degree of current uncertainty and to balance the needs of all
stakeholders, the board will propose a final ordinary dividend
for the year of 31.125 pence at the Annual General Meeting
on 23rd July 2020, representing half the level of the 2018/19
final dividend. This is not intended to be a rebasing; the board
remains committed to a progressive dividend and anticipates
restoring future dividend payments to levels seen prior to the
COVID-19 pandemic when circumstances permit. Subject to
approval by shareholders, the final dividend will be paid to
shareholders on 4th August 2020, with an ex dividend date
of 18th June 2020.

Return on invested capital (ROIC)

ROIC declined to 13.3% at 31st March 2020 from 16.4% in the
prior year mainly due to higher capital expenditure, increased
average precious metal working capital through the year and
lower operating profit.

Capital structure

Net debt at 31st March 2020 was £1.1 billion. This is a decrease
of £394 million from 30th September 2019 and an increase
of £228 million from 31st March 2019. Net debt increased
by £43 million to £1.1 billion when adjusted for the post tax
pension deficits. The group’s net debt (including post tax pension
deficits) to EBITDA was 1.6 times (31st March 2019: 1.3 times),
at the bottom end of our target range of 1.5 to 2.0 times.

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. As
previously disclosed, we settled with one of these customers
on mutually acceptable terms with no admission of fault.
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. 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. The group works with all its
customers to ensure appropriate product quality and we have
not received claims in respect of our emissions after-treatment
components from this or any other customer. 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.

Strategic ReportJohnson Matthey / Annual Report and Accounts 202065

Going concern
and treasury policies

Going concern

2020/21 GDP growth projections aligned with the scenarios

The group has a strong balance sheet
with over circa £1.3 billion of available
cash and undrawn committed facilities
at 31st March 2020. Leverage, measured
by net debt (including post tax pension
deficits) to EBITDA, was at the bottom of
our target range at 1.6 times. COVID-19
has introduced unprecedented
uncertainty to the market outlook and
in response to this we have undertaken
extensive reviews of our businesses
and projections under a range of
potential outcomes.

Our review used a number of
external sources to identify a range of
potential economic scenarios and assessed
our headroom under each scenario against
committed facilities and key financial
covenants over the going concern period.

At a macro level we have used the
GDP forecasts from a range of external
parties for these scenarios, which are:
(1) a deep recession base case which
models an extended shutdown followed
by an extended recovery period, and
(2) a downside of a very deep recession
comprising of a deeper shutdown with a
challenging, stuttering recovery. The key
macro assumptions for our financial year
20/21 are shown opposite.

Clean Air

With the legislative frameworks in place
and assumed to remain for vehicle
emissions in the markets in which we
operate, our key market variable is the
level of automotive production. Our
scenarios utilise a range of external
forecasts and our deep recession scenario
assumes a decline of circa 25% in light
duty production for Europe and the US
but better in Asia, while for heavy duty,
the declines are slightly more. In our very
deep recession scenario, we assume a
circa 35% decline in light duty production
for Europe and the US, but better in Asia,
while for heavy duty, the declines are
again slightly more. For US truck sales,
we assume that the bottom of the cycle
will occur in 2021/22 in both scenarios
and we keep our assumptions on battery
electric vehicles (BEVs) consistent at 2%
of all vehicles globally.

Within these market assumptions, we
have planned for a much greater impact
in the early part of 2020/21 and an
increase in production over the year, with
slower recovery in the very deep scenario.

Forecast

Description

Deep recession
•

Extended shutdown,
followed by extended
recovery period.

Very Deep recession
• Deeper shutdown

impact with challenging,
stuttering recovery.

Global

•

(1.0%) to (2.0%)

•

(3.5%) to (4.5%)

•

(0.6%)

China

•

1.2%

•

(2.7%)

•

(3.0%)

Europe

•

(6.5%)

•

(~10.0%)

Source: JM analysis; Oxford Economics; McKinsey; IMF (International Monetary Fund); IEA (Institute of Economic Affairs);
OBR (Office for Budget Responsibility) (UK); JPM Cazenove and Citi

With a high proportion of variable costs,
we expect to mitigate a significant
portion of the decline in sales. Working
capital drops significantly in the short
term before building again to support
the growth to normalise by the end of
the year. We also assume that we will
continue with our strategic investments
in the new facilities in China and India
in the period.

Efficient Natural Resources

The impact on our Efficient Natural
Resources Sector varies by sub-sector.
The Catalyst Technologies businesses
have seen little impact from the
COVID-19 slowdown to date, but we do
expect an impact as lower demand
begins to impact the industries they
serve. The key drivers for our businesses
are diverse and will depend upon the
specific markets they address as well as
feedstock prices. At a market level we
have assumed an oil price of $25-35/bbl
for our deep scenario and $20-30/bbl for
the very deep scenario, together with an
overall decline in investment in the oil and
gas sector of 35% and 50% respectively.
In these businesses we have a higher
proportion of fixed costs so the impact
of lower demand on profitability will
be greater.

Platinum Group Metal (PGM)
Services is most impacted by pgm prices
and for the purpose of our scenarios
we assume lower prices, which adversely
impacts profitability. The lower demand
on our refineries in the short term in part
due to lower Clean Air volumes under
these scenarios will allow us to accelerate
our progress on backlog reduction as
well as meeting planned shutdowns for
maintenance and stock counts. This in
turn reduces the sensitivity of our working
capital to pgm prices.

Health and New Markets

Health is relatively unaffected by COVID-19
with demand for many products unaffected.
Most of our businesses in New
Markets see only short term impacts from
disruption to manufacturing and supply
chains whilst the underlying market
demand remains e.g. fuel cells and medical
devices. We assume that our strategic
focus and investment in Battery Materials
is maintained throughout the period.

Funding and available liquidity

The group has a robust funding position.
JM signed a £1 billion five year committed
revolving credit facility in March this
year which secures liquidity for the next
five years and was entirely undrawn at
31st March 2020. Our longer term
funding comes from the US private
placement market and other regional
lenders including the European Investment
Bank and KfW. The maturity profile at
31st March 2020 is excellent with only
£130 million of term debt maturing
before June 2021. In April 2020, we
secured a further US$300 million of
funding from the US private placement
market for the next five to seven years.
JM has also secured access to the Bank
of England’s COVID Corporate Financing
Facility (CCFF) which would provide
additional back-stop liquidity for the
next year if needed.

In addition, as a long time, highly

rated issuer in the US private placement
market, JM expects to be able to access
additional funding in its existing markets
should it need to. The group also has a
number of additional sources of funding
available including uncommitted lease
facilities that can provide precious
metal funding.

Strategic ReportJohnson Matthey / Annual Report and Accounts 202066

Going concern and treasury policies continued

Treasury policies

Foreign currency risk

At 31st March 2020 the group had

metal lease facilities of circa £800 million,
of which £451 million (31st March 2019:
£372 million) was drawn. As these
metal leases are for periods of less than
12 months they have been excluded from
our going concern assessment, with the
assumption that when these leases
mature they are replaced with our other
existing committed credit facilities. The
metal leasing market remains active and
there is no indication that renewing these
lease facilities when they mature will
not be possible. Similarly, we have also
excluded from our modelling the funding
facilities obtained under the CCFF. While
metal leasing facilities and the CCFF are
excluded from our modelling under a
normal situation, we would expect to
have access to facilities such as these.

Conclusion

The group has a robust funding position
and has tested its performance under a
deep recession scenario and stress tested
with a more extreme very deep scenario.
In both scenarios, we have sufficient
headroom against committed facilities
and key financial covenants in the going
concern period (15 months following
31st March 2020). There remain risks
to the group including more extreme
economic outcomes and our delivery
of refinery backlog reductions. Against
these the group still has a range of
levers which it could utilise to protect
headroom including delaying inventory
builds, reducing capital expenditure and
reducing future dividend distributions.
The directors are therefore of the
opinion that the group has adequate
resources to fund its operations for
the period of 15 months following
31st March 2020 and so determine that
it is appropriate to prepare the accounts
on a going concern basis.

Maturity profile of debt facilities

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. The group
successfully refinanced its existing bank
facilities in March 2020, consolidating
into a £1 billion five year sustainability
linked revolving credit facility. In line with
the group’s vision this facility contains
sustainable performance targets.

At 31st March 2020 the group had

cash and cash equivalents of £273 million
and £1,125 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 2020
are illustrated in the chart below.

Of the committed bank facilities,

£125 million have a final maturity date
within the 15 months to 30th June 2021
(the going concern period). In addition,
term debt of £41 million matures in
December 2020 and £89 million matures
in January 2021. These term debt
repayments will be financed using
existing bank facilities.

In April 2020, the group secured an
additional $300 million from the US private
placement market for the next five to
seven years, adding further liquidity and
further increasing the maturity profile.

£ million

2,500

2,000

1,500

1,000

500

Net debt at 31st March 2020

March
2020

March
2021

March
2022

March
2023

March
2024

March
2025

March
2026

March
2027

March
2028

March
2029

Private placements

KfW loans

EIB loans

Committed bank facilities

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 2020 are
shown on pages 164 and 182.

Interest rate risk

At 31st March 2020 the group had net
borrowings of £1,018 million of which
84% was at fixed rates with an average
interest rate of 3.6%. The remaining 16%
of the group’s net borrowings was funded
on a floating rate basis. A 1% change in
all interest rates would have a £2 million
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 price 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. As
COVID-19 impacted we acted quickly to
tightly manage our credit exposures and
closely monitor our risks. Counterparties
are assessed against the appropriate
credit ratings, trading experience and
market position to define credit limits.
Our exposures are monitored frequently
and mitigating actions taken where
appropriate. In treasury and precious
metal management, these exposures
include the mark to market of
outstanding transactions and potential
settlement risks.

Pages 70 to 74: Our principal risks

Strategic ReportJohnson Matthey / Annual Report and Accounts 202067

Risks and
uncertainties

JM applies a holistic risk approach which enables the business
to protect value, proactively manage threats to the delivery
of strategic and operational objectives while enhancing the
realisation of opportunities. The COVID-19 pandemic has
altered the external environment and specifically our response
in some areas where risk has increased. The long term impact
of the COVID-19 pandemic on JM is uncertain and we have
been working through a number of scenarios to understand
the potential impacts. While we are confident that our business
model is resilient, we remain cognisant of the challenges
created by the pandemic. We have further identified specific
areas where our principal risks could be impacted and, as they
evolve, we are working with management to further provide
JM’s board with the line of sight in order to plan ahead and
take appropriate action.

Managing JM’s risks

Effective risk management is central to JM’s decision making
process as it enables:

•

Planning through the lens of prioritisation to deliver
strategic objectives.

Consideration of risk and reward in establishing and
implementation of the relevant controls in the areas
that matter most.

• Assurance resources to be focused on specific areas

of risk and uncertainty.

• Opportunities to be pursued while continuing to
mitigate JM’s risks in a rapidly changing external
environment. This includes effective incident response
to emerging risks, such as COVID-19.

•

Compliance with UK Corporate Governance
Code requirements.

JM’s risk approach

Identification
of risk

Assessment and
evaluation

Risk
management
methodology

Monitoring and
reporting

Determination
of response

JM’s Board of Directors has overall responsibility for the risk
management process. Together with the Group Management
Committee (GMC) they have performed a robust assessment
of the principal and emerging risks facing the business to
ensure that the risks align with goals and strategic objectives.
The Audit Committee assists the board in monitoring the
effectiveness of the risk management and internal control
policies, procedures and systems.

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.

Each principal risk is sponsored by a member of the GMC
who drives progress through regular review considering
related emerging risk factors, current responses and further
mitigating actions to reach appetite. The GMC also periodically
focuses on selected risks and performs deep dive reviews to
support relevant strategic topics on the GMC agenda. The risk
reviews are embedded within the relevant business and / or
functional reviews to ensure that they are considered in the
context of JM’s values and strategic objectives. In response
to the outbreak of the global pandemic, a dedicated Group
Incident Management Team was deployed which is discussed
further on page 69, to specifically oversee and direct JM’s
response to COVID-19.

Risk framework

Strategic enablers

Current risks

Application against our risks:

• Innovation
• Efficiency and excellence
• Values-driven culture
• Sustainable business

Risks we are actively managing
that could stop us achieving our
strategic objectives.

Emerging risks

Risks with a potential future impact
from internal or external opportunities
or threats. It also now includes
‘black swan’ events for example
global pandemics.

What we assess
• Risk ownership: each risk has a
named sponsor and owner.
• Gross risk score: unmitigated

position.

• Net risk score: current position.
• Risk appetite: desired position.
• Mitigating actions: suitability

for achieving appetite.
• Risk score movements:

positive / negative.

Strategic ReportJohnson Matthey / Annual Report and Accounts 202068

Risks and uncertainties continued

How we manage risk

Process developments during 2019/20

All risks are described, analysed and reported using a standardised
framework across the business. Likelihood of occurrence and
the potential impact on objectives are considered and scored
using a broad range of impact measures. The effectiveness and
adequacy of controls are assessed regularly with assigned risk
sponsors and owners, and reported at least twice a year.

Furthermore, functional leaders, sectors and site teams are
responsible for identifying, assessing and prioritising their
risks, considering the likelihood of occurrence and the
potential impact to JM’s objectives.

Site risks are aggregated and analysed for trends and
anomalies which are reviewed by sector leadership teams.
Risk insights are then incorporated into strategic planning
and budgeting. The Group Risk Register is subject to a
detailed review and discussion by the GMC, and this includes
discussion of emerging risks.

The board assesses the outputs from this process and takes
confidence from the ‘three lines of defence’ risk assurance
model. The first line represents operational management
who own and manage risk on a day to day basis, utilising
effective internal controls. Group functions and sectors monitor
and oversee these activities, representing governance and
compliance at the second line. The third line is the independent
assurance over these activities provided by the Corporate
Assurance function.

JM continually works to improve risk management practices
and over the last 12 months the following key enhancements
have been made, which have also supported the coordination
of our responses to the COVID-19 pandemic:

•

Introduced dashboards to improve principal risk reporting.
Dashboards were developed to consolidate risk data
including current net and appetite scoring as well as the
actions required to support achievement of desired
outcome. This has improved the quality of risk focused
discussions across the business.

Enhanced risk appetite statements. GMC risk sponsors have
developed more detailed and focused appetite statements
for principal risks. They have been reviewed by the board
and the GMC, and have been embedded into risk reporting
dashboards to further improve visibility of the journey
towards the appetite.

Improved key risk indicators (KRIs) methodology.
Developed approach in detailing metrics for each principal
risk measured in time and cost. This provides the board,
risk sponsors and owners an ability to track mitigation
maturity, costs and timescales associated with driving the
net positions towards the defined appetites.

Further sub-sector risk analysis. Conducted JM wide
analysis on group and sector risks such as root cause and
correlation against their likely principal risks to provide
information as to where risks are originating from and how
they can be effectively mitigated.

Continued horizon scanning for emerging risks. Reviewed
internal and external environment changes / movements
at the board and GMC to ensure that the top down risk
management process is fully informed.

How we manage risk

Top
down

Board of Directors

Assesses principal risks and sets risk appetite. Overall responsibility for sponsoring
the approach to risk management and internal controls.

Corporate Assurance
function

Constructively challenges
and assists the board, Audit
Committee, GMC risk sponsors,
sectors and functions in
considering the range of risks
identified and their materiality.
Particular focus is provided to
the progress of mitigating
actions / projects in terms of
their successful implementation
and their likely effectiveness
in reducing risk in line with
our appetite.

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Audit Committee

Assesses the effectiveness of the group’s risk framework and internal controls system.

Group Management Committee (GMC)

Reports on principal risks and uncertainties to the board and Audit Committee.
Carries out top down identification and review. Develops company strategy in line
with board risk appetite. Owns risk definitions, mitigation plans and monitors
progress towards the appetite through our GMC risk sponsors.

Sector level

Carries out a top down review of activities on a regular basis and is responsible
for ensuring that sites and functional areas have developed risk registers in place.
Reports to the GMC on sector risk and issues.

Site / functional areas / programmes / projects

Bottom
up

Carries out risk identification, assessment and mitigation. Reports top risks to sector.
Carries out regular reviews on effectiveness of existing controls and progress with
control implementation.

Strategic ReportJohnson Matthey / Annual Report and Accounts 2020

COVID-19

JM has been proactive in its response to COVID-19. The
Group Incident Management Team has been swiftly deployed
to manage the response to the current pandemic. While
coordinated and closely overseen by GMC, the team has
implemented several specific measures including a groupwide
pandemic response plan, a groupwide alert level status matrix
and a comprehensive site pandemic response measures
playbook. These measures have ensured that operations are
able to continue safely and in accordance with government
policy and regional guidance. JM has also specifically focused
actions in managing cash flow, reducing cost and working capital
to ensure the group remains robust, with sufficient liquidity.

The board and GMC have further directed the updating of JM’s
principal risks to reflect the impact of this pandemic. In most
instances, risk definitions have not been changed as the
pandemic has not changed the longer term coverage of each
risk. However, it should be noted that additional actions have
been defined and where appropriate implemented to reflect
the impact of COVID-19. Consideration has also been given as
to whether COVID-19 should be treated as an individual risk.
The board agreed that the pandemic would be more effectively
managed through articulating its impact within each of the
existing principal risks rather than a stand alone item.

JM recognises that the current COVID-19 pandemic is an
evolving situation and we will need to continue to be agile in
managing this risk. Furthermore, we will continue to review
and challenge the principal risks providing an ongoing
consideration as to whether it needs to be recognised as a
stand alone risk in the future.

The crisis has also accelerated our learnings on how differently we
can use technology to connect, collaborate and engage with our
customers, suppliers and employees across the globe. We intend
to use these lessons, to ensure that as lockdown eases, we are
embracing new habits and opportunities this change has created.

JM’s principal risks and uncertainties

Principal risks are critically assessed to ensure that JM meets
the challenges facing the business and strategic objectives.
The COVID-19 pandemic, which has altered the external
environment, has impacted the risks JM manages including
supplier disruption, rise in mandatory / voluntary work from
home and a shift in customer behaviours. JM has taken decisive
action to protect its people, support its communities across the
globe and manage the continuity of the business to deliver its
vision for a cleaner, healthier world.

Specifically, in this context, managing today’s financial
performance is imperative as it further underpins the future
success of JM. The board and GMC are continually assessing
the potential impact of COVID-19 on the business with the
assumption that the global economy, JM’s customers and
suppliers will be affected for far longer than the next few
months and that some changes may well be permanent. This
is explored further within the Viability section on page 75. Also,
in the same way as governments around the world are planning
their COVID-19 exit strategies, JM is too. This means, first and
foremost, continuing to keep all people safe, then focusing on
the choices and actions to put JM in the best position to deliver
the long term future strategy.

To understand the current risk universe for JM, GMC risk
sponsors have assessed changes to their risks, prioritising
principal risks as required, with updated plans to mitigate
them. This has been enabled by the risk management process
facilitated by the Corporate Assurance function and additionally
through the COVID-19 Group Incident Management Team.

It further contributed to discussions by the board and GMC to
ensure JM’s operational posture reflects the current environment.

The following key changes, additions and updates on JM’s
principal risks and uncertainties in 2019/20 have been considered:

•

The ‘Existing market outlook’ risk has been reassessed to
include both the short term market risk that can be
foreseen and reacted to and longer term ‘black swan’ events
where the quality of response is the important factor.
COVID-19 has increased the volatility and uncertainty of
our outlook in our existing markets but over time we would
expect both of these elements to reduce with revised
market understanding.

The ‘Future growth’ risk has been refined to focus on
the main elements that drive our growth (identifying
opportunities, developing the products and services
required and building the capability to deliver). This has
provided clearer ownership, accountability and monitoring
of differing risk exposures in strategic investments and / or
delivery of expected business cases. We have improved our
visibility and awareness of our Fuel Cells business’ risks and
uncertainties as it executes its ambitious growth plans.

The assessment criteria for the ‘Environment, health and
safety’ risk has been enhanced to drive stronger alignment
with the Environment, health and safety (EHS) strategy
and maintaining strong focus on JM’s aspiration of zero
harm. The risk has also been updated to reflect greater
environmental actions. COVID-19 has created unprecedented
challenges in the working environment around us. As the
health, safety and wellbeing of our employees is vital,
JM reacted quickly to take relevant actions such as
implementing global travel restrictions, restricting
attendance / organisation of large events, increasing
remote working at scale and enhancing process safety
measures. JM has further instigated frequent employee
communications and engagement around the importance
of safety in the context of COVID-19 and issued additional
guidance for process safety measures. JM has also leveraged
its global presence to learn from our colleagues in China.
It enabled an early start of our COVID-19 preparations
around the globe to implement measured responses to the
pandemic across all of JM facilities.

Climate change is incorporated into our risk management
process as a driver of certain principal risks, especially
‘Future growth’, ‘Environment, health and safety’, ‘Supply
failure’ and ‘Failure of operations’. We recognise that
effective management of climate change risks are crucial
to deliver our growth strategy and inspire confidence from
our stakeholders. The rate and extent of change of our key
markets in response to climate change is the subject of
extensive scenario planning and we are further analysing
the validity of a stand alone risk for this area.

Strategic ReportJohnson Matthey / Annual Report and Accounts 202070

Risks and uncertainties continued

• Metal liquidity and supply – JM

continues to refine and enhance the
Precious Metal Management (PMM)
team’s approach to both the financial
processes which govern metal
management, and operational
processes. Significant advances have
been made in reducing the amount
of working capital absorbed by metal
prior to the impact of COVID-19, as
well as strengthened governance
including additional specialist
resources to the PMM team. While
the pandemic disruption has been a
factor that JM considered in metal
supply, it has not had an immediate
impact on our supply positions. We
continue to monitor the situation
with our suppliers including
potential shortages of supply created
by mine closures.

• Battery Materials – recognising the
significant strategic potential of the
Battery Materials business in
developing and bringing to market
eLNO, JM is creating a leading risk
and governance capability to focus
on managing programme and
business risks. The priority is to
ensure that business and
programme risks receive appropriate
management attention and are
addressed quickly and effectively in
this complex environment.

• Within the ‘Applications, systems
and cyber’ risk, key cyber security
technologies have been deployed to
increase our ability to predict, prevent,
detect and respond to cyber threats.

These have been fine tuned for the
increased risk of attack associated
with COVID-19 as we anticipate a
continued increase in volume and
scale of financially motivated cyber
attacks where the pandemic is used as
a cover. We have increased the level
of communication and awareness
activities to ensure our employees
are more alert. We continue to
track external threats working with
governments, law enforcement and
industry specialists as appropriate.

• Brexit – JM is continuing to monitor

and assess the potential impact of
the UK’s exit from the European
Union on current operations and
strategy. Plans are well developed,
and JM is confident that the acute
demands of managing the COVID-19
response will not reduce the ability to
respond to changes caused by Brexit.

The following table sets out the principal risks and uncertainties facing the group
and the mitigating actions we have in place. It also details any profile changes for
each principal risk during the course of the year.

Strategic risks are listed first followed by operational risks. Each risk has a
GMC sponsor who is responsible for the risk and to ensure controls are adequate
and prioritised effectively. Each principal risk is also linked to one or more of our
strategic enablers – ‘Efficiency and excellence’, ‘Sustainable business’, ‘Innovation’
and ‘Values-driven culture’.

1 Existing market outlook

Risks, opportunities and impact
The impact of changing assumptions
in our key markets is either unplanned
or unforeseen and we are not agile
enough to respond to them. This risk
includes potential impact of legislative
changes (e.g. those caused by Brexit),
other market movements outside of
our predictions, the extended impact
of global pandemics such as
COVID-19 and emerging trends such
as the imposition of tariffs as well as
regional and global slowdowns to
which our business may be sensitive.

Key mitigations
• Execution of the strategic planning process to assess
and understand external trends and assessment of
the associated impacts across our sectors (including
the balance, scale and focus of investments).
• Regular review of our portfolio is undertaken to

ensure that each part of the business is providing
value to the group. In turbulent times the resilience
of this portfolio demonstrates their benefits.
• Integration of strategic risk within the strategic

planning process to challenge implicit assumptions
and drive proactively the consideration of different
market outcomes.

• Monitoring of key viability and liquidity metrics
(including balance sheet strength) as part of
budgeting and going concern testing.

• Technology road mapping to understand our

response options to evolution in our markets and
associated scientific and technological requirements.
• Monitoring of changes to key drivers (including GDP
and market assumptions), scenario planning and
adjusting business plans accordingly.

GMC sponsor: Christian Günther

Key

E Efficiency and excellence

I Innovation

S Sustainable business

V Values driven culture

E S I V

Changes since 2019 annual report
We continue to monitor global macroeconomic
factors and we are improving our sensitivity
analysis through the strategic planning and
budgeting process. The agility of this process
has allowed us to re-plan quickly and
efficiently. COVID-19 has changed our market
outlook through supply disruption, plant
shutdowns and changing consumer demands.

We have so far seen significant impact to our
business throughout Q1 2020/21 driven by
COVID-19. Other than the health, safety and
wellbeing of our employees, we have specifically
focused our actions in managing cash flow,
reducing cost and working capital to ensure
JM remains robust, with sufficient liquidity.

COVID-19 has increased the volatility and
uncertainty of our outlook in existing markets
but over time we would expect volatility to
reduce and with revised market understanding
uncertainty to decline. While putting our
own business strength and continuity first,
we have also been assessing opportunities
created by these market conditions.

Strategic ReportJohnson Matthey / Annual Report and Accounts 2020

2 Future growth

Risks, opportunities and impact
Failure to deliver planned growth and
value creation through ineffective
execution of strategic initiatives
and investments.

Key mitigations
• A clear strategy, which is continuously reviewed
in the light of new information, and a business
review process to track execution of that strategy
(Transformation Office).

GMC sponsor: Robert MacLeod

3 Competitive advantage

Risks, opportunities and impact
Failure to maintain our competitive
advantage in existing markets and,
as a result, not meeting customers’
evolving needs as effectively and
profitably as our competitors.

• Ongoing reviews and monitoring of new
technologies and market competitiveness.

• Targeted investment in research and development,
capital projects and people with the specific skills
necessary to deliver effectively and support the
realisation of our strategy.

• Proactive engagement with current and potential
customers as well as industry bodies, for example
the Hydrogen Council, to understand future needs
and potential product / market evolution.

• Regular reviews of all strategic capital projects by

dedicated group capital projects team.

Key Mitigations
• Strong customer relationships due to JM’s technical
proposition, good market reputation and a high
level of technical service.

• Regular engagement with customers at multiple

levels and performing satisfaction surveys.

• Regular strategy reviews including a review of our
competitive position and competitors’ moves.
• Research and development as well as capital
management process ensuring resources are
prioritised against the areas of greatest opportunity.

• Strong innovation portfolio with new technology

platform and product development process.

GMC sponsor: Maurits van Tol

4 Environment, health and safety (EHS)

Key mitigations
• Embedded health and safety culture, including
clear policies and standards, continual training
and awareness activities and audits.

• Continue to operate process safety reviews on

applicable sites.

• Investigations carried out to determine the root

cause of incidents and accidents and the
development of remediation plans.

• Reporting and management of environmental data.

Risks, opportunities and impact
As per similar high hazard
manufacturing companies, 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 or breach applicable
laws which could adversely impact
our employees. This could result in
lost production time and potentially
attract negative interest from the
media and regulator.

GMC sponsor: Robert MacLeod

E S I V

Changes since 2019 annual report
This risk has been refined to focus on the
main elements that drive our growth
(identifying opportunities, developing the
products and services required and building
the capability to deliver).

We have reviewed our growth choices,
timing of investments and execution risks
in light of COVID-19. Specifically, we have
conducted detailed assessments of the
impact on projects delivery and start up due
to limitations on resource and equipment
availability. We continue to ensure that our
future growth is aligned with global macro
trends (including climate change) such as
fuel cell technology.

E S I V

Changes since 2019 annual report
We are delivering and tracking our
major capability building programmes
including commercial, procurement and
digital transformation.

We have processes in place to enable
effective decisions to allocate innovation
resource and capital. Through our
innovation excellence programme, we
continuously improve the processes that
further expand JM’s product, application
and technology toolbox.

COVID-19 has provided both challenges
and opportunities to our business. We
have therefore also been focused with our
response on emerging opportunities that
would transform our business at pace.

E S V

Changes since 2019 annual report
The health and safety of our employees
continues to be our absolute priority across
the business. We have made progress in
embedding our policies across the business
and continue our execution of all EHS
improvement plans in a controlled manner,
with rigorous and regular tracking which
has resulted in improved leading and
lagging indicators across the group.

This risk has been updated to clearly
articulate the way we are managing our
health and safety exposure, and specifically
to encompass all relevant areas such as
our environmental impact.

COVID-19 has impacted the ways of
working for many of our employees.
We have deployed new EHS policies and
guidelines to protect our employees
and we have further developed our
wellbeing support programme.

Strategic ReportJohnson Matthey / Annual Report and Accounts 2020

Risks and uncertainties continued

Key

E Efficiency and excellence

I Innovation

S Sustainable business

V Values driven culture

5 Supply failure

Risks, opportunities and impact
The nature of JM’s operations means
there are 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. The impact
of COVID-19 has reduced customer
demand and increased its volatility
while simultaneously impacting the
entire supply chain. It has changed
the nature of this risk as it requires
JM to respond at pace to the changing
external environment.

GMC sponsor: Jane Toogood (metal)
and Anna Manz (other sourcing)

6 People

Key mitigations
• Supplier relationship management through

formalisation of regular reviews to discuss their
constraints and quality management processes.
• Where deemed appropriate, we carry strategic stocks
of raw materials and monitor those levels regularly
in the context of the external environment.
• Strategic materials and key suppliers potentially

susceptible to COVID-19 related supply disruption
in and across geographies identified and hyper
care plans in place to ensure continuity and future
strength of our supply chain.

• Groupwide co-ordination of sourcing and sharing

of resources to ensure personal protective
equipment (PPE) continuity of supply and
operations to protect our people.

• Improving resilience on supply chain logistics,

goods security in particular.

• Regular investigation of alternative materials as

part of research and development.

• Prioritised ramp up plans in place to ensure agile

response to resumption in demand.

• Continued investment in our pgm refining business

to ensure access to recycled precious metals.
• Ongoing market research to understand and

monitor the impact of short term events on longer
term supply of metal.

Risks, opportunities 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 motivated, inclusive and
engaged workforce.

Key mitigations
• Values and behaviours embedded in all internal

processes including hiring and performance reviews.

• Culture focused sessions arranged with leadership
and development of culture statement roadmap.
• Ongoing leadership development and wellbeing

programmes.

• Global employee engagement survey conducted
every two years followed by development and
delivery of targeted action plans.

• Pulse surveys carried out to test the progress

being made in specific areas and course correct
as necessary.

GMC sponsor: Annette Kelleher

E S I V

Changes since 2019 annual report
We have made progress in the implementation
of our procurement strategy and sharpened
our understanding of supply chain across
the sectors including our capital projects
supply chain.

We have committed, through Q1 of
2020/21, to support suppliers, particularly
our smaller suppliers who may suffer
hardship as a result of COVID-19. We are
also placing greater emphasis on the
customer and consumer impact of our
supply chain and potential supply failure
(e.g. to a major OEM).

We have reduced the precious metal
backlogs in our refineries, providing access
to precious metal meaning that we are
currently able to continue servicing
critical customers.

E V

Changes since 2019 annual report
We are continuing to invest in our leadership
by clarifying the capabilities and behaviours
required through the development at all
levels of the organisation.

We have undertaken a further employment
engagement survey and are implementing
action plans relevant to local sites, as well
as global programmes focused on
communication, development and ways
of working.

We have in place several mitigating actions
in response to COVID-19. These include
prioritising our employees’ safety and health,
social distancing and enabling a significant
number of colleagues to work from home
as well as necessary crisis cover. In the
short term, while our leaders navigate
the COVID-19 situation, we have put our
leadership development programmes on
hold and increased our focus on their
resilience and wellbeing.

We have a series of leadership engagement
and employee communications planned
on a regular basis to support colleagues
in times of uncertainty and maintain
motivation across the group.

Strategic ReportJohnson Matthey / Annual Report and Accounts 202073

7 Security of metal / highly regulated substances

Risks, opportunities and impact
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
financial loss and / or a failure to
satisfy our customers which could
reduce our customers’ confidence
in JM and potential legal action.

GMC sponsor: Jane Toogood

Key mitigations
• Continue execution of the security roadmap which
sets out the three year plan to further strengthen
the function.

• Implementation and application of the Group

Security policies across all sites.

• Execution of security assessments and audits.
• Threat evaluation and horizon scanning regularly

carried out.

• Insurance coverage in place.
• Ongoing security awareness campaigns and

training including rigorous follow up of thefts
and continuous learnings.

8 Intellectual property management

Risks, opportunities and impact
Failure to adequately manage our
own, and third party, intellectual
property, knowledge and information
could lead to a loss in business
advantage, loss of freedom to operate
and reputational damage associated
with litigation.

Key mitigations
• Portfolio management of intellectual property and

technology enabled governance.

• Continued training and awareness of Information

Classification Policy.

• Implementation of business intellectual property

management strategies.

• Intellectual property lawyers used to provide
specialist guidance including in the use of
intellectual property as a business tool.

GMC sponsor: Maurits van Tol

9 Failure of operations

Risks, opportunities and impact
We will experience interruptions
which result in delays in the
manufacturing and supply of our
products. This may result in lost sales
and / or profit affecting our financial
performance and reputation.

GMC sponsor: Joan Braca

10 Ethics and compliance

Risks, opportunities 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 sponsor: Robert MacLeod

Key mitigations
• Continuous implementation of Group Business

Continuity Policy and Manual, and manufacturing
excellence programme across all sites.

• Regular maintenance of critical machinery and

continued investment in infrastructure.

• Continue to develop comprehensive response plans

with annual testing.

Key mitigations
• Implementation of a refreshed Code of Ethics

supported by continued training and tone from
the top, set by senior leadership.

• Assurance programme in place to monitor business

unit and sector compliance with key controls.

• Ethics panel and ‘speak up’ facility available and any
issues fully investigated, and any recommended
actions implemented.

• Use of internal and external subject matter experts
to identify risks, set standards and provide advice
and training.

• Annual ethical working practice certification by all
management with any issues raised investigated.

Changes since 2019 annual report
Our level of control will increase through
the delivery of the security roadmap,
which includes implementation of control
measures across our critical sites.

In light of COVID-19, we have accelerated
certain aspects of the security plan and
are ensuring full and comprehensive
security cover.

E S I

Changes since 2019 annual report
The intellectual property landscapes for the
technologies in which JM operates remains
inherently challenging as, for example,
sustainable technology development is a
very dynamic space.

We have made progress implementing
mitigating actions, notably rolling out the
information security policies including
information classification, a robust stage
gating process and in developing intellectual
property strategies on a per sector / business
basis as appropriate.

E S

Changes since 2019 annual report
The Group Business Continuity Policy and
Manual are embedded across all sites,
personal process safety performance has
been further enhanced.

In addition we have successfully implemented
our Group Incident Management Team to
manage our response to the current global
pandemic and implemented a number of
COVID-19 specific measures including a
groupwide pandemic response plan, site
operational procedures (focusing on social
distancing measures), a groupwide alert
level status matrix and a comprehensive site
pandemic response measures playbook.

S V

Changes since 2019 annual report
We have launched several refreshed key
policies (Gifts, Hospitality and Charitable
Donations, Anti-bribery and Corruption)
with aligned training.

We have also developed a more detailed
action plan to address all identified risks.

We have increased the level of awareness
activities to ensure our employees are aware
of the heightened risk due to the additional
financial pressures that people and
companies may be suffering due to the
impact of COVID-19 pandemic.

Strategic ReportJohnson Matthey / Annual Report and Accounts 202074

Risks and uncertainties continued

Key

E Efficiency and excellence

I Innovation

S Sustainable business

V Values driven culture

11 Business transition

Risks, opportunities and impact
Failure to manage and deliver change
in a controlled manner to achieve
expected business benefits.

Key mitigations
• Strategic Transformation Office set up to ensure
appropriate governance across key initiatives to
coordinate and drive delivery of change in a
controlled manner.

• Monitoring of JM wide risks and interdependencies

of the change.

• Support from subject matter experts in the

execution of business change.

• Independent assurance on key change programmes.
• Implementation of project management framework

across all key initiatives.

GMC sponsor: Robert MacLeod

12 Product quality

Risks, opportunities and impact
Our products are used in a wide range
of applications, processes and
systems. The quality of these products
is crucial to ensuring they function as
intended and meet the established
quality criteria. Should a product fail
to perform as expected or have
quality defects, we could cause harm
to consumers or expose ourselves to
liability claims. This could lead to loss
of future business, reputational
damage and loss of licence to operate.

GMC Sponsor: Robert MacLeod

Key mitigations
• Monitoring and reporting of quality performance,

taking corrective action where required.

• Continue to develop robust manufacturing and
preventative maintenance systems supported by
standardised processes.

• Global quality management systems embedded and
supported with training and regular communications.

• Embed quality-by-design into new product

introduction and product change management
processes.

13 Applications, systems and cyber

Risks, opportunities 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.

JM’s response to COVID-19 has
increased employee remote working
and presented new demands on
applications, systems and cyber
security. This has resulted in increased
risks in the operational management of
IT systems and cyber risks as malicious
actors look to exploit the pandemic.

GMC sponsor: Anna Manz

Key mitigations
• Key cyber security technologies have been deployed
to increase our ability to predict, prevent, detect
and respond to cyber threats. These have been
tuned for the increased risk of attack associated
with COVID-19.

• Continued delivery of our Cyber Security and

Infrastructure Improvement Programme (CSIIP)
to increase our organisational resilience and we
have prioritised this investment in the context of
COVID-19. Controls have been increased in areas
where we perceive the risk to be heightened.
• Implementation of key policies and standards

across JM.

• Continued support and assurance from third

party specialists.

E S I V

Changes since 2019 annual report
We have implemented strategic oversight
of the key change initiatives by the creation
of a Chief Transformation Officer role.
This role orchestrates cross group initiatives
and supports leaders to drive forward the
delivery of the expected benefits creating
an agile and efficient business, providing
flexibility to consistently deliver to our
people, customers and stakeholders.

Key programme themes are manufacturing
footprints and target operating model
reviews, customer and growth, innovation,
people and culture. There has been minimal
direct impact on these programmes due to
COVID-19 and there is opportunity to
accelerate in some areas to drive efficiency
going forward.

We have introduced and embedded change
in managing strategic capital projects and
our procurement excellence programme has
become part of business as usual activities.

Although we have continued to implement
our global ERP solution (Unify) with a
number of sites going live during 2019 in
the Clean Air Sector, we have paused
deployment in the US to prioritise resource
in light of COVID-19.

E S I V

Changes since 2019 annual report
The regulatory environment continues to
tighten, and our customers are experiencing
greater scrutiny and in-use testing.

We have progressed our thinking in
understanding continuous improvement
opportunities and how we apply inherently
different quality management systems
across our sectors.

In the context of post COVID-19 potential
surges in demand, we have enhanced our
planning to ensure product quality is
maintained whilst we react and manage
potential impacts to our supply base.

S I V

Changes since 2019 annual report
We have continued to invest heavily in our
cyber security and IT general controls
providing better visibility and governance
to support a more efficient business.

CSIIP programme deliverables have been
met in a controlled manner, meeting the
milestones set. Risk mitigations have been
adjusted in light of COVID-19.

We have increased the level of communication
and awareness activities to ensure our
employees are more alert to the increased
external risk associated with the exploitation
of the COVID-19 pandemic. We continue to
track external threats working with
governments, law enforcement and industry
specialists as appropriate.

Strategic ReportJohnson Matthey / Annual Report and Accounts 202075

Viability

In accordance with provision 31 of the
UK Corporate Governance Code 2018,
the directors have assessed the viability
of the company over a longer period than
the 15 months to June 2021 covered by
the ‘Going Concern’ statement. In view of
the highly uncertain times following the
COVID-19 outbreak we have based our
assessment on the severe but plausible
deep recession scenario that is described
in detail in the going concern review.

During the year the board has
carried out a robust assessment of the
principal and emerging risks affecting
the company, particularly those which
could threaten the business model. The
risks and the actions taken to mitigate
them are described in the previous section
on ‘Risks and Uncertainties’. To reach the
viability statement conclusion we have
undertaken the following process:

•

The Audit Committee annually
reviews the risk management process
to ensure its continuing effectiveness;

• A rolling programme is in place of

•

deep dives which allow the GMC
and board to review the company’s
principal and emerging risks. In the
case of board reviews, a presentation
is made on the risk and the progress
of mitigations, from the accountable
GMC risk sponsor;

In September and March, a
presentation is made to the board
from the Corporate Risk and
Assurance Director, explaining the
process followed by management
to identify, assess and manage risks
throughout the business. At this
time, all our principal and emerging
risks are considered along with the
linkages between them; and

Throughout the year, a risk-based
internal audit plan is executed by the
Corporate Assurance and Risk Team,
the results of which were presented
to and discussed by the Audit
Committee. 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 Group Chief Executive and CFO
in conjunction with Sector Chief Executives.

In addition, the board reviews the Sector
strategies throughout the year. During
these reviews, the group’s current
position and its prospects over the
forthcoming years is reviewed which
allows reaffirmation of the group strategy.
The directors have determined that
a three year period to 31st March 2023
is an appropriate period over which to
assess the group’s viability as it is in line
with the group’s annual detailed planning.
In making the viability assessment, we
have considered a number of stress
scenarios linked to the group’s principal
and emerging risks.

As stated earlier the impact of

COVID-19 is included in all scenarios
with the assumption of a deep recession
scenario. This models an extended
shutdown followed by an extended
recovery period as outlined in the going
concern review. Over the longer period
considered for viability analysis, our
scenario assumes a recovery in the
markets in which Clean Air operates
in 2022/23 and 2023/24 following
the steep decline assumed in 2020/21.
Efficient Natural Resources serves a
range of markets by sub-sector. The
catalyst markets in which we operate are
assumed to have a much slower recovery
over 2022/23 and 2023/24. In PGM
Services we maintain an assumption of
low metal prices throughout the period.
Health and New Markets are relatively
unaffected over the period.

We have analysed the impact of

the following three hypothetical stress
scenarios as well as considered all of
them occurring at the same time:

Scenario 1: Existing market outlook –
this scenario considers the impact of
changes in key business assumptions,
either unplanned or unforeseen, where
JM is not agile enough to respond. Under
this scenario we evaluated the impact
of a further downgrade in the global
economic outlook beyond the deep
recession scenario caused by COVID-19.
This is the very deep recession scenario as
described in our going concern analysis.
This scenario also includes movements in
commodity markets and the potential
impact from a faster than expected
uptake of electric vehicles.

Scenario 2: Future growth – this scenario
models the 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: Competitive advantage –
this scenario considers the failure to
maintain competitive advantage in
existing markets together with the impact
of other risks identified in the group’s
principal risks, including intellectual
property related risks, poor management
of capital projects, significant production
losses due to downtime at a major site,
the inability to improve certain businesses
or sites, and unmitigated Brexit risks.
Due to the wide range of risks included
we have applied an overall probability
weighting to this set of risks to derive a
potential financial impact.

Our evaluation took account of the
group’s current financing arrangements
and assumes no refinancing of maturing
debt although in practice we would fully
expect to refinance these well ahead of
maturity. Our stress testing showed that
under each of the three scenarios the
group had headroom under its committed
facilities and financial covenants. Only
in the most extreme case of all three
scenarios occurring simultaneously would
there be a potential breach of a key
covenant. We consider this outcome to
be extremely unlikely and are satisfied
that there are mitigating actions that
we can take and capacity for additional
financing to allow JM to effectively
respond to the negative impact from a
combination of these stress scenarios.

We have also undertaken a reverse

stress test in order to identify what
additional or alternative scenarios and
circumstances would threaten our
current financing arrangements. This
shows that the group has headroom
against either a further decline in
profitability beyond the very deep
recession or a significant increase
in borrowings.

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.

The Strategic Report from page 2 to
page 75 was approved by the board
on 11th June 2020 and is signed
on its behalf by:

Robert MacLeod
Chief Executive

Strategic ReportJohnson Matthey / Annual Report and Accounts 202076

Johnson Matthey / Annual Report and Accounts 2020

Governance

The Governance section, introduced by our Chair, contains
details about the activities of the board and its committees
during the year.

Johnson Matthey / Annual Report and Accounts 2020

Contents

Letter from the Chair
Corporate Governance Report

78 Board of Directors
81
82
92 Nomination Committee Report
95 Audit Committee Report
103 Remuneration Report
123 Directors’ Report
127 Responsibilities of Directors

Governance

Board of Directors

An experienced team delivering our strategic vision

Patrick Thomas –
Chair
Appointed to the board:
June 2018

Robert MacLeod –
Chief Executive
Appointed to the board:
June 2009

Anna Manz –
Chief Financial Officer
Appointed to the board:
October 2016

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
International experience
Belgium, Germany, UK
Sector experience
Automotive, Chemicals, Manufacturing, Oil
and Gas, Pharmaceuticals, Technology

N R

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 11 years and as Chief
Executive for 6 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

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

Alan Ferguson –
Senior Independent Director
Appointed to the board:
January 2011

Xiaozhi Liu – Independent
Non-Executive Director
Appointed to the board:
April 2019

John O’Higgins – Independent
Non-Executive Director
Appointed to the board:
November 2017

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 and from 2011 to 2020 he was Chair
of the Audit Committee and Senior Independent
Director (from 2017 to 2020) at Croda
International 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. Senior Independent Director and
Chairman of the Audit Committee at Marshall
Motor Holdings plc
International experience
South Africa, UK
Sector experience
Automotive, Chemicals, Manufacturing, Metals
and Mining

N A R

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 Non-Executive
Director of InBev SA/NV.
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 and InBev SA/NV
International experience
China, Sweden, US
Sector experience
Automotive, Battery Technologies

N A R

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 Exide 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.
As announced on 28th May 2019, John will be
appointed as the Senior Independent Director
with effect from the close of the 2020 AGM.
Other current appointments
Senior Independent Director of Elementis plc,
Non-Executive Director of Oxford Nanopore
Technologies Ltd and Trustee of the
Wincott Foundation
International experience
Belgium, China, Germany, UK, US
Sector experience
Automotive, Chemicals, Energy, Manufacturing,
Oil and Gas, Technology

N A R

GovernanceJohnson Matthey / Annual Report and Accounts 202079

Chris Mottershead –
Independent Non-Executive
Director
Appointed to the 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 TEDI London, Director
of Kings College London Business Limited
International experience
UK, US
Sector experience
Energy, Oil and Gas, Technology

N A R

Linda Bruce-Watt –
Company Secretary
Joined Johnson Matthey:
March 2020

Experience
Appointed Company Secretary on 1st April 2020.
She is a solicitor experienced in company law
and corporate governance.

Jane Griffiths – Independent
Non-Executive Director
Appointed to the board:
January 2017

Doug Webb – Independent
Non-Executive Director
Appointed to the board:
September 2019

Experience and contribution
Jane previously held a number of roles at Johnson
& Johnson (J&J) from 1982 until her retirement
in 2019, including international and affiliate
strategic marketing, sales management, product
management, general management and clinical
research. Most recently, she was the Global Head
of Actelion, a Janssen pharmaceutical company
of J&J.
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
Non-Executive Director of BAE Systems plc
International experience
Africa, Europe, Middle East, UK
Sector experience
Pharmaceuticals

N A R

Experience and contribution
Doug was most recently Chief Financial Officer
at Meggitt plc between 2013 to 2018. Prior
to this he held the position of Chief Financial
Officer at London Stock Exchange Group plc
from 2008 to 2012 and QinetiQ Group plc
from 2005 to 2008. Before that he held senior
finance roles at Logica plc. Doug began his
career at Price Waterhouse within its audit
and businesses advisory team. He is a Fellow
of the Institute of Chartered Accountants in
England and Wales.
Doug brings a strong background in corporate
financial management and recent and relevant
financial experience to the board, along with
a deep understanding of technology and
engineering sectors. He chaired the Audit
Committee at SEGRO plc for nine years until
April 2019.
As announced on 28th May 2019, Doug will
become Chair of the Audit Committee following
the conclusion of the 2020 AGM.
Other current appointments
Non-Executive Director and Audit Committee
Chair of The Manufacturing Centre Ltd.
Non-Executive Director, Senior Independent
Director and Audit Committee Chair of
BMT Group Ltd
International experience
UK, US, Sweden, Canada
Sector experience
Engineering, Technology, Aerospace and
Defence, Real Estate

N A R

Key

Chairman of the Committee

N Member of the Nomination Committee

A Member of the Audit Committee

R Member of the Remuneration Committee

GovernanceJohnson Matthey / Annual Report and Accounts 202080

The board at a glance – as at 31st March 2020

Gender diversity*

Board skills

Male

70%

Female

30%

(7 directors)

(3 directors)

* As at the date of signing this report, 11th June 2020,
the board comprised 7 male directors (70%) and
3 female directors (30%).

Tenure

Over 9 years 10%

4-7 years 50%

Leadership

Finance

Health and safety

People

International

Strategy

Risk

Commercial

Technology

Growth /
transformation

0-3 years 40%

The above table shows some of the skills held by our board members following a
self-assessment, whereby each director was asked to identify their areas of strength,
by indicating if they hold a high, medium or low level of expertise in that area.
The numbers shown in the table above illustrate the skills in which our directors
hold a high level of expertise.

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Further information is set out in each director’s biography on pages 78 to 79

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You can read more about our board’s skills matrix in the Nomination Committee report on page 94
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Role

Chair 10%

Executive 30%

Non-Executive 60%

Nationality

American 10%

German 10%

Irish 10%

British 70%

Board attendance

Patrick Thomas
Robert MacLeod
Odile Desforges1
Alan Ferguson
Jane Griffiths
Xiaozhi Liu
Anna Manz
Chris Mottershead
John O’Higgins
John Walker2
Doug Webb

Role

Chair
Chief Executive
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Chief Financial Officer
Non-Executive Director
Non-Executive Director
Executive Director
Non-Executive Director

Date of
appointment
to board

Number of
meetings
eligible to
attend

Number of
meetings
attended

%
attended

1st June 2018
22nd June 2009
1st July 2013
13th January 2011
1st January 2017
1st April 2019
17th October 2016
27th January 2015
16th November 2017
9th October 2013
2nd September 2019

11
11
4
11
11
11
11
11
11
11
7

100
100
100
100
100
100
100
100
100
100
100

1. Odile Desforges stepped down from the board at the end of the Annual General Meeting on 17th July 2019.

John Walker stepped down from the board on 31st March 2020.

Since the end of the year, the board has met three times and all board members attended.

GovernanceJohnson Matthey / Annual Report and Accounts 2020Letter from
the Chair

Patrick Thomas
Chair

Governance highlights

The board’s focus areas this year have included:

•

Continued focus on environment, health and safety (EHS).

Culture.

Execution of strategic priorities.

Continued monitoring of financial performance.

• Reviews of principal risks.

The board’s focus areas for 2020/21 include:

• Navigating COVID-19.

•

Continued focus on EHS, particularly process safety
improvement.

Culture and the group operating model.

Transformation.

Senior leadership talent.

• New growth opportunities, including battery materials

and hydrogen.

During the year under review, we welcomed the UK Corporate
Governance Code 2018 (the code). The board recognises the
increasing emphasis on corporate purpose, culture, risk, stakeholder
relations and the evolving landscape of the audit profession. The
code focuses on demonstrating how the governance of a company
contributes to its long term sustainable success. We continue to
develop our governance and strategy in ways that support our vision –
a world that is cleaner and healthier; today and for future generations.

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 page 89.

The board and the nomination committee continue to dedicate

considerable time to succession planning. This year, that involved a
review of the board composition in light of John Walker’s retirement
as an Executive Director on 31st March 2020. As part of a structured
and continuous process of board refreshment, we welcomed two
new Non-Executive Directors to the board in 2019. Xiaozhi Liu and
Doug Webb joined the board in April and September 2019 respectively.
Alan Ferguson, our Senior Independent Director and Audit
Committee Chair, will retire from the board following the 2020
Annual General Meeting. Alan will be succeeded by John O’Higgins as
Senior Independent Director and by Doug Webb as Audit Committee
Chair. I would like to thank Alan for his significant contribution to
the board over the past nine years. In addition, Simon Farrant our
General Counsel and Company Secretary retired after 26 years at JM
on 31st March 2020 and the board welcomed Linda Bruce-Watt as
interim Company Secretary.

The board has an important role in defining the culture of the
group. Understanding the current culture provides a deeper insight
into the organisation. I have found the culture at JM 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. Throughout the year, the board agreed JM’s culture ambition
and continue to monitor progress against this. This has included how
we look at talent and succession planning (page 94), diversity and
inclusion (page 44) and workforce engagement (page 82).

I’m confident that our high standards of governance will support

the business as we navigate through the unprecedented times,
resulting from the COVID-19 pandemic.

Patrick Thomas
Chair

GovernanceJohnson Matthey / Annual Report and Accounts 202082

Corporate
Governance Report

The UK Corporate Governance Code 2018

The code sets standards of good practice in relation to all areas of corporate governance.
The code applied to Johnson Matthey from 1st April 2019. Prior to this, the board reviewed
the code and welcomed the changes, including the emphasis on stakeholder relations,
culture and diversity which the board considers to be key to the success of the company.
In this annual report we report on how we have applied the main principles of the code
and complied with its relevant provisions. Johnson Matthey has complied with all relevant
provisions throughout the year ended 31st March 2020 and from that date up to the date
of approval of this annual report. The code is publicly available at www.frc.org.uk.

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. This Corporate
Governance Report, together with the
Nomination Committee Report, the Audit
Committee Report and the Remuneration
Report, describe how we have complied
with the provisions of the code and applied
its main principles during the year.

Board leadership and
company purpose

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.

Culture

Culture sets the tone and encourages the
behaviours we look for in our people; it
drives engagement and, as a result, leads
to a motivated and productive workforce.
The board believes that creating the right
culture is key to achieving JM’s vision and

that together, the directors have an important
role of setting the tone from the top and
leading by example. During the year, the
board considered the current culture across
the group and how this needs to evolve to
deliver our strategy and purpose.

Our culture is an outcome of the way

we work and the behaviours our people
demonstrate. It is shaped through the decisions
we take about our environment, the stories
we tell and our leadership role modelling.
With the right culture we can improve our
employee engagement even further, address
our enablement challenges and strengthen
our ability to execute our strategy.

As part of the ongoing review of

JM’s culture in the context of the wider
transformation, the board considered the
current culture across the group through the
mix of topics discussed by the board and the
activities referred to on page 83, including
visiting sites and meeting with employees.
The board also received updates on the
results of JM’s ‘pulse’ global employee survey
and feedback from key stakeholders.

Our culture ambition, described on
page 41, builds on the things our customers
and employees’ value about our existing
culture. By using the passion that exists
around our unique purpose we will shape
ways of working to drive even more value from
our innovative science, be more courageous
in the way we shape the market and bolder
in the way we drive performance. We will do
this by harnessing the deep sense of pride
and care that we feel about what we do in JM.
There has been significant engagement
at all levels of the organisation to create our
culture ambition. Internal workshops were
held to discuss our values to ensure that
our culture ambition would resonate with
people across different geographies, sectors,
functions and job roles.

The board will continuously monitor

culture through metrics such as JM’s ‘pulse’
global employee survey, customer
satisfaction, customer behaviour statistics,
financial results and progress against our key
transformation project milestones. Cultural
change in a global, complex organisation like
Johnson Matthey takes time and the board
acknowledges the importance of leading
by example, and applying our values to
our decisions, behaviours and operations.
Further details on how the board will enable
this cultural change and invest in our
workforce are set out on pages 41 to 42.

Workforce engagement

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 into views and provides opportunities
to receive informal feedback. With a large,
global, diverse workforce, the board has
determined that engagement should be led
by executive management with oversight
from and linkage to the board. Country
engagement focus groups have been set up
in the UK, US, China and Germany, in order
to engage in a two-way dialogue on key
topics, gather insights on factors impacting
the workforce at a local level and to obtain
recommendations on ways in which
engagement with the workforce can be
further enhanced. These groups comprise
a diverse group of people drawn from all
sectors and functions, job type, age, tenure
and gender and are sponsored by senior
leaders. Initial meetings have been held in all
countries and going forward, it is intended
that each focus group meets twice a year.
The board receives feedback from the focus
groups via the Chief HR Officer. While
acknowledging that this form of engagement
is not one of the methods specified by the
code, the board considers that it is more
direct and effective in providing a range of
views from our people all around the world.

The board holds two meetings a year at
operational sites and as part of this, ensures
there is the opportunity to meet with the
workforce typically over lunch and dinner,
providing an opportunity for open discussion.

GovernanceJohnson Matthey / Annual Report and Accounts 2020Principal board activities

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. The table below highlights some of the areas of focus for the board during the year, the stakeholder groups central
to those decisions and the associated principal risks. Further details on how the board considers stakeholders in its decision-making process
are included in our Section 172(1) statement on pages 32 and 33.

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Pages 67 to 75: Risks and uncertainties

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Pages 28 to 33: Our stakeholders and Section 172(1) statement

Role of the board

Decision or outcome

Stakeholders considered

Principal risks

To set the company’s
strategic aims.

To approve major capital
projects.

To ensure 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
to corporate reporting,
risk management and
internal controls.

To determine the nature and
extent of the principal risks
and the group’s risk appetites.

To facilitate effective,
entrepreneurial and prudent
management of the business.

• Customers and

innovations partners

• Investors
• Governments and
trade associations

• Suppliers
• Our people
• Communities

• Customers and

innovations partners

• Investors
• Suppliers and
other partners

• Our people

• Reviewed the company’s strategy and

the timeline for key company decisions.

• Reviewed and approved each sectors’
strategy, including capital investment
projects that support the sectors’
strategic aims.

• Assessed the group’s portfolio of businesses
against JM’s strategic framework to ensure
their strategic fit.

• Received regular updates from the Chief
Executive and Chief Financial Officer.
• Reviewed arrangements and actions on

the impact of Brexit for JM and the impact
on our customers.

• Reviewed and approved the group budget

and three year plan.

• Approved full year results, half year results

and the annual report.

• Approved the going concern and viability

statements.

• Approved the payment of an interim

dividend and the recommendation of a
final dividend.

• Reviewed the board’s responsibilities in

• Customers and

relation to assessing and monitoring risk
management and internal control systems.

• Reviewed the cyber security risk and
progress made in our IT systems and
infrastructure through the implementation
of a groupwide enterprise resource
planning (ERP) system.

• Reviewed the principal risks and risk

appetite.

• Reviewed and approved a revised group

corporate governance framework
and delegated authorities framework.

innovations partners

• Investors
• Governments and
trade associations

• Suppliers and
other partners

• Our people
• Communities

• Investors
• Our people
• Customers and

innovations partners

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.

• Considered and approved JM’s culture
ambition and received regular updates
on our people.

• Reviewed EHS performance at each
meeting and considered significant
incidents, including management
responses and actions, and the outcome
of safety audits.

• Considered board succession.
• Reviewed the key findings and actions
following the board and committee
effectiveness review for 2018/19
and undertook an internal review
for 2019/20.

GovernanceJohnson Matthey / Annual Report and Accounts 202084

Corporate Governance Report continued

In addition, when receiving presentations on
strategy, the board ensures 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 2019, a ‘pulse’ employee

engagement survey was carried out and
we were pleased to see overall engagement
levels continue to improve and significant
upturns in company pride. Following the
survey, smaller workshops were held to help
provide valuable insight into how strategic
and culture change is being embedded
across different business sectors.

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 45 and 101. The board receives
regular reports on speak up matters,
which are overseen by the Ethics Panel
and provide further insight into the culture
across the group.

Further information on our workforce engagement
is detailed in our people on pages 41 and 42

Sustainability of business model
k
The board acknowledges that long term
value creation is key to the sustainability
of our business model (pages 22 to 23)
and our strategy (pages 16 to 19).

Through considering the matters outlined
in the principal board activities table on
page 83 and closely monitoring performance,
the board ensures that its actions promote the
long term sustained success of the company
and that the group’s business model remains
sound. The board also undertakes a detailed
annual review of the sustainability and
viability of the group’s business model, further
details on this can be found on page 75.

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 use of data analytics and how
this could further support the audit by
developing capabilities with PwC and
Internal Audit.

Site visits

In October 2019, the board toured the
Fuel Cells site in Swindon, UK and received
presentations on the strategy and business
performance, including our Hydrogen strategy.

The board was due to visit the Royston site in
April 2020. However due to COVID-19 the site
visit was postponed and the board meeting
was held online. During its meeting, the
board received an update on IT developments
planned for the wider group. In January and
February 2020, Patrick Thomas, Jane Griffiths,
Xiaozhi Liu, John O’Higgins and Doug Webb
visited our sites in West Deptford, Devens and
Devon in the US, where they met with local
management and toured the Health, Clean Air
and Efficient Natural Resources operations.

Board inductions

Each new director receives a tailored and
comprehensive induction programme upon
joining the board.

During the year, Xiaozhi Liu and

Doug Webb received an induction pack
which included a broad range of information
including historical board and committee
papers and minutes. Both Xiaozhi and Doug
met with a number of senior managers
from the group and visited some of our site
operations. This provided both with an
in-depth understanding of the operations of
the business. In addition to the board site visit
to Swindon mentioned earlier, details of some
of the induction site visits and introduction
meetings that took place during the year are
included in the table below.

Induction business
area / site visits

Governance overview

Royston site visit

Sonning technology
centre site visit

Topics covered

• Relevant JM policies and processes.
• Governance framework.
• Historic board and committee papers and minutes.
• Overview of directors’ duties and guidance.

• Clean Air overview and meeting with Sector Chief Executive.
• Efficient Natural Resources overview and meeting with Sector Chief Executive.
• Tour of the old and new refineries with Managing Director, Platinum Group Metal Services.
• Tour of the Clean Air Technology Centre with the Technology Director, Europe, Research and

Development Management.

• Tour of the Clean Air plant with the Environment, Health and Safety Manager.

• Recycling and separation technologies.
• Clean Air.
• New applications.
• Catalysts and materials.
• Electrochemistry materials group.
• Analytical.
• Technology forecasting and information.

Devens JM Health
Sector site visit

• Health Sector overview and meeting with the Sector Chief Executive.
• Innovator business overview and meeting with the Vice President, Innovator Products and Solutions.
• Site tour with the Vice President, Development Operations and Site Director.

West Deptford JM
Health Sector site visit

• Generics overview and meeting with Vice President, Generic Products and Solutions.
• Organisation effectiveness update with US Corporate HR Director.
• Site tour with Global Operations Director and Global Director Supply Chain.

Wayne corporate centre and
Clean Air Sector site visit

• Meetings with corporate teams.
• Tour of Clean Air site with President of Clean Air Americas.

GovernanceJohnson Matthey / Annual Report and Accounts 202085

Stakeholders

We believe that stakeholder engagement remains vital to building a sustainable business. The board recognises the need to foster business
relationships with suppliers, customers and others. During the year, the board reviewed its key stakeholders and methods of engagement,
to ensure they remain effective. The table below illustrates some of the engagement methods used by the board during the year.

Further information about how we engage with our stakeholders and how the board consider their interests in the context of principal decisions can be found on pages 28 to 33

Shareholders

Workforce

Customers

Suppliers

Communities

The board welcomes the opportunity to openly engage with shareholders and help them to understand our business.
Patrick Thomas 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 Chair has met with institutional investors representing approximately 35%
of JM’s shareholder base, to discuss 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 team acts as a focal point for contact with
investors throughout the year. During 2019/20, the Investor Relations team, together with members of the board
and senior management, held over 250 meetings with institutions and potential investors. The Chair, Senior
Independent Director and the other Non-Executive Directors are available to discuss matters if requested.

During the year an informal lunch was held for investors with the Chair, Senior Independent Director, Audit and
Remuneration Chairs and their successors. All attendees were available to answer questions independently on any
topic. The event received positive shareholder feedback. In addition, we held our AGM and Capital Markets Day,
which are detailed on page 126.

The board has engaged with the workforce through several formal and informal channels. JM’s people strategy
continues to develop our cultural environment and future capabilities which are key in the successful delivery of our
strategy. The board seeks to ensure that we maintain high standards of business conduct, supported by our values
and our culture, our people are encouraged to act with integrity at all times. JM’s polices and processes further
support this and the board has delegated responsibility to the Remuneration Committee for ensuring that workforce
policies and practices are consistent with the company’s values and support JM’s purpose and long term success.

Further details on our workforce engagement can be found on page 82

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Understanding customers’ complex problems helps us research, develop and apply our science to give them the best
solutions to their challenges. The board considers this as part of its review of strategy and capital investment proposals.

In addition, JM tracks customer satisfaction as a measure of how we are maintaining our competitive advantage and
k
to understand the health of our future business. Read more about our non-financial objectives on page 35.

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.
+
The Audit Committee reviews and challenges the payment practices, policies and performance of the company and
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certain UK subsidiaries.

matthey.com/modern-slavery

k
Local communities and the environment are considered in reviewing capital investment proposals and other
strategic decisions. JM’s sustainability framework, on page 52, ensures that we deliver our strategy in a way that is
best for our planet and those we share it with.

In April 2020, as part of our response to the COVID-19 pandemic, JM announced the creation of a special fund to
improve access to a quality science education. JM has committed £1 million to the fund which will be donated to
local and regional programmes in the areas local to JM facilities. The directors have also donated 20% of their
salaries and fees to the fund for at least the first quarter of 2020/21.

GovernanceJohnson Matthey / Annual Report and Accounts 202086

Corporate Governance Report continued

Division of responsibilities
JM’s corporate governance framework and processes ensure that the execution of strategy and key decisions receive appropriate challenge and
review by providing a mechanism for decision-making ensuring that risk is appropriately managed and is supported by an internal control
framework. It also clarifies the roles and responsibilities of key individuals and decision-making bodies.

Our corporate governance structure is summarised below. Full details of the roles of the board and its committees, as well as each
committees terms of reference and the statement of division of responsibilities between the Chair and Chief Executive are published on our
website at matthey.com/corporate-governance.

Our governance framework

Board

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.

Chair
Patrick Thomas

Senior Independent Director
Alan Ferguson

Key responsibilities
• Leads the board.
• Ensures an effective board, including
contribution and challenge from
the directors.

• Ensures that JM maintains effective

communications with its shareholders.

Key responsibilities
• Provides a sounding board for the Chair.
• Acts, if necessary, as a focal point and
intermediary for the other directors.

• Ensures that any key issues not

addressed by the Chair or the executive
management are taken up.

• Is available to shareholders should they

have concerns.

• Leads the annual appraisal of the

Chair’s performance.

Independent Non-Executive Directors
Alan Ferguson, Jane Griffiths,
Xiaozhi Liu, Chris Mottershead,
John O’Higgins, Doug Webb

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.

Chief Executive
Robert MacLeod

Chief Financial Officer
Anna Manz

Company Secretary
Linda Bruce-Watt

Key responsibilities
• Has day to day responsibility for
running the group’s operations.
• Recommends to the board and
implements group strategy.

• Applies group policies.
• Promotes the company’s culture

and standards.

Key responsibilities
• Has day to day responsibility for the

management of the finance function.

• Leads the group’s finance activities,

risks and controls.

Key responsibilities
• Together with the Chair, keeps the
effectiveness of the company’s and
the board’s governance processes
under review.

• Provides advice on corporate

governance issues.

GovernanceJohnson Matthey / Annual Report and Accounts 202087

Audit Committee

Nomination Committee

Remuneration Committee

Role
• Assists the board in carrying out its

oversight responsibilities in relation to
financial reporting, internal controls,
internal audit and risk management.

• Oversees the relationship with our

external auditor, including
recommending reappointment or a
requirement to tender.

Role
• Considers structure, size,

composition, diversity and
succession needs of the board.
• Oversees succession planning for

senior executives.

See page 92 for more information

See page 95 for more information

Role
• Sets the remuneration policy
for Executive Directors, senior
management and the Chair and
determines the application of
that policy.

• Reviews and monitors the level

and structure of remuneration for
senior executives.

See page 103 for more information

Disclosure Committee

Role
• Identifies and controls inside

information.

• Determines how or when that
information is disclosed in
accordance with applicable legal and
regulatory requirements.

Ethics Panel
k

Role
• Oversees the concerns raised pursuant
to the Speak Up Policy, including the
effective review and investigation of
these concerns.

Role
• Responsible for the executive management of the group’s businesses.
• Recommends strategic and operating plans to the board.

Group Management Committee (GMC)

Environment, Health
and Safety (EHS)
Leadership Committee

Role
Assists the company
in discharging its
EHS responsibilities
and in creating a
positive EHS culture
across the group.

OneJM Policy
Committee

Role
Sets a policy
framework for the
group and oversees
and approves
group policies.

Finance and
Administration
Committee

Role
Responsible for approval
of certain group
finance and corporate
restructuring matters.

Legal Risk
Committee

Metal Steering
Committee

Role
Reviews contract
and litigation risk
for the group.

Role
Manages the risk
and mitigating
actions in relation
to the company’s
precious metal.

More detail on the role and responsibilities of our committees can be found on our website matthey.com

GovernanceJohnson Matthey / Annual Report and Accounts 202088

Corporate Governance Report continued

Independence

The board recognises the importance of
maintaining independence of the board
through the Chair and Non-Executive
Directors, to challenge and scrutinise
management’s performance and ensure the
integrity of financial information and
controls for the benefit of our stakeholders.

Patrick Thomas was appointed as Chair
of the board in July 2018 and the board took
steps to ensure he was considered
independent on appointment, in accordance
with the requirements of the code. Details
on the appointment process for Patrick are
set out in the 2018/19 Annual Report and
Accounts which is available on our website
at matthey.com/ar19.

The board reviews Non-Executive
Director independence annually. 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.

The Senior Independent Director,
Alan Ferguson, will retire and be succeeded
by John O’Higgins at the end of the AGM in
July 2020. The Senior Independent Director
is responsible for leading annual appraisal
of the Chair’s performance. This review was
most recently carried out in April 2020 and
included obtaining feedback from all board
members. The Chair was considered to be
effective in discharging his responsibilities.

Time commitment of 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 Chair 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 Chair 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

additional external appointments for Doug
Webb, Jane Griffiths, Patrick Thomas and
John O’Higgins. The board considered the
expected time commitments of each external
appointment while considering each
director’s current responsibilities. After
review, the board was comfortable that the
individuals would be able to dedicate
sufficient time to JM and that their additional
appointments would benefit the board by
adding to its experience and expertise.

Details of the directors’ other significant
commitments can be found on pages 78 to 79

Directors’ conflicts of interest
k
We have established procedures in
accordance with our Articles of Association to
ensure we comply with the directors’ conflicts
of interest duties under the Companies Act
2006 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 March 2020, 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. The board
concluded that there were no new matters
which constituted a conflict. All conflicts and
potential conflicts will continue to be
reviewed by the board on an annual basis.
The board confirms that JM 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.

Composition,
succession and
evaluation

Composition

The 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. For further details on
this, please refer to the Nomination
Committee Report on page 92.

Annual re-election of Directors

In accordance with the code, all directors
retire at each AGM and are proposed for
election or re-election by shareholders.
Doug Webb joined the board as a
Non-Executive Director on 2nd September
2019 and, as required by the Articles of
Association, will retire at the 2020 AGM and
be proposed for election. Alan Ferguson will
step down from the board at the end of the
2020 AGM and therefore will not stand for
re-election. All other directors will be
proposed 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 pages 78 to 79.

GovernanceJohnson Matthey / Annual Report and Accounts 202089

Evaluation

An evaluation of the board and its
committees is carried out on an annual basis
and externally facilitated every three years.
The last external review led by independent
consultants, Manchester Square Partners,
was in 2017/18. This year, the Chair,
supported by the Company Secretary, led
an internal review in order to reflect on the
effectiveness of the board, consider each
director’s own contribution and performance,
and to identify areas for further improvement.

The review comprised a questionnaire
compiled by Independent Audit, a specialist
corporate governance consultancy, covering
certain key topics including strategy, risk,
board dynamics, culture and leadership.
The Chair then held individual discussions
with each member of the board regarding
the board and its effectiveness. These
conversations were open, honest and
confidential. The Chair, 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
effective, with strong engagement, a high
degree of openness and trust, and the right
balance between challenge and support.
Board members consider that the board
continues to make a difference and that
there had been significant improvements in
how the principal risks are reviewed, as well
as progress on culture and discussions on
strategic priorities.

Progress from the 2018/19 evaluation
and insight into the 2019/20 evaluation is
set out below.

2018/19

Action

2019/20

Insight and update

Strategy

Risk
management

Continue to review the board’s agenda
plan to ensure there is sufficient
time to allow the board to debate
different scenarios and assumptions
to refine strategy.

Further work was needed to embed
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

Continue to keep the balance of skills
and diversity on the board and
committees under review.

Board
dynamics

People

Review the number of preparatory
and teach-in sessions to further
Non-Executive challenge, support
and contribution.

Continue to keep company culture and
employee engagement under review
and assess the way the workforce is
treated in line with our values.

k
+

The board discussed the benefits of sharing strategic plans and initial
thoughts at an early stage, to gain input to decisions. In addition, the
board felt that more time could be spent considering the external drivers.

The board has reviewed and challenged each of its principal risks
throughout the year and considered emerging risks. Risk management
continues to develop across the group and the board recommended that
stress testing in areas such as crisis management continue. In addition,
JM’s risk universe has been reviewed in light of COVID-19.

Read more about our principal risks on pages 70 to 74

During the year, the board reviewed the board Diversity Policy and the
r
board skills matrix.

The 2019/20 evaluation highlighted the need to monitor succession
k
plans at all levels of the company rather than just for senior
management to identify talent and future leaders of the company.

Read more in the Nomination Committee Report on page 92

The board attended a number of site visits and teach-in sessions during
r
the year and feedback on these was positive. A number of suggestions
were made for future teach-ins.
k
Board papers would be improved by clearly highlighting key issues in a
comprehensible and succinct manner.

Read more about the board site visits and teach-in sessions on page 84

A number of site visits took place during the year which allowed the
r
Non-Executive Directors the opportunity to meet the wider workforce.
In addition, the board reviewed the results of the employee engagement
survey, speak up responses and agreed JM’s culture ambition.
k

Read more about our people on page 41 and our workforce engagement on page 82

Following the board’s discussion of the
2019/20 review, an action plan will be agreed.
These actions are likely to be in the areas of:

•

Strategy development in relation to
the business portfolio in addition to
business unit strategy.

•

Supporting senior executives in
prioritising effectively by agreeing group
priorities in the context of significant
change and a volatile environment.

Regularly reviewing leadership, talent
and succession planning, to ensure plan
and strategy delivery.

•

Continue to improve risk management
and review.

• Develop more ways of monitoring
culture globally across all activities.

We will report on the actions and progress
made next year.

GovernanceJohnson Matthey / Annual Report and Accounts 202090

Corporate Governance Report continued

Fair, balanced and
understandable reporting

Risk management and
internal control

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.

The process to determine whether the
2019/20 annual report is fair, balanced and
understandable was reviewed by the Audit
Committee and was considered to be
effective. For further details on the process
please refer to page 99.

The board considered the results of an
assessment by management to ensure the
annual report was critically reviewed and
was satisfied that the narrative reporting
presents the full story and is consistent
with the financial reporting, statutory and
adjusted measures are clearly explained,
and that key messages and significant issues
are highlighted and appropriately linked
throughout the annual report.

The directors concluded that the
2019/20 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.

The board acknowledges that it is
accountable for determining the extent and
nature of the risks it is prepared to take in
order to achieve JM’s strategic objectives.
The board has overall responsibility for
JM’s approach to risk management,
determines the appetite for each risk and
ensures appropriate mitigating actions are
in place, 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.

The board has responsibility for JM’s
internal controls systems. These systems
comprise policies, procedures and practices,
including the appropriate authorisation and
approval of transactions, the application of
financial reporting standards and the review
of financial performance and significant
judgements. This process has been in place
throughout the year and up to the date of
the approval of this annual report.

The internal controls systems meet
the group’s needs to manage risks to which
it is exposed, including failure to achieve
business objectives and the risk of material
misstatement or loss. Our systems can only
provide reasonable, but not absolute,
assurance. They can never completely protect
against factors such as unforeseeable events,
human fallibility or fraud.

Review of the Chair’s performance

The Non-Executive Directors recognise that
the Chair’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 Chair and for providing a
fair and balanced assessment to shareholders.
In April 2020, the Non-Executive
Directors, led by Alan Ferguson, met without
Patrick Thomas being present to discuss his
performance as Chair. Having considered his
leadership of the board, including feedback
from the Executive Directors, it was
concluded that Patrick remained an effective
Chair, with strong leadership and who
facilitates open and constructive challenge.

Audit, risk and
internal control

The Audit Committee

The board has established an Audit
Committee of independent Non-Executive
Directors. Details of its composition and
work during the year are set out in the Audit
Committee Report (pages 95 to 102).

The board is satisfied that as at the date

of this report, two members of the Audit
Committee, Alan Ferguson and Doug Webb,
have 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.

Risk governance

The board
• Assesses principal risks and determines

risk appetite.

• Responsible for the approach to risk
management and internal controls.

Audit Committee
• Reviews the adequacy and

effectiveness of internal control
systems and risk framework.

Group Management Committee
• Champions risk management

through sponsoring risk definitions,
mitigation plans and monitors
progress towards the appetite
through our GMC risk sponsors.

• Provides independent advice and constructively challenges the range of risks identified and their materiality. Particular focus

is provided to the progress of mitigating actions / projects in terms of their successful implementation and their likely effectiveness
in reducing risk in line with our appetite.

Group Assurance function

GovernanceJohnson Matthey / Annual Report and Accounts 202091

Going concern

Viability statement

The code requires the board to state whether
it considers it appropriate to adopt the going
concern basis of accounting in preparing the
financial statements and identify any
material uncertainties to the company’s
ability to continue to do so over a period
of at least 12 months from the date of
approval of the financial statements.
COVID-19 has introduced unprecedented
uncertainty to the market outlook and,
in response to this, we have undertaken
extensive reviews of our businesses and
projections under a range of potential
outcomes. The group has a robust funding
position and has tested its performance
under a deep recession scenario and stress
tested with a more extreme very deep
recession scenario. In both scenarios, we
have sufficient headroom against committed
facilities and key financial covenants in the
going concern period (15 months following
the balance sheet date). Based on the group’s
business activities, its cash flow forecasts
and projections, the board confirms it has
a reasonable expectation that the group
has adequate resources to continue in
operational existence for the period, and
accordingly, has adopted the going concern
basis in preparing the financial statements
for the year ended 31st March 2020.

Further detail on the group’s going
concern statement and the audit committee’s
assessment of that statement can be found
on pages 65 to 66 and 99.

The directors have assessed the prospects
of the company over a three year period
following a robust assessment of the
principal and emerging risks affecting the
company, the business model, forecasts
and strategic plans. In making the viability
assessment a number of severe but plausible
stress scenarios were considered and details
of this process are set out on page 75. 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.

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. The
Remuneration Committee ensures that the
Remuneration policies and practices are
designed to support the company’s strategy
and promote long term sustainable success.
The company will be putting a new
Remuneration Policy to shareholders at the
2020 AGM, further details can be found on
pages 103 to 122.

Effectiveness of the group’s
risk management and internal
control systems

The board delegates oversight of the adequacy
and effectiveness of risk management and
internal controls responsibility to the Audit
Committee. Regular reviews are undertaken
to ensure that JM is identifying, considering
and mitigating risks appropriately.

The role and work of both the Audit

Committee and the group’s Assurance and
Risk function are described in the Audit
Committee Report on pages 100 and 101.

In line with the board’s responsibilities

to effectively manage risk, a robust
assessment of JM’s principal and emerging
risks is carried out on a bi-annual basis to
ensure goals and strategic objectives are
aligned. The board periodically reviews
selected principal risks in line with strategic
deep dives performed by the GMC.

Progress is monitored to ensure
appropriate controls are in place to reduce
the risk in line with appetite. The Chair of the
board, the Chief Executive and Company
Secretary, ensure that all significant areas
of risk, risk appetites and the related risk
management and internal control systems
are reviewed and considered during the
course of the year.

The board of directors, through the
Audit Committee, confirms that a robust
assessment of JM’s risk management and
internal control systems has been carried
out and no significant failings or weaknesses
have been identified. This assessment
covered all material controls, including
financial, operational and compliance
controls, and financial reporting processes,
for the year. This review process accords
with the FRC Guidance.

The COVID-19 pandemic has altered the

external environment and has impacted the
risks JM manages. These include supplier
disruption, rise in mandatory / voluntary
work from home and shifts in customers’
behaviour. A dedicated Group Incident
Management team was deployed in response
to the pandemic to support a review of JM’s
risk universe and the impact of the pandemic
has been detailed for each principal risk.
The board’s view of JM’s key strategic and
operating risks, and how the company seeks
to manage those risks at board and
management level with further details of the
principal risks and the risk assessment
process are set out on pages 67 to 74.

GovernanceJohnson Matthey / Annual Report and Accounts 202092

Nomination
Committee
Report

A board for success

Ensuring the balance of diversity of skills,
experience and knowledge to deliver our
strategy and support the long term success
of the company.

This is my second report as Nomination Committee Chair and I’m
pleased to report on the progress we’ve made in 2019/20. The
committee continues to focus on succession planning to ensure the
board and senior management have the right capabilities to develop
and execute our strategy, and deliver the change required to sustain
growth and create value.

We welcomed two new Non-Executive Directors to the board

in 2019/20, Xiaozhi Liu and Doug Webb. Both bring a diverse range
of skills and expertise to the board. Following Alan Ferguson’s
retirement at the end of our 2020 Annual General Meeting (AGM),
Doug will take over Alan’s responsibilities as Chair of the Audit
Committee. In addition, John O’Higgins will succeed Alan as Senior
Independent Director. The board would like to thank Alan for his
significant and valued contribution over the past nine years.

During the year, we considered board succession and evaluated

the directors’ skills and expertise in order to identify the criteria for
future appointments. We also reviewed succession, development 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 the 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. This includes evaluating the balance of skills, knowledge,
experience and diversity on the board and considering the
effectiveness of the succession planning process for board members.
We also consider the effectiveness of senior management
development and succession planning, including the processes for
identifying and developing the future senior management pipeline.
Further details on our role and responsibilities can be found in
+
+
our terms of reference which were reviewed in March 2020.
r

matthey.com/corporate-governance

Composition

As at the date of this annual report the committee has seven
members; myself as Chair and all of 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.

Chair of the Nomination Committee
Patrick Thomas

Members

Alan Ferguson

Jane Griffiths

Xiaozhi Liu1

Chris Mottershead

John O’Higgins

Doug Webb2

Key objective:

To lead the process for board appointments and ensure
the development of a diverse pipeline for succession.

Principal responsibilities:

•

To review the structure, size and composition
of the board.

To ensure adequate succession planning for
board and GMC members.

2020/21 priority:

•

Ensuring the continued effectiveness of the board
as a whole.

1 Appointed 2nd April 2019

2 Appointed 2nd September 2019

GovernanceJohnson Matthey / Annual Report and Accounts 202093

Committee meetings during the year

Our committee typically meets immediately prior to or following board meetings and on other occasions as needed. We met five times during
2019/20. The attendance of members at meetings during the year is set out below.

Patrick Thomas
Odile Desforges1
Alan Ferguson
Jane Griffiths
Xiaozhi Liu
Chris Mottershead
John O’Higgins
Doug Webb

Date of
appointment
to committee

Number of
meetings eligible
to attend

Number of
meetings attended

1st June 2018
1st July 2013
13th January 2011
1st January 2017
2nd April 2019
27th January 2015
16th November 2017
2nd September 2019

5
2
5
5
5
5
5
2

5
2
5
42
5
5
5
2

%
attended

100%
100%
100%
80%
100%
100%
100%
100%

1 Odile Desforges retired from the board and the committee on 17th July 2019.

Jane Griffiths could not attend one Nomination Committee meeting due to an unavoidable diary clash.

Since the end of 2019/20, the committee has met once and all members attended.

Committee activities

Our principal activities during 2019/20, and up to the date of approval of this annual report, were as follows:

Board composition

Non-Executive Director
succession

Election and re-election of
Directors

Discussed and recommended proposed changes to the board and its committees.
This included reviewing the number of Executive Directors in light of John Walker’s
retirement on 31st March 2020.

Recommended to the board that Alan Ferguson’s term of appointment be extended from
14th January 2020 until the end of the company’s AGM on 23rd July 2020, including the
necessary determination of whether Alan remained independent.

Recommended to the board that Doug Webb be proposed for election as a non-executive
director and that all other current directors be re-elected at the 2020 AGM, excluding
Alan Ferguson who would not be proposed for re-election.

Talent management framework

Reviewed and discussed the refreshed approach to talent review which has been rolled
out across management, the areas of focus and the next steps for 2020 onwards.

Succession planning and senior
management changes

Review of performance and
effectiveness during 2019/20

Reviewed the 2020 succession and development plans in respect of the GMC including
the Chief Executive and other senior executives in each sector and group function.

Undertook an internal review of the committee’s performance and effectiveness.

Nomination Committee Report

Reviewed and approved the 2020 Nomination Committee Report.

Board skills matrix

Reviewed the directors’ skills, experience and diversity by way of self-assessment to ensure that
the board as a whole remains balanced and to identify any areas for development and support
succession planning.

Terms of Reference

Recommended that the Nomination Committee terms of reference be approved by the board.

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%

Senior management
succession and talent
65%

GovernanceJohnson Matthey / Annual Report and Accounts 202094

Nomination Committee Report continued

Diversity

The benefits of diversity, in its broadest
sense, 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.

In adopting the Diversity Policy, the
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 Diversity Policy is available on the
+
company’s website.
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matthey.com/corporate-governance

k
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. The committee is
pleased to report that as at the date of this
report the board consists of 3 females (33%),
and the GMC consists of 4 females (57%).
During the year the board has continued to
promote diversity at all levels of the
organisation, including in the boardroom,
to promote an inclusive culture across JM.

The gender balance of the board as at
31st March 2020 is shown on page 80 and
of those in senior management positions
and their direct reports, on page 43. For
the purposes of the code, the direct reports
of senior management, defined as the GMC
and the Company Secretary, are stated in
the senior managers disclosure on page 43.
For further details on diversity and inclusion
across JM, including our Equal Opportunities
Policy, see page 44.

Board skills matrix

The committee reviewed the skills, diversity
and capabilities of the current board members,
as part of the board and committee appraisal
process. This involved self-assessment by
each director 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
board are summarised on page 80.

Succession planning

Executive succession

One of the committee’s key roles 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. During the
year under review, the committee oversaw
the search for a new executive to succeed
John Walker. John retired from the company
and stepped down from the board on
31st March 2020 after a 36-year career with
Johnson Matthey. Following a competitive
search process, Joan Braca was chosen as the
new Sector Chief Executive, Clean Air. Joan
joined from Tate & Lyle and has significant
experience in running complex businesses,
driving growth in emerging markets and
delivering efficiencies in more mature
markets. On a regular basis the committee
reviews the performance and development
plans of the GMC members as well as
understanding the capabilities and potential
of the reports to the GMC. In March 2020
the committee carried out a more thorough
review of executive succession and put in
place a series of actions to ensure succession
is being appropriately planned. Also, a
refreshed approach to our talent review has
been rolled out across management and
approximately 1,500 leaders / managers
have been assessed using the new model.
The resulting data has been used to review
succession for leadership roles.

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.

Read more about our values on page 41

r
Non-Executive Director succession

In accordance with the code, the committee
k
monitors the tenure of the Non-Executive
Directors against the recommended nine-year
term to ensure an orderly succession. This
is illustrated in the table below.

In line with our succession planning, we
made a number of changes to the board in
2019/20. Odile Desforges stepped down in
July 2019 and Xiaozhi Liu and Doug Webb
joined the board as Non-Executive Directors
in April and September 2019, respectively.

In addition, the committee
recommended to the board that
Alan Ferguson’s term of appointment
be extended from 14th January 2020
until the end of the company’s 2020
AGM when he would step down from
the board and John O’Higgins would take
over as Senior Independent Director.
This followed the board’s determination
that Alan would still be considered
independent as, notwithstanding his
length of tenure, it was felt that he would
continue to demonstrate challenge and
probe management to ensure they are
held accountable.

Committee effectiveness

In January 2020, I led an internal review
of the effectiveness of our board and its
committees. The review covered the
committee’s role, responsibilities and
operations. The review showed that the
committee continues to operate effectively,
particularly 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.

The 2020/21 review of the effectiveness

of the board and its committees will be
externally facilitated and the results and any
recommendations will be presented to the
board and respective committees.

The Nomination Committee Report

was approved by the Board of Directors on
11th June 2020 and signed on its behalf by:

Patrick Thomas
Chair of the Nomination Committee

Tenure of our Non-Executive Directors as at 31st March 2020

Alan Ferguson1

Jane Griﬃths

Xiaozhi Liu

Chris Mottershead

John O’Higgins

Patrick Thomas

Doug Webb

Number of years tenure

1 Alan Ferguson’s appointment was extended past the nine year term following an assessment of Alan’s

independence which is described in detail in the 2019 Annual Report.

GovernanceJohnson Matthey / Annual Report and Accounts 202095

Accounting in a challenging environment

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.

This is my final report to you as Chair of the Audit Committee. Having
joined the board in January 2011 and been appointed as Chair of the
committee in July 2011, I will retire at the end of the company’s
forthcoming Annual General Meeting. I will hand over to Doug Webb,
who joined the board and the committee in September 2019.

During my tenure, I have seen the role of the committee evolve

as stakeholders seek greater assurance over the robustness of controls
and the integrity of financial reporting. This is reflected in the
evolution of JM, as we have strengthened controls, commenced the
implementation of a new enterprise resource planning (ERP) system
and enhanced our risk management processes to adapt to a changing
external environment. I would like to thank members of the
committee, the executive management team, and the external and
internal auditors for their efforts and support over the year, and
indeed the last nine years, it has been a privilege to work with all of
them. Of course, this year we cannot ignore the impact of COVID-19
on our business and this is dealt with elsewhere in this report.
However, it is important to state upfront the committee’s appreciation
of both the finance community within JM, and our auditor
PricewaterhouseCoopers LLP (PwC), for having the adaptability,
confidence and resilience to deliver this set of accounts in a virtual
world. It could only have been achieved by agile, yet detailed,
planning, teamwork and sheer hard work and the committee is
extremely grateful for their combined efforts.

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 Health and Clean Air Sectors, together with key challenges and
financial risks. We also spent time considering and challenging metal
governance and controls, credit controls and credit risk, ERP key
controls and the key control questionnaire results.

As Chair of the committee, I am pleased to say that the

committee continues to operate well and remains informed of
relevant changes and developments in the external audit market.
Looking ahead to next year, the committee will continue to monitor
controls around the new ERP system during the migration to greater
automated controls. The committee will also review the systems and
controls in a COVID-19 environment, as well as revised processes on
group metal requirements and associated key performance indicators.

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, internal audit and assurance, and in overseeing the
relationship with the external auditor. More details on our role and
responsibilities can be found in our terms of reference which were
+
reviewed in April 2020 and are available on our website.
r

Audit
Committee
Report

Chair of the Audit Committee
Alan Ferguson

Members

Jane Griffiths

Xiaozhi Liu1

Chris Mottershead

John O’Higgins

Doug Webb2

Key objective:

To provide oversight of financial reporting and
internal controls.

Principal responsibilities:

• Monitor the integrity of the company’s

financial reporting.

• Review the effectiveness of internal controls.

• Oversee the relationship with the external auditor.

• Oversee the execution and effectiveness of the

internal audit function.

2020/21 priorities:

• Monitor controls around new enterprise resource
planning (ERP) system as more of these migrate
to automated controls.

• Review systems and controls in a COVID-19

matthey.com/corporate-governance

environment.

• Review revised processes on group metal requirements

and associated key performance indicators.

1 Appointed 2nd April 2019

2 Appointed 2nd September 2019

GovernanceJohnson Matthey / Annual Report and Accounts 202096

Audit Committee Report continued

Composition

Our committee currently comprises six
members; myself as Chair and all of the
independent Non-Executive Directors.
Odile Desforges resigned from the board
and the committee in July 2019, and I thank
her for her contribution. We welcomed
Xiaozhi Liu to the committee in April 2019
and Doug Webb in September 2019, who,
as mentioned previously, will succeed me
as committee Chair. Both Doug and I have

significant financial expertise and are
experienced Chartered Accountants.
Doug has a background in corporate financial
management and has served as Chief
Financial Officer of three listed companies.
Doug is currently a Non-Executive Director
and Chairman of the Audit Committee
of The Manufacturing Centre and BMT
Group Limited.

from a variety of backgrounds, as detailed on
pages 78 to 80. This diversity is essential to
the effective discharge of our duties.

The board has agreed that the committee

has experience relevant to the sectors in
which we operate and that both Doug and I
have recent and relevant financial experience,
including competence in accounting, as
required by the provisions of the code.

As a committee, we have a broad range

The Company Secretary acts as secretary

of knowledge, skills and experience gained

to the committee.

Committee meetings during the year

The committee met five times during the 2019/20 financial year. Attendance at these meetings was as follows:

Alan Ferguson
Odile Desforges2
Jane Griffiths
Xiaozhi Liu
Chris Mottershead
John O’Higgins
Doug Webb

Date of
appointment
to committee

Number of
meetings eligible
to attend

Number of
meetings attended

13th January 20111
1st July 2013
1st January 2017
2nd April 2019
27th January 2015
16th November 2017
2nd September 2019

5
2
5
5
5
5
2

5
23
53
5
5
5
2

%
attended

100%
100%
100%
100%
100%
100%
100%

1 Alan Ferguson was appointed Chair of the committee on 19th July 2011.

2 Odile Desforges retired from the board and the committee on 17th July 2019.

3 Odile Desforges and Jane Griffiths could not attend part of one committee meeting due to an unavoidable diary clash.

Since the end of the 2019/20 financial year,
the committee has met three times and all
members attended. The committee’s
meetings coincide with key events in the
company’s financial calendar. Following each
meeting, I report on the main discussion
points and findings to the board.

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 are also attended by the

lead audit partner, and other representatives
from the external auditor, PwC. Their
attendance is essential 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 separately
with the Chief Financial Officer, the Group
Assurance and Risk Director and with the
auditors. In addition, I hold meetings with
the Chief Financial Officer, the Group
Financial Controller and the auditors prior
to the full and half year committee meetings
as this means any issues or concerns can be
raised at an early stage, which enables 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,
with 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.

Considered a paper which detailed how we plan to respond to the points raised in the annual letter from
the Financial Reporting Council to Audit Committee Chairs and Chief Financial Officer’s on key matters
that are relevant to this year’s reporting season.

GovernanceJohnson Matthey / Annual Report and Accounts 202097

Responsibility

Activity

(continued)

• Assessed the process which management put in place to support the board when giving its assurance that

the 2020 Annual Report and Accounts, taken as a whole, is fair, balanced and understandable.

•

Reviewed reports from the General Counsel on group litigation and disputes.

Reviewed reports on credit controls and credit risks.

• Approved the 2020 Audit Committee Report.

•

Reviewed and recommended the approval of elements of the 2020 Annual Report and Accounts to the board.

Reviewed and challenged the payment practices, policies and performance of the company and certain
UK subsidiaries.

Risk management and internal control

To review the
group’s internal
financial controls
and its risk
management
systems, and
to monitor the
effectiveness of
the group’s internal
audit function

•

Received reports from the group Assurance and Risk Director on the group assurance, risk reviews and risk
management processes.

• Monitored progress against the 2019/20 group assurance and risk plan and agreed the 2020/21 plan.

•

Reviewed and approved the three year strategy for the group Assurance and Risk function.

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 group 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 presentations from the Health and Clean Air Finance Directors.

Received reports on the ERP system control environment following implementation at a number of sites.

• Met with the group Assurance and Risk Director without management present.

• Approved, after due challenge and discussion, PwC’s audit plan and fees for 2019/20.

• Discussed and agreed to an extension to the year end reporting timetable to allow for the inefficiencies

arising from having to undertake a virtual audit.

•

Considered reports from the auditors, including their views on our accounting judgements
and control observations.

• Approved the provision of permissible non-audit services from PwC in respect of immigration services

until 1st January 2020 and implemented a new and much more restrictive policy for non-audit services.
Further information on this can be found on page 102.

•

Received updates on external audit market reviews, including the Brydon review, the Competition
and Markets Authority’s market structure study, the Kingman review and the BEIS Select Committee
report on ‘The Future of Audit’.

• Met with the external auditor without management present.

•

Considered and reviewed indicators of audit quality and recommended the reappointment of PwC
as auditor.

External auditor

To oversee the
relationship with
the external auditor,
to monitor its
independence
and objectivity
to approve its fees,
recommend its
reappointment or
not and to ensure
it delivers, based
on a sound plan,
a high quality
effective audit

The graph below shows an estimate of how the committee has spent its time during the year until 31st March 2020.

Governance
7%

Financial reporting
and external audit
41%

Internal
audit and risk
52%

GovernanceJohnson Matthey / Annual Report and Accounts 202098

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 issues
in relation to the accounts

COVID-19 pandemic

The COVID-19 pandemic has
impacted many countries in which the
group operates, with measures taken
by governments to contain the spread
of the virus, including travel bans,
quarantines, social distancing and
closures of non-essential services,
significantly disrupting business
activity and resulting in a severe
economic slowdown.

The Clean Air Sector, in particular,
has been impacted by the pandemic,
temporarily closing most of its
manufacturing plants outside China
from March to June in response
to the temporary closures of the
manufacturing facilities of its global
automotive customers.

Work undertaken

Outcome

We received a report from management
which explains the accounting and
disclosure implications of the pandemic.
The report was reviewed and discussed with
management and PwC to ensure that the
committee was satisfied with its conclusions.

The group has updated its budgets and plans
to reflect the impact of the economic slowdown
and these have been used in its viability and
going concern assessment and annual goodwill
impairment testing, and to identify other asset
impairments. No goodwill or other asset
impairments have been identified as a direct
result of COVID-19, although headroom has
reduced (see below), and the group continues to
prepare its accounts on a going concern basis.

Notwithstanding a track record of insignificant
bad debts, the group has recognised increased
provisions for expected credit losses on trade and
contract receivables reflecting the risk that it will
incur bad debt losses in the future.

Whilst stock market values have reduced, the
group has not experienced a reduction in the
value of its pension assets as a result of its strategic
asset allocation and hedging arrangements.

The Annual Report includes additional disclosures,
in particular, in respect of viability and going
concern, goodwill impairment testing, idle assets,
pension assets and expected credit losses.

We concluded that the financial impact of the
COVID-19 pandemic has been appropriately
accounted for and disclosed in the group’s accounts.

Significant recurring issues in
relation to the accounts

Work undertaken

Outcome

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.

We received a report from management
which explains the methodology used,
assumptions made and significant changes
from those used in prior years, including
the impact of the COVID-19 pandemic on
the group’s budgets and plans. The key
assumptions and sensitivities were
discussed with management and assessed
for their reasonableness.

The impairment reviews were an area of
focus for PwC who reported their findings
to us.

Management identified impairments in respect of:

•

the planned restructuring of three
manufacturing plants in Clean Air
(£61 million);

the refocusing of our Battery Materials Lithium
Iron Phosphate (LFP) CGU in New Markets
(£57 million) as LFP commoditises; and

the termination of the development of
21 molecules following a fundamental
review of the new product pipeline in
Health (£20 million).

Whilst the other annual impairment tests did
not result in impairments, the headroom over
the carrying value of the net assets of the
material CGUs has been reduced, in particular
for the impact of COVID-19 on the group’s
budgets and plans.

We concluded that management’s key
assumptions and disclosures are reasonable
and appropriate.

GovernanceJohnson Matthey / Annual Report and Accounts 2020Significant recurring issues
in relation to the accounts

Refining process and stock takes

When agreeing commercial terms
with customers and establishing
process loss provisions, key estimates
are made of the amount of precious
metal that may be lost during the
refining and fabrication processes.
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.

Post-employment benefits

Key estimates are made in relation
to the assumptions used to value
post-employment benefit obligations,
including the discount rate and
inflation.

Tax provisions

Key estimates are made in
determining the tax charge in the
accounts where the precise impact of
tax laws and regulations is unclear.

Work undertaken

Outcome

We concluded that management’s accounting
for refining stock take gains and losses was in
accordance with the agreed methodology and
that the additional controls and procedures
performed in the absence of a UK refinery stock
take were appropriate.

We received a report from management
which summarises the results of the refinery
stock takes in the US and India. The report
was reviewed to ensure that the results were
in line with expectations and historic trends
and, where this was not the case,
explanations were provided by management.

As a result of the continued focus on backlog
reduction, as planned, there was no refinery stock
take in the UK during the year and, therefore,
we reviewed the additional controls and
procedures performed by both management
and PwC. The results of the refinery stock take
performed at the recently constructed plant in
China in January 2020 will be reported to the
Committee in November 2020.

The refining process and stock takes were
an area of focus for PwC who reported their
findings to us.

We received a report from management
which summarises the key assumptions
used to value the liabilities of the main
post-employment benefit plans. The
assumptions were compared with those
made by other companies and PwC’s
assessment of the reasonableness of the
assumptions was considered.

Past service credits totaling £20 million were
recognised in underlying operating profit as
a result of changes to two of the group’s
post-employment benefit plans during the year.

We concluded that the assumptions used, and
accounting treatment, are appropriate for the
group’s post-employment benefit plans.

We received a report from management
which explains the issues in dispute, or at
risk of this, with tax authorities across the
business, the calculation of tax provisions
and relevant disclosures. The calculations
were discussed and challenged.

Tax provisioning was an area of focus for
PwC who reported their findings to us.

IFRIC 23 uncertainty over income tax treatments
was adopted with the cumulative effect of
adoption, a £5 million decrease in tax provisions
(including interest) recognised in the groups
reserves on 1 April 2019.

Tax provisions increased as a result of a
£12 million provision recognised during the year
following developments in respect of an open
matter with the tax authorities, partly offset by a
£6 million provision released on settlement of a
long standing matter with the tax authorities.
We concluded that management’s estimates and
disclosures are reasonable and appropriate.

We concurred with management’s conclusions
regarding provisioning and contingent
liability disclosures.

Provisions and contingent liabilities

Key estimates are made in
determining provisions in the
accounts for disputes and claims
which arise from time to time in the
ordinary course of business. Key
judgements are made in determining
appropriate disclosures in respect of
contingent liabilities.

We received a report from management
which provides information in respect of
disputes and claims, and identifies the
accounting and disclosure implications
which were discussed and challenged.

Provisioning for, and disclosure of, disputes
and claims was an area of focus for PwC who
reported their findings to us.

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
2020 Annual Report and Accounts, taken as
a whole, is fair, balanced and understandable
and provides 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 by the Group Assurance and Risk
Director. Group Accounts completed
validation and tick back of all numbers
and 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 effective.

The board’s assessment on whether the 2020
Annual Report and Accounts is fair, balanced
and understandable is set out on page 90.

Going concern and viability statement

In order to appropriately assess going
concern and viability during the COVID-19
pandemic this process was started earlier
than usual as early engagement with the
auditors, and indeed with the committee,
on the scenarios being modelled was critical.

GovernanceJohnson Matthey / Annual Report and Accounts 2020100

Audit Committee Report continued

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 also considered the risks associated
with the UK’s exit from the European Union
(Brexit) which were well known to the board
as they had received regular updates during
the year from the company’s Brexit working
group. Further details on our going concern
and viability, and the scenarios considered,
are set out on pages 65-66 and 75.

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.

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 tracked, challenged and reported on.

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.
The questionnaire continues to be a critical
component of our governance and assurance
framework, describing the minimum set of
controls our businesses need to keep our
people safe, ensure compliance with the
standards and regulations expected of us and
protect our assets (physical and intellectual).

Key control questionnaire process

The businesses assess themselves against the
questions and the results are then reviewed
at sector, function and group levels as detailed
in the diagram below. 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
Health Sector Finance Director who updated
the committee on plans to enhance the control
environment. The committee reviewed the
key challenges and financial risks facing that
sector, including inventory management. In
addition, the committee received an update
on the implementation of our ERP system in
the Clean Air Sector and reviewed the plans
to enhance the sector’s control capabilities
and ERP effectiveness. 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, policies, leases and
the levels of working capital across the group.
Sector and functional reviews allow
us to meet with, challenge and probe senior
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.

Group assurance and risk

The Group Assurance and Risk Director,
who is new to JM, has brought a fresh
perspective. She 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 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.
The Group Risk and Assurance Director

presented her three year strategy for the
function which built on the strong foundations
already established. The purpose of the function
was defined as to “assure, protect, advise and
anticipate” with the focus areas being to
improve efficiency and flexibility through the
broader use of technology and to introduce a
subject matter experts model to focus on key
areas of risk like IT, metal and transformation.

Group assurance and risk annual plan

We spend a significant amount of time
reviewing the group 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 2020/21 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
functions 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 and security
audits, as well as input from JM’s leadership,
strategy and investor relations teams.

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 (including IT),
legal, regulatory, commercial and business
transformation risk areas. The committee
believes the 2020/21 plan addresses JM’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 plan was prepared on a business as
usual basis but recognising the uncertainties
from COVID-19 it will be flexed to reflect
conditions as the impact of the pandemic
unfolds in our key markets.

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 Audit
Committee

GovernanceJohnson Matthey / Annual Report and Accounts 2020101

Group assurance and risk effectiveness

Speak up issues

The committee reviews the effectiveness
of the Group 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 with
particular focus on the leader of the function.
The performance of the function is reviewed
annually. As noted above, the committee
appointed a new Director of Group Assurance
and Risk during the year and as part of her
onboarding, she has undertaken an internal
review of the function, considered the results
of a self-assessment against the Institute of
Internal Auditor’s standards of integrity,
objectivity, confidentiality and competence
performed in the previous year and proposed
a revised strategy for the function. The
strategy has been reviewed and approved by
the committee and we will be monitoring
its execution accordingly. A formal review
of the function, in line with the requirements
of the Institute of Internal Auditors will be
considered in the next year or so.

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 and establishing levels of risk
appetite for the group’s principal risks.
The board may ask for additional assurance
to be provided and this can be carried out by
the Group Assurance and Risk function which
reports back on this to the committee.

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 reports the findings of this review
to the board as appropriate.

External auditor

Tenure

PwC was appointed as the group’s external
auditor by shareholders in July 2018
following a formal tender process. This is
the second year the group has been audited
by PwC, Mark Gill continues to be the lead
audit partner.

External audit plan

In developing the external audit plan for
2019/20, PwC performed a risk assessment
to identify the potential 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 205 to 209 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 2019
and the forecast for 2019/20. Details of the
coverage and the agreed scope are set out
in the independent auditor’s report on page
210. The procedures to be performed at a
global level and the planned site visits were
also reviewed. Materiality was agreed at
approximately 5% of three-year average
profit before tax adjusted for loss on disposal
of businesses, loss on significant legal
proceedings, major impairment and
restructuring charges.

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.

Due to the impact of COVID-19, the plan

subsequently required changes to adapt to
the new working environment. The auditors
for example could not attend some stock
takes due to remote working and greater
focus was required on areas such as
impairment, the recoverability of accounts
receivables and going concern. Further
information on our year end process is
included in the case study below.

How we reviewed PwC’s performance

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. This year the
impact of COVID-19 required more extensive
interaction with PwC and this included more
direct conversations between myself and
Mark as well as an additional committee
meeting subsequent to the year end.

Where possible, the Chief Financial

Officer and / or myself meet with the local
audit partner when travelling to overseas
sites to better understand the issues they see
locally in terms of reporting, control and the
quality of our finance teams. Importantly it
also gives us the ability to judge the quality
and commitment of the individual. A note
of these meetings is then shared with the
committee. The committee have also
requested PwC to keep the committee
informed of the work carried out by PwC’s
Quality Review partner.

The challenges faced when compiling audited the year end accounts in a virtual world due to the COVID-19 pandemic

The original external audit plan prepared, agreed and communicated
throughout the organisation required significant and timely rework as
the impact of COVID-19 spread across the world in February and March.
The audit for this year had several challenges given a number
of sites across the group were closed due to government lockdown
restrictions spanning the majority of the period of the audit such as
those in South Africa and India.

In addition, even though many sites did continue to operate
across the group, as they were regarded as essential operations under
many government regulations on COVID-19, PwC was not permitted
to travel to sites to conduct audit procedures.

The restrictions placed on our staff and auditors resulted in

alternative audit processes being adopted, for example:

• An inventory count, an essential audit procedure, is typically

performed by management and attended in person by the
auditor. To ensure this integral part of the audit was completed,
PwC performed inventory counts remotely via live feed cameras,
which they were directing, while JM staff conducted the counts
procedures including specific testing on behalf of PwC.

•

The audit testing of documents was also carried out remotely
by PwC. Although the majority of documentation is held
electronically there are a number of sites with documentation in
paper form resulting in additional administrative activities with
staff scanning documents (where they had access) to PwC
document portals. A greater portion of audit testing would
normally have been performed on site.

Additional procedures were incorporated into the audit by PwC to
ensure both the robustness of the audit testing and that the required
evidential support was obtained whilst delivering the right level of
coverage across the income statement and balance sheet. Additional
virtual meetings were scheduled with overseas management and
audit teams to maintain robust oversight procedures given in person
meetings were not possible. COVID-19 also meant that discussions
relating to forward looking judgements were much more challenging
due to the uncertainties created by the pandemic.

Finally, we all had to adjust to virtual meetings, which whilst
working well are less efficient than face to face communication in an
office environment.

Despite all of these challenges, the accounts and audit were
delivered just two weeks after the originally planned announcement
date which was a credit to all involved.

GovernanceJohnson Matthey / Annual Report and Accounts 2020102

Audit Committee Report continued

In addition, 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

Following the FRC issuing a major revision
to the ethical guidance for auditors in
December 2019 the committee has adopted
a revised policy on the provision of non-audit
services. The group’s auditors are now only
able to provide additional services directly
linked to audit and our policy is fully aligned
with the new guidance. The revised policy
came into effect on 15th March 2020. This
policy also sets out the circumstances in which
a former employee of PwC can be employed
by JM and the procedure for obtaining
approval for such employment. The policy
ensures that the provision of non-audit
services does not create a threat to PwC’s
auditor independence and objectivity.

When the auditor can be invited to

provide a permitted non-audit service the
policy sets out how approval should be
obtained prior to PwC being engaged.
The Audit Committee has pre-approved
non-audit services up to £100,000. 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 Chair. Services likely to
cost over £100,000 must be approved by the
committee. During the year, the committee

approved the continued engagement of PwC
to provide certain immigration advisory
services (this work commenced before PwC
were appointed as auditors) which ceased
with effect from 1st January 2020.

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
£0.6 million compared with audit fees of
£3.4 million, representing 18% of the audit
fee. The non-audit fees predominantly
comprised global immigration services (see
above). 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 3 to the accounts,
on page 151.

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 was
complied with. The committee concluded
that PwC was independent.

Proposed re-appointment of PwC

Following the work undertaken by the
committee in assessing PwC’s performance
and independence, the Committee agreed
that PwC had a robust and professional

working relationship with management and
demonstrated strong technical knowledge.
As a result, a resolution proposing PwC’s
re-appointment as the company’s auditor and
authorising the committee to determine PwC’s
remuneration is included in the company’s
Notice of the Annual General Meeting.

Statement of compliance

The committee confirms that during the
financial year ended 31st March 2020, 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.

Committee effectiveness

The committee’s performance was reviewed
as part of the 2019/20 internal board review.
The committee was considered to be operating
effectively, with progress made against the
areas identified in the 2018/19 review,
particularly with regard to the development
of the assurance functions. More details on
how the review was carried out can be found
on page 89.

Our priorities

In last year’s annual report we set out our
priorities, over and above our business as
usual work, for 2019/20. Below, we report on
the status of these and set out our priorities,
over and above our business as usual work,
for 2020/21.

2019/20

Comments

•

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.

• We received updates on the control processes through specific sector

updates, internal and external audit.

•

The committee received a specific update on security events and
considered further improvements for the management of cyber risk.

The committee will monitor the company’s
progress to increase its use of data analytics by our
assurance providers.

• During the year, a ‘teach-in’ on the use of data analytics was led by
PwC. The committee continues to monitor the ongoing work to
develop data analytic capabilities with PwC and Internal Audit.

2020/21

• Monitor controls in and around the ERP system as more of these migrate to automated controls.

•

Review systems and controls in a COVID-19 environment.

Review revised processes on group metal requirements and associated key performance indicators.

The Audit Committee Report was approved by the board of Directors on 11th June 2020 and signed on its behalf by:

Alan Ferguson
Chair of the Audit Committee

GovernanceJohnson Matthey / Annual Report and Accounts 2020103

Remuneration
Report

Chair of the Committee
Chris Mottershead

Members

Patrick Thomas

Alan Ferguson

Jane Griffiths

Aligning performance and reward

The Committee’s purpose is to ensure the
remuneration structure and policies motivate and
reward fairly and responsibly with a clear link to
performance and the delivery of long term
strategy and value.

Introduction

As Chair of the Committee, I am pleased to present our report for
the year ended 31st March 2020. It comes at a time when the global
community is navigating uncharted territory because of the onset
of coronavirus (COVID-19). None of us yet know quite how broad its
impact will be, or how deeply it will be felt. What we do know is that
our industry, like many others, is seeing a significant demand and
supply-side shock.

In light of these challenges, the board is monitoring the impact

of COVID-19 on the business and is responding dynamically as the
situation evolves having regard to financial performance but also the
impact on our employees, customers, suppliers, communities and
shareholders. Our existing Remuneration Policy, which we have
reviewed during the year, includes the necessary flexibility and
discretions to ensure that remuneration outcomes will be reflective
of overall performance and that pay outcomes can also be adjusted
to take account of our stakeholders’ experiences. This year’s policy
review provided the opportunity to stress test these factors. In addition,
the policy review also enabled the committee to make a number of
refinements to our current policy to ensure that we continue to support
our long term growth strategy at the same time as taking account of
institutional investor feedback and general market developments.

John O’Higgins

Xiaozhi Liu1

Doug Webb2

Our approach to remuneration

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.

Principal 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.

2020/21 priorities:

• Monitor the impact of COVID-19 on the business

and resulting remuneration outcomes.

• Review alignment of reward with culture.

• Broader employee pay and incentive review.

1 Appointed 2nd April 2019

2 Appointed 2nd September 2019

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.
We aim to achieve this by focusing on delivering long term
growth and value creation through leveraging our leading positions in
high margin, technology driven growth markets. A key contributor to
our future success will also be how well we deploy investment capital
across our existing sectors and in our Battery Materials business.
At the same time as managing growth over both the medium and
long term and the impact of COVID-19, we are particularly focused
on driving efficiency savings and cost control.

Our remuneration strategy focuses on motivating our talent to

achieve our 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.

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.

GovernanceJohnson Matthey / Annual Report and Accounts 2020104

Remuneration Report continued

Remuneration review

Our current Remuneration Policy was submitted to shareholders
at our 2017 Annual General Meeting (AGM) and we appreciated
the high level of support we received at that time (92.3% in favour).
The 2020 AGM will mark the third anniversary of our Remuneration
Policy and as a result, in line with the current regulatory framework,
we will seek shareholder approval for an updated Remuneration Policy.
During 2019, the committee conducted an extensive review

of the effectiveness of our current Remuneration Policy. We started
with a ‘blank sheet of paper’ to be sure we were bringing the latest
thinking to the process. In terms of overall design principles, our
review confirmed that the current construct of base salary, annual
incentive and long term incentives remains appropriate. As we looked
at alternatives, we could not find value in changing that construct at
the current time given the specific purpose each element is designed
to play. Nevertheless, we do believe that some fine tuning of our
Remuneration Policy and structure is in order. The review also
considered recent developments in institutional investors’ best
practice expectations and the remuneration updates included in the
2018 UK Corporate Governance Code. A number of the changes to
our policy are in response to these factors.

Pension

In light of (i) a broad review of employee pension arrangements;
(ii) institutional investor expectations in relation to the alignment
of Executive Director pensions with those of the wider workforce and
(iii) changes to the UK Corporate Governance Code, Executive Director
pensions are being reduced. Executive Directors will see their pension
cash supplement reduce from 25% to 15% of salary by 1st April 2023
in three steps. The first reduction (to 23%) took place on 1st April
2020. The cost to the company of our standard pension provision to
all UK employee is 15%.

Annual incentive plan

There is no change to the annual bonus opportunity and the structure
will continue to operate using the same overall framework as the
current Remuneration Policy. Bonuses earned will continue to be
based on performance against a challenging range of financial and,
where appropriate, non-financial targets. A substantial proportion
will be based on key financial measures, including underlying profit
before tax (PBT). The committee will continue to retain discretion to
adjust bonus outcomes to ensure that any bonus earned is reflective
of overall company performance and the experience of our
stakeholders, in particular employees and shareholders.

Long term incentive plan

Awards are expected to be granted in 2020 at the same levels as those
awarded in 2019 at 200% of salary for the Chief Executive and 175%
of salary for the Chief Financial Officer. In determining the award
sizes, the committee considered the degree of stretch in the targets
which are considered at least as challenging as those set in prior years
as set out below.

We plan to introduce relative Total Shareholder Return (TSR)

alongside the existing performance measure of underlying earnings
per share (EPS) growth and our return on invested capital (ROIC)
underpin. This change will ensure that in addition to being aligned
with achieving our earnings targets that there is also direct alignment
with the benefits of delivering on our strategic business plans.

As part of our review of the long term Performance Share
Plan (PSP), the committee also considered the inclusion of a third
performance measure based on sustainability and / or strategic
objectives that aligns to our value proposition of supporting our
purpose of delivering ‘a world that is cleaner and healthier today
and for future generations’. It is proposed that this measure would
represent no more than one-third of the overall award and would
be based on quantifiable metrics. Work continues on the detail of
the precise metrics for this element and so this measure will be
introduced into future awards, and at the latest, by the time awards
are granted in connection with the 2022/23 financial year.

With regard to the performance targets to operate for the 2020

awards, these are expected to be as follows:

•

50% of the award will vest based on EPS growth targets.
The targets require EPS growth of 3% pa for 15% of this part
of the award to vest, rising to 100% vesting for EPS growth
of 8% pa. Growth will be measured over the three year
performance period ending 31st March 2023. The performance
range has changed relative to the 2019 awards, however the
Committee is satisfied that the proposed range is at least as
challenging to those set in 2019 noting the current and
projected challenging commercial context.

50% of the award will vest based on relative TSR performance.
The targets will require our TSR to be at least median when
compared against the companies ranked 31 to 100 (excluding
financial services companies) in the FTSE 100 Index over the
three year performance period ending 31st March 2023.
Achieving median performance will result in 25% of this part
of the award vesting, rising to 100% vesting for upper quartile
(or better) TSR performance.

In determining the above quantum and targets, the committee
also intends to include in the award documentation a provision that
enables the committee to reduce the value of awards on vesting if
there has been a windfall gain arising from a quicker than expected
general market recovery from COVID-19. While this is not expected
to be used in practice, given current circumstances and the
consequent challenge in setting targets the committee consider
this a prudent approach.

During the year the committee has been involved in a number of
discussions relating to the hiring of members of the company’s senior
leadership team including the appointment of Joan Braca (succeeding
John Walker as Sector Chief Executive, Clean Air), Christian Günther
(Chief Executive, Battery Materials) and Maurits van Tol (Chief
Technology Officer). This experience highlighted that to get the talent
required, the company is under increasing pressure to match often
higher long term incentive opportunities. As a result, to ensure that
the committee has the necessary flexibility to compete for executive
talent in the future it is increasing the maximum award under the
PSP to 250% of base salary. There is no intention that the higher
award levels will apply to existing Executive Directors unless the
committee pre-consults with shareholders, but the change will help
support future Executive Director appointments if required.

The committee also intends to include a minimum two year
holding period on future vested long term PSP awards. This approach
was voluntarily adopted for the 2019 award outside of the current
policy but is now being formally included within our policy.

GovernanceJohnson Matthey / Annual Report and Accounts 2020105

Post-cessation shareholding guideline

Single figure results

From 1st April 2020 we have introduced a post-cessation
shareholding guideline that applies to future share awards that vest,
which we believe will ensure the continued alignment of Executive
Directors even after they cease employment with the company and
to reflect developments in the UK Corporate Governance Code. This
guideline will require the executives to retain future vested shares to
the value of the current share ownership guidelines for two years
from the date of cessation of employment.

The 2019 single figure of total remuneration for Robert MacLeod is
£1,462,000, Anna Manz is £885,000 and John Walker is £809,000,
as reported on page 115. These outcomes represent a 47% decrease
for Robert, a 46% decrease for Anna, and a 51% decrease for John,
reflecting reductions in annual and long term incentive outcomes.
The lower remuneration is consistent with the lower share price
and the experience of shareholders and as such we deem these
outcomes reasonable.

Salary Review

Board changes

In light of the impact of COVID-19 a decision was made to freeze
pay levels in 2020 and as such the Executive Directors will not
receive an increase in their base salary in 2020, and neither will the
Non-Executive Directors receive an increase in their fees in 2020.

Voluntary Contribution

In recognition of the circumstances affecting many of our employees,
customers, suppliers and communities as a result of COVID-19, the
board members each voluntarily donated 20% of their salary for
April, May and June 2020 to a special charitable fund to support
science education.

2019/20 incentive plan outcomes

During the year Johnson Matthey delivered a solid set of results albeit
impacted by COVID-19 toward the end of the year. It also continued to
implement its strategy; market leading growth and commercialisation
of new technologies in our Efficient Natural Resources Sector;
progress on the delivery of our product pipeline in our Health Sector;
and good progress on the development of our Battery Materials
business. 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.

Based on our analysis of performance outcomes, the Executive

Directors missed the group underlying PBT target but performed
strongly against the group working capital days financial target and
their non-financial objectives. Delivery against the objectives was also
underpinned by demonstrating expected leadership behaviours
aligned to our values and achieving a satisfactory health and safety
record over the year. Further details on the performance against the
annual targets is set out within our Implementation Report.

Consequently, the bonuses becoming payable are 26% of the
maximum for Robert MacLeod, 26% of the maximum for Anna Manz
and 20% of the maximum for John Walker.

In the context of a challenging market environment, the
progress made against our long term strategy, and our shareholder’s
experience, the Committee considered the level of annual bonus
payout appropriate, and as such no discretion was exercised given the
overall relationship between performance and rewards achieved.
The formulaic outcome for the vesting of the long term
PSP awards granted on 1st August 2017 was zero. It was not felt
appropriate to adjust the outcome and as such there is zero PSP
vesting for the Executive Directors.

In June 2019 we announced John Walker’s intention to retire
from Johnson Matthey on 31st March 2020, after a long and
distinguished career.

The remuneration terms agreed by the committee in respect
of John’s retirement are in line with our policy and include no special
arrangements. Given John’s cessation of employment related to
retirement, he was a good leaver for the purpose of outstanding
incentives which all remain subject to their original performance
conditions and vesting terms. Full details are set out on page 115.

With John’s retirement the board has taken the opportunity to
reduce its size. As a result the committee did not need to consider
any remuneration arrangements of new Executive Directors during
the year.

Group employee considerations

The committee has had the opportunity to understand the
remuneration of the wider workforce during the year. In addition,
we reviewed the pay levels of employees below the board, particularly
in relation to equal pay and the UK gender pay gap. We have made
good progress with our UK gender pay gap reducing from 8.5% to
6.0%. Despite this good progress the company remain committed
to continue to tackle the root causes of our gender imbalance and
to ensure a truly inclusive culture that supports diversity.

2020 Annual General Meeting

The committee has appreciated the feedback from our major
shareholders through the consultation on our Remuneration Policy,
which has helped shape our proposed policy.

I ask you to support our new Remuneration Policy and 2019/20

Annual Report on Remuneration at our forthcoming AGM on
23rd July 2020. We believe that our policy remains simple,
transparent and effective, strongly supporting our business strategy
with remuneration outcomes aligned to the shareholder experience.

Chris Mottershead
Chair of the Remuneration Committee

GovernanceJohnson Matthey / Annual Report and Accounts 2020106

Remuneration Report continued

Remuneration overview

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 which was informed following consultation
with our key shareholders during the year will, subject to a
shareholder approval, take effect immediately following the
2020 AGM and apply to all remuneration for the financial year
1st April 2020 onwards.

The previous remuneration policy was approved by shareholders
in July 2017, with 92.3% votes cast in favour. The only significant
changes between the new policy and that previously approved by
shareholders are:

• A reduction in the pension cash supplement from 25% to

15% to align with the pension contribution paid to the wider
workforce in the UK. From 1st April 2020 the cash supplement
will be 23%, it will then reduce to 20% in April 2021 and
reduce to 15% in April 2022.

•

The introduction of Total Shareholder Return (TSR) as an
additional measure in the Performance Share Plan (PSP) with
the option to include further performance metrics and / or refine
metrics as our strategy evolves. This is expected to include
targets relating to sustainability during the policy period
subject to shareholder consultation. The TSR comparator group
is the FTSE 31-100 (excluding financial services companies).

• A change to PSP such that awards will vest, subject to meeting
the performance conditions, over the three year performance
period, after which the directors will be required to hold any
vested shares until the fifth anniversary of the award. This
change was introduced for the awards in 2019 but is now being
formally included in the policy to apply to all future PSP awards.

•

In light of our revised approach to performance targets under
the PSP, we are to provide flexibility to set threshold vesting
at 25% of that part of the award to reflect normal market
practice. For the FY 2020/21 awards, the new TSR element
will operate with 25% of this part of the award vesting at the
threshold performance level with the EPS element continuing
to operate with 15% of this part of the award vesting at the
threshold performance level. The committee will review the
appropriate level of threshold vesting at the time of making
awards each year in light of the degree of stretch in the targets
set for the following three-year period. An increase to the
maximum award level under the PSP to 250%. There is no
intention to increase the award levels to current Executive
Directors. If a new Executive Director is appointed during the
policy period, this increased maximum may apply if necessary
for recruitment purposes (both in connection with their
appointment and on an ongoing basis). Any adjustment to
the ongoing annual award level would be subject to
appropriate dialogue with our shareholders.

•

The requirement for executives to have a post-cessation
shareholding in line with current guidelines (250% of salary
for the Chief Executive and 200% of salary for the Chief
Financial Officer, or their holding on leaving if lower than
the guideline) for a period of two years after leaving. This
post-cessation shareholding requirement applies to shares
acquired after 1st April 2020 only.

Approach to designing the Remuneration Policy

The committee is responsible for the determining, and agreeing
with the board, the Directors’ Remuneration Policy and has
oversight of its implementation. The committee has clear terms
of reference and works with management and independent
advisers to develop proposals and recommendations and exercises
independent judgement when making decisions. This process is
considered to manage any potential conflicts of interest.

When considering how to structure and position the remuneration
packages for the Executive Directors, the committee firstly considers
the company’s strategy and business objectives and then also takes
into account market data from a range of sources that includes
both UK-listed companies of a similar size and complexity and
international peers. The committee also reviews information from
the Chief HR Officer on pay and employment conditions applying
to other group employees, consistent with the group’s general aim
of seeking to reward all employees fairly according to the nature
of their role, their performance and market forces.

In designing an appropriate incentive structure for the Executive
Directors and other senior management, the committee seeks to set
challenging performance criteria that are aligned with the group’s
business strategy and the generation of sustained shareholder value.
The committee is also mindful of the need to avoid inadvertently
encouraging risky or irresponsible behaviour, including behaviour
that could raise environmental, social or governance issues.

The committee considered the principles listed in the 2018

UK Corporate Governance Code when reviewing the Directors’
Remuneration Policy and took these into account in its design
and implementation:

Clarity: Remuneration arrangements have defined parameters
which can be transparently communicated to shareholders and
other stakeholders.

Simplicity: Remuneration arrangements for Executive Directors
consist of salary, a fixed pension contribution set to reflect the
typical rate provided to the UK workforce, participation in the
annual bonus scheme, a portion of which is deferred into shares,
and annual long term incentive plan awards which provide focus
over the longer term performance. Unnecessary complexity is
avoided by the committee in operating the arrangements.

Risk: The remuneration arrangements are designed to have a robust
link between pay and performance thereby mitigating the risk of
excessive reward. In addition, behavioural risks are considered when
setting targets for performance related pay and the arrangements have
safeguards to ensure that pay remains appropriate including committee
discretion to adjust incentive outturns, deferral of incentive payments
in shares, recovery provisions and share ownership requirements.

Predictability: The committee set specific targets for different
levels of performance which are communicated to the individuals
and disclosed to shareholders.

Proportionality: The annual bonus and long term incentive plans have
performance metrics that are aligned with the company’s KPIs and the
payouts reflect achievement against the targets. The committee may
reduce payouts under the bonus and long term incentive plan if they
are not considered aligned with underlying performance. Safeguards
are identified to ensure that poor performance is not rewarded.

Alignment to culture: The directors’ remuneration arrangements
are cascaded down through the organisation ensuring that there
are common goals. The committee review remuneration
arrangements throughout the company and take these into
account when setting directors’ remuneration.

GovernanceJohnson Matthey / Annual Report and Accounts 2020107

Policy table

Purpose and link to strategy

Operation (and changes if appropriate) of the element

Potential value of element and performance measures

Base salary

Base salary is the basic
pay for doing the job.
Its purpose is to
provide a fair and
competitive level of
base pay to attract and
retain individuals of
the calibre required
to lead the business.

Base salaries will be reviewed annually and any changes normally
take effect from 1st April each year.

In determining salaries and salary increases, the Remuneration
Committee will take account of the performance of the individual
director against a broad set of parameters including financial,
environmental, social and governance issues.

The Remuneration Committee will also take into account the director’s
knowledge, contribution to the role, length of time in post, and any
additional responsibilities since the last salary review, as well as 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 directors’ 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.

Annual Incentive Plan

The Annual Incentive
Plan (AIP) provides
a strong incentive
aligned to strategy
in the short term.
It allows the board
to drive and reward
both financial and
non-financial metrics,
including leadership
behaviours, in order
to deliver sustainable
growth in shareholder
value.

The AIP bonus plays
a key part in the
motivation and
retention of Executive
Directors, one of the
key requirements for
long term growth.

Bonus deferral as well
as malus and clawback
provisions ensure
that longer term
considerations are
properly taken into
account in the pursuit
of annual targets.

The Remuneration Committee sets the AIP 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, misconduct by the individual or serious reputational damage.

Adjustments
The Remuneration Committee retains discretion to change the
performance targets if there is a significant and / 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, including leadership
behaviour, has been unacceptable.

The Remuneration Committee retains the ability to increase bonus
awards from the formulaic outcome where there is identifiable and
exceptional performance by the Executive Director. Bonus payments
in such circumstances would remain within the maximum bonus
opportunity and shareholders would be fully informed of the justification.

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 115.

Performance measures
Bonuses are based on the achievement of
demanding financial and, where appropriate,
non-financial targets. The committee may use
different performances and / or 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
underlying PBT.

Targets are set on a robust bottom up process
to achieve full accountability. The financial
performance targets are retrospectively
published in the immediately following Annual
Report on Remuneration. Details of last year’s
bonus awards are on page 116.

The performance period for annual bonus
purposes matches the financial year
(1st April to 31st March).

Maximum opportunity and vesting thresholds
Chief Executive – 180% of base salary.

Other Executive Directors – 150% of base salary.

Threshold vesting will result in a bonus of 15%
of maximum opportunity. On-target
performance will result in 50% payment of
the maximum opportunity.

GovernanceJohnson Matthey / Annual Report and Accounts 2020108

Remuneration Report continued

Purpose and link to strategy

Operation (and changes if appropriate) of the element

Potential value of element and performance measures

Performance Share Plan

The Performance
Share Plan (PSP) is
designed to ensure
that executives take
decisions in the
interest of the longer
term success of the
group. Having
measures that look at
profitable growth and
performance relative
to a comparator group
over the longer term
ensures that the
interests of executives
are aligned with
shareholder wishes for
long term value.

Shares may be awarded each year and are subject to performance
conditions over a three year performance period. Subject to the
performance conditions being met the shares will vest after which
the directors will be required to hold any vested shares until the
fifth anniversary of the 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 250%
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 during the post-vesting
holding period will be managed in accordance with our dividend
re-investment process.

Malus and clawback
Performance Share Plan awards are subject to malus and clawback
provisions that can apply in the case of a misstatement of results,
error in the calculation, misconduct by the individual, serious
reputational damage, failures of risk management or corporate
failure.

Adjustments
The Remuneration Committee has the power to adjust the annual
award level, for example in the event of a material fall in share price,
as well as the 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.

Performance measures
PSP awards vest over a three year performance
period and will be subject to financial and / or
shareholder return targets. In addition, strategic
and / or sustainability targets may also be
included for a minority of future awards. In all
cases, at least two-thirds of awards would be
subject to financial and / or total shareholder
return targets.

It is expected that during the policy period the
following two metrics will form the majority
of awards:

a) the compound annual growth rate (CAGR)

of underlying EPS; and

b) the Total Shareholder Return (TSR) relative

to a comparator group (e.g. the FTSE 31-100
excluding financial services companies)

Both of the above will be subject to a
discretionary ROIC underpin and vesting is
also subject to a broad Committee discretion
that will enable the Committee to adjust the
extent to which an award vests by overriding
formulaic outcomes in order to reflect the
wider financial circumstances of the group.

The prospective weightings, targets and
measures for the year commencing
1st April 2020 are shown on page 122.

The Remuneration Committee retains the
discretion to amend the weightings, targets and
the performance measures detailed on page 122
for future awards as appropriate to reflect the
business strategy and intends to look to include
a further measure relating to sustainability
during the Policy period. However, it is not
anticipated that this would relate to more than
20% of a future award.

Any material changes to the approach set out on
page 122 will be subject to appropriate dialogue
with major shareholders.

Awards levels and vesting thresholds
Chief Executive – 200% of base salary.

Other Executive Directors – 175% of base salary.

There is no intention to increase the award
levels to current executive directors beyond the
levels noted. If a new executive director is
appointed during the policy period, awards may
be granted up to 250% of salary if necessary for
recruitment purposes (both in connection with
their appointment and on an ongoing basis).
Any adjustment to the ongoing annual award
level would be subject to appropriate dialogue
with our shareholders.

Threshold vesting will result in a payment of
up to 25% of the award. The actual threshold
vesting will depend on the performance
metric and the performance range set for the
specific award.

GovernanceJohnson Matthey / Annual Report and Accounts 2020109

Purpose and link to strategy

Operation (and changes if appropriate) of the element

Potential value of element and performance measures

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.

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.

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 £20,000 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 15% of base salary
for new Executive Directors. This is aligned to
the cost of providing pension benefits to other
employees in the UK.

Current Executive Directors will see their pension
cash supplement reduce from 25% to 15% over
the next few years as follows:

1st April 2020 – 23.0% of base salary

1st April 2021 – 20.0% of base salary

1st April 2022 – 15.0% of base salary

Executive Directors are entitled to participate
up to the same limits in force from time to time
for all employees.

The minimum shareholding requirement while
an Executive Director and for the two year period
after cessation of employment is as follows:

Chief Executive – 250% of base salary.

Other Executive Directors – 200% of base salary.

If the Executive Director has not been able to
build up their shareholding prior to cessation
they are not required to purchase shares upon
cessation to satisfy the requirement.

There is no requirement for Non-Executive
Directors to hold shares but they are encouraged
to acquire a holding over time.

All employee share plan

Encourages share
ownership.

Executive Directors are entitled to participate in the company’s all
employee 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

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, and upon cessation of
employment are expected to retain a shareholding for a period of
up to two years.

Shares that count towards achieving these guidelines while an
Executive Director 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 PSP awards which have vested and so are no longer subject to
performance conditions but are within a holding period.

Shares that count toward achieving the post-cessation guideline
include the same as those while an Executive Director, except that
only shares owned after 1st April 2020 count toward the post-cessation
guideline. Executive Directors are expected to retain at least 50% of
the net (after tax) vested shares that are released under the PSP
and Deferred Bonus Plan 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. In addition, a director who ceases employment with the company
is not required to purchase shares to satisfy the post-cessation
shareholding requirement.

GovernanceJohnson Matthey / Annual Report and Accounts 2020110

Remuneration Report continued

Purpose and link to strategy

Operation (and changes if appropriate) of the element

Potential value of element and performance measures

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 and 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.

Details of the current fee levels for the Chairman
and Non-Executive Directors are set out in the
Annual Report on Remuneration on page 115.

The fee levels are set subject to the maximum
limits set out in the Articles of Association.

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
the 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.

Selection of performance targets

Annual Incentive Plan

Financial performance targets under the Annual Incentive 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 2020/21 are predominantly 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.

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 2020/21.

Performance Share Plan

The performance targets under the PSP are set to reflect the company’s longer term growth objectives at a level where the maximum represents
genuine outperformance. The performance measures are currently based on underlying EPS and TSR.

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.

Total Shareholder Return is considered a simple and clear performance relative to a comparator group (FTSE 31-100 excluding financial
services companies).

Group employee considerations

The general principle for remuneration

The key elements of variable pay

The Remuneration Committee considers the
directors’ remuneration, along with the
remuneration of the Group Management
Committee (GMC), 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.

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
(1,592 employees) participate in the
annual incentive plan (with performance
conditions similar to those described in the
Remuneration Policy). In addition, the group’s
senior executives and senior management
participate in the PSP in line with the same
EPS and TSR performance conditions.

GovernanceJohnson Matthey / Annual Report and Accounts 2020111

Executive Directors are required to hold any
shares that vest until the fifth anniversary
of the award, subject to the three year
performance conditions being met 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.

There are also a number of country

and business dependent arrangements
under which bonuses may be paid to the

Remuneration scenarios

entire business unit 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 basic salaries are fully
competitive in the local markets. General pay
increases take into account local salary norms,
local inflation and business conditions.

Johnson Matthey’s 2019 UK gender pay

gap was 6.0% (down from 8.5% in 2018).
Johnson Matthey continues to focus on
embedding a truly diverse and inclusive
culture and we have seen some positive shifts
in our Gender Pay Gap since last year. We
know that a diverse workforce will enhance
our innovation, decision making, product
development and help us attract and retain
the best talent. The full report, including
details of what we are doing to eliminate the
gap can be found on our website.

Below is an illustration of the potential future remuneration that could be received by each Executive Director for the year commencing
1st April 2020, 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 2020.

Value of package

Composition of package

Robert MacLeod

Maximum

Target

Threshold

Below
threshold

Maximum

Target

Threshold

Below
threshold

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

100

£ thousands

Anna Manz

Maximum

Target

Threshold

Below
threshold

Maximum

Target

Threshold

Below
threshold

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

100

£ thousands

Base salary

Beneﬁts

Pension

Bonus

PSP

If JM’s share price increased by 50%, maximum remuneration would be £5,082,000 for the Chief Executive and £2,850,000 for the
Chief Financial Officer.

GovernanceJohnson Matthey / Annual Report and Accounts 2020

112

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 107.

Benefits and pension An Executive Director shall be eligible for benefits and pension arrangements in line with the company’s policy for

Annual Incentive
Plan

Performance
Share Plan

current Executive Directors, as set out in the policy table on page 109.

The maximum level of opportunity is as set out in the policy table on page 107.

The Remuneration Committee retains discretion to set different performance targets for a new externally appointed
Executive Director, or adjust performance targets and / or measures in the case of an internal promotion, to be assessed
over the remainder of the financial year, in which case any bonus payment would be made at the same time as for
existing directors, such award to be pro-rated for the time served in the performance period.

The maximum level of opportunity is as set out in the policy table on page 108.

In order to achieve rapid alignment with Johnson Matthey’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 (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 109.

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.

GovernanceJohnson Matthey / Annual Report and Accounts 2020113

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 his 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 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 in his 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 arrangements

The director is not entitled to any benefit under any redundancy payments arrangement operated by
the company.

Holiday

Upon termination for any reason, directors will be entitled to payment in lieu of accrued but untaken
holiday entitlement.

John Walker is eligible for continuing post-retirement medical benefits provided he satisfies the conditions of this plan and retires directly from Johnson Matthey.

GovernanceJohnson Matthey / Annual Report and Accounts 2020114

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 of the service contracts, including notice periods, contained in the letters of appointment in relation to the Non-Executive
Directors who served during the year are set out in the table below. Neither the Chairman or the Non-Executive Directors has provisions in his
or her letter of appointment that relate to a change of control of the company.

Non-Executive Director

Patrick Thomas (Chairman)
Odile Desforges
Alan Ferguson
Jane Griffiths
Chris Mottershead
John O’Higgins
Xiaozhi Liu
Doug Webb

Committee
appointments

R, N
A, 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
2nd September 2019

31st May 2021
17th July 2019
23rd July 2020
31st December 2019
26th January 2021
15th November 2020
1st April 2022
1st September 2022

6 months
1 month
1 month
1 month
1 month
1 month
1 month
1 month

A: Audit Committee R: Remuneration Committee N: Nomination Committee

Annual Report on Remuneration
This section provides details of how the 2017 Directors’ Remuneration Policy was implemented during 2019/20 and how we intend to apply the
2020 Directors’ Remuneration Policy (subject to approval) in 2020/21.

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 2020 is shown below.

Chris Mottershead1
Odile Desforges2
Alan Ferguson
Jane Griffiths
John O’Higgins
Patrick Thomas
Xiaozhi Liu
Doug Webb

Date of appointment
to committee

Number of meetings
eligible to attend

Number of meetings
attended

%
attended

27th January 2015
1st July 2013
13th January 2011
1st January 2017
16th November 2017
1st June 2018
2nd April 2019
2nd September 2019

5
2
5
5
5
5
5
2

5
1
5
5
5
5
5
2

100
50
100
100
100
100
100
100

1 Chris Mottershead was appointed as Chairman of the committee on 16th November 2017.

2 Odile Desforges stepped down from the board as a Non-Executive Director on 17th July 2019.

Since the end of the year, the committee has met four times. All committee members attended the meetings.

The Remuneration Committee’s terms of reference, 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.

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 our sole advisor in relation to the advice to the Remuneration Committee. The total fees paid to Korn Ferry in respect of its services
to the committee during the year were £73,860 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 HR and benefit matters to those below the

board. Korn Ferry is a signatory to the Remuneration Consultants Group Code of Conduct.

The committee is satisfied that the advice provided by Korn Ferry was independent and objective and that the provision of additional

services did not compromise that independence. The committee is also satisfied that the team who provided that advice do not have any
connection to Johnson Matthey that may impair their independence and objectivity.

Herbert Smith Freehills is the committee’s legal advisor. There was no requirement during 2019/20 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 2020 is available on our website.
r

matthey.com/corporate-governance

GovernanceJohnson Matthey / Annual Report and Accounts 2020115

Remuneration for the year ended 31st March 2020

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
2020, 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

Pension4
£’000

Total
£’000

Total fixed
remuneration

Total variable
remuneration

2020

2019

2020

2019

2020

2019

2020

2019

2020

2019

2020

2019

2020

2019

2020

2019

Executive Directors
Robert MacLeod
Anna Manz
John Walker
Non-Executive Directors
Patrick Thomas
Odile Desforges1

Alan Ferguson
Jane Griffiths
Chris Mottershead
John O’Higgins
Xiaozhi Liu2
Doug Webb3

838
528
480

369
20

98
67
84
67
64
39

818
515
468

256
65

93
65
89
65
–
–

22
19
65

–
–

–
–
–
–

28
22
64

–
–

–
–
–
–

392
206
144

660
369
328

–
–

–
–
–
–

–
–

–
–
–
–

–
–
–

–
–

–
–
–
–

1 Odile Desforges stepped down from the board as a Non-Executive Director on 17th July 2019.

2 Xiaozhi Liu joined the board as Non-Executive Director on 2nd April 2019.

3 Doug Webb joined the board as a Non-Executive Director on 2nd September 2019.

4 Represents a cash allowance in lieu of a pension.

Explanation of Figures

1,086
599
525

210
132
120

205
129
117

1,462
885
809

2,784
1,627
1,496

1,070
679
665

1,051
666
649

392
206
144

1,733
961
847

–
–

–
–
–
–

–
–

–
–
–
–

256
65

93
65
89
65

–
–

–
–
–
–

369
20

98
67
84
67
64
39

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 2020. The figure includes any amounts deferred and awarded
as shares.

Long term incentives 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 actual share
price for shares that vested on 1 August 2019 (3,166 pence) and the average share price from 1st January 2019 to
31st March 2019 (3,058 pence) for the unvested portion of the award. The 2020 figure represents the value of the
shares that satisfied performance conditions on 31st March 2020.

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.

Payments to former directors*

There were no payments made to, or in respect of, any former director in 2019/20 that haven’t been previously disclosed.

Payments for loss of office*

Mr Walker was paid £9,692 for accrued but untaken holiday at the date he retired. This was the only payment for loss of office made in the year.

The remuneration payable to Mr Walker following his retirement is as follows:

Annual Incentive Plan

Subject to the performance conditions of the Annual Incentive Plan being met, Mr Walker will receive a bonus for the year ended 31st March 2020
on the normal bonus award date in 2020. The maximum level of bonus possible was 150% of annual base salary, and the actual amount payable
was 30% of annual base salary (20% of maximum). In accordance with the rules of the plan, a proportion of any bonus will be awarded as shares
which will be deferred for a period of three years.

Mr Walker was awarded 4,521 shares under the Deferred Bonus Plan (DPB) in 2017, 6,309 shares under the DBP in 2018 and 5,215 shares
under the DBP in 2019. These shares will be released to him on their normal release dates in August 2020, August 2021 and August 2022 respectively.

Dividend equivalent shares will accrue on deferred bonus awards during the relevant vesting period.

GovernanceJohnson Matthey / Annual Report and Accounts 2020116

Remuneration Report continued

Performance Share Plan

Shares allocated to Mr Walker in August 2016 under the PSP met the performance conditions and are being released to him in three equal
tranches of 5,562 shares. The first tranche was released in August 2019 and the second and third tranches will be released in August 2020 and
August 2021 respectively.

The 2017 PSP award of 26,521 shares will not be pro-rated as Mr Walker will have been employed for the entire performance period.
However, the 2018 PSP award of 21,980 shares and 2019 PSP award of 26,711 shares will be pro-rated to 14,653 and 8,903 shares based on
his completed service since the start of the relevant performance period.

In all cases, final vesting will be determined by reference to the achievement of the relevant performance conditions and subject to those
conditions being met the 2017 and 2018 PSP awards will vest in three equal tranches on the third, fourth and fifth anniversary of the award.
The 2019 PSP award will vest on the fifth anniversary of the award.

Dividend equivalent shares will accrue on awards between the end of the three year performance period and the date the shares finally vest

and are released to Mr Walker.

No PSP award will be made to Mr Walker in 2020.

Variable pay – additional disclosures, including bases of calculation and outcomes*
1 Annual bonus for the year ended 31st March 2020

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 the maximum opportunity.

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

60%
60%
40%

–
–
20%

20%
20%
20%

Strategic
objectives1

20%
20%
20%

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 2% above the targets set for 2018/19). Given the challenging 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 2020 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 days
(including precious metal)3
Group working capital days
(excluding precious metal)3

days

Threshold

509
(95% of Target)
375
(95% of Target)
53
(105% of Target)
59
(105% of Target)

Target

536

395

Maximum

563
(105% of Target)
415
(105% of Target)
48
(95% of Target)
53
(95% of Target)

Actual

454

299

Actual %
of target

84.7

75.9

87.1

112.3

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 Group working capital days is measured 50% against total working capital days including precious metal and 50% against working capital days excluding precious metal.

This is to ensure that appropriate focus is put on metal management.

GovernanceJohnson Matthey / Annual Report and Accounts 2020
117

Strategic objectives1

Objective

Summary
outcome

Objective

Summary
outcome

Objective

Summary
outcome

Robert MacLeod

Anna Manz

John Walker

Deliver key milestones for Battery
Materials commercialisation plan.
Continued development of leading
eLNO material and clearly articulate
and deliver against Battery Materials
scale-up strategy.

The strategy has been clearly articulated
and associated capital projects are
progressing. There has been good
progress during the year with certain
OEMs including the achievement of
full cell testing in some cases.

In line with the Board’s agreed strategy,
review the company’s business portfolio
and implement plans to maximise
shareholder value.

Deliver a step change in our gasoline
technology demonstrated by customer
feedback and, where applicable,
business wins across all regions.

Good progress made with a number
of strategic reviews completed, action
plans put in place, with progress to
enhance value ongoing.

Some good progress made with our
technology development, plus a number
of new gasoline business wins achieved.

Outcome: 20% out of 25%

Outcome: 20% of 25%

Outcome: 10% of 25%

Ensure further enhancements in
Commercial Excellence delivering
budgeted benefits plus the
implementation of consistent group
wide customer satisfaction metrics; the
utilisation of customer value proposition
tools; and meeting OTIF requirements.

Good progress made overall. Customer
satisfaction metrics rolled out across the
group, with key insights learned and
being acted on. Commercial benefits
of £23.5m delivered compared with
budget of £16m.

Deliver Operational Excellence targets
of at least £30m improvements.

Deliver £19m of value from the
Manufacturing Excellence deliverables
for Clean Air.

Delivered savings of £36m against
identified projects.

Delivered £26m savings compared with
a budget of £19m.

Outcome: 20% of 25%

Continue to improve senior talent across
the organisation. In particular ensure a
successful succession for Clean Air plus
new appointments to Battery Materials
and Technology, as well as defining and
developing the New Business
Development organisation.

New appointments made in all key
areas at the senior management level,
with some progress made at the next
level within the organisation improving
the overall leadership strength.

Ensure that the Cyber Security
Infrastructure Improvement Plan
is on track to deliverable milestones
and in line with budget.

Ensure that the Clean Air capital
projects, including the ramp up of
production in Poland and Zhangjiagang,
are on budget and delivered in line with
milestones.

Excellent progress made, with all
milestones achieved with the program
delivering tangible benefits across all
areas within scope.

Poland is completed and Zhangjiagang
is almost complete. The investments in
these projects was more than originally
budgeted. There were some delays,
however these delays were outside
our control.

Outcome: 20% of 25%

Outcome: 25% of 25%

Outcome: 10% of 25%

Objective

Drive employee engagement focusing
on the key factors to drive a 2-point
improvement in engagement.

Summary
outcome

An overall increase in ownership
of employee engagement amongst
management, which supported an
increase of four points in employee
engagement.

Successfully deploy SAP Unify at 6 sites
with 4 deployment GO-Live dates.
Mexico, Zhangjiagang, Poland, USA,
South Africa and Shanghai. Deliver
efficiency savings identified.

The SAP Unify system was deployed
in UK Corporate, Mexico, South Africa
and Poland. The roll out of the systems
across the rest of the group will
continue, with the deployment team
well placed to deliver this efficiently.

The SAP Unify system was deployed
in Mexico, South Africa and Poland.
Business readiness issues in Clean Air
complicated and delayed some further
deployments.

Outcome: 20% of 25%

Outcome: 15 % of 25%

Outcome: 10% of 25%

80% achievement

50% achievement

1 Each strategic objective has an equal weighting of 25%.

GovernanceJohnson Matthey / Annual Report and Accounts 2020118

Remuneration Report continued

Based on performance against the above targets, bonuses for the year ended 31st March 2020 were:

Robert MacLeod, Chief Executive
Anna Manz, Chief Financial Officer
John Walker, Sector Chief Executive, Clean Air

£’000

392
206
144

% salary

47
39
30

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.

Long term incentive vesting for the three year performance period ended 31st March 2020*

The table below sets out the performance targets for the long term incentive awards made in August 2017 with a three year performance
period which ended on 31st March 2020. 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 -1.6% per annum. As a result, no shares will vest.
The table below shows the vesting outcomes based on this performance.

Executive Directors
Robert MacLeod
Anna Manz
John Walker

% of base salary
awarded

Shares
awarded

% of award
to vest

Shares
to vest

Estimated value
on vesting
£

200
175
175

52,955
28,451
26,521

–
–
–

Variable pay awarded during the year ended 31st March 2020*
(Long term incentive awards subject to future performance)

In 2019/20 long term incentive awards were made to the Executive Directors in respect of the three year performance period to 31st March
2022. The table below sets out the opportunity and performance targets for these awards.

Required underlying EPS performance

Threshold 4% CAGR
Maximum 10% CAGR

1 Represents 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 2019
1st August 2019
1st August 2019

200
175
175

53,324
29,382
26,711

£1,676,880
£923,976
£839,981

1 Face value is calculated using the award share price of 3,144.7 pence, which is the average closing share price over the four week period commencing on 30th May 2019.

GovernanceJohnson Matthey / Annual Report and Accounts 2020119

Prior year long term incentive awards and outcomes

The table below shows the history of long term incentive awards granted since 2010.

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

2010
2011
2012
2013
2014
2015
2016
2017
2018
2019

2013
2014
2015
2016
2017
2018
2019
2020
2021
2022

150
175
175
175
200
200
200
200
200
200

120
140
140
140
175
175
175
175
175
175

7%
7%
7%
6%
6%
6%
4%
4%
4%
4%

16%
16%
16%
15%
15%
12%
10%
10%
10%
10%

20.2%
13.3%
6.07%
7.85%
7.39%
5.14%
7.66%
-1.6%
n/a
n/a

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 in 2019/20. 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 2020 in the UK and US pension schemes are given below:

Robert MacLeod1
Anna Manz
John Walker2

Total accrued annual
pension entitlement at
31st March 2020
£’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 2020.

Executive Directors
Robert MacLeod
Anna Manz
John Walker
Non-Executive Directors
Patrick Thomas
Odile Desforges
Alan Ferguson
Jane Griffiths
Chris Mottershead
John O’Higgins
Xiaozhi Liu
Doug Webb

Ordinary shares1

Subject to ongoing
performance
conditions2

Not subject to
further performance
conditions3

59,335
5,961
17,765

8,194
1,416
2,078
2,671
2,809
1,500
–
1,600

150,162
82,007
75,212

56,649
27,647
27,351

–
–
–
–
–
–
–
–

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.

GovernanceJohnson Matthey / Annual Report and Accounts 2020120

Remuneration Report continued

Directors’ interests as at 11th June 2020 were unchanged from those listed above, other than that the trustees of the all employee share
matching plan have purchased a further 36 shares for Robert MacLeod and 39 shares for Anna Manz.

Executive Directors are expected to build up a shareholding in the company. The minimum shareholding requirement for the year ended

31st March 2020 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 Manz
John Walker

Shares held as at
31st March 2020
(% of base salary)1,2

350
161
238

1 Value of shares as a percentage of base salary is calculated using a share value of 2,529.80 pence, which was the average share price prevailing between 1st January 2020 and

31st March 2020.

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).

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
1st April 2010 to 31st March 2020 against the FTSE 100 as the most appropriate comparator group, rebased to 100 at 1st April 2010.

300

250

200

150

100

March 2010 March 2011

March 2012

March 2013

March 2014 March 2015 March 2016 March 2017

March 2018

March 2019

March 2020

Johnson Matthey

FTSE 100

As at 31st March 2020, Johnson Matthey was ranked 91 by market capitalisation in the FTSE 100.

Historical data regarding Chief Executive’s remuneration

Single total figure
of remuneration

Annual incentives
(% of maximum)

Long term incentives
(% of award vesting)4

2010/11

2011/12

2012/13

2013/141

2014/152

2015/163

2016/17

2017/18

2018/19

2019/20

2,095

1,870

3,025

3,855

2,539

1,429

1,971

2,013

2,784

1,462

100

–

100

–

67%

–

1. Figures prior to 2014/15 are in respect of Neil Carson.

2. The figures for 2014/15 are in respect of both Robert MacLeod and Neil Carson, who both held the position of Chief Executive in the year. The single total figure of £2,539

comprises £1,594 for Robert MacLeod and £945 for Neil Carson.

3. Figures from 2015/16 onwards are in respect of Robert MacLeod.

4. 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 115.

GovernanceJohnson Matthey / Annual Report and Accounts 2020121

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 2020. 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

An increase of 2.5%

A decrease of 41%

Comparator group1

An increase of 6.5%

A decrease of 61%2

No change in benefits policy.
No change on overall costs
between 2018/19 and 2019/20.

1 This includes market adjustments and promotions.

2 Bonus data was estimated for the comparator population as it was not administratively possible to calculate the bonus due for 2019/20 before publication of this report.

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 2019 and 31st March 2020.

Payments to shareholders – special dividends
Payments to shareholders – ordinary dividends
Total remuneration (all employees)1

1 Excludes termination benefits.

CEO to employee pay ratio

Year ended
31st March 2020
£ million

Year ended
31st March 2019
£ million

–
167
743

–
156
730

% change

–
7%
3%

The table below shows the ratio of CEO to employee pay for 2019/20. We have compared the single total figure of remuneration for the CEO
to the total pay and benefits of UK employees who are ranked at the lower quartile, median and upper quartile across all UK employees as at
31 March 2020.

CEO pay ratio

Method

CEO Single figure

Upper quartile
Median
Lower quartile

2020

A – total pay
and benefits
in 2019/20

1,462,000

22:1
29:1
37:1

Bonus data for UK employees was omitted from the calculation as it was not administratively possible to calculate these bonuses before the
publication of this report. However, the calculation will be revised to include these bonuses once available and will be disclosed in the 2020/21
report. Excluding the 2019/20 bonus payable to the CEO from the calculation would result in the following pay ratios: lower quartile – 27:1,
median – 21:1 and upper quartile – 16:1.

The salary and total pay for the individuals identified at the lower quartile, median and upper quartile positions in 2020 are set out below:

2020

Upper quartile individual
Median individual
Lower quartile individual

Salary

Total Pay

£52,291
£42,324
£35,071

£66,873
£50,771
£40,029

Our principles for pay setting and progression are consistent across the organisation as a whole. Underpinning our principles is a need to
provide a competitive total reward so as to enable the attraction and retention of high calibre individuals without over-paying and providing the
opportunity for individual development and career progression. The pay ratios reflect the changes in individual accountability which is recognised
through our pay structures which include greater variable pay opportunity for more senior positions. This is reflected in the fact that the CEO’s
variable pay opportunity is higher than those employees noted in the table reflecting the weighting towards long term value creation and alignment
with shareholder interests inherent in this role. We are satisfied that the median pay ratio is consistent with our wider pay, reward and progression
policies for employees. All our employees have the opportunity for annual pay increases, career progression and development opportunities.

GovernanceJohnson Matthey / Annual Report and Accounts 2020122

Remuneration Report continued

Implementation of the Directors’ Remuneration Policy for 2020/21
The table below sets out how the Remuneration Committee intends to apply the Directors’ Remuneration Policy for the year ended 31st March 2021.

Salary

Benefits

Pension

Annual
incentives

Long term
incentives

Chairman and
Non-Executive
Director fees

The Executive Directors will not receive a salary increase for 2020/21, which is in line with the policy applied to all other UK employees.

No change to policy applied in 2020/21.

New Executive Directors will have a maximum pension cash supplement of 15%.
Current Executive Directors will see their pension cash supplement reduce from 25% to 15% over the next few years as follows:
1st April 2020 – 23.0% of base salary

1st April 2021 – 20.0% of base salary

1st April 2022 – 15.0% of base salary

The maximum bonus opportunity for 2020/21 remains unchanged at 180% of salary for the Chief Executive and 150% of salary
for the other Executive Directors.
2020/21 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.
The range around targeted performance levels to apply to the 2020/21 annual bonus have been broadened versus 2019/20 and
the absolute level of profit needing to be achieved has also been reset to better reflect the current challenging market outlook
given the impact of COVID-19. The recalibration of targets has been set with reference to both internal and external planning.
The 2020/21 targets are considered similarly challenging to those set in 2019/20 allowing for current market conditions. The
Remuneration Committee considers the forward looking targets to be commercially sensitive but full retrospective disclosure
of the actual targets will be included in next year’s Directors’ Remuneration report.
As set out in the Policy Report, 50% of any bonus paid will be deferred in shares for three years and the payment of any bonus
is subject to appropriate malus and clawback provisions.

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 and relative TSR performance.
The 2020 Performance Share Plan award will be 50% based on EPS growth targets and 50% on TSR performance.
The EPS target will be 15% vesting for 3% p.a. underlying EPS growth, increasing on a straight line basis to 100% vesting for
8% p.a. underlying EPS growth or above. EPS growth targets set for the period to 31 March 2023 have been set after having
regard to the medium to long term impact of COVID-19 on our markets. In the context of the significant demand and supply
side shocks in our markets, the range of targets set, which took account of internal planning and external expectations for our
performance (where available), are considered similarly challenging to those set on prior years allowing for current circumstances.
The Committee also noted the ROIC underpin and the more general discretion to adjust vesting based on group performance when
setting the targets which, overall, is seen to provide a demanding financial performance targets for the next three year period.
The TSR target will be 25% vesting for median performance, increasing on a straight line basis to 100% vesting for upper
quartile performance. The TSR peer group will be the FTSE 31 – 100 (excluding financial services companies).
In relation to the performance targets, the Committee retains discretion to adjust vesting outcomes. This may include adjusting
TSR vesting if it was not considered aligned with the underlying financial performance of the Company during the performance
period or adjusting EPS vesting outcomes for relevant events (e.g. material acquisitions and divestments or material changes in
corporation tax rates) with the objective of any adjustments being to ensure that the performance targets fulfilled their original
intent and were no more or less challenging but for the relevant events taking place during the performance period. Any use of
discretion would be detailed in the 2023 Directors’ Remuneration Report.
Awards vest in year three and are then subject to a two year holding period.

Non-Executive Directors will not receive a fee increase in 2020/21, in line with treatment of Executive Directors and wider
global workforce.

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 2019 AGM.

Resolution

Number of votes cast

For

Against

Remuneration Policy
Remuneration Report

136,108,674
149,380,783

125,583,227 (92.3%)1
147,872,019 (98.99%)1

10,525,447 (7.7%)1
1,508,764 (1.01%)1

Votes withheld

3,139,449
1,370,852

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 98.99%
vote in favour of the Annual Report on Remuneration at the 2019 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 11th June 2020 and signed on its behalf by:

Chris Mottershead
Chair of the Remuneration Committee

GovernanceJohnson Matthey / Annual Report and Accounts 2020123

Directors’ Report

The Directors’ Report required under the
Companies Act 2006 (the 2006 Act) comprises
this Corporate Governance Report (pages 78
to 122) including the Responsible Business
section for disclosure of our carbon emissions
in the Strategic Report (pages 38 to 52). The
management report required under Disclosure
Guidance and Transparency Rule 4.1.8R
comprises the Strategic Report (pages 4 to 75)
which includes the risks relating to our
business and the Directors’ Report. This
Directors’ Report fulfils the requirements of
the corporate governance statement required
under Disclosure Guidance and Transparency
Rule 7.2.

Directors

The names of the directors who held office
during the year are set out on page 80.

The biographies of all the directors
serving at the date of this annual report are
shown on pages 78 and 79.

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 company. 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 (the Articles), 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

•

at each Annual General Meeting (AGM)
all of the directors will retire and be
eligible for re-election (except any
director appointed by the directors
after the notice of that AGM meeting
has been given and before that AGM
+
has been held).
r

www.matthey.com/investors/corporate-governance

k
Powers of the directors

The powers of the directors are determined
by the Articles, UK legislation including
the 2006 Act and any directions given by
the company in general meeting.

The directors are authorised by the
company’s Articles 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 in the Directors’ Report
under the heading ‘Purchase by the company
of its own shares’.

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 2020 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 119. The Remuneration Report also sets
out details of any changes in those interests
between 31st March 2020 and 11th June 2020.

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 FCA’s Listing Rules) during the
year to which any group undertaking was a
party and in which a director of the company
is or was materially interested.

Dividends

The interim dividend of 24.50 pence per
share (2019: 23.25 pence) was paid in
February 2020. The directors recommend
a final dividend of 31.125 pence per share
in respect of the year (2019: 62.25 pence),
making a total for the year of 55.625 pence
per share (2019: 85.50 pence), payable on
4th August 2020 to shareholders on the register
at the close of business on 19th June 2020.

Other than as referred to under

‘Employee share schemes’ on page 124, during
the year there were no arrangements under
which a shareholder has waived or agreed to
waive any dividends nor any agreement by a
shareholder to waive future dividends.

Dividend payments and DRIP

Dividends can be paid directly into
shareholders’ bank accounts. A Dividend
Reinvestment Plan is also available. This allows
shareholders to purchase additional shares
in the company with their dividend payment.
Further information and a mandate can be
obtained from our registrar, Equiniti, whose
details are on page 223 and on our website.

Asset reunification

The board is committed to proactively
seeking to unite shareholders promptly with
their shares and dividend payments. To date,
we have successfully reunited £0.5 million
of share and dividend payments through our
registrar, Equiniti, and its partner ProSearch.

Share capital

Capital structure

As at 31st March 2020, 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 2019 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 2020 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.

GovernanceJohnson Matthey / Annual Report and Accounts 2020124

Directors’ Report continued

Rights and obligations attaching
to share

Allotment of securities for cash and
placing of equity securities

The rights and obligations attaching to the
ordinary shares in the company are set out in
the Articles.

As at 31st March 2020 and as at the
date of approval of this annual report, except
as referred to below, there were no
restrictions on the transfer of ordinary shares
in the company, no limitations on the
holding of securities and no requirements to
obtain the approval of the company, or of
other holders of securities in the company,
for a transfer of securities.

The directors may, in certain

circumstances, refuse to register the transfer
of a share in certificated form which is not
fully paid up, where the instrument of
transfer does not comply with the
requirements of the company’s Articles, or if
entitled under the Uncertificated Securities
Regulations 2001. As at 31st March 2020
and 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.

Employee share schemes

At 31st March 2020, 4,395 current and
former employees were shareholders in
the company through the group’s employee
share schemes. Through these schemes,
current and former employees held
2,667,797 ordinary shares, 1.38% of issued
share capital, excluding treasury shares as at
31st March 2020. Also as at 31st March 2020,
1,355,834 ordinary shares had been awarded
but had not yet vested under the company’s
long term incentive plan to 268 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.

During the year the company has not
allotted, nor has any major subsidiary
undertaking of the company (broadly an
undertaking that represents at least 25% of
the group’s aggregate gross assets or profit)
allotted, equity securities for cash. During the
year the company has not participated in any
placing of equity securities.

Listing of the company’s shares

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 those
dividends into US dollars, net of fees and
expenses, and distributes the net amount to
ADR holders. Contact details for BNY Mellon
are on page 223.

Interests in voting rights

The following information has been disclosed to the company under the FCA’s Disclosure and
Transparency Rules (DTR 5) in respect of notifiable interests in the voting rights in the
company’s issued share capital:

As at 31st March 2020:
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

14,528,304

7.51%

1 Total voting rights attaching to the issued ordinary share capital of the company (excluding treasury shares) at the

time of disclosure to the company.

2 % of total voting rights at the date of disclosure to the company.

Other than as stated above, as far as the company is aware, there is no person with a significant
direct or indirect holding of securities in the company. The information provided above was
correct at the date of notification. However 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, and no changes have been notified to the company between 31st March 2020 and
11th June 2020.

GovernanceJohnson Matthey / Annual Report and Accounts 2020125

Contracts with controlling shareholders

During the year there were no contracts of
significance (as defined in the FCA’s Listing
Rules) between any group undertaking and
a controlling shareholder and no contracts
for the provision of services to any group
undertaking by a controlling shareholder.

Change of control

As at 31st March 2020 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 2020
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. These are not deemed by the
company to be significant in terms of their
potential effect on the group as a whole.

The group also 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 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 the rights will vest and become
exercisable on a change of control subject
to the satisfaction of relevant performance
conditions. As at 31st March 2020 and as at
the date of approval of this annual report,
there were no other agreements between
the company or any subsidiaries 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.

Suppliers

We recognise the importance of good
supplier relationships to the overall success
of our business. Further information on our
payment practices can be found on the
Government’s reporting portal.

In addition, the company pledged in
April 2020 to support any small supplier that
is suffering hardship and requests early
payment terms as a result of the impact of
COVID-19 during April, May and June 2020.

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 engagement
A description of the action taken by
the company during the year relating
to employee engagement. Read more
on page 42.

•

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. Read more on
page 44.

Research and development activities
An indication of the activities of the
group in the field of research and
development. Read more on pages 19
to 21 and 61.

Likely future developments
An indication on likely future
developments in our business. Read
more on pages 4 to 75.

Stakeholder engagement and
Section 172 statement
Information about our stakeholders,
how the board considers their views in
regard to principal decisions and can be
found on pages 28 to 33 and page 85.

• Greenhouse gas emissions

Disclosures relating to greenhouse gas
emissions. Read more on page 48.

• 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.
Read more on pages 65 to 66 and
pages 180 to 186.

• Human rights and anti-bribery

and corruption
Disclosures relating to the group’s
human rights and anti-bribery and
corruption policies. Read more on
page 44.

• Diversity

Read more about the group’s diversity
on pages 43 and 44.

• Non-financial key performance

indicators
Read more about the group’s
non-financial key performance
indicators on pages 35 and 36.

GovernanceJohnson Matthey / Annual Report and Accounts 2020126

Directors’ Report continued

Disclosures required by Listing Rule 9.8.4R

Disclosures required by the FCA’s Listing Rule 9.8.4R, can be found on the following pages:

Information required

Interest capitalised

1.
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

Important events since
31st March 2020

There have been no important events
affecting the company or any subsidiary
since 31st March 2020.

2020 Annual General Meeting

Our 2020 AGM will be held on 23rd July 2020
at 5th Floor, 25 Farringdon Street, London
EC4A 4AB. 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.

Our board welcomes the opportunity

for face to face communication with our
shareholders. However, given the uncertain
circumstances following the COVID-19
pandemic and in light of the UK Government
guidance to avoid public gatherings,
shareholders will not be able to attend and
vote at the AGM in person.

Reporting of results and
Capital Markets Day

We report formally to our shareholders when
we publish our full and half-year results.
Following publication of our 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 September 2019, we also held a
Capital Markets Day for our institutional
investors and analysts. The transcript,
+
presentation and factsheet are available on
our website.
r
r

matthey.com/cmd-19

k
Articles of Association

The Articles may only be amended by a
special resolution at a general meeting of
the company. The company’s current Articles
were adopted on 17th July 2019 and are
available on our website at matthey.com/
corporate-governance.

Sub-section of
Listing Rule 9.8.4R

(1)
(2)
(4)
(5) (6)
(7) (8)
(9)
(10)
(11)
(12) (13)
(14)

Page reference

Page 156
Not applicable
Not applicable
Not applicable
Page 124
Not applicable
Not applicable
Not applicable
Page 123
Not applicable

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.

The Directors’ Report was approved by
the board on 11th June 2020 and is signed
on its behalf by:

Linda Bruce-Watt
Company Secretary

Therefore, we strongly encourage all
shareholders to cast their votes by submitting
their proxy forms either electronically or by
post. Shareholders should appoint the Chair
of the Meeting as their proxy in order for
their vote to be counted at the AGM.
Shareholders are invited to send their
questions relating to the business being dealt
with at the meeting to the company via the
website or by email jmir@matthey.com.
Answers to questions will be published on
our website as soon as practicable following
+
the meeting. Further information can be
found within the Notice of AGM.
r

matthey.com/agm20

GovernanceJohnson Matthey / Annual Report and Accounts 2020127

Responsibilities of Directors

The directors are responsible for keeping
adequate accounting records that are
sufficient to show and explain the parent
company’s transactions and disclose with
reasonable accuracy at any time the financial
position of the group and parent company
and enable them to ensure that its accounts
comply with the Companies Act 2006. They
are responsible for such internal control as
they determine is necessary to enable the
preparation of financial statements that are
free from material misstatement, whether
due to fraud or error, and have general
responsibility for taking such steps as are
reasonably open to them to safeguard the
assets of the group and to detect fraud and
other irregularities.

Under applicable law and regulations,

the directors are also responsible for
preparing a Strategic Report, Directors’
Report, Remuneration Report and Corporate
Governance statement that comply with that
law and those regulations.

The directors are responsible for the

maintenance and integrity of the corporate
and financial information included on the
company’s website. Legislation in the UK
governing the preparation and dissemination
of accounts may differ from legislation in
other jurisdictions.

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 assess the group’s and the company’s
position and performance, business model
and priorities.

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
have elected to prepare the parent company
accounts in accordance with United Kingdom
Generally Accepted Accounting Practice
(United Kingdom Accounting Standards,
comprising FRS 101 “Reduced Disclosure
Framework”, and applicable law).

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 of the
group 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.

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, Chair

Robert MacLeod, Chief Executive

• Anna Manz, Chief Financial Officer

• Alan Ferguson, Non-Executive Director

•

Jane Griffiths, Non-Executive Director

Xiaozhi Liu, Non-Executive Director

Chris Mottershead, Non-Executive
Director

John O’Higgins, Non-Executive Director

• Doug Webb, Non-Executive Director

states that to the best of his or her knowledge:

•

the group and parent company
accounts, prepared in accordance
with the applicable set of accounting
standards, give a true and fair view of
the assets, liabilities, financial position
and profit or loss of the company and
the undertakings included in the
consolidation taken as a whole; and

the management report (which
comprises the Strategic Report and the
Directors’ Report) includes a fair review
of the development and performance
of the business and the position of the
company and the undertakings included
in the consolidation taken as a whole,
together with a description of the
principal risks and uncertainties that
they face.

This responsibility statement was approved by
the board on 11th June 2020 and is signed
on its behalf by:

Patrick Thomas
Chair

GovernanceJohnson Matthey / Annual Report and Accounts 2020128

Johnson Matthey / Annual Report and Accounts 2020

Accounts
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 auditors’ report.

Johnson Matthey / Annual Report and Accounts 2020

129

Contents

Independent auditors’ report

Accounts

130

Consolidated Income Statement
for the year ended 31st March 2020

Revenue
Cost of sales

Gross profit
Distribution costs
Administrative expenses
Net impairment losses on trade and contract receivables
Profit / (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 profit of joint venture and associate

Profit before tax
Tax expense

Profit for the year

Earnings per ordinary share
Basic
Diluted

Notes

1,2

2020
£ million

14,577
(13,576)

2019
£ million

10,745
(9,729)

1,001
(126)
(313)
(23)
2
–
(13)
(140)

388
(195)
109
3

305
(50)

255

1,016
(126)
(316)
(8)
(12)
(17)
(14)
8

531
(107)
64
–

488
(75)

413

1,3

pence

132.3
132.1

215.2
214.6

Consolidated Statement of Total Comprehensive Income
for the year ended 31st March 2020

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 on net investment hedges

Other comprehensive income for the year

Total comprehensive income for the year

Notes

2020
£ million

255

2019
£ million

413

87
(2)
(21)

65
–
–
(8)

121

376

(69)
(3)
13

(59)

22
(1)
4
(1)

(35)

378

The notes on pages 145 to 202 form an integral part of the accounts.

AccountsJohnson Matthey / Annual Report and Accounts 2020

Consolidated and Parent Company Balance Sheets
as at 31st March 2020

131

Assets
Non-current assets
Property, plant and equipment
Right-of-use assets
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 tax assets
Post-employment benefit net assets

Total non-current assets

Current assets
Inventories
Current tax assets
Trade and other receivables1
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 payables1
Lease liabilities
Current tax liabilities
Cash and cash equivalents – bank overdrafts
Borrowings and related swaps
Other financial liabilities
Provisions

Total current liabilities

Non-current liabilities
Borrowings and related swaps
Lease liabilities
Deferred 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

Parent company

Notes

2020
£ million

2019
£ million

2020
£ million

2019
£ million

1,403
88
580
396
–
23
49
63
34
66
317

3,019

1,902
31
2,077
112
192
28
–

4,342

7,361

1,271
–
578
336
–
20
52
39
13
58
209

2,576

1,316
37
1,553
90
347
22
7

3,372

5,948

290
19
115
288
1,921
–
7
1,214
34
–
309

4,197

779
–
2,225
22
192
28
–

3,246

7,443

312
–
123
207
1,912
–
7
1,010
13
–
199

3,783

430
–
1,592
11
347
23
–

2,403

6,186

(2,745)
(12)
(106)
(31)
(331)
(50)
(11)

(1,647)
–
(130)
(59)
(184)
(13)
(20)

(4,167)
(3)
(31)
(20)
(130)
(50)
(85)

(2,874)
–
(64)
(33)
(107)
(14)
(23)

(3,286)

(2,053)

(4,486)

(3,115)

(994)
(64)
(74)
(104)
(9)
(6)

(1,251)

(4,537)

2,824

221
148
(32)
142
2,345

2,824

(1,073)
–
(91)
(106)
(9)
(5)

(1,284)

(3,337)

2,611

221
148
(45)
87
2,200

2,611

(994)
(16)
(32)
(12)
(1)
(514)

(1,569)

(6,055)

1,388

221
148
(32)
10
1,041

1,388

(1,066)
–
(39)
(10)
(1)
(489)

(1,605)

(4,720)

1,466

221
148
(45)
8
1,134

1,466

1 The parent company prior year comparatives have been restated (see notes 17 and 19).

2 The parent company’s profit for the year is £13 million (2019: £263 million).

The accounts were approved by the Board of Directors on 11th June 2020 and signed on its behalf by:

R J MacLeod
A O Manz

Directors

The notes on pages 145 to 202 form an integral part of the accounts.

AccountsJohnson Matthey / Annual Report and Accounts 2020132

Consolidated Cash Flow Statement
for the year ended 31st March 2020

Cash flows from operating activities
Profit before tax
Adjustments for:
Share of profit of joint venture and associate
(Profit) / loss on disposal of businesses
Depreciation
Amortisation

Impairment losses / (reversals)
Loss on sale of non-current assets
Share-based payments
Increase in inventories1
Increase in receivables2
Increase in payables3
Decrease 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
Interest received
Purchases of property, plant and equipment
Purchases of intangible assets
Proceeds from sale of assets held for sale
Proceeds from sale of non-current assets
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
Principal element of lease payments

Net cash outflow from financing activities

(Decrease) / 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

Cash and deposits
Money market funds
Bank overdrafts

Cash and cash equivalents

1 £0.5 billion increase in precious metal inventories on higher volumes and metal price increases (see note 16).

2 £0.4 billion increase in amounts receivable under precious metal sale and repurchase agreements (see note 17).

3 £1.0 billion increase in amounts payable under precious metal sale and repurchase agreements (see note 19).

The notes on pages 145 to 202 form an integral part of the accounts.

Notes

2020
£ million

2019
£ million

305

(3)
(2)
154
24
146
5
(1)
(575)
(541)
1,115
(6)
(24)
24
86
(109)

598

104
(332)
(111)
7
1
–

(331)

135
(123)
(167)
–
(202)
(13)

(370)

(103)
(2)
378

273

112
192
(31)

273

488

–
12
142
29
(7)
2
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

90
347
(59)

378

AccountsJohnson Matthey / Annual Report and Accounts 2020

133

Consolidated Statement of Changes in Equity
for the year ended 31st March 2020

At 1st April 2018

221

148

(48)

1,995

2,378

Share
capital
£ million

Share
premium
account
£ million

Shares
held in
ESOT
£ million

Other
reserves
(note 26)
£ million

Retained
earnings
£ million

Total
equity
£ million

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 26)
Share-based payments
Cost of shares transferred to employees
Tax on share-based payments
Reclassification

At 31st March 2019
Impact of adoption of IFRIC 23

At 31st March 2019 (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
Fair value losses on net investment hedges

taken to equity

Tax on other comprehensive income

Total comprehensive income
Dividends paid (note 26)
Share-based payments
Cost of shares transferred to employees

At 31st March 2020

–

–
–

–
–
–
–
–
–

–

–
–

–
–
–
–
–
–

221
–

221

148
–

148

–

–
–

–
–
–
–

–

–
–

–
–
–
–

–

–
–

–
–
–
3
–
–

(45)
–

(45)

–

–
–

–
–
–
13

–

(4)

22
4

(1)
–

21
–
–
–
–
4

87
–

–

(2)

(8)
–

55
–
–
–

413

(69)

–

–
–

–
13

357
(156)
17
(10)
1
(4)

2,200
5

2,205

255

–

–
(21)

321
(167)
5
(19)

(4)

22
4

(1)
13

378
(156)
17
(7)
1
–

2,611
5

2,616

255

(2)

(8)
(21)

376
(167)
5
(6)

221

148

(32)

142

2,345

2,824

The notes on pages 145 to 202 form an integral part of the accounts.

AccountsJohnson Matthey / Annual Report and Accounts 2020

134

Parent Company Statement of Changes in Equity
for the year ended 31st March 2020

Share
capital
£ million

Share
premium
account
£ million

Shares
held in
ESOT
£ million

Other
reserves
(note 26)
£ million

At 1st April 2018

221

148

(48)

–

–
–
–

–
–
–
–
–
–

221
–

221

–

–
–
–

–
–
–
–

–

–
–
–

–
–
–
–
–
–

148
–

148

–

–
–
–

–
–
–
–

–

–
–
–

–
–
–
3
–
–

(45)
–

(45)

–

–
–
–

–
–
–
13

Retained
earnings
£ million

Total
equity
£ million

1,075

1,396

263

(63)
–
11

211
(156)
15
(8)
1
(4)

1,134
6

1,140

89
–
(20)

82
(167)
4
(18)

(63)
5
10

215
(156)
15
(5)
1
–

1,466
6

1,472

89
2
(20)

84
(167)
4
(5)

–

–
5
(1)

4
–
–
–
–
4

8
–

–

–
2
–

2
–
–
–

221

148

(32)

1,041

1,388

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 26)
Share-based payments
Cost of shares transferred to employees
Tax on share-based payments
Reclassification

At 31st March 2019
Impact of adoption of IFRIC 23

At 31st March 2019 (restated)

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 26)
Share-based payments
Cost of shares transferred to employees

At 31st March 2020

The notes on pages 145 to 202 form an integral part of the accounts.

AccountsJohnson Matthey / Annual Report and Accounts 2020135

Accounting policies
for the year ended 31st March 2020

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 IFRS Interpretations Committee or the Standing
Interpretations Committee (SIC) as adopted by the European Union (EU) and the Companies Act 2006 applicable to companies reporting
under IFRS.

COVID-19 has introduced unprecedented uncertainty to the market outlook and, in response to this, we have undertaken extensive reviews of our
businesses and projections under a range of potential outcomes. The group has a robust funding position and has tested its performance under
a deep recession scenario and stress tested with a more extreme very deep recession scenario. In both scenarios, we have sufficient headroom
against committed facilities and key financial covenants in the going concern period (see going concern section on pages 65 and 66).

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 and the Companies Act 2006 applicable to companies reporting under FRS 101. 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 taken by the parent company:

•

the requirements of paragraphs 45(b) and 46 to 52 of IFRS 2, Share-based Payment;

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 73(e) of IAS 16, Property, Plant and Equipment; and paragraph 118(e) of IAS 38, Intangible Assets;

the requirements of paragraphs 10(d), 38A, 38B, 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 paragraph 17 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), 134(f) and 135(c) to 135(e) of IAS 36, Impairment of Assets.

The accounts are prepared on the historical cost basis, except for certain assets and liabilities which are measured at fair value
as explained below.

The parent company has not presented its own income statement, statement of total comprehensive income and related notes as permitted
by Section 408(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.

The parent company prior year comparatives have been restated to increase and decrease current amounts receivable from and payable to
subsidiaries by £278 million (see notes 17 and 19).

AccountsJohnson Matthey / Annual Report and Accounts 2020136

Accounting policies continued
for the year ended 31st March 2020

Significant accounting policies

The group’s and parent company’s accounting policies have been applied consistently during the current and prior year, other than where new
policies have been adopted (see below). The group’s and parent company’s significant accounting policies are as follows:

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.

AccountsJohnson Matthey / Annual Report and Accounts 2020137

Accounting policies continued
for the year ended 31st March 2020

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; or

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.

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.

AccountsJohnson Matthey / Annual Report and Accounts 2020138

Accounting policies continued
for the year ended 31st March 2020

Significant accounting policies (continued)

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:

•

freehold buildings – 30 years;

leasehold improvements – life of the lease (or estimated useful life if shorter); and

plant and machinery – 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.

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 – accounting policy applied since 1st April 2019

Leases are recognised as a right-of-use asset, together with a corresponding lease liability, at the date at which the leased asset is available
for use.

The right-of-use asset is initially measured at cost, which comprises the initial value of the lease liability, lease payments made (net of any
incentives received from the lessor) before the commencement of the lease, initial direct costs and restoration costs. The right-of-use asset
is depreciated on a straight-line basis over the shorter of the asset’s useful life and the lease term in operating profit.

The lease liability is initially measured as the present value of future lease payments discounted using the interest rate implicit in the lease or,
where this rate is not determinable, the group’s incremental borrowing rate, which is the interest rate the group would have to pay to borrow the
amount necessary to obtain an asset of similar value in a similar economic environment with similar terms and conditions. Interest is charged
to finance costs at a constant rate of interest on the outstanding lease liability over the lease term.

Payments in respect of short term leases, low-value leases and precious metal leases are charged to the income statement on a straight-line basis
over the lease term in operating profit.

The group leases precious metals to fund temporary peaks in metal requirements provided market conditions allow. These leases are from banks
for specified periods (less than 12 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.

AccountsJohnson Matthey / Annual Report and Accounts 2020139

Accounting policies continued
for the year ended 31st March 2020

Significant accounting policies (continued)

Leases – accounting policy applied until 31st March 2019

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.

Inventories

Precious metal

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, adjusted for unexpired
contango and backwardation. Other precious metal inventories owned by the group, which are unhedged, are valued at the lower of cost and net
realisable value using the weighted average cost formula.

Other

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

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.

AccountsJohnson Matthey / Annual Report and Accounts 2020140

Accounting policies continued
for the year ended 31st March 2020

Significant accounting policies (continued)

Financial instruments (continued)

Derivative financial instruments

The group and parent company use derivative financial instruments, in particular forward currency contracts, currency swaps, interest rate swaps
and commodity derivatives 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 or the hedge no longer meets the criteria for hedge accounting, 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 or the hedge no longer meets the criteria for hedge accounting.

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. Those borrowings designated as being in fair value hedge relationships 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.

AccountsJohnson Matthey / Annual Report and Accounts 2020141

Accounting policies continued
for the year ended 31st March 2020

Significant accounting policies (continued)

Taxation

Current and deferred tax are recognised in the income statement, except when they relate to items recognised directly in equity, in which case
the related tax is also recognised in equity.

Current tax is the amount of income tax expected to be paid in respect of taxable profits using the tax rates that have been enacted
or substantively enacted at the balance sheet date.

Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and
their carrying amounts in the balance sheet. It is provided using the tax rates that are expected to apply in the period when the asset or liability
is settled, based on tax rates that have been enacted or substantively enacted at the balance sheet date.

Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which the temporary
differences can be utilised. No deferred tax asset or liability is recognised in respect of temporary differences associated with investments in
subsidiaries and branches where the group is able to control the timing of the reversal of the temporary difference and it is probable that the
temporary difference will not reverse in the foreseeable future.

Provisions and contingencies

Provisions are recognised when the group has a present obligation as a result of a past event and a reliable estimate can be made of a probable
adverse outcome, for example warranties, environmental claims and restructuring. Otherwise, material contingent liabilities are disclosed unless
the probability of the transfer of economic benefits is remote. Contingent assets are only disclosed if an inflow of economic benefits is probable.

The parent company considers financial guarantees of its subsidiaries’ borrowings and precious metal leases to be insurance contracts.

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. COVID-19 has introduced unprecedented uncertainty to the market outlook and, therefore, has increased
the risk of material adjustment to the group’s and parent company’s financial position during the year ending 31st March 2021, particularly in
respect of the carrying value of goodwill, other intangibles and other assets. Other significant risks of material adjustment are the valuation of
the liabilities of the defined benefit pension plans and tax provisions. The group and parent company have considered the refining process and
stock takes and provisions and contingent liabilities and, 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 2021, represent important accounting estimates.

AccountsJohnson Matthey / Annual Report and Accounts 2020142

Accounting policies continued
for the year ended 31st March 2020

Sources of estimation uncertainty (continued)

Goodwill, other intangibles and other assets

The group and parent company have significant intangible assets from both business acquisitions and investments in new products and
technologies. Some of those acquisitions and investments are at an early stage of commercial development and, therefore, carry a greater
risk that they will not be commercially viable. Goodwill and intangible assets not yet ready for use are not amortised, but are subject to annual
impairment reviews. Other intangible assets are amortised from the time they are first ready for use and, together with other assets, 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.

The impact of COVID-19 on the carrying value of the following assets has been considered:

• Goodwill The budgets and plans used for the impairment reviews reflect management’s estimate of the impact of COVID-19, which

is a deep recession involving a period of lower demand followed by an extended recovery period. Whilst headroom has reduced under
this scenario, no goodwill impairments have been identified as a direct result of the lower cash flow forecasts. A description of the group’s
approach to impairment testing and key assumptions, together with sensitivity analysis, is set out in note 10 to the accounts. Goodwill in
respect of the Battery Materials LFP business in the New Markets sector has been impaired as a result of a decline in sales during the year
and the refocusing of our LFP business (see note 3).

•

Property, plant and equipment As a result of COVID-19, most of the manufacturing plants in the Clean Air sector outside China were
temporarily closed in March 2020, which represents a triggering event that could indicate that they are impaired. The plants have been
tested for impairment based on discounted cash flows consistent with our deep recession scenario and, with the exception of three plants
which have been impaired as a result of the optimisation of the manufacturing footprint in the Clean Air sector (see note 3), their carrying
values are not considered to be impaired (see note 9).

Trade and contract receivables The group applies 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.
A provision matrix is used to calculate lifetime expected credit losses using historical loss rates based on days past due and a broad range
of forward-looking information, including country and market growth forecasts. Whilst the group has not experienced significant losses on
its trade and contract receivables in the past and has not identified any significant bad debts as a result of the economic slowdown caused
by COVID-19, the risk that the group will incur bad debt losses in the future has increased. A high proportion of the group’s trade and
contract receivables are in the Clean Air sector. Although the Clean Air sector has a wide range of customers, the concentrated nature
of the automotive industry means that amounts owed by individual customers can be large and, in the event that one of those customers
experiences financial difficulty, there could be a material adverse impact on the group. Expected credit loss provisions on unimpaired trade
and contract receivables have been increased, by £18 million, to £21 million (see note 27).

• Advance payments to customers The Clean Air sector makes upfront payments to original equipment manufacturers to secure the award
of future business. At 31st March 2020, the group held £66 million of advance payments as prepayments (31st March 2019: £26 million),
which remain expected to be recovered either through new business based on our volume forecasts as updated for the impact of COVID-19,
repayment or reallocation against other future business (see note 17).

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 24 to the group
and parent company accounts.

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 tax liabilities at 31st March 2020 of £106 million (2019: £130 million) include tax provisions of £106 million
(2019: £102 million) and the estimation of the range of possible outcomes is an increase in those liabilities by £106 million (2019: £60 million)
to a decrease of £90 million (2019: £61 million). The increase in the range of possible outcomes is mainly due to the consideration of a larger
number of potential outcomes following the adoption of IFRIC 23. 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.

AccountsJohnson Matthey / Annual Report and Accounts 2020143

Accounting policies continued
for the year ended 31st March 2020

Sources of estimation uncertainty (continued)

Refining process and stock takes

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 £8.4 billion. The majority of metal processed is owned by customers and the group and
parent company must return pre-agreed quantities of refined metal based on assays of starting materials and other contractual arrangements,
such as the timing of the return of metal. The group and parent company calculate the profits or losses of their refining operations based on
estimates, including the extent to which process losses are expected during refining. The risk of process losses or gains depends on the nature
of the starting material being refined, the specific refining processes applied, the efficiency of those processes and the contractual arrangements.

Stock takes are performed to determine the volume and value of metal within the refining system compared with the calculated estimates,
with the variance being a profit or a loss. Stock takes are, therefore, a key control in the assessment of the accuracy of the profit or loss of refining
operations. Whilst refining is a complex, large-scale industrial process, the group and parent company have appropriate processes and controls
over the movement of material in their refineries.

Provisions and 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. Provisions and contingent liabilities are set out in notes 22 and 31, respectively.

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.

The group undertakes linked contracts to sell or buy precious metal and commits to repurchase or sell the metal in the future to manage
inventory levels. Accordingly, principal cash flows in respect of sale and repurchase agreements are shown as cash flows from operating activities
in the cash flow statement rather than cash flows from financing activities. Interest paid and received are shown as cash flows from financing
and investing activities, respectively.

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.

Changes in accounting policies

IFRS 16, Leases

IFRS 16 became applicable to the group and parent company on 1st April 2019 and the group and parent company changed their accounting
policies as a result of adopting the new standard. The impact of the adoption of IFRS 16 is disclosed in note 34.

IFRIC 23, Uncertainty over Income Tax Treatments

IFRIC 23 became applicable to the group and parent company on 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 and parent company have
adopted IFRIC 23 retrospectively, with the cumulative effect of adoption, a £5 million and £6 million decrease in tax provisions (including
interest), respectively, recognised in reserves at 1st April 2019.

AccountsJohnson Matthey / Annual Report and Accounts 2020144

Accounting policies continued
for the year ended 31st March 2020

Changes in accounting policies (continued)

Amendments to IFRS 9, IAS 39 and IFRS 7 – Interest rate benchmark reform

The group and parent company have early adopted the amendments to IFRS 9, Financial Instruments, IAS 39, Financial Instruments:
Recognition and Measurement, and IFRS 7, Financial Instruments: Disclosures, which relate to interbank offered rates (IBOR) reform and were
endorsed by the EU on 6th January 2020. The replacement of benchmark interest rates, such as LIBOR and other IBOR, is a priority for global
regulators. The amendments provide relief from applying specific hedge accounting requirements to hedge relationships directly affected by
IBOR reform and have the effect that IBOR reform should generally not cause hedge accounting to terminate. There is no financial impact from
the early adoption of these amendments.

The group has one IFRS 9 designated hedge relationship that is potentially impacted by IBOR reform: the 3.26% $150 million Bonds 2022
which have been swapped into floating rate US dollars. This swap references six-month US dollar LIBOR and uncertainty arising from the group’s
exposure to IBOR reform will cease when the swap matures in 2022. The implications on the wider business of IBOR reform will be assessed
during the year.

Other amendments to accounting standards

The following amendments to existing standards were applicable to the group and parent company from 1st April 2019, but did not have a
significant effect on their reported results or net assets:

• Amendments to IFRS 9: Prepayment Features with Negative Compensation;

• Amendments to IAS 28: Long-term Interests in Associates and Joint Ventures;

• Amendments to IAS 19: Plan Amendment, Curtailment or Settlement; and

• Annual Improvements to IFRS Standards 2015–2017 Cycle.

Amendments to accounting standards that have been issued, but are not yet effective

The following amendments to existing standards are applicable to the group from 1st April 2020, but are not expected to have a significant
effect on its reported results or net assets:

• Amendments to References to the Conceptual Framework in IFRS Standards; and

• Amendments to IAS 1 and IAS 8: Definition of Material.

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 group’s non-GAAP measures are defined and reconciled to GAAP measures in note 35.

AccountsJohnson Matthey / Annual Report and Accounts 2020145

Notes on the accounts
for the year ended 31st March 2020

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 and their principal activities are described on pages 54 to 60. The performance of the
group’s operating sectors is assessed on sales and underlying operating profit (see note 35). Sales between segments are made at market
prices, taking into account the volumes involved.

Revenue, sales and underlying operating profit by sector

Year ended 31st March 2020

Revenue from external customers
Inter-segment revenue

Revenue

External sales
Inter-segment sales

Sales1

Underlying operating profit1

Year ended 31st March 2019

Revenue from external customers
Inter-segment revenue

Revenue

External sales
Inter-segment sales

Sales1

Underlying operating profit1

Efficient
Natural
Resources
£ million

7,670
4,291

11,961

945
134

1,079

256

Efficient
Natural
Resources
£ million

5,074
2,608

7,682

880
111

991

181

Clean Air
£ million

6,172
1

6,173

2,617
1

2,618

295

Clean Air
£ million

4,948
210

5,158

2,719
1

2,720

393

Health
£ million

New Markets
£ million

Corporate
£ million

Eliminations
£ million

229
–

229

223
–

223

506
6

512

385
4

389

–
–

–

–
–

–

(1)

(38)

Health
£ million

New Markets
£ million

Corporate
£ million

Eliminations
£ million

259
–

259

256
1

257

464
9

473

359
3

362

–
–

–

–
–

–

(53)

Total
£ million

14,577
–

–
(4,298)

(4,298)

14,577

–
(139)

(139)

–

4,170
–

4,170

539

Total
£ million

10,745
–

–
(2,827)

(2,827)

10,745

–
(116)

(116)

–

4,214
–

4,214

566

1 Sales and underlying operating profit are non-GAAP measures (see note 35). Underlying operating profit excludes 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.

AccountsJohnson Matthey / Annual Report and Accounts 2020

146

1 Segmental information (continued)

Impact of exchange rate movements on sales and underlying operating profit by sector

The main impact of exchange rate movements on sales and underlying operating profit is from the translation of the results of foreign
operations into sterling.

Average exchange rates

US dollar / £
Euro / £
Chinese renminbi / £

Clean Air
Efficient Natural Resources
Health
New Markets
Inter-segment sales

Sales1

Clean Air
Efficient Natural Resources
Health
New Markets
Corporate

Underlying operating profit1

2020

2019

1.271
1.143
8.85

1.310
1.134
8.81

Year ended
31st March
2020
£ million

Year ended 31st March 2019
At this
year’s rates
£ million

At last
year’s rates
£ million

Change
at this
year’s rates
%

2,618
1,079
223
389
(139)

2,720
991
257
362
(116)

2,739
1,002
262
363
(116)

4,170

4,214

4,250

295
256
27
(1)
(38)

539

393
181
43
2
(53)

566

395
183
44
3
(54)

571

–4
+8
–15
+7

–2

–25
+40
–38
n/a

–6

Reconciliation from underlying operating profit to operating profit by sector

Year ended 31st March 2020

Underlying operating profit1
Profit on disposal of businesses
Amortisation of acquired intangibles
Major impairment and restructuring charges

Operating profit

Year ended 31st March 2019

Underlying operating profit1
Loss on disposal of businesses
Loss on significant legal proceedings
Amortisation of acquired intangibles
Major impairment and restructuring charges

Operating profit

Efficient
Natural
Resources
£ million

Clean Air
£ million

295
–
(3)
(56)

236

256
–
(6)
–

250

Efficient
Natural
Resources
£ million

Clean Air
£ million

393
–
–
(3)
–

390

181
–
–
(6)
–

175

Health
£ million

New Markets
£ million

Corporate
£ million

Total
£ million

27
–
–
(17)

(1)
–
(4)
(57)

(62)

(38)
2
–
(10)

(46)

539
2
(13)
(140)

388

Health
£ million

New Markets
£ million

Corporate
£ million

Total
£ million

43
–
–
–
7

2
(12)
–
(5)
–

(15)

(53)
–
(17)
–
1

(69)

566
(12)
(17)
(14)
8

531

1 Sales and underlying operating profit are non-GAAP measures (see note 35). Underlying operating profit excludes 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.

Notes on the accounts continuedfor the year ended 31st March 2020AccountsJohnson Matthey / Annual Report and Accounts 2020

147

1 Segmental information (continued)

Other segmental information

Year ended 31st March 2020

Segmental net assets

Net debt (note 35)
Post-employment benefit net assets and liabilities
Deferred tax net liabilities
Provisions and non-current other payables
Investments in joint venture and associate

Net assets

Property, plant and equipment
Intangible assets

Capital expenditure

Depreciation
Amortisation
Impairment losses

Total

Efficient
Natural
Resources
£ million

Clean Air
£ million

Health
£ million

New Markets
£ million

Corporate1
£ million

Total
£ million

1,361

1,267

520

236

332

3,716

(1,094)
213
(8)
(26)
23

2,824

351
114

465

154
24
146

324

188
–

188

64
5
55

124

73
3

48
9
1

19
13

21
1
18

52
13

12
4
66

19
85

104

9
5
6

1 The increase in Corporate net assets includes purchases of computer hardware and software to upgrade the group’s core IT systems.

Impairment losses include the following:

•

£61 million in respect of three manufacturing plants in the Clean Air sector, comprising intangible assets in Corporate (£6 million)
and property, plant and equipment in Clean Air (£55 million) (see note 3);

£57 million in respect of the Battery Materials LFP business in the New Markets sector, comprising goodwill (£7 million), intangible
assets (£5 million), property, plant and equipment (£35 million), right-of-use assets (£1 million) and trade and other receivables
(£9 million) (see note 3);

£20 million in respect of development expenditure which had been capitalised in respect of terminated molecules in the Health sector
(see note 3); and

£8 million in respect of the discontinued Battery Materials eLNO demonstration plants in the New Markets sector (see note 9).

Notes on the accounts continuedfor the year ended 31st March 2020AccountsJohnson Matthey / Annual Report and Accounts 2020

148

1 Segmental information (continued)

Other segmental information (continued)

Year ended 31st March 2019

Segmental net assets

Net debt (note 35)
Post-employment benefit net assets and liabilities
Deferred tax net liabilities
Provisions and non-current other payables
Investments in joint venture and associate

Net assets

Property, plant and equipment
Intangible assets

Capital expenditure

Depreciation
Amortisation
Impairment (reversals) / losses

Total

2 Revenue

Products and services

Efficient
Natural
Resources
£ million

Clean Air
£ million

Health
£ million

New Markets
£ million

Corporate
£ million

Total
£ million

1,339

1,243

496

235

108

3,421

(866)
103
(33)
(34)
20

2,611

235
88

323

142
29
(7)

164

124
–

124

64
8
–

49
4

45
10
(2)

18
11

18
1
(7)

35
13

9
5
2

9
60

6
5
–

The group’s principal products and services by operating sector and sub-sector are disclosed in the table below, together with information
regarding performance obligations and revenue recognition. Revenue is recognised by the group as contractual performance obligations
to customers are completed.

Sector

Sub-sector

Primary industry

Principal products and services

Light Duty
Catalysts
Heavy Duty
Catalysts

Automotive

Catalysts for cars and other light
duty vehicles
Catalysts for trucks, buses and
non-road equipment

Catalyst
Technologies

Chemicals /
oil and gas

Speciality catalysts and additives
Process technology licences

Point in time
Over time

Clean Air

Efficient
Natural
Resources

Platinum Group
Metal Services

Various

Advanced Glass
Technologies
Diagnostic
Services

Automotive

Oil and gas

Health

Generics

Pharmaceuticals

Innovators

Pharmaceuticals

New
Markets

Alternative
Powertrain

Medical Device
Components
Life Science
Technologies

Automotive

Consumer goods

Pharmaceuticals

Pharmaceuticals /
agriculture

Engineering design services
Platinum Group Metal refining and
recycling services
Other precious metal products

Platinum Group Metal chemical and
industrial products
Precious metal pastes and enamels

Detection, diagnostic and
measurement solutions

Manufacture of active
pharmaceutical ingredients
Development and manufacture of
active pharmaceutical ingredients

Battery materials and fuel cell
technologies
Battery systems for a range
of applications
Products found in devices used
in medical procedures
Advanced catalysts

1 Revenue recognition depends on whether the licence is distinct in the context of the contract.

Principal performance
obligations

Revenue recognition

Point in time

On despatch or delivery

Point in time

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

Over time
Over time

Point in time

On despatch or delivery

Point in time

On despatch or delivery

Point in time

On despatch or delivery

Over time

Based on costs incurred

Point in time

On despatch or delivery

Over time

Based on costs incurred

Point in time

On despatch or delivery

Point in time

On despatch or delivery

Point in time

On despatch or delivery

Point in time

On despatch or delivery

Notes on the accounts continuedfor the year ended 31st March 2020AccountsJohnson Matthey / Annual Report and Accounts 2020

149

Efficient
Natural
Resources
£ million

Clean Air
£ million

Health
£ million

New Markets
£ million

3,555
831
1,742
–
–
–
–
–
–
–
–
–
44

6,172

6,725
–
–
513
298
70
64
–
–
–
–
–
–

7,670

6
–
–
–
–
–
–
134
89
–
–
–
–

229

121
–
–
–
–
–
–
–
–
237
71
47
30

506

Total
£ million

10,407
831
1,742
513
298
70
64
134
89
237
71
47
74

14,577

Efficient
Natural
Resources
£ million

Clean Air
£ million

Health
£ million

New Markets
£ million

Total
£ million

2,229
938
1,737
–
–
–
–
–
–
–
–
–
44

4,948

4,194
–
–
504
233
75
68
–
–
–
–
–
–

5,074

3
–
–
–
–
–
–
171
85
–
–
–
–

259

105
–
–
–
–
–
–
–
–
206
70
46
37

464

6,531
938
1,737
504
233
75
68
171
85
206
70
46
81

10,745

2 Revenue (continued)

Revenue from external customers by principal products and services

Year ended 31st March 2020

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

Year ended 31st March 2019

Revenue

Notes on the accounts continuedfor the year ended 31st March 2020AccountsJohnson Matthey / Annual Report and Accounts 2020

150

2 Revenue (continued)

Revenue from external customers by point in time and over time performance obligations

Year ended 31st March 2020

Revenue recognised at a point in time
Revenue recognised over time

Revenue

Year ended 31st March 2019

Revenue recognised at a point in time
Revenue recognised over time

Revenue

Efficient
Natural
Resources
£ million

7,361
309

7,670

Efficient
Natural
Resources
£ million

4,869
205

5,074

Clean Air
£ million

6,172
–

6,172

Clean Air
£ million

4,948
–

4,948

Health
£ million

New Markets
£ million

165
64

229

502
4

506

Total
£ million

14,200
377

14,577

Health
£ million

New Markets
£ million

233
26

259

464
–

464

Total
£ million

10,514
231

10,745

Geographical analysis of revenue from external customers and non-current assets

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 disclosed below.

UK
Germany
Rest of Europe
USA
Rest of North America
China (including Hong Kong)
Rest of Asia
Rest of World

Investments at fair value through other comprehensive income
Interest rate swaps
Deferred tax assets
Post-employment benefit net assets

Total

Major customers

Revenue from
external customers

Non-current assets

2020
£ million

2019
£ million

2020
£ million

2019
£ million

3,275
1,422
2,125
2,750
477
2,182
1,288
1,058

1,838
1,252
1,869
2,567
205
1,199
1,267
548

14,577

10,745

1,007
271
366
483
48
224
148
6

2,553
49
34
66
317

3,019

924
266
257
440
32
183
124
18

2,244
52
13
58
209

2,576

The group received £1.8 billion of revenue from one external customer in the Clean Air sector which represents more than 10% of the
group’s revenue from external customers during the year ended 31st March 2020 (2019: £1.5 billion of revenue from one external
customer in the Clean Air sector).

Unsatisfied performance obligations

At 31st March 2020, for contracts that had an original expected duration of more than one year, the group had unsatisfied performance
obligations of £397 million (2019: £323 million), representing contractually committed revenue to be recognised at a future date. Of this
amount, £88 million (2019: £38 million) is expected to be recognised within one year and £309 million (2019: £285 million) is expected
to be recognised after one year.

Payment terms

The group and parent company supply goods and services on payment terms that are consistent with those standard across the industry and
do 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.

Notes on the accounts continuedfor the year ended 31st March 2020AccountsJohnson Matthey / Annual Report and Accounts 2020

151

2020
£ million

2019
£ million

199
(23)

176
(13)
(1)

162

12,585
70
(17)
(17)
24
(20)

140
14

154

3
1
1
7
12

1
9
–

7
31
90
1
(3)
9

146

190
(19)

171
(12)
(2)

157

8,715
25
(5)
10
(6)
(9)

142
–

142

6
2
1
6
14

–
2
(2)

–

–
–
(7)
–
–
–

(7)

2020
£ million

2019
£ million

1.2
2.2

3.4

0.2
0.4

0.6

4.0

0.9
1.7

2.6

0.2
0.3

0.5

3.1

3 Operating profit

Operating profit is arrived at after charging / (crediting):

Total research and development expenditure
Less: Development expenditure capitalised

Research and development expenditure charged to the income statement
Less: External funding received – from governments

– from other organisations

Net research and development expenditure charged to the income statement

Inventories recognised as an expense
Write-down of inventories recognised as an expense
Reversal of write-down of inventories from increases in net realisable value
Net (gains) / losses on foreign exchange
Net losses / (gains) on foreign currency forwards at fair value through profit or loss
Past service credit

Depreciation of property, plant and equipment
Depreciation of right-of-use assets

Depreciation

Amortisation of internally generated intangible assets included in cost of sales
Amortisation of other intangible assets included in – cost of sales

– distribution costs
– administrative expenses
– amortisation of acquired intangibles

Amortisation

Impairment losses / (reversals) included in administrative expenses:

– other intangible assets
– property, plant and equipment
– borrowings and related swaps

Impairment losses included in amortisation of acquired intangibles:

– other intangible assets

Impairment losses / (reversals) included in major impairment and restructuring charges:

– goodwill
– other intangible assets
– property, plant and equipment
– right-of-use assets
– inventories
– trade and other receivables

Impairment losses / (reversals)

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 fees1

Audit-related assurance services
Other services

Total non-audit fees

Total fees payable to the company’s auditor and its associates

1 2019 excludes overruns of £0.9 million.

No audit fees were paid to other auditors (2019: £nil).

Other non-audit services predominantly comprise immigration services.

Notes on the accounts continuedfor the year ended 31st March 2020AccountsJohnson Matthey / Annual Report and Accounts 2020

152

3 Operating profit (continued)

The following items are shown separately on the face of the income statement:

•

Profit or loss on disposal of businesses The group released a residual provision for environmental liabilities of £2 million which had
originally been recognised in respect of the disposal of Johnson Matthey Gold and Silver Refining Holdings in March 2015. The time
limit on claims was five years and no claims have been received. In the prior year, 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.

• Gain or loss on significant legal proceedings 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 was recognised in the prior year on the basis that it confirmed that the group had a present obligation at the
prior year end.

• Amortisation of acquired intangibles Amortisation and impairment of intangible assets which arose on the acquisition of businesses

totalled £13 million (2019: £14 million).

• Major impairment and restructuring charges The group recognised the following impairments during the year:

–

Clean Air manufacturing plants Investment in new manufacturing plants in Europe and Asia has allowed the Clean Air sector
to consolidate its existing capacity into new, more efficient plants. Specifically, we plan to restructure three of our manufacturing
plants. As a result, the carrying value of one of the plants has been impaired, by £42 million to £24 million, based on a fair value
less costs of disposal assessment, with our assessment of the market value of the plant based on internal data (level 3 inputs – see
note 28 for the fair value hierarchy). The other two plants have been impaired by £17 million to £3 million and by £2 million to
£nil based on a value in use assessment, with discount rates of 13% and 38%, respectively. The impairment comprises intangible
assets (£6 million) and property, plant and equipment (£55 million).

Battery Materials LFP business We are focusing our science and innovative solutions on cathode materials that are truly market
leading, principally eLNO, our ultra-high energy density cathode material and, in addition, our higher performing lithium iron
phosphate (LFP). Sales of LFP declined during the year and we are now refocusing our LFP business on the high value segment
of the market to better support our eLNO customers and the development of that business. These changes mean that the carrying
value of the Battery Materials LFP cash-generating unit has been impaired, by £57 million, to £3 million based on a value in use
assessment. The impairment comprises goodwill (£7 million), intangible assets (£5 million), property, plant and equipment
(£35 million), right-of-use assets (£1 million) and trade and other receivables (£9 million). The recoverable amount of £3 million
reflects residual working capital balances. The discount rate for the purposes of the value in use assessment was 10.7%
(2019: 11.9%).

– Health capitalised development expenditure During the year, a fundamental review of the Health sector’s new product

introduction process was undertaken to determine how the business will deliver its strategic plan. The organisation was
restructured and new employees were recruited to strengthen the sector’s technical capabilities. A detailed review of each
molecule was performed which considered all assumptions, including market size, number of competitors, molecular process
design and technical feasibility. The assessment resulted in the determination to reprioritise the molecules in the pipeline,
focusing on the optimal number of projects to sustain a consistent and predictable new product launch process. Consequently,
the development of 21 molecules in the pipeline has been terminated. Development expenditure which had been capitalised in
respect of the terminated molecules totalling £20 million has been written off during the year. With a focus on fewer molecules,
we have made further progress towards delivering an additional circa £100 million of operating profit from our pipeline of
generic and innovator active pharmaceutical ingredients.

In addition to the impairments recognised during the year, consultancy costs of £5 million were incurred in respect of the major
restructuring initiatives announced in June 2020 and a write off of inventories of £3 million recognised in the Health sector as part
of the group’s operational efficiency programme announced in March 2017 was released.

In the prior year, £7 million of a prior year impairment of the Health sector’s Riverside site was reversed and, in September 2019,
the site was sold, with no gain or loss on disposal.

Notes on the accounts continuedfor the year ended 31st March 2020AccountsJohnson Matthey / Annual Report and Accounts 2020153

2020

2019

6,087
3,981
878
1,927
1,066

5,679
3,602
879
1,855
973

13,939

12,988

4 Employee information

Employee numbers

Clean Air
Efficient Natural Resources
Health
New Markets
Corporate

Monthly average number of employees

The number of temporary employees included above at 31st March 2020 is 583 (2019: 526).

The monthly average number of employees in the parent company is 3,020 (2019: 2,965).

Clean Air
Efficient Natural Resources
Health
New Markets
Corporate

Year-end headcount

Employee costs

Wages and salaries
Social security costs
Post-employment costs
Share-based payments
Termination benefits

Employee benefits expense

5 Net finance costs

At 31st March 2020

At 31st March 2019

Actual
employees

Agency
staff

Total
headcount

Actual
employees

Agency
staff

Total
headcount

6,226
3,988
907
1,952
1,079

458
134
8
381
219

6,684
4,122
915
2,333
1,298

5,919
3,645
858
1,934
1,043

629
163
8
343
253

6,548
3,808
866
2,277
1,296

14,152

1,200

15,352

13,399

1,396

14,795

Group

Parent company

2020
£ million

2019
£ million

2020
£ million

2019
£ million

621
68
49
5
2

745

593
64
56
17
1

731

187
19
38
4
1

249

192
20
30
15
–

257

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 liabilities1
Interest payable on lease liabilities

Total finance costs

Interest receivable on financial assets held at amortised cost
Interest receivable on other assets1
Interest on post-employment benefits

Total finance income

Net finance costs

2020
£ million

2019
£ million

(5)
(43)
(144)
(3)

(195)

4
103
2

109

(1)
(37)
(69)
–

(107)

3
58
3

(86)

(43)

Interest payable and receivable on other liabilities and assets mainly comprises interest on precious metal leases and the amortisation of contango and backwardation on
precious metal inventory and sale and repurchase agreements.

Notes on the accounts continuedfor the year ended 31st March 2020AccountsJohnson Matthey / Annual Report and Accounts 2020

154

6 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% (2019: 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

2020
£ million

2019
£ million

101
(2)
(3)

(37)
3
(10)
(2)

(46)

84
–
(7)

6
(1)
(5)
(2)

(2)

2020
£ million

2019
£ million

305

(7)
3
21
(10)
(5)
(19)
(5)
2
–
2
10

488

2
3
7
(6)
(9)
(19)
(4)
(1)
(2)
6
5

Losses and other temporary differences not recognised includes current year tax losses arising in Canada, South Africa 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 includes current and deferred tax adjustments in respect of the UK, US and Macedonia, as well as adjustments
in respect of provisions for uncertain tax positions.

Other tax incentives includes research and development tax incentives in the US and China and other tax incentives in Poland.

Irrecoverable withholding tax and other include movements in respect of provisions for uncertain tax positions.

Notes on the accounts continuedfor the year ended 31st March 2020AccountsJohnson Matthey / Annual Report and Accounts 2020
155

7 Tax on other comprehensive income

Before tax
£ million

2020

Tax
£ million

Net of tax
£ million

Before tax
£ million

2019

Tax
£ million

Net of tax
£ million

(69)

(56)

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
Fair value losses on other investments at fair value through
other comprehensive income
Amounts credited to hedging reserve
Fair value losses on net investment hedges

(2)
–

–
–
(8)

(18)

–
(3)

–

–
–
–

(2)
(3)

–
–
(8)

(3)
–

(1)
4
(1)

Total other comprehensive income

142

(21)

121

(48)

8 Earnings per ordinary share

Basic
Diluted

–
–

–
(1)
–

(3)
–

(1)
3
(1)

(35)

2020
pence

132.3
132.1

2019
pence

215.2
214.6

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

2020

2019

192,437,993
314,053

192,128,811
559,693

192,752,046

192,688,504

Notes on the accounts continuedfor the year ended 31st March 2020AccountsJohnson Matthey / Annual Report and Accounts 2020156

9 Property, plant and equipment

Group

Cost
At 1st April 2018
Additions
Reclassification between categories
Reclassification as held for sale
Transfer from other intangible assets (note 11)
Disposals
Disposal of businesses
Exchange adjustments

At 31st March 2019
Additions
Reclassification between categories
Disposals
Exchange adjustments

At 31st March 2020

Accumulated depreciation and impairment
At 1st April 2018
Charge for the year
Impairment (reversals) / losses
Reclassification as held for sale
Reclassification between categories
Disposals
Exchange adjustments

At 31st March 2019
Charge for the year
Impairment losses
Disposals
Exchange adjustments

At 31st March 2020

Carrying amount at 31st March 2020

Carrying amount at 31st March 2019

Carrying amount at 1st April 2018

Freehold land
and buildings
£ million

Leasehold
improvements
£ million

Plant and
machinery
£ million

Assets in
the course of
construction
£ million

578
10
13
(7)
–
–
–
13

607
2
3
(3)
18

627

250
19
(6)
(1)
(1)
–
7

268
18
23
(2)
10

317

310

339

328

25
1
1
–
–
(3)
–
1

25
–
1
(1)
(1)

15
1
–
–
1
(3)
1

15
2
1
(1)
–

1,919
60
63
–
11
(40)
(2)
45

2,056
33
112
(75)
45

2,171

1,302
121
–
–
(5)
(37)
33

1,414
120
60
(71)
31

1,554

617

642

617

Total
£ million

2,731
235
–
(8)
11
(43)
(2)
60

2,984
351
–
(94)
67

209
164
(77)
(1)
–
–
–
1

296
316
(116)
(15)
5

486

3,308

9
1
1
–
5
–
–

16
–
15
(14)
–

469

280

200

1,576
142
(5)
(1)
–
(40)
41

1,713
140
99
(88)
41

1,905

1,403

1,271

1,155

Finance costs capitalised were £7 million (2019: £4 million) and the capitalisation rate used to determine the amount of finance costs
eligible for capitalisation was 3.0% (2019: 3.2%).

During the year, the group recognised impairments in respect of three Clean Air manufacturing plants (£55 million) and the Battery
Materials LFP business (£35 million) which have been included in major impairment and restructuring charges (see note 3) and an
impairment in respect of its Battery Materials eLNO demonstration plants (£8 million) which has been included in administrative expenses.
The construction of the eLNO demonstration plants was discontinued during the year. The carrying value of the plants was £14 million.
Assets with a carrying value of £6 million will be used in the construction of the commercial eLNO plants.

The carrying value of temporarily idle property, plant and equipment at 31 March 2020 is £473 million (31 March 2019: £nil). As a result
of COVID-19, most of the manufacturing plants in the Clean Air sector outside China were temporarily closed in March 2020, which
represents a triggering event that could indicate that they are impaired. The plants have been tested for impairment based on discounted
cash flows consistent with our deep recession scenario and, with the exception of three plants which have been impaired as a result of the
optimisation of the manufacturing footprint in the Clean Air sector (see note 3), their carrying values are not considered to be impaired.
All of the plants that were temporarily closed are now in operation.

Notes on the accounts continuedfor the year ended 31st March 2020AccountsJohnson Matthey / Annual Report and Accounts 2020
157

9 Property, plant and equipment (continued)

Parent company

Cost
At 31st March 2019
Additions
Reclassification between categories
Disposals
Transfers to other group companies

At 31st March 2020

Accumulated depreciation and impairment
At 31st March 2019
Charge for the year
Impairment losses
Disposals

At 31st March 2020

Carrying amount at 31st March 2020

Carrying amount at 31st March 2019

Freehold land
and buildings
£ million

Leasehold
improvements
£ million

Plant and
machinery
£ million

Assets in
the course of
construction
£ million

Total
£ million

129
–
–
(2)
–

127

61
3
12
(2)

3
–
–
–
–

2
–
–
–

592
12
2
(19)
(6)

581

400
33
30
(18)

445

136

192

51
76
(2)
(8)
(18)

–
–
6
(7)

(1)

100

775
88
–
(29)
(24)

810

463
36
48
(27)

520

290

312

Finance costs capitalised were £1 million (2019: £2 million) and the capitalisation rate used to determine the amount of finance costs
eligible for capitalisation was 3.0% (2019: 3.2%).

During the year, the parent company recognised impairments in respect of a Clean Air manufacturing plant (£42 million) and the Battery
Materials eLNO demonstration plant (£6 million).

10 Goodwill

Cost
At 1st April 2018
Exchange adjustments

At 31st March 2019
Exchange adjustments

At 31st March 2020

Impairment
At 1st April 2018 and 31st March 2019
Impairment losses

At 31st March 2020

Carrying amount at 31st March 2020

Carrying amount at 31st March 2019

Carrying amount at 1st April 2018

Group
£ million

Parent
company
£ million

585
4

589
9

598

11
7

580

578

574

123
–

123

–
8

115

123

Notes on the accounts continuedfor the year ended 31st March 2020AccountsJohnson Matthey / Annual Report and Accounts 2020

158

10 Goodwill (continued)

Significant cash-generating units (CGUs)

Goodwill arising on the acquisition of businesses is allocated, at acquisition, to the CGUs that are expected to benefit from that business
combination. These CGUs represent the smallest identifiable groups of assets that generate cash inflows that are largely independent of the
cash inflows from other groups of assets. Goodwill allocated to the significant CGUs is as follows:

Clean Air
– Heavy Duty Catalysts

Efficient Natural Resources
– Catalyst Technologies
– Diagnostic Services
– Other

Health
– Generics1
– Innovators

New Markets2

Group

Parent company

2020
£ million

2019
£ million

2020
£ million

2019
£ million

–

272
49
2

117
29

580

267
50
3

117
27

578

113
–
–

–
2

–

113
–
–

–
2

115

123

1 The goodwill recognised on the acquisition of Macfarlan Smith is allocated to the Generics CGU which comprises both the legacy Macfarlan Smith business and the group’s

other generics businesses reflecting the way that the group monitors and manages its operations.

2 New Markets comprises CGUs with goodwill balances individually less than £10 million.

Impairment testing

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 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. The budgets and plans used for the impairment reviews reflect management’s estimate of the impact
of COVID-19, which is a deep recession involving a period of lower demand followed by an extended recovery period. The key macro
assumptions for our financial year 20/21 under the deep recession scenario are shown on page 65. Further information on the group’s
current strategic and business planning process is provided in the viability statement on page 75.

Unallocated corporate costs are split between CGUs based on their share of contribution. The three-year cash flows are extrapolated using
the long term average growth rates for the relevant products, industries and countries in which the CGUs operate. Pre-tax discount rates,
derived from the group’s post-tax weighted average cost of capital of 6.5% (2019: 7.6%), adjusted for the risks applicable to each CGU are
used to discount these projected risk-adjusted cash flows.

The key assumptions are:

Clean Air
– Heavy Duty Catalysts

Efficient Natural Resources
– Catalyst Technologies
– Diagnostic Services

Health
– Generics
– Innovators

Discount rate

Long term growth rate

2020

2019

2020

2019

9.8%

9.5%

–1.2%

–1.0%

8.3%
9.7%

9.9%
8.4%

10.3%
10.3%

8.6%
9.2%

2.8%
1.3%

2.0%
3.0%

2.7%
1.3%

4.0%
3.0%

Notes on the accounts continuedfor the year ended 31st March 2020AccountsJohnson Matthey / Annual Report and Accounts 2020

159

10 Goodwill (continued)

Impairment testing (continued)

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% (2019: 1%). After that, growth
is expected to slow and, therefore, the long term growth rate above is used for year 11 onwards.

Different long term growth rates are used for the Health – Generics CGU because of the significant growth expected in the medium term
from our existing pipeline of active pharmaceutical ingredients. The growth rate for years four to ten is expected to be 4% (2019: 4%).
The long term growth rate above is used for year 11 onwards.

Goodwill of £7 million in the Battery Materials LFP CGU in the New Markets sector has been fully impaired during the year (see note 3).
The parent company has impaired £8 million of goodwill during the year, which represents its allocation of the goodwill in the Battery
Materials LFP CGU.

Sensitivity analysis

The headroom for the significant CGUs, calculated as the difference between their carrying values including allocated goodwill at
31st March 2020 and the value in use calculations, is shown below. The table also shows, for each significant CGU, the headroom assuming
a 1% decrease in the growth rate assumption and a 1% increase in the discount rate assumption used in the value in use calculations.

Clean Air
– Heavy Duty Catalysts

Efficient Natural Resources
– Catalyst Technologies
– Diagnostic Services

Health
– Generics
– Innovators

Headroom at
31st March
2020
£ million

Headroom
assuming a
1% decrease
in the
growth rate
£ million

Headroom
assuming a
1% increase
in the
discount rate
£ million

196

132

123

874
25

123
149

655
14

64
112

637
12

58
110

There are no impairments for the significant CGUs under a very deep recession scenario, which reflects even lower demand followed
by a challenging, stuttering recovery. The key macro assumptions for our financial year 20/21 under the very deep recession scenario are
shown on page 65.

Notes on the accounts continuedfor the year ended 31st March 2020AccountsJohnson Matthey / Annual Report and Accounts 2020

160

11 Other intangible assets

Group

Cost
At 1st April 2018
Additions
Transfer to property, plant and equipment (note 9)
Disposals
Disposal of businesses
Exchange adjustments

At 31st March 2019
Additions
Disposals
Exchange adjustments

At 31st March 2020

Accumulated amortisation and impairment
At 1st April 2018
Charge for the year
Disposals
Disposal of businesses
Exchange adjustments

At 31st March 2019
Charge for the year
Impairment losses
Disposals
Exchange adjustments

At 31st March 2020

Carrying amount at 31st March 2020

Carrying amount at 31st March 2019

Carrying amount at 1st April 2018

Customer
contracts and
relationships
£ million

Computer
software
£ million

Patents,
trademarks
and licences
£ million

Acquired
research and
technology
£ million

Development
expenditure
£ million

Total
£ million

152
–
–
–
–
–

152
–
(7)
1

146

107
6
–
–
1

114
5
–
(7)
1

113

188
63
(11)
(9)
–
–

231
90
(1)
1

321

54
9
(9)
–
–

54
10
7
(1)
1

250

177

134

69
6
–
–
(13)
1

63
1
(1)
1

35
4
–
(5)
1

35
2
2
(1)
2

53
–
–
–
(1)
–

52
–
(3)
1

31
4
–
(1)
–

34
4
3
(3)
1

180
19
–
–
(1)
8

206
23
(21)
10

218

120
6
–
–
5

131
3
21
(21)
6

140

642
88
(11)
(9)
(15)
9

704
114
(33)
14

799

347
29
(9)
(6)
7

368
24
33
(33)
11

403

396

336

295

During the year, the group recognised impairments in respect of three Clean Air manufacturing plants (£6 million), the Battery Materials
LFP business (£5 million) and development expenditure which had been capitalised in respect of terminated molecules in the Health sector
(£20 million) which have been included in major impairment and restructuring charges (see note 3).

Notes on the accounts continuedfor the year ended 31st March 2020AccountsJohnson Matthey / Annual Report and Accounts 2020

161

11 Other intangible assets (continued)

Parent company

Cost
At 31st March 2019
Additions

At 31st March 2020

Accumulated amortisation and impairment
At 31st March 2019
Charge for the year
Impairment losses

At 31st March 2020

Carrying amount at 31st March 2020

Carrying amount at 31st March 2019

Computer
software
£ million

Patents,
trademarks
and licences
£ million

Acquired
research and
technology
£ million

Development
expenditure
£ million

Total
£ million

190
86

276

20
8
6

242

170

26
1

2
1
–

10
–

4
–
3

22
12

15
–
–

248
99

347

41
9
9

288

207

During the year, the parent company recognised impairments in respect of a Clean Air manufacturing plant (£6 million) and the Battery
Materials LFP business (£3 million).

12 Investments in subsidiaries

At 1st April 2018
Additions
Disposals

At 31st March 2019
Additions
Impairment losses

At 31st March 2020

Cost of
investments
in subsidiaries
£ million

Accumulated
impairment
£ million

Carrying
amount
£ million

2,255
12
(97)

2,170
13
–

2,183

(258)
–
–

(258)
–
(4)

1,997
12
(97)

1,912
13
(4)

(262)

1,921

The parent company recognised an impairment during the year in respect of its investment in Johnson Matthey Argentina S.A.

The parent company’s subsidiaries are shown in note 33.

Notes on the accounts continuedfor the year ended 31st March 2020AccountsJohnson Matthey / Annual Report and Accounts 2020
162

13 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 2018 and 31st March 2019
Group’s share of profit for the year

At 31st March 2020

2020
£ million

2019
£ million

6
17

5
15

Joint venture
£ million

Associate
£ million

Total
£ million

5
1

15
2

20
3

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 14).

The group has a 51% interest in the ordinary share capital of Qingdao Johnson Matthey Hero Catalyst Company Limited, with the other 49%
being owned by Qingdao Hero Chemical Engineering Company Ltd. This investment is accounted for as an investment in joint venture on
the basis that the group has joint control over the entity. Directors from both of the owners sit on the board of the company and decisions
require unanimous consent.

During the year ended 31st March 2020, the group made purchases from its joint venture and associate totalling £1 million
(2019: £1 million).

14 Investments at fair value through other comprehensive income

Quoted bonds purchased to fund pension deficit
Unquoted investments

Group

Parent company

2020
£ million

2019
£ million

2020
£ million

2019
£ million

49
–

52
–

–
7

There is no active market for the unquoted investments and, therefore, they are categorised as level 3 (note 28). The parent company’s
investment is the revenue share agreement with CECC (note 13). Movements in the unquoted investments in the year are shown below:

At 1st April 2018
Impairment losses

At 31st March 2019 and 31st March 2020

15 Interest rate swaps

Group
£ million

Parent
company
£ million

3
(3)

–

7
–

Cross currency interest rate swaps designated as cash flow hedges
Interest rate swaps designated as fair value hedges

Interest rate swaps

Group

Parent company

2020
£ million

2019
£ million

2020
£ million

2019
£ million

19
15

8
5

19
15

8
5

Notes on the accounts continuedfor the year ended 31st March 2020AccountsJohnson Matthey / Annual Report and Accounts 2020163

16 Inventories

Raw materials and consumables
Work in progress
Finished goods and goods for resale

Inventories

Group

Parent company

2020
£ million

2019
£ million

2020
£ million

2019
£ million

292
1,289
321

1,902

277
750
289

1,316

43
675
61

779

42
311
77

430

Work in progress includes £0.9 billion (31st March 2019: £0.4 billion) of precious metal which is committed to future sales to customers
and valued at the price at which it is contractually committed. The impact of COVID-19 has been taken into consideration when assessing
the net realisable value of inventories not contractually committed to future sales.

The increase in work in progress reflects an increase in precious metal inventories driven by an increase in metal prices, as well as higher
volumes due to reduced demand for production in Clean Air in March 2020 as a result of COVID-19. The impact of higher inventories
on the group’s working capital is offset by a net increase in amounts payable under precious metal sale and repurchase agreements
(see notes 17 and 19).

The group also holds customers’ materials in the process of refining and fabrication and for other reasons.

17 Trade and other receivables

Current
Trade receivables
Contract receivables
Amounts receivable from subsidiaries1, 2
Prepayments
Value added tax and other sales tax receivable
Advance payments to customers
Amounts receivable under precious metal sale and repurchase agreements
Other receivables

Trade and other receivables

Non-current
Amounts receivable from subsidiaries3
Value added tax and other sales tax receivable
Prepayments
Advance payments to customers

Other receivables

Group

Parent company

2020
£ million

2019
£ million

2020
£ million

2019
£ million

1,228
163
–
80
71
8
457
70

2,077

–
2
3
58

1,204
43
–
109
33
5
97
62

1,553

–
–
18
21

291
29
1,404
41
–
–
427
33

2,225

1,211
–
3
–

1,214

206
–
1,223
33
5
–
75
50

1,592

1,009
–
–
1

1,010

1 The parent company prior year comparatives have been restated to increase current amounts receivable from subsidiaries by £278 million. The restated amounts relate to
the prior year net presentation of intercompany treasury accounts in different currencies. The parent company does not have an enforceable legal right to set off these
amounts and, therefore, they have been restated on a gross basis.

2 The parent company has three intercompany fixed-term loans that are due for repayment within one year. The loans are denominated in Brazilian Real and Malaysian
Ringgit and have fixed interest rates between 4.8% and 6.5%. In addition, the parent company has a mixture of trade receivables from subsidiaries, which have limited
specific contractual terms, and a number of receivable balances held in different currencies under an intercompany treasury facility that accrues interest at LIBOR +0.81%
and are repayable on demand.

3 The parent company has a range of approximately 30 intercompany fixed-rate loans receivable across multiple currencies, with repayment dates ranging from 2022 to

2030. These unsecured loans have a range of interest rates determined by the currency in which they are denominated, ranging from 2.8% on Japanese Yen to 12.5% on
Indian Rupee.

The increase in group contract receivables reflects higher unbilled amounts in respect of sales of precious metal due to metal price increases.

The increase in amounts receivable under precious metal sale and repurchase agreements is more than offset by an increase in amounts
payable under precious metal sale and repurchase agreements driven by an increase in metal prices, as well as additional metal available to
sell and repurchase due to reduced demand for production in Clean Air in March 2020 as a result of COVID-19 and lower refinery backlogs
in Efficient Natural Resources (see notes 16 and 19).

The fair value of the precious metal contracted to be sold by the group under sale and repurchase agreements is £760 million
(2019: £113 million).

Of the parent company’s amounts receivable from subsidiaries, £153 million is impaired (2019: £131 million). Future expected credit
losses on intercompany receivables are immaterial.

Notes on the accounts continuedfor the year ended 31st March 2020AccountsJohnson Matthey / Annual Report and Accounts 2020164

18 Other financial assets and 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 assets

Forward foreign exchange contracts designated as cash flow hedges
Forward foreign exchange contracts and currency swaps at fair value through profit or loss

Other financial liabilities

19 Trade and other payables

Current
Trade payables
Contract liabilities
Amounts payable to subsidiaries1, 2
Accruals
Amounts payable under precious metal sale and repurchase agreements
Other payables

Current trade and other payables

Non-current
Amounts payable to subsidiaries3
Other payables

Other payables

Group

Parent company

2020
£ million

2019
£ million

2020
£ million

2019
£ million

4
2
22

(10)
(40)

(50)

5
1
16

(3)
(10)

(13)

6
2
20

(10)
(40)

(50)

5
1
17

(4)
(10)

(14)

Group

Parent company

2020
£ million

2019
£ million

2020
£ million

2019
£ million

677
134
–
312
1,491
131

2,745

–
6

637
85
–
332
525
68

1,647

–
5

261
5
2,372
117
1,357
55

4,167

510
4

514

229
17
2,012
112
483
21

2,874

486
3

489

1 The parent company prior year comparatives have been restated to increase current amounts payable to subsidiaries by £278 million. The restated amounts relate to the

prior year net presentation of intercompany treasury accounts in different currencies. The parent company does not have an enforceable legal right to set off these amounts
and, therefore, they have been restated on a gross basis.

2 The parent company has a mixture of trade payables to subsidiaries, which have limited specific contractual terms, and a number of payable balances held in different
currencies under an intercompany treasury facility that accrues interest at one-month LIBOR less 0.125% subject to a minimum of 0% and are repayable on demand.

3 The parent company has a range of approximately ten intercompany fixed-term loans payable, all of which are denominated in sterling. These unsecured loans have

repayment dates ranging from 2025 to 2037 and have interest rates between 3.3% and 4.9%.

The increase in group contract liabilities reflects a £51 million prepayment received from a customer in respect of sales of precious metal.

The amount of the contract liabilities balance at 31st March 2019 which was recognised in revenue during the year ended 31st March 2020
for the group and parent company was £85 million and £17 million, respectively.

The increase in amounts payable under precious metal sale and repurchase agreements is driven by an increase in metal prices, as well
as additional metal available to sell and repurchase due to reduced demand for production in Clean Air in March 2020 as a result of
COVID-19 and lower refinery backlogs in Efficient Natural Resources. The increase in amounts payable under precious metal sale and
repurchase agreements is partially offset by an increase in amounts receivable under precious metal sale and repurchase agreements
(see notes 16 and 17).

The fair value of the precious metal contracted to be repurchased by the group under sale and repurchase agreements is £1,738 million
(2019: £502 million).

Notes on the accounts continuedfor the year ended 31st March 2020AccountsJohnson Matthey / Annual Report and Accounts 2020165

20 Borrowings and related swaps

Non-current
Bank and other loans
$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

Group

Parent company

2020
£ million

2019
£ million

2020
£ million

2019
£ million

–
–
(148)
(128)
(134)
(18)
(65)
(41)
(106)
(71)
(45)
(146)
(86)
–
(6)
–

(38)
(86)
(143)
(116)
(127)
(17)
(65)
(38)
(100)
(68)
(45)
(138)
(80)
(7)
(5)
–

–
–
(148)
(128)
(134)
(18)
(65)
(41)
(106)
(71)
(45)
(146)
(86)
–
–
(6)

(38)
(86)
(143)
(116)
(127)
(17)
(65)
(38)
(100)
(68)
(45)
(138)
(80)
–
–
(5)

Borrowings and related swaps

(994)

(1,073)

(994)

(1,066)

Current
1.945% €124 million EIB loan 2019
$50 million KfW IPEX-Bank GmbH (KfW) loan 2020
4.66% €100 million Bonds 2021
Other bank and other loans

Borrowings and related swaps

–
(41)
(89)
(201)

(331)

(107)
–
–
(77)

(184)

–
(41)
(89)
–

(130)

(107)
–
–
–

(107)

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 bank overdrafts, which bear
interest at commercial floating rates.

Notes on the accounts continuedfor the year ended 31st March 2020AccountsJohnson Matthey / Annual Report and Accounts 2020166

21 Movements in assets and liabilities arising from financing activities

2019
£ million

(1,073)
–

(184)
–

Non-current assets
Interest rate swaps

Non-current liabilities
Borrowings and related swaps
Lease liabilities

Current liabilities
Borrowings and related swaps
Lease liabilities

Dividends paid to equity shareholders
Interest paid

Net cash outflow from financing activities

Non-current assets
Interest rate swaps

Non-current liabilities
Borrowings and related swaps

Current liabilities
Borrowings and related swaps

Dividends paid to equity shareholders
Interest paid

Net cash outflow from financing activities

Non-cash movements

Cash
(inflow) /
outflow
£ million

IFRS 16
transition
£ million

Foreign
exchange
movements
£ million

Fair value
and other
movements
£ million

Transfers
£ million

2020
£ million

–

131
13

(131)
(13)

–

–
(66)

–
(11)

(77)

(41)
–

(4)
–

(45)

(994)
(64)

(331)
(12)

(11)
(11)

–
(1)

(2)

–

–
–

(12)
13

167
202

370

Non-cash movements

Cash
(inflow) /
outflow
£ million

Foreign
exchange
movements
£ million

Fair value
and other
movements
£ million

Transfers
£ million

2019
£ million

2018
£ million

–

(1)

–

(951)

(202)

110

(26)

(4)

(1,073)

(109)

–

(26)

(184)

(38)

(39)

(241)
156
108

Notes on the accounts continuedfor the year ended 31st March 2020AccountsJohnson Matthey / Annual Report and Accounts 2020167

Restructuring
provisions
£ million

Warranty and
technology
provisions
£ million

Other
provisions
£ million

Total
£ million

15
–
(8)
(4)
–

3
–

3
–
(1)
–

9
3
(1)
(1)
–

10
–

10
4
(1)
(4)

27
2
(14)
(1)
2

16
(1)

15
5
(8)
(3)

51
5
(23)
(6)
2

29
(1)

28
9
(10)
(7)

2020
£ million

2019
£ million

11
9

20
9

22 Provisions

Group

At 1st April 2018
Charge for the year
Utilised
Released
Exchange adjustments

At 31st March 2019
Adjustment on adoption of IFRS 16 (note 34)

At 1st April 2019 (restated)
Charge for the year
Utilised
Released

At 31st March 2020

Current
Non-current

Total provisions

Restructuring

The restructuring provisions are expected to be fully utilised by 31st March 2021.

Warranty and technology

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.

Other

The other provisions include environmental 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.

Notes on the accounts continuedfor the year ended 31st March 2020AccountsJohnson Matthey / Annual Report and Accounts 2020

168

22 Provisions (continued)

Parent company

At 1st April 2018
Charge for the year
Utilised

At 31st March 2019
Adjustment on adoption of IFRS 16 (note 34)

At 1st April 2019 (restated)
Charge for the year
Net sale of metal
Utilised

At 31st March 2020

Current
Non-current

Total provisions

Restructuring
provisions
£ million

Other
provisions
£ million

Total
£ million

4
–
(3)

1
–

1
–
–
(1)

–

18
7
(2)

23
(1)

22
35
29
–

22
7
(5)

24
(1)

23
35
29
(1)

2020
£ million

2019
£ million

85
1

23
1

The other provisions include provisions to buy metal to cover short positions created by the parent company selling metal to cover price risk
on metal owned by subsidiaries. Amounts provided reflect management’s best estimate of the expenditure required to settle the obligations
at the balance sheet date.

The parent company also guarantees some of its subsidiaries’ borrowings, partly through interest netting arrangements, payables and
precious metal leases, and its exposure at 31st March 2020 was £177 million (2019: £113 million).

23 Deferred tax

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 2018
Charge / (credit) to the income statement
Disposal of businesses
Tax on items taken directly to or transferred

from equity

Exchange adjustments

At 31st March 2019
(Credit) / charge to the income statement
Tax on items taken directly to or transferred

from equity

Exchange adjustments

At 31st March 2020

21
8
–

–
1

30
(6)

–
1

30
7
–

(13)
(1)

23
9

21
(1)

(25)
1
–

–
(1)

(25)
–

–
(1)

(26)

(10)
(8)
–

–
–

(18)
(33)

–
–

(51)

21
(1)
–

–
1

21
(10)

–
1

Deferred tax assets
Deferred tax liabilities

9
(9)
1

–
1

2
(6)

–
–

(4)

46
(2)
1

(13)
1

33
(46)

21
–

2020
£ million

2019
£ million

(66)
74

(58)
91

Notes on the accounts continuedfor the year ended 31st March 2020AccountsJohnson Matthey / Annual Report and Accounts 2020

169

23 Deferred tax (continued)

Group (continued)

Deductible temporary differences, unused tax losses and unused tax credits not recognised on the balance sheet total £222 million
(2019: £157 million), of which £50 million is expected to expire within 5 years, £16 million within 5 to 10 years, £44 million after 10 years
and £112 million carry no expiry date.

Deferred tax liabilities have not been recognised on temporary differences of £1,769 million (2019: £1,672 million) associated with
investments in subsidiaries.

The recognition of deferred tax assets has been determined by the recoverability of those assets against future tax liabilities as determined
by budgets and plans that have been updated for COVID-19 showing future profits in relevant businesses.

The majority of the deferred tax assets and liabilities noted above are anticipated to be realised after more than 12 months.

Parent company

At 1st April 2018
Charge / (credit) to the income statement
Tax on items taken directly to or transferred

from equity

At 31st March 2019
(Credit) / charge to income statement
Tax on items taken directly to or transferred

from equity

At 31st March 2020

Property,
plant and
equipment
£ million

Post-
employment
benefits
£ million

(4)
5

–

1
(4)

–

(3)

45
6

(11)

40
5

Provisions
£ million

Inventories
£ million

Intangibles
£ million

Other
£ million

(2)
1

–

(1)
1

–

(5)
(6)

–

(11)
(32)

–

(43)

–
1

–

1
–

–

9
(1)

9
3

–

Total
deferred tax
(assets) /
liabilities
£ million

43
6

(10)

39
(27)

Deductible temporary differences, unused tax losses and unused tax credits not recognised on the balance sheet are £6 million
(2019: £2 million) and have no expiry date.

24 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.

Notes on the accounts continuedfor the year ended 31st March 2020AccountsJohnson Matthey / Annual Report and Accounts 2020

170

24 Post-employment benefits (continued)

Group (continued)

Background (continued)

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.

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.

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 2020 are:

Pensions:
UK
US
Post-retirement medical benefits:
UK
US

Weighted
average
duration
Years

19
13

14
12

Notes on the accounts continuedfor the year ended 31st March 2020AccountsJohnson Matthey / Annual Report and Accounts 2020

171

24 Post-employment benefits (continued)

Group (continued)

Funding

Introduction

The group’s principal defined benefit retirement plans are funded through separate fiduciary or trustee administered funds that are
independent of the sponsoring company. The contributions paid to these arrangements are jointly agreed by the sponsoring company and
the relevant trustee or fiduciary body after each funding valuation and in consultation with independent qualified actuaries. The plans’
assets, together with the agreed funding contributions, should be sufficient to meet the plans’ future pension obligations.

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 (see note 14) 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 £17 million was paid during the year ended 31st March 2020. 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 2019 and showed that
there was a surplus of $0.7 million on the projected funding basis. The assumptions used for funding valuations may differ to the actuarial
assumptions used for IAS 19 accounting purposes.

Other valuations

Similar funding valuations are undertaken on the group’s other defined benefit pension plans outside of the UK and US in accordance with
prevailing local legislation.

Notes on the accounts continuedfor the year ended 31st March 2020AccountsJohnson Matthey / Annual Report and Accounts 2020

172

24 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 £52 million (2019: £75 million), including
deficit contributions of £17 million (2019: £23 million) in respect of JMEPS. There was a contribution holiday in the US pension plans
following an accelerated contribution made during the year ended 31st March 2019.

It is estimated that the group will contribute approximately £50 million to the post-employment defined benefit plans during the year
ending 31st March 2021.

Notes on the accounts continuedfor the year ended 31st March 2020AccountsJohnson Matthey / Annual Report and Accounts 2020

173

24 Post-employment benefits (continued)

Group (continued)

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 2020.
The assumptions used are chosen from a range of possible actuarial assumptions which, due to the long term nature of the plans,
may not necessarily be borne out in practice.

Financial assumptions

First year's rate of increase in salaries
Ultimate rate of increase in salaries
Rate of increase in pensions in payment
Discount rate
Inflation
– UK Retail Prices Index (RPI)
– UK Consumer Prices Index (CPI)
Current medical benefits cost trend rate
Ultimate medical benefits cost trend rate

Demographic assumptions

2020
UK plan
%

2020
US plans
%

2020
Other plans
%

2019
UK plan
%

2019
US plans
%

2019
Other plans
%

–
2.60
2.50
2.30

2.50
1.85
5.40
5.40

–
3.00
–
3.00
2.20

2.20
2.20

2.15
2.15
1.70
1.87
1.65

–
–

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

–
–

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
90

85
87

89
92

87
90

At 1st April 2018
Administrative expenses
Interest income
Return on plan assets excluding interest
Employee contributions
Company contributions
Benefits paid
Exchange adjustments

At 31st March 2019
Administrative expenses
Interest income
Return on plan assets excluding interest
Employee contributions
Company contributions
Benefits paid
Exchange adjustments

At 31st March 2020

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

1,935
(3)
53
68
2
36
(66)
–

2,025
(3)
48
(11)
2
27
(61)
–

2,027

44
–
1
3
5
18
(3)
–

68
–
2
(2)
6
19
(3)
–

–
–
–
–
–
–
–
–

–

272
(1)
11
7
1
16
(16)
21

311
(1)
12
46
1
–
(20)
19

368

–
–
–
–
1
2
(3)
–

–
–
–
–
1
3
(4)
–

–

47
–
1
4
–
3
(2)
(1)

52
–
1
(1)
–
3
(2)
2

2,298
(4)
66
82
9
75
(90)
20

2,456
(4)
63
32
10
52
(90)
21

2,540

Notes on the accounts continuedfor the year ended 31st March 2020AccountsJohnson Matthey / Annual Report and Accounts 2020

174

24 Post-employment benefits (continued)

Group (continued)

Financial information (continued)

Plan assets (continued)

The fair values of plan assets are analysed as follows:

Quoted corporate bonds1
Inflation and interest rate swaps
Quoted government bonds1
Cash and cash equivalents
Quoted equity
Unquoted equity
Property
Insurance policies

2020
UK pension –
legacy
section
£ million

2020
UK pension –
cash balance
section
£ million

2020

US
pensions
£ million

Other
£ million

2019
UK pension –
legacy
section
£ million

2019
UK pension –
cash balance
section
£ million

2019

US
pensions
£ million

Other
£ million

700
37
809
89
290
40
62
–

2,027

73
–
–
1
16
–
–
–

178
–
150
8
32
–
–
–

368

6
–
–
–
1
–
–
48

614
86
495
43
680
42
65
–

2,025

67
–
–
1
–
–
–
–

156
–
110
12
33
–
–
–

311

5
–
–
–
2
–
–
45

1 Prior year comparatives re-presented to increase quoted government bonds by £475 million and to decrease quoted corporate bonds by £475 million in the legacy section

of the UK pension plan.

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 represents an investment in the Blackrock UK Property Fund, which is a unitised fund where the underlying assets are
taken at market value. The valuation of the fund is independently audited by KPMG on an annual basis. On 20th March 2020, consistent with
other property fund managers, Blackrock suspended dealing in the fund due to a significant decrease in property transactions on which to base
the fund valuation as a consequence of the COVID-19 pandemic. The fair value at 31st March 2020 is based on the independent valuation of
activity up to 20th March 2020 provided by the fund manager which is subject to material uncertainty. The group considers the fund’s value to
be materially accurate on the basis that any short term impact of COVID-19 would not reflect the value of these long term investments.

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 2018
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 2019
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

(1,710)
(12)
7
(46)
(2)

(132)
3
66
–

(1,826)
(8)
–
(43)
(2)

131
(34)
61
–

(43)
(17)
–
(2)
(5)

(6)
1
3
–

(69)
(21)
–
(2)
(6)

8
–
3
–

(9)
–
–
–
–

–
–
–
–

(9)
–
–
–
–

–
(3)
–
–

(292)
(8)
2
(12)
(1)

(5)
(3)
16
(23)

(326)
(8)
–
(13)
(1)

(47)
4
20
(21)

(34)
–
–
(1)
(1)

(1)
1
3
(4)

(37)
(1)
10
(1)
(1)

(5)
(1)
4
(2)

(82)
(3)
–
(2)
–

(9)
1
2
2

(91)
(3)
10
(2)
–

3
–
2
(3)

Total
£ million

(2,170)
(40)
9
(63)
(9)

(153)
3
90
(25)

(2,358)
(41)
20
(61)
(10)

90
(34)
90
(26)

At 31st March 2020

(1,721)

(87)

(12)

(392)

(34)

(84)

(2,330)

Notes on the accounts continuedfor the year ended 31st March 2020AccountsJohnson Matthey / Annual Report and Accounts 2020

175

24 Post-employment benefits (continued)

Group (continued)

Financial information (continued)

Defined benefit obligation (continued)

A past service credit of £10 million has been recognised in underlying operating profit in respect of changes to the Johnson Matthey Inc.
Post-retirement Welfare Plan, effective 1st January 2020. A past service credit of £10 million has been recognised in underlying operating
profit in respect of changes to the group’s Advanced Glass Technologies Netherlands defined benefit pension plan, effective 1st January 2020.

The net remeasurement gain in the legacy section of the UK pension plan during the year ended 31st March 2020 includes a gain due
to changes in financial assumptions mainly reflecting a 60 basis point decrease in inflation, partly offset by a loss due to changes in
demographic assumptions reflecting updated mortality assumptions.

Reimbursement rights

A government subsidy is receivable under the US Medicare legislation as the US post-retirement medical benefits plan is actuarially
equivalent to the Medicare Prescription Drug Act and there is an insurance policy taken out to reinsure the pension commitments of one
of the small pension plans which does not meet the definition of a qualifying insurance policy. These are accounted for as reimbursement
rights and are shown on the balance sheet in post-employment benefit net assets.

Movements in the reimbursement rights during the year were:

At 1st April 2018
Return on assets excluding interest
Exchange adjustments

At 31st March 2019
Return on assets excluding interest

At 31st March 2020

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

–
–
–

–
–

–

–
–
–

–
–

–

–
–
–

–
–

–

–
–
–

–
–

–

8
(1)
1

8
(1)

1
–
–

1
–

9
(1)
1

9
(1)

Net post-employment benefit assets 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 2020
Defined benefit obligation
Fair value of plan assets
Reimbursement rights

(1,721)
2,027
–

Net post-employment benefit assets and liabilities

306

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

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

(87)
90
–

(69)
68
–

(1)

(12)
–
–

(12)

(9)
–
–

(9)

(392)
368
–

(24)

(326)
311
–

(15)

(34)
–
7

(27)

(37)
–
8

(29)

(84)
55
1

(28)

(91)
52
1

(38)

(2,330)
2,540
8

218

(2,358)
2,456
9

107

2020
Post-
employment
benefit
net assets
£ million

2020

Employee
benefit net
obligations
£ million

Total
£ million

2019
Post-
employment
benefit
net assets
£ million

2019

Employee
benefit net
obligations
£ million

Total
£ million

306
3
(12)
(24)
(27)
(28)

218

199
–
–
–
8
2

209

306
3
–
–
7
1

317

–
–
(12)
(24)
(34)
(29)

(99)

(5)

(104)

199
(1)
(9)
(15)
(29)
(38)

107

–
(1)
(9)
(15)
(37)
(40)

(102)

(4)

(106)

Notes on the accounts continuedfor the year ended 31st March 2020AccountsJohnson Matthey / Annual Report and Accounts 2020

176

24 Post-employment benefits (continued)

Group (continued)

Financial information (continued)

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 credited to finance income

Charge to profit before tax

Statement of total comprehensive income

Amounts recognised in the statement of total comprehensive income for long term employment benefits were:

Return on plan assets excluding interest
Remeasurements due to changes in:
Financial assumptions
Demographic assumptions
Reimbursement rights – return on assets excluding interest

Remeasurements of post-employment benefit assets and liabilities

2020
£ million

2019
£ million

(4)
(41)
20

(25)
(23)
(1)

(49)
2

(47)

(4)
(40)
9

(35)
(21)
–

(56)
3

(53)

2020
£ million

2019
£ million

90
(34)
(1)

(153)
3
(1)

(69)

Sensitivity analysis

The calculations of the defined benefit obligations are sensitive to the assumptions used. The following summarises the estimated impact
on the group’s main plans of a change in the assumption while holding all other assumptions constant. This sensitivity analysis may not
be representative of the actual change as it is unlikely that the change in assumptions would occur in isolation of one another.

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 2020 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

34
(30)

5
–

(36)
30

(5)
–

A one-year increase in life expectancy would increase the UK and US pension plans’ defined benefit obligation by £59 million and
£8 million, respectively.

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.

Notes on the accounts continuedfor the year ended 31st March 2020AccountsJohnson Matthey / Annual Report and Accounts 2020

177

25 Leases

Leasing activities

The group and parent company lease some of their property, plant and equipment which are used by the group and parent company
in their operations. The impact of the group’s transition to IFRS 16 is disclosed in note 34.

Right-of-use assets

Group

At 1st April 2019 on transition to IFRS 16
New leases, remeasurements and modifications
Disposals
Depreciation charge for the year
Impairment losses
Exchange adjustments

At 31st March 2020

Parent company

At 1st April 2019 on transition to IFRS 16
New leases, remeasurements and modifications
Depreciation charge for the year

At 31st March 2020

Lease liabilities

Current
Non-current

Lease liabilities

Interest expense

A maturity analysis of lease liabilities is disclosed in note 27.

Other

Total cash outflow for leases

The expense relating to low-value and short term leases is immaterial.

Land and
buildings
£ million

Plant and
machinery
£ million

Total
£ million

77
5
–
(10)
(1)
1

12
8
(1)
(4)
–
1

89
13
(1)
(14)
(1)
2

Land and
buildings
£ million

Plant and
machinery
£ million

Total
£ million

13
3
(3)

1
6
(1)

14
9
(4)

2020

Group
£ million

Parent
company
£ million

12
64

3
16

2020

Group
£ million

Parent
company
£ million

2020

Group
£ million

Parent
company
£ million

Notes on the accounts continuedfor the year ended 31st March 2020AccountsJohnson Matthey / Annual Report and Accounts 2020

178

26 Share capital and other reserves

Share capital

Issued and fully paid ordinary shares
At 1st April 2018, 31st March 2019 and 31st March 2020

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 29.

At the last annual general meeting on 17th July 2019, shareholders approved a resolution for the company to make purchases of its own
shares up to a maximum number of 19,353,343 ordinary shares of 11049/53 pence each. The resolution remains valid until the conclusion
of this year’s annual general meeting. The company will purchase its own shares when the board believes it to be in the best interests of the
shareholders generally and will result in an increase in earnings per share.

The group and parent company’s employee share ownership trust (ESOT) also buys shares on the open market and holds them in trust for
employees participating in the group’s executive long term incentive plans. At 31st March 2020, the ESOT held 1,011,913 shares (2019:
1,439,984 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 (2019: 5,407,176) at a total cost of £92 million (2019: £92 million).

Dividends

2017/18 final ordinary dividend paid – 58.25 pence per share
2018/19 interim ordinary dividend paid – 23.25 pence per share
2018/19 final ordinary dividend paid – 62.25 pence per share
2019/20 interim ordinary dividend paid – 24.50 pence per share

Total dividends

2020
£ million

2019
£ million

–
–
120
47

167

112
44
–
–

156

A final dividend of 31.125 pence per ordinary share has been proposed by the board which will be paid on 4th August 2020 to shareholders
on the register at the close of business on 19th June 2020, subject to shareholders’ approval. The estimated amount to be paid is £60 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.

Notes on the accounts continuedfor the year ended 31st March 2020AccountsJohnson Matthey / Annual Report and Accounts 2020

179

26 Share capital and other reserves (continued)

Other reserves (continued)

Group

Hedging reserve

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

At 1st April 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)
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 items taken directly to or transferred

from equity
Reclassification

At 31st March 2019
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 items taken directly to or transferred

from equity

At 31st March 2020

7
–

–

–
–

7
–

–

56
–

–

(1)

–

1
4

82
–

–

(8)

–

139

6
–

–

(4)

–

–
–

2
–

–

(2)

–

1
(4)

–

–
–

(1)
(9)

(1)

–

(7)

(6)
7

–

(5)

–

–
–

(4)
11

–

(5)

–

(1)

(2)
1

–

(1)
–

1
2

–

(1)

–

62
4

(5)

(1)

(4)

–
4

87
4

(1)

(5)

(8)

(2)

–

142

Notes on the accounts continuedfor the year ended 31st March 2020AccountsJohnson Matthey / Annual Report and Accounts 2020

180

26 Share capital and other reserves (continued)

Other reserves (continued)

Parent company

Hedging reserve

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

At 1st April 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
Cash flow hedges — (losses) / gains taken to equity
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

At 31st March 2020

7
–

–

–
–

7
–

–

(4)
–

–

–
4

–
–

–

3
–

–

–
–

3
–

–

2
(2)

–

–
–

1
(5)

–

(3)

(6)
7

–

(5)

–

–
–

(4)
11

(5)

–

(1)

(2)
1

–

(1)
–

1
2

–

(1)

–

–
6

(5)

(1)
4

8
8

(5)

(1)

–

Capital

The group’s policy for managing capital is to maintain an efficient balance sheet to ensure that the group always has sufficient resources
to be able to invest in future growth. The group uses return on invested capital (ROIC) to provide a measure of its efficiency in allocating
the capital under its control to profitable investments (see note 35). Capital employed is defined as total equity, excluding post tax pension
net assets, plus net debt. During the year, the group complied with all externally imposed capital requirements to which it is subject.

27 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.

Notes on the accounts continuedfor the year ended 31st March 2020AccountsJohnson Matthey / Annual Report and Accounts 2020

181

27 Financial risk management (continued)

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 2020,
trade receivables for the group amounted to £1,228 million (2019: £1,204 million), of which £906 million (2019: £928 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 and,
in the event that one of those customers experiences financial difficulty, there could be a material adverse impact on the group. Other parts
of the group tend to sell to a larger number of customers and amounts owed tend to be lower. At 31st March 2020, no single outstanding
balance exceeded 2% (2019: 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,
in particular those based on current market conditions. Generally, payments are made promptly in the automotive industry and in the other
markets in which the group operates.

The group applies 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. A provision matrix is used to calculate
lifetime expected credit losses using historical loss rates based on days past due and a broad range of forward-looking information,
including country and market growth forecasts. This year, expected credit losses on unimpaired trade and contract receivables have
increased to £21 million (31st March 2019: £3 million) as a result of the estimated impact of the COVID-19 pandemic on the group,
its customers and the countries and markets in which it operates.

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.

The group’s provision matrix for trade and contract receivables is set out below:

Year ended 31st March 2020

Expected credit loss rate (%)
Gross carrying value (£ million)
Expected credit losses (£ million)

Net carrying value (£ million)

Year ended 31st March 2019

Expected credit loss rate (%)
Gross carrying value (£ million)
Expected credit losses (£ million)

Net carrying value (£ million)

Contract
receivables

Trade receivables

Total

impaired

Not past due

<30 days
overdue

30-90 days
overdue

>90 days
overdue

Total

1%
165
(2)

163

Contract
receivables

100%
16
(16)

1%
1,132
(15)

2%
86
(2)

7%
17
(1)

11%
12
(1)

1,263
(35)

1,228

Trade receivables

Total

Impaired

Not past due

<30 days
overdue

30-90 days
overdue

>90 days
overdue

Total

100%
12
(12)

–
1,094
–

–
80
–

6%
23
(2)

10%
10
(1)

–
43
–

1,219
(15)

1,204

Movements in the allowance for expected credit losses on trade and contract receivables are as follows:

At beginning of year
Charge for year
Utilised
Released

At end of year

Group

2020
£ million

2019
£ million

15
25
(1)
(2)

9
9
(2)
(1)

Notes on the accounts continuedfor the year ended 31st March 2020AccountsJohnson Matthey / Annual Report and Accounts 2020
182

27 Financial risk management (continued)

Credit risk (continued)

The group’s maximum exposure to default on trade and contract receivables is £1,428 million (2019: £1,262 million).

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 2020, the maximum net exposure with a single bank for cash and
deposits was £41 million (2019: £30 million), whilst the largest mark to market exposure for derivative financial instruments to a single
bank was £22 million (2019: £7 million). The group also uses money market funds to invest surplus cash thereby further diversifying credit
risk and, at 31st March 2020, the group’s exposure to these funds was £192 million (2019: £347 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%
(6.4 cent (2019: 6.6 cent)) movement in the average exchange rate for the US dollar against sterling would have had a £12 million (2019:
£13 million) impact on underlying operating profit. The group is also exposed to the euro and a 5% (5.7 cent (2019: 5.7 cent)) movement
in the average exchange rate for the euro against sterling would have had a £10 million (2019: £12 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

2020
£ million

2019
£ million

2020
£ million

2019
£ million

12
21

6
20

(15)
(26)

(7)
(25)

For the net investment hedges, these movements would be fully offset in reserves by an opposite movement on the retranslation of the net
assets of the overseas subsidiaries.

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.

Year ended 31st March 2020

Carrying value of hedging instruments at 31st March 2020

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

(165)

(7)
7

(6)

(1)
1

Total
£ million

(171)

(8)
8

Notes on the accounts continuedfor the year ended 31st March 2020AccountsJohnson Matthey / Annual Report and Accounts 2020

183

27 Financial risk management (continued)

Foreign currency risk (continued)

Investments in foreign operations (continued)

Year ended 31st March 2019

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.

Year ended 31st March 2020

Carrying value of hedging instruments at 31st March 2020 – 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

–
(2)

(6)
6

1
(3)

–
–

111

3
(5)

(3)
3

4
(10)

(9)
9

Year ended 31st March 2019

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

1 The notional amount is the sterling equivalent of the net currency amount purchased or sold.

Sterling /
US dollar
£ million

Sterling /
euro
£ million

Other
£ million

Total
£ million

1
(1)

(3)
3

2
(1)

1
(1)

106

2
(1)

(2)
2

5
(3)

(4)
4

The weighted average exchange rates on sterling / US dollar and sterling / euro forward foreign exchange contracts are 1.27 and 1.14
(2019: 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.

Notes on the accounts continuedfor the year ended 31st March 2020AccountsJohnson Matthey / Annual Report and Accounts 2020

184

27 Financial risk management (continued)

Foreign currency risk (continued)
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 March1

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

2020
£ million

2019
£ million

11
(11)

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.

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 2020, 84% (2019: 94%)
of the group’s net debt was at fixed rates with an average interest rate of 3.6% (2019: 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
year would have a £2 million impact on the group’s profit before tax (2019: immaterial).

The group has designated four (2019: four) 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 March1

Amortised cost
Fair value adjustment

Carrying value of hedged items at 31st March1

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

2020
£ million

2019
£ million

(270)
(15)

(285)

10
(10)

(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.

Notes on the accounts continuedfor the year ended 31st March 2020AccountsJohnson Matthey / Annual Report and Accounts 2020

185

27 Financial risk management (continued)

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 2020, the group had borrowings under committed bank facilities of
£nil (2019: £nil). The group also has a number of uncommitted facilities and overdraft lines at its disposal.

Expiring within one year
Expiring in more than one year but not more than two years
Expiring in more than two years

Undrawn committed bank facilities

2020
£ million

2019
£ million

125
–
1,000

1,125

–
175
422

597

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 2020

Bank overdrafts
Bank and other loans – principal
Bank and other loans – interest payments
Lease liabilities – principal
Lease liabilities – 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

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

Total derivative financial liabilities

Within 1 year
£ million

1 to 2 years
£ million

2 to 5 years
£ million

After 5 years
£ million

Total
£ million

31
331
30
12
3
2,611

3,018

398
(386)
1,236
(1,198)
2
(2)

–
–
24
12
2
1

–
–
–
–
2
(2)

–

–
528
52
26
5
2

613

–
–
–
–
71
(68)

–
445
24
26
8
–

503

–
–
–
–
–
–

–

31
1,304
130
76
18
2,614

4,173

398
(386)
1,236
(1,198)
75
(72)

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)

–
131
27
1

159

–
–
–
–
2
(2)

–

–
403
59
2

464

–
–
–
–
70
(70)

–

–
529
36
–

565

–
–
–
–
–
–

–

59
1,247
153
1,565

3,024

227
(223)
612
(602)
74
(74)

1 Re-presented to reflect a mutual break clause in the contract which can be exercised by either party in June 2023.

Notes on the accounts continuedfor the year ended 31st March 2020AccountsJohnson Matthey / Annual Report and Accounts 2020
186

27 Financial risk management (continued)

Offsetting financial assets and liabilities

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 or enforceable master netting arrangements:

At 31st March 2020

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

At 31st March 2019

Gross
financial
assets /
(liabilities)
£ million

34
112
28
(31)
(50)
(994)

Gross
financial
assets /
(liabilities)
£ million

13
95
22
(64)
(13)
(1,073)

Amounts
set off
£ million

Net amounts
in balance
sheet
£ million

Amounts
not set off1
£ million

Net
£ million

–
–
–
–
–
–

34
112
28
(31)
(50)
(994)

(6)
–
(21)
–
21
6

28
112
7
(31)
(29)
(988)

Amounts
set off
£ million

Net amounts
in balance
sheet
£ million

Amounts
not set off1
£ million

–
(5)
–
5
–
–

13
90
22
(59)
(13)
(1,073)

(5)
–
(10)
–
10
5

Net
£ million

8
90
12
(59)
(3)
(1,068)

1 Agreements with derivative counterparties are based on an ISDA Master Agreement. Under these arrangements, whilst the group does not have a legally enforceable right
of set off, where certain credit events occur, such as default, the net position receivable from or payable to a single counterparty in the same currency would be taken as
owing and all the relevant arrangements terminated.

28 Fair values

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).

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.

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 trade and other receivables measured at fair value is the face value of the receivable less the estimated costs of converting
the receivable into cash.

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.

Notes on the accounts continuedfor the year ended 31st March 2020AccountsJohnson Matthey / Annual Report and Accounts 2020

187

28 Fair values (continued)

Fair value of financial instruments (continued)

Financial instruments measured at fair value

Non-current
Investments at fair value through other comprehensive income
Interest rate swaps
Borrowings and related swaps

Current
Trade receivables1
Other receivables2
Cash and cash equivalents – money market funds
Other financial assets3
Other financial liabilities3

Financial instruments not measured at fair value

Non-current
Borrowings and related swaps
Lease liabilities

Current
Cash and cash equivalents – cash and deposits
Cash and cash equivalents – bank overdrafts
Borrowings and related swaps
Lease liabilities

2020
£ million

2019
£ million

Fair value
hierarchy
Level

Note

49
34
(6)

328
72
192
28
(50)

52
13
(5)

173
9
347
22
(13)

(988)
(64)

(1,068)
–

112
(31)
(331)
(12)

90
(59)
(184)
–

1
2
2

2
2
2
2
2

14
15
20

17
17

18
18

20
25

1 Trade receivables held in a part of the group with a business model to hold trade receivables for collection or sale. The remainder of the group operates a hold to collect
business model and receives the face value, plus relevant interest, of its trade receivables from the counterparty without otherwise exchanging or disposing of such
instruments.

2 Other receivables with cash flows that do not represent solely the payment of principal and interest.

Includes forward foreign exchange contracts, forward precious metal price contracts and currency swaps.

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

2020

2019

Carrying
amount
£ million

Fair
value
£ million

Carrying
amount
£ million

Fair
value
£ million

(514)
(264)
–
(110)
(41)

(496)
(247)
–
(108)
(41)

(481)
(251)
(107)
(110)
(38)

(477)
(264)
(108)
(118)
(39)

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.

Notes on the accounts continuedfor the year ended 31st March 2020AccountsJohnson Matthey / Annual Report and Accounts 2020
188

29 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 £5 million (2019: £17 million). The reduction in the
expense recognised represents the lower growth in earnings per share achieved during the year ended 31st March 2020 and now forecast
for the years ending 31st March 2021 and 2022.

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 2020, 1,037,536 shares awarded in 2017, 2018 and 2019 were outstanding (31st March 2019: 684,015 awarded in 2017
and 2018).

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 varies
on a straight-line basis between these points. Awards lapse if the uEPS growth is less than the minimum. For the 2017 awards, there was no
uEPS growth and, therefore, the awards will lapse.

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

2020
Number of
awarded
shares

684,015
442,905
(89,384)
–

2019
Number of
awarded
shares

357,562
350,211
(23,647)
(111)

1,037,536

684,015

The fair value of the shares awarded during the year under the PSP was 2,964.6 pence per share (2019: 3,442.6 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 3,210.0 pence (2019:
3,667.0 pence) adjusted for the present value of the expected dividends that will not be received at an expected dividend rate of 2.66%
(2019: 2.11%).

At 31st March 2020, the weighted average remaining contracted life of the awarded shares is 1.1 years (2019: 1.5 years).

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
Expired during the year

Outstanding at the end of the year

2020
Number of
awarded
shares

161,691
125,243
(29,618)
(7,557)
(2,738)

2019
Number of
awarded
shares

80,047
99,543
(15,270)
(2,629)
–

247,021

161,691

Notes on the accounts continuedfor the year ended 31st March 2020AccountsJohnson Matthey / Annual Report and Accounts 2020

189

29 Share-based payments (continued)

Restricted share plan (RSP) (continued)

The fair value of the shares awarded during the year under the RSP was 2,964.6 pence per share (2019: 3,442.6 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 3,210.0 pence
(2019: 3,667.0 pence) adjusted for the present value of the expected dividends that will not be received at an expected dividend rate
of 2.66% (2019: 2.11%).

At 31st March 2020, the weighted average remaining contracted life of the awarded shares is 1.3 years (2019: 1.6 years).

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 2020, 71,277 shares awarded in 2016 subject to deferred release as explained below (31st March 2019: 693,691 shares
awarded in 2016 and 10,007 shares awarded in 2014 subject to deferred release) were outstanding.

For the 2016 awards, the minimum release of 15% of the award was subject to achieving uEPS growth of 4% compound per annum over
the three-year period to 31st March 2019 and the full release was subject to uEPS growing by at least 10% compound per annum. Actual
uEPS growth was 7.7%, which represented 67% of the full award. In August 2019, 392,403 shares were released with a further 71,277
shares subject to deferred release.

Awards to the executive directors are 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

Deferred bonus

2020
Number of
awarded
shares

2019
Number of
awarded
shares

703,698 1,370,183
(55,357)
(34,059)
(72,702)
(402,410)
(195,952) (538,426)

71,277

703,698

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

2020
Number of
awarded
shares

2019
Number of
awarded
shares

81,625
42,009
(18,104)

81,781
41,542
(41,698)

105,530

81,625

The fair value of the shares awarded during the year under the deferred bonus was 2,887.0 pence per share (2019: 3,371.0 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 3,210.0 pence
(2019: 3,667.0 pence) adjusted for the present value of the expected dividends that will not be received at an expected dividend rate of
2.66% (2019: 2.11%).

Notes on the accounts continuedfor the year ended 31st March 2020AccountsJohnson Matthey / Annual Report and Accounts 2020

190

29 Share-based payments (continued)

All employee share incentive plan (SIP) – UK and overseas

Under the SIP, all employees with at least one year of service with the group and who are employed by a participating group company are
entitled to contribute up to 2.5% of base pay each month, subject to a £125 per month limit. The SIP trustees buy shares (partnership
shares) at market value each month with the employees’ contributions. For each partnership share purchased, the group purchases two
shares (matching shares) which are awarded to the employee.

In the UK SIP, if the employee sells or transfers partnership shares within three years of the date of award, the linked matching shares are
forfeited.

In the overseas SIP, partnership shares and matching shares are subject to a three-year holding period and cannot be sold or transferred
during that time.

During the year, 227,974 (2019: 190,284) 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, 5,652 (2019: 5,488) 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.

30 Commitments

Capital commitments – future capital expenditure contracted but not provided
Property, plant and equipment
Other intangible assets

41
9

60
13

12
–

5
2

At 31st March 2020, precious metal leases were £451 million (31st March 2019: £372 million) at year end prices.

Group

Parent company

2020
£ million

2019
£ million

2020
£ million

2019
£ million

31 Contingent liabilities

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. As previously disclosed,
we settled with one of these customers on mutually acceptable terms with no admission of fault.

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. 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. The group works with all
its customers to ensure appropriate product quality and we have not received claims in respect of our emissions after-treatment components
from this or any other customer. 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.

Notes on the accounts continuedfor the year ended 31st March 2020AccountsJohnson Matthey / Annual Report and Accounts 2020

191

32 Transactions with related parties

The group has a related party relationship with its joint venture and associate (note 13), its post-employment benefit plans (note 24)
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 2020, the GMC had an average of 9 members (2019: 6 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

2020
£ million

2019
£ million

6
–
1

6
5
1

There were no balances outstanding at 31st March 2020 (2019: £nil). Information on directors’ remuneration is given in the
Remuneration Report.

Guarantees of subsidiaries’ liabilities are disclosed in note 22.

33 Related undertakings

A full list of related undertakings at 31st March 2020 (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

Stepac Brazil Ltda
Tracerco do Brasil – Diagnosticos de Processos Industriais Ltda

Johnson Matthey Battery Materials Ltd.
Tracerco Radioactive Diagnostic Services Canada Inc.
Johnson Matthey Argillon (Shanghai) Emission Control
Technologies Ltd.
Johnson Matthey Battery Materials (Changzhou) Co., Ltd.

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
Rua Itapolis, n° 1921, Pacaembu, São Paulo, 01245-000, Brazil
Estrada dos Bandeirantes, 1793, Curicica, Jacarepagua, Rio de Janeiro,
Brazil
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

1 Xin Wei Liu Road, Changzhou Export Processing Zone, Changzhou,

Jiangsu Province, China

Johnson Matthey Chemical Process Technologies (Shanghai)
Company Limited
Johnson Matthey (China) Trade Co., Ltd

Room 1066, Building 1, No 215 Lian He Bei Lu, Fengxian District,
Shanghai, China
1st, 2nd and 3rd Floor, Building 2, No. 598 Dongxing Road, Songjiang

Johnson Matthey Clean Energy Technologies (Beijing) Co., Ltd

Johnson Matthey Process Technologies (Beijing) Co., Ltd.

Johnson Matthey Pharmaceutical Services (Yantai) Co., Ltd.

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 Protection
Technology Co., Ltd
Johnson Matthey (Zhangjiagang) Precious Metal Technology
Co., Ltd.

Industrial Zone, Shanghai, China

2007C, 20th Floor, No. 21 Building, No.5 Community, Shuguangxili Lane,
Chaoyang District, Beijing, China
Unit No. 2001-2007A, No. 21 Building, Shuguangxili Lane A5, Chaoyang
District, Beijing, China
No. 9 Wuxi Road, Yantai Economic and Technology Development Zone,
Yantai, Shandong Province, China
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, Jiangsu Province, China

48, the west of Beijing Road, Jingang Town, Yangtze River International
Chemical Industrial Park, Jiangsu, China

Notes on the accounts continuedfor the year ended 31st March 2020AccountsJohnson Matthey / Annual Report and Accounts 2020

192

33 Related undertakings (continued)

Entity

Registered address

Qingdao Johnson Matthey Hero Catalyst Company Limited
(51%)
Shanghai Bi Ke Clean Energy Technology Co Ltd (11.1%)

Shanghai Johnson Matthey Applied Materials Technologies
Co., Ltd
Tracerco China Process Diagnostics & Instrumentation
(Shanghai) Co., Ltd.
Johnson Matthey A/S

*
*

AG Holding Ltd
Cascade Biochem Limited1
Ilumink Limited
JMEPS Trustees Limited
Johnson Matthey Battery Systems Engineering Limited
Johnson Matthey Davy Technologies International Limited
(in liquidation)
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%)
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
Johnson Matthey Hong Kong Limited

Johnson Matthey Pacific Limited3

Johnson Matthey Process Technologies Holdings Hong Kong
Limited
Johnson Matthey Tracerco Holdings Hong Kong Limited

Macfarlan Smith (Hong Kong) Limited

Johnson Matthey Chemicals India Private Limited

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

New Material Industrial Park, Shiyuan Road, Qinda Industrial Park,
Chengyang District, Qingdao, 200331, China
Room 427 Building 2 No 351 Guo Shou Jing Road, China (Shanghai)
Pilot Free Trade Zone, China
Area A, 1st Floor, Building 7, 298 East Rongle Road, Songjiang District,
Shanghai, China
Section G Floor 2, Building 7, 298 East Rongle Road, Songjiang District,
Shanghai, China
Lundgrens Advokatpartnerselskab, Tuborg Boulevard 12, 4., 2900 Hellerup,
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
30 Finsbury Square, London, EC2A 1AG

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, Germany
Bahnhofstrasse 43, 96257 Redwitz an der Rodach, Germany
Otto-Volger-Strasse 9b, 65843 Sulzbach, Germany
Bahnhofstrasse 43, 96257 Redwitz an der Rodach, Germany
Bahnhofstrasse 43, 96257 Redwitz an der Rodach, Germany
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
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
Plot No 6A, MIDC Industrial Estate, Taloja, District Raigad, Maharashtra
410208, India
Regus Business Centre, 1st Floor, M-4, South Extension-II, New Dehli,
Delhi-DL, 110049, India
13-18 City Quay, Dublin 2, D02 ED70, Ireland
Tefen Industrial Park Bldg. #12, Post Box 73, Tefen, Western Galilee,
2495900, Israel
Corso Trapani 16, 10139, Torino, Italy
5123-3 Kitsuregawa, Sakura-shi, Tochigi, 329-1412, Japan
5123-3 Kitsuregawa, Sakura-shi, Tochigi, 329-1412, Japan

Notes on the accounts continuedfor the year ended 31st March 2020AccountsJohnson Matthey / Annual Report and Accounts 2020193

33 Related undertakings (continued)

Entity

Registered address

Johnson Matthey DOOEL Skopje
Johnson Matthey Sdn. Bhd.

Johnson Matthey Services Sdn. Bhd.

Tracerco Asia Sdn. Bhd.

Tracerco Asia Services Sdn. Bhd.

Johnson Matthey de Mexico, S. de R.L. de C.V.

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
Johnson Matthey Battery Systems Spólka z ograniczoną
odpowiedzialnocścią
Johnson Matthey Poland Spólka z ograniczoną
odpowiedzialnocścią
Johnson Matthey Battery Materials Poland Spółka z
ograniczoną odpowiedzialnocścią
Macfarlan Smith Portugal, Lda
Johnson Matthey Catalysts LLC
International Diol Company (4.3%)

*
*
*
*

Johnson Matthey General Partner (Scotland) Limited
Johnson Matthey (Scotland) Limited Partnership2
Macfarlan Smith Limited
Meconic Limited (in liquidation)
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

Johnson Matthey Holdings (Thailand) Limited

Johnson Matthey Services (Trinidad and Tobago) Limited

Stepac Ambalaj Malzemeleri Sanayi Ve Ticaret Anonim Sirketi
Johnson Matthey Fuel Cells, Inc.

TIDZ Skopje 1, 1041 Ilinden, Macedonia
Suite 16-03, Level 16, Wisma UOA II, 21 Jalan Pinang, 50450 Kuala
Lumpur, Malaysia
Suite 16-03, Level 16, Wisma UOA II, 21 Jalan Pinang, 50450 Kuala
Lumpur, Malaysia
Suite 16-03, Level 16, Wisma UOA II, 21 Jalan Pinang, 50450 Kuala
Lumpur, Malaysia
Suite 16-03, Level 16, Wisma UOA II, 21 Jalan Pinang, 50450 Kuala
Lumpur, Malaysia
Av. de Margues y Av. de la Canada, 2a Etapa Parque Industrial Bernardo
Quintana, 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
Plac Marsz. Józefa Piłsudskiego 1, 00-078, Warsaw, Poland

Ul. Alberta Einsteina 6, 44-109, Gliwice, Poland

Plac Marsz. Józefa Piłsudskiego 1, 00-078, Warsaw, 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
10 Wheatfield Road, Edinburgh, Midlothian, EH11 2QA, Scotland
10 Wheatfield Road, Edinburgh, Midlothian, EH11 2QA, Scotland
7 Exchange Crescent, Conference Square, Edinburgh, EH3 8AN
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
1858/12 Interlink Tower, 5th Floor, Debaratna Road, Kwang Bangna Tai,
Khet Bangna, Bangkok 10260, Thailand
Queen's Park Place, 17-20 Queens Park West, Port of Spain, Trinidad and
Tobago
Güzeloba Mah. Rauf Denktaş Cad., No.56/101, Muratpaşa/Antalya, Turkey
Corporation Service Company, 2711 Centerville Road, Suite 400,
Wilmington DE 19808, USA

Notes on the accounts continuedfor the year ended 31st March 2020AccountsJohnson Matthey / Annual Report and Accounts 2020194

33 Related undertakings (continued)

Entity

Registered address

Johnson Matthey Holdings, Inc.

Johnson Matthey Inc.4

Johnson Matthey Japan, Inc.

Johnson Matthey Materials, Inc.

Johnson Matthey North America, Inc.
Johnson Matthey Pharmaceutical Materials, Inc.

Johnson Matthey Process Technologies, Inc.

Johnson Matthey Stationary Emissions Control LLC

Red Maple LLC (50.0%)

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
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
Corporation Service Company, 2711 Centerville Road, Suite 400,
Wilmington DE 19808, USA
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.

34 Changes in accounting policies

This note explains the impact on the group’s and parent company’s accounts of the adoption of IFRS 16, Leases, that has been applied from
1st April 2019.

IFRS 16 became effective from 1st April 2019, replacing IAS 17, Leases, and related interpretations. Whilst lessor accounting is similar
to IAS 17, lessee accounting is significantly different. Under IFRS 16, the group and parent company 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 is replaced with depreciation on the
right-of-use asset and interest expense on the lease liability.

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 have continued to
recognise the expense in the income statement on a straight-line basis over the lease term, with no recognition on the balance sheet.

The group and parent company have applied the modified retrospective transition approach and have not restated comparative amounts
for the year ended 31st March 2019. Under this approach, the group and parent company have chosen to measure right-of-use assets at
1st April 2019 at an amount equal to the lease liability as adjusted for lease prepayments, accrued lease expenses and onerous lease provisions.

The group and parent company have elected to adopt the following practical expedients on transition:

•

not to capitalise a right-of-use lease asset or lease liability where the lease expired before 31st March 2020;

not to reassess contracts to determine if the contract contains a lease;

to utilise onerous lease provisions to reduce right-of-use asset values;

to use hindsight in determining the lease term;

to exclude initial direct costs from the measurement of the right-of-use asset; and

to apply the portfolio approach when determining a discount rate where a group of leases has similar characteristics.

Notes on the accounts continuedfor the year ended 31st March 2020AccountsJohnson Matthey / Annual Report and Accounts 2020195

34 Changes in accounting policies (continued)

Impact of adoption on the primary statements

Group

Income statement

Profit before tax has been reduced by approximately £1 million in the year ended 31st March 2020 as a result of adopting IFRS 16, with
operating profit and finance costs increasing by £2 million and £3 million, respectively.

Balance sheet

The following table shows the effect of adopting IFRS 16 on the group’s balance sheet at 1st April 2019:

Non-current assets
Right-of-use assets
Other receivables1

Total non-current assets

Total assets

Current liabilities
Trade and other payables
Lease liabilities

Total current liabilities

Non-current liabilities
Lease liabilities
Provisions

Total non-current liabilities

Total liabilities

Net assets

£ million

89
(14)

1
(11)

(10)

(66)
1

(65)

(75)

–

1 Prepayments reclassified as right-of-use assets.

The weighted average incremental borrowing rate applied to lease liabilities was 4.2%.

Cash flow statement

There is no net cash flow impact from the adoption of IFRS 16 for the group. Lease payments of £16 million during the year ended
31st March 2020, including interest, are included in financing rather than operating activities in the consolidated cash flow statement.

Notes on the accounts continuedfor the year ended 31st March 2020AccountsJohnson Matthey / Annual Report and Accounts 2020

196

34 Changes in accounting policies (continued)

Parent company

Income statement

The adoption of IFRS 16 has not had a material impact on the parent company’s profit for the year.

Balance sheet

The following table shows the effect of adopting IFRS 16 on the parent company’s balance sheet at 1st April 2019:

Non-current assets
Right-of-use assets

Total non-current assets

Total assets

Current liabilities
Lease liabilities

Total current liabilities

Non-current liabilities
Lease liabilities
Provisions

Total non-current liabilities

Total liabilities

Net assets

The weighted average incremental borrowing rate applied to lease liabilities was 3.5%.

Impact of adoption on the group’s non-GAAP measures

The adoption of IFRS 16 has not had a material impact on the group’s non-GAAP measures.

£ million

(3)

(12)
1

(11)

(14)

–

Notes on the accounts continuedfor the year ended 31st March 2020AccountsJohnson Matthey / Annual Report and Accounts 2020

197

34 Changes in accounting policies (continued)

Reconciliation between operating lease commitments and lease liabilities

The following tables reconcile between the operating lease commitments disclosed under IAS 17 at 31st March 2019 and the lease
liabilities recognised in the balance sheet of the group and parent company on transition to IFRS 16 at 1st April 2019:

Group

Future minimum amounts payable under non-cancellable operating leases reported under IAS 17 at 31st March 2019
Change in assessment of lease term
Low-value or short term leases
Reclassification of onerous lease provision
Impact of discounting lease liabilities

Lease liabilities recognised on transition to IFRS 16 at 1st April 2019

Current
Non-current

Lease liabilities recognised on transition to IFRS 16 at 1st April 2019

Parent company

Future minimum amounts payable under non-cancellable operating leases reported under IAS 17 at 31st March 2019
Change in assessment of lease term
Reclassification of onerous lease provision
Impact of discounting lease liabilities

Lease liabilities recognised on transition to IFRS 16 at 1st April 2019

Current
Non-current

Lease liabilities recognised on transition to IFRS 16 at 1st April 2019

£ million

76
22
(1)
1
(21)

11
66

£ million

17
1
1
(4)

3
12

Notes on the accounts continuedfor the year ended 31st March 2020AccountsJohnson Matthey / Annual Report and Accounts 2020

198

35 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. Certain of these measures are financial Key Performance Indicators which measure progress against our strategy.

Definitions

Measure

Sales1

Definition

Purpose

Revenue excluding sales of
precious metals to customers
and the precious metal content
of products sold to customers.

Provides a better measure of the growth of the group as 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 profit2

Operating profit excluding
non-underlying items.

Provides a measure of operating profitability that is comparable
over time.

Underlying operating profit
margin1, 2

Underlying operating profit
divided by sales.

Provides a measure of how we convert our sales into underlying
operating profit and the efficiency of our business.

Underlying profit before tax2

Underlying profit for the year2

Underlying earnings
per share1, 2

Return on invested
capital (ROIC)1

Average working capital days
(excluding precious metals)1

Free cash flow

Net debt (including post tax
pension deficits) to underlying
EBITDA

Profit before tax excluding
non-underlying items.

Profit for the year excluding
non-underlying items and
related tax effects.

Underlying profit for the year
divided by the weighted average
number of shares in issue.

Underlying operating profit
divided by average total equity,
excluding post tax pension net
assets, plus average net debt for
the same period.

Monthly average of 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.

Net cash flow from operating
activities after net interest paid,
net purchases of non-current
assets and investments,
dividends received from joint
venture and associate and
the principal element of
lease payments.

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.

Provides a measure of profitability that is comparable over time.

Our principal measure used to assess the overall profitability
of the group.

Provides a measure of the group’s efficiency in allocating the capital
under its control to profitable investments. 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.

Provides a measure of efficiency in the business with lower days
driving higher returns and a healthier liquidity position for the group.

Provides a measure of the cash the group generates through
its operations, less capital expenditure.

Provides a measure of the group’s ability to repay its debt. 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.

1 Key Performance Indicator.

2 Underlying profit measures are 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. These items have been excluded by management as they are
not deemed to be relevant to an understanding of the underlying performance of the business.

Notes on the accounts continuedfor the year ended 31st March 2020AccountsJohnson Matthey / Annual Report and Accounts 2020
199

35 Non-GAAP measures (continued)

Underlying profit measures exclude the following non-underlying items which are shown separately on the face of the income statement:

•

• Gain or loss on significant legal proceedings In April 2019, the group paid £17 million in respect of a settlement with a customer on

• Amortisation of acquired intangibles Amortisation and impairment of intangible assets which arose on the acquisition of businesses

totalled £13 million (2019: £14 million).

• Major impairment and restructuring charges The group recognised the following impairments during the year:

–

– Health capitalised development expenditure During the year, a fundamental review of the Health sector’s new product

In the prior year, £7 million of a prior year impairment of the Health sector’s Riverside site was reversed and, in September 2019,
the site was sold, with no gain or loss on disposal.

Notes on the accounts continuedfor the year ended 31st March 2020AccountsJohnson Matthey / Annual Report and Accounts 2020200

35 Non-GAAP measures (continued)

Reconciliations to GAAP measures

Sales

See note 1.

Underlying profit measures

Year ended 31st March 2020

Underlying
Profit on disposal of businesses
Amortisation of acquired intangibles
Major impairment and restructuring charges
Interest on non-underlying tax provisions
Change in non-underlying tax provisions

Reported

Year ended 31st March 2019

Underlying
Loss on disposal of businesses
Loss on significant legal proceedings
Amortisation of acquired intangibles
Major impairment and restructuring charges

Reported

Underlying earnings per share

Underlying profit for the year (£ million)
Weighted average number of shares in issue (number)
Underlying earnings per share (pence)

Operating
profit
£ million

Profit
before tax
£ million

Tax
expense
£ million

Profit for
the year
£ million

539
2
(13)
(140)
–
–

388

455
2
(13)
(140)
1
–

305

(72)
–
3
16
–
3

(50)

383
2
(10)
(124)
1
3

255

Operating
profit
£ million

Profit
before tax
£ million

Tax
expense
£ million

Profit for
the year
£ million

566
(12)
(17)
(14)
8

531

523
(12)
(17)
(14)
8

488

(83)
4
3
3
(2)

(75)

440
(8)
(14)
(11)
6

413

2020

2019

383
192,437,993
199.2

440
192,128,811
228.8

Notes on the accounts continuedfor the year ended 31st March 2020AccountsJohnson Matthey / Annual Report and Accounts 2020

35 Non-GAAP measures (continued)

Return on invested capital (ROIC)

Underlying operating profit

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

Average working capital days (excluding precious metals)

Inventories
Trade and other receivables
Trade and other payables

Total working capital
Less: Precious metal working capital

Working capital (excluding precious metals)

Average working capital days (excluding precious metals)

Free cash flow

Net cash inflow from operating activities
Interest received
Interest paid
Purchases of property, plant and equipment
Purchases of intangible assets
Proceeds from sale of assets held for sale
Proceeds from sale of non-current assets
Principal element of lease payments

Free cash flow

201

2020
£ million

2019
£ million

539

1,489
2,733

4,222
(212)
32

566

1,128
2,541

3,669
(251)
41

4,042

3,459

13.3%
12.8%

16.4%
15.4%

2020
£ million

1,902
2,077
(2,745)

1,234
(597)

2019
£ million

1,316
1,553
(1,647)

1,222
(590)

637

632

2020
£ million

2019
£ million

598
104
(202)
(332)
(111)
7
1
(13)

334
61
(108)
(215)
(86)
–
1
–

(13)

Notes on the accounts continuedfor the year ended 31st March 2020AccountsJohnson Matthey / Annual Report and Accounts 2020

202

35 Non-GAAP measures (continued)

Net debt (including post tax pension deficits) to underlying EBITDA

Cash and deposits
Money market funds
Bank overdrafts

Cash and cash equivalents
Borrowings and related swaps – current
Borrowings and related swaps – non-current
Interest rate swaps – non-current
Lease liabilities – current
Lease liabilities – non-current

Net debt

(Decrease) / increase in cash and cash equivalents
Less: Increase in borrowings
Less: Principal element of lease payments

Increase in net debt resulting from cash flows
New leases, remeasurements and modifications
Lease disposals
Exchange differences on net debt
Other non-cash movements

Movement in net debt
Net debt at beginning of year
Impact of adoption of IFRS 16

Net debt at end of year

Net debt
Add: Pension deficits
Add: Related deferred tax

Net debt (including post tax pension deficits)

Underlying operating profit
Add back: Depreciation and amortisation excluding amortisation of acquired intangibles

Underlying EBITDA

Net debt (including post tax pension deficits) to underlying EBITDA

2020
£ million

2019
£ million

112
192
(31)

273
(331)
(994)
34
(12)
(64)

90
347
(59)

378
(184)
(1,073)
13
–
–

(1,094)

(866)

(103)
(12)
13

(102)
(13)
1
(47)
10

(151)
(866)
(77)

(1,094)

(1,094)
(53)
10

(1,137)

539
166

705

1.6

74
(241)
–

(167)
–
–
(26)
6

(187)
(679)
–

(866)

(866)
(56)
10

(912)

566
157

723

1.3

36 Events after the balance sheet date

The impact of the COVID-19 pandemic on the group’s operations is discussed in the risks and uncertainties section on page 69 and its
impact on the carrying value of certain assets at 31st March 2020 is discussed on page 142. The group has tested its performance under
a deep recession scenario and stress tested with a more extreme very deep recession scenario. Subsequent to the balance sheet date,
the group has monitored its trading performance and external factors, such as changes in government restrictions. Key estimates and
judgements that impact the balance sheet at 31st March 2020 have been updated to reflect the impact of COVID-19 in the period since
31st March 2020.

The following non-adjusting events have also been identified in the period since 31st March 2020:

•

In April 2020, the group secured a further $300 million of funding from the US private placement market for the next five to
seven years; and

The group secured access to the Bank of England’s COVID Corporate Financing Facility (CCFF), with an allocated issuer limit of
£300 million which provides additional back-stop liquidity for the next year if needed.

Notes on the accounts continuedfor the year ended 31st March 2020AccountsJohnson Matthey / Annual Report and Accounts 2020
Independent auditors’ report
to the members of Johnson Matthey Plc

203

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 2020 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 and Accounts (the “Annual Report”), which comprise: the
Consolidated and Parent Company Balance Sheets as at 31 March 2020; the Consolidated Income Statement and Consolidated Statement of
Total Comprehensive Income; the Consolidated Cash Flow Statement and the Consolidated and Parent Company Statement of Changes in Equity
for the year then ended; and the notes to the financial statements, which include a description of the significant 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 3 to the financial statements, we have provided no non-audit services to the group or the parent company in
the period from 1 April 2019 to 31 March 2020.

AccountsJohnson Matthey / Annual Report and Accounts 2020204

Independent auditors’ report continued
to the members of Johnson Matthey Plc

Our audit approach

Overview

• Overall group materiality: £24 million (2019: £25 million), based on approximately 5% of the

three-year average profit before tax, adjusted for loss on disposal of businesses, loss on significant
legal proceedings, major impairment and restructuring charges.

Materiality

• Overall parent company materiality: £18 million (2019: £15 million), based on approximately 1%

of total assets but capped at the maximum allocation of group materiality to a component.

Audit scope

Key audit
matters

• We conducted a full scope audit or specified procedures at 66 components which together accounted

for 87% of group revenue and 76% of group profit before taxation.

• We maintained regular contact with our component teams and evaluated the outcome of their

audit work.

•

Carrying value of goodwill, and capitalised development costs (group, company)

Refinery metal accounting (group, company)

Taxation accounting (group)

Claims, uncertainties and other provisions (group)

Covid-19 (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;

• Assessing management’s significant judgements and estimates in particular those relating to the carrying value of goodwill and capitalised

development costs, refinery metal accounting, tax matters and provisions, and the disclosure of significant items in underlying profit; and

•

Identifying and testing manual journal entries, in particular any journal entries posted with unusual account combinations.

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.

AccountsJohnson Matthey / Annual Report and Accounts 2020205

Independent auditors’ 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 98 and Accounting Policies and notes 3, 10 and 11 to the
financial statements.

Goodwill – We obtained management’s value in use goodwill impairment
models and tested and evaluated the reasonableness of key assumptions,
operating cash flow forecasts, long term growth rates, and discount rates.

The group holds goodwill of £580 million (2019: £578 million) and
capitalised development costs of £78 million (2019: £75 million) at
31 March 2020.

The group has significant goodwill arising from the acquisition of
businesses and the carrying value is dependent on the financial
performance of the cash generating unit to which it relates.

The group also has significant capitalised development costs, most
notably in the Health business, 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 constitute a
significant estimate, and changes in the 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.

The impairment assessments prepared by management reflect its
best estimates of the impact of COVID-19 on future forecasts and key
assumptions. The nature of these estimates mean that they are
inherently judgemental and therefore an area of focus in our audit
procedures.

Management included enhanced disclosure to explain its key
judgements and estimates as part of the Accounting Policies and
in note 10.

We agreed the forecast cash flows to Board approved budgets which had
been updated to reflect the estimated impact of COVID-19, assessed how
these budgets are compiled and understood key related judgements and
estimates. This included those assumptions and models used to forecast
the impact of COVID-19. Further information is provided in our
COVID-19 key audit matter.

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.

We performed work over each material CGU. The nature and extent of
work was commensurate with the level of headroom and sensitivity of
the CGU to impairment. Our testing was focused on the key assumptions
in management’s latest forecasts and we corroborated the assumptions
to supporting evidence (which included both internal and external
sources of evidence).

We engaged our valuations experts 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. Our procedures included
considering the overall level of risk in the future cash flow projections.

We tested the mathematical integrity of the forecasts and of the value
in use model, audited the allocation of central costs to the CGUs and
agreed the carrying values in management’s impairment models to
underlying accounting records.

We assessed management’s sensitivity analysis and performed our own
independent sensitivity analysis to assess whether a reasonable downside
change in the key assumptions could give rise to a material impairment.

Capitalised development costs – We obtained the impairment trigger
assessment and the impairment models for a sample of the molecules
from management. Management performed a detailed review of each
molecule and terminated the development of 21 molecules. Management
has assumed the net realisable value to be £nil based on the intention
not to bring the molecules to market. We selected a sample of
molecules that continue to be developed, and tested management’s
key assumptions including the market size, forecast market share and
operating margin expected for each product. We corroborated certain
assumptions to external data points and performed sensitivity analysis
for other data points.

As a result of our work, we agreed with management’s conclusions with
respect to the recoverability of the goodwill and capitalised development
costs and the impairments recognised.

We have assessed management’s disclosures in light of the impairment
testing performed and the impact of COVID-19.We consider the
disclosures made to be reasonable and to appropriately present the
sensitivities relevant to the goodwill.

AccountsJohnson Matthey / Annual Report and Accounts 2020206

Independent auditors’ 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 99 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, the refined metal that leaves the
refining process, and the residual metal balance at year end;

(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. Any metal retained in excess of this pre-agreed quantity is
retained by the group. 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 the 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 as either owned by Johnson Matthey or the
customer and reconciled to its financial position.

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
attended physical stock counts (in person, or virtually, using live-feed
video equipment) at sites where these were performed by management.
The purpose was to verify existence of inventory and adherence to the
group’s stock take processes, and the reasonableness of stock take gains
and losses that have been recorded at these sites.

We assessed the underlying controls that have been implemented by
management, to monitor potential inventory gains or losses through
the refining process.

We assessed provisions for inventory process losses compared to
historical trends and stock take results, to assess the likelihood and
quantum of processing losses (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 value of metal inventory.

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.

We are satisfied that the metal inventory balances were appropriately
recognised at a supportable value, and in line with relevant group
accounting policies.

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.

AccountsJohnson Matthey / Annual Report and Accounts 2020Independent auditors’ report continued
to the members of Johnson Matthey Plc

207

Key audit matter

Taxation accounting

Refer to the Significant issues considered by the Audit Committee on
page 99 and the Accounting Policies in the financial statements.

The group operates in a number of international jurisdictions,
and as a result there is risk of uncertain tax exposures arising
around the group, as well as heightened risk around estimates in
determining the tax effect of cross border transactions including
transfer pricing arrangements.

The group adopted IFRIC 23, ‘Uncertainty over Income Tax Treatments’,
for the period commencing 1 April 2019, resulting in a £5 million
adjustment to retained earnings as at 1 April 2019. As at 31 March
2020 the group had current income tax liabilities of £106 million
(2019: £130 million) including tax provisions of £106 million
(2019: £102 million). Management’s estimate of the range of
possible outcomes is an increase in those liabilities by £106 million
(2019: £60 million) to a decrease of £90 million (2019: £61 million).

Where the precise impact of the tax laws and regulations on taxes
payable with respect to profit arising in those jurisdictions is unclear,
the group seeks to make reasonable estimates to determine the most
likely amount in a range of possible outcomes.

There is inherent judgement and estimation uncertainty involved in
determining provisions for uncertain tax positions, as described by
management in the accounting policies to the financial statements.

Claims, uncertainties and other provisions

Refer to the Significant issues considered by the Audit Committee on
page 99 and notes 22 and 31 to the financial statements

This risk covers warranty provisions, 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
identification of when such claims arise and the assumptions relating
to these claims are inherently judgemental. Careful consideration
needs to be given as to how the claim and any potential exposure 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 outflow is not probable. If the group is unable to defend
against such claims, these risks could give rise to a future liability.

How our audit addressed the key audit matter

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, and where applicable management’s advisors. We
considered the basis and support in particular for provisions not subject
to tax audit, in comparison with our experience of similar situations.

We discussed the recognition of specific uncertain tax positions with
third-party tax advisors appointed by management to verify the key
assumptions, judgements and likely outcome with respect to specific
uncertain tax positions recognised. In particular, we assessed
management’s adoption of IFRIC 23 and confirmed the appropriateness
of management’s application of either a single best estimate, or a
weighted average range of outcomes, for each exposure, as driven by
the facts and circumstances.

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 provisions established in previous periods 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.

We also considered the adequacy of the group’s disclosures in respect
of tax and uncertain tax positions.

We are satisfied that the group’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 the disclosures with respect to tax matters to be appropriate.

For litigation provisions, we read the summary of major litigation
matters provided by management and held discussions with group and
sector level 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 the 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 the 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 exposures, including performing audit procedures
over claims management determined to be immaterial.

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 are adequately supported and appropriate
disclosures have been included within the financial statements.

AccountsJohnson Matthey / Annual Report and Accounts 2020208

Independent auditors’ report continued
to the members of Johnson Matthey Plc

Key audit matter

COVID-19

Refer to the Significant issues considered by the Audit Committee
on page 98 and the Accounting Policies in the financial statements.

The COVID-19 pandemic has had a considerable impact on the recent
operational performance of the Johnson Matthey group. Each of the
group’s sectors has been impacted to differing extents and the extent
of the impact on future performance is difficult to predict. Therefore,
there is inherent uncertainty in determining the impact of the
pandemic on certain aspects of the financial statements. In the
Accounting Policies note in the financial statements management has
provided further detail on the key financial statement estimates and
areas of the financial statements that are expected to be impacted.

The key impacts of COVID-19 on the Johnson Matthey group and
parent company financial statements are described below:

(i) The budgets and models supporting the goodwill and asset
impairment assessments have been updated to reflect
management’s best estimate of the impacts of COVID-19.
The assumptions applied in this analysis have been determined
internally, however they incorporate views of external
commentators and other third party data sources, where
relevant. The models have been prepared assuming two key
scenarios, a deep global recession, and a severe but plausible
downside scenario reflecting a very deep global recession.

These models are key estimates that also underpin management’s
going concern and viability assessment and form the basis of
management’s impairment assessments. Reference should be
made to management’s going concern and viability statements
and the Accounting Policies.

(ii) The majority of Clean Air manufacturing sites outside of China were
temporarily closed from March to May 2020 due to the impacts of
COVID-19. This was deemed a triggering event for impairment
assessment. Management reflected the reduction in forecast
manufacturing levels relative to budget in preparing its assessment,
and concluded that none of the assets should be impaired
(excluding the plants that had already been assessed and impaired
as part of management’s optimisation of the manufacturing
footprint). Refer to note 9 of the financial statements.

(iii) The group has net £1,391 million of receivables and contract
assets, and therefore small adjustments to the expected credit
loss could give rise to material losses. Management has estimated
the group’s exposure to credit risk across trade and contract
receivables considering the impact of COVID-19 on its customer
base. Although historical trends and the group’s customer
credit worthiness indicate very low credit risk (see note 27)
management has determined that the expected credit loss is
now greater given general economic uncertainty. Management’s
total provision has increased from £15 million to £35 million to
anticipate a greater risk of default as a result of COVID-19.

How our audit addressed the key audit matter

(i) The cash flow forecast models used across the goodwill impairment,
going concern and viability modelling and fixed asset impairment
assessment are consistent to one another.

For our work over goodwill, reference should be made to the earlier
Key Audit Matter. The work performed to assess historical forecast
accuracy over goodwill was also relevant to other areas where an
estimate is reliant on the forecast, such as going concern.

Our audit procedures over management’s going concern
assessment included:

•

For each sector we challenged the key assumptions in the deep
and very deep recession models, and either agreed them to
external data points (such as the outlook for the automotive
sector) or corroborated them to internally generated
assumptions (such as a reduction in variable costs in line with
revenue declines). Management’s going concern assessment
on page 65 includes the most significant assumptions. Our
procedures included assessing the expected movement in
precious metal working capital, as this benefitted the group’s
net debt over the going concern period;

• We considered the group’s available financing and maturity
profile to assess liquidity through the assessment period;

• We reviewed each debt agreement to assess the terms and

conditions in order to identify either explicit covenants or any
conditions precedent. The covenants and period of assessment
were each consistent with management’s own understanding;

• We tested the mathematical integrity of the forecasts and the

models and reconciled them to the Board approved budgets;

• We performed our own independent sensitivity analysis to

assess further appropriate downside scenarios. We confirmed
that a significant reduction, beyond the downside case, would
be required before any covenant breach; and

• We assessed the reasonableness of management’s planned or

potential mitigating actions

Our conclusions in respect of going concern are set out separately
within this report.

(ii) We obtained the asset impairment trigger assessment and value in
use impairment models prepared by management and performed
the following:

• We compared the forecast models to those used in the

goodwill impairment assessment; and

• We considered the level of headroom on each site relative to

the underlying assets, as well as considering how sensitive the
headroom might be to changes in assumptions.

Our audit procedures demonstrated significant headroom on all
assets even under the severe but plausible downside scenario.

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Key audit matter

COVID-19 (continued)

How our audit addressed the key audit matter

(iv) UK pension assets include a property fund of £62 million

(iii) We evaluated management’s assessment of the composition of

(relative to pension assets of £2 billion). On 20 March 2020
investment activity on this fund was frozen given the inability
to obtain any relevant market data for comparable property
transactions. The fund valuation provided by the fund manager
included a statement to highlight the material uncertainty in
the valuation derived as a result of COVID-19. Management has
concluded that the fund value is materially accurate on the basis
that any impacts of COVID-19 would be short-term and not
impact the longer-term value of the investments. See note 24
to the financial statements.

In addition, management’s ways of working, including the operation
of controls, has been impacted by COVID-19 as a result of a large
number of staff remote working. For example, this has meant virtual
review meetings replaced in person meetings and certain planned
inventory counts were performed after the year end . There is
inevitably an increase in risk due to the remote accessing of IT
systems, and a potentially heightened cyber risk.

receivables (by counter party, amount and ageing) and considered
the past experience of credit loss as well as forward-looking
information (such as the credit ratings of automotive manufacturers)
that management had applied. We assessed the specific updates
for COVID-19 through:

•

Reviewing the sector by sector assessment that considered
latest credit rating information taking into account the
current expected impact of COVID-19 and compared this
to the updated credit loss percentage.

• We recalculated the implied bad debt provision using the

higher expected credit loss percentage.

The overall expected credit loss remains low and the final
expected credit loss provision is immaterial which is as expected
given the nature of the group’s customer base and past success
in credit collection.

(iv) We received an independent confirmation from the fund manager,
which confirmed that the property fund had been frozen, and that
due to an absence of observable transactions there was a material
uncertainty in the asset valuation. We understand that this
cautionary statement is being suggested for inclusion in line with
guidance from the Royal Institute of Chartered Surveyors, but still
constitutes the best available valuation. We considered the nature
of the investment, the duration it is expected to be held, and the
overall size of the fund and concluded that the risk of a material
devaluation event over the medium to long term is sufficiently
low. Management has included disclosures in note 24.

We have performed additional procedures to assess any control
implications arising from the impact of the pandemic, including
inquiries with respect to the operation of IT and business process
controls, and whether there has been any impact on the group
given the heightened cyber risk.

Based on the inquiries performed and the results of our planned
audit procedures, we did not identify any evidence of material
deterioration in the control environment.

We increased the frequency and extent of our oversight over
component audit teams, using video conference and remote
working paper review, to satisfy ourselves as to the appropriateness
of audit work performed at significant and material components.

With respect to inventory counts, where management did not perform
counts at the year-end date, we have performed counts at different
dates and rolled them back or forward to 31 March 2020. Where
material inventory counts were performed at the year end date, we
attended those counts virtually using live-feed video equipment.

We considered the appropriateness of management’s disclosures
in the financial statements regarding the impact of the current
environment and the increased uncertainty on its accounting
estimates and deemed these to be appropriate.

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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.

As a result of the impacts of COVID-19, certain countries were placed under restrictive government lockdowns for the duration of our audit which
impacted the way we conducted our work, with more procedures being performed remotely and additional work being performed to address the
requirements of ISA 500, Considering the Relevance and Reliability of Audit Evidence. In practice, this meant some component teams were able
to attend client sites once restrictions permitted, or they had original documentation sent to them electronically or by post. For others, we were
able to obtain sufficient, appropriate evidence remotely given more than one piece of audit evidence could be obtained to support the same
transaction. In addition, we had to delay and/or modify our planned inventory counting procedures in some countries in response to COVID-19
restrictions, obtaining sufficient, appropriate audit evidence in alternative ways.

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 three components which, in our view, required an audit of their complete financial information, due to size or risk characteristics.
During the audit we responded to the impacts of COVID-19 by refining our scope in one country to remove two audits from scope and convert
one other to an audit of specified procedures. We performed specified procedures over certain line items that were most material to the group
(revenue, cost of sales, accounts receivable, cash, inventory) and tested manual journal entries, the residual line items not subject to audit were
not material in the context of the group audit. After making these changes we performed audits of complete financial information at a further
51 components. In addition to those full scope components, we performed specified procedures at 15 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 66 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, three components have been determined to
be financially significant based on their contribution to the group. These financially significant components are located in the UK, the US, and
Macedonia. The group consolidation, financial statement disclosures and corporate functions were audited by the group audit team. This
included our work over the consolidation, litigation provisions, centrally recognised tax balances, 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 87% of
Group revenue and 76% 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. 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. As a result of COVID-19 we did not visit any teams (we visited UK, US and China in the prior year) instead we
conducted frequent video conferences with the PwC teams.

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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.

Considering COVID-19 and the impact on the group’s profit before tax, we have changed our approach to determining materiality since the
prior year. Based on our professional judgement, we have now applied a three year average profit before tax , adjusted for loss on disposal of
businesses, loss on significant legal proceedings, major impairment and restructuring charges, (2019: single year applying the same metric) to
determine our materiality for the financial statements as a whole. Our approach to determining parent company materiality has remained the
same as in the prior year.

Overall
materiality

How we
determined it

Rationale for
benchmark
applied

Group financial statements

Parent company financial statements

£24 million (2019: £25 million).

£18 million (2019: £15 million).

Approximately 5% of three-year average profit
before tax, adjusted for loss on disposal of
businesses, loss on significant legal proceedings,
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.

Approximately 1% of total assets, capped at the maximum
allocation of group materiality to a component.

We considered total assets to be an appropriate benchmark for
the parent company given that, whilst it does include 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 £18 million given overall group materiality.

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 £18 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 £1.3 million
(2019: £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 parent company’s ability to continue as a going concern.

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.

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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.

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 2020 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 67 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 75 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 their 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 90, 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 95 to 102 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)

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Responsibilities for the financial statements and the audit

Responsibilities of the directors for the financial statements

As explained more fully in the Responsibilities of Directors set out on page 127, 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.

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. The period of total uninterrupted engagement is two years, covering the years
ended 31 March 2019 and 31 March 2020.

Mark Gill (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London

11 June 2020

AccountsJohnson Matthey / Annual Report and Accounts 2020214

Johnson Matthey / Annual Report and Accounts 2020

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.

Johnson Matthey / Annual Report and Accounts 2020 215

Contents

216 Basis of reporting – non-financial data
219

Independent greenhouse gas and health & safety
assurance statement

220 Additional environmental performance information
222 GRI Standard Content Index
224 Shareholder information
226 Glossary of terms
227
228 Financial calendar 2020/21
228 Company details

Index

Other Information

216

Basis of reporting – non-financial data

This report has been prepared in accordance with the GRI Standard:
Core option.

It covers the period from 1st April 2019 to 31st March 2020.

Our last annual report was published in June 2019.

Performance data covers all sites that are under the financial

control of the group, including all manufacturing, research and
warehousing operations of the parent company and its subsidiaries.
Joint ventures are not included.

Johnson Matthey compiles, assesses and discloses non-financial

For the purposes of reporting, separate business units resident

information for a number of reasons:

• where there is a legal obligation (UK Companies Act, UK

Stream-lined Energy and Carbon reporting (SECR) regulations,
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.

at the same location are counted as separate sites. Data from 69 sites
was included in this report, 54 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.

The processes in place to internally and externally verify the

reported non-financial data are described on page 219. Certain
employee data is included in the financial accounts and is also subject
to separate external audit.

Some of last year’s data has been restated, where necessary, to
account for improvements in coverage and quality of available data.
JM’s materiality threshold for environmental data variance is 5%.
We have made three restatements of environmental

performance data from 2018/19 this year:

• Our Scope 2 market based carbon emissions have increased by

6% due to the addition of purchased steam from non-renewable
sources at one of our sites (see page 48).

• Our VOC and NOx emissions to air increased by 6% and 5%

respectively due to three additional sites retrospectively reporting
emissions, increasing our coverage to 60% (see page 221).

We have restated our prior year lost time injury and illness rate (LTIIR)

and total recordable injury and illness rate due to injuries and illnesses
that were reported or reclassified after the year end (see page 40).
We have restated community investment data relating to
2018/19 indirect expenditure from employee volunteering time to
include updated data following the year end (see page 52).

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 since 2017/18 across the group for all reporting of people-related
goals. These definitions are used when reporting goals 1 and 2, and in the Responsible business section on pages 38 to 45 of this report.

Reported as “Employees”

Reported as “Contractors”

Permanent
employees

Temporary
employees

Agency employees

Outsourced function

Specialist service

Projects

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 supervised
by contractor and
monitored by JM.

Other InformationJohnson Matthey / Annual Report and Accounts 2020Health and
safety

Our
people

Low carbon
operations

Responsible
sourcing

3
Goal 1: Health and safety:

Aspire to zero harm
Lost time injury and illness rate (LTIIR) is defined as the number of
lost workday cases per 200,000 hours worked in a rolling year.

A lost workday case is defined as an incident where an employee
or contractor is unable to work for more than one scheduled working
day as a result of a work related injury or illness.

Total recordable injury and illness rate (TRIIR) is defined as the
number of recordable cases per 200,000 hours worked in a rolling year.
A recordable case (as defined under the US Occupational Safety
and Health Administration (OSHA) Regulations) is defined as a work
related accident or illness that results in one or more of the following:
absence of more than one day; medical treatment beyond first aid; death;
loss of consciousness and restricted work or transfer to another job.

The OSHA severity rate is a calculation that gives a company an average
of the number of lost days and restricted days per recordable incident.

Health and
safety

Our
people

OSHA severity rate = ([total lost days and restricted 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

• A slip injury occurs where there is too little friction or traction
between an individual’s footwear and the walking surface.
• A trip injury occurs when the foot hits an object causing a person

to lose balance.

• A fall injury is recorded when someone falls from an elevated

surface (e.g. roof), object or temporary work platform (e.g. ladder)
or into an opening in a floor or a hole in the ground.

•

Struck against is an injury occurring as a result of coming into
contact with a surface or object in which the action was initiated
by the person (e.g. when a screwdriver slips).

Process safety rate definition
Johnson Matthey has adopted International Council of Chemical
Association’s (ICCA) process safety metric. The metric first requires a
determination that the event is to be included in the process safety
event severity rate (PSESR) calculation and then determining the
severity using the severity table.

In determining this rate, 1 point is assigned for each Level 4
incident attribute, 3 points for each Level 3 attribute, 9 points for
each Level 2 attribute, and 27 points for each Level 1 attribute. The
PSESR is recorded as a 12 month rolling number. Total worker hours
include employees, temporary employees and contractors.

Process safety performance indicator (PSPI) 2 =
Process safety event severity rate (PSESR) Level 1 to 4

(Total severity score for all events x 200,000)

(Total worker hours)

Theoretically, a process safety event could be assigned a minimum of
1 point (i.e. the incident meets the attributes of a Level 4 incident in
only one category) or a maximum of 135 points (i.e. the incident meets
the attributes of a Level 1 incident in each of the five categories).

Health and
safety

Our
people

Low carbon
operations

Responsible
sourcing

Sustainable
products

3
Goal 2: Our people:

217

Sustainable
products

Community
engagement

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%:
•

5
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 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

https://www.refinitiv.com/en/financial-data/indices/diversity-and-inclusion-index

Low carbon
operations

Responsible
sourcing

Sustainable
products

Community
engagement

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 2019. 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 2017 made available in the 2019 edition of the world CO2 emissions
database of the International Energy Agency. They were purchased
under licence in January 2020 for sole use in company reporting.
For US facilities we use regional carbon factors published by the
Environmental Protection Agency in March 2020 edition of, eGRID
data 2018. 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.

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) on our premises.
Scope 2 emissions – generated from grid electricity and steam
procured from third parties for use at our facilities.

Under the UK Stream-lined Energy and Carbon Reporting (SECR) April
2019 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 legislation indicates that all fuel used in
company-owned and leased vehicles driven on public roads should
be included in the Scope 1 emissions of the company. We have not
historically included this in our reporting or carbon intensity targets
and have omitted it this year because we have been unable to collate
accurate data from all our businesses; we do not have a central database
of all the vehicles we own and lease globally with a complete record of
mileage driven during the year. We have taken steps to start to collect
and collate this information globally during the next reporting cycle
and estimate its total contribution to our footprint will remain below
our materiality threshold of 5% for Scope 1 + Scope 2 emissions.

Community
engagement

Employee engagement and enablement
Johnson Matthey invites all its permanent and fixed term contract
employees to voluntarily complete its employee survey once every
one to two years to determine the wellbeing of its staff using a
standard methodology defined and audited by the Korn Ferry.

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.

Other InformationJohnson Matthey / Annual Report and Accounts 2020Health and

safety

Our

people

Health and

safety

Our

people

218

Basis of reporting – non-financial data continued

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

Low carbon
operations

Responsible
sourcing

Sustainable
products

Community
engagement

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.

Low carbon

operations

Responsible
sourcing

Sustainable
products

Community
engagement

•

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.

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 with
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

4
1

Our
people

5
2

6
3

Goal 5: Sustainable products:

Responsible
sourcing

Low carbon
operations

Sustainable
products

Community
engagement

4
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.

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 x Average number of
permanent employees

Number of working days in a year is five days per week for 50 weeks
per year.

Other InformationJohnson Matthey / Annual Report and Accounts 2020Independent greenhouse gas and health & safety
assurance statement

219

Independent Assurance

In 2019/20 we appointed consultancy Avieco to provide independent external assurance of our 2019/20 emissions and our key metrics
quantifying our environmental, health and safety performance. Avieco has provided the following summary assurance statement:

“Avieco confirms that Johnson Matthey’s global reported Scope 1, 2 and 3 greenhouse gas (GHG) emissions, specified environmental
performance indicators related to total and source of energy consumption, waste disposed, water consumption, emissions to air and specified
health and safety indicators have received limited assurance. The engagement was performed in accordance with the requirements of the
International Standard on Assurance Engagements (ISAE) 3000 revised, ‘Assurance engagements other than audits or reviews of historical
financial information’, 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.

Avieco 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. Avieco applies quality control and management approaches equivalent to ISO 9001 International
Standard as encompassed its Quality and Ethics Policies.

Assurance Conclusion

Based on the assurance procedures followed by Avieco on the scope of Johnson Matthey’s data across the 2019/20 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 Avieco’s full assurance statement available at matthey.com/avieco-assurance

Other InformationJohnson Matthey / Annual Report and Accounts 2020220

+
k
+

Additional non-financial performance information

We recognise that there are wide range of stakeholders who are interested in all aspects of JM’s financial and non-financial performance.
Historically we have produced a fully integrated annual report covering all aspects of performance, including detailed information relevant for a
number of Environmental, Social and Governance (ESG) indices. This year, the Strategic Report contains all mandatory requirements and we
have chosen to provide additional non-financial performance information in summary form below. This has approach has provided our sites with
more time to focus on responding to and managing the impact of COVID-19.

Read more: Read this section in conjunction with the Responsible business section on pages 38 to 52

r
All performance data is for the year ended 31st March. Data relating to water management, waste management, emissions to air, energy

generation and consumption, contractor lost time incident and illness rate, and Tier 1 process safety incidents have been externally assured.

k
+

Read more: Independent greenhouse gas and health & safety assurance statement on page 219

k
+

Additional environmental performance data

k
Water management
g

GRI 303 and GRI 306-1

Our water use KPIs have remained broadly unchanged this year, compared with previous years. In total, 1.17 million m3 of waste water was
treated on site, 23% which was recycled back into our processes rather than being discharged.

Water withdrawal

Total ‘000 m3

m3/tonne product sold

Water sources

Municipal authorities (‘000 m3)

Ground water (‘000 m3)

Fresh surface water (‘000 m3)

Waste water discharged

Total ‘000 m3

Discharged to municipal authorities (‘000 m3)

Discharged to fresh surface water (‘000 m3)

Discharged to brackish surface water (‘000 m3)

Average COD of waste
water discharge

mg/l

% waste water discharge covered by COD data

Waste management
g

GRI 306

Our waste KPIs have remained broadly unchanged this year.

Waste disposed by
third parties

tonnes

tonnes per unit production

Type of waste (tonnes)

Liquid hazardous waste

Solid hazardous waste

Liquid non-hazardous waste

Solid non-hazardous waste

Treatment type (tonnes)

Reuse

Recycling

Off-site incineration with energy recovery

Off-site incineration without energy recovery

Landfill

Destination (tonnes)

Total hazardous waste sent internationally

2019/20

2,430

19.7

2,258

110

1,679

1,547

118

240

2019/20

84,710

0.69

53,766

2,973

7,903

20,067

2,912

27,022

4,257

47,112

3,407

1,569

2018/191

2017/18

2016/17

2,611

18.5

2,427

156

1,780

1,476

272

171

2018/191

86,370

0.61

59,824

2,432

8,050

16,064

4,553

25,391

4,306

48,195

3,925

1,585

2,729

20.6

2,489

189

1,592

1,355

208

2,643

21.6

2,438

161

1,630

1,396

223

197 Not measured

65 Not measured

2017/18

71,787

0.54

44,519

1,823

11,909

13,537

3,800

17,995

6,134

37,585

6,271

751

2016/17

95,856

0.72

43,284

2,364

11,936

30,304

3,142

22,422

5,376

32,371

24,575

624

A total of 2,939 tonnes (5%) of our hazardous waste is solid material that is not reused after it has been sent off site2. We also incinerated
2,245 tonnes of waste within our own facilities, principally waste sent to our refineries for precious metal recovery.

1 Restated following review and reclassification of data submitted by some sites after the year end.

2 Dow Jones Sustainability Index (DJSI) definition of hazardous waste.

Other InformationJohnson Matthey / Annual Report and Accounts 2020221

Emissions to air
g

GRI 305-7

All licensed 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. We believe we have captured the majority
of emissions across the group but will continue working to increase
coverage of our emissions to air reporting to confirm this.

NOx (tonnes)
SOx (tonnes)
VOC (tonnes)
Sites covered

2019/20

2018/193

2017/18

2016/17

542
28
99
67%

567
61
107
60%

383
44
100
39%

348
51
132
39%

Energy generation and consumption
g

GRI 302

As part of our continuous improvement effort for energy efficiency, our
manufacturing site in North Macedonia and our major sites in Germany
are ISO 50001 compliant (comprising 9% of our manufacturing sites).
Our UK sites also carried out their 2014 Energy Savings Opportunities
Scheme (ESOS) Phase 2 assessment via third party audit.

2019/20

2018/193

2017/18

2016/17

4,879

5,202

5,104

5,147

391,459

423,123

445,509

468,489

Total energy
consumption (‘000 GJ)
Total Scope 1 and
Scope 2 (market based)
GHG emission
(tonnes CO2 eq)

In 2019/20, renewable energy made up 11% of our energy
consumption (557,000 GJ).

Grid electricity purchased with
renewable energy certiﬁcates
530,000 GJ

Non-renewable
heating / cooling / steam
120,000 GJ

Non-renewable grid electricity
1,438,000 GJ

Local solar PV installations
27,000 GJ

Natural gas
2,467,000 GJ

Other non-renewable oils and gases
297,000 GJ

Environmental incidents
JM has a robust and effective management system that requires
all sites to report environmental incidents. All spills that occur on
unmade ground or near drinking water sources are classified as
significant. There was one significant spill during the year; a leak
from a temporary chiller unit resulted in approx. 500 litres of 50%
v/v ethylene glycol and water mix spilling onto unmade ground.
The event was reported to the local regulator.

Additional people performance data

Contractor health and safety
g

GRI 403-2

Contractor lost time injury and illness rate (LTIIR) further improved
this year.

2019/20

2018/19

2017/18

2016/17

0.23

0.4

0.74

0.86

Contractor
LTIIR

Number of
injuries and
illnesses /
200,000 hours

Tier 1 process safety events
While our key lagging indicator, which is the industry standard
ICCA (International Council of Chemical Associations) process safety
incident severity rate, has reduced to 1.0, we saw an increase in our
Tier 1 process safety events (see page 39).

Tier 1

Number
of events /
1 million hours

2019/20

2018/194

2017/18

2016/17

0.11

0.091

0.035

Trade union health and safety representation
g

GRI 403-1

We have 39 active trade unions on our sites and 27 have representation
on their local health and safety committee. A total of 27 sites have
formal trade union agreements that cover health and safety topics,
as detailed in the table:

Topic

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

% sites
covered

96
85

89
85
85
85

Speak up reports
g

GRI 406

We received 123 speak up reports in 2019/20, which, given our size,
is in line with the industry norm in terms of volume. Details of the
areas of concern / allegations raised are as follows:

Concern / allegation raised

Bribery and corruption
Business and financial reporting
Computer, email and internet use
Confidential information and intellectual property
Conflict of interest
Discrimination including harassment and retaliation
Employee rights
Other or general query
Environmental protection, product stewardship or
health and safety
Fraud, money laundering and embezzlement
Misconduct or inappropriate behaviour
Substance abuse
Trade and export controls
Violence or threats

Total

Number
of cases

13
2
1
1
11
58
7
6
7

5
8
1
1
2

123

We note the number in the ‘discrimination’ category is high in relation
to the other categories (although in line with industry norms) and a
number of these related to broad employee relations issues which
were subsequently addressed. All reports are taken seriously and we
view the total number of speak ups (123) as a positive reflection of
the confidence in the process. Within the same reporting period,
102 speak up cases were closed, 46 (45%) of which were upheld.
In 81 (79%) of all cases, recommendations were identified and
tailored to the findings including, enhancements to procedures,
implementation of new or improvements to existing financial and
other internal controls, communication and trainings, and coaching
for employees with identified performance issues.

3 Restated following review and reclassification of data submitted by some sites after the year end.

4 Restated to reflect updated Center for Chemical Process Safety guidance

Other InformationJohnson Matthey / Annual Report and Accounts 2020222

GRI Standard Content Index

This report has been prepared in accordance with GRI Standard: Core Option
General disclosures in accordance with GRI 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

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

230
54-55
230
5
123-126
14-15
4-5; 145; 153; 224-225
43; 153; 181
not disclosed
none
not disclosed
45-46
30-31; 51

6-8; 10-12
24-27; 67-74

41; 44-45; 82
45; 84; 221

68; 86-87
86-87
83; 87
27-29
78-80; 86
78; 88
92-94
88
82-84
78-80
89-90
68; 86
91
83
75
45; 84
221
103-110
103; 112; 114
122
not disclosed
not disclosed

28-31; 85
221
85
27-30; 85
27-31

191-194
216-218
27
216
none
216
1
228
228
222
222-223
212-213; 219

Other InformationJohnson Matthey / Annual Report and Accounts 2020223

Specific GRI disclosures for Johnson Matthey’s material topics (see page 27)

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
GRI-305 Emissions
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

GRI code

Page

103
102-14; 102-29

6; 24-26; 219
6-12; 68; 86

103
201-3

61-66; 95-102; 203-213
169

103
403-1; 403-2; 403-4

36; 38-39; 216-217; 219
38-40; 221

103
302-1; 302-3; 302-4
305-1; 305-2; 305-3; 305-4

35; 38; 46-48; 217; 219
48-49; 221
35; 38; 48; 217 -219

103
305-7

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
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

38; 50-51; 218; 221
221

46-48
47; CDP disclosure

45; 49-50
not disclosed
45; 49

50
51
51
not disclosed
220

219
220
220

44-45; 73; 83; 87; 221
not disclosed
not disclosed
125
not disclosed

72
not disclosed

36; 38; 41-42; 216-217
43; 153
42-43
42; 44

32; 38; 49; 218
49
49
not disclosed

38; 44; 217
43; 44
221

36; 52; 217
not disclosed

Other InformationJohnson Matthey / Annual Report and Accounts 2020224

Shareholder information

Johnson Matthey share price as at 31st March

2015

2016

2017

2018

2019

2020

3,386p

2,744p

3,080p

3,042p

3,142p

1,798p

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

100,571,441
51,522,721
27,374,032
6,814,466
1,863,224
10,794,722

198,940,606

Number
of shares

82,965,680
29,898,021
13,100,723
6,541,123
5,946,185
7,692,150
6,275,931
1,217,557
45,303,236

Percentage

50.6
25.9
13.8
3.4
0.9
5.4

100.0

Percentage

41.7
15
6.6
3.3
3
3.9
3.2
0.6
22.8

198,940,606

100.0

Number
of shares

1,485,369
3,495,668
13,020,136
60,413,541
46,894,554
73,631,338

Percentage

0.8
1.7
6.5
30.4
23.6
37.0

Number
of holdings

Percentage

4,813
1,243
377
196
25
7

6,661

72.2
18.7
5.7
2.9
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 2015

By Location

140

120

100

March 2015

March 2016

March 2017

March 2018

March 2019

March 2020

Johnson Matthey

FTSE 100

Rest of World
0.9%

Unidentiﬁed
5.4%

Asia Paciﬁc
3.4%

Continental
Europe
13.8%

USA and
Canada
25.9%

UK and
Eire
50.6%

Other InformationJohnson Matthey / Annual Report and Accounts 2020225

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

2016

2017

2018

2019

2020

Interim
Final

Total ordinary
Special

19.5
52.0

71.5
150.0

20.5
54.5

75.0
–

21.75
58.25

24.50
23.25
62.25 31.125

80.0
–

85.5 55.625
–

–

Given the heightened degree of current uncertainty, the board will
propose a final ordinary dividend for the year of 31.125 pence,
representing half the level of the 2018/19 final dividend. The board
considers that the final dividend appropriately balances the
importance of dividends to shareholders whilst preserving balance
sheet strength and financial flexibility to continue to invest in our
business. The board anticipates restoring future dividends to the level
seen prior to the COVID-19 pandemic, when circumstances permit.

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 those 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
22.8%

Investment
and
unit trusts
41.7%

Charities
0.6%

Sovereign
wealth funds
3.2%

Treasury shares and
employee share schemes
3.9%

Insurance companies
3%

1 – 1,000
0.8%

1,001 – 10,000
1.7%

10,001 –
100,000
6.5%

5,000,001
and over
37.0%

100,001 –
1,000,000
30.4%

Custodians
3.3%

Individuals
6.6%

Pension funds
15%

1,000,001 – 5,000,000
23.6%

Other InformationJohnson Matthey / Annual Report and Accounts 2020226

Glossary of terms

2006 Act

The Companies Act 2006

ADHD

ADR

AGM

APB

API

BEV

CAGR

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 to
depreciation
ratio

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

CDP

CEFIC

CGU
CH4
CO
CO2
COD

CPI

CSR

D&I

DRIP

EBITDA

EHS

EIB

eLNO®

EPS

ESG

ESOT

FCA

FCEV

FRC

Carbon Disclosure Project

The Council of European Chemical Industry

Cash-generating unit

Methane

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

Free cash flow Net cash flow from operating activities, after net

interest paid, net purchases of non-current assets and
investments and dividends received from joint venture

Fuel cell

Technology which converts hydrogen or other fuels
(methanol, natural gas) into clean electricity

GAAP

Generally accepted accounting principles

GHG

GMC

GRI

GWP

HDD

HDV

IAS

IASB

IFRIC

IFRS

Greenhouse gas

Group Management Committee

Global Reporting Initiative

Global warming potential

Heavy duty diesel

Heavy duty vehicle

Human resources

International Accounting Standards

International Accounting Standards Board

International Financial Reporting

International Financial Reporting Standards

Incoterms®

The International Chamber of Commerce’s
International Commercial Terms

ISA

International Standards on Auditing

ISO 14000

ISO 19001

ISO 50001

JMEPS

KfW

KPI

LCH

LDV

LFP

LTIIR

LTIP

Margin

MEA

NOx

NPI

OSHA

OTC

PBT

Pgm

PILON

PSP

PSRM

R&D

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

Occupational Safety and Health Administration

Over-the-counter

Profit before tax

Platinum group metal

Payments in lieu of notice

Performance share plan

Process safety risk management

Research and development

RC 14001

REACH

An internationally recognised standard, an expansion
of ISO 14001

Registration, Evaluation, Authorisation and
Restriction of Chemicals Regulation
EU chemical control legislation which came into
force in June 2007

ROIC

RPI

RSP

SAICM

Sales

SIC

SIP

SOx

SPV

SVHC

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

Oxides of sulphur

Special purpose vehicle

Substance of very high concern

The Code

The UK Corporate Governance Code, issued by the FRC

TPI

TRIIR

TSCA

Third party intermediary

Total recordable injury and illness rate

Toxic Substances Control Act

United Nations

UN SDGs

United Nations Sustainable Development Goals

VOC

Volatile organic compound

Working
capital days

Non-precious metal related inventories, trade and
other receivables and trade and other payables
(including any classified as held for sale) divided by
sales excluding precious metals for the last three
months multiplied by 90 days

ZEV

Zero emission vehicle

Other InformationJohnson Matthey / Annual Report and Accounts 2020Index

Accounting policies
Accounts
Audit Committee Report
Audit fees (note 3)
Auditor’s report
Balance Sheets
Basis of reporting – non-financial data
Board of Directors
Borrowings (note 20)
Business model
Capital expenditure (and note 1)
Capital structure
Cash and cash equivalents (note 35)
Cash flow hedges transferred to income statement
(note 26)
Cash Flow Statement
Chair’s letter
Chair’s statement
Changes in accounting policies
Changes in equity
Chief Executive’s statement
Clean Air – performance review
Commitments (note 30)
Community and social impact
Company details
Company purpose
Comprehensive income (and note 14)
Contingent liabilities (and note 31)
Corporate Governance Code
Corporate Governance Report
COVID-19 commitments
Culture
Deferred taxation (notes 6, 29)
Depreciation and amortisation (note 3)
Directors’ Report
Diversity and inclusion
Dividends (and note 26)
Earnings per ordinary share (note 35)
Effect of exchange rate changes (note 1)
Efficient Natural Resources – performance review
Employee numbers and costs (note 4)
Employee share ownership trust (ESOT) (note 26)
Environmental performance
Fair values (note 28)
Financial assets and liabilities (note 18)
Financial calendar
Financial review
Financial risk management (and note 27)
Foreign exchange gains and losses (note 3)
Free cash flow
Global Reporting Initiative (GRI)
Glossary of terms
Going concern
Goodwill (note 10)
Governance
Grants
Group Management Committee
Group performance review
Guarantees (note 22)
Health – performance review
Health and safety
Human resources policies
Human rights
Income Statement
Intangible assets (note 11)
Inventories (notes 3, 16)

Page

135-144
128-213
95-102
151
203-213
131
216-218
78-80
165
22-23
63, 145-148
64
202
179

132
181
6-8
194-197
133-134
10-13
56-57
190
52
228
1, 4-5, 82
130, 162
64, 190
82
82-91
9
8, 12, 33, 41, 82
154, 168-169
151
123-126
44
64, 151, 178
200
146
57-58
153
178
46-49, 220-221
186-187
164
228
61-64
90, 180-186
151
64
222-223
226
65-66
157-159
78-127
166
13
53
168
58-59
39-40
41-45
45
130
160-161
151, 163

227

Page

Investments in joint venture and associate (note 13)
Investments through other comprehensive income (note 14)
JM in profile
Key management personnel (note 32)
Key performance indicators
Major impairment and restructuring charges
(and note 3)
Markets and opportunities
Materiality assessment
Modern slavery and child labour
Movements in assets and liabilities arising from
financing activities (note 21)
Net debt (and note 35)
New Markets – performance review
Net finance costs (note 5)
Nomination Committee Report
Operating profit (note 3)
Other reserves (note 26)
Outlook
Payables (note 19)
People
Performance highlights
Post-employment benefits (and note 24)
Product regulatory compliance
Product stewardship
Profit / (loss) on disposal of businesses
Property, plant and equipment (note 9)
Provisions (note 22)
Receivables (note 17)
Related parties (note 32)
Related undertakings (note 33)
Remuneration Report
Research and development (and note 3)
Responsibility of Directors
Responsible business
Responsible sourcing
Return on invested capital (and note 35)
Revenue (note 2)
Risks and uncertainties
Section 172 statement
Sector performance review
Sector performance summary
Segmental information (note 1)
Share-based payments (note 29)
Share capital (and note 26)
Shareholder information
Sources of estimation uncertainty
Stakeholder engagement
Strategic Report
Strategy
Structure
Subsidiaries (notes 12, 33)
Sustainability framework
Sustainable business goals

162
162
4-5
191
34-36
62, 151-152

14-15
27
45
166

64, 202
60
153
92-94
151-152
178-180
12-13
164
41-45
1
63, 169-176
51
50
62
156-157
167-168
163
191
191-194
103-121
20-21, 151
127
38-52
49-50
64, 201
148-150
67-74
32-33
54-60
54-55
145-148
188-190
123, 178-180
224-225
141
28-31, 85
2-75
16-19
4-5, 54-55
161, 191-194
24-27
24-25, 38,
216-218
24-26, 50-51
62-63, 154,155,
168-169
164
163
66
200
22-23, 41
219
75
42, 82

Sustainable products
Taxation (and notes 6, 7, 23)

Trade and other payables (note 19)
Trade and other receivables (note 17)
Treasury policies
Underlying profit reconciliations (note 35)
Values
Verification of non-financial data
Viability
Workforce engagement

Other InformationJohnson Matthey / Annual Report and Accounts 2020228

Financial calendar 2020/21

2020

18th June
Ex dividend date

19th June
Final dividend record date

23rd July
129th Annual General Meeting (AGM)

4th August
Payment of final dividend subject to the approval of
shareholders at the AGM

19th November
Announcement of results for the six months ending
30th September 2020

26th November
Ex dividend date

27th November
Interim dividend record date

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 company limited
by shares registered in England and Wales with
the registered number 33774.

Professional Advisers

Auditor

PricewaterhouseCoopers LLP
1 Embankment Place
London WC2N 6RH

Brokers

Citigroup Global Markets Limited
Citigroup Centre
33 Canada Square
London EC14 5LB

J. P. Morgan Cazenove
25 Bank Street
Canary Wharf
London E14 5JP

2021 (provisional)*

4th February
Payment of interim dividend

27th May
Announcement of results for year ending 31st March 2021

29th July
130th AGM

* 2021 dates will be published on our website, matthey.com/financial-calendar,

once finalised.

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.

Other InformationJohnson Matthey / Annual Report and Accounts 2020eLNO, LCH and SCRF are trademarks of Johnson Matthey Public Limited Company

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www.matthey.com/AR20

Johnson Matthey Plc
5th Floor
25 Farringdon Street
London EC4A 4AB
UK
Tel: +44 20 7269 8400