Strategic Report
The Strategic Report from page 2 to page 97 was approved Strategic by the board on 30th May 2019 and is signed on its behalf by:
Robert MacLeod Report Chief Executive
Here we explain how we use our inspiring science to enhance life.
Johnson Matthey 2 Annual Report and Accounts 2019 Strategic Report Strategic
Contents
4 JM in profile 60 People 6 Chairman’s statement 61 A culture for success 10 Chief Executive’s statement 69 Health and safety 13 Group Management Committee (GMC) 74 Recognising our people 14 Our strategy 76 Financial performance review 22 Our business model 77 Group performance review 24 Our sustainability framework 78 Sector performance review 28 Our stakeholders 80 Clean Air 30 Our KPIs 82 Efficient Natural Resources 34 Science 83 Health 40 Customers 84 New Markets 48 Operations 86 Financial review 56 Environmental management 90 Treasury policies and going concern 91 Risks and uncertainties
Johnson Matthey Annual Report and Accounts 2019 3 Strategic Report JM in profile Johnson Matthey is a global leader in science that makes the world cleaner and healthier.
What we do Our key highlights We use our cutting edge science to create solutions to our customers’ complex Sales1 Operating profit Operating profit problems. Our science has a global impact excluding precious metals reported underlying in areas that include low emission transport, pharmaceuticals and chemical processing. We apply it in a way that makes the most bn m m efficient use of the planet’s natural resources. £4.2 £531 £566 Our major markets We serve customers in the global automotive, Sales by sector Operating profit (excluding corporate) chemicals, pharmaceuticals and other excluding precious metals underlying industrial markets. Through the quality of our science, our problem-solving ability and New strong customer relationships, we hold Markets Health leading positions in all our major markets. 8% 7% Health 6% Our growth opportunities Efficient We target high growth opportunities that will Natural deliver attractive returns for our shareholders Efficient Resources 29% over the medium term; mid to high single Natural Clean Air Resources 64% digit compound annual growth in earnings Clean Air 23% 63% per share, ROIC expanding to 20% and, as a result, a progressive dividend.
1 The group believes that sales excluding precious metals is a better measure of the underlying performance of the group than revenue. Total revenue can be heavily distorted by year on year fluctuations in the market prices of precious metals and, in many cases, the value of precious metals is passed directly on to our customers.
Our business Clean Air Efficient Natural Resources Strategy to deliver sustained growth Strategy to deliver market leading growth
• A global leader in catalysts and • Creates value from efficient use and catalyst systems to reduce emissions transformation of critical natural from vehicles and industry. resources including oil, gas, biomass • Creates value from high technology and platinum group metals (pgms). catalyst formulations and systems to • Leading market positions across meet legislated limits for emissions four global businesses: Catalyst around the world. Technologies, Pgm Services, • 13 manufacturing facilities in Advanced Glass Technologies and 12 countries. Diagnostic Services. • • Nine technical centres in eight 18 manufacturing facilities in countries. eight countries.
+ • Two technical centres in the UK. + + See pages 80 and 81 for more information + + + + r r r + See pages 82 and 83 for more information r r r Johnson Matthey 4 Annual Report and Accounts 2019 k k k k k k Over 30 14,800 locations people
Where we operate Strategic Report Strategic
North America Europe Rest of Asia 11 major manufacturing facilities 14 major manufacturing facilities 6 major manufacturing facilities 33% of group sales 47% of group sales 8% of group sales 23% of employees 53% of employees 10% of employees
China Rest of World 5 major manufacturing facilities 5 major manufacturing facilities 7% of group sales 5% of group sales 9% of employees 5% of employees
Health New Markets Group functions Strategy to deliver break out growth Strategy to deliver break out growth in battery materials, with market leading cathode material technology
• Leading provider of solutions to the • Accessing new areas of potential • Provide common standards to complex problems of both generic growth aligned to global leverage efficiency and create value and innovator companies. priorities of cleaner air, improved across the group’s sectors. • Develops and manufactures active health and more efficient use of • Includes global science and pharmaceutical ingredients (APIs) natural resources. technology function which drives for a variety of treatments. + innovation and leads R&D in core + + + See pages 84 and 85 for more information • Operates in the large and growing science and business areas. Supports r r r outsourced small molecule technology development in sectors. API market. • Four manufacturing facilities in k k k two countries. • Three technical centres in three countries.
+ + + See pages 83 and 84 for more information + Johnson Matthey r r r Annual Report and Accounts 2019 5
k k k Strategic Report Chairman’s statement Making a huge contribution to a more sustainable future
I’m delighted to be writing to you – shareholders, employees and other interested followers – for the first time as Chairman of Johnson Matthey. Johnson Matthey is a remarkable company.
In a world where many companies are just waking up to One year in sustainability, JM has been punching above its weight on this I’m now one year into my role as Chairman. Before I joined JM for years. We make a huge contribution to a more sustainable I knew it as a company with deeply talented, competent people future, through making the world cleaner and healthier. And that translate science into sustainable solutions. I’m pleased to we are better qualified to do this than most other companies; say that over the past year those prior perceptions have been well we have catalysts that make your car less polluting, ground and truly confirmed and JM is even better than I had thought. breaking new technology to take your household waste and I have made it a priority to really get under the skin of turn it into jet fuel and molecules that help combat cancer. JM over the last year. I met the company’s 80 or so senior Balancing human prosperity with climate stability – leaders at their recent annual conference. I was struck by their it’s the challenge facing us all and it needs nations, industry energy, enthusiasm and real engagement in the company and and individuals to pull together. It is clear that sustainable its future. And all this at a time when JM is undergoing a technologies play a huge part in tackling this and so will fundamental change; professionalising its core systems and JM with the work we do at the leading edge of modern processes to drive efficiency and value, while continuing catalysis, process engineering, electrochemistry and synthetic to deliver this year’s results and shape new business areas for organic chemistry. accelerated growth. We operate in today’s technology hot spots and that’s I’ve also spent time at our corporate R&D centre in why we will continue to make a measurable contribution Sonning, UK, visiting our impressive laboratories there and to a sustainable future. The United Nations Sustainable getting into deep conversation with our brilliant scientists and Development Goals (UN SDGs) provide us with that measure engineers about their research work. JM is a community of and this year alone, over 87% of our sales came from products very innovative people. Their deep scientific knowledge and that tackle those globally shared goals. So it’s not just talk. how to use it to solve a customer’s problem is JM’s unique JM’s commitment is lived out through our contribution today strength. It is something that takes time to build, is extremely and through our investments in sustainable innovations of difficult for others to replicate and it’s in our DNA. the future.
Johnson Matthey 6 Annual Report and Accounts 2019 My first year – two minutes to reflect on 365 days
Q. What makes JM special? Report Strategic The massive contribution it is already making to a more sustainable future by applying its brilliant science. And the potential this holds for the long term.
Q. What are your top three highlights from your first year? • Meeting JM’s people, hearing their stories and feeling their passion and energy for what the company is doing. • Working as a board in which there is a real feeling of a team effort. • Sustaining our year on year delivery of dividend growth for our shareholders.
Q. How many shareholders have you met? About 30% of our shareholding – a two way dialogue and having the opportunity to understand their views Patrick Thomas first hand is really crucial, particularly at this time of Chairman inflexion as we drive value in Clean Air and invest appropriately to maximise our success in new areas like battery materials. Customers choose to work with JM because of our world class technologies and the relationships they have with our Q. What are the board’s top three priorities people. That’s how we’ve earned our leading positions in the for next year? vast majority of the markets that we serve. But JM does not over shout about what it does. We take great pride in being the • Keep on supporting Robert, the Group Management company behind the things our customers are most proud of. Committee and senior leaders in their execution We want to make heroes out of our customers – and that’s of strategy by asking the right questions of them what we do. so that we challenge in a constructive way that I’ve also met shareholders, which left me confident drives results. that they are committed for the long term. As you’d expect, • Continue to evolve our risk management discussions covered a broad range of topics from how we are approach by introducing further rigour and more looking at our culture, how we think about sustainability and ongoing discussion. how we are balancing and prioritising investments across our business opportunities. I was pleased to hear about their • Getting across our role in monitoring and shaping interest in our R&D and their support for the investments the culture of JM by always thinking about the and changes we are making to grow our business. tone we are setting and through incorporating We have good mechanisms in place for the board to more formalised ‘culture health checks’ in the understand the views of our shareholders and, alongside these, board agenda.
I will continue to be available to our major shareholders + + + throughout the year and look forward to meeting more of you + See page 104 for more information at our AGM in July. r r r
k k k
Johnson Matthey Annual Report and Accounts 2019 7 Strategic Report Chairman’s statement continued
The job of the board With the current dynamics and seismic shifts in the automotive industry that lie ahead, it is great to have Xiaozhi in the team. Robert and the senior management team have continued to At the end of the AGM in July, Odile Desforges will step deliver our strategy for sustained growth and value creation – down as a Non-Executive Director after six years as a member and with that, a strong set of financial results. Our job as a of our board. Odile has contributed significantly, particularly board is to actively engage in the development of strategy, with her valuable automotive industry insights; we will miss provide challenge and ask useful questions. During the year her and wish her well for the future. we have done so across a series of strategic topics – in the More recently, in May 2019, we announced that development of our Battery Materials business, for example, Doug Webb will be joining us as a Non-Executive Director from where, by a process of iterative and constructive debate, we 2nd September 2019. From July 2020 he will also chair our have supported the team as they made huge advancements Audit Committee, as Alan Ferguson will be stepping down at this year, in line with our strategic plans for this business. that point, after just over nine years on our board. Doug’s strong One area where we are placing increasing focus as a board, background in finance coupled with his deep understanding is more active and regular risk management in our meeting of the technology and engineering sectors will complement agendas through the coming year. This will provide greater the experience of our board and I look forward to working rigour to ensure we are looking at our business through a risk with him. management lens at all times and translating this through to I’m pleased that Alan will be with us for just over another real business results. year as we will continue to benefit from his insight and ensure The board is deeply involved in upholding governance. a smooth handover to Doug. Although somewhat premature, We’ve spent time this year looking at the evolving corporate I’d like to express gratitude to Alan on behalf of the board for governance scene and at our business in the context of the his significant and valuable contributions. Alan will be revised UK Corporate Governance Code. Of particular interest succeeded as Senior Independent Director by John O’Higgins. is corporate culture and I was pleased to learn that work was already under way prior to my joining JM and ahead of the revised code which we will report against next year. A culture for success We have varied and well balanced expertise, experience and In my experience, the culture at JM is open and inclusive where diversity on our board which was boosted at the beginning of people really enjoy working together. We place huge importance April 2019 when we welcomed Xiaozhi Liu as a Non-Executive on creating a culture of doing what’s right and speaking out if Director. Her joining coincided with our board visit to JM’s site things are not. We put people’s health and safety first and JM, in Shanghai and was extremely well received by the local team like any company engaged in potentially hazardous operations, as a strong statement of our commitment to the Chinese must manage the associated risks. Nothing we do is worth market. I am very pleased to welcome Xiaozhi to our board. getting hurt for and that is the tone I set – talking safety when We are already benefiting from her experience and perspective, I visit our sites and not being afraid to challenge or question on and from her deep knowledge and understanding of the safety matters. I want everyone in JM to be empowered to do evolution of the powertrain in different markets of the world. the same.
JM Awards – January 2019 I was honoured to spend time with so many incredible JM people from across the world and to celebrate their amazing achievements. The setting was awe inspiring too – London’s Natural History Museum where we sat underneath Hope, the iconic blue whale skeleton. What a fitting environment to celebrate talented people who are making a genuine and tangible contribution to a more sustainable future.
Explore more Find out more about the 2019 JM Awards matthey.com/jm-awards
Johnson Matthey 8 Annual Report and Accounts 2019 A long term view I also want to say a huge thank you to every single JM employee around the world for steering JM through these times JM is a company that delivers sustained growth and value, of flux and change to deliver what we promised – growth for driving strong returns. Growth comes through innovation and our shareholders, brilliant products and services for our is supported by our commitment to substantial investment in customers and a continued contribution to a more sustainable R&D. In a business like ours – one with 200+ years of history future for all. – we take a long term view. Our considered investments over Report Strategic My final message is to everyone on our planet, and one many years in fuel cell technology and, more recently in new which I make on behalf of the 14,800 people in JM… chemical process technologies, pharmaceutical APIs and battery materials, exemplify this. In that sense we are not This year, we’ve made your world a cleaner and healthier place. tactical, but with the level and pace of change going on in our major markets and with our customers, we are, as always, responding with flexibility and agility. Underlying earnings per share grew 10% this year and on a reported basis they were up 39%. In light of our strong performance, continued delivery against our strategy and Patrick Thomas confidence in the group’s future growth prospects, the board Chairman is proposing a 7% increase in the ordinary dividend. Sustained year on year dividend growth is a hallmark of JM. I believe we are one of only a handful of companies in the FTSE that has delivered continued growth in its dividend over the last 30 years.
A successful future ahead I’d like to finish by personally thanking our shareholders for placing their confidence in us – and that includes the several thousand of our employees who own company shares. I’m pleased to say that your company remains in good shape. We have a clear strategy, grounded with the world class science needed to tackle our planet’s most important social and environmental challenges. That is why I am confident of a successful future ahead for JM.
Board visit to China – April 2019 We had a hugely valuable visit to some of JM’s major operations in China. I really enjoyed spending time with our employees on tours of our facilities, in discussions on our business strategies and over lunchtimes and in the evenings. It’s given me a much better understanding of JM’s culture and a much deeper understanding of our markets in China. Our trip was timed to perfection too, as it coincided with Xiaozhi Liu, our newest Non-Executive Director, joining the board.
Johnson Matthey Annual Report and Accounts 2019 9 Strategic Report Chief Executive’s statement Using our science to make the world cleaner and healthier
As 2018/19 drew to a close, we sat down with Robert MacLeod to ask him about progress during the year, his expectations for 2019/20 and his perspective on JM’s relevance in today’s changing world.
How have global megatrends developed for JM over We are therefore expanding our manufacturing capacity the last year? for emission control catalysts with major new plants in Europe, China and India; the plants in Europe and China will come on We have an inspiring vision at JM – for a world that is cleaner line in 2019/20. and healthier, today and for future generations. JM, and what The global automotive industry is going through a once we bring to the world, is arguably more relevant than ever before. in a lifetime transition. Consumer buying patterns are less Over the last 12 months, we have seen public awareness of, predictable and the automotive supply chain, JM included, and action on, the world’s global challenges increase. The next is being more considered in making investments. With less generation is speaking out on global issues such as climate inherent flexibility throughout the supply chain and less change and air pollution, and it is these that JM can, and is, using predictable consumer behaviour, JM is supporting our its science to solve. customers, the car companies, as we navigate this mobility transition together. Focus continues on air quality and emissions – how is JM part of the solution? What impact is that having on your other automotive The need to improve air quality across the world is leading to facing businesses? tighter emissions standards in many countries. In the longer The technology used to power our cars is evolving and term this will inevitably lead to a shift towards zero emission diversifying, from primarily internal combustion engines to transportation, with more customers moving to electric vehicles. hybrids, battery electric and even fuel cells. JM is very well However, in the short term the need to significantly reduce positioned with our broad portfolio of powertrain technology emissions from gasoline and diesel vehicles is presenting an solutions – emission control, battery materials, fuel cell components opportunity for JM; we are part of the solution. – and strong relationships with vehicle manufacturers. Our Clean Air business is fabulous. It performed strongly In our Battery Materials business we are using our science this year despite the weaker global car market. In response to and technology expertise to enable the greater adoption of air quality concerns surrounding diesel cars, car buyers in long range pure battery electric vehicles (BEVs) that meet Europe are increasingly favouring petrol engines. In addition, consumers’ performance expectations on range, charge time in Europe and Asia, tighter legislation is coming into force for and safety. We are doing this through great technology which petrol cars and we have reallocated our R&D spend accordingly we are scaling up and commercialising in line with the in order that we can meet these more challenging requirements. predicted acceleration in EV ownership over the next decade. Having said that, our R&D investment in diesel technology in Our portfolio of leading, ultra high energy density cathode prior years has reaped rewards as we have significantly battery materials, which we call eLNO, are next generation – extended our leadership in the market for light duty diesel so not designed to compete with materials our competitors have cars in Europe. Now, around two thirds of all new diesel cars on the market today – and will suit a range of EV applications. produced in Europe have JM’s catalysts on them. Tighter Over the past 12 months, we have made significant legislation and JM technology means that diesel car emissions progress in commercialising eLNO. We continue to test our are lower than ever before and, in some cases, these cars materials with our target customers and feedback remains very produce less harmful particulate and NOx pollutants than positive. They are increasingly looking for customised solutions their petrol counterparts. That means, those people for whom to their problems and this plays right to our strengths. So we driving a diesel is the most economic choice, can do it in a less have been tailoring eLNO and are building application centres environmentally damaging way. to support our customers’ testing. In China and India, our car and truck customers are also getting ready for the introduction of new regulations which begin to be implemented from July this year.
Johnson Matthey 10 Annual Report and Accounts 2019 Have you delivered operational performance in line with your plans this year? Yes, we certainly have; 2018/19 has been another successful year for Johnson Matthey. We have made further progress in delivering our strategy of sustained growth and value creation
in line with the plans we laid out in 2017, and on strengthening Report Strategic the platform that will enable further long term growth. We have continued to invest in our world class science and scientists to deliver leading technology into the attractive and growing markets in which we play. Delivery of our strategy is underpinned by the fundamental changes we are making across all aspects of the group. These are making our business more agile and efficient, and giving us greater capability to deal with the fast changing world around us. We have invested in safety, our people, processes and systems while continuing to target further improvement. We’ve delivered a strong set of numbers this year, in line with what we promised, despite a more challenging external environment. This demonstrates the resilience of the group and our ability to adapt and flex to support our customers’ needs. It is also reflected in how we are effectively managing the continuing uncertainty in relation to Brexit in our business and with our customers. If I look across our four sectors, Clean Air performed strongly and we remain excited by the growth opportunity in Battery Materials. We made further investments in Health to Robert MacLeod develop our pipeline of products. In Efficient Natural Resources, Chief Executive we continue to drive efficiencies while focusing on high growth market segments, although some unscheduled downtime at our UK pgm refinery this year did impact our precious metal In order to manufacture our materials at scale, we have working capital. To support our long term growth, and as we chosen a site in Konin, Poland for our first 10,000 metric tonnes broaden our presence in sustainable technologies, we are also commercial plant as it is close to major customers in the BEV developing innovative solutions for fuel cells and battery supply chain and we expect to start construction later in 2019/20. materials recycling. The site has the potential for expansion to 100,000 metric tonnes, + + + and we are carefully considering how we could scale our + See pages 78 to 85 for more information business beyond our initial 10,000 metric tonnes. r r r At the time we announced our plant location, we also And on those ambitions, all geared to sustainable secured our first long term supply agreement with Nemaska technologies – what progress are you making there? Lithium for raw materials – another important step in the road k k k to commercialisation. And we are doing a lot of work to ensure We are proud of our sustainable technologies and we have six our raw materials sourcing is responsible and in line with our sustainable business goals to direct our progress. This year we’ve sustainability principles. At the other end of the value chain, continued to add to our portfolio of technologies and products, we have R&D work under way on battery materials recycling not to mention all the work that we are doing in our existing where we are combining our knowledge of battery materials businesses which have a substantial impact upon building a with our many decades of experience in recycling pgms. cleaner, healthier world. In addition, we continue to invest in fuel cell technology We’ve commercialised a new technology, developed which can also be used to power electric vehicles. Fuel cells together with BP, to transform household waste into diesel and use hydrogen as a fuel to generate electricity with the only jet fuels. This is an exciting opportunity for us and we have a by product being water and so tick the box as a solution for licensing agreement with Fulcrum BioEnergy, a biofuel producer, low emission transport. JM has strong technology in this space which plans to build a plant in the US using our technology. and in September 2018 we joined the Hydrogen Council so we We also announced a new strategic partnership with could work with other industrial players in enabling the uptake Immunomedics for the large scale production of a drug linker of hydrogen as an energy source in transportation, and a wide used in a treatment for breast cancer. range of other applications. + + See+ pages 19 and 20 for more information So as you can see, we’ve come a long way and our customers + are happy – one of them said that we were a “preferred cathode r r r material company to work with” because of our fast response, All the work we do is about delivering outcomes that are willingness to customise the product and our ongoing investment valued by our customers and contribute to a more sustainable in the science. It’s great to hear that we’re adding value, which k futurek k for people. We measure our contribution by aligning to goes back to the core of our strategy – science and technology the UN SDGs and have set ourselves a goal to double it between that helps our customers solve complex problems. 2017 and 2025. We’ve done well this year, increasing our contribution to over 87% of our sales. + + + + See pages 45 to 47 for our long term view + + + + See pages 24 to 27 r r r Johnson Matthey r r r Annual Report and Accounts 2019 11 k k k k k k Strategic Report
Chief Executive’s statement continued
At the same time, our customers are getting more tuned Driving the right behaviours in health and safety is a major in to sustainability. So we are broadening and deepening our priority and despite our continued focus, disappointingly our approach throughout our whole value chain. This not only recordable incident rate has remained flat over the last year. enables us to give reassurance to our customers but more We are injecting new focus on safety leadership and excitingly, it unlocks further opportunities for commercial engagement and will continue our efforts to manage our advantage through innovating new sustainable technologies. process safety risks by building on the improvements we So you will see us up our ambition further in this space – achieved this year. right through the whole value chain. + + + + See pages 60 to 75 You talked earlier about the changes you are making r r r to be more flexible and agile. Tell us more? Finally, what is the group outlook and priorities for 2019/20 and beyond? Sure. We have a number of what we call ‘strategy enablers’ – k k k a series of programmes that are fundamentally changing how For the year ending 31st March 2020, we expect growth in we work. These are bringing consistent approaches and operating performance at constant rates to be within our standard processes across JM; delivering operational efficiency, medium term guidance of mid to high single digit growth. allowing us to be more flexible and agile. At current foreign exchange rates (£:$ 1.295, £:€ 1.157, We are achieving this in many ways, for example, through £:RMB 8.72), translational foreign exchange movements for the deployment of a single global enterprise resource planning the year ending 31st March 2020 are expected to adversely (ERP) system (SAP) system. The first implementation was impact sales and underlying operating profit by £6 million and successfully completed during the year and we will roll it out £2 million respectively. across the group over the next few years. Our procurement programme is also enabling us to drive further efficiencies and savings. Furthermore, through better underlying data and standardised processes, we are gaining an improved understanding of customer and product profitability. Building on the board’s priorities outlined by At the same time, we are building capability, not only in Patrick on page 7, our priorities for 2019/20 procurement, but in other areas including supply chain, capital (pages 16 and 17) are to: project delivery and change management which is supporting the delivery of our strategy. • Continue to develop our science and technology to create the sustainable technologies of the future. And how are JM employees supporting the strategy? • Deliver in line with our strategic plans for each of our sectors so that we delight our customers with JM is full of inspiring and talented people. I’ve really enjoyed our brilliant products. spending more time at our sites this year talking to employees about JM’s strategy and their work, answering their questions • Meet the milestones for our groupwide enabler and listening to their feedback on what they think it’s like to programmes to drive further efficiencies. work at JM. In September 2018, we also repeated our employee • Involve and engage all our people in building opinion survey. This gives us a good steer on where we are our culture of success where we are safe, ethical doing well and not so well, and where we need to prioritise. and more sustainable. There were plenty of positives – our people told us that they have a better understanding and more connection with our In doing this, we will continue to strengthen our strategy and that we take health and safety and doing the right platform for growth. thing seriously. But overall, they told us they were less engaged than two years prior. As I reflected on these results, I am not so surprised given the broad changes we are making, although it is something I am determined to reverse. We have actions under We have an amazing vision, a winning strategy and the way and we are going to check in on how we are doing by global drivers of our business are fundamentally strong. Today we conducting a pulse survey later this year. face an unprecedented need for new technology to meet global Our people are key in delivering our strategy and vision, issues. Working together, inspired thinking and the application and we are doing a lot to create a culture of success. It started of scientific knowledge can help us to overcome these last year when we refreshed our values to support the delivery challenges and shape a better future for all. of our strategy, create an inclusive environment and guide us to act safely, ethically and more sustainably. Since then, we’ve been taking them deep into JM, holding workshops with our staff to explore the behaviours that support our values. We’ve also been embedding them into our people processes – from Robert MacLeod performance management and our development programmes, Chief Executive to recruitment and recognition – and we refreshed our code of ethics this year to guide us all in doing the right thing. As we move through different phases of our strategy, I also continue to evolve the shape and mix of skills in the management team to ensure we have the right team to deliver on our ambitions.
Johnson Matthey 12 Annual Report and Accounts 2019 Strategic Report Strategic
From left to right: John Walker, Annette Kelleher, Jane Toogood, Robert MacLeod, Anna Manz, Jason Apter, Simon Farrant
Group Management Committee (GMC)
John Walker, Sector Chief Executive, Clean Air Robert MacLeod, Chief Executive Jason Apter, Sector Chief Executive, Health Joined the GMC and board: October 2013 Joined the GMC and the board: June 2009 Joined the GMC: March 2018 John joined JM in 1984 and has led our Clean Having joined JM as Group Finance Director Jason joined JM in March 2018 to lead the Air Sector since 2009 after heading up its Asian in 2009, Robert has been leading JM since Health Sector. Bringing experience from the business for many years. John is directing our June 2014 when he became Chief Executive. healthcare and life science industry from strategy to deliver sustained growth in our Robert also has executive level responsibility MilliporeSigma, Jason leads the strategy largest business sector. for our New Markets Sector, environment, to deliver complex chemistry solutions for health and safety and our sustainable business our customers. framework. Currently (since May 2019), our Annette Kelleher, Chief HR Officer corporate R&D function is reporting to Joined the GMC: May 2013 Robert while we are in the process of recruiting Simon Farrant, General Counsel and Company Secretary Annette is our Chief HR Officer, leading the a Chief Technology Officer. group’s people strategy. Joining from Pilkington Joined the GMC: July 2007 Glass in May 2013, Annette is responsible for Anna Manz, Chief Financial Officer Simon joined JM in 1994 as Senior Legal Adviser the programmes to build talent and capabilities and became Company Secretary in 2001. across JM in line with our group strategy. Joined the GMC and the board: October 2016 Simon heads up our company secretarial and Anna joined JM as Chief Financial Officer in legal activities, including on ethics and October 2016 to lead the group’s finance compliance. He also acts as secretary to the Jane Toogood, Sector Chief Executive, activities, risks and controls. Joining from Diageo, board and its committees. Efficient Natural Resources Anna also leads the group’s strategic planning Joined the GMC: March 2016 and corporate development activities, IT function Jane joined JM from Borealis in March 2016 and our operational efficiency initiatives. and leads the Efficient Natural Resources Sector, directing the strategy to deliver market leading growth. Jane also chairs the Brexit working group.
Our approach The following pages demonstrate how our integrated offer is connected from our strategy to our KPIs.
Our Our Our Our Our business sustainability strategy stakeholders KPIs model framework
Johnson Matthey Annual Report and Accounts 2019 13 Strategic Report Our strategy Creating long term value and a better future Our strategy is to use our world class science to solve customers’ complex problems. This creates long term value for our shareholders and a cleaner, healthier planet for everyone.
Delivered through four global sectors
Clean Air A cleaner, healthier Sustained growth world today and for future generations Efficient Natural Resources Market leading growth Use our world class Health science to solve Break out growth customers’ complex New Markets problems Break out growth in battery materials
Johnson Matthey 14 Annual Report and Accounts 2019 Our Our Our Our Our business sustainability strategy stakeholders KPIs model framework Strategic Report Strategic
Enabled by Underpinned by being safe, more sustainable and doing the right thing
By 2025 we will have: Science and • Enhanced technology leadership in our targeted markets. technology • Three substantial, growing sectors with sizeable new opportunities realised through our New Markets Sector. • Excellence in everything we do. Rigorous resource allocation Driving attractive returns: • Expanding return on invested capital (ROIC) to 20%.
Efficiency and • Mid to high single digit EPS CAGR. excellence • Progressive dividend.
Values-driven culture
Have made the world a cleaner and healthier place
Johnson Matthey Annual Report and Accounts 2019 15 Strategic Report
Our strategy continued
Our strategy directs investment choices across the group so that our people can translate our world class science and technology as efficiently as possible to solve our customers’ complex problems and tackle major global challenges.
Our focus areas Our progress and priorities
Strategic plan Progress in 2018/19 Priorities for 2019/20 • Maintain technology leadership through R&D. • Grew light duty diesel market share • Maintain • Market share gains (already secured) in Europe. in Europe by 20 percentage points to technology • Tighter legislation in Europe requiring higher circa 65%. leadership to value products. • Maintained margin of circa 14% through support future growth. • Tighter legislation in Asia (China and India) optimised cost base and processes. driving significantly higher value per vehicle. • Construction in Poland and China • Complete and ramp up new • Consistent growth in light and heavy duty catalyst to expand capacity under way. Clean Air manufacturing markets in North America. • Have won expected business in China Sustained capacity. • Operational efficiency activities that support light duty. growth • Drive further margin and ROIC. + + + efficiencies. + Pages 80 and 81 Outcome r r r World class science creates substantial market share gains for JM and, coupled with legislative change, drives sustained growth. k k k
Strategic plan Progress in 2018/19 Priorities for 2019/20 • Focused investment in R&D to maintain and • Won first licences for new sustainable technologies • Continue extend technology leadership. including to convert waste to aviation fuel. investment • Outperforming in selected, high growth segments. • Ran the business more efficiently through: in pgm refineries. • Increased efficiency across the business, –– Simplifying product portfolio; • Targeted Efficient including investment in pgm refineries, to –– Operational improvements, including investment in new Natural enhance performance. procurement; • Extending capabilities into adjacent markets, –– Delivering cost savings from restructuring technologies Resources geographies and technologies. programme. (such as battery Market • Customer survey to drive deeper engagement materials leading recycling). Outcome and improve customer experience. growth • Weaker performance in Advanced Glass Technologies • Drive further Above market growth through leading positions efficiencies. supported by world class science; enhanced due to market slowdown and loss of market share. performance through more efficient operations. • Weaker performance in precious metal working capital due to unscheduled refinery downtime. + + + + Pages 82 and 83
Strategic plan r Progressr r in 2018/19 Priorities for 2019/20 • Enhancing our capabilities in particle engineering • Grew generics API pipeline to 46 products; • Complete ramp up to improve our position as a partner of choice with including one new product which has at Annan, UK. innovator customers. k k launched:k • Progress new • Driving value from existing generics business. –– Substantially on track although delays to product pipeline • Commercialising our pipeline of new generic and some products. in line with Health innovator products. • Progressed innovator API pipeline; three strategy. Break out nearing commercialisation. • Enhance growth Outcome • Optimised manufacturing footprint: capability. Development partner of choice for customers. –– Completed closure of Riverside plant in US; Our pipeline of new generic products adds –– Ramped up Annan UK plant and made circa £100 million to operating profit by 2025. first commercial sales. + + + + Pages 83 and 84 r r r Strategic plan Progress in 2018/19 Priorities for 2019/20 • Commercialising our leading eLNO ultra high • Continued to test eLNO materials and tailor • Further progress energy density next generation cathode material. k k themk for customers with positive feedback. on customer • Scale up through demo, pilot and full production • Started to build the first of our three qualification. scale; significant ongoing investment to build announced customer application centres. • Start construction New manufacturing capacity. • Scaled up eLNO manufacture from lab to of first Markets • Continued investment in next generation, pilot plant. commercial plant best in class high energy battery materials. Selected site in Poland for first 10,000 metric and determine Break out • tonnes commercial plant; site provides potential plans for further growth in scale up. Outcome for expansion up to 100,000 metric tonnes. battery • Invest in customer JM has market leading product and share of next • Signed first long term supply agreement for materials application centres. generation high energy density battery vehicle market. raw materials with Nemaska Lithium. + + + + Pages 84 and 85 r r r
Johnson Matthey k k k 16 Annual Report and Accounts 2019 Our Our Our Our Our business sustainability strategy stakeholders KPIs model framework
Strategic plan Progress in 2018/19 Priorities for 2019/20 Science and Progress in 2018/19 Priorities for 2019/20 Clean air • Maintain technology leadership through R&D. • Grew light duty diesel market share • Maintain technology • Delivered new market leading • Achieve technology for all Report Strategic • Market share gains (already secured) in Europe. in Europe by 20 percentage points to technology technologies across all four milestones in: • Tighter legislation in Europe requiring higher circa 65%. leadership to sectors. –– Battery materials; value products. • Maintained margin of circa 14% through support future Strategic outcome • Identified 12 new growth –– Battery materials Direct impact growth. of JM‘s products • Tighter legislation in Asia (China and India) optimised cost base and processes. • Sustained opportunities which are at recycling; driving significantly higher value per vehicle. • Construction in Poland and China • Complete and market leading various stages of investment. –– Gasoline technology 3.43 million tonnes ramp up new positions. of pollutants • Consistent growth in light and heavy duty catalyst to expand capacity under way. • Won multiple external awards for Euro 7; Clean Air manufacturing removed. markets in North America. • Have won expected business in China for our science. –– Health new product Sustained capacity. • Operational efficiency activities that support light duty. • Rolled out new career pipeline. growth • Drive further margin and ROIC. + framework to develop • Deliver action plans + Pages+ 80 and 81 efficiencies. + our scientists. for new future r r r + growth opportunities. Outcome + Pages+ 34 to 39 World class science creates substantial market + share gains for JM and, coupled with legislative r r r change, drives sustained growth. k k k
k k k Strategic plan Progress in 2018/19 Priorities for 2019/20 Sustainable Progress in 2018/19 Priorities for 2019/20 Longer • Focused investment in R&D to maintain and • Won first licences for new sustainable technologies • Continue business • Progress made towards three of • Continue to embed healthier extend technology leadership. including to convert waste to aviation fuel. investment six sustainable business goals; sustainability into lives • Outperforming in selected, high growth segments. • Ran the business more efficiently through: in pgm refineries. those relating to: our businesses and • Increased efficiency across the business, –– Simplifying product portfolio; • Targeted Strategic outcome –– Reducing our greenhouse functions to make continued Efficient including investment in pgm refineries, to –– Operational improvements, including investment • Sustainability gas emissions. progress towards achieving Direct impact in new leadership. sustainable business goals. of JM‘s products Natural enhance performance. procurement; –– Increasing contribution of • Extending capabilities into adjacent markets, –– Delivering cost savings from restructuring technologies sales to the UN SDGs. 181,000 lives Resources geographies and technologies. programme. (such as battery –– Number of volunteering days positively impacted Market • Customer survey to drive deeper engagement materials by our people. by new APIs leading recycling). launched Outcome and improve customer experience. • Those relating to health and safety growth • Weaker performance in Advanced Glass Technologies • Drive further and to employee engagement since 2015. Above market growth through leading positions efficiencies. supported by world class science; enhanced due to market slowdown and loss of market share. were broadly unchanged. Delivering performance through more efficient operations. • Weaker performance in precious metal working + a cleaner, Enabled by + Pages+ 24 to 27, 31 to 33 and 238 capital due to unscheduled refinery downtime. + healthier + r r r + + + Pages 82 and 83 world Strategic plan r Progressr r in 2018/19 Priorities for 2019/20 Efficiency and Progress in 2018/19 Priorities for 2019/20 Shaping • Enhancing our capabilities in particle engineering • Grew generics API pipeline to 46 products; • Complete ramp up excellence k •k £26k million of procurement • Deliver additional savings, a new era to improve our position as a partner of choice with including one new product which has at Annan, UK. savings. similar to 2018/19, of clean innovator customers. k k launched:k • Progress new • First ERP system roll out. through procurement. energy • Driving value from existing generics business. –– Substantially on track although delays to product pipeline Strategic outcome • First standard customer • Roll out ERP system • Commercialising our pipeline of new generic and some products. in line with • £60 million of satisfaction survey carried out as planned. Health innovator products. • Progressed innovator API pipeline; three strategy. savings through in one sector. • Deliver further efficiency Direct impact Break out nearing commercialisation. • Enhance procurement. • Restructuring programme benefits and extend of JM‘s products growth Outcome • Optimised manufacturing footprint: capability. • More agile and substantially complete with vast customer satisfaction survey 10.1 million tonnes efficient. to all sectors. Development partner of choice for customers. –– Completed closure of Riverside plant in US; majority of circa £25 million (CO2 equivalent) Our pipeline of new generic products adds –– Ramped up Annan UK plant and made annualised cost savings. of greenhouse circa £100 million to operating profit by 2025. first commercial sales. + gases removed. + Pages+ 43 to 44 and 49 to 53 + + + + + Pages 83 and 84 r r r r r r Strategic plan Progress in 2018/19 Priorities for 2019/20 Values-driven Progress in 2018/19 Priorities for 2019/20 Achieving • Commercialising our leading eLNO ultra high • Continued to test eLNO materials and tailor • Further progress culture k •k Improvementk in leading indicators • Achieve targeted improvement more energy density next generation cathode material. k k themk for customers with positive feedback. on customer – 50% increase in learning events. in our environment, health and from less • Scale up through demo, pilot and full production • Started to build the first of our three qualification. • Process safety risk reduced – 75% safety leading indicators. scale; significant ongoing investment to build announced customer application centres. • Start construction Strategic outcome of maximum credible event (MCE) • Deliver process safety and life New manufacturing capacity. • Scaled up eLNO manufacture from lab to of first • Peer group assessment actions closed. saving policies action plan. Direct impact leading health of JM‘s products Markets • Continued investment in next generation, pilot plant. commercial plant • Overall behavioural safety • Improve engagement and best in class high energy battery materials. • Selected site in Poland for first 10,000 metric and determine and safety performance flat. enablement of employees from 216,000 tonnes Break out performance. tonnes commercial plant; site provides potential plans for further • Second global employee opinion targeted actions following 2018 (CO2 equivalent) growth in for expansion up to 100,000 metric tonnes. scale up. • Engaged and survey showed marginally lower survey feedback as evidenced by of greenhouse battery Outcome Signed first long term supply agreement for • Invest in customer enabled engagement score, action plans a 2% improvement measured gases avoided. materials JM has market leading product and share of next • raw materials with Nemaska Lithium. application centres. workforce. in place. through a 2019 pulse survey. + generation high energy density battery vehicle market. + Page+ 44 + • Rolled out new values and started • Continue to embed our values + + + and explain JM’s strategy so + Pages 84 and 85 to embed into business processes. r r r + employees are clear on their r r r + + role in delivering it. + Pages 60 to 75 r r r k k k Johnson Matthey k k k Annual Report and Accounts 2019 17
k k k Strategic Report Our strategy in action
Progressing our strategy to deliver our vision for a cleaner, healthier world
Clean Air Advanced SCR. The special science solution that means no more dirty diesel
In Europe, diesel cars have received a lot of bad press because of the Regulators, quite rightly, also responded and set tighter emission impact of their emissions on urban air quality compared with their limits to protect our health. Meeting these posed a technical petrol counterparts. challenge… exactly the sort of thing that JM loves best! But for some people, those who drive a lot of miles, the higher fuel JM has applied its science and successfully reduced NOx emissions economy of diesel makes diesel powered cars cheaper, over the long by a further 50%. In doing so, we have developed the most advanced
term, to run. Higher fuel economy means CO2 emissions from a diesel catalyst system for diesel vehicles yet. Auto makers agree and have car are lower too. So the incentive was there to clean up diesel and made it their number one choice. As a result, JM’s market position give consumers a viable choice that was better for their health, the has increased by some 20 percentage points, to around 65%. planet and their pocket. This all means a new diesel car in 2019 can run just as clean as its petrol equivalent. So consumers no longer need to choose between economics and the environment.
Johnson Matthey 18 Annual Report and Accounts 2019 Our Our Our Our Our business sustainability strategy stakeholders KPIs model framework Strategic Report Strategic
Efficient Natural Resources Using household waste to power planes – a new trick for old technology
Fischer Tropsch (FT) technology is not new. First developed in Together we have brought to market a process to do just that. At its Germany in the early 20th century, it was used to convert synthesis heart is novel reactor technology and a high activity catalyst which gas (a mixture of carbon monoxide, carbon dioxide and hydrogen) ensures that turning waste into jet fuel is not only good for the into hydrocarbons. Fast forward many decades and JM joined forces environment, it’s economically attractive too. The new process is with fellow British long server, BP, to demonstrate FT technology at three times more productive than traditional technology and requires a plant in Alaska. only half the capital expenditure. But with fluctuating economics for oil and greater impetus for more And that’s why Fulcrum BioEnergy Inc. has licensed it and is building sustainable technologies and circular thinking, JM and BP saw a new the first commercial scale plant in Sierra Nevada, USA due to start application for FT technology… converting everyday household waste production in early 2020. It will convert around 175,000 tonnes of into high grade aviation fuel. household waste into some 11 million gallons of fuel each year; enough to fuel a plane for more than 180 return flights between London and New York.
Johnson Matthey Annual Report and Accounts 2019 19 Strategic Report
Health Helping to change the lives of people affected by breast cancer
Unique expertise in the development, scale up and manufacture of Linkers are a critical component of ADCs, providing the bridge for the complex molecules is what JM brings to both innovator and generic antibody to selectively deliver the drug to tumour cells and at tumour pharmaceutical customers in the attractive and growing small sites. This significantly reduces the amount of the drug that enters the molecule API segment. body, minimising harmful side effects. And that’s why Immunomedics has chosen JM as its strategic Thanks to JM’s early R&D work, we have already improved the manufacturing partner for the large scale production of the drug productivity of the manufacturing process over 20-fold and have linker used in IMMU-32. IMMU-32 is Immunomedics’ breakthrough provided the necessary quantities of API to treat patients in clinical trials. therapy for metastatic triple negative breast cancer. IMMU-32 is The IMMU-132 treatment is at the forefront of new cancer therapies classified as an antibody drug conjugate (ADC) which means that, and with one woman losing the battle against this devastating disease unlike typical chemotherapy, it is intended to target and kill only every single day, JM is excited to be contributing our science and cancer cells and spare the body’s healthy cells. This significantly cuts technology through this partnership. down on side effects experienced by patients. JM’s role in getting this breakthrough treatment to patients will be to manufacture the drug linker used in the IMMU-132 ADC.
Johnson Matthey 20 Annual Report and Accounts 2019 Our Our Our Our Our business sustainability strategy stakeholders KPIs model framework
New Markets A battery material capable of powering a revolution
Battery technology is going through a period of transformation, and to it, and they want to have the same refuelling costs, whether their this change is bringing a future in which EVs are the norm, closer vehicle uses petrol, diesel, or electricity. Achieving this is a key every day. differentiator with JM’s eLNO, which has an ultra high energy density compared with both current materials, and our competitors’ next At JM we asked ourselves what it would take to develop a cathode material generation materials. that would support a lithium-ion battery to enable electric vehicle usage Report Strategic on a grand scale. We looked at a number of strategic factors that are crucial And we’re pressing ahead with scaling up of this transformative to the success of electric vehicles – total cost of ownership, driving range, product at our pilot facility in the North East of England. We’re also safety, acceleration, recharging – and developed our new cathode material, investing in a 10,000 metric tonnes commercial scale facility eLNO, with these consumer priorities in mind. in Poland (with potential to expand to 100,000 metric tonnes), with the plant due to come online in 2021/22, and we expect to But for EV adoption to really take off, consumers – unsurprisingly – have our material powering EV platforms soon after. want to pay the same price as they do for a regular vehicle, or close
We are continuing to innovate, as we have done for over 200 years, with science-led products like the advanced SCR, FT technology, the drug linker for IMMU-32 and eLNO. All meet a critical need for our customers, for society and consumers, and are helping make the world a cleaner and a healthier place today and for future generations.
Johnson Matthey Annual Report and Accounts 2019 21 Strategic Report Our business model A better future We create long term value for our shareholders and society.
Our resources and relationships
Knowhow and intellectual capital Science Our science is world class. We invest in it and in our JM’s competitive advantage is its science scientific talent. Our skills and knowledge are and technology. We use our industry acknowledged across the scientific community and leading capabilities across our sectors to amongst customers. create sustainable solutions. We own We have nine core science capabilities (see page 35) patents covering our science, technology which provide us with fundamental insights about and processes. materials, their design and then the control of their activity through chemical and functional manipulation. Financial We invest for growth using equity from our shareholders, raised debt and cash flow Customers delivered by our sectors. Our science directs where we play. We apply it in technology driven markets and generate high margins Customer relationships from it. This drives high returns. We draw on our deep relationships with Collaboration and strong customer relationships are crucial customers to understand how best to apply in providing a high quality tailored service. Together, we put our science to solve their problems. our inspiring science to work to enhance life. Our customers are mostly other industrial companies, Natural resources operating in the transport, energy, chemicals and healthcare segments. We source raw materials responsibly and use them as efficiently as possible. We also recycle platinum group metals (pgms). Operations Our global manufacturing operations create highly specified physical products for our customers. Manufacturing operations We manufacture efficiently and responsibly to drive We have a global network of manufacturing economic and environmental performance, and have plants, application centres and laboratories. programmes in place to optimise our manufacturing assets. We continue to improve our global standards and systems to People enable us to operate every aspect of our business efficiently: Our 14,800 people share a passion for from strategy to supply chain, from innovation to IT. making a difference to the world. They bring the talent, expertise and innovative thinking needed to drive growth and People efficiency in JM. Everyone in JM plays their part in taking ideas from the lab to full scale commercial success. We hire the best people with the right skills and support them in an innovative culture that encourages them to develop and grow. Our people are motivated by working for a company that is making the world cleaner and healthier. This is an important differentiator in attracting and retaining the very best.
Underpinned by our values Our values provide the strong foundation, Protecting people Acting with shaping the right culture to deliver our strategy. and the planet integrity
Johnson Matthey 22 Annual Report and Accounts 2019 Our Our Our Our Our business sustainability strategy stakeholders KPIs model framework
We create sustained value and growth through the effective use of our resources and our relationships.
We act in line with our core values which, together with our focus on building on a more sustainable business, drive us towards our vision for a cleaner, healthier world. Strategic Report Strategic
How we create and share value
Our competitive advantage is in combining knowledge of the fundamental science with For society commercial and scalable solutions, which can Value we create Value we share be customised for every customer. • Cleaner, healthier Operational Positive impact of This combination enables us to outperform in our world. carbon footprint JM’s products target markets and creates high barriers to entry. 2.9 tonnes CO2 eq 87.3% Our customers choose us because of our science. per tonnes of output sales from products contributing to UN SDGs + + + + See pages 34 to 39 for more information r r r For shareholders and other stakeholders We work closely with our customers to develop Value we create Value we share solutions which enable them to bring their products k k • Attractive returns. Sales growth ROIC k to market faster, improve the performance of their products and reduce their environmental impact. • Taxes paid to 10% to £4.2bn 16.4% authorities. We provide them with functional products that help them Underlying operating Average working capital create more sustainable products and solutions. profit margin (excluding precious metals) We also provide specialist services such as the refining days and recycling of pgms and process technology used to 13.4% 59 design chemical plants. + Underlying earnings + + per share + See pages 40 to 47 for more information r r r 228.8p We invest in our manufacturing capacity to meet customers’ future demand and have the ability to k flexk kour cost base if our markets slow. For our people We demand high returns from our investments, Value we create Value we share with a target of at least 20%, which drives continued improvement in operational efficiency. • Strong culture. Health and safety Employee engagement • Employment and lost time injury and score of opportunities. illness rate (LTIIR) of 59% 0.53 + + + + See pages 48 to 59 for more information r r r For our company We are driven by values which means we always Value we create Value we share keep each other safe, work with clear intentions k andk respect,k and do the right thing for our people • Cash to reinvest Technology leadership and our planet. in our science, through R&D investment infrastructure They are supporting us as we are evolving to take and people. £190m decisions more quickly, to be more open minded to new possibilities, to share more and stay confident through times of uncertainty.
+ + + + See pages 60 to 75 for more information r r r + + + + See pages 30 to 33 for key performance indicators r r r k k k
Working Innovating Owning k k k together and improving what we do
Johnson Matthey Annual Report and Accounts 2019 23 Strategic Report Our sustainability framework The path to our vision Through leading edge science and technology.
Our sustainable business Sustainability is therefore an integral At the same time, this increased framework is all about part of our strategy and governance. demand for sustainable products requires It is at the heart of our brand and our us to focus beyond our operations and embedding our vision for a employee promise. It is engrained in our products and consider the whole of our cleaner, healthier world through company values. value chain. all aspects of our business and It is clear that society is becoming Therefore, when we reached the supply chains. We have six more aware and active in the drive for end of our first sustainable business sustainable development. Consumers want programme in 2017, we designed the goals to 2025 which we use to to know that the things they buy are next leg of our groupwide programme to measure our progress towards produced in a socially and environmentally address our whole value chain (page 25). our vision. responsible way. We aligned this with the material issues This is increasingly impacting business faced by our broader stakeholders The route to a more sustainable future to business organisations like JM and (page 27) and oriented our ambitions brings many challenges that must be that’s why we believe the sustainability with the UN SDGs.
tackled. In setting our vision for a cleaner, credentials associated with our science-led + + See+ page 238 for a summary of our performance healthier world, we have made it our solutions will become more and more + towards our six sustainable business goals business to use our cutting edge science attractive to customers and consumers. r r r to create sustainable technologies that contribute to the solution. k k k
Our six sustainable business goals
Health and OurHealth and Low carbonOurHealth Reanspd onsiblLowe carbonOurSustainablRespeonsiblLowe carbonCommunitSustainably Respeonsible CommunitSustainably e Community safety peoplesafety operationspeoplesafetysourcinoperationsg peopleproducsourcints operationsg engagementproducsourcints g engagementproducts engagement 1 2 1 3 2 1 4 3 2 5 4 3 6 5 4 6 5 6 JM goal + + + + + For health and safety, aspire to Ensure JM is a truly inclusive organisation Reduce+ + our greenhouse gas (GHG) + + r zeror harm.r that+ fosters+ employee engagement and emissions per unit of production + development within a diverse and r outputr r by 25%. + r globalr r workforce. + Read+ more on pages 69 to 73 + + + + + + Read more on pages 52 and 57 kr kr Pagekr 32 + Read+ more on pages 60 to 69 + kr kr Pagekr 31 kr kr Pagekr 32
k k k k k k k k k UN SDG
Johnson Matthey 24 Annual Report and Accounts 2019 Our Our Our Our Our business sustainability strategy stakeholders KPIs model framework
Our six goals address our whole value chain
1 2 3 4 5 6
Water Extraction and Energy Supplier agriculture Report Strategic
Before JM
Land use
Customer JM
Cradle to gate – Upstream value chain 111 222 333 444 555 666
After JM Wholesale 1 2 3Consumer4 5 6 Recycling
In-use phase
End of life / recycling Cradle to gate – Downstream value chain 1 2 3 4 5 6
Health and OurHealth and Low carbonOurHealth Reanspd onsiblLowe carbonOurSustainablRespeonsiblLow ecarbonCommunitSustainably Respeonsible CommunitSustainably e Community safety peoplesafety operationspeoplesafetysourcinoperationsg peopleproducsourcints operationsg engagementproducsourcints g engagementproducts engagement 1 2 1 3 2 1 4 3 2 5 4 3 6 5 4 6 5 6
+ Improve sustainable business practices Double+ + the positive impact that JM’s Increase the use of volunteer hours to + + + in our supply chains and, through products, services and technologies support+ + our community and charity collaboration,+ + ensure full compliance make to a cleaner, healthier world. + partners through the JM employee + r r r with our minimum standards from r volunteeringr r programme. r strategicr r suppliers. + + + + Read more on pages 26 and 44 + + + Read+ more on page 67 + + k k Pagek 31 + + Read more on page 50 r r r kr kr Pagekr 33 kr kr Pagekr 32
k k k k k k k k k
Johnson Matthey Annual Report and Accounts 2019 25 Strategic Report
Our sustainability framework continued Sustainable technologies with impact Our contribution to the UN SDGs. The UN SDGs are a collection of 17 global goals set by the United Nations General Assembly in 2015. They contain 169 sub targets to be achieved by 2030. JM is already making a significant impact. In 2018/19, 87.3% of our sales (2017/18: 86.9%) came from products and services that positively contributed to the UN SDGs.
How JM products and services support the aims of the UN SDGs
The UN SDGs cover social and economic developmentHealth an issuesd includingOur poverty, hunger,Low health, carbon education,Re spglobalonsibl e Sustainable Community warming, gender equality, water, sanitation, energy,safe tyurbanisation, environmentpeople and socialoperations justice. sourcing products engagement The figure below shows the breakdown of JM’s sales across its businesses in 2018/19 and their relative contribution to each of the UN SDGs. The larger the coloured circle,1 the greater the2 sales value. 3 4 5 6
Clean Air • Light Duty Vehicle Catalysts • Heavy Duty Diesel Catalysts Sustained growth • Other – Stationary
Efficient • Catalyst Technologies • Pgm Services Natural • Advanced Glass Technologies Resources • Diagnostic Services Market leading growth
Health • Generics • Innovators Break out growth
• Alternative Powertrain New • Medical Device Components Markets • Life Science Technologies Break out • Other growth in battery materials
JM Total
UN Sustainable Development Goals
Johnson Matthey 26 Annual Report and Accounts 2019 Our Our Our Our Our business sustainability strategy stakeholders KPIs model framework
Meeting stakeholders’ expectations Our regular materiality assessment helps us to focus on the areas that matter most to our stakeholders and where we make the greatest positive or negative contribution to society. From it we define our material areas. We review them every year, either by engaging with our stakeholders through an external consultancy or by conducting our own internal review. In 2018/19 we carried out an internal review which considered feedback from stakeholders gained through our interactions
with them during the year. Report Strategic
What matters most Through talking to stakeholders, JM has identified the topics that are ‘material’ to them. Our goals align with those topics.
+ + Pages+ 240 and 241: GRI Standard Content Index + r r r
k k k Materiality map The map below highlights the areas of focus for JM which we have identified as key to our business and most important to our stakeholders. It shows how we have aligned these to our six sustainable business goals.
Low carbon Community 1 2 3 operations4 5 6 1 2 3 4 5 6 engagement + Governance + + + + + + + r r r r r r Sustainability leadership Climate JM’s ability change risk to impact k k Pagek 31 k k Pagek 33 Wider Ethical business practices society and compliance Supply chain Our operations Community impact Air Financial Health and quality sustainability Greenhouse safety gas emissions Diversity and inclusion Water use Recruitment and retention Health Sustainable 1 and2 safety3 4 5 6 1 2 3 4 5 products6 Modern slavery + + Resource Responsible and child labour + + + + sourcing + + Environmental scarcity Social r r r r r r Product lifecycle management
k k Pagek 32 k k Pagek 31
Responsible Our 1 2 3 4 sourcing5 6 1 2 people3 4 5 6 + + + + + + + + r r r r r r
k k Pagek 32 k k Pagek 32
Johnson Matthey Annual Report and Accounts 2019 27 Strategic Report Our stakeholders Working together Shaping our strategy with our stakeholders.
Our key stakeholders Why we engage
Customers By working closely with our customers, we aim Understanding customers’ complex + to provide them with the best solutions and problems helps us research, develop + + + excellent service. and apply our science to give them r r r the best solutions to their challenges.
+ + + k k 3k + See pages 40 to 47 See page 94 r r r Investors JM is listed on the London Stock Exchange and is a By providing open and transparent constituent of the FTSE 100. information and engaging in two way k k + k + + + We provide investors with fair, balanced and dialogue, investors are able to make r r r understandable information about the company, its informed investment decisions. performance and prospects. We encourage two + way conversation and regularly seek their feedback. + + k k 2k + See pages 73 and 118 See page 94 r r r Governments We inform and contribute to debate, mostly in Policy and regulatory changes affect areas where our science and technology many aspects of our business. They k k + k + + and trade + expertise can have a positive impact. We see our create a framework in which we associationsr r r role as being a technical expert. must operate and their impact on our customers and society can
+ provide opportunities for growth. + + k k 4k + See page 73 See page 94 r r r Suppliers and We work closely with our core suppliers. We also Dialogue with suppliers is essential to participate in collaborative scientific programmes mitigate risks in the value chain and k k + k + + other partners+ with other companies and academic experts. ensure a responsible approach. r r r Collaborative relationships with other science experts in industry and + + + See pages 37 and academia furthers our technical + 49 to 51 k k 5k See page 94 expertise. r r r
Our people drive our business. We want them to High levels of engagement and k k Ourk people + be engaged with our vision and to feel confident enablement in a safe, more + + + that they are coming to work in a safe, ethical sustainable and supportive culture r r r and inclusive environment. contributes directly to JM’s success.
+ + + k k 6k + See page 60 to 75 See page 95 r r r Communities Our operations are part of local communities We engage with communities to around the world. We strive to be a good citizen understand how we can make a k k + k + + + and provide high quality employment positive impact, in line with our r r r opportunities. vision for a cleaner, healthier world.
+ + + k k 9k + See page 67 See page 95 r r r
Johnson Matthey k k k 28 Annual Report and Accounts 2019 Our Our Our Our Our business sustainability strategy stakeholders KPIs model framework
Our stakeholders are crucial to our long term success.
Their views inform and help shape our strategy. We work with them as we execute it; they input into it and benefit from the value it creates. We always seek to engage with and listen to our stakeholders to understand their views. We tailor this in different ways for our different stakeholders so that it encourages them to share with us what they expect or need from us, or tell us about any concerns.
+ Report Strategic + Page+ 73: Communicating with external stakeholders + r r r
Our impact Working together k k k We provide world class scientific solutions that make Developing a hydrogen economy the world cleaner and healthier. Much of what we do and where we are investing are already supporting global moves towards greener economies and will continue to deliver important offerings in the future. But we can’t go it alone. That’s why we join with others who share our purpose and complement our expertise. In September 2018 we became a steering member of the Hydrogen Council, the largest industry-led effort Feedback from investors forms part of the board’s seeking to develop the hydrogen economy. A substantial strategic discussions. increase in the use of hydrogen as a source of energy would make a meaningful contribution to reducing greenhouse gases. Being on the Hydrogen Council provides much deeper insight for JM’s business on different global strategies and also allows us to forge important alliances and partnerships. And with JM’s technologies, we have an important role to play in this area. By sharing information about what is technically Also in September 2018, ITM Power, the energy storage possible, we have provided useful insight for and clean fuel company, opened its seventh public access policymakers in areas such as vehicle emissions hydrogen refuelling station (HRS) at JM’s site in Swindon, UK, legislation. the home of our fuel cell component manufacturing facility. The station uses electricity, via a renewable energy contract, and water to generate hydrogen on site with no need for deliveries. This HRS is the first of two stations in the UK to be deployed as part of the pan European H2ME2 project, Our Supplier Code of Conduct aims to ensure which was funded by the European Fuel Cell and Hydrogen responsible behaviours in our value chains. Our Joint Undertaking and the Office of Low Emission Vehicles. scientific collaborations create mutually beneficial More than 60 people, including representatives from outcomes for JM and our partners. JM, gathered at the opening in Swindon. The opening was also supported by Toyota, Hyundai and Honda who also presented and participated in a Q&A session. Following this, the attendees were invited to take a test drive in a fuel cell electric vehicle on a short route nearby. Our employee engagement survey helps us to focus on the areas that matter most to our people.
Our community investments around the world support local projects through provision of cash and through volunteering.
Johnson Matthey Annual Report and Accounts 2019 29 Strategic Report Our KPIs How we measure performance We have 13 key performance indicators (KPIs) which we use to measure our financial and non-financial performance. Our KPIs measure progress against our strategy. Our performance against our KPIs is explained below.
Group financial objectives Performance in 2018/19
£4,214m Growth in sales excluding precious metals (sales) Monitoring sales growth at constant currency is a measure of In 2018/19, sales at constant £ million the growth of the business. In many cases, variations in the currency grew by 10% to value of the precious metals contained within our products £4,214 million (2017/18: 7%) 2015 3,164 are passed directly on to our customers. Therefore to measure with good growth across all four 2016 3,177 the growth of the group, we use sales excluding the value of sectors. Growth in Clean Air and 2017 3,578 precious metals. New Markets was double digit. 2018 3,846 + 2019 4,214 + + + Pages 77 to 89 r r r 13.4% Underlying operating profit margin Underlying operating profit margin is a measure of how we k Ink 2018/19,k underlying operating % convert our sales into underlying operating profit and a margin was broadly stable at 13.4% measure of efficiency in our business. We aim to increase our (2017/18: 13.6%) as we balanced 2015 15.1% operating margin year on year as we: improve our efficiency improving efficiency with investing 2016 14.2% to take costs out, improve our effectiveness as we focus on for future growth. 2017 14.3% higher value added products for our customers, and as we 2018 13.6% introduce new products through innovation to serve our customers’ changing needs. + 2019 13.4% + + + Pages 77 to 89 r r r 228.8p Underlying earnings per share Underlying earnings per share is the principal measure used to This year, underlying earnings k k k pence assess the overall profitability of the group. The following per share increased by 10% to items are excluded from underlying earnings as they do not 228.8 pence. It grew ahead of 2015 180.6 allow for a consistent comparison of performance between underlying operating profit, 2016 178.7 financial years: benefiting from a lower tax rate. 2017 209.1 • Amortisation and impairment of intangible assets arising A reconciliation from underlying 2018 208.4 on acquisition of businesses (acquired intangibles). profit for the year to profit for the 2019 228.8 • Major impairment and restructuring charges. year is given in note 4 on page 179. • Profit or loss on disposal of businesses. • Gain or loss on significant legal proceedings together with associated legal costs.
• Tax on the above and major tax items arising from changes + in legislation. + + + Pages 179 and 183 r r r
24 22 Return on invested capital (ROIC)* Target 20 JM’s business model of applying world class science efficiently k Thek group’sk ROIC* decreased from 18 to solve customers’ complex problems generates high returns. 17.0% to 16.4%, mainly a result 16 We define ROIC as underlying operating profit divided by the of both higher capex, and higher 14 monthly average of equity, excluding post tax pension net 12 precious metal working capital Cost of capital 10 assets, plus net debt for the same period. ROIC for individual through the year which was due 8 sectors is calculated using average monthly segmental net to unscheduled downtime at our 6 assets as the denominator. UK pgm refinery. 2015 2016 2017 2018 2019 * We have changed our definition of ROIC this year to exclude net pension + assets as these are not operating assets. + + + Page 89 r r r 59 days Average working capital (excluding precious metals) Average working capital days (as defined on page 189) is a k Ourk averagek working capital days days measure of efficiency in the business with lower days driving (excluding precious metal) 2016 70 higher returns and a healthier liquidity position for the group. improved by three days. This We exclude precious metals as our precious metal working 2017 69 reflects our continued focus on, capital is a function of our customers’ choices and therefore and disciplined management of, 2018 62 not fully under our control. It can have a material effect on the working capital across JM. 2019 59 group’s working capital days. + + + + Page 89 r r r
Johnson Matthey 30 Annual Report and Accounts 2019 k k k Our Our Our Our Our business sustainability strategy stakeholders KPIs model framework
Group non-financial objectives
Science Performance in 2018/19
£190m Gross research and development expenditure Johnson Matthey’s strategy delivers sustainable growth The group’s research and £ million through applying science and technology to meet the global development expenditure was challenges and opportunities from clean air, improved health broadly maintained at £190 million 2015 170 and efficient use of natural resources. To maintain our as we continued to invest in more 188 2016 competitive advantage and enable future growth, we invest efficient and targeted ways. 2017 201 in research and development. 2018 193
2019 190 Report Strategic
+ + + + Pages 34 to 39 r r r
Customers k k k
Customer satisfaction Customer satisfaction Applying our world class science efficiently to solve our In 2018/19 we carried out our first (out of 10) customers’ complex problems creates leading market positions standardised customer satisfaction for JM. We track customer satisfaction as a measure of how we survey with customers representing are maintaining our competitive advantage and to understand circa 80% of sales in Efficient the health of our future business. Natural Resources. Our score of We use an external supplier to ensure a consistent and 8.3 out of 10 is above the industry 8.3 norm of 7.6 and is a pleasing result. independent survey. We receive high quality analytics and feedback which is used to drive clear actions in the business. We will report this KPI as a measure across all four sectors next year.
+ + + + Page 44 r r r
Positive impact of JM’s products k k k % sales from products JM uses its science and technology expertise to create contributing to UN SDGs products that have a positive impact on the planet. We track In 2018/19 the percentage of sales progress towards our vision for a cleaner, healthier world by from products that positively measuring the percentage of our sales that come from contributed to the UN SDGs was products that make a positive contribution to the UN’s 87.3%, up from 86.9% last year. sustainable development goals (UN SDGs). A detailed Our sustainable business goal is 87.3% definition of this KPI is provided on pages 236 and 237. to increase this to >90% by 2025.
+ + + + Pages 18 to 21, 25, 26, 43 and 44 1 2 3 4r r5 r 6
k k k
Operations
Operational carbon footprint per unit of production output 2.9 tonnes CO2 (eq) Our operational carbon footprint, reported in tonnes of This year the group’s operational carbon dioxide equivalent (CO2 eq), includes Scope 1 and carbon footprint per unit of
CO2 eq emissions per tonnes of output Scope 2 emissions. It is a measure of the carbon intensity production output reduced from
2017 3.8 of our operations. We normalise our carbon emissions 3.4 to 2.9 tonnes CO2 equivalent 2018 3.4 based on production output which we define as ‘tonnes of per tonnes of output. This is due manufactured product sold externally’. Only sold products 2019 2.9 to us increasing the proportion of manufactured on JM premises are included. A detailed our electricity that is derived from definition of this KPI is provided on pages 235 and 236. renewable sources.
+ + + + Pages 52, 53, 56 and 57 1 2r r3 r 4 5 6
k k k
Johnson Matthey Annual Report and Accounts 2019 31 Strategic Report
Our KPIs continued
Group non-financial objectives
Operations (continued) Performance in 2018/19
Responsible sourcing – strategic suppliers assessed and in compliance with % strategic suppliers assessed JM Supplier Code of Conduct Since the programme was since 1st April 2017 We seek to ensure sustainable and responsible business introduced in 2017, we have practices in our supply chains through measuring the assessed 17% of our Tier 1 strategic percentage of our Tier 1 strategic suppliers assessed and suppliers and of those, 76% 17% compliant with JM’s Supplier Code of Conduct. A detailed were fully compliant with our definition of this KPI is given on page 236. Supplier Code of Conduct.
% in compliance with JM + + Page+ 50 Supplier Code of Conduct + r r r 76% 1 2 3 4 5 6 k k k
People
LTIIR of 0.53 Health and safety Making sure our people go home in the same, or better, state The group’s LTIIR was broadly Lost time injury and illness rate than when they came to work is everyone’s responsibility in flat this year at 0.53. We are JM. That’s why we place huge emphasis on health and safety. disappointed in our performance 2015 0.45 We drive the right behaviours through our values and through against this lagging indicator; we 2016 0.40 health and safety programmes across the group. Rigorous understand the drivers of this and 2017 0.48 health and safety systems apply across all facilities and we are tackling it. Encouragingly, our 2018 0.52* actively manage our safety performance through monitoring leading indicators of performance 2019 0.53 the incidence and causes of accidents that result in lost time. are improving.
Lost time injury and illness rate (LTIIR) is defined as the + + Pages+ 69 to 73: Our approach to number of lost workday cases per 200,000 hours worked in + health and safety a rolling year. A detailed definition of this KPI is provided r r r on page 235. * Restated, see page 73. 1 2 3 4 5 6 k k k
Employee engagement An engaged workforce is a key driver of performance. Our employee engagement score Our global yourSay survey, carried out every two years, in September 2018 was 59% looks at the key drivers of employee engagement. (November 2016: 62%). We have 59% Further details are provided on page 64. action plans in place that continue We use employee engagement as a measure of how to focus on improving the committed and motivated our people are to give their best effectiveness of our employee to Johnson Matthey. engagement activities with the aim of increasing our employee A detailed definition of this KPI is provided on page 235. engagement score.
+ + Pages+ 60 to 69 and 74 and 75: Further + details of what we’ve been doing to r r engager our people over the last year 1 2 3 4 5 6 k k k
Johnson Matthey 32 Annual Report and Accounts 2019 Our Our Our Our Our business sustainability strategy stakeholders KPIs model framework
Group non-financial objectives
People (continued) Performance in 2018/19
Volunteering in the community Volunteering days taken Caring for others in our communities is part of our culture In 2018/19 JM employees took by JM employees and is reflected in our values. That’s why we support 1,116 volunteering days (2017/18: employee volunteering and allow our people two days of 678 days). This increase is pleasing paid volunteering leave each year. We measure the number as we started to raise awareness of of volunteering days taken by JM’s employees per year. the benefits of volunteering during This is part of our wider target of achieving a cumulative total the year. We have also simplified 1,116 the process of volunteering with of 50,000 days between 1st April 2017 and 31st March 2025. Report Strategic A detailed definition of this KPI is given on page 237. a global employee online system for employees to register and track their volunteering. When combined with the days taken in 2018/19, JM employees have taken 1,794 days of paid volunteering leave. + + + + Page 67 1 2 3 4 5r r6 r
k k k Non-financial information statement
JM has a range of different of policies and standards in place to manage our principal risks, and which form part of our internal control framework. These are referenced throughout the Strategic Report. The table below shows how we meet the non-financial reporting requirements contained in sections 414CA and 414CB of the Companies Act 2006. It summarises the material policies identified in line with these reporting requirements and is intended to help our stakeholders understand our position on non-financial matters.
Reporting requirement Policies and standards that govern our approach and controls Relevant principal risk Page reference
Environmental matters • Environment, Health and Safety Policy* 4 69 • Policy on animal testing* 55 • Ethical and Sustainable Procurement Policy* 50 • Supplier Code of Conduct* 50 to 51
Employees • Code of ethics* 6 68 • Equal Opportunities and Training and Development of People Policies* 65 • Global Flexible Working Policy 69 • Board Diversity Policy* 113, 121 • Speak up process 68 to 69 • Environment, Health and Safety Policy* 69 • Eight lifesaving policies 69 • Working Together Policy 69 • Global Parental Leave Policy 69 • Mental wellbeing commitment 69 • Investigations Policy 69 • Corporate Governance Framework 108 to 109
Social matters • Employee Volunteering Policy 6 67
Respect for human rights • Modern Slavery Statement* 10 51 • Code of ethics* 68 • Data Protection Policy and Employee Privacy Notice 69 • Ethical and Sustainable Procurement Policy* 50 • Supplier Code of Conduct* 50 to 51
Anti-corruption and • Anti-Bribery and Corruption Policy 10 69 anti-bribery matters • Code of ethics* 68 • Trade and Export Controls Policy 69 • Investigations Policy 69 • Financial Crime Policy 69 • Tax strategy 88 • Conflict of Interests Policy 69 • Competition Law Policy 69 Due diligence and outcome – –
Business model – 1 2 3 4 5 6 7 22 to 23 8 9 10 11 12 13
* Available on our website Johnson Matthey Annual Report and Accounts 2019 33 Strategic Report
Johnson Matthey 34 Annual Report and Accounts 2019 Science and technology, and our ability to translate them into solutions for our customers, are our competitive advantage Strategic Report Strategic Science
Our people deliver world class science which creates differentiation that supports high margins and leading market positions for JM.
Nine core areas of scientific capability, We have over 1,500 dedicated scientists developed over many years, form the in Johnson Matthey with wide ranging foundation of our knowledge, and we expertise who give us a diverse draw on them again and again across our perspective on the problems we tackle. businesses and products. We interweave These scientists collaborate to these capabilities into products and understand the fundamentals of what’s services that solve our customers’ required, explore innovative solutions and challenging problems. We focus on the deliver the outcomes our customers need. complex and the difficult. And we win We understand what is happening at the based on our technology. Our scientific sub-micron level, so we can address capabilities provide the opportunities complex problems at a global scale. for us to drive growth.
World class science capabilities Cleverly applied Value for JM
Characterisation Material design Provision of Chemical synthesis and modelling and engineering customised solutions
SolutionsSolutions forfor + = customerscustomers Surface chemistry Development of new and Product formulation Process optimisation and coatings next generation products
Johnson Matthey 35 Pgm chemistry Catalysis and Scale up of complex Annual Report and Accounts 2019 Electrochemistry and metallurgy advanced materials manufacturing Strategic Report
Science continued
The science behind our products Our scientists draw on a range of skills to design and produce functional materials, including catalysts, with the required performance. We design molecules and understand how they react, and we deliver them in a form that our customers can use. We test their performance from lab scale to manufacturing, ensuring safe handling, operation and disposal.
Our science in action
Tackling global Clean air for all issues
Selective catalyst systems to reduce emissions of harmful gases, like NOx, from vehicle exhaust, Providing the combined with filters to remove particulates. solution Minimising vehicle emissions to protect health and the environment.
Translating scientific capabilities Catalysis and Material design Surface chemistry Scale up of complex advanced materials and engineering and coatings manufacturing
Fundamental Analytical science, models to predict interactions of molecules, understanding fundamental knowledge of materials at the atomic scale
Diamond Light Source Universities Catalysis Hub Access to UK’s national Outreach and Collaboration Latest thinking on Leading edge catalyst synchrotron and start ups for fresh science fundamentals research advanced scientific perspectives microscope facilities
How we innovate Having people with such a diverse range of scientific knowledge and experience concentrated at our R&D locations creates opportunities for innovation. We share our knowledge across the company and reach out externally to complement the skill sets we have: • Supporting PhD students and collaboration with universities to give us access to specialist equipment and science. • Setting challenges and running ideation campaigns to bring people together with different perspectives on a problem. • Investing in organisations and facilities, such as the UK synchrotron facility and Catalysis Hub, to build relationships, understanding and access to assets needed. • Scouting for the best partners where we identify an opportunity to grow.
Johnson Matthey 36 Annual Report and Accounts 2019 Catacel SSR – shaping a new era of clean energy Hydrogen is a versatile energy source which offers an important route in the transition to clean, low carbon power.
Today it is used primarily in oil refineries to remove sulphur The outcome for customers is increased plant throughput from fuels and for ammonia and methanol production. But if of up to 20%, without capital investment of a new plant, less future predictions on alternative routes to energy are realised, wear and tear on the reformer reactor tubes and fuel savings. ten times the current amount of hydrogen will be required. So how does it work? The design of the catalyst is a balance Strategic Report Strategic JM already supplies catalysts, in the form of pellets, to produce between many competing requirements such as its strength, how hydrogen by reacting steam at high temperature and pressure heat is transferred, how active it is and how evenly gases flow in with methane from natural gas (steam reforming). Using this and around it. The engineered structure of Catacel SSR enables existing knowledge and our world class science, we’ve it to stretch many of the limitations imposed by ceramic pellets. developed a new high performance engineered catalytic In developing a product like this we draw on a wide range solution for hydrogen production. of skills and our collaborations both in-house and through our We call it Catacel Structured Steam Reforming (SSR). close liaison with universities and research institutes. And by Why? Because it is a coated, metal foil based, engineered scaling up the manufacture of the catalyst and designing it as catalyst that is an alternative to the conventional ceramic pellet a drop in substitute, our customers have the choice to move impregnated with a catalyst. seamlessly from pellets to Catacel SSR. The science and technology behind Catacel SSR, and the customer value it creates, gained external recognition this year when it was awarded as winner of the IChemE Oil and Gas Award 2018.
Watch: How Catacel SSR is changing the game for steam reforming matthey.com/new-era-clean-energy
We recognise that some of the best ideas will come from open innovation. So we look for partnerships and collaboration in the broader world of innovation.
This means we stimulate thought and hear about new approaches first hand. A few of the ways we have been reaching out to the wider innovation community include:
#cleanairtech Smogathon Axisinnovation We ran a meet up event called ‘The air We joined the Poland Smogathon event We have connected with the innovation that we breathe’ at London Tech Week in 2018, which focuses on innovations ecosystem of Israel, a country renowned 2018 and commissioned a White Paper in air purification. As a partner at the as a source of innovative technology and on clean air technology. We brought event, we selected challenges and were business models, seeking out technologies together over 50 people all focused part of the panel reviewing solutions that relate to our agrochemical and air on cleaning our air and, together, we being pitched by start up companies. purification activities. Tapping into this catalysed a clean air tech community, This is a great way of hearing about new ecosystem, which includes universities, #cleanairtech, of start ups, like minded and exciting ideas to tackle air pollution start ups, institutes and accelerators, corporations, academics, regulators and and support those who present the best helped us understand how we can influencers. The group looked at issues projects. We are also able to share our contribute. We are now looking to + of air quality measurement, the cost of expertise in the field of air purification, strengthen+ + our links further and develop + + poor air quality, products and solutions providing+ + advice and insights to startups mutually beneficial partnerships. + r r r that are being worked on, and leading and the broader technical community. r r r the drive to improve air quality. Such https://www.axisinnovation.com/jmevent https://smogathon.com collaborative working groups give us a k k + k freshness+ + in our approach to tackling + k k k some of the world’s biggest problems. r r r
matthey.com/cleanairtech k k k
Johnson Matthey Annual Report and Accounts 2019 37 Strategic Report
Science continued
Managing science and technology Our strategy, aligned with our vision For us, innovation is the realisation for a world that’s cleaner and healthier, of value from knowledge, and road maps In 2018/19 we invested £190 million in helps us focus our science and help us to identify where and how to R&D, including £19 million of capitalised technology. We use technology road invest in our R&D. Our new product R&D, which represents around 5% of our mapping as a tool to identify future introduction process supports this and annual sales (2017/18: £193 million, growth opportunities for our business is used by our businesses in delivering including £18 million of capitalised R&D, and how to deliver them. Technology their strategic plans. representing 5% of annual sales). We road mapping facilitates high quality These roadmaps also enable forward maintained our investment this year as conversations across our sectors and looking conversations with current and we continued to invest in a more efficient functions about the future of our future customers to identify new product and targeted way, and in alignment with business. It allows us to map our core and market opportunities for JM to our strategic aims. In this way, we capabilities against future opportunity extend its competitive advantage through continue to make excellent progress to and helps us identify capabilities we can our world class science and technology. sharpen our focus on creating value from add to enable or accelerate progress. our leading technology. During the last year we have developed road maps that define market drivers, products and the capabilities we will need to innovate across our business.
Gasoline particulate filters – cleaning the air we breathe Increasing numbers of petrol (gasoline) vehicles on our roads and the advent of tighter legislation to control their exhaust emissions bring new challenges in cleaning the air.
Gasoline direct injection engines are very efficient, meaning less CO2 is emitted. But there is a downside; more and smaller particles of soot are produced which are harmful to our health and need to be removed from the exhaust gases. That’s why JM has developed a three way filter which acts as both a three way catalyst to significantly reduce harmful gaseous emissions and as a filter to take out the vast numbers of small, fine particles. Working closely with our customers, we have developed and designed our technology to meet their requirements for catalyst activity and filtration efficiency while minimising the impact on exhaust gas flow. Many aspects of scientific knowledge must coincide to deliver an engineered product that is fit for purpose. We use advanced imaging techniques to build up a picture of the filter structure, in collaboration with academic experts. We use computers to model how gas flows through the filter walls and along its channels; we formulate catalyst material with long lasting activity; and we evaluate different coating techniques to give a highly effective active coated surface which promotes filtration efficiency but doesn’t block up the filter. And to do all this we rely on cutting edge capability in computational modelling and advanced microscopy. As a result, we have developed gasoline particulate filters that meet the Euro 6d Final legislation, the toughest in the world for particulate number emissions, in both laboratory testing and when tested in real world driving conditions on the road.
Johnson Matthey 38 Annual Report and Accounts 2019 Active pharmaceutical ingredients – helping people live longer healthier lives Our aim is to make the world a cleaner, healthier place, and we are proud of the positive impact our science can make on the air, the resources of the world and the health of people around us. Strategic Report Strategic
The active pharmaceutical ingredients (APIs) we make are the power behind life changing therapeutics such as apomorphine which is used to treat the symptoms of Parkinson’s disease. Treated with this active ingredient, people with severe Parkinson’s disease can regain their independence and continue to do the things they enjoy. Our APIs are also found in drugs that are used to manage Duchenne muscular dystrophy, a genetic disorder in children where progressive muscle degeneration causes weakness. It is the complex API molecules that cause the therapeutic effect and our ability to manufacture them reliably and effectively means adults and children can live more fulfilling lives. JM helps pharmaceutical customers to develop and bring to the marketplace the active ingredients for these life changing drugs. Pharmaceutical ingredients are usually molecules with complex structures and often require many different reaction steps and purification. We use our scientific skill and creativity to find the shortest, most precise and efficient reaction pathways. And from there we develop effective, reliable routes to manufacture high quality complex molecules – molecules that have a profound impact on many people’s lives.
R&D employees Distribution of R&D expenditure Gross R&D expenditure
£ million % Central Research Central Research 210 201 10 17% 18% 188 193 190 170 175 Clean Air Clean Air 8 New 43% New 44% Markets Markets 140 6 11% 11% 105 4 Health Health 70 9% 8% 35 2
Efficient Efficient 0 0 Natural Resources Natural Resources 2015 2016 2017 2018 2019 20% 19% R&D expenditure / sales
Johnson Matthey Annual Report and Accounts 2019 39 Strategic Report
Johnson Matthey 40 Annual Report and Accounts 2019 Putting our inspiring science to work for our customers Strategic Report Strategic Customers
Collaboration and strong relationships with our customers are crucial. Together, we put our inspiring science to work to enhance life.
Using our science to solve our customers’ And we’re challenging ourselves Sustainable business goals complex problems is at the heart of our to improve. Through our Commercial strategy. ChoosingHealth JM anenablesd our Our ExcellenceLow programme carbon (pagesResp 43onsibl and e44), Sustainable Community customers to bringsafe theirty products andpeople we are growingoperations our people, deliveringsourcing an products engagement ideas to market faster, improve the enhanced experience all round for our performance of their1 products and 2 customers and,3 at the same time,4 5 6 reduce their environmental impact. creating more value for JM. This creates value for them; and it Our products and services do creates value for JM – through high amazing things when our customers margin products from which we use them – this is one of the major ways generate strong returns. we make the world cleaner and healthier. Directed by our vision for a cleaner, So we are measuring this through our healthier world, we operate in growing sustainable business goal 5, and aim to markets. The breadth of our markets and double the positive impact our products the depth of our science give us strength. and services have by 2025.
Our global markets and segments The markets we serve are directed by our science and driven by our technology. As a result, we create leading technology positions, often in niches within larger markets.
These markets aggregate into four main global economic Beyond these, we also monitor the critical raw materials and segments through which our science can enable prosperity and commodities used in these spaces. In the case of platinum a cleaner, healthier world. They are: group metals (pgms), we are a globally recognised expert in • Transport (principally automotive, with some marine their market fundamentals and applications. and aerospace). • Energy (fuels and electricity generation). • Chemicals (including agrochemicals, food and beverage). • Healthcare (both pharmaceuticals and medical).
Johnson Matthey Annual Report and Accounts 2019 41 Strategic Report
Customers continued
Segment trends and dynamics
Transport Alternative powertrains are also starting Legislation on sulphur may help to appear in other forms of transport accelerate growth in fuels, but this impact The automotive industry continues to (e.g. trains) and industrial applications is still to be determined. experience a period of unprecedented (e.g. fork-lift trucks). For JM, this means As a business, we will continue to change. Economic weakness coupled with expanding our offering, applying our target the highest growth and most powertrain shifts and legislative change science to develop solutions to enable and profitable segments to ensure that critical (including subsidies) are impacting the deal with the expected uptick in demand raw materials are used and transformed industry. As a result, the total production and a potential shift into new applications. in the most efficient manner possible. of light duty vehicles (LDVs) fell slightly this year to just under 94 million units1. The LDV market (covering all powertrains) Energy Healthcare is expected to return to growth in the Fossil fuels are the dominant global Global population and life expectancy medium term, ~2.4%1 compound annual energy source today (~81% of primary continue to rise, with a range of medical growth (CAGR), with total production energy2), but the rise of renewables, the interventions required to service passing 100 million units1 in the early drive for energy efficiency, along with the increasingly old and wealthy populations. 2020s. However, longer term, LDV possibility of cost effective energy storage, To support this trend, healthcare growth is expected to slow with an is changing that dynamic. Most analysts spending is expected to grow in the mid increasing proportion of the population expect the contribution of coal and oil in single digits (GDP+) through 20255. living in cities, and consumer behaviour the world’s energy mix to fall, with natural For JM, the active pharmaceutical shifting towards different vehicle gas expected to become the fastest ingredient (API) contract development ownership models, car sharing and growing fossil fuel, maintaining its share and manufacturing organisation market alternative modes of transport, for (~20%) of the global energy mix. This continues to be a focus for our Health example, cycling. implies strong growth in renewables and Sector. Growth in this market is expected But for those vehicles that are other low carbon fuels (including nuclear). to be in the 7-8% CAGR, with some areas produced, alternative powertrains are We maintain a focus on this segment within it growing at 10+%. Outlook in the expected to become an increasing part as it informs us about changes in the US and European regions remains strong. of the mix. Analysts expect a move away interconnected transport and chemicals JM will continue to focus on how we from pure internal combustion engine markets. This evolution also touches our can serve this growing market through (ICE) vehicles over time, with hybrid, applications in the stationary energy our differentiated science and technology, battery electric (BEVs) and / or fuel cell space, along with several other products helping to deliver the products that our electric vehicles (FCEVs) becoming more and services. growing population requires. common. These powertrain shifts, together with the emergence of Chemicals Critical raw materials innovative vehicle ownership and access models, along with a rising degree of There are a number of competing factors Within these markets, commodity prices connectedness and automation, are impacting the oil market. In the near term, will play an important role in determining transforming the mobility landscape. we expect oil prices to continue to recover the speed of transition and the Heavy duty vehicle (HDV) production from their recent lows followed by much technological solutions that are adopted. 3 was 3.7 million units in 2018/191 and more modest growth towards a plateau We continue to focus on our this remains a cyclical market. and potential decline in the longer term. traditional platinum group metal (pgm) While vehicle production is a growth The outlook for natural gas is markets and closely watch the evolution 3 driver for JM, next generation, tighter expected to be very modest . However, of platinum, palladium and rhodium emission control legislation, particularly short term pricing, especially in North prices as they react to changes in the in Asia, is an additional, more significant America, remains subdued. automotive market. Beyond these opportunity for us. Downstream products have benefited traditional metals, we also track This mobility transition is not from low input prices over recent years, movements in the key battery cathode expected to be quick, with most market but those advantages are beginning to materials (e.g. lithium, cobalt and nickel) evolution studies showing a gradual pass. Through 2022/23, refining and and note the recent decline in pricing for uptake of alternative powertrains in LDVs (petro)chemical catalyst growth is these elements. 4 through the 2020s. JM assumes BEV assumed to remain in the 3-4% range , JM will continue to focus on the most penetration of ~6% by 2025 and notes with specific rates for each catalytic area. efficient use and transformation of critical the high degree of uncertainty associated Growth at 3% is expected in areas such raw materials and we will position our with these projections. The transition for as ammonia and oxidation processes. business (including our refining expertise) HDVs is expected to be more gradual. to respond and react to these trends.
Sources 1 JM automotive market assumptions / LMC Automotive. 3 BP Energy Outlook, 2019 (www.bp.com/en/global/ 4 IHS Chemicals. 2 McKinsey Energy Insights – Global Energy corporate/energy-economics/energy-outlook.html). 5 EvaluatePharma. Perspective 2019.
Johnson Matthey 42 Annual Report and Accounts 2019 Science and technology enabling change The four economic segments we serve are undergoing major change as a result of global sustainability megatrends. Science and technology is enabling and driving the pace of change. We apply our scientific capabilities, via our four sectors, into markets within these segments. We create new products and services that, through our customers’ business activities, are making the world cleaner and healthier. Strategic Report Strategic
JM science World class science capabilities
Efficient Natural JM sectors Clean Air Health New Markets Resources
Activity Catalysts and technologies Products and processes Core capabilities in Applying our science into that abate emissions. that transform, conserve complex chemistry, emerging opportunities, and recycle scarce manufacturing and such as battery materials scale up to create active and fuel cells. resources using less energy pharmaceutical ingredients and fewer raw materials. and other solutions for niche areas.
Segments • Transport. • Chemicals. • Healthcare. • Energy. served • Energy. • Energy. • Transport. • Transport. • Healthcare. • Healthcare. • Chemicals.
Impact Cleaner air / Cleaner energy / Achieving more from less / Enhanced health and quality of life
Outcome Cleaner, healthier world
The segments we serve are amongst The value we create for customers Our customer centric approach the most important in the world Across our offerings, our customers value to creating value through economy, are universal and supported by the performance of our technology in commercial excellence strong macro drivers. Maintaining this their applications. The performance broad market exposure and managing JM’s competitive advantage is our of our products delivers different the balance of our business across these distinctive, world class scientific and advantages to our customers by: segments of the world economy is part technical capabilities and how we of our strategy. • Translating directly into the translate them into solutions for our Many of the customers we serve performance of their product. customers. Together with providing them with high quality products and services, operate in two adjacent segments and / • Enhancing the reliability of we continue to deepen our understanding or markets. For example, fuel companies their production. also have chemical operations; chemical of their needs and ensure that we companies manufacture pharmaceutical • Increasing their efficiency. capture our fair share of the value we ingredients. We bring market, technical • Enabling them to reduce the overall create for them. and regulatory insights from each cost of their product. Our Commercial Excellence segment and apply it to adjacent programme, now in its second year, We work with customers to codevelop segments. These insights drive business is focused on driving continuous solutions that maximise this performance development and create JM’s uniqueness improvement through the lens of our advantage. This collaborative development in its markets. customers to support their growth and requires strong, long term relationships Working with our customers across maintain our competitive advantage. based on mutual commitment, risk a range of markets and understanding The programme delivers value through: sharing and trust. their needs gives us a balanced and building commercial capability across In addition to performance, robust business. Through serving broad JM; enhancing our ability to make value customers also come to JM for additional markets, the opportunities to apply our based data driven decisions; measuring sources of value: science and technology are greater and our and responding to customer satisfaction; contribution to a cleaner, healthier world • Speed and efficiency in development. and operating leading sales and marketing processes to enable us to provide a is increased. • Reliability. seamless service to our customers. • Responsiveness in problem solving. • Security and flexibility.
Johnson Matthey Annual Report and Accounts 2019 43 Strategic Report
Customers continued
The programme is already delivering In a world where the pace of change The second relates to JM’s vision for benefits through supporting sales and will continue, we are ensuring that we a cleaner, healthier world. Our goal is to market share growth in our sectors. stay fit and agile to understand our at least double: During the year we launched the JM sales customers’ complex problems and • The tonnes of pollutants (oxides academy to grow our commercial people, continue to provide valuable solutions of nitrogen, carbon monoxide, equipping them with leading skills to to those challenges. hydrocarbons, particulate matter) further develop and enhance their removed by our products. Here, the capability. Around 350 customer facing Beyond customer value – overall tonnes of pollutants removed employees from three sectors have so far our progress towards a cleaner, by our products fell very slightly this attended the first module across Europe, healthier world year because lower numbers of the US and Asia. They gave positive vehicles were produced globally The value we create for our customers feedback that the knowledge and skills (see page 81). provided will help improve their job drives growth in our business and returns performance. Furthermore, the new for our shareholders. But our science-led • The number of lives impacted by our frameworks and processes developed and products and services have a much recently launched pharmaceutical launched through the programme are broader positive impact, driving us towards products. Our positive impact was already being used by commercial teams to our vision for a cleaner, healthier world. greater this year due to increased use deliver improved outcomes with customers. We want that positive impact to grow. of therapies that include our APIs. Further modules of the sales academy That’s why we have a goal to double • The quantity of greenhouse gases will roll out in September 2019, providing the positive contribution of our products (GHGs) removed or reduced more depth to our strategic account by 2025, aligned to the United Nations (CO2 equivalent) by our products. management process across the group. Sustainable Development Goals (UN SDGs). This year, the tonnes of GHGs We have also developed a framework Thus, our sustainable business goal 5 has removed by our products was slightly for producing and improving propositions two streams by which we are measuring down due to a lower contribution to customers, to increase customer our progress. from our nitrous oxide abatement centricity. The customer value proposition The first shows our global impact by technologies. is designed to identify help communicate measuring the absolute and percentage how we can create value for a customer in of JM’s sales that have a direct contribution • The quantity of GHGs avoided a meaningful and impactful way. Well to the UN SDGs. The percentage (CO2 equivalent) by our products. thought through proposals, and the measure is a key performance indicator An increased number of tonnes of propositions in them, support customer for the group as detailed on page 31. GHGs were avoided this year due to growth and in turn create value for JM. Our contribution has increased this year the action of our products. This was Over the last year we have supported mainly by stronger sales of principally due to greater demand introduced a consistent measure of emission control catalysts. for our fuel cell components. customer satisfaction across JM to allow us to understand what our perceived Sustainable Sustainable 1 strengths are, highlight areas where we business goal business KPIs Baseline 2017/18 2018/19 2025 target need to improve and deliver even better 2017/18 sales 86.9% 87.3% >90% outcomes for our customers. We use an Annual sales data against independent external organisation that is giving UN SDG a specialist in running customer feedback contribution indicators to UN SDGs programmes in the business to business (% of group sales) manufacturing market. Health and OurWe piloted Lowthis carboncustomer satisfactionResponsibl e Sustainable Community safety people operations sourcing products engagement 2017/18 data survey across our Efficient Natural relating to: 1 Resources2 Sector in3 November 2018,4 5 6 Tonnes of 3.54m 3.43m 7.08m with a very encouraging response rate pollutants of 58%. The sector received an overall removed rating of 8.3 out of 10 from customers, Double the positive impact Annual Number which is well above an industry norm of aggregation of lives that JM’s 138,000 181,000 920,000 7.6. The survey has provided rich and products make of product positively insightful information which has on a cleaner, sustainability impacted translated into actionable outcomes for healthier world benefits in the commercial teams to implement. key areas Tonnes of GHGs removed Teams have also shared their continuous 10.6m 10.1m 21.2m (CO ) improvement feedback actions with their 2 eq customers and our proactive approach has Tonnes of been positively received. During 2019/20 GHGs avoided 213,000 216,000 426,000
we will survey customers of our three (CO2 eq) other sectors, Clean Air, Health and New Markets, and follow up with a repeat 1 For full details and definition, see pages 236 and 237. survey for Efficient Natural Resources, + + Performance+ against all six of our sustainable business goals is detailed on pages 31 to 33 and on page 238 creating stronger relationships built on + trust, consultation and partnership. r r r
Johnson Matthey 44 Annual Report and Accounts 2019 k k k Long term view
Shaping a new era of clean energy The world is moving towards a lower carbon, more sustainable future. Here we look at some aspects of this incoming energy revolution and the key role that JM and its technologies will play within it. Strategic Report Strategic
Driving towards a But what will it cost to move towards Reducing the carbon footprint sustainable future net zero, and how does this compare with of transportation the impact if we don’t manage to limit The world is at the start of an energy the global temperature increase? Globally, transportation is responsible for revolution – the biggest energy The Energy Transitions Institute around 25% of CO2 emissions, with the transformation since the Industrial majority from the on-road movement of estimates that reaching net zero CO2 Revolution during which the use of fossil emissions by 2050 would cost around people and goods. Regulators are driving fuels drove growth and prosperity. It is 0.5% of global GDP, or around down the permitted levels of CO2 emitted only relatively recently that we have started 0.425 trillion US dollars. from vehicle tailpipes; for example, the to understand the implications of the And what do we get in return for this? EU recently approved legislation to potential global temperature increases. Researchers at Stanford University reduce the CO2 emissions from passenger The country signatories of the 2015 estimate that the benefits of remaining cars by 37.5% from the 2021 baseline Paris Agreement committed to aim to within a 1.5ºC temperature increase to be of 95 g/km. Such regulations will be hold increases in global average of the order of tens of trillions of US dollars. met by a combination of approaches; temperature to “well below 2°C above So, on top of the other benefits, there incoming vehicles powered by internal pre-industrial levels and to pursue efforts is a very good economic return on the combustion engines will become more to limit the temperature increase to climate stabilisation investments. fuel efficient through innovation in areas 1.5°C”. Then, in October 2018, the It is good to hear governments such as engine, tyre and transmission Intergovernmental Panel on Climate talking openly about the need to tackle development, and vehicle light weighting Change (IPCC) issued a Special Report. global temperature increases as high by using new materials including In it, they said that to achieve no, or level commitments, together with composites. However, a more fuel efficient limited, overshoot of 1.5°C, global net robust and far reaching policy, will be engine generates lower temperature anthropogenic CO2 emissions must essential if we are to create the markets exhaust gases and this makes controlling decline by about 45% from 2010 levels that will deliver the necessary low the associated pollutants more difficult. by 2030, and reach net zero by around carbon technologies. 2050. A number of countries and regions The good news is that we don’t have JM technology is part of including France, Sweden, Norway, the to wait for new technologies to start to the solution European Union (EU) and New Zealand, reduce the global carbon footprint – JM has risen to this challenge by are now committing to, or considering we can move towards tackling climate moves towards, net zero carbon and / or developing new emission control change by a combination of implementing catalysts capable of operating at lower greenhouse gas (GHG) emissions. In May the technologies we have today and 2019, the UK Committee on Climate and lower temperatures, supporting our developing new, low carbon technologies customers, the car companies, as they Change, which is the independent adviser for the future. For example, the IPCC on climate change to the UK Government, reduce the CO2 emissions of the vehicles report points out that the greater the they produce. Plug-in hybrid electric called for the UK to continue to lead emission reductions achieved by 2030, the global fight against rising global vehicles, in particular, carry out an even the better the chance to limit the global higher number of starts at lower temperatures by tightening GHG temperature increase to 1.5°C. emission targets to net zero by 2050. temperatures (cold starts), especially So let’s consider the current situation when driving in the city. And we are in some key areas, discuss how we expect developing emission control catalysts this to evolve and take a look at the that are further optimised for cold start significant contributions that JM’s science performance for this type of vehicle. and technologies are making, and will continue to make, towards a cleaner, healthier world.
Johnson Matthey Annual Report and Accounts 2019 45 Strategic Report
Customers continued
The need for vehicles with lower CO2 We will, therefore, see significant In the broad transition towards emissions will also increase the rate at increases in the number of BEVs on our renewable chemicals and fuels, JM’s which so-called zero emission vehicles roads as we move towards a lower carbon expertise in catalysis, purification and (ZEVs) are introduced. Current legislation future and JM technology will make process technology development will regards ZEVs as vehicles that do not emit important contributions here. be enablers. Our recently announced any criteria pollutants, such as carbon However, some vehicles, such as projects, with BP and Fulcrum BioEnergy monoxide, unburned hydrocarbons and long haul trucks, are unlikely to adopt to convert waste into aviation fuel, and oxides of nitrogen (NOx), and that do not battery technology since the very high with Virent for the production of
emit any CO2 from their tailpipe. Both daily mileages driven by these trucks renewable feedstocks and fuels, are battery electric vehicles (BEVs) and fuel would require very large, heavy and testament to this and we continue to cell electric vehicles (FCEVs) are ZEVs by expensive batteries to match the invest and collaborate to explore future
this definition. Of course, the true CO2 requirements of these duty cycles. process technology options. footprint of such vehicles needs to In addition, tremendous amounts of consider factors such as how much CO2 energy would need to be transferred to The broader role for hydrogen was released when generating the the battery in a very short time during in global decarbonisation electricity used to charge the battery or, battery recharging, in order to meet the in the case of FCEVs, to make the needs of the vehicle owners to maintain Many countries are now looking at hydrogen (along with emissions during the very high utilisation of these vehicles. how hydrogen can help their broader the manufacture of the BEV or FCEV decarbonisation efforts as hydrogen is itself, including its powertrain). Over Hydrogen powered fuel cells are an extremely flexible energy vector with a substantial role to play. For example, time, these other life cycle emissions will a complementary solution reduce further, for example as we use there is a shift away from electricity more renewables to generate electricity One alternative with the potential to generation from fossil fuels (especially enable the decarbonisation of long haul coal) and towards increased use of (see later). So the life cycle CO2 benefits of BEVs and FCEVs over vehicles powered trucking is the fuel cell powertrain. renewable sources such as solar and by internal combustion engines will Hydrogen (when pressurised in storage wind power. The UK, for example, halved increase further. tanks) has a much higher energy density the carbon intensity of its electricity than batteries and refuelling with generation between 2013 and 2017 Enabling battery electric hydrogen can be carried out in a similar as a result of decreasing coal use and timeframe to filling current fuel tanks. increasing renewables. It has plans to vehicle uptake Fuel cells also match the needs of cars reduce this by a further 90% between JM is developing next generation battery covering large annual distances, where now and 2050. However, increasing the materials with improved energy density the long range and fast refuelling reliance of electricity generation on (so the mileage of BEVs between charges advantages make a compelling renewables brings with it the need for can be increased), pulse power (for combination. In addition, we are starting large scale and long term energy storage improved acceleration) and safety, while to see the introduction of fuel cell powered since the sun doesn’t always shine and minimising the use of expensive and locomotives, which could provide a the wind doesn’t always blow. relatively scarce raw materials such as cheaper route than electrification to To ensure the wheels of industry cobalt. JM’s leading ultra high energy decarbonise rail transport. keep turning and the lights in our homes density eLNO family of cathode active So fuel cells will work alongside stay on, regardless of the weather, we will materials is delivering improvements in batteries to play an important role in need to store and transport very large
all of these critical performance areas. reducing the CO2 footprint of ground amounts of energy. Hydrogen is likely to Raw material sourcing is becoming transportation. Furthermore, FCEVs also play a key role here. That’s because it is increasingly important in the battery have a battery, so there are some very uniquely able to provide underground materials area, and here JM’s years of direct synergies between the two storage of a zero carbon fuel at the experience in sourcing platinum group technology approaches. multi-terawatt hour scale required for metals (pgms) will continue to stand us In the fuel cells area, JM is developing interseasonal energy storage. This in good stead. Another similarity between the platinum containing catalysts and underground hydrogen storage can be the battery materials and pgm areas is membranes which make up the in depleted gas fields or salt caverns, the acknowledged need to recycle critical membrane electrode assembly (MEA). depending on local geological conditions. raw materials; JM is a world leader in the This is the component at the very heart And for those unfamiliar with a terawatt recycling of pgms, and we are applying of a fuel cell within which the input hour… one terawatt hour is a billion our expertise to explore opportunities hydrogen and oxygen are reacted kilowatt hours. Boiling the water in a in battery materials recycling. together electrochemically to produce kettle uses about 0.1 kilowatt hours of Such innovations are essential to water, electricity and heat. In this area energy; so one terawatt hour of energy drive the kind of BEV uptake that will be we are focusing on aspects such as is enough to boil 10 billion kettles!
required to meet incoming CO2 regulations, improving the efficiency and long term So hydrogen has great potential and, alongside the ongoing reductions durability of the MEA, along with as a large scale source of energy. It also in the carbon intensity of electricity reducing the platinum content of the has great potential to drive substantial generation, deliver step changes in the catalyst to lower the cost of fuel cell reductions in the carbon emissions
CO2 profile of transportation. systems. Once again, JM will be a critical associated with domestic heating, enable part of the solution as fuel cells enable the decarbonisation of high temperature substantial carbon reductions in industrial processes and provide transportation and other applications. flexible, dispatchable power generation.
Johnson Matthey 46 Annual Report and Accounts 2019 Hydrogen has a role to play Many countries are now looking at how hydrogen can help their broader decarbonisation efforts as hydrogen is an extremely flexible energy vector with a substantial role to play. That’s With such a key role to play across Then in March 2019, JM was part of two because it is uniquely able to provide multiple sectors, cost effective production consortia that were awarded additional underground storage of a zero carbon of low carbon hydrogen at scale is grants under the BEIS hydrogen supply fuel at large scale. essential to enable the transition to a competition for low carbon projects to global low carbon economy. Indeed, the develop the technology further. UK’s Committee on Climate Change There are several areas in the recently stated that moving from a 2050 hydrogen economy and its associated Report Strategic target of 80% carbon emissions reduction value chains which present significant to the recently proposed net zero target opportunities for JM. That’s why we “changes hydrogen from being an option, recently joined the Hydrogen Council, to an integral part of the strategy”. a global initiative of leading energy, transport and industry companies with But where is all this low carbon a united vision and long term ambition hydrogen going to come from? for hydrogen to foster the energy transition. The ambitions of the companies Hydrogen can be produced in different in the Hydrogen Council are to: ways. Today most of it is manufactured by steam methane reforming (SMR), in • Accelerate their significant which natural gas at high temperature is investment in the development and commercialisation of the hydrogen converted to hydrogen and CO2. JM has developed a new, class leading process and fuel cell sectors. to produce low carbon hydrogen (LCH) • Encourage key stakeholders to from methane using a process technology increase their backing of hydrogen called a gas heated reformer. This as part of the future energy mix with approach gives a higher hydrogen yield appropriate policies and supporting and is more energy efficient than existing schemes. SMR technologies. And, crucially, this In September 2018, Robert MacLeod JM process is easier and cheaper to joined fellow CEOs and senior decarbonise through carbon capture representatives of the other 32 members and storage (CCS), a technique which (which include Air Liquide, Audi, BMW, captures the CO produced along with the 2 Bosch, Daimler, Honda, Hyundai, Shell, hydrogen, and subsequently stores it. Sinopec, Toyota and 3M) at the annual We are making good progress Hydrogen Council CEO event in San with this technology – for example, in Francisco, USA. While there, Robert November 2018, JM received a grant joined discussions reflecting on the work from the UK Department for Business, completed by the Council thus far and Energy and Industrial Strategy (BEIS) to meetings on strategy and new ideas to understand the costs and performance accelerate the Council’s ambitions. for our LCH solution at large scale.
Low carbon hydrogen JM has developed a new, class leading The future looks bright process to produce low carbon hydrogen from methane. This approach The challenges to tackle climate change issues are gives a higher hydrogen yield and is significant, but so are the opportunities. more energy efficient than existing technologies. And, crucially, this JM’s expertise in emission control, catalysis, process technology (through, for example, JM process is easier and cheaper to making industrial processes more energy efficient), hydrogen generation, battery decarbonise through carbon capture materials and fuel cells are already supporting global moves towards greener and storage. economies. Driven by our vision and strategy, we will continue to use our inspiring science to create the solutions that will shape and enable a new era of clean energy.
Johnson Matthey Annual Report and Accounts 2019 47 Strategic Report
Johnson Matthey 48 Annual Report and Accounts 2019 Our vision for a cleaner, healthier world requires us to operate our business responsibly and with a relentless focus on safety, efficiency and excellence Sustainable business goals
HealthHealth and and Our Our Low carbonLow carbon ResponsiblRespeonsible SustainablSustainable e CommunitCommunity y safetysafety peoplepeople operationsoperations sourcinsourcing g producproducts ts engagementengagement 1 1 2 2 3 3 4 4 5 5 6 6
ˆ Report Strategic Operations
This focus on safety, responsible business practices, efficiency and excellence cuts across everything we do, from common systems and core processes to the way we manage and drive the environmental performance of our assets. It extends beyond our gates and spans our whole value chain: from ‘before JM’ and how we source raw materials; how we run every aspect of our operations at ‘JM’; and ‘after JM’, when our products are used by our customers at the end of our products’ useful life.
Before JM – Our value chain
1 2 3 4 5 6
Water Extraction and Energy Supplier agriculture
Before JM
Land use
The value chain for the Procurement Leveraging the category management approach, our role as procurement commodities that go into Our business requires us to purchase a business partners is to enable our broad range of materials, goods and our products comprises our business to innovate, identify and services including: suppliers, and we have policies manage related risks, secure optimal and processes in place to • Bespoke to commodity raw materials supply and provide commercial agility manage our key relationships and metals to support laboratory to to enable best value for the near and full production scale operations; longer term. We also aim to apply JM’s and risks within both our core values, according to the principles Procurement function and • Non-production items (including technical laboratory equipment, in our code of ethics, in our supply chains as part of our ethics and logistics and warehousing, professional as well as our own operations. compliance framework. services, maintenance items, utilities, IT and telecommunications and facilities management); • Capital expenditure from individual production equipment to complete manufacturing facilities.
Johnson Matthey Annual Report and Accounts 2019 49 Strategic Report
Operations continued
In 2017/18 we launched our The Procurement Excellence 2025 Some of our suppliers operate in Procurement Excellence programme strategic programme is enabled by countries where there are high risks of to drive further value and efficiency eight key pillars, aligned with and human rights, environmental or business through a standardised and consolidated embedded in the business, which ethics abuses, and we are committed to approach across JM. Our annual purchases, include Responsible Sourcing and ensuring that such abuses do not enter excluding precious metal and substrate, Supplier Partnerships. our supply chain. are about £1.5 billion. These purchases We are already seeing cost We have a JM Supplier Code of are made across 118 sites, with historically management and value creation successes Conduct, issued in 2017 and available each site accountable, for the most part, across all of our major spend categories. on our website in English, German, for its own purchases. This has, in the We are on track to deliver our goal Japanese, Polish and Mandarin to which past, limited our ability to leverage our of saving more than £60 million over we expect all our suppliers to comply. purchases across the group. three years. Our Supplier Sustainable Development Over the last year we have continued Programme enables us to monitor to roll out our global procurement whether our suppliers are following our strategy and have begun to execute1 2 3 4 5 6 code of conduct; it also enables us to against it. We have made excellent initial Responsible sourcing classify risk in our suppliers, determine progress by bringing together our existing what level of due diligence is required, procurement community and by building Responsible sourcing is a key pillar of our identify corrective actions and follow up new capability to ensure that we capture Procurement Excellence programme, as on progress. We report annually on the well as one of our sustainable business the opportunities in full. + numbers of strategic Tier 1 suppliers goals (goal 4). This is how we seek to + + Our Procurement Excellence + assessed and of those, how many meet our understand and appropriately manage programme is forging the concept of a r responsibler r supplier compliance criteria. One Procurement Community, with one our environmental and social impacts matthey.com/supplier-code-of-conduct face to market which is able to partner ‘before JM’ in our value chain, and work to improve sustainable business with the business to leverage the scale k k k and capabilities of the company and our practices among our supplier partners. value chains to create enhanced value.
Sustainable Sustainable business goal business KPIs Baseline 2018/19 2025 target % of Tier 1 strategic Health and Our Low carbon Responsible Sustainable Community Tier 1 strategic suppliers assessed 17% 100% Improve sustainable safety people operations sourcing products engagement suppliers assessed and in 2017/18 business practices in compliant with Supplier our supply chains 1 2 3 4 5 6 Code of Conduct % of these compliant 76% 100% with the code
+ + + + Performance against all six of our sustainable business goals is detailed on pages 31 to 33 and 238 r r r
Supplier sustainability assessments 2018/19 Human rights k k k Total number of We support the principles set out in the Number of suppliers Number of new non-conformances UN Universal Declaration of Human Sustainable business assessed for this non-conformances open at 31st March topic of concern concern identified in 2018/19 2019 Rights and the International Labour Organisation Core Conventions, including Child labour 78 – – the conventions on child labour, forced Forced labour 78 – – Wages and working hours 78 1 1 labour, non-discrimination, freedom of Discrimination 78 1 1 association and collective bargaining. Freedom of association 78 – – We also support the principles Health and safety 78 27 31 endorsed under the UN Global Compact Environmental 78 – – and the UN Guiding Principles on Anti-bribery and corruption 78 5 5 Business and Human Rights (the ‘Ruggie’ Principles). We are working to embed them throughout our operations and In 2018/19, we assessed 78 Included in these were 13 strategic whenever we enter into business in a suppliers using a combination of desktop Tier 1 supplier assessments which new territory, make an acquisition or self-assessment questionnaires and contribute to our goal 4 target. Over the enter a joint venture. There were no formal on-site audits. The table above last three years we have assessed 17% human rights grievance reports made summarises the governance topics of suppliers classified in this way. Of against Johnson Matthey during the year. evaluated for each supplier and where those assessed, 76% complied with the non-conformances were identified. We expectations of JM’s Code of Conduct. have not identified any incidences of child labour or forced labour in our value chain.
Johnson Matthey 50 Annual Report and Accounts 2019 Where we source strategic raw materials We procure goods and services globally and our supply chains are multi-tiered. Sourcing of strategic materials is a principal risk (see page 94) and monitoring and understanding the risk is challenging but essential. Some of our strategic raw materials are available from only a limited number of countries. The countries we rely on for these materials are highlighted in the map below. Strategic Report Strategic
Precious metals Narcotic raw materials / agricultural feedstocks Chemical intermediates Base metals and compounds Zeolites Rare earth metals Ceramic supports and substrates
Modern slavery Our conflict minerals due diligence Although there are some mining process is based on the Organization for companies which are operating ethically Research from the Walk Free Foundation Economic Co-operation and Development in the country, there is a significant shows that over 40 million people (OECD) Guidelines and includes keeping amount of illegal artisanal mining in worldwide are trapped in some form of records that enable us to track the suppliers uncontrolled conditions, leading to modern slavery, including forced labour. of all the raw materials we use and identify serious human rights abuses. This is an important social issue and JM is which smelter the conflict minerals came We are committed to using only proactively taking steps to ensure high from. We are working towards being cobalt, lithium and nickel that have been ethical standards throughout our value compliant with the new European Union ethically sourced. We have worked with chain, including through our sustainable Conflict Mineral Regulation, which was third party experts RCS Global to develop business goal 4 on responsible sourcing. enacted in July 2017, ahead of the and implement a world leading due The UK Modern Slavery Act 2015 January 2021 deadline. diligence programme which ensures that requires certain UK companies to make We aim only to use material from we have full transparency ‘back to mine’ an annual statement describing the refiners and smelters which conform to for all the materials that contain lithium, steps they have taken during the year the Responsible Minerals Assurance cobalt and nickel that are going into our to ensure that slavery and human Process (RMAP) assessment protocols cathode products. trafficking are not taking place, either in and are listed on the RMI (Responsible Our critical minerals supplier audit their businesses or their supply chains. Minerals Initiative) database. We have programme conforms to the standard Our annual statement is posted on identified 157 3TG smelters across all tiers laid out in the OECD Due Diligence our website. Steps we are taking include of our supply chain and 97% are listed as Guidance for Responsible Supply Chains public policies and codes (including our conformant with the RMAP process, an of Minerals from Conflict-Affected and code of ethics and Supplier Code of increase of 8% on the previous year. High-Risk Areas (third edition) and Conduct), implementing an independent We also use our in-house database provides assurance against the standards confidential ‘speak up’ line available to to respond to customer requests for laid out in our Supplier Code of Conduct. + all stakeholders to report concerns and + + information on conflict minerals in our + All on site audits of JM suppliers for + grievance and running our Supplier + + products and to provide them with a + battery materials are completed by r Sustainabler r Development Programme. tailored answer to any query they have. r RCSr rGlobal to the ISO 19011 standard.
matthey.com/modern-slavery + This year we have responded to 86 + + www.rcsglobal.com + customer requests for information, an k k k Conflict minerals r increaser r of 23% on the previous year. k k k Platinum group metals The term ‘conflict minerals’ refers to tin, matthey.com/conflict-minerals We continue to monitor carefully our tungsten, tantalum and gold (3TG) which k k k supply chains for platinum group metals originate from the Democratic Republic Critical metals for battery materials (pgms). We work collaboratively with of Congo (DRC) and surrounding During the year we have broadened our both our customers and peer pgm countries, in particular from areas of due diligence activities in our minerals fabricator companies to ensure that our military conflict where most mining is supply chains to include the active sourcing from mines in South Africa and artisanal and linked to serious human ingredients that go into our cathode elsewhere is ethical and responsible. rights abuses. materials for batteries: lithium, cobalt and nickel. At present, the DRC holds about 50% of the global reserves of cobalt.
Johnson Matthey Annual Report and Accounts 2019 51 Strategic Report
Operations continued
The heart of our value chain: JM’s operations
Customer 1 2 3 4 5 6
JM
Our own operations are at There are multiple separate goals ‘Gemba’ walks were a clear enabler of the centre of our value chain. within the overall Manufacturing the improvements and Panki realised Excellence programme. One of the many efficiency savings in excess of £1 million. It is here that we have the methodologies used to bring visibility to Training is also provided under the greatest control over our our operations is the adoption of a system Manufacturing Excellence programme. environmental impacts. of identifying new opportunities for Our global manufacturing leadership + improvement by hands-on scrutiny and programme runs alongside ongoing + Pages+ 56 to 59 – our environmental performance + review on the factory floor. These are training of manufacturing leaders to r r r called ‘gemba’ walks in Lean management, identify personnel who are ready for from a Japanese term, meaning ‘the higher roles. Manufacturing Excellence actual place’. The concept assists in We are pleased with the results that k Ink 2012,k we put in place our Manufacturing collaboratively seeking out improvements. Manufacturing Excellence is bringing. Excellence programme to encourage a We also run a recognition programme It is developing the next generation of culture of continuous improvement to known as MEER – Manufacturing operational leaders, sharing best practice drive operational efficiency and reduce Excellence Efficiency Recognition – and standardising tools and processes cost. During 2018/19, our production which makes awards to our highest – in short, establishing our factories for output of sold product increased by 7%. performing sites at three levels: silver, the future. Despite this, we have also seen a 6% gold and platinum. This past year, three improvement in energy efficiency manufacturing sites were awarded with (36.4 GJ/tonne) and 10% improvement silver MEER status (West Whiteland in the in water efficiency (18.6 m3/tonne) US, Clitheroe in the UK, Taloja in India) across the group. Our waste efficiency and two manufacturing sites were awarded (0.6 tonnes/tonnes of production output) gold status (Panki in India, Queretaro in worsened by 11% this year, mainly due Mexico). The Panki site met strict criteria to an increase in waste for one of our within ten stringent improvement goals operations (see waste performance – a result of hard work by the team there, pages 58 and 59). under the guidance of our Group Continuous Improvement team.
2018/19
JM production output of sold product 7% increase vs 2017/18 Energy efficiency 6% improvement vs 2017/18 Water efficiency 10% improvement vs 2017/18 Waste efficiency 11% less efficient vs 2017/18
Johnson Matthey 52 Annual Report and Accounts 2019 1 2 3 4 5 6 Low carbon operations Goal 3 – one of our six goals for sustainable business to 2025 – concerns low carbon operation. Here our goal is to reduce our greenhouse gas emissions by 25% per unit of production output, an ambition that forms part of our approach to low carbon operations. We are achieving it through a combination of energy efficiency savings through our Manufacturing Excellence Report Strategic Programme and cost effective, low carbon electricity purchases by our Procurement function.
Sustainable Sustainable business goal business KPIs Baseline 2018/19 2025 target Annual Health and Our Low carbon ResponsiblReducee our Sustainablgreenhousee Community GHG emissions safety people operations sourcinggas (GHG) emissionsproducts engagement CO emissions (Scope 1+2) / tonnes 2 eq 2.9 2.8 per unit of production intensity for 2016/17 manufactured 1 2 3 4 output by 25%5 6 product sold
+ + + + Performance against all six of our sustainable business goals is detailed on pages 31 to 33 and 238 r r r Setting ourselves a greenhouse gas Safe use of substances and metals Many JM sites handle pgms. As emissions target as a function of production part of our approach to responsible We seek to replace ‘high hazard’ k outputk k (intensity target), rather than as operations, we have provided significant substances – chemicals with significant an absolute value, allows us to monitor input into a comprehensive user guide potential to harm human health or the any operational efficiency improvements to pgms (‘Safe Use of Platinum Group environment – where safer and while also growing our business. Metals in the Workplace’, International economic alternatives are available. Our target considered the operational Platinum Group Metals Association (IPA), When replacement is not possible, plans in our strategy and was based on 2017). The user guide provides practical through detailed risk assessment backed an assessment of potential installations advice on workplace monitoring, the by extensive data packages, we ensure and energy procurement opportunities medical surveillance of workers, control robust risk management measures are across our manufacturing footprint. measures, training and regulatory controls. identified and in place. If a true risk We will continue to review in the The IPA guide is the most visible of is identified, industry regulators could coming year. our recent efforts in this area, but we take action that effectively eliminates continue to work with peer companies use of the substances in that market. in trade associations and consortia to Renewable energy We work actively with other companies develop best practice on stewardship. 28% of the electricity we consumed to provide regulators with the best + during the year came from certified available information on industry practice + + + See more on our safety processes under ‘Health renewable energy sources for which such that any regulatory restrictions are and safety’ pages 69 to 73 r r r JM has the associated Renewable evidence based. Energy Certificates, saving us around Our policies, especially on new We use or manufacture only a product innovation, emphasise the need 47,000 tonnes of GHG emissions, k veryk klimited number of substances compared to purchasing grid average to investigate whether safer alternatives considered regulated1, or of international electricity in those countries. are available. concern2. As a proportion of our During the year we have continued We have set up a dedicated portfolio, approximately 5% of products to negotiate additional renewable committee known as PARS (Prior consist of, or use in their production, electricity contracts at key locations, to Approval Required Substances) to review such substances. increase this percentage even more next certain high hazard substances of 1 year, in line with our goal 3 for 2025. relevance to JM in order to rate the risks e.g. SVHCs under REACH, RoHS or California Prop 65 listed substances. Since 1st April 2019, all our UK sites in using them to develop new products. 2 e.g. controlled by the Montreal Protocol, Stockholm have been operating on renewable The committee has established its initial and Rotterdam Conventions, GHS category 1A/1B electricity. The energy source has a index of substances that need internal carcinogens, mutagens or reprotoxins, etc. Renewable Energy Guarantee of Origin approval before they are used, and (REGO) certificate, the highest form of further substance nominations will be renewable energy validation. reviewed in the coming months. We are now buying our electricity Approval to use, if given, will be time from Drax Power Station in Yorkshire limited. We are driving a more considered which has the biggest renewable evaluation of the justifications for use for generator in the UK and is the largest these high hazard PARS substances and decarbonisation project in Europe. It uses we will continue to embed our PARS sustainable biomass from forests that approach in the coming year, with absorb more carbon than is emitted further PARS-related training being when the biomass is burnt for power. rolled out.
Johnson Matthey Annual Report and Accounts 2019 53 Strategic Report
Operations continued
After JM – Our value chain
After JM
In-use Wholesale Consumer Recycling phase
End of life / recycling
Immediately downstream Product stewardship and toxicology Internally, our product lifecycle management supports our value of of our operations are our This ‘whole life’ responsibility is what we protecting people and the planet. More call product lifecycle management, also customers. We work closely pragmatically, it is essential to our known as product stewardship. We set and collaboratively with them business that we identify and mitigate ourselves high standards; our customers any risk to our portfolio. Our social to develop the products they want to see evidence that we understand licence to operate depends on our need to go into their own any hazards inherent in our products and compliance with safety regulations and, that, through understanding their uses, manufacturing. of powerful importance, our voluntary we can, in turn, help them manage any stewardship of our products all the way The products we sell to our customers consequent risks. Equally, our external down the value chain. often form an important part of the end stakeholders want assurance that the It is important we design-in green product supplied to the user. For example, potential impacts – on the environment, chemistries at the start of a product’s life, we supply catalytic coated substrate as a our employees and downstream users and product stewardship is now better component for engine emission control – are well managed. Some stakeholders integrated into new product innovation. systems for car manufacturers. The are starting to demand that chemical We are developing a groupwide product catalyst is incorporated into the catalytic companies, like us, move towards stewardship IT system to allow sites to converter in the exhaust system of a car safer chemistries. manage inventory and know the which is bought by the end user who We continue to strengthen our properties of the materials they are drives it. We do not manufacture the understanding of our toxicology and handling. We plan to launch the new car, but we are concerned with the communicate the hazards of JM products system during 2019/20. whole life of the catalyst until the end to customers. At the same time, we use We implement our product lifecycle of its life, and beyond, e.g. to recovery that knowledge to move us towards safer, management through well established of components for subsequent reuse. more sustainable chemistries. We consider systems to ensure the sound management So our responsibilities extend far legal compliance simply as a minimum of our products throughout their downstream of our own operations. requirement, as legal developments may lifecycle. We have groupwide policies More broadly, JM, as a leading global not have kept fully up to speed with the and guidance which align our approach recycler of pgms, has a significant role in science as it develops. As we research with the global framework set by the the value chain of the global pgm and develop our products, we may be Strategic Approach to International industries. Our pgm recycling and better placed than regulators to react Chemicals Management (SAICM) to refining operations process a wide range quickly to new science and take the promote chemical safety around the of pgm containing materials, including right decisions for people and the planet world. The Strategic Approach, emission control catalysts at the end of a more rapidly. vehicle’s life and other pgm containing begun in 2006, is hosted by the catalysts and products. UN Environment Programme.
Johnson Matthey 54 Annual Report and Accounts 2019 We have procedures in place at Third party intermediaries A reliable supply of fresh water is group and sector level to identify required by all our manufacturing sites JM uses third party intermediaries (TPIs) regulatory obligations, both future and and, often in considerably greater to support our business and our current, and create the documentation quantities, by our strategic suppliers. customers, and has policies and processes necessary to ensure compliance. Our To examine our exposure, we periodically in place to manage the risks, especially internal committees assess hazard and undertake water stress surveys of our in the area of bribery and corruption. Report Strategic exposure data to identify opportunities business. We also report our principal During the year, we concluded our + for risk reduction in our operations. water+ + risk publicly through the annual strategic review of all our high risk TPIs + Potential new products are assessed at CDP water survey. and reduced their number by 70%. r r r an early stage of their development The new standards, together with matthey.com/cdp-water against safety and regulatory criteria, ongoing monitoring processes, have with higher hazard products being put k k k been firmly embedded in our sectors In 2016 we conducted a survey through more detailed assessments. and a corresponding onboarding process using the World Business Council for Finally, business compliance with will be undertaken for future TPIs. Our Sustainable Development (WBCSD) lifecycle management policies forms part derisking activities are already bringing Global Water Tool™ (version 1.3). Of the of our environment, health and safety results and are hugely significant in 66 principal sites surveyed, 15 were (EHS) audit. We plan to create a separate protecting the reputation of JM. identified as being in regions of extreme audit process for product stewardship. water stress. Our water usage in most of Climate change disclosures these locations is very low. However, Product lifecycle regulatory and benchmarking there are four where we are close to using compliance the locally available freshwater supply We disclose our environment, social and We made good progress during 2018/19. per capita: Taloja, India; Yantai, China; governance (ESG) performance through We completed our 1 to 100 tonne per New Mexico, USA; and Brimsdown, UK. the Carbon Disclosure Project (CDP) annum substance registrations for our We are using the data from the survey to climate change programme, which looks operations in the EU in good time for the prioritise water conservation projects for at risks and opportunities of climate from May 2018 deadline under the REACH + the sites that are at the greatest risk of an the+ world’s+ largest companies on behalf requirements (the European Regulation + interruption to supply. of institutional investors. on the registration, evaluation, r r r To this end, this year we have built authorisation and restriction of matthey.com/cdp-investor a new, above-ground freshwater ring chemicals). We realise that one scenario main at our Brimsdown facility in the UK k k k of Brexit is a situation which could mean A changing global climate brings to replace ageing pipework buried deep there is divergence of regulations. We with it a number of risks and opportunities below the plant. It came into operation would support the chemical industry in for JM, which we continually consider early in 2019 and we have already seen a its case for regulatory consistency and and review annually as part of our CDP significant decrease in water withdrawals continuity. Regardless of the political disclosure. The most significant of these at the plant, indicating there was leakage outcome, we would like to see a ‘UK continues to be tightening clean air in the old pipework. REACH’ equivalence, with equal environmental legislation. Our largest risk to water is in our standards that would enable us to secure JM is also a signatory of L’Appel supply chain, where we are exposed to access to the EU marketplace. We will de Paris (the Paris Pledge for Action), industries that are significant water users, continue to monitor the changes to the committing us to play our part in such as mining and agriculture. The next regulations to ensure we maintain our delivering the agreement’s ambition step is to gather the exact locations of compliance with the specific regulation. to limit global temperature rise to 2°C. our strategic suppliers’ facilities and We use a systematic product Our sustainable business goal 3 supports evaluate them with the WBCSD tool. responsibility reporting scheme to this and through our science and monitor the performance of our technology we are enabling solutions to operations and maintain surveillance of reduce greenhouse gases (see page 44). the company’s products and services. In Water is an essential resource, 2018/19, there were no notifications of which is also impacted by climate significant end user health effects change. The World Resources Institute involving our products. We did not identify reported in June 2016 that in the any non-compliance with regulations or industrialised world, fresh water is voluntary codes concerning health and becoming scarcer due to increased
+ safety impacts of products and services or demand and higher pollution levels. + + + product and service information, labelling Availability is often transient, dependent r andr marketingr communications. on changing weather patterns.
Policy on animal testing: matthey.com/stewardship-testing k k k
Johnson Matthey Annual Report and Accounts 2019 55 Strategic Report Environmental management
Environmental performance summary
% change 2019 2018 % change
Goal 3: carbon footprint per mass sales Tonnes CO2 per tonne sales 2.9 3.4 -12
Operational carbon footprint thousand tonnes CO2 equivalent 414 445 -6 (Scope 1 and 2 market method) Energy consumption thousands GJ 5,144 5,104 +1 Electricity consumption thousands GJ 2,170 2,055 +6 Natural gas consumption thousands GJ 2,608 2,722 -4 Total waste sent off site tonnes 84,824 71,787 +18 Total hazardous waste sent off site1 tonnes 57,087 44,020 +30 Waste to landfill tonnes 3,886 6,271 -38 Water withdrawal thousands m3 2,630 2,729 -4
1 Excludes hazardous waste sent for beneficial reuse. All percentages and ratios in this section are calculated on unrounded numbers.
Environmental management In addition to these reviews, we have The group also requires new or acquired governance updated our corporate environmental sites to achieve ISO 14001 certification standards in part to reflect the changing within two years of beneficial operation We have group policies, processes and regulatory requirements and to tighten or acquisition; 86% of sites are currently systems to provide the guiding principles our internal environmental management ISO 14001 compliant. necessary to ensure that high standards standards across the group. Going beyond this,10% of our of environmental protection are achieved As an example, in addition to our manufacturing sites are also ISO 50001 at all our sites. legal requirements to engage with compliant. ISO 50001 builds on ISO 14001 The company provides environmental regulators this year, our UK pgm refining and looks specifically at the development policies on areas including emissions to facility has invited inspectors from UK of energy management systems to atmosphere, energy management, waste environmental agencies to visit more systematically and continuously improve management, protection of waste water frequently to help drive continuous energy efficiency. Our manufacturing discharge systems and discharges to improvement. This has resulted in the sites in North Macedonia, South Africa surface and ground water. implementation of a new waste tracking and our major sites in Germany have all Regulatory requirements for system to improve internal and external achieved this standard. environmental protection increase each reporting of waste. Annually we undertake a year in the territories where JM operates. All our major manufacturing sites comprehensive review of group This year, as part of our internal are required to maintain certification environmental performance across all governance programme, we have engaged to the ISO 14001 environmental our manufacturing sites, R&D facilities third party consultants to undertake a management system as a means of setting, and large offices that are under our number of comprehensive compliance maintaining and improving standards. financial control. reviews in North America and China.
Energy consumption Energy mix Operational carbon footprint
Renewable energy GJ / tonnes Tonnes C02 Tonnes / GJ (’000) output Other generated on site equivalent (’000) tonnes output fossil fuels 1% 5,500 5,366 600 6 5,064 5,147 5,104 5,144 50 7% 510 42.0 Natural 500 482 469 5 4,400 38.6 40 445 36.4 gas 414 51% 400 3.8 4 3.4 3,300 30 Other grid 2.9 electricity 300 3 2,200 20 purchases 200 2 30% 1,100 10 100 1
0 0 0 0 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 Certified renewable
GJ (’000) GJ / unit production electricity from grid Tonnes C02 Tonnes / 11% equivalent (’000) unit production
Johnson Matthey 56 Annual Report and Accounts 2019 During the year we have introduced Thus, our Scope 2 carbon footprint a new software system across JM to 1 2 3 4 5 6 calculated by the market method is 10% collect and manage key environmental Greenhouse gas emissions lower than that calculated by the location data. This will enable us to improve the based method. quality of the information collected and Our headline environmental KPI is a Our Scope 1 and 2 carbon footprint increase visibility of performance on measure of our operational carbon calculated by the market method demand across JM so that we can take footprint. In 2017 we set ourselves the decreased by 6% in 2018/19 whereas Report Strategic appropriate action to address any target of reducing our Scope 1 and 2 our carbon footprint calculated using negative trends more quickly. carbon footprint by 25% per unit of sold the location method reduced by 1%. manufactured product by 2025 (goal 3). This was mostly a result of our sites in Energy consumption We have enthusiastically embraced the Philadelphia area switching to a this challenge, and our successes in zero carbon electricity contract from Energy is a valuable resource on which procuring low carbon electricity to power April 2018. As of April 2019, all of our we spent £64 million in 2018/19. We our plants have enabled us to achieve UK sites are operating on renewable recorded a 1% absolute increase in 93% of target after two years. electricity, so we are expecting the energy usage within our facilities during We report greenhouse gas emissions differential between our carbon footprints the year but a 6% decrease in energy from our manufacturing processes and calculated by the two methods to increase consumption per unit of production, energy usage in accordance with the 2015 next year. Our focus on procuring partly through our focus on manufacturing revision of the Greenhouse Gas Protocol electricity derived from renewable excellence (see page 52). (www.ghgprotocol.org) dual reporting sources (page 53) means that for the Electricity usage across the group methodology. Our total operational first time our Scope 1 carbon footprint is rose by 6% while gas usage declined by carbon footprint is based on: higher than our Scope 2 carbon footprint. 4%. 1.2% of our electricity came from local solar power facilities that are not • Scope 1 emissions – generated grid connected. In total, 28% (601,427 GJ) by the direct burning of fuel Emissions to air of the electricity we consumed during (predominantly natural gas) and Emissions from our operations are the year came from certified renewable process derived greenhouse gas typically licensed by local regulations energy sources for which JM owns the emissions (CO2, N2O, CH4 and and are generated from a number of associated Renewable Energy Certificates. refrigerants). sources including combustion processes, Our electricity consumption increased • Scope 2 emissions – generated materials handling and chemical principally because the combined heat from grid electricity and steam use reactions. All licenced sites monitor and power (CHP) plants which we use to at our facilities. emissions to ensure compliance with generate electricity to power our facilities Competitive electricity markets for the local regulations and set their own in Royston and Brimsdown, UK were out supply of grid electricity are operational absolute targets aimed at reducing of service during the year. These CHP at 78% of our sites and at 67% of these significant emissions as part of their plants underwent a significant efficiency sites, the carbon intensity of electricity local environment, health and safety upgrade and are expected to return to we purchased was lower than the improvement plans. operation in early 2019/20. This should national or regional average. 21% substantially reduce energy costs but of our sites, responsible for 39% of may have a negative impact on our all our grid electricity purchases, are operational carbon footprint. purchasing zero carbon grid electricity.
Operational carbon footprint
2019 2019 2018 2018 thousand % of total thousand % of total
tonnes CO2 carbon tonnes CO2 carbon equivalent footprint equivalent footprint Scope 1 emissions from Scope 1 224 54% 215 48% Scope 2 natural gas Scope 2 (market based method) 191 46% 230 52% emissions combustion Scope 2 (location based method) 272 55% 279 56% from electricity 32% purchases Scope 3 (from electricity transmission 22 n/a 20 n/a 46% and distribution)
Total operational carbon footprint 414 100% 445 100% Scope 1 (Scope 1 and 2 market based method) emissions from other fuels Total operational carbon footprint 496 100% 494 100% combustion (Scope 1 and 2 location based method) Scope 1 5% emissions from process reactions 17%
Johnson Matthey Annual Report and Accounts 2019 57 Strategic Report
Environmental management continued
We continue to look for ways to Waste disposal We also incinerated 3,642 tonnes reduce the emissions to air from our of waste within our own facilities, We disposed of 84,824 tonnes of waste manufacturing activities. In China we principally waste sent to our refineries via third parties in 2018/19, an increase began operating equipment to prevent for precious metal recovery. of 18% on the previous year. Over half volatile organic compounds (VOCs) of this (54%) is waste from our UK pgm emissions from our Shanghai, China refinery, largely liquid hazardous waste. Water withdrawal sites. At our Health Sector facility in This waste material is designated as West Deptford, USA we implemented Water withdrawal decreased this year to hazardous due to its corrosive nature. 3 a project to replace the existing air 2.6 million m , a 10% decrease relative It currently cannot be treated by our abatement equipment with more to production output. 92% was supplied on site effluent treatment plant. The modern and more reliable equipment. by local municipal water authorities, increase is due to the rerouting of The investment has led to better control 6% was abstracted from ground water additional refining effluent waste stream of local air emissions. and 2% was abstracted from fresh to tankered waste due to increased levels In 2018/19, our reported NOx surface water. of metal contamination. (NO + NO ) emissions were 538 tonnes, 50% of our manufacturing sites 2 Of the total waste sent off site for up 41% on the previous year due to operate their own waste water treatment treatment, 34% was sent for reuse or 3 increased production in our Catalyst facilities treating 1.2 million m of waste recycling. Excluding waste from our UK Technologies business. water per year, no change since last year. pgm refinery, almost 60% of our waste Our total SO emissions increased by 19% of the water treated on site is 2 was reused or recycled off site. 39% to 62 tonnes due to one of our large recycled back into our processes rather Our total waste sent to landfill this manufacturing sites reporting emissions than being discharged as effluent, year decreased by 38%. We now have for the first time. reducing the sites’ water demand. only one plant (based in the USA) which Our emissions of VOCs remained Our Clitheroe, UK site is leading our has a significant waste stream which is broadly flat at 101 tonnes. initiatives, recycling 54% of its water being sent to landfill; we continue to Our emissions to air data covers 56% treated on site. investigate alternative means to treat and of our manufacturing sites and engine dispose of this material. test facilities. Within these numbers, we 70% (57,087 tonnes) of our total believe we have captured the majority waste sent off site was classified as of emissions across the group but will hazardous waste. 94% of our hazardous be working to increase coverage of our waste is liquid waste and over half of it emissions to air reporting over the comes from our pgm refinery in the UK. coming year to confirm this. Only 3,185 tonnes (6%) of our % hazardous waste is solid material that 2019 2018 change is not reused after it has been sent off NOx tonnes 538 383 +41 site. 1,668 tonnes of our hazardous waste SOx tonnes 62 44 +39 was shipped internationally for disposal, VOCs tonnes 101 100 +2 3% of all our hazardous waste.
Total waste disposed of by third parties
Solid Liquid non- hazardous waste Landfill Reuse hazardous waste 4% 4% 5% 9% Solid non- hazardous waste Recycling 18% 29%
Off site incineration / treatment without energy recovery Liquid 56% hazardous waste 69% Off site incineration with energy recovery 6%
Johnson Matthey 58 Annual Report and Accounts 2019 Our total effluent increased by 5% This year we have installed new During 2018/19 we received one to 1.7 million m3 in 2018/19 due to waste water treatment at our Shanghai, fine due to power outages at our increase in reported effluent at Clitheroe. China sites. Mechanical vapour precious metal refinery in West Deptford, 86% of our total effluent was discharged recompression systems have been USA. It was determined that our process to local authority sewers after treatment installed to reduce the salt content and air emission abatement plants were not and in accordance with local discharge eliminate chloride ions in the sites’ operating correctly during power outages consent agreements. The remainder was waste water. A similar system is being at the site and this resulted in excess Report Strategic discharged to surface water courses after considered at the Taloja site in India. air emissions. A fine of US $60,000 treatment and within quality limits set A comprehensive waste water monitoring (approximately £46,000) was issued by local water authorities. system has been installed at the Taloja by the local regulator. Our net freshwater consumption site to keep track of its waste water There was one significant spill (water withdrawn that is not returned discharge to the common treatment during the year. A fault in the fire directly to the environment for reuse at plant of the industrial zone where the site detection system at our Health Sector’s least as clean as it was when it was operates. The system provides continuous West Deptford facility resulted in the withdrawn) was 2.36 million m3, a 6% monitoring and is linked to the local site’s fire water and foam deluge system
+ decrease on last year. More information environment regulator for its monitoring activating. The system contained + + + is available on our website in our CDP of the discharge trade effluent quality. approximately 25,000 gallons of water r disclosure.r r and foam of which most was retained in the storm water pad. A small amount of matthey.com/cdp-water Environmental incidents the material was not contained and JM has a robust and effective management k k k approximately 20 gallons of the foam The chemical oxygen demand (COD) system that requires all sites to report and water mixture made its way into a test is commonly used to indirectly environmental incidents to our Group local creek. The incident was voluntarily measure the amount of organic compounds Environment, Health and Safety reported to the local regulator. No action in water and is a useful measure of water department. All spills that occur on was taken by the regulator in this case. quality. In 2018/19 the group discharged unmade ground or near drinking water organic chemicals equivalent to an sources are classified as significant. average COD of 171 mg/L into water courses, as regulated by local emission Environmental spills limits at each manufacturing facility,
a decrease of 9% on the previous year. Location Volume (litres) Material Impact This average COD was calculated from readings collected at sites West Deptford, USA 100 Chemicals Under investigation representing 79% of our total water discharged, a 22% increase in coverage on last year. Some of our sites use a different measure of water quality which cannot be translated directly to a COD calculation and are therefore not included in this measurement.
Total waste Water withdrawal
m3 / Tonnes Tonnes / tonne Thousands m3 tonne
120,000 1.00 3,000 2,729 30 2,643 2,630 2,529 2,605 95,8561 2,500 25 0.72 84,824 90,000 0.75 21.6 20.6 18.6 71,787 0.60 2,000 20
60,000 0.54 0.50 1,500 15
1,000 10 30,000 0.25 500 5
0 0.00 0 0 2017 2018 2019 2015 2016 2017 2018 2019
Tonnes Tonnes / Thousands m3 m3 / unit production unit production
1 Includes 17,682 tonnes of uncontaminated soil from a construction project in Redwitz, Germany which was classified as non-hazardous waste to landfill under local law.
Johnson Matthey Annual Report and Accounts 2019 59 Strategic Report
Johnson Matthey 60 Annual Report and Accounts 2019 Our people are at the heart of JM’s business strategy. For us to deliver solutions from our world class science and realise our vision, we are creating a culture in which people can be successful; one which attracts, retains and develops the very best talent
Sustainable business goals Report Strategic
Health and Our Low carbon ResponsiblHealthe Health and Sustainabland eOur OurCommunitLowy carbonLow carbon ResponsiblRespeonsible SustainablSustainable e CommunitCommunity y safety people operations sourcingsafetysafetyproductspeoplepeopleengagementoperationsoperations sourcinsourcing g producproducts ts engagementengagement 1 2 3 4 1 1 5 2 2 6 3 3 4 4 5 5 6 6 People ˆ
Market, economic and technological trends, and what these are demanding of JM, are having a significant impact on the people agenda, and for this reason it is a strategic pillar to which all organisation objectives are aligned.
A culture for success Our values are aligned to the needs Our culture at JM sets safety, of our long term strategy and we are wellbeing, inclusion and collaboration The environment we create through our embedding them into all our people as priorities, using our diversity as a values is fundamental to the success of processes. We define our values as: strength and challenging ourselves to be our organisation. They shape how people open, efficient, ethical and personally behave with each other, with our • Protecting people and the planet. responsible. With this culture, we are well customers and with our other stakeholders. • Acting with integrity. placed to deliver on our vision to make Our values drive individual and collective the world a cleaner, healthier place and actions that help create a safe working • Working together. solve the complex problems of our environment and an ethical, diverse and • Innovating and improving. customers – it is a culture for success. inclusive organisation. When successfully • Owning what we do. embedded and lived, they determine the kind of company that JM is to work for.
Our values
Protecting people Innovating and Acting with integrity Working together Owning what we do and the planet improving
We practice the We do the right thing, We encourage We adapt and We take accountability highest standards for people and for the collaboration inside embrace new ideas for our own work, and of health and safety, world. We do what we JM and out, sharing to make us stronger know we are also promote wellbeing say we’ll do, expect and embracing diverse and our world cleaner part of something for people both the same of each other viewpoints. We tackle and healthier. We bigger. We take the inside and outside and speak up when problems together, put are confident and initiative, seek of work, and seek to there’s a problem. We our ideas into practice resilient through clarity and demand safeguard our planet. place importance on and take pride in change; growing and high standards relationships internally combining our developing ourselves from ourselves and and externally, contributions to create and JM, to ensure we our colleagues. treating others with something better for are a leader in our respect and care. JM and our customers. chosen markets.
Johnson Matthey Annual Report and Accounts 2019 61 Strategic Report
People continued
A great place to work Attracting and retaining the best We are addressing this through our work to define our employee promise and Executing our strategy needs a workforce Talent is critical to enable us to maintain our broader investments in our people that is highly engaged, diverse and our world class science and leading processes. These are all focused on ensuring inclusive with the best talent across our market positions. Our headcount has we can attract and retain the skills we global organisation. increased over the last year, reflecting need to deliver our business strategy. We want our people to feel that JM the growth in our business. In our more There have been a small number is a great place to work, where working established locations we have remained of restructuring programmes across the safely is a priority, where diversity is stable. The increases have been in India, business and this, coupled with retirements valued, and working together is very much North Macedonia and Poland. in the year, takes our total employee encouraged, all within an environment Levels of recruitment have increased, turnover to 13.2%. that promotes growth and development. driven by business growth in some We enable this with a people strategy regions (as detailed above) and the need and key aims which define an aligned set to build capability in certain functions Employee promise of global processes, programmes and such as IT and Information Security, We have a compelling case to sell as systems that support our people to fully Procurement and Finance to support our an employer. We are developing our engage with the business priorities transformation programmes. In 2018/19, employee promise that will help us through which we execute our strategy. the total number of internal appointments attract and retain the very best talent. These key aims are to: and promotions increased from 595 to It will make the most of our unique • Attract and retain the best talent. 874. This reflects a deliberate attempt to purpose and provide more clarity for maximise opportunities for our current employees on what they can expect from • Develop all employees to deliver employees by offering them further JM as an employer and what we expect high levels of performance and career development opportunities. from them in return. The employee achieve their career potential. We have been successful in attracting promise will be launched in the coming • Create an environment where our women into JM; the percentage of year and will emphasise themes such as employees are recognised and female hires is above our overall personal autonomy, collaboration and rewarded for their overall company total of 27%. Currently, purpose. We have engaged our existing contributions to JM. a lower proportion of women in JM workforce in the creation of our overall occupy science, technology and employee promise through workshops • Foster a culture where values engineering roles. We aim to address that have been held globally as well as matter and guide people to do the that through our diversity and inclusion using insight from the external right things. aspirations and roadmap to 2025 recruitment market. • Support employees through an (pages 65 and 66). evolution of change and At the same time as hiring for Reward and recognition transformation. immediate business requirements, we are also investing in our future talent pipeline. We continue to work hard to ensure that We are implementing progressive, Following the successful launch of our our reward and benefit packages are global people policies and practices that global graduate rotational programme last competitively aligned with local markets. will help us realise our vision. We offer year, we are continuing to hire graduates We have refreshed our online benefits excellent opportunities that enable into science, operations and commercial portal ‘Elements’ and this is now available people to fully develop and realise their disciplines. A new cohort of 37 graduates to all employees globally. potential with JM, through contributing are set to join JM in the UK, US and China Internal and external research is to a more sustainable future, while in this cycle. Of this group, 58% are female showing us that employee recognition having a meaningful career. compared with 39% in the previous year. can significantly improve engagement Our people policies meet local Our female graduate diversity compares and promote innovation. statutory requirements and we often go very favourably with other chemical and We celebrate our achievements beyond them to recognise best practice. engineering companies. The number of with the annual JM global awards. They Our policies and procedures are a females choosing to study STEM subjects highlight activities that provide inspiring combination of global, country and some at university undergraduate level remains evidence of our values and how our site specific. When staff are inducted into low. Although this is a challenge for us, employees are living them. This year we JM, we fully explain those that are we are increasing our efforts to position presented eight awards including the relevant to them. We review our people JM as an employer of choice. Chief Executive’s Award for Outstanding policies and risks in accordance with our Overall voluntary attrition has Contribution (see pages 74 and 75). governance framework, with the board increased slightly this year compared The awards were announced at the being responsible for overseeing the with last. This is partly due to the Natural History Museum in London overall people strategy. The Nomination highly competitive new markets we in January 2019. Committee oversees talent and succession are operating in and the changes A formal event and prestigious plans, and decisions. The Remuneration we are experiencing. We have also venue are not in themselves essential to Committee is responsible for overseeing seen an increase in the numbers of recognition. We are also piloting a more and ensuring the Remuneration Policy people leaving us in their first two years. informal ‘Say thanks’ programme, which is adhered to. enables employees to give and share recognition. The ‘Say thanks’ tools include a recognition portal, e-cards and awards that can be redeemed in the form of small gifts.
Johnson Matthey 62 Annual Report and Accounts 2019 Number of staff * as at 31st March 2018 2019
Permanent Temporary Agency Permanent Temporary Agency employees employees employees Total employees employees employees Total Europe 6,460 342 926 7,728 6,714 397 1,185 8,296 North America 3,028 20 92 3,140 3,105 13 51 3,169 Report Strategic Asia 2,236 32 330 2,598 2,376 73 159 2,608 Rest of World 595 2 67 664 662 59 1 722 Total group 12,319 396 1,415 14,130 12,857 542 1,396 14,795
* For definitions, see page 234
New joiners by gender and age
Male Female Aged Aged Aged under 30 30 to 50 over 50 Total Aged Aged Aged Aged Aged Aged new under 30 30 to 50 over 50 Total under 30 30 to 50 over 50 Total Total Total Total joiners 2018 456 509 92 1,057 184 270 38 492 640 779 130 1,549 2019 696 777 135 1,608 293 446 77 816 989 1,223 212 2,424
Employee turnover by region 2018 2019
Voluntary Total Voluntary Total Voluntary employee employee Voluntary employee employee leavers turnover turnover leavers turnover turnover % % % % Europe 526 7.9% 10.8% 597 8.7% 10.7% North America 330 10.8% 15.1% 382 12.5% 18.3% Asia 233 11.6% 17.4% 312 13.1% 14.7% Rest of World 29 4.9% 8.1% 55 8.4% 9.8% Total group 1,118 9.1% 12.8% 1,346 10.4% 13.2%
Of the total voluntary leavers, 669 (54%) had less than two years’ service (2018: 471, 42%)
New employees in 2018/19 New employees by region Voluntary employee turnover in 2018/19 by gender and age by gender and age
Female Rest of Female aged over 50 World aged over 50 3% 4.2% 3% Female Female aged 30 to 50 Male Asia aged 30 to 50 Male 19% aged under 30 21.5% Europe 18% aged under 30 29% 48.0% 25% Male Male 66% Female 70% Female aged under 30 aged under 30 Female 9% Female 12% 34% Male 30% aged over 50 Male North 6% aged over 50 Male America Male 5% aged 30 to 50 26.3% aged 30 to 50 32% 39%
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Talent management There were variations across our Our aim is to improve our scores for four business sectors and functions and engagement and enablement by two We have refreshed our approach to talent analysis of the data has allowed us to percentage points as a result of the management to better define the talent create new action plans to respond to the targeted actions in response to employees’ pools we need for future business findings and continue to shape future feedback in the 2018 survey. requirements and to support our people efforts to support our goal of making in reaching their full potential, whether JM the place to work. that is in specialist or management Training and career development The scores on employee disciplines. This approach to reviewing understanding of our strategy have risen We continue to invest in resources and our talent and supporting people’s – showing that we have responded well programmes to develop capability and development is fundamental in enabling to calls in 2016 for better clarity and leadership so that we support all us to understand what talent we have, communication. Our efforts on these employee groups in being able to fully what we need for the future and how we priority areas were recognised and we are realise their career aspirations with address capability gaps. continuing to make improvements. The us and perform at the highest levels. We are prioritising the importance results for health and safety and ethics Career development was highlighted of our performance and development were once again higher than the industry as an important theme in our 2018 conversations in JM. We have already norms, and our work-life balance score employee survey. streamlined our performance has also improved. Our Aspire leadership development management and development processes However, the ‘employee engagement’ programmes, launched in 2018, represent into one global approach. We are measure – indicating how committed JM’s ambition to develop all levels of monitoring the number of performance and motivated our people are – has leaders to be great coaches and role discussions through our management dropped by three percentage points since models, which will help to drive the grade population to evaluate the 2016 from 62% to 59%. Our ‘employee business performance and growth that effectiveness of this process. enablement’ score – showing whether will deliver our vision and strategy. The people feel they have the right resources, programmes align and interconnect and, 1 2 3 4 5 6 support and work environment to to date, we have launched programmes for perform at their best – was flat at 63%. our mid level and executive level leaders. Employee engagement These scores are unsurprising, given the During 2019, we aim to launch our senior leader programme and will pilot In a period of change, it is especially fundamental changes we are making a new programme for first time leaders. important to know whether our employees across all aspects of JM, and the survey We launched the R&D career path are engaged as we continue to evolve as results have enabled us to chart a course earlier this year to further develop our an organisation. Every two years we for improvement. technical capabilities and to support conduct an employee survey, known as Employee engagement is a group people in this function to achieve their yourSay, and we welcome employee non-financial KPI and is one of our potential and career goals. We are feedback and insights. The results of our sustainable business goals. In 2019 we building a sales academy to strengthen 2018 survey provided rich data, confirmed will conduct an interim pulse employee our commercial capability. In addition, our achievements and highlighted areas survey aligned to the key drivers of we are investing in the capability of our where we still have more work to do. engagement and enablement in JM. line managers so they can have better development and career conversations with their employees.
Average full time equivalent workers* Gender of people employed Percentage of people employed on JM sites during 2018/19 by employment type by gender
Temporary Full time Part time Agency employees % % % % % % employees 3% As at 31st March 2019 Male Female Male Female As at 31st March 2019 Male Female 7% Europe 72% 28% 22% 78% Europe 69% 31% Contractors North America 77% 23% 46% 54% North America 77% 23% (project staff, Asia 82% 18% 10% 90% Asia 82% 18% specialists and Rest of World 66% 34% 51% 49% Rest of World 65% 35% outsourced 20,242 services) 29% Total group 75% 25% 28% 72% Total group 73% 27% Permanent employees 61%
* For definitions, see page 234.
Johnson Matthey 64 Annual Report and Accounts 2019 We also launched two new digital Together, our values and employee There is significant research that e-learning platforms in 2018 called behaviours create our distinctive demonstrates the impact an effective ‘myCareer’ and ‘iLearn’. These provide corporate culture. We have also embedded D&I strategy can have on business our employees with on demand learning values into our performance management performance. In JM, D&I is integral to the tools, materials and resources that are process to ensure we are rewarding and very essence of who we are. Our unique focused on general business skills, career recognising our role models and we will vision means that D&I needs to be at and leadership development. The continue to embed them across all our the bedrock of our culture. Report Strategic platforms can be accessed anywhere, people processes in 2019/20. We have made progress on this anytime, allowing employees to agenda; as part of our sustainable business continuously learn and take more active framework, we have set a goal to foster ownership of their development. 1 2 3 4 5 6 a truly inclusive culture by 2025; we offer Diversity and inclusion (D&I) a range of D&I programmes to raise awareness and help educate our people; Embedding our values and Our values are critical to creating a protecting our culture our revised talent processes provide a diverse, inclusive and safe environment. foundation for D&I; and we have been Research from GreenBiz and other In line with our Equal Opportunities successful in attracting female candidates organisations shows that people may want Policy, we recruit, train and develop into JM as outlined on page 62. to work for companies with sustainability employees who are the best suited to the However, clearer outcomes and credentials. On this, JM offers a compelling requirements of the job role, regardless better coordination is needed to fully proposition. We emphasise this in our of gender, ethnic origin, age, religion or embed this agenda and keep pace with values, particularly that of protecting belief, marriage or civil partnership, other quality organisations. With this we people and the planet, and we show that pregnancy or maternity, sexual have refreshed our ambition: in being part of JM, our workforce is orientation, gender identity or disability. ‘D&I forms the core foundation of making a real difference to the world. People with disabilities can often be who we are in Johnson Matthey and our In the past year, we have been denied a fair chance at work because of vision for a world that’s cleaner and engaging our workforce in our values misconceptions about their capabilities, healthier; today and for future generations. and how we embed them in our everyday and we work to enhance their D&I enables our innovation and agility behaviours. We held 27 workshops at opportunities by attempting, wherever because of the value we place on 18 of our sites. The workshops revealed a possible, to overcome the obstacles. diversity of all kinds. Our leadership strong sense of purpose around our vision This might mean modifying equipment, team enables strong business but also revealed that there is more to restructuring jobs or improving access to performance because they empower and do to really create a culture within which premises, provided such action does not engage their teams by role modelling people can be successful and feel engaged. compromise health and safety standards. inclusion in their everyday conversations. Taking this on board, we created a This is set out in our policy, which extends Our shareholders and customers trust us values toolkit for managers to help them to employees who have become disabled because our rich diversity is a hallmark communicate our values to their teams during their employment and who will of a sustainable, well run business.’ and create a momentum in applying be offered employment opportunities them day to day – in other words, using consistent with their capabilities. We the values to guide the behaviours we would also look to make reasonable want to see employees now practising. adjustments for new recruits.
Gender diversity statistics Board GMC Subsidiary directors The table below shows the gender Female breakdown of the group’s employees 8% as at 31st March 2019. Female Female 33% 30% As at 31st March 2019 Male Female Total Male Board 6 3 9 Male 67% GMC 7 3 10 70% Male Subsidiary directors 108 10 118 92% Senior managers* 48 16 64 New recruits 1,608 816 2,424 Senior managers* New recruits Total group Total group 9,797 3,602 13,399
Female Female Female 25% 34% 27% * Senior managers is defined as the direct reports of the GMC. Some individuals are included in more than one category. Male Male Male 75% 66% 73%
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‘Our reputation for an environment Task force and employee Gender pay gap where difference matters means as an resource groups In March 2019, we published our second employer, we stand out from the crowd gender pay gap report, covering UK and attract a broad talent pool. Integral We have a D&I task force made up of employees. Our UK gender pay gap has to our culture are two fundamental volunteers from around the world who narrowed from 9.2% to 8.5% and we beliefs that all differences matter and act as a sounding board and forum continue to be well placed when that all people are valued. Our integrity is through which we engage the wider compared with the national average a direct result of ensuring that all voices, organisation. We also have four employee gender pay gap of 17.9%. however quiet, are heard. In JM everyone resource groups. Our gender pay gap is largely down thrives and brings their full-self to work’. Pride in JM launched in October to female under-representation and the We have created a refreshed 2017 to support LGBT+ employees and gender split in our different functions – roadmap to execute our ambition from allies. Good progress has been made over we have fewer women than men in our which objectives will be cascaded and the last year, with a global committee set science, technology and engineering monitored via business reviews. This up and a local chapter in Devon, US jobs. This, in turn, reflects a gender bias roadmap outlines the outcomes we will being developed. in university education; only 24% of UK achieve over a three year period and The Black Employee Network graduates studying science, technology, specific actions we will take to build followed in December 2018, with the engineering and maths (STEM) subjects awareness, create more diversity and aims of promoting JM as a diverse are women. Our manufacturing jobs, embed a culture of inclusion. employer and improving the recruitment, often with a shift allowance, are also To better measure our progress retention and development of black dominated by men. against our sustainable business goal, employees at JM. As at 31st March 2019, women we have introduced a target based upon Supporting UN Sustainable represent 27% of UK employees (25% the Refinitiv Diversity & Inclusion Index. Development Goal 5 on gender equality, of senior management and 33% of the This internationally recognised standard a Gender Equality Network launched in board). We are taking steps to tackle the is very comprehensive and helps us March 2019 to advance gender balance root causes of gender imbalance, the pay benchmark against the full range of in JM. The group is seeking a greater + balance of male and female employees gap and female under-representation activities+ + within our D&I agenda. The + through our D&I and talent action plans. methodology can be downloaded at: across all roles (including leadership and r r r manufacturing), and the appropriate Our efforts were recognised in a https://www.refinitiv.com/en/financial-data/indices/ facilities for working mothers. report by independent consultancy diversity-and-inclusion-index Most recently, in May 2019, our Equileap in 2018, which ranked JM at k k k DiversAbility employee resource group number 75 in a listing of top performing We are looking to improve our was launched to support people in JM companies. Over 3,000 public companies overall score, from a 2017/18 baseline, who have physical, mental and social were researched and ranked, with scores by 40% by 2025. Based on today’s health conditions and help the company based on a wide variety of factors. It was rankings that would place JM in the top to maximise the use of their talents. a significant achievement to have 100 companies globally. performed so well against thousands of + other+ + companies, but the report has also + r remindedr r us of the work still to be done.
matthey.com/gender-pay-18
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Trade union representation 26% of our employees (2017/18: 26%) belong to a recognised trade union. We have positive and constructive relations with all the recognised trade unions that collectively represent our employees. The following table sets out the average number and percentage of employees who were covered by collective bargaining arrangements and represented by trade unions by geographical region in 2018/19.
Permanent employees Represented % Represented
Rest of Rest of % represented World World 662 395 Europe 34% Asia Asia North America 18% 2,376 79 Asia 3% North Rest of World 60% America 12,857 Europe 553 3,335 Total group 26% 6,714
North Europe America 2,308 3,105
Johnson Matthey 66 Annual Report and Accounts 2019 We have donated money through raised by our employees this year – our 1 2 3 4 5 6 partnerships, and company time through best ever match giving performance Volunteering and STEM – volunteering. We have given back to and almost double last year’s figure. our communities because it’s the right Mountains were climbed and marathons connecting with our communities thing to do. run; one employee completed a parachute for social impact During 2018/19 a global team jump and another zip-lined over the river Strategic Report Strategic If more girls chose to study science at has formed to create a new strategic Clyde in Scotland. The personal goals university, the female talent pool would framework for social investment at JM achieved by our employees this year have grow and with it, female representation with a clear and distinct aim; to create been a driving inspiration behind JM’s in companies like our own. Through our global impact through science education. new social impact ambition. Our direct school and university outreach activities, In our ambition to improve access company donations in 2018/19 were we are encouraging girls to think about to a quality science education for all, we £840,000, up 24% on last year. Including a career in STEM areas. are looking at the many reasons for low employee volunteering time, our total Volunteering has a part to play here uptake of STEM subjects. They include community investment in 2018/19 was and JM employees are entitled to two days gender inequality, distance from school £1.1 million (2017/18: £0.83 million). of paid volunteering leave a year. There is and negative perceptions of what a We believe that science education is a pipeline of scientific talent in JM which career in science can offer. Another issue a catalyst for a cleaner, healthier world. this year we have used to greater effect is quality of STEM teaching, which may With our sustainable business goal on through volunteering in schools. 235 days arise from out of date learning materials, volunteering in place, embedded in a were dedicated by our employees to inadequate science equipment and a lack strategic framework and powered by our inspire young people in science careers; of science education standards. Our new people’s drive to deliver solutions, we have 60 employees alone from our North of strategic framework will help enable us a clear direction ahead of us. Working England sites supported over 700 students to tackle both the barriers to access and together across our sites globally, we aim to improve their understanding of, and inclusion and the barriers to quality to be actively implementing our framework interest in, science. STEM education. midway through 2019/20, exploring Volunteering leave can be spent in The passion of our people remains new ways of protecting this planet, and many other ways and, supported by our the foothold of our success and JM is continuing our history of finding solutions refreshed global volunteering policy, this proud to have matched almost £80,000 to some of the world’s greatest challenges. year our employees volunteered a total of 1,116 days around the world – a 65% Community investment summary Investment Investment increase from last year – and we are in 2018/19 in 2017/18 working to improve even further so we £’000 £’000 % change can achieve our sustainable business goal Direct expenditure 840 680 +24 to donate a cumulative 50,000 volunteer days by 2025. Corporate donations to charities 331 300 +10 Donations by sites to local charities and community projects 509 380 +34 But encouraging our employees to use their volunteering entitlement is just Indirect expenditure 249 152 +64 one part of our community engagement. Employee volunteering time 249 152 +64 The history of our community investment shows an abiding and consistent desire Total group 1,089 832 +31 to do good, and this will never change.
1,500 hours that made a difference in San Diego
At our annual JM Awards ceremony in January, we were proud to announce a team from San Diego as the winners of our ‘working together: in our communities’ award. Through 1,500 hours of community volunteering, employees in San Diego have worked with over 1,000 students, cleaned beaches, worked at local food banks, and supported hundreds of local residents who were struggling to survive. They donated their £5,000 prize to the San Diego Youth Services shelter for homeless teenagers. + + + + See pages 74 and 75 r r r
Johnson Matthey k k k Annual Report and Accounts 2019 67 Strategic Report
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Acting with integrity Everyone is also required to complete The helpline is available to everyone and the code acknowledgment each year not just those employees directly A strong culture of ‘doing the right thing’ confirming that they will work in employed by JM. An Ethics Panel made is shaped by our value of acting with accordance with the commitments in the up of senior leaders meets monthly to integrity and we believe it is critical to code. Additionally, targeted compliance provide oversight of investigations into all achieving our vision and strategy. Our training is provided to people whose speak ups received. The panel reports aim is to eliminate ethical lapses and roles expose them to specific risk areas. three times a year to the board, with a breaches of compliance and in doing so, We regularly review our training and particular focus on identifying themes turn our reputation for doing the right communications materials and methods for and opportunities to continually look to thing into our strategic advantage. delivery to ensure they remain relevant to improve the way we do things in JM. Our approach to this has two pillars: the risks our business and employees face. (i) promoting an ethical culture across We have a growing network of Speak up reports the company; and (ii) implementing a approximately 115 ethics ambassadors compliance programme underpinned by During 2018/19, 125 speak ups were located throughout our business globally. a framework applied to each risk area. received and investigated which, given our They are a sounding board for employees Our global code of ethics, ‘Doing the size, is in line with the industry norm in and provide guidance on where to go for Right Thing’, is central to the way we act terms of volume (see table below). help or to raise a concern. This year, they Number as a company and one of the main ways Concern / allegation raised of cases played an important role in bringing our we promote an ethical culture. The code refreshed code of ethics to life, supporting Bribery and corruption / supply chain 9 is available in 22 languages and contains senior leaders with their responsibilities Business and financial reporting 8 information and resources that help for ethics and compliance and promoting Computer, email and internet use 1 our employees to make decisions in Confidential Information and 2 a good ethical culture. They took a key line with our values and demonstrate intellectual property part in hosting launch events during the highest standards of integrity and Conflict of interest 10 which people were encouraged to get Data protection 1 ethical behaviour. to know their way around the refreshed Discrimination including harassment 47 In December 2018 we published a code while recycling their paper copies and retaliation refreshed code of ethics – on our website Environment, health and safety 8 of the 2015 code. and in hard copy, bringing it up to date Fraud, money laundering and 6 Within JM we promote a ‘speak up’ to reflect new legislation and our embezzlement culture encouraging everyone to speak Employee rights 9 redefined company values, and to bring up when they have a concern or are Insider trading 1 scenarios to life so that employees can unsure about something. We encourage Misconduct or inappropriate behaviour 8 easily see how the code applies to ethical individuals to do this through their local Other or general query 8 behaviour and choices in real working Physical assets 1 management, ethics ambassador, HR or situations that are relevant in JM today. Violence or threats 6 legal function wherever possible. We also In April 2019 we launched our provide employees (and third parties) online ethics and compliance training for We note the number in the with an independently run speak up the year. All employees are required to ‘discrimination’ category is high in helpline (which can also be accessed take a code of ethics module every year, relation to the other categories and, upon online) where concerns can be raised. reinforcing basics and taking a deeper investigation, we found a number of This helpline also allows individuals, where dive into a selection of topics chosen these related to broad employee relations local law permits, to remain anonymous. every year. issues which were subsequently addressed.
Anti-bribery and corruption training Code of ethics training Competition law training by region by region by region number of employees number of employees number of employees
Rest of Rest of Rest of World World World 346 346 346 Asia Asia 1,391 841 Asia 841
Europe 2,580 Europe Europe North 3,649 North 5,376 America America North 1,181 2,062 America 1,041
Johnson Matthey 68 Annual Report and Accounts 2019 We view the total number of This year we have also introduced We are committed to conducting speak ups (125) as a positive reflection global flexible working policies. New all our activities in ways that achieve of the confidence in the process and working arrangements will allow high standards of health and safety for many recommendations arising from employees to have some level of all employees and those affected by investigations have been actioned in influence over how, when and where our operations. We want to achieve year our businesses. they work and provide arrangements on year improvements in performance as In order to have an effective ethics for parental and bereavement leave. we progress towards our ‘zero harm’ goal. Report Strategic and compliance programme we apply All this represents an improvement We expect our leaders to ‘walk the our compliance programme framework over purely statutory obligations and talk’, for example, through site visits and to each risk area, which includes having marks a significant step forward in getting involved in questions, conversations policies and training in place. We keep how we look after our people and their and updates. We also expect our line the programme under continuous review. families in an inclusive way. managers to take responsibility and give The risk areas include bribery and In the UK, as uncertainty surrounding continuous emphasis and clarity on health corruption, data protection, export the UK’s withdrawal from the EU remains, and safety requirements. And employees controls and sanctions, conflicts of we continue to support our employees are being empowered to participate interest, competition / anti-trust, who are EU nationals working in the UK actively in environment, health and financial crime (including the recently and our UK citizens working in the EU. safety (EHS) activities and draw lessons introduced corporate criminal offence of We also provide information and take the from any near miss incidents. failing to prevent the facilitation of tax opportunity to engage with our people Across JM, everyone is required to evasion), modern slavery (see page 51) to help them understand what the follow five clear and simple safety and activities regulated by the UK developments and different scenarios could principles and, with a health and safety Financial Conduct Authority. mean for them. Our Brexit working group element a requirement of all employees’ A new data protection law came works closely with our HR team to ensure performance reviews, we ensure it into force in the EU in May 2018. Known we are able to navigate the best outcome remains firmly on everyone’s radar and as the General Data Protection Regulation for our people. that they are clear about what is or GDPR, it is designed to protect the expected from them. personal data and privacy of all EU citizens. Mental health Accompanying our Group In response, we have developed and Environmental, Health and Safety Policy, issued our global data protection policy and External research indicates that one in we have a core group of eight of our are implementing a global programme to four people will suffer from mental ill health and safety policies which we call adjust our processes to meet requirements health in the course of any one year. ‘lifesaving policies’. These policies cover under the new legislation. This includes But indicators of poor mental wellbeing high risk areas, where policy breaches focused training for employees who sometimes go unnoticed, as those who could endanger life or lead to serious handle personal data at work to help are suffering can be reluctant to admit injury. They are available in local them understand what they should to a change in mental health because languages and we have continued to do to ensure a culture of data privacy of a fear of stigma or discrimination. provide guidance to our sites on how to and information security throughout In April 2019 our Chief Executive, on implement them, using tools such as our organisation. behalf of the whole company, committed e-learning, gap assessments and internal to creating a climate of greater openness audits. All sites have action plans for the on mental wellbeing, as well as providing Supporting employee wellbeing implementation of our lifesaving policies support to anyone who would like it. and good progress is being made against As we execute our strategy, the As part of our commitment, we are those plans. In addition, e-learning accompanying changes, through growth, taking action in a number of areas. We modules on three of the policies were business transformation and new are also working with the UK mental rolled out this year to employees to raise programmes, all make an impact. health campaign, Time to Change, and their awareness. Against this background, employee will be making a public commitment on There are two broad areas of focus wellbeing is particularly important. its website by signing its employer pledge. for us in workplace health and safety. An independent global survey across The first is process safety, which is about 21 industries showed that employees 1 2 3 4 5 6 how we safely manage our most are looking to their employers for a hazardous processes. The second area commitment to health and wellbeing. Health and safety is occupational health and safety which At the same time, organisations that is about incidents that happen more The first of our sustainable business goals actively promote health and safety will frequently but are less severe, like slips, is to aspire to zero harm in matters of find their employees significantly more trips, falls, cut injuries, sprains and health and safety. The goal has ambitious likely to be engaged. In response, we strains. We have more work to do in our KPIs and we track any injuries and have developed a global wellbeing safety behavioural programmes to drive illnesses using common safety indicators. framework to support our employees in more ownership for personal safety We have rolling safety programmes their emotional, financial, physical and throughout all levels of the organisation. social wellbeing. Our principal themes and continue to launch new safety for 2019 are: mental health; work-life campaigns and programmes to refresh harmony; musculoskeletal disorders; awareness and deepen our safety culture and cancer awareness. We have among employees. introduced a support service called Assist. This is confidential and globally available 24 hours per day. Johnson Matthey Annual Report and Accounts 2019 69 Strategic Report
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Process safety Eight of our high risk sites had a We have continued to emphasise the PSRM audit in 2018/19, providing useful benefit of learning events to help bring We introduced a new process safety risk indications of where approaches to down our total recordable injury rates. management strategy in 2017, followed process safety needed to be strengthened. This year we reported a greater number by a new process safety severity rate We have also created a new protocol for of learning events, where we looked at indicator in April 2018, and early signs our process safety audit, based on our near misses, unsafe conditions and unsafe of a reduction in severity rates are process safety framework and aligned acts – injuries that had been avoided, emerging as shown in the chart below. with the CCPS. but sometimes only just. There are We still have more work to do to ensure Other activities include: a pilot for valuable lessons to be learnt here and we are accurately capturing the data and our process safety competency assurance these events have been successful in to maintain our good progress to reduce programme, with individual site reducing injury rates. the severity rate further. personnel assessments; ongoing roll out Safety can be improved and Our process safety risk management of our risk related process safety and maintained both by a leadership (PSRM) is based on a framework engineering standards which cover topics approach and on the ground through developed by the Centre for Chemical common across JM such as pressure engaging people in safety, providing Process Safety (CCPS). We have created relief; and implementation of lagging training and raising their awareness. a working infrastructure, with a group and leading process safety indicators. At the leadership end of the spectrum, process safety team, subcommittees with we have an EHS leadership committee defined responsibilities, selected site in place which assists the company in process safety champions and provided Improving safety behaviour meeting its EHS responsibilities and in JM specific training; 112 senior managers, The second area of focus is ‘behavioural’ creating a positive safety culture across 312 site leadership teams and 96 process – simple accidents like tripping over that the whole of JM. Site visits, having safety safety champions have all been trained. could be avoided with greater awareness conversations, personal safety messages We have conducted site surveys to of the risk. Around three quarters of our and reviews of EHS actions all highlight identify sites with process safety risks – injuries are due to behaviour and the the visible involvement of leadership. and whether the risks are high, medium main types are: sprains and strains; slips, At the same time, EHS leadership or low – to enable us to target our trips and falls; and hand injuries. training has been integrated into JM process safety efforts. All these sites have Over the last ten years, we have seen leadership programmes at all levels, carried out maximum credible event a long term reduction of 50% in lost time and a global EHS induction programme (MCE) studies. Several high risks were incident rates but the figure has been flat for leaders and managers has recently identified with many actions; around over the last few years. Among our been developed. Regional EHS 80% of these have now been completed efforts to reverse this, we identified the conferences with site operations have which has resulted in significant 12 sites that had poor leading and been set up, with the first taking place reduction of risk. Any process safety lagging indicators and put in place in September 2018. event and its severity rate are logged in targeted safety improvement plans. All our specialist reporting system to ensure have now seen a good reduction in injury a standardised approach. rates, and seven out of the 12 sites have reduced their total recordable injury rate by more than 40%.
Process safety severity rate Trade union committee representation 23 (43%) of our manufacturing sites have active trade unions 6 and 74% of them have a trade union representative on their local health and safety committee. 78% of sites have formal 5
te trade union agreements that cover health and safety topics
ty ra 4 (listed in the table on the below). ri ve
ty se 3 Topics covered by trade union agreements fe
ess sa 2 Topic % of sites covered oc Pr 1 Use of personal protective equipment 71 Participation of worker representatives in health and 88 0 safety inspections and investigations
2018 2019 2019 Training and education 82 y 2018 ly ry ry h 2019 Ju ber 2018 April 2018Ma June 2018 gust 2018 to mber 2018 Marc Complaints mechanisms 82 Au ember 2018 Janua brua Oc Fe Sept NovemberDe 2018ce The right to refuse unsafe work 94 Periodic inspections 82
Johnson Matthey 70 Annual Report and Accounts 2019 At the onsite local level we have We tackle occupational health at Driving further improvement completed the rollout of ‘My Team, both group and site level. At group level, We provide ongoing training on health My Responsibility’, a training scheme for example, we set policy and provide and safety to maintain employees’ that builds on our EHS behaviour guidance for the management of chemical awareness towards known risks and awareness programme and aligns with exposure, which is implemented at our advise on the top injury trends. Our our EHS behaviour standard. All sites sites. Chemical exposure is a major area Enablon health and safety reporting Report Strategic have benefited and there have been of focus for us and incidents are declining. platform is used for reporting and some outstanding successes. We continue to conduct work on key analysing risks, which helps us target areas such as platinum salt exposure as areas of concern. platinum salt sensitivity can occur in Occupational health We have an ongoing programme some, but not all, employees who are of regular EHS assurance audits which Occupational health also remains very exposed to certain types of platinum are undertaken using global protocols. important for us. The number of salts during the course of their work. In 2018/19, we undertook 26 audits occupational illnesses reported each year Ergonomics remains a focus area. (including eight process safety audits) remains low, and while the number of Lack of correct physical movement – at at our manufacturing and R&D facilities occupational health cases has come down a workstation, in a lab or on the factory and completed 14 audit action reviews. from 25 in 2013/14 to 21 in 2018/19, floor – can lead to musculoskeletal A total of 40% of our manufacturing we saw a year on year rise from 2017/18. disorders. We issue guidance at group sites are compliant with BS OHSAS 18001, We are seeing an increase in work related level which is then implemented at site the internationally recognised British stress cases, though the overall number level. To enhance our assessment of Standard that sets out requirements is small. There is better awareness and ergonomic risks, this year we ran a trial for good practice in occupational health we are encouraging our staff to report of the Humantech system across 20 of and safety management. these cases, but we are taking the our sites globally in JM. The system All of our manufacturing sites have increase seriously. provides online awareness and risk formal health and safety committees to We have identified three factors that assessment training as well as risk help monitor, collect feedback and advise are leading to stress in our workplaces: assessment survey records and reporting. on occupational safety programmes. work relationships; work pressures; and After this successful pilot, we are now They are led by site senior management organisational change. In the UK alone, implementing the programme in all and meet on a regular basis to cascade over 11 million working days a year are sectors at most of our sites. plans and ideas to and from our workforce. lost because of mental health problems, We have also updated our policy Over half of our manufacturing sites with one in four people affected. and guidance on industrial hygiene – have a formal joint worker-management During the year we began to the recognition and control of health and safety committee comprised introduce a number of programmes and environmental factors that may cause of representatives from both staff level services globally across JM to support the sickness – and are now rolling them out, and management grades, covering 81% health and wellbeing of our people, with with an emphasis on training and of employees globally. more to follow in 2019/20. These are collaboration among employees. explained more fully on page 69.
My Team, My Responsibility brings improvement in EHS culture
In Pennsylvania, US, a behaviour based safety team ran the ‘My Team, My Responsibility’ programme for all the departments at three of our sites. Around 70 supervisors were trained. The programme strengthened the supervisor / employee relationship, encouraged novel thinking on EHS topics and raised safety awareness. At the same time, the employee recognition scheme was refreshed. As a result of the programme, the EHS culture maturity rose from level two to level four and the people involved were winners in the ‘protecting people and the planet’ category at our annual JM awards. + + + Johnson Matthey + See pages 74 and 75 Annual Report and Accounts 2019 71 r r r
k k k Strategic Report
People continued
In 2019/20 we will continue to focus Interventions are already well under way; The number of occupational on process safety and occupational health both sites are on safety improvement illnesses reported during 2018/19 was and safety. We have introduced EHS plans and we are rolling out a range of 21, giving a rate of 0.140 illnesses personal safety action plans for our wellbeing support services and activities. per 200,000 working hours in a rolling GMC leaders and at all levels down to There were a total of 80 lost time year in 2018/19 (compared with 0.085 our frontline leaders. Their plans include accidents and illnesses across the group in 2017/18). Of the 21, 13 were in practical activities to promote a proactive during 2018/19. There were no employee Europe and eight were in North America. safety culture by demonstrating more fatalities in the year; the last employee No contractor illnesses were reported visible, higher quality safety leadership. fatality at Johnson Matthey occurred in in 2018/19. The successful outcome for us is greater July 2015. Our performance is summarised Our overall number of occupational employee engagement and, in turn, in the charts below. illnesses remains low although there improved EHS performance. We are also More positively, in the year we saw has been a noticeable increase in cases increasing the regularity and quality of our a 50% increase in the number of EHS this year, principally due to increased EHS communications with targeted and learning events that were reported. This reporting of work related mental measurable campaigns to drive awareness, leading performance indicator shows wellbeing cases which represented 13 engagement and personal ownership. that we are making progress in increasing of the 21 cases reported. All 13 were in awareness of potential ‘near miss’ the UK. We have been aware of the rising incidents and that we are developing and trend in reported cases of mental ill 1 2 3 4 5 6 embedding an EHS culture across JM. health in the UK and have focused Health and safety performance Our leaders also had a greater number efforts to tackle the problem, support of safety conversations during the year. our people and provide proactive During the year, reported injuries across Our construction projects use a guidance (as described on page 69) JM were of relatively low severity (none contractor workforce and we work hard across JM globally. were life threatening or life altering) but to ensure the safety of all contractors We have continued to use a disappointingly, despite continued focus who work for us. Overall, contractor LTIIR health scorecard system developed on health and safety over the last year, dropped from 0.74 to 0.40. Lost time by the UK Chemical Industries our lagging indicators of performance incidents involving contractors fell during Association to monitor our health for employees continued to be flat. Our 2018/19 to six (2017/18: eight). This performance. This year 61 sites lost time injury and illness rate (LTIIR) improvement in performance comes from completed the scorecard questionnaire, of 0.53 and total recordable injury and focusing on and auditing our lifesaving compared with 64 sites the previous year. illness rate (TRIIR) of 0.97 were both policies and was achieved despite a 39% Of these, 64% reported scores of A or B marginally higher than last year increase in reported contractor hours (which corresponds to best practice); 1 1 (2017/18: LTIIR 0.52 , TRIIR 0.96 ). worked from 2,171,462 during 2017/18 30% reported C scores (which corresponds When we analyse our performance to 3,009,338 in 2018/19. This reflects to our current minimum target score); further, we can see that this plateauing the increased activity due to increased and 6% reported an average D score is isolated to a combination of poor capital investment across the group. (below our current minimum standards). performance at two sites and an increase There were no contractor fatalities in in work related stress cases in the UK; 2018/19; the last one occurred in if we exclude occupational related stress October 2010. cases this year, our LTIIR was 0.45.
Lost time injuries and illnesses Lost time injuries and illnesses Occupational illness cases by event type by region
Hit by Rest of Rate / moving Other World Number 200,000 Asia vehicle 6% 4% of cases working hours 5% Slip, trip 5% Struck Europe or fall North 30 0.30 against object 75% 26% America 6% 25 0.25 16% Exposure to 20 0.20 workplace stressor 15 0.15 15% 10 0.10
Ergonomics 5 0.05 Hit by moving, related flying or falling object 24% 0 0.00 18% 2015 2016 2017 2018 2019 Occupational Rate per illness cases 200,000 working hours in a rolling year
Johnson Matthey 72 Annual Report and Accounts 2019 Sustainable Sustainable business goal business KPIs Baseline 2018/19 2025 target Annual TRIIR TRIIR in 2016/17 0.97 0.6 Health and Our Low carbon Responsible Sustainable Community safety peopleFor health andoperations safety, sourcinAnnualg LTIIR productsLTIIR in 2016/17engagement 0.53 0.2 aspire to zero harm Annual OSHA 1 2 3 4 5 Rate in 2016/176 27.9 6.0 severity rate Report Strategic
+ + + + Performance against all six of our sustainable business goals is detailed on pages 31 to 33 and 238 r r r All scores were in line with the previous Communicating with external Shareholders are an important year although within these, occupational stakeholders stakeholder group. We meet with our k illnessk k leadership was a topic which major shareholders regularly, as described reported a lower performance and so We maintain ongoing communications in the Corporate Governance Report. with our external stakeholders and is an area we will focus on in the + update them on our activities through + Pages+ 117 and 118 coming year. + regular publications (including this Alongside our other health and r r r safety performance metrics, we also report), our website, surveys and topic For investors particularly interested monitor our OSHA severity rate. The specific meetings. We outline details in ethical and socially responsible of our major stakeholders on pages 28 severity rate from the US Occupational k investments,k k we meet with specialists Safety and Health Administration (OSHA) and 29. from their organisations to discuss is a calculation that gives us an average We are also active members of a sustainability and corporate social of the number of lost work days per number of trade associations and groups responsibility issues where applicable recordable incident. The premise is that which help us to understand, inform and participate in key sustainable an incident that resulted in an employee and contribute to issues and discussions investment benchmarking studies. These missing time from work to heal and that are relevant to our stakeholders. include the Carbon Disclosure Project recover has greater significance than one Associations we have worked with in (CDP), the Dow Jones Sustainability where the employee can immediately 2018/19 include the UK Chemical Index (DJSI) and FTSE4Good. return to work. It is therefore a useful Industries Association, The European In March 2018, we received an metric for us as we strive to reduce the Chemical Industry Council (CEFIC), ‘AAA’ ESG rating from investment index severity of the incidents that occur at our the Society of Motor Manufacturers and provider MSCI for the seventh consecutive facilities by improving our workplaces Traders, the Association for Emission year. This is the highest possible rating and our behaviours to avoid incurring Control by Catalyst, the International for a company’s risk and performance these more significant incidents. Platinum Group Metals Association, the against a range of environmental, social The rise in our rate this year comes from European Precious Metals Federation, and governance factors, and one that a combination of the increased number Eurometaux (which represents the places us above our chemical industry of work related stress cases and the fact European non-ferrous metals industry), peers. We are a constituent of the that these cases have required longer and Aldersgate Group. In September FTSE4Good UK 50 Index. periods of time off work. Excluding work 2018, we joined the Hydrogen Council related stress cases, our OSHA severity as a steering member (see page 29). rate is 24.4.
Lost time injury and illness Total recordable injury and illness OSHA severity rate rate (LTIIR)1 rate (TRIIR)1 per 200,000 working hours in a rolling year per 200,000 working hours in a rolling year At 31st March
2017 2018 2019 0.60 1.20 OSHA severity 18.51 18.41 27.9 0.50 1.00
0.40 0.80 1 Restated due to incidents that were reported after the 0.30 0.60 year end.
0.20 0.40
0.10 0.20
0 0 March March March March March March March March 2016 2017 2018 2019 2016 2017 2018 2019 LTIIR TRIIR
1 Data for 2017/18 has been restated due to injuries and illnesses that were reported or reclassified after the year end.
Johnson Matthey Annual Report and Accounts 2019 73 Strategic Report
People continued
Recognising our people Our JM Awards categories are aligned with our values, which guide the behaviours of everyone in the business. The winners have been recognised as individuals who truly embody the core of what JM is and strives to be.
Protecting people and the planet Owning what we do This award recognises achievements and significant “Owning what we do” focuses on areas of our contributions to improving health and safety and / or business which link directly with fulfilling our safeguarding the environment. The winning projects strategic goals, taking accountability for demonstrated visionary and leading commitment to driving business performance and leading in enabling a cleaner, healthier world through driving line with our vision, strategy and values. The progress in reducing environmental impact or winners of this category went the extra mile to improving health, safety and employee wellbeing. achieve the very highest standards and deliver what they promised.
Innovating and improving: operations This award focuses on how hard work, including practices, processes, systems, methods and business models, has led to manufacturing and / or value adding improvements in efficiency for a team, a site or the company as a whole.
Working together: in our communities The winner of this category recognises community investment initiatives that make a positive impact to local communities.
Acting with integrity “Acting with Integrity” can take many forms, from engagement and the way we treat each other, to the decisions we make about the way we do business. This award recognises an individual who takes action to ensure JM is doing the right thing. This has been at the core of JM since its foundation and is key to ensuring we build and protect our reputation. Our winner advocates integrity, inclusivity and respect for others through their everyday activities. Johnson Matthey 74 Annual Report and Accounts 2019 “ As a young female scientist at the start of my career, I found it a privilege to be part of the awards and meet world class scientists who pioneer research to protect our planet. “ The JM Awards has shown me the remarkable things we can do when we work together, and that we are a global family which continues to grow, innovate, connect and celebrate our achievements. ”
Emma Gledhill, Scientist Report Strategic
Explore more Find out more about the 2019 JM Awards matthey.com/jm-awards
Innovating and improving: Working together: in business science and technology This category recognises the very best examples This category recognises the value of working together in JM. Collaboration can that new ideas and innovations in happen at all levels and is often a part of what science and technology bring to we do day to day; this award was given to Johnson Matthey and our employees that go above and beyond customers, and the value created expectations and that have a real impact on the when we improve our working success of the company. practices. Innovations and improvements can arise from a single eureka moment, or from extensive collaborations with colleagues and customers. However they emerge, they strengthen our technology portfolio and enhance our reputation, and business or process performance. Our winners were part of a team that has shown how an innovative approach can be used to create valuable opportunities for Johnson Matthey.
Chief Executive’s award for outstanding contribution This award pays tribute to the immense contribution our people make to JM’s success. Today we have an exceptionally diverse and global workforce and our tradition of engaging, developing and recognising the best of our people is continued through this award. This peer nominated award gave our people the opportunity to champion a colleague and tell us how they have inspired or excelled by taking initiative and carrying on responsibilities beyond their regular job, in a way that embodies JM’s culture and values.
A human periodic table To celebrate the 150th year of chemistry’s most iconic image in true JM style, we created our very own human periodic table. With a little help from 150 finalists, judges and guests under one giant blue whale, we snapped the memorable image from the balcony above Hintze Hall at London’s Natural History Museum.
Johnson Matthey Annual Report and Accounts 2019 75 Strategic Report
Johnson Matthey 76 Annual Report and Accounts 2019 Financial performance review Report Strategic Group performance review
Reported results Year ended 31st March 2019 2018 % change Revenue1 £ million 10,745 10,274 +5 Operating profit £ million 531 359 +48 Profit before tax (PBT) £ million 488 320 +53 Earnings per share (EPS) pence 215.2 155.2 +39 Ordinary dividend per share pence 85.5 80.0 +7
Underlying performance2 Year ended 31st March % change, 2019 2018 % change constant rates3 Sales excluding precious metals (Sales)4 £ million 4,214 3,846 +10 +10 Operating profit £ million 566 525 +8 +8 Profit before tax £ million 523 486 +8 +7 Earnings per share pence 228.8 208.4 +10
Notes 1 Revenue for the year ended 31st March 2018 has been restated, see note 39 on page 220. 2 Underlying is before profit or loss on disposal of businesses, gain or loss on significant legal proceedings together with associated legal costs, amortisation of acquired intangibles, major impairment and restructuring charges and, where relevant, related tax effects and significant tax rate changes. For definitions and reconciliation of other non-GAAP measures, see note 4 on page 179. 3 Unless otherwise stated, sales and operating profit commentary refers to performance at constant rates. Growth at constant rates excludes the translation impact of foreign exchange movements, with 2017/18 results converted at 2018/19 average exchange rates. 4 Revenue excluding sales of precious metals to customers and the precious metal content of products sold to customers.
Summary
Underlying performance2 Reported results • Sales grew 10% and underlying operating profit grew 8% • Reported revenue increased 5%. 3 at constant rates driven by strong growth in Clean Air. • Reported operating profit was £531 million, up 48%. In the • Underlying EPS was up 10% and ahead of operating profit, prior year, we recognised a major impairment and restructuring benefiting from a lower tax rate. charge of £90 million, and a legal settlement of £50 million. • Free cash was an outflow of £13 million, impacted by • Reported EPS was therefore up 39%, reflecting the higher platinum group metal (pgm) refinery downtime, driving operating profit in the current year. higher precious metal working capital and higher capex. • Cash inflow from operating activities was £334 million. • Average working capital days excluding precious metals • Recommended ordinary dividend up 7% to 85.5 pence for improved by three days to 59 days. the full year, reflecting our strong performance and • Return on invested capital (ROIC)*, excluding net pension confidence in the group’s future prospects. assets, decreased from 17.0% to 16.4% mainly due to higher precious metal working capital. • Strong balance sheet with net debt of £866 million; net * Underlying operating profit divided by the monthly average of equity, excluding post tax pension net assets, plus net debt for the same period. We have changed our definition of debt to EBITDA of 1.3 times. ROIC to exclude net pension assets as these are not operating assets.
Johnson Matthey Annual Report and Accounts 2019 77 Strategic Report Sector performance review Performance summary by sector
Clean Air Efficient Natural Resources
£2,720m £393m £991m £181m Sales1 +11%2 Operating profit3 +13%2 Sales1 +4%2 Operating profit3 +15%2
Sales1 by business Sales1 by business Other HDD Asia 2% Diagnostic Services 5% 7% LDV Americas HDD Europe 13% Advanced Glass 12% Technologies 8% Catalyst Technologies HDD Americas Pgm Services 57% 17% LDV Europe 28% 38% LDV Asia 13% Heavy Duty Diesel (HDD) Light Duty Vehicles (LDV) 34% 64%
• A global leader providing catalysts to reduce harmful emissions • Creating value from efficient use and transformation of critical natural from vehicles. 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. additives, licenses process technology and delivers services to the • Heavy Duty Diesel – catalyst systems for diesel powered trucks and chemical and oil & gas industry. buses and non-road machinery. • Pgm Services – marketing, distribution, refining and recycling of • Other – catalyst systems for stationary equipment. pgms, fabricates products using precious metals and related materials and manufactures pgm chemicals. • Advanced Glass Technologies – precious metal pastes and enamels primarily for the automotive industry. • Diagnostic Services – for the oil and gas industry.
Customer profile Customer profile • Car companies. • JM businesses and their customers. • Heavy duty truck and engine manufacturers. • Chemical companies. • Local Chinese producers. • Engineering contractors. • Global customer base. • Oil and gas companies. • Industrial pgm users. Major competitors • End of life autocatalyst collectors. • Automotive industry suppliers. • BASF • Umicore • Cataler Major competitors
Margin 14.4% • Haldor Topsøe • Albemarle • Umicore Return on invested capital 30.0% • Clariant • Grace • Ferro • BASF • UOP • DuPont Employees 5,919 • Lurgi • Heraeus
1 Sales excluding precious metals. Margin 18.3% 2 At constant rates (see note 3 on page 77). 3 Underlying (see note 2 on page 77). Return on invested capital 12.6% Employees 3,645 Johnson Matthey 78 Annual Report and Accounts 2019 Efficient Natural Resources Health New Markets Strategic Report Strategic
£181m £257m £43m £362m £2m Operating profit3 +15%2 Sales1 +3%2 Operating profit3 -4%2 Sales1 +17%2 Operating profit3 -85%2
Sales1 by business Sales1 by business
Other 10%
Innovators Life Science 33% Technologies Generics 14% Alternative Powertrain 67% 57% Medical Device Components 19%
• Leading provider of solutions to the complex problems of both • Accessing new areas of potential growth aligned to global priorities of generic and innovator companies. cleaner air, improved health and more efficient use of natural resources. • Develops and manufactures active pharmaceutical ingredients (APIs) • Alternative Powertrain – provides battery materials, including eLNO, for a variety of treatments. our leading ultra high energy density cathode material, for automotive • Operates in the large and growing outsourced small molecule applications, battery systems for a range of applications and fuel cell API market. technologies. • Medical Device Components – leverages our science and technology to develop products found in devices used in medical procedures. • Life Science Technologies – provides advanced catalysts to the pharmaceutical and agricultural chemicals markets.
Customer profile Customer profile • Generic pharmaceutical companies. • Automotive and heavy duty vehicle companies. • Innovator pharmaceutical companies. • Lithium-ion cell manufacturers. • Fuel cell manufacturers. Major competitors • High performance cordless tool and niche transport manufacturers. • Medical device companies. • Noramco • Cambrex • Hovione • Pharmaceutical, fine chemical and agrochemical companies. • Francopia • AMRI • Almac • Siegfried • Alcami Major competitors
• Umicore • BMZ • Heraeus Margin 16.7% • BASF • WL Gore • Evonik Return on invested capital 9.0% • LG • 3M Employees 858 Margin 0.7% Return on invested capital 1.1% Employees 1,934
Johnson Matthey Annual Report and Accounts 2019 79 Strategic Report
Financial performance review continued
Operating results by sector Clean Air Year ended 31st March 2019 2018 % change, £ million £ million % change constant rates Sales LDV Europe 1,031 855 +20 +21 LDV Asia 361 351 +3 +3 LDV Americas 346 358 -3 -4 Total Light Duty Vehicle Catalysts 1,738 1,564 +11 +12
HDD Americas 476 395 +20 +19 HDD Europe 334 320 +4 +4 HDD Asia 128 131 -2 -1 Total Heavy Duty Diesel Catalysts 938 846 +11 +11
Other – stationary 44 44 - -
Total sales 2,720 2,454 +11 +11
Underlying operating profit 393 349 +13 +13 Margin 14.4% 14.2% Return on invested capital (ROIC) 30.0% 30.5% Reported operating profit 390 296 +32
Double digit sales growth in both LDV and HDD catalysts • Light Duty Europe sales up 21% with strong growth in both diesel and gasoline. • Achieved share gains in European light duty diesel and a market share of circa 65% at March 2019. • Light Duty Asia sales grew 3%, ahead of market production. • Light Duty Americas sales were down 4% driven by weaker diesel sales. • Sales of HDD catalysts were up 11% primarily due to continued strength in higher value US Class 8. • Operating profit was up 13% and margin improved 0.2 percentage points to 14.4%.
Light Duty Vehicle (LDV) Catalysts Sales of diesel catalysts were up 22% When these are included, the overall reflecting our market share gains and share of diesel sales in Western Europe Our LDV Catalyst business provides catalysts were significantly ahead of diesel market was 42% for 2018/19, compared with for emission control after-treatment production which declined 9% year on 49% in 2017/18. These trends do not systems that reduce emissions for cars year. As expected, we achieved the circa change our assumption of a diesel share and other light duty vehicles powered by 20 percentage point increase in our of around 25% of total light duty vehicles diesel and gasoline. The business grew market share from 45% to circa 65% by and 20% of cars in 2025. 12%, well ahead of the decline in global the end of the financial year. There was Sales of gasoline catalysts were up vehicle production. also a small benefit from higher value 18%, well ahead of market production. In Europe, where diesel accounts for sales of more complex catalyst systems. Growth was driven by an improved sales around 85% of our LDV business, sales In Western Europe, diesel accounted mix with an increased number of high grew 21% primarily driven by our diesel for 35% of new passenger car sales in value coated gasoline particulate filters market share gains. 2018/19 compared with 42% in the last (GPFs) sold in the period. We expect financial year. Light duty commercial the number of vehicles with coated vehicles remain largely diesel today. GPFs to increase in the medium term, significantly increasing our sales value per gasoline vehicle.
Johnson Matthey 80 Annual Report and Accounts 2019 The World Harmonised Light Duty Estimated LDV sales and production (number of light duty vehicles)*
Testing Procedure (WLTP) was introduced Year ended 31st March from September 2018. There was some 2019 2018 % disruption to phasing of European millions millions change automotive production and sales, but we North America Sales 20.6 20.8 -1 experienced no material impact on our
Production 16.9 16.9 - Report Strategic business in the year. In the longer term, due to the different technical requirements Total Europe Sales 20.4 20.8 -2 to meet these standards, some auto Production 22.0 22.2 -1 original equipment manufacturers (OEMs) Asia Sales 43.4 44.8 -3 have changed solutions. Consequently, as Production 47.2 48.8 -3 we previously indicated, our anticipated five percentage point market share gain Global Sales 93.0 95.8 -3 in gasoline will not be achieved by Production 91.8 94.0 -2 2020/21. We continue to increase R&D spend on gasoline catalysts given the Estimated HDD truck sales and production (number of trucks)* development of the market. Sales in Asia LDV grew at 3%, ahead Year ended 31st March of the decline in market production. 2019 2018 % thousands thousands change Within this, sales in China declined 5%, broadly in line with the market which North America Sales 615 535 +15 slowed significantly during the second Production 624 540 +16 half of our financial year. China currently Total Europe Sales 506 502 +1 represents a small portion of our Clean Production 645 653 -1 Air Sector and therefore the impact of the Chinese market decline was Asia Sales 2,257 2,297 -2 not material. Over the medium term, Production 2,298 2,314 -1 our Asian business will double in size Global Sales 3,515 3,450 +2 as we capture growth from tightening Production 3,710 3,631 +2 legislation, particularly in China and India. Sales in Americas LDV were down * Source: LMC Automotive. 4% while market production was flat. This was driven by a weaker performance in diesel following strong growth in the Sales in the Asian HDD Catalyst Outlook prior year and the ramp down of a platform. business were broadly flat, in line with We expect a year of more modest growth the market. In China, sales fell 10%, in 2019/20, weighted to the first half also in line with the market. This followed Heavy Duty Diesel (HDD) Catalysts as we realise the benefit of annualised a period of strong production growth share gains, partly offset by reinvestment Our HDD Catalyst business provides driven by increased demand for trucks into R&D, our ERP system and new catalysts for emission control as a result of loading limit legislation. manufacturing capacity. We anticipate after-treatment systems that reduce We continue to see strong sales growth that these investments for growth and emissions for trucks, buses and non-road in India from a low base. equipment. The business had another efficiency will lead to a slightly lower good year with sales growing 11%, margin than in 2018/19. Beyond Underlying operating profit significantly ahead of global market 2019/20, we expect sales and operating production, driven by strong growth in Operating profit grew 13% and margin profit growth to be increasingly driven the higher value US Class 8 market. improved by 0.2 percentage points, by the introduction of new legislation The Americas HDD Catalyst business benefiting from volume leverage. in China and India. grew sales 19%. Sales of catalysts for Class 8 trucks were broadly in line with ROIC market production of 22% and we ROIC, excluding net pension assets, was continue to expect high levels of down slightly at 30.0% reflecting higher production to peak in the middle of the precious metal working capital. 2019 calendar year. Sales in our European HDD Catalyst business grew 4%, ahead of the market. This outperformance was driven by the increase in the proportion of sales related to higher value non-road extruded products.
Johnson Matthey Annual Report and Accounts 2019 81 Strategic Report
Financial performance review continued
Efficient Natural Resources Year ended 31st March 2019 2018 % change, £ million £ million % change constant rates Sales Catalyst Technologies 567 564 - +1 Pgm Services 281 253 +11 +10 Advanced Glass Technologies 75 82 -9 -9 Diagnostic Services 68 57 +21 +24 Total sales 991 956 +4 +4
Underlying operating profit 181 158 +15 +15 Margin 18.3% 16.5% Return on invested capital (ROIC) 12.6% 11.8% Reported operating profit 175 138 +27
Growth in sales and margin improved • Sales growth driven by double digit growth in catalyst refills and higher average pgm prices, partly offset by lower catalyst first fills. • Operating profit grew strongly and margin improved by 1.8 percentage points to 18.3%, benefiting from higher average pgm prices and net benefits from improved efficiency partly offset by reinvestment in the safety and resilience of our pgm refineries and weaker performance in Advanced Glass Technologies.
Catalyst Technologies In the year, licensing income was stable In the period, we had unscheduled and activity around new plant builds, downtime in one of our pgm refineries Our Catalyst Technologies business particularly for the technologies we which, in conjunction with higher licenses technology and manufactures license, remains subdued. We signed average pgm prices, resulted in a speciality catalysts and additives for the five new licences in the period which significant increase in precious metal chemicals and oil and gas industries. include our newly developed technologies working capital. We expect to make Sales were broadly flat with double digit such as mono ethylene glycol and waste progress in reducing our precious metal growth in refill catalysts offset by lower to aviation fuel. Whilst we do not expect working capital in our refineries during sales from first fill catalysts while a material recovery in licensing income 2019/20 and anticipate being at licensing was stable at a low level. in the near term, we are pleased with normalised levels by the end of 2020/21. Refill catalysts and additives is our progress in developing and We are improving the performance of recurring business which makes up the commercialising new technologies. our refineries and, as previously stated, majority of sales within our Catalyst we are investing to ensure our assets Technologies business. Sales grew operate effectively and reliably, improving double digit, outperforming our markets Pgm Services returns. This programme amounts to in aggregate. We saw very strong Our Pgm Services business primarily around £100 million over three years performance in methanol but weaker provides a strategic service to the group, and is already included within our group performance in ammonia, primarily mainly supporting Clean Air with security capex guidance. driven by the phasing of customers’ of metal supply in a volatile market. orders. There was also good growth, This business is expected to grow at above the market, in catalysts for low single digits over the medium term. Advanced Glass Technologies petrochemical and hydrogen plants. It comprises our pgm refining and Advanced Glass Technologies mainly Sales of catalyst first fills were recycling activities and produces chemical provides black obscuration enamels significantly down. These are one-off in and industrial products containing pgms. and silver paste for automotive glass nature and driven by the start up of new In the period, sales grew 10%. We applications. Sales declined primarily plants. Sales of methanol first fills were saw strong growth in our refining and driven by the automotive segment lower following increased activity in trading businesses due to higher and reflecting a slowdown in global car 2017/18 as industry capacity came on more volatile average pgm prices. production and weaker performance in stream and hydrogen first fills were also Average palladium and rhodium prices China, partly due to destocking in the down reflecting a large order in 2017/18. were up 20% and 83% respectively, supply chain. Demand for non-automotive Our licensing business is dependent while the platinum price declined 11% enamels and ceramics was also lower. on new plant builds and income is compared to the same period last year. recognised over the period of construction. Sales of chemical products grew slightly driven by growth in Clean Air which uses pgm materials in its catalyst products. However, sales of industrial products containing pgms were down. Johnson Matthey 82 Annual Report and Accounts 2019 Diagnostic Services Underlying operating profit ROIC Diagnostic Services provides specialised Operating profit was up 15% and margin ROIC, excluding net pension assets was detection, diagnostic and measurement improved by 1.8 percentage points, up by 0.8 percentage points to 12.6% solutions for our customers in the benefiting by around £16 million from reflecting higher operating profit. petroleum industry. Our Diagnostic higher pgm prices, around £7 million Services business grew strongly. The of savings from the restructuring Outlook higher oil price drove greater activity in programme and further net benefits the upstream oil and gas industry leading from improved efficiency across the In 2019/20, we expect sales growth with to higher capital investment and sector of which around £5 million will operating profit growth ahead of sales as increased operating expenditure by our not repeat. This was partly offset by we continue to drive efficiencies in our customers. This resulted in improved higher operating costs in the pgm business and maintain our focus on higher growth segments. demand for our services. refineries and investment in their safety Report Strategic and resilience.
Health Year ended 31st March 2019 2018 % change, £ million £ million % change constant rates Sales Generics 171 173 -1 -2 Innovators 86 74 +16 +14 Total sales 257 247 +4 +3
Underlying operating profit 43 44 -3 -4 Margin 16.7% 18.0% Return on invested capital (ROIC) 9.0% 8.4% Reported operating profit / (loss) 50 (12) n/a
Sales growth with operating profit slightly down • Generics sales were broadly flat whilst Innovators continued to grow. • Operating profit was slightly down as expected and margin was 1.3 percentage points lower. This was mainly due to a weaker product mix because of a continued decline in high margin products as they moved through their lifecycle and net costs associated with footprint optimisation. • There are 46 molecules in our generic API pipeline, which includes one launch in the year. We remain on track to deliver an additional £100 million of operating profit by 2025.
Generics Our non-controlled APIs declined API product pipeline as expected. This primarily reflected a Our Generics business develops and We continued to invest in our new reduction in sales of dofetilide as new manufactures generic active product pipeline across both our competitors for our customer entered pharmaceutical ingredients (APIs) for a Generics and Innovators businesses, and the market. variety of treatments. Sales were broadly this is substantially on track. We have flat, with a mixed performance across 46 products in our pipeline of generic the business. Innovators APIs (31st March 2018: 39 products), Sales of controlled APIs grew slightly. Our Innovators business performed well. which includes one product that launched We saw sales growth in bulk opiates in We saw growth from sales of APIs where in the year and four that moved into Europe with strong demand from one our customers are increasing volumes as regulatory stage. Within our pipeline key customer following a weaker prior they move into late stage testing ahead of innovator APIs, three products are year. Sales of speciality opiates also grew, of commercialisation. nearing commercial launch with new primarily driven by buprenorphine with In the period, we also announced a drug approvals (NDAs) filed with the higher volumes supported by increased strategic manufacturing partnership with FDA by our customers. capacity from the ramp up of our Immunomedics for the manufacture of a manufacturing site in Annan, UK. Our drug linker used in the production of an sales of APIs for ADHD treatments were immuno-oncology treatment for triple flat. Although we saw a reduction in negative breast cancer. The drug is pricing and volumes of certain high currently under review with the US Food margin ADHD APIs as they move through and Drug Administration (FDA). their natural lifecycle, we benefited from a new customer launch following a recent product approval.
Johnson Matthey Annual Report and Accounts 2019 83 Strategic Report
Financial performance review continued
Underlying operating profit ROIC Outlook Operating profit was slightly down and Return on invested capital, excluding net In 2019/20, we expect sales to be broadly margin decreased by 1.3 percentage pension assets, improved 0.6 percentage stable whilst operating profit will grow points. This mainly reflected a significant points to 9.0% due to footprint double digit, primarily due to cost savings decline in high margin products as they optimisation. associated with footprint optimisation. moved through their natural lifecycle. Operating profit was also impacted by net costs associated with the optimisation of our manufacturing footprint due to the closure of Riverside, US and ramp up of Annan, UK. Whilst the optimisation delivered savings of £15 million in the year and will deliver significant benefits over the medium term, associated one-off costs in the period outweighed early savings.
New Markets Year ended 31st March 2019 2018 % change, £ million £ million % change constant rates Sales Alternative Powertrain 206 156 +32 +33 Medical Device Components 70 74 -5 -6 Life Science Technologies 49 45 +10 +12 Other 37 37 -1 -1 Total sales 362 312 +16 +17
Underlying operating profit 2 17 -85 -85 Margin 0.7% 5.3% Return on invested capital (ROIC) 1.1% 7.9% Reported operating loss (15) (20) +29
Strong sales growth; commercialisation of eLNO on track • Sales growth driven by strong demand for our non-automotive battery systems and fuel cells. • Operating profit declined 85% due to further investment in our Battery Materials business and weaker profitability in Medical Device Components. • Continued progress in commercialising eLNO with board approval for the initial capital investment and site selection for our first commercial plant.
Alternative Powertrain Commercialisation of eLNO Consequently, we have been tailoring eLNO for our customers and now have Our Alternative Powertrain business We are making good progress in the a portfolio of materials. As we progress provides battery systems for a range of development and commercialisation of through various stages of testing, we will applications, fuel cell technologies and eLNO which will compete with future work with customers to test eLNO in their battery materials for automotive materials such as NMC 811. own specific applications. To facilitate applications. Our battery materials We continue to test our materials this, we are constructing three customer business comprises lithium iron with our target customers and feedback application centres – two in the UK and phosphate (LFP) materials as well as remains very positive. It is especially one in Japan. One of the UK centres will eLNO, our portfolio of leading ultra high pleasing that as the market for be completed in 2019 and the remaining energy density materials. Alternative cathode materials develops, auto two centres will be completed in 2020. Powertrain sales grew over 30% driven OEMs are increasingly looking for by significant growth in battery systems customised solutions to solve their for e-bikes and continued momentum specific problems, which plays to our in fuel cells. strengths in science and technology.
Johnson Matthey 84 Annual Report and Accounts 2019 In scaling up, we have moved from Underlying operating profit lab scale to our pilot plant which is now Operating profit declined 85% and complete. We recently selected a site in margin reduced by 4.6 percentage points Poland for the first 10,000 metric tonnes to 0.7%. This was impacted by higher commercial plant, which has the potential costs in our Battery Materials business as for expansion to 100,000 metric tonnes, we continue to build strategic customer Report Strategic and we are carefully considering how we relationships to support commercialisation scale beyond our initial 10,000 metric of eLNO. The margin was further affected tonnes. We also signed our first long term by the quality issues and dual sourcing supply agreement for raw materials with in Medical Device Components and a Nemaska Lithium. strong increase in lower margin Battery Systems sales. Lithium iron phosphate In battery materials, sales of lithium iron ROIC phosphate remained at a low level and were flat year on year. ROIC declined to 1.1% reflecting lower operating profit. Fuel Cells Fuel Cells is now profitable, with Outlook improved demand for non-automotive New Markets is expected to deliver sales applications and new business wins in and operating profit growth in 2019/20. China resulting in sales growth of 41%. We are also investing in new capacity to support growth in demand.
Medical Device Components Our Medical Device Components business leverages our science and technology to develop products found in devices used in medical procedures. Sales declined 6% due to quality issues which have now been resolved and an increase in dual sourcing from our customers.
Life Science Technologies Our Life Science Technologies business provides advanced catalysts to the pharmaceutical and agricultural chemicals markets. Sales grew 12% in the period, supported by sales to two large customers.
Johnson Matthey Annual Report and Accounts 2019 85 Strategic Report Financial review
Overall, we have had a good year and, despite challenges in some of our end markets, we are doing exactly as we said. At constant rates, our sales excluding precious metals were up 10% and underlying operating profit was up 8%. Underlying EPS was up 10% and the board has recommended an increase of 7% in the final dividend. Further aspects of the group’s financial performance in 2018/19 are outlined below.
IFRS 15 and related statements Research and development (R&D) IFRS 15, Revenue from Contracts with Customers, is effective for We invested £190 million in R&D in the period, including annual reporting periods beginning on or after 1st January 2018 £19 million of capitalised R&D, around 5% of sales. Spend and replaces IAS 18, Revenue. IFRS 15 provides a principles-based was broadly flat partly due to more focused investment. Key approach for revenue recognition. As part of considering the areas of spend included next generation technologies in Clean impact of IFRS 15 we have also performed a detailed review of Air, improving the efficiency and resiliency of our refineries in how we account for commodity contracts, which has resulted Efficient Natural Resources, our Health API product pipeline in a change to the way we are presenting our accounts. and investment in our eLNO battery material. We have concluded that swaps and sale and repurchase agreements entered into by our Platinum Group Metals Services Foreign exchange business within Efficient Natural Resources should not be included within statutory revenue. Consequently, we have The calculation of growth at constant rates excludes the impact excluded these transactions from statutory revenue in 2019, of foreign exchange movements arising from the translation of and we have also fully restated the prior year financial overseas subsidiaries’ profit into sterling. The group does not statements to reflect these changes. This results in both years hedge the impact of translation effects on the income statement. now being presented on a consistent basis. The principal overseas currencies, which represented 85% The impact of these restatements is to reduce revenue and of non-sterling denominated underlying operating profit in the cost of sales by £3.9 billion for the year ended 31st March 2018. year ended 31st March 2019, were: There is no impact on sales excluding precious metals, operating Share of 2018/19 Average exchange rate profit, working capital, cashflows or net assets. The overall non-sterling denominated Year ended 31st March underlying operating profit impact on equity is less than £5 million. Historic business 2019 2018 % change performance measures communicated by Johnson Matthey US dollar 39% 1.310 1.328 -1 are unchanged. Full details are given in note 39 on page 220. Euro 37% 1.134 1.134 – Chinese renminbi 9% 8.81 8.79 – IFRS 16 Overall, for the year as a whole, the impact of exchange IFRS 16 is effective from 1st April 2019 and replaces IAS 17, rates decreased sales by £3 million and increased underlying Leases. There is no impact on the year ended 31st March 2019. operating profit by £1 million, following a £27 million and a Upon transition, the group will recognise right-of-use assets £4 million decrease respectively in our first half. and lease liabilities of approximately £75 million on the If current exchange rates (£:$ 1.295, £:€ 1.157, balance sheet. £:RMB 8.72) are maintained throughout the year ending For the year ending 31st March 2020, we anticipate an 31st March 2020, foreign currency translation will have a increase in underlying operating profit of £2 million and an negative impact of approximately £2 million on underlying additional interest cost of £3 million. Consequently, the group operating profit. A one cent change in the average US dollar estimates that profit before tax will be reduced by approximately and euro exchange rates each have an impact of approximately £1 million for the year ending 31st March 2020 as a result of £2 million on full year underlying operating profit and a ten adopting IFRS 16. fen change in the average rate of the Chinese renminbi has an impact of approximately £1 million. Corporate Corporate costs in the period were £53 million, an increase Pgm prices of £10 million from 2017/18 due to higher legal costs and Higher average pgm prices benefited operating profit by around costs associated with building further capability within group £16 million in the period in Efficient Natural Resources. functions. Corporate costs are expected to be slightly higher in 2019/20.
Johnson Matthey 86 Annual Report and Accounts 2019 Initiative Achieved in Achieved £ million Total the year to date Procurement 60 26 28 Restructuring 25 12 24 Footprint optimisation 20 15 15 Total 105 53 67 Strategic Report Strategic
Major impairment and restructuring charges We had no major impairment and restructuring charges in the year ended 31st March 2019. Cash spend in relation to ongoing restructuring in 2018/19 was £8 million. Our group restructuring programme is expected to deliver annualised cost savings of around £25 million and is substantially complete, having delivered £24 million of savings in 2018/19. The closure of our manufacturing plant in Riverside, US, is now complete and we expect to deliver annualised cost savings of £20 million, having delivered £15 million of savings in 2018/19. See below for a breakdown showing the cost, cash costs and cost savings achieved to date:
Impairment and Year ended 31st March 2019 restructuring £ million credit Cash costs Anna Manz Group restructuring programme (1) 5 Chief Financial Officer Health – Closure of Riverside, US (7) 3 Total (8) 8 Reconciliation of underlying operating profit to operating profit (£ million) Impairment and Year ended 31st March 2018 restructuring Year ended 31st March £ million charge Cash costs 2019 2018 Group restructuring programme 43 19 Underlying operating profit 566 525 Health – Closure of Riverside, US 36 4 Loss on disposal of businesses1 (12) (7) New Markets – Impairment of Water 11 – 1 Loss on significant legal proceedings (17) (50) Total 90 23 Amortisation of acquired intangibles (14) (19) Major impairment and 1 restructuring charges 8 (90) Loss on disposal of businesses Operating profit 531 359 Profit or loss on disposal of businesses is shown separately on 1 For further details on these items please see notes 5 and 6 on page 179 and note 8 the face of the income statement and excluded from underlying on page 180. operating profit. On 1st February 2019, the group sold its water disinfection business, Miox. After costs, the net proceeds were Summary of efficiency initiatives £2 million which resulted in a loss on sale of £12 million. In the prior year, the group sold its UK automotive battery systems Global procurement – as our global procurement process business. After costs, the net proceeds were £5 million which builds, we are beginning to realise benefits and are on track to resulted in a loss on sale of £7 million. deliver the expected £60 million of savings over three years, with three quarters benefiting the income statement. In 2018/19, we achieved £26 million of savings, of which £19 million Finance charges benefited the income statement. We anticipate a similar level of savings in 2019/20. Net finance charges in the period amounted to £43 million, up from £38 million in 2017/18. This was primarily driven by Group restructuring programme – this is substantially higher precious metal funding costs following downtime during complete with delivery of the vast majority of annualised cost the first half in one of our pgm refineries. savings of around £25 million. We anticipate that net finance charges will be significantly Health footprint optimisation – closure of our manufacturing higher in 2019/20 due to higher average net debt as we invest plant in Riverside, US, is now complete as we build our platform for future growth, higher precious metal funding costs and the for breakout growth. impact of IFRS 16.
Johnson Matthey Annual Report and Accounts 2019 87 Strategic Report
Financial review continued
Taxation Post-employment benefits The effective tax rate on reported profit for the year was IFRS – accounting basis 15.3%, up from 6.9% for the year ended 31st March 2018. At 31st March 2019, the group’s net post-employment benefit The tax charge on underlying profit before tax was position, after taking account of the bonds held to fund the £83 million, an effective tax rate of 15.9%, down from UK pension scheme deficit, was a surplus of £159 million. 17.7% for the year ended 31st March 2018. This decrease The cost of providing post-employment benefits in the was primarily due to changes in the US tax legislation and period was £56 million, down from £69 million last year, the mix of profits by country. primarily reflecting a decrease in the current service cost due We currently expect the tax rate on underlying profit for to a change derisking the UK plan. the year ending 31st March 2020 to be around 16%. On 26th October 2018, the High Court ruled that UK defined benefit pension schemes should be amended to Our approach to tax equalise pension benefits for men and women in relation Johnson Matthey has developed a reputation over the last to guaranteed minimum pensions. The past service credit 200 years for integrity and our people take pride in doing the includes a charge of £1 million in respect of this ruling. The right thing across all aspects of our business. These principles additional liabilities have been treated as a plan amendment underpin our approach to the management of tax. and, therefore, this past service cost has been reflected in We want to be clear and open on our approach so that our the income statement. stakeholders understand it. Today we have operations in over 30 countries and, for each of those countries, we endeavour Actuarial – funding basis to pay our fair share of tax. We follow the laws of the relevant The UK pension scheme has a legacy defined benefit career country and our group tax strategy so that we pay the correct average section which was closed to new entrants on and appropriate amount of tax at the right time. 1st October 2012 when a new defined benefit cash balance Through implementation of our tax strategy we plan to: section was opened. The last triennial actuarial valuation of the career average • Optimise global tax incentives and exemptions, such as section as at 1st April 2018 revealed a deficit of £34 million, those which support the research and development of our or a surplus of £9 million after taking account of the future next generation of sustainable technologies. We will only additional deficit funding contributions from the special engage in tax planning which is supported by a clear purpose vehicle set up in January 2013. The valuation results commercial rationale. as at 1st April 2018 allowed for the equalisation of Guaranteed • Have clear and consistent tax policies and procedures to Minimum Pension. support our business strategy. All our tax policies and The last triennial actuarial valuation of the cash balance guidelines are managed and maintained by our professional section as at 1st April 2018 revealed a surplus of £0.2 million. tax function which is supported by external advisers. This In order to reduce the company’s long term pension risk ensures compliance and allows us to properly respond to exposure a number of changes to the UK pension scheme global tax changes and developments. became effective from 1st July 2018, including: • Proactively identify, evaluate, manage and monitor tax • Contributions from those employees who remain in the risks arising from our business operations to ensure they career average section increased and will further rise over remain in line with the group’s risk appetite, seeking the next few years to help fund the increased cost of external advice where necessary. providing these benefits. • Ensure that all tax returns are accurate, complete and are • The accrual rate in the career average section reduced submitted in a timely manner through the activation of from 1/80th to 1/100th for each year of future service a thorough tax risk compliance management process. after this date. • Maintain open, positive and cooperative relationships with governments and global tax authorities. • New benefit levels with varying employee contribution rates were introduced in the cash balance section. We also partake in constructive discussions on taxation policies that are relevant to our business. The board approves our tax • Employees in the career average section were given the strategy each year and reviews compliance against it on a option of switching to the cash balance section. regular basis. That way, our strategy will encompass any learning and remain relevant and consistent with our values. The tax The latest actuarial valuations of our two US pension schemes strategy satisfies the requirements of UK Finance Act 2016. showed a deficit of £2 million at 1st July 2018, an improvement In line with our code of ethics and commitment to doing from an £11 million deficit at 1st July 2017. the right thing, together with the requirements of Part 3 of The Criminal Finances Act 2017, we have taken steps to put Capital expenditure in place adequate procedures to prevent the facilitation of Capital expenditure was £323 million in the year, 2.1 times tax evasion. depreciation and amortisation (excluding amortisation of acquired intangibles). In the period, projects included: • Clean Air manufacturing plants in Poland, China and India. This increased capacity will drive efficiency and improve flexibility, enabling us to support demand from tightening legislation in Europe and Asia.
Johnson Matthey 88 Annual Report and Accounts 2019 • Investment in development and commercialisation of eLNO. Capital structure We completed our pilot plant and began construction of Net debt at 31st March 2019 was £866 million. This is a three customer application centres – two in the UK and decrease of £170 million from 30th September 2018 and an one in Japan. We selected a site in Poland for the first increase of £187 million from 31st March 2018. Net debt 10,000 metric tonnes commercial plant, which has the increases to £912 million when adjusted for the post tax potential for expansion to 100,000 metric tonnes. The first pension deficits. The group’s net debt (including post tax Report Strategic commercial plant is on track to start production in 2021/22 pension deficits) to EBITDA was 1.3 times (31st March 2018: and supply platforms in production in 2022/23. 1.1 times). Our target range is 1.5 to 2.0 times, as this ensures • Upgrading our core IT business systems. we have flexibility to invest further in the future growth of • Investment in our Health manufacturing and development the business. facilities in Annan, UK and continued investment in our API product pipeline. Contingent liabilities • Improving the efficiency and resilience of our pgm The group is involved in various disputes and claims which arise refineries within Efficient Natural Resources. from time to time in the course of its business including, for example, in relation to commercial matters, product quality Capital expenditure for 2019/20 is expected to be up to or liability, employee matters and tax audits. The group is also £500 million as our investments into growth projects increase. involved from time to time in the course of its business in Key projects include: legal proceedings and actions, engagement with regulatory • Investment in eLNO as we continue to commercialise our authorities and in dispute resolution processes. These are market-leading ultra high energy battery cathode material. reviewed on a regular basis and, where possible, an estimate • Clean Air plants in Poland, China and India to meet the is made of the potential financial impact on the group. In growing demand. appropriate cases a provision is recognised based on advice, best estimates and management judgement. Where it is too • Upgrade of our IT systems as we continue to roll out our early to determine the likely outcome of these matters, no single global ERP system, with eight roll outs in 2019/20. provision is made. Whilst the group cannot predict the outcome Depreciation and amortisation (excluding amortisation of of any current or future such matters with any certainty, it acquired intangibles) is expected to increase by around currently believes the likelihood of any material liabilities to £16 million in 2019/20 primarily as we depreciate our be low, and that such liabilities, if any, will not have a material investment in upgrading our core IT systems. adverse effect on its consolidated income, financial position or cash flows. Free cash flow and working capital On a specific matter, Johnson Matthey previously disclosed that it had been informed by two customers of failures in Free cash flow was an outflow of £13 million. This was due to a certain engine systems for which the group supplied a particular working capital outflow of £224 million, of which £198 million coated substrate as a component for their customers’ emissions related to precious metal primarily reflecting downtime at one after-treatment systems. The particular coated substrate was of our pgm refineries during the first half. sold to only these two customers. Johnson Matthey has not Excluding precious metal, working capital days improved been contacted by any regulatory authority about these engine to 48 days compared to 50 days at 31st March 2018, better system failures. The reported failures have not been demonstrated than our target for year-end working capital days excluding to be due to the coated substrate supplied by Johnson Matthey. precious metal of 50 to 60 days. In the period, we settled with one of these customers on Average working capital days excluding precious metals mutually acceptable terms with no admission of fault. Under improved by three days to 59 days, despite planned inventory this settlement, Johnson Matthey recognised a charge of build ahead of the first implementation of SAP and the UK’s £17 million in the year ended 31st March 2019 and made planned withdrawal from the European Union. the associated cash settlement post year end. This charge has been excluded from underlying operating profit. Dividend Having reviewed its contractual obligations and the The board has recommended an increase of 7% in the final information currently available to it, the group believes it has dividend to 62.25 pence per share. Together with the interim defensible warranty positions in respect of its supplies of coated dividend of 23.25 pence per share this gives a total ordinary substrate for the after-treatment systems in the affected dividend for the year ended 31st March 2019 of 85.5 pence engines remaining at issue (as it believes it had in respect of the per share (2017/18: 80.0 pence per share). Subject to approval matter settled in the period). If required, it will vigorously assert by shareholders, the final dividend will be paid to shareholders its available contractual protections and defences. The outcome on 6th August 2019, with an ex dividend date of 6th June 2019. of any discussions relating to the matters raised is not certain, nor is the group able to make a reliable estimate of the possible financial impact at this stage, if any. While Johnson Matthey Return on invested capital (ROIC) works with all its customers to ensure appropriate product ROIC excluding net pension fund assets slightly declined to quality, we have not received claims in respect of other emissions 16.4% from 17.0% at 31st March 2018 driven by higher after-treatment components from these or any other customers. precious metal working capital. ROIC including net pension Our vision is for a world that’s cleaner and healthier; today and fund assets would have been 15.4% compared with 16.4% for future generations. We are committed to improving air quality at full year 2017/18. and we work constructively with our customers to achieve this.
Johnson Matthey Annual Report and Accounts 2019 89 Strategic Report Treasury policies and going concern
Treasury policies and financial Going concern Interest rate risk risk management The directors have assessed the future At 31st March 2019 the group had net Group Treasury is a centralised function funding requirements of the group and borrowings of £866 million of which 94% within JM based in the UK and US. The the company and compared it to the level was at fixed rates with an average role of Group Treasury is to secure of long term debt and committed bank interest rate of 3.1%. The remaining 6% funding for the group, manage financial facilities for the 15 months from the of the group’s net borrowings was funded risks and provide treasury services to the balance sheet date. The assessment on a floating rate basis. A 1% change in group’s operating businesses. Group included a sensitivity analysis on the key all interest rates would have an immaterial Treasury is run as a service centre rather factors which could affect future cash impact on underlying profit before tax. than a profit centre. The group does not flow and funding requirements. Having undertake any speculative trading activity undertaken this work, the directors are of Precious metal prices in financial instruments. the opinion that the group has adequate resources to fund its operations for the Fluctuations in precious metal prices have an impact on JM’s financial results. Funding and liquidity risk foreseeable future and so determine that it is appropriate to prepare the accounts Our policy for all manufacturing The group’s policy on funding capacity is on a going concern basis. businesses is to limit this exposure by to ensure that we always have sufficient hedging against future price changes where such hedging can be done at long term funding and committed bank Foreign currency risk facilities in place to meet foreseeable acceptable cost. The group does not take peak borrowing requirements. JM’s operations are located in over 30 material exposures on metal trading. At 31st March 2019 the group had locations, providing global coverage. A A proportion of the group’s precious cash and cash equivalents of £378 million significant amount of profit is earned metal inventories are unhedged due to and £597 million of undrawn committed outside the UK. In order to protect the the ongoing risk over security of supply. bank facilities available to meet future group’s sterling balance sheet and reduce funding requirements. The group also cash flow risk, the group has financed a Credit risk has a number of uncommitted facilities, significant portion of its investment in The group is exposed to credit risk on its including overdrafts and metal lease the US and Europe by borrowing US commercial and treasury activities. lines, at its disposal. The maturity dates dollars and euros respectively. In both cases, counterparties are of the group’s debt and committed Additionally, the group uses foreign assessed against the appropriate credit borrowing facilities as at 31st March 2019 currency swaps to hedge a portion of its ratings, trading experience and market are illustrated in the chart below. assets. The group uses forward exchange position. Credit limits are then defined Of the committed bank facilities, contracts to hedge foreign exchange and exposures monitored against £114 million have a final maturity date exposures arising on forecast receipts and these limits. In treasury and precious within the 15 months to 30th June 2020 payments in foreign currencies. Details of metal management, these exposures (the going concern period). These will the contracts outstanding on 31st March include the mark to market of be refinanced in the first quarter of 2019 are shown on pages 192 and 207. outstanding transactions and potential 2019/20 for a further three years with settlement risks. long term relationship banks. In addition, + £107 million term debt matures in + Pages+ 93 to 96: Our principal risks December 2019 which was pre-financed + in 2018/19 r r r
Maturity profile of debt facilities k k k
2,000 1,800 1,600 1,400 1,200
1,000 Net debt at 31st March 2019 800 600 400 200 0 March March March March March March March March March March March 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029
Private placement notes KfW loans EIB loans Committed bank facilities
Johnson Matthey 90 Annual Report and Accounts 2019 Risks and uncertainties
A holistic approach to managing risk The effective management of risk enables JM to: Risk is central to the creation and delivery of our strategy. • Deliver our strategic objectives. We have an established risk management and internal controls • Improve our decision making, planning and prioritisation. framework to identify, assess, mitigate and monitor the risks and uncertainties facing our business which enables us to • Pursue opportunities while continuing to mitigate our risks
create and protect value. Our approach to risk provides in a rapidly changing external environment. Report Strategic meaningful challenge to our sectors, functions and to our • Implement controls to mitigate or prevent risks Group Management Committee (GMC) and board, to help from materialising. them make informed decisions. • Consider risk and reward and implement controls in the During the year we have: areas that matter most to us. • Comply with UK Corporate Governance Code requirements. • Scrutinised our forward looking risks which confirmed our coverage of emerging risk. Risk management framework and process • Conducted a JM-wide root cause analysis on our group and sector risks and uncertainties which has informed our audit The risk management framework incorporates both a top down plan and controls assessment. approach to identify the company’s principal risks and a bottom up approach to identify operational risks. • Explicitly identified and considered opportunities, Our board has overall responsibility for JM’s risk including them as part of our mitigations. management process. Together with the GMC, they perform • Reviewed the link between our principal risks and the policies a robust assessment of the principal risks facing the business and processes identified to mitigate them so that we could twice a year. The GMC also focuses on selected risks. The risk focus our key control questionnaire on confirming these reviews are embedded within the relevant business and / or policies and processes were embedded. functional review to ensure that the risks and our response to them is considered in the context of our strategy, our values • Implemented a ‘named owner’ requirement for individual and our strategic objectives. controls to further embed our requirements for transparency, ownership and accountability of risk. • Invested in skills and technology to further improve our risks forecasting and management capability.
Risk management framework
Top Board down 3 Has overall responsibility for the approach to risk management and internal control 3 Owns principal risks and uncertainties 3 Determines risk appetite 3 Sponsors the framework for enterprise risk management at Johnson Matthey 3 Determines the organisational risk management approach 3 Monitors the nature and extent of exposure to our principal risks
Audit Committee 3 Oversees process and review of controls testing Group Management Committee (GMC) 3 Champions risk management 3 Carries out top down identification and review 3 Develops company strategy in line with board risk appetite 3 Reports on principal risks and uncertainties to the board and on process to the Audit Committee
Sector level 3 Carries out top down review activities 3 Responsible for ensuring that sites and functional areas have developed risk registers 3 Reviews and challenges risk registers 3 Carries out continuous monitoring 3 Reports to GMC on sector risk and issues
Site / Functional areas / Programmes / Projects 3 Carries out risk identification, assessment and mitigation Bottom 3 Reports top risks to sector and Corporate Assurance and Risk up 3 Carries out regular reviews on effectiveness of existing controls and progress with control implementation
Johnson Matthey Annual Report and Accounts 2019 91 Strategic Report
Risks and uncertainties continued
Functional leaders, sector and site teams are responsible • We further embedded the bottom up risk management for identifying and assessing their risks, considering the process to ensure that our sector risks are adequately likelihood of occurrence and the potential impact to JM. Sector consolidated and reviewed by sector and group leadership risks are aggregated and analysed for trends and anomalies twice a year. across the sectors and group; this is fed back to sector • We continually reviewed internal and external environment leadership teams so that insights can be incorporated in key changes / movements at the board and GMC to ensure that activities such as strategic planning and budgeting. the top down risk management process is fully informed. The role of the Corporate Assurance and Risk team is to constructively challenge and assist sectors and functions in • We identified and considered likely opportunities to considering the range of risks identified and their materiality. leverage and ultimately create value. The team particularly focuses on the progress of mitigating • We continued to lead open and honest conversations projects and programmes, their implementation and their likely with the business to drive deeper, more informed and effectiveness in reducing risk in line with our risk appetite. challenging discussions. We are developing robust qualitative and quantitative modelling techniques to identify and assess any risks that may + + See+ pages 110 and 111 to read how these risks relate to the board activities impede delivery of our strategic objectives. All risks are described, + analysed and reported using a standardised framework across the r r r business. Likelihood of occurrence and the potential impact to Our principal risks and uncertainties the company are considered and scored using impact measures We critically assess our principal risks to ensure that we continually including financial, operational, reputational and people factors. k reflectk k on the challenges facing our business and the changes that The effectiveness and adequacy of controls are assessed regularly we need to make in response. with assigned owners and reported at least twice a year. We consider our principal risks and uncertainties alongside our strategic and business plans to ensure our risk coverage and Evolution of our framework during 2018/19 analysis supports decision making, and to inform our audit efforts. This year we sought external advice to ensure we were We continually strive to improve risk management and have managing our cyber risk effectively. We also gave specific and made the following enhancements over the last 12 months: detailed consideration as to whether metal liquidity and supply should be considered a principal risk. • To ensure greater transparency in our assessment of Ensuring a reliable supply of platinum group metals remains emerging risks and in response to the 2018 UK Corporate an area of importance for JM. This includes anticipating our Governance Code, we conducted specific risk sessions customers’ demands at the same time as having a detailed to ensure our GMC and board understood the new understanding of metal mining and supply. While the gross risk requirements, our approach and their role. associated with metal supply, price and liquidity is significant, we • We applied greater scrutiny on defining and assessing the concluded that the risk is being adequately mitigated through a effectiveness of mitigating activity. number of activities including persistent monitoring of triggers that may cause deviation from our forecasts. • We applied additional analysis on sub sector risks such as We sought external assurance on our plans to modernise root cause and correlation against their likely principal risks and improve our IT infrastructure, specifically to gain assurance to provide additional information as to where our risks are that the modernised estate would have the resilience to respond originating from and how we can effectively mitigate them. to the scale, sophistication and impact of future cyber threats.
Risk process
Identification Assessment and of risk evaluation
Risk management process
Monitoring and Determination reporting of response
Johnson Matthey 92 Annual Report and Accounts 2019 We have concluded that for the most part, our key areas of As part of the preparations, the project team conducted risk remain unchanged. In all cases, we continue to review and scenario analysis to assess the impact of individual risks and refine the documented mitigations for each risk. We continue combinations of risks, and as the probability of a hard Brexit to report whether the risk profile is increasing, decreasing or (without a transition agreement recognising the existing remaining constant. This provides our board and our shareholders trading rules) increased, the working group approved the with greater transparency and useful insight into our risks and acceleration of the project team’s contingency plans, with what we are doing about them. the primary objective of ensuring the continuity of the Report Strategic Changes, additions and remarks on our principal risks and European business across the whole business model. To that uncertainties in 2018/19: end, we remain comfortable that our current contingency planning will be effective should the UK exit the EU without • As a result of our root cause analyses, we have broadened a deal. We remain vigilant and alert to changes in the UK the scope of our former principal risk, ‘failure of significant and EU’s stance on Brexit and the potential implications sites’, specifically to recognise the vital nature of our day to these may have on our operations. day manufacturing activity, associated risks, and extensive associated controls. We have created a new ‘failure to • Battery Materials – recognising the significant strategic maintain operations’ principal risk in which ‘failure of potential of our Battery Materials business, we are creating critical sites’ has been included. a leading practice risk and governance capability to focus on managing programme and business risks. Our priority • Metal liquidity and supply – acknowledging the critical is to ensure that business and programme risks receive nature of metal raw materials to our manufacturing appropriate management attention and are addressed operations, we decided to assess whether ‘metal liquidity quickly and effectively in this complex environment. and supply’ should be a principal risk in its own right. While it • Emerging risks – understanding future risks and our was agreed that it should not, additional controls have been ability to respond is supported by all our principal risks, agreed to provide further assurance and will be managed but with specific analysis of our three forward-looking under our ‘sourcing of strategic materials’ principal risk. risks; ‘future growth’, ‘existing market outlook’ and • Brexit – although JM relies extensively on an agile, ‘maintaining competitive advantage’. As well as providing flexible supply chain, we have paid significant attention to us with assurance that our strategy is effective and the potential impact a ‘no-deal’ Brexit may bring. Our well achievable, these risks have played a central role and established Brexit working group, which is composed of a source of insight for our viability modelling. The viability number of functional and sector experts, has assessed the statement is shown on page 97. implications of a ‘no-deal’. A number of mitigating activities were put in place ahead of 29th March 2019 in preparation for this eventuality, for example through building inventory.
The following table sets out the principal risks and uncertainties facing the group, the mitigating actions we have in place. It also details any profile changes for each principal risk during the course of the year. Our risks are not listed from greatest to lowest risk. We list our strategic risks first followed by operational risks. To help understand the potential impact of our risks on our strategy, Key each risk has a GMC owner who is responsible for the risk and to ensure controls are S O adequate and prioritised effectively. Additionally, each risk is linked to one or more of our Science Operations strategy pillars – Science, Customers, Operations, People, which are annotated below. C Customers P People
1 Existing market outlook S C P Risk and impact Mitigation Changes since 2018 The impact of change in the key • Understanding the key drivers and ‘severe yet plausible’ scenarios. annual report business assumptions is either • Integrate strategic risk within the strategic planning process to Market conditions have become unplanned or unforeseen and we more uncertain since last year with enable improved consideration of different market outcomes. are not agile enough to respond. the possibility of a global slowdown. Define triggers and having formed plans in response to them. This risk would include legislative • We monitor global economic factors changes caused by Brexit, other • Monitoring changes to those drivers and adjusting business closely so that we can understand the potential effects of slower global market movements outside of plans accordingly. our predictions, and other trends or regional economies on our • Technology road mapping to understand our response to such as the imposition of tariffs, businesses and implement plans US protectionism or Chinese and evolution in our markets and associated scientific and to respond. Although a global global slowdown. technological requirements. slowdown appears more likely by consensus, JM’s portfolio infers a degree of protection, given the GMC owner variety of our investments. Anna Manz
Johnson Matthey Annual Report and Accounts 2019 93 Strategic Report
Key Risks and uncertainties continued S Science O Operations C Customers P People
2 Future growth S C O P Risk and impact Mitigation Changes since 2018 Failure to deliver planned growth • A clear strategy, which is continuously reviewed in the light annual report and value creation as outlined at of new information, and a business review process to track In executing our organic growth Capital Markets Day in September execution of that strategy. strategy, we are making major 2017 through ineffective execution. capital investments and so we are • Appropriate investment in R&D, capital projects and talent significantly enhancing our capital identified to support realisation of the strategy. GMC owner project delivery programme to manage this risk. Robert MacLeod • Project management office (PMO) to ensure appropriate governance is in place and plans are delivering to expected timelines.
3 Maintaining our competitive advantage S C O Risk and impact Mitigation Changes since 2018 Failure to maintain our competitive • Investment in our customer understanding capability. annual report advantage in existing markets, and • Continual engagement and feedback with our customers We are delivering major capability as a result, not meeting customers’ building programmes including at multiple levels within our business and theirs. evolving needs as efficiently or Commercial, Procurement and effectively as our competitors. • Research and development and capital investment processes Manufacturing Excellence. This to ensure resource is prioritised against the areas of greatest enables more effective capital GMC owner opportunity. allocation decisions. These programmes and processes are now Jane Toogood • Benchmark efficiency of business processes. largely established and our focus is on ensuring these are embedded and their benefits realised.
4 Environment, health and safety (EHS) O P Risk and impact Mitigation Changes since 2018 Our business operations are subject • Carry out robust process safety audits on high risk sites to annual report to a wide range of challenging enhance and assure the work we do to make our manufacturing Health and safety continue to be our health, safety and environmental processes as safe as possible. absolute priority across the business. laws, standards and regulations from Execution and embedding of all EHS government and non-governmental • Implement safety culture programme and behavioural standards. plans continue to be tracked and bodies around the world. • Implement process safety programme. monitored on a regular basis. If we fail to operate safely we could • Determine the cause of incidents and accidents and develop As part of our commitment to injure our people and breach remediation plans. make the world cleaner and applicable laws which could • Ensure, through ongoing investment, that equipment continues healthier, we are extending our adversely impact our employees, understanding of the impact of to be appropriate. result in lost production time and our operations with further focus potentially attract negative interest • Continued training and awareness activities. through our environmental and from the media and regulators. sustainability programmes.
GMC owner Robert MacLeod
5 Sourcing of strategic materials S C O Risk and impact Mitigation Changes since 2018 Due to the nature of our • Model alternative supply strategies with expected demand. annual report operations, JM has limited suppliers • Continually investigate alternative materials as part of research This risk now includes additional from which to source certain mitigations to enhance assurance and development. strategic raw materials including over metal liquidity and supply. This precious metals. Any significant • Review critical suppliers annually, and apply appropriate includes additional modelling and breakdown in the supply of these mitigating actions. stress testing of the market and our materials would lead to an inability metal demands of our current and • Include long term demand for precious metal in JM’s ten year to manufacture and satisfy future operations. customer demand. strategic plan. • Invest in pgm refining business. GMC owner • Further strengthen supplier relationship management and John Walker review regularly to discuss supplier capacity constraints.
Johnson Matthey 94 Annual Report and Accounts 2019 Key
S Science O Operations C Customers P People
6 People P Risk and impact Mitigation Changes since 2018 To successfully execute our • Leadership development programmes. annual report strategy and deliver growth, we • Embed JM values and behaviours in all internal processes We are continuing to invest in our need to ensure that we have the leadership through development including hiring and performance reviews. Report Strategic breadth and depth of leadership programmes to ensure we have the and the appropriate skills and • Develop high level capability plans to support skills and capabilities to deliver our capabilities to drive a healthy, strategic plans. strategy and are growing talent motivated and engaged workforce. through robust succession planning • Conduct global employee opinion survey every two years to build our future leaders. followed by development and delivery of targeted action plans. GMC owner • Wellbeing programme. We carried out a global employee Annette Kelleher survey, identified improvement areas and developed action plans which are now in progress. These plans include a programme focused on supporting our people’s health and wellbeing.
7 Security of metal and highly regulated substances O Risk and impact Mitigation Changes since 2018 On any given day, the group has • Continue execution of the security improvement roadmap. annual report significant quantities of high value • Implement group security policies across all sites. Level of risk remains consistent as precious metals or highly regulated we continue to execute our security substances on site and in transit. • Carry out inventory stock takes. improvement roadmap. Loss or theft due to a failure of the • Ongoing security awareness campaigns and training. security management systems associated with the protection of • Security audits. metal or highly regulated substances may result in performance impact, reduced customer confidence and potential legal action.
GMC owner Jane Toogood
8 Intellectual capital management S O Risk and impact Mitigation Changes since 2018 Failure to adequately manage our • Implement business intellectual capital management strategy. annual report own, and third party, intellectual • Use intellectual capital lawyers to provide specialist guidance. We have continued to develop capital, knowledge and information market leading products using could lead to a loss in business • Portfolio management of intellectual capital through new our world class science capabilities. advantage, loss of freedom to operate technology solution. We protect our inventions and and reputational damage associated • Invest in cyber security (see risk 13). knowhow, although our markets with litigation. remain challenging, crowded and litigious. GMC owner Simon Farrant
9 Failure to maintain operations C O Risk and impact Mitigation Changes since 2018 We may experience interruptions • Ensure regular maintenance of critical machinery. annual report and / or delays in the manufacturing • Continue to invest in infrastructure. We have broadened the scope of our and supply of our products resulting original risk, ‘failure of significant in lost sales affecting our reputation • Adhere to high technical standards. sites’, to recognise the vital nature and revenue growth. • Implement Procurement Excellence programme. of our day to day manufacturing • Insurance coverage in place. activities, associated risks and GMC owner extensive associated controls. We • Implement Group Business Continuity Policy and manual are investing in our pgm refineries John Walker across all sites. and our preventative maintenance • Continue to develop comprehensive response plans and planning work. test annually.
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Key Risks and uncertainties continued S Science O Operations C Customers P People
10 Ethics and compliance C O P Risk and impact Mitigation Changes since 2018 Failure to comply with ethical and • Implement refreshed code of ethics supported by training, annual report regulatory compliance standards and tone from the top set by senior leadership. This risk is continually assessed leading to reputational damage, given the evolving regulatory • Suite of legal compliance policies and procedures in place. possible criminal / legal exposure and business background. for the company or for individuals. • Use internal and external subject matter experts to identify risks, set standards and provide advice and training. GMC owner • Implement ethical working practices certification. Simon Farrant
11 Business transition O P Risk and impact Mitigation Changes since 2018 To position the group for future • Strategic PMO to drive appropriate governance across all annual report growth and maximise available workstreams. This risk has been updated as efficiencies, we continue to evolve we continue to evolve the way in • Implement project management framework across all the way in which we run our which we run our business. We business. This includes group wide key initiatives. are managing this risk through standardisation of some activities, • Expert third party assurance on key change programmes, our upgraded PMO which ensures directed by strong functional leaders, including ERP (SAP) go-live at key sites, assured by expert we have targeted action plans, to ensure best practice is used and third parties. employee communications and maintained across the group. wellbeing programmes to support • Communicate with and engage employees to drive our workforce. The risk is that we fail to deliver functional engagement. transformational change, fail to achieve efficiencies and have a disengaged workforce.
GMC owner Robert MacLeod
12 Product quality S C O Risk and impact Mitigation Changes since 2018 Our products are used in a wide • Monitor and report quality performance, taking corrective annual report range of applications, processes and action where required. Risk remains consistent as the systems. The safety and quality of regulatory environment continues • Implement quality management system. these products are crucial to ensuring to tighten and our customers are they operate as intended. • Continue to develop robust manufacturing systems supported experiencing greater scrutiny. JM Should a product fail to perform as by standardised processes. has continued to make significant progress in embedding a global expected, we could be responsible for • Robust supplier contract terms and conditions. harming consumers or exposed to quality management system liability claims. This could lead to loss supported with training and of future business, reputational regular communications. damage and loss of licence to operate.
GMC owner Jason Apter
13 Applications, systems and cyber O P Risk and impact Mitigation Changes since 2018 Risks that our applications and • Deliver of our cyber security and infrastructure improvement annual report systems security is inadequate or investment to increase resilience. We are continuing to invest heavily fails to adapt to changing business in our IT infrastructure to provide • Implement key policies and standards across JM. requirements and / or external better visibility and controls to threats. The impact of these may • Continue to invest in information systems, monitoring and support a more efficient business. adversely affect our financial position assurance to support our data security strategy. and could harm our reputation. • Input and assurance from third party specialists.
GMC owner Anna Manz
Johnson Matthey 96 Annual Report and Accounts 2019 Viability Reviews are led by the Chief Executive All of our stress tests were derived and Chief Financial Officer in full in through discussions with senior In accordance with provision C.2.2 of conjunction with Sector Chief Executives. management and the board after the 2016 Corporate Governance Code, In addition, the board participates fully in considering our principal risks and the directors have assessed the viability the annual process by reviewing sector uncertainties. of the company over a longer period than strategies throughout the year. During Our evaluation took account of the the 15 months covered by the ‘Going Report Strategic these reviews, the group’s current position group’s current financing arrangements Concern’ statement. and its prospects over the forthcoming and assumes that existing debt and During the year, the board has years are reviewed which allows borrowing facilities can be refinanced as carried out a robust assessment of the reaffirmation of the group strategy. they mature, but we have also considered principal risks affecting the company, The directors have determined that the potential capacity for additional particularly those which could threaten a three year period to 31st March 2022 funding should this be required. Our the business model. These risks and the is an appropriate period over which to stress testing showed that certain actions taken to mitigate them are assess the group’s viability. As part of our combinations of these hypothetical described in the section on ‘Risks and long term strategy planning, the group scenarios would increase JM’s funding Uncertainties’. To reach the viability also prepares forecasts for longer periods requirements substantially and risk statement conclusion we have than three years, but there is inevitably breaching a key financial covenant, undertaken the following process: more uncertainty associated with longer requiring additional funding and • The Audit Committee annually time horizons. We have therefore chosen potentially mitigating actions in order reviews the risk management a three year horizon as we are confident to maintain sufficient headroom against process to ensure its continuing with the accuracy of the forecast over the covenant limit. We are, however, effectiveness; this period. satisfied that the mitigating actions and • The board and GMC perform a In making the assessment, we have our capacity for additional financing will robust assessment of the principal considered a number of severe but allow JM to effectively respond to the risks facing the business twice a year. plausible stress scenarios linked to the negative impact from a combination of The GMC also focuses on selected group’s principal risks, specifically risks these stress scenarios, and that the risks at each of its meetings; 1, 2 and 3. We have analysed the impact combination of factors required to of the following three hypothetical stress impose this stress is both extremely • In October and April, a presentation scenarios plus all of them occurring at significant, and very unlikely. is made to the board from the Group the same time. We have also undertaken a reverse Assurance and Risk Director, Scenario 1: The impact of change in key stress test in order to identify what explaining the process followed by additional or alternative scenarios and management to identify, assess and business assumptions is either unplanned or unforeseen and JM is not agile enough circumstances would threaten our manage risks throughout the current financing arrangements. business. At this time, all of our to respond. Under this scenario we evaluated the impact of a downgrade Based on the results of our principal risks are considered along assessment, the directors have a with the linkages between them; in the global economic outlook and potential for recession in key markets reasonable expectation that the company • Throughout the year, a number of and from adverse events and movements will be able to continue in operation and deep dives into specific risk areas in commodity markets. As well as the meet its liabilities as they fall due over a are conducted by the Corporate possible impact from a faster than period of at least three years. Assurance and Risk team, the results expected uptake of electric vehicles. of which were presented to and discussed by the GMC. This includes Scenario 2: Failure to grow through new assessment of root cause, controls opportunities as a result of ineffective effectiveness, and assurance. execution. This scenario assesses failing to deliver new growth in new markets The group’s prospects are assessed and technologies. through the annual strategic and business planning processes. This process Scenario 3: Failure to maintain includes a review of assumptions made competitive advantage in existing and the ongoing assessment of annual markets and, as a result, not meeting and longer term plans, including customers’ evolving needs as effectively appraisal of the group strategy and as competitors. This scenario assesses significant capital investment decisions. the impact from a hard Brexit, cyber and intellectual property related risks including poor management of capital projects, significant production losses due to downtime at a major site and the inability to improve certain businesses or sites.
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