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.