Annual Report & Notice of Annual General Me...
ANNUAL REPORT & NOTICE OF ANNUAL GENERAL MEETING
Johnson Matthey Plc (the "Company") has today published its 2012 Annual Report
and Accounts and Notice of the 2012 Annual General Meeting. Both documents can
be viewed at or downloaded from the Company's website at www.matthey.com
Copies of both documents, together with the Form of Proxy for the 2012 Annual
General Meeting, have been submitted to the National Storage Mechanism and will
shortly be available for inspection at www.hemscott.com/nsm.do.
The Annual General Meeting of the Company will be held at 11am on Wednesday
25th July 2012 at Merchant Taylors' Hall, 30 Threadneedle Street, London EC2R
8JB.
Additional information, required to be made available by the Company under Rule
6.3.5R of the Disclosure and Transparency Rules of the Financial Services
Authority, to the extent not already included in the Company's announcement of
results for the year ended 31st March 2012 issued on 7th June 2012, is set out
in Appendix A below.
Simon Farrant
Company Secretary
20th June 2012
Appendix A
Risks and Uncertainties
The effective identification and management of risks and opportunities across
the group are integral to the delivery of the group's strategic objectives. The
group's approach to risk management is aimed at monitoring material issues to
enable the early identification of key risks and the taking of action to remove
or reduce the likelihood of those risks occurring and their effect.
The board has overall responsibility for ensuring that risk is effectively
managed across the group. However, the board has delegated to the Audit
Committee the responsibility for reviewing the effectiveness of the group's
system of internal control and procedures for the identification, assessment,
management, mitigation and reporting of risk.
The group has in place a process for the continuous review of its risks. As
part of that process, each business reviews its risks and its mitigation
strategies and actions. Each risk is allocated an owner who has the authority
and responsibility for assessing, monitoring and managing it. The most
significant risks identified are collated into a Group Risk Register. The Group
Risk Register is reviewed by the Chief Executive's Committee. Each individual
risk is considered and the status and progression of mitigation actions and
plans are monitored. The Group Risk Register is reviewed by the board twice a
year.
The table below sets out what the board believes to be the principal risks and
uncertainties facing the group, the mitigating actions for each and an update
on any change in the profile of each risk during the course of 2011/12.
In view of the group's increased focus on the cost of rare earth materials and
the establishment this year of a strategy to manage movement in their prices
(as described in the Financial Review of Operations section on page 29 of the
2012 Annual Report and Accounts), we have concluded that the risk associated
with movements in raw material prices has decreased. As a result, we have
removed this from our principal risks this year.
STRATEGIC
Risk
Failure to grow in the longer term, to take advantage of new opportunities or
to have sufficient capacity to meet demand.
Description
The group's existing activities are well placed to deliver good growth over the
coming years. New business areas will help to sustain the group's growth beyond
that period.
Impact
Failure to identify new business areas or extend the group's portfolio could
impact the ability of the group to continue to grow in the long term.
Mitigation
* Each business prepares a ten year strategic plan to review demand in
existing markets and potential new opportunities.
* The group continues to invest in research for new products and
technologies.
* Capacity and demand considerations are included in the strategic review and
additional capacity management reviews.
Changes since 2011 Annual Report and Accounts
The group invested £128.6 million in R&D in the year (2010/11 £109.8 million).
The group is targeting potential new markets and developing new businesses,
both organically and through acquisition.
Risk
Inability to deliver anticipated benefits from acquisitions, capital projects
and other initiatives.
Description
The group's strategy is based upon organic growth. However, acquisitions and
investment in capital projects will accelerate the achievement of our strategic
goals.
The realisation of anticipated benefits depends on:
* the performance of acquired businesses after acquisition and their
successful integration into the group; and
* the delivery of capital projects on cost and to plan.
Impact
Unsuccessful integration of an acquired business or project time or cost
over-runs could result in the failure to realise the expected benefits and
hence impact the group's results.
Mitigation
* The group has clearly defined criteria for suitable acquisition targets and
substantial due diligence is carried out before any acquisition is made.
* A dedicated team is appointed to manage the integration process and regular
monitoring of the performance of newly acquired businesses is carried out.
* Requirements of capital projects and other initiatives are strictly defined
and subject to robust approvals.
Changes since 2011 Annual Report and Accounts
There were no acquisitions in the year.
The integration and performance of the Additives business (formerly Intercat)
during the year is discussed in the Financial Review of Operations on page 31
of the 2012 Annual Report and Accounts.
Significant projects (such as expansion of capacity in Emission Control
Technologies, Process Technologies and Catalysts and Chemicals) are discussed
in the Financial Review of Operations.
Risk
Changes to future environmental legislation.
Description
Approximately 50% of the group's revenue is driven by environmental
legislation, particularly legislation over emissions from light and heavy duty
vehicles. Further tightening of global emissions legislation generally requires
improved technological solutions and the extension of emissions legislation to
new applications can create opportunities for the group.
Impact
A curtailment in environmental legislation around the world could limit the
group's growth potential and undermine profit margins.
Mitigation
* The group maintains a diverse product portfolio.
* Forthcoming changes in emissions legislation are well understood and our
products are designed to meet these increased requirements.
* Profit margins can be maintained with continuous improvements in technology
to reduce the cost and improve the effectiveness of our products.
* Regular reviews are undertaken to monitor areas of new potential
legislation.
* Lobbying activities are undertaken where appropriate to improve the
understanding of regulatory and legislative bodies.
Changes since 2011 Annual Report and Accounts
No change.
Risk
Technological change.
Description
Johnson Matthey operates in highly competitive markets in which technology is a
key to success. Constant product innovation is critical to maintain competitive
advantage.
Impact
Failure to keep up with changes in the market place and to maintain our
technology pipeline could result in a lack of competitive products and erosion
of margins and / or loss of market share.
Mitigation
* The group continues to invest in its products through R&D (including
through our Technology Centres around the world) and as per our ten year
technology plan.
* There is constant innovation and development in cooperation with our key
customers.
* The group invests in its people to ensure that it maintains a high level of
relevant scientific expertise.
Changes since 2011 Annual Report and Accounts
No change.
MARKET
Risk
Global political and economic conditions.
Description
The global nature of the group's business exposes it to risk arising from
economic, political and legislative change in the countries in which we
operate.
Impact
A sustained period of economic weakness in our markets could have a material
adverse effect on the group's results.
The group has no influence upon changes in inflation, interest rates or other
economic factors affecting its business. In addition, the possibility of
political unrest and legal or regulatory changes also exist in countries in
which the group operates.
Mitigation
* The group maintains a balanced portfolio of businesses and serves a wide
range of diverse customers which reduces the impact of a change to any one
market.
* Management continuously monitors the performance of our businesses across
the world at both business and group level.
* Our cost base contains a significant variable element and is flexible to
changing political and economic conditions.
Changes since 2011 Annual Report and Accounts
The group's strong performance this year reflects the continuing recovery of
its businesses since the recession in the group's developed markets.
Given the continued uncertainty in Europe (offset partially by the improved
outlook in the US) we have concluded that this risk has increased since last
year.
Risk
Commercial relationships and reputation.
Description
The group has well established long term relationships with a number of
customers and suppliers. Maintaining good relationships with customers and
suppliers enables the group to enhance the quality of service to its customers.
Impact
The group has high shares in many of the markets in which it operates. The
deterioration in its reputation or relationship with, or ultimately the loss
of, a key customer or supplier could have a material impact on the group's
results.
Mitigation
* Some of the group's key relationships are supported by long term contracts,
notably the group's relationship with Anglo American Platinum.
* A broad customer base is maintained to prevent the group from becoming
unduly dependent on any single customer.
* Industry developments and market shares are constantly monitored.
* We actively manage our customer relationships at all levels to ensure a
high quality of service.
Changes since 2011 Annual Report and Accounts
No change.
FINANCIAL
Risk
Pension scheme funding.
Description
The group operates a number of defined benefit pension schemes, some of which
are in deficit.
Impact
Actuarial deficits could be adversely affected by changes in interest rates,
the market values of investments, as well as inflation and increasing longevity
of the schemes' members. This may result in greater cash contributions being
required.
Mitigation
* Where actuarial deficits exist the group has agreed deficit recovery plans.
* The group works with the fiduciary committees and trustee boards of each of
its pension schemes around the world to ensure that an appropriate
investment strategy is in place. This includes de-risking the schemes as
funding levels improve.
* Where possible, appropriate pension scheme assets are held to match
movements in the schemes' liabilities.
* We monitor and proactively manage the rate at which the pension liability
grows and consider liability management exercises as appropriate.
* The group is reviewing its options with regard to future pension provision
for employees worldwide.
* More detail of the group's pension schemes is included in note 14 in the
2012 Annual Report and Accounts.
Changes since 2011 Annual Report and Accounts
No change.
OPERATIONAL
Risk
Changes to health, safety, environmental and other regulations and standards.
Description
In common with similar manufacturing companies, the group operates in an
environment that is subject to numerous health, safety and environmental laws,
regulations and standards.
Impact
Changes made to applicable laws, regulations or standards could adversely
impact the group's manufacturing capability or indeed, the marketability of our
products.
Mitigation
* The group carries out regular internal reviews to ensure compliance with
current group policies and applicable laws, regulations and standards such
as ISO 14001 and OHSAS 18001. Our quality standards are also scrutinised
externally by customers, suppliers and the relevant authorities.
* We work with external consultants to understand better our regulatory
responsibilities in the territories in which we operate.
* Changes in legislation are carefully monitored and if required, the
composition of our products is amended to comply with latest legislation.
* We are committed to proactive communication and to building open
relationships with the authorities and relevant legislative bodies, both
directly and through the relevant trade associations.
Changes since 2011 Annual Report and Accounts
No change.
Risk
Availability of raw materials.
Description
The group uses many raw materials within its manufacturing processes. Several
raw materials are available from only a limited number of countries and / or
suppliers.
Impact
Disruption to the supply or a change in the group's ability to access
sufficient stocks of these raw materials, most notably platinum group metals,
rare earths or narcotic raw materials, could adversely affect the group's
profit. This may be due to increased prices or because our ability to
manufacture and supply product to customers may be impacted.
Mitigation
* Although most of the world's platinum is mined in South Africa, the group
has access to world markets for platinum and other precious metals and is
not dependent on any one source for obtaining supplies.
* Appropriate sourcing arrangements are in place for other key raw materials
to ensure that the group is not dependent on any one supplier.
* Where possible the group enters into fixed price contracts for key raw
materials.
* We work closely with key suppliers to ensure availability, including
through audits, benchmarking and specific risk reviews.
* We monitor forecast requirements on a regular basis and hold buffer stocks
where necessary..
Changes since 2011 Annual Report and Accounts
No change.
Risk
Employees and the recruitment and retention of high quality staff.
Description
The group relies upon its ability to recruit, train and develop employees
around the world with the necessary range of skills and experience to meet its
stated objectives, including in relation to business growth.
The existing management team has many years of experience at Johnson Matthey,
operating in the markets and developing the technologies in which the group
maintains a presence.
Impact
The departure of senior management or the lack of an appropriately skilled
workforce could adversely impact the group's ability to perform in line with
expectations.
Mitigation
* Global training and management development programmes are in place,
including training of manufacturing leaders to run our operations in a
consistent and efficient way through the Manufacturing Excellence
programme.
* Regular reviews of management succession plans are carried out.
* Global remuneration policies are in place to ensure appropriate rewards to
motivate and retain staff.
* We undertake a continuous assessment of the skills required within the
group and action plans are put in place to address identified gaps.
* Succession planning is closely monitored by the Nomination Committee and
Management Development and Remuneration Committee (MDRC).
Changes since 2011 Annual Report and Accounts
No change.
Risk
Security.
Description
On any given day the group has significant quantities of high value precious
metals or highly regulated substances on site and in transit, the security of
which is critical.
Impact
A material loss due to a breach in the group's security measures, including
theft or fraud, could be significant to the group's performance.
Mitigation
* The group has highly developed security, assay and other process controls.
* Annual security audits are carried out across the group.
* Insurance cover is maintained for losses from theft or fraud.
Changes since 2011 Annual Report and Accounts
No change.
Risk
Intellectual property (IP).
Description
The group operates in markets in which the generation and application of
technology and IP allows an advantage to be maintained. Careful monitoring of
competitors' IP is required to ensure that breaches of their rights are not
made by the group.
Impact
Failure to establish the group's IP rights or to identify third parties' IP
rights could undermine the group's competitive advantage particularly given the
group's expansion into new markets. Alternatively, not noting the expiration of
patents held by third parties could mean the loss of potential business
opportunities.
Mitigation
* The group has established policies and procedures for registering patents
and for monitoring its existing patent portfolio and those of third
parties.
* We defend infringement claims and challenge new patents where it is
appropriate to do so.
* We continuously evaluate operating restrictions and opportunities available
to us through the use of our IP and know how.
* A substantial part of the group's IP is know how and this is protected
through non-disclosure agreements and other legal measures.
* We restrict internal and external access to IP and know how as necessary.
* We complete security checks to safeguard both our tangible and intangible
assets.
* Our investment in technical developments mitigates the risks to our IP and
know how to some degree.
Changes since 2011 Annual Report and Accounts
No change.
Statement of Directors' Responsibilities in Respect of the 2012 Annual Report
and Accounts
Each of the directors as at the date of the 2012 Annual Report and Accounts,
whose names and functions are set out below, states that to the best of his or
her knowledge:
* the group and parent company accounts, prepared in accordance with the
applicable set of accounting standards, give a true and fair view of the
assets, liabilities, financial position and profit or loss of the Company
and the undertakings included in the consolidation taken as a whole; and
* the management report (which comprises the Report of the Directors)
includes a fair review of the development and performance of the business
and the position of the Company and the undertakings included in the
consolidation taken as a whole, together with a description of the
principal risks and uncertainties that they face.
The names and functions of the directors of Johnson Matthey Plc are as follows:
TEP Stevenson Chairman
NAP Carson Chief Executive
AM Ferguson Non-executive Director
Sir Thomas Harris Non-executive Director
RJ MacLeod Group Finance Director
LC Pentz Executive Director, Environmental Technologies
MJ Roney Non-executive Director
WF Sandford Executive Director, Precious Metal Products
DC Thompson Non-executive Director
This responsibility statement was approved by the board on 6th June 2012 and
was signed on its behalf by Mr TEP Stevenson.
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