Annual Report and Notice of AGM

RNS Number : 4756I

Johnson Matthey PLC

15 June 2011

 



ANNUAL REPORT & NOTICE OF ANNUAL GENERAL MEETING

Johnson Matthey Plc (the "Company") has today published its 2011 Annual Report and Accounts and Notice of 2011 Annual General Meeting. Both documents are available on the Company's website at www.matthey.com

Copies of both documents, together with the Form of Proxy for the 2011 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 Tuesday 19th July 2011 at The Institution of Engineering and Technology (The Lecture Theatre), 2 Savoy Place, London WC2R 0BL.

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 2011 issued on 2nd June 2011, is set out in Appendix A below.

Simon Farrant

Company Secretary

15th June 2011

Appendix A

Risks and Uncertainties

The effective identification and management of risks and opportunities across the group is necessary to ensure the delivery of the group's strategic objectives. The group's approach to risk management is aimed at 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 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. Each risk is allocated an owner who has the authority and responsibility for assessing, monitoring and managing it. The most significant risks identified are then 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 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 2010/11.

Risk Description	Description	Impact	Mitigation	Changes since 2010 Annual Report
STRATEGIC
Failure to identify new business opportunities	The group's existing activities are well placed to deliver good growth over the coming years. New business areas could help to sustain the group's growth beyond that period.	Failure to identify new business areas may impact the ability of the group to continue to grow in the long term.	• 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. • Following the ten year strategy review, a new team has been established to review larger scale potential opportunities.	The group's investment in R&D has increased during the year by £18.1 million to £109.8 million. The new team has been established with the remit of identifying new business areas with significant long term growth potential that are consistent with the group's existing core competencies.
Inability to deliver anticipated benefits from acquisitions	The group's strategy is based upon organic growth. However, acquisitions may help to accelerate the achievement of strategic goals. The realisation of anticipated benefits depends upon the performance of acquired businesses after acquisition and their successful integration into the group.	A successful acquisition requires significant management attention on its integration. This diversion of management could adversely impact the rest of the business. In addition, an unsuccessful integration of the acquired business could result in the failure to realise the expected benefits and hence impact the group's results.	• 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.	The only significant acquisition made during the year was the purchase of Intercat, Inc. in November 2010. This has strengthened the group's position in the petroleum refining catalyst market and has a clear fit with our Process Technologies business. The integration is going well but it is too early to assess whether the business will realise the anticipated benefits.
Changes to future environmental legislation	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.	A curtailment in environmental legislation around the world could limit the group's growth potential and undermine profit margins.	• The group maintains a diverse product portfolio. • Forthcoming changes in emissions regulations are well understood and our products are designed to meet these increased requirements. • Profit margins can be maintained with ongoing 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.	There has been no material change in emissions regulations in any of the group's major markets.
Technological change	Johnson Matthey operates in highly competitive markets in which technology is a key to success. Constant product innovation is critical to maintain competitive advantage.	Failure to keep up with changes in the market place could result in a lack of competitive products and erosion of margins and / or loss of market share.	• The group continues to invest in its products through research and development. • 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.	There has been no major change in the risk profile during the year.
MARKET
Global political and economic conditions	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.	A sustained period of economic weakness in our markets could have a material adverse effect upon 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.	• The group maintains a balanced portfolio of businesses to reduce the impact of a change to any one market. • Management monitors the performance of our businesses across the world at both business and group level.	The group's strong performance this year reflects the continuing recovery of its businesses since the recession in the group's developed markets. The political unrest in the Middle East could disrupt our Process Technologies businesses. There has, however, been no material impact in the current year and any potential long term impact is still unknown.
Commercial relationships	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.	The group has high market shares in many of the markets in which it operates. The deterioration in the relationship with, or ultimately the loss of, a key customer or supplier could have a material impact on the group's results.	• Some of the group's key relationships are supported by long term contracts, notably the group's relationship with Anglo 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.	No significant changes have arisen in this risk.
FINANCIAL
Movements in raw material prices	The group uses a variety of raw materials, including precious metals, in its products. In some circumstances, in the short term it may not be possible to pass on higher raw material prices to our customers. In addition, higher prices that are passed on to our customers could result in substitution or replacement of our products with cheaper alternatives.	Raw material prices can fluctuate significantly and have an impact on Johnson Matthey's results.	• The cost of precious metals that are used as raw materials in the group's products is generally passed directly on to customers and any price exposure is hedged. • Innovation that allows ongoing thrifting of precious metals in our products limits the impact of higher prices on our customers.	The most significant change since last year concerns rare earth materials. Supply constraints have resulted in price rises for these commodities, which have exposed the group to reduced margins on some products although these were not material to the group's results. Going forward, the group is reviewing its supply arrangements with customers to identify the most cost effective solutions for both them and Johnson Matthey.
Pension scheme funding	The group operates a number of defined benefit pension schemes. In some cases, the schemes' actuaries have estimated that actuarial deficits exist and in those cases the group has agreed deficit recovery plans.	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. A further increase in actuarial deficits could result in increased costs to meet the pension schemes' liabilities.	• The performance of the group's pension schemes are regularly reviewed by both the company and the trustees of the schemes, taking actuarial and investment advice as applicable. • Where possible, appropriate pension scheme assets are held to match movements in the schemes' liabilities.	The deficit on the group's principal defined benefit pension scheme in the UK was £60.6 million in 2010/11, compared to £156.9 million last year.
OPERATIONAL
Changes to health, safety, environment and other regulations and standards	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.	Changes made to applicable laws, regulations or standards could adversely impact the group's manufacturing capability or indeed, the marketability of our products.	• The group carries out regular internal reviews to ensure compliance with group policies and applicable laws, regulations and standards. • Changes in legislation are carefully monitored and if required, the composition of our products is amended to comply with latest legislation.	The registration deadline for REACH phase I came into effect from 1st December 2010 and the group materially met the requirements for its qualifying products. The group is also reviewing its products containing vanadium, primarily in its Colour Technologies business, to identify potential alternatives in the event of any tightening of regulations in this area.
Availability of raw materials	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.	Disruption to the supply of 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.	• 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 long term supply arrangements to limit the exposure to significant movements in raw material prices.	As mentioned above, the supply of rare earth materials has been constrained during the year although this has only had a price impact on the group and has not affected our ability to manufacture. No other material changes to raw material supply have arisen.
Recruitment and retention of high quality staff	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.	The lack of an appropriately skilled workforce could adversely impact the group's ability to perform in line with expectations.	• The group has a targeted graduate recruitment programme. • Global training and management development processes are in place. • Regular reviews of management succession plans are carried out. • Global remuneration policies are in place to ensure appropriate rewards to motivate and retain staff.	The group has a low level of voluntary employee turnover.  A triennial review of executive remuneration has recently been completed to ensure that our executive remuneration packages are competitive. Global graduate recruitment processes are being reviewed in 2011/12.
Security	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.	The value of any precious metal process losses could be material to the group and any loss of a highly regulated substance could result in the removal of our licence to operate. In addition, in both cases there remains the possibility of theft or fraud.	• 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.	There has been no evidence of any material losses in the year and the group's security processes remain robust.
Intellectual property	The group operates in markets in which the generation and application of technology and know how can give competitive advantage. The protection of that intellectual property allows that advantage to be maintained. Careful monitoring of competitors' intellectual property is required to ensure that breaches of their rights are not made by the group.	Failure to establish the group's intellectual property rights or to identify third parties' intellectual property rights could undermine the group's competitive advantage. Alternatively, not noting the expiration of patents held by third parties could mean the loss of potential business opportunities.	• The group has established policies for registering patents and for monitoring its existing patent portfolio and those of third parties. • A substantial part of the group's intellectual property is know how and this is protected through non-disclosure agreements and other legal measures.	There has been no change in the year.

Statement of Directors' Responsibilities in Respect of the Annual Report and Accounts

The directors are responsible for preparing the annual report and the group and parent company accounts in accordance with applicable law and regulations.

Company law requires the directors to prepare group and parent company accounts for each financial year. Under that law they are required to prepare the group accounts in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (EU) and applicable law and have elected to prepare the parent company accounts on the same basis.

Under company law the directors must not approve the accounts unless they are satisfied that they give a true and fair view of the state of affairs of the group and parent company and of their profit or loss for that period. In preparing each of the group and parent company accounts, the directors are required to:

•        select suitable accounting policies and then apply them consistently;

•        make judgments and estimates that are reasonable and prudent;

•        state whether they have been prepared in accordance with IFRS as adopted by the EU; and

•        prepare the accounts on the going concern basis unless it is inappropriate to presume that the group and the parent company will continue in business.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent company's transactions and disclose with reasonable accuracy at any time the financial position of the parent company and enable them to ensure that its accounts comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the group and to prevent and detect fraud and other irregularities.

Under applicable law and regulations the directors are also responsible for preparing a directors' report, directors' Remuneration Report and Corporate Governance statement that comply with that law and those regulations.

The directors are responsible for the maintenance and integrity of the corporate and financial information included on the company's website. Legislation in the UK governing the preparation and dissemination of accounts may differ from legislation in other jurisdictions.

Responsibility Statement of the Directors in Respect of the Annual Report and Accounts

Each of the directors as at the date of the Annual Report and Accounts, whose names and functions are set out below, 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:

Sir John Banham	Chairman
N A P Carson	Chief Executive
A M Fergsuon	Non-executive Director
Sir Thomas Harris	Non-executive Director
R J MacLeod	Group Finance Director
L C Pentz	Executive Director, Environmental Technologies
M J Roney	Non-executive Director
W F Sandford	Executive Director, Precious Metal Products
T E P Stevenson	Chairman Designate
D C Thompson	Non-executive Director
A M Thomson	Non-executive Director
R J W Walvis	Non-executive Director

This responsibility statement was approved by the Board of Directors on 1st June 2011 and was signed on its behalf by Sir John Banham.

 

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