Annual Report and Notice of AGM

RNS Number : 4194Q

Johnson Matthey PLC

17 June 2015

 

JOHNSON MATTHEY PLC

ANNUAL REPORT & NOTICE OF ANNUAL GENERAL MEETING

Johnson Matthey Plc (the "Company") has today published its 2015 Annual Report and Accounts and Notice of the 2015 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 2015 Annual General Meeting, have been submitted to the National Storage Mechanism and will shortly be available for inspection at www.morningstar.co.uk/uk/NSM

The Annual General Meeting of the Company will be held at 11.00 am on Wednesday 22nd July 2015 at The Royal Society, 6-9 Carlton House Terrace, London SW1Y 5AG.

Additional information, required to be made available by the Company under Rule 6.3.5R of the Disclosure and Transparency Rules of the Financial Conduct Authority, to the extent not already included in the Company's announcement of results for the year ended 31st March 2015 issued on 4th June 2015, is set out in the Appendix below.

Simon Farrant

Company Secretary

17th June 2015

APPENDIX

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 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 and the Audit Committee is responsible for reviewing the effectiveness of the group's system of internal control. This includes the approach to risk management and the procedures for the identification, assessment, management, mitigation and reporting of risk and assurance of mitigating actions. The group has a process in place for the continuous review of its risks. As part of the risk management process, each division reviews its risks and its mitigation strategies and actions and discusses relevant risks with each business as necessary. As part of that process, the most significant risks identified are collated into a Group Risk Register. The Group Risk Register is reviewed by the Group Management Committee (GMC) and the board. The effectiveness of current controls and the status and progression of mitigation actions and plans are monitored for each individual risk.

Our 2014/15 risk management assessment has resulted in several changes to our principal risks and uncertainties. These changes include:

•          'Responding to, identifying or capitalising on appropriate new or growth opportunities' is expanded into two separate risks to reflect differing risk appetite for new and existing business and an increase in acquisition activity.

•          'Availability of strategic materials', which was a principal risk in 2013/14, is included as a subset of a new risk 'supply chain' to reflect the complexity and challenges of our supply chain activity, legislative and customer requirements.

•          Intellectual property description of risk is broadened to include cyber risk.

•          Ethics and compliance is added as a new risk.

•          IT systems failure risk is included as a subset of a broader business transformation risk.

In delivering our strategy, it is important that we understand and manage the risks that face us. The table below outlines our principal risks and identifies which strategic objectives they could impact.

		STRATEGIC OBJECTIVES
PRINCIPAL RISKS		Invest in people, products and technology	Build on our core strengths	Operational excellence and sustainability	The Johnson Matthey culture	Best of big and small	Collaborate to leverage our expertise	Growth from new businesses	Customer focus	Create value
STRATEGIC	Growth within our existing business	•	•	•			•		•	•
	New business						•	•	•	•
	Technological change	•	•				•	•	•	•
MARKET	Global economy and political uncertainty	•		•			•	•	•	•
OPERATIONAL	Environment, health and safety			•	•		•		•	•
	Supply chain			•			•		•	•
	People	•			•		•	•	•	•
	Security of assets			•			•		•	•
	Intellectual property and know-how	•	•			•		•	•	•
	Failure of significant sites			•					•	•
	Ethics and compliance			•	•		•	•	•	•
	Business transformation	•		•	•	•	•		•	•

The following table sets out the 2014/15 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 the year. The net risk rating (after mitigating controls) is also shown.

STRATEGIC
Growth within our existing business Responding to, identifying or capitalising on appropriate growth opportunities within our existing business.
Risk and impact The group's existing activities are well placed to deliver good growth over the coming years. Failure to identify and respond to customer requirements or competitor activity could impact the ability of the group to achieve its strategy and / or maintain growth and / or market share.	Mitigation - The group and each business prepare a strategic plan to review demand in existing markets and potential new opportunities. These plans are regularly monitored and challenged. - The business structure, skills and resources are continuously assessed and amended where appropriate.	Changes since 2014 annual report No change. Risk rating High
New business Responding to, identifying or capitalising on appropriate new growth opportunities.
Risk and impact We have identified and continue to identify a number of opportunities to complement and diversify our business portfolio. Failure to identify new opportunities could impact the ability of the group to achieve its strategy and / or maintain growth and / or market share.	Mitigation - The group and each business prepare a strategic plan to review potential new opportunities. These plans are regularly monitored and challenged. - The group continues to invest in new business development and to identify and convert targets for acquisition.	Changes since 2014 annual report No change. Risk rating Medium We continue to target potential new markets and develop new businesses, both organically and through acquisition. The most significant development for new businesses is the formation of the battery materials business.
Technological change
Risk and impact Johnson Matthey operates in highly competitive markets in which technology is key to success. Constant product innovation is critical to maintain competitive advantage. 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 existing and new products and technologies through R&D (including through its technology centres around the world) and as part of 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 2014 annual report No change. Risk rating Low Our commitment to innovation, research and development is described throughout this annual report. We are extending our network of group research technology centres and continue to collaborate with leading academics and institutions around the world. We also opened a new technology centre for our diagnostic services business. We invested £169.9 million in R&D in the year (2013/14 £152.3 million).
MARKET
Global economy and political uncertainty Responding to changes in global political and economic conditions or future environmental legislation.
Risk and impact The global nature of the group's business exposes it to risk arising from economic, political and legislative change in the countries in which it operates. Failure to respond to sudden short and medium term changes in the market or economy or 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 exists in countries in which the group operates. Over 60% of the group's sales are 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.	Mitigation - The group maintains a balanced portfolio of products and 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. - 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 2014 annual report No change. Risk rating High
OPERATIONAL
Environment, health and safety Operating safely, including in line with changes in health, safety, environmental and other regulations and standards.
Risk and impact In common with similar manufacturing companies, the group operates in a challenging safety environment that is subject to numerous health, safety and environmental laws, regulations and standards. Failure to operate safely and respond to changes made to applicable laws, regulations or standards could adversely impact the group's employees or other stakeholders, our manufacturing capability or the marketability of our products.	Mitigation - Detailed health, safety and environmental processes are documented in our operating manuals, communicated and reviewed regularly and used as the basis for continuous training and development. - Robust maintenance programmes are undertaken in order to ensure that our facilities and assets meet the applicable group and legislative standards. - The group carries out regular internal audits 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. - Changes in legislation are carefully monitored and, if required, the composition of our products is amended to comply with the 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 2014 annual report No change. Risk rating Low Health and safety is a core value. Our commitment to health and safety and environmental performance is described on pages 58 to 61 and pages 74 to 77 respectively.
Supply chain (includes availability of strategic materials).
Risk and impact The group operates in a number of locations across the world. It sources and supplies goods nationally and internationally and is therefore exposed to risks associated with a complex and international supply chain. It 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 or a change in the group's ability to access sufficient quantities of these raw materials, most notably platinum group metals, rare earth materials or narcotic raw materials, could adversely affect the group's operations. This may be due to increased prices or because our ability to manufacture and supply products to customers may be impacted.	Mitigation - We are working with our suppliers to ensure the integrity of our supply chain and continually review mode of transport and shipping routes. - We employ and buy in specialist knowledge to understand and comply with international trade requirements. - 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 regularly monitor forecast requirements and hold buffer stocks. - We look to identify alternative raw materials where appropriate.	Changes since 2014 annual report New risk. Risk rating Medium
People The effective recruitment, retention and development of high quality staff to support the growth of our business.
Risk and impact The group relies upon its ability to recruit, retain 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. Ineffective succession on 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 employee development programmes are in place. These include training of manufacturing leaders to run our operations in a consistent and efficient way. - A talent review process has been introduced to focus on strategic people issues. - Regular reviews of management succession plans are carried out and are closely monitored by the Nomination Committee. - 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.	Changes since 2014 annual report Over the past two years a number of changes have been made across the senior management team. The senior management succession has been successfully managed. This risk is unchanged since last year. Risk rating Medium
Security of assets
Risk and impact 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. 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 well developed security, assay and other process controls. - We complete security checks to safeguard both our tangible and intangible assets. - Annual security audits are carried out across the group. - Insurance cover is maintained for losses from theft or fraud.	Changes since 2014 annual report No change. Risk rating Low
Intellectual property (IP) and know-how
Risk and impact The group operates in markets in which the generation and application of technology know-how 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. 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. Protecting our broader know-how is equally important to ensure that we maintain this advantage.	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 appropriate. - We continuously evaluate operating restrictions and opportunities available to us through the use of our IP and know-how. - Know-how is protected by non-disclosure agreements and legal measures. - We restrict internal and external access to IP and know-how as necessary. - We complete security checks to safeguard our intangible assets, including cyber checks. - We invest in information security, employee awareness and IT systems to prevent and detect loss. - Our investment in technical developments partially mitigates the risks to our IP and know-how.	Changes since 2014 annual report Increasing due to advances in technology and our competitor landscape. Risk rating Medium
Failure of significant sites
Risk and impact While the group operates from a variety of locations, certain sites are critical to the group due to their scale or the specific nature of their production activities. Failure of one of our critical sites could significantly impact the performance of the group.	Mitigation - Business continuity plans include consideration of circumstances in which alternative back up locations may be required. - Capacity and demand planning includes consideration of the site's significance. - Given the nature of the group's operating activities, these can be replicated at other locations with reasonable ease and in a short time frame.	Changes since 2014 annual report No change. Risk rating Medium
Ethics and compliance
Risk and impact Due to the markets in which we operate, and the complexity of our supply chain, the group is exposed to a changing and increasingly stringent governance and regulatory environment. Ethical misconduct, breaches of applicable laws and regulations could impact our reputation, licence to operate, shareholder value and financial results.	Mitigation - We have policies and procedures in place and conduct training to ensure employee awareness and understanding. - We operate an independent confidential whistleblowing hotline for employees, contractors and third parties. - We keep abreast of applicable laws, recruit specialist staff and use third party support when required.	Changes since 2014 annual report Whilst there has been little in the way of new legislation, we have seen increased enforcement activity by the authorities. New risk. Risk rating Medium
Business transition
Risk and impact To transition our business we are investing in our core functions / systems, upgrading our business information systems and enhancing our human resources and talent management processes. Failure in our transition programme and change management process and governance could impact our ability to deliver our strategy and exploit 'the best of big and small'. Failure of one or more of our major IT systems over an extended period could impact our ability to manufacture or to report our operational performance.	Mitigation - Ongoing supervision and oversight by the Chief Executive and the GMC who report to the board on key initiatives. - Project and portfolio management and governance frameworks are in place to monitor and report on progress. - Human Resources' support and communication are in place to manage change. - Continuous review of our IT infrastructure and environment. - IT disaster recovery and general business continuity plans are regularly updated.	Changes since 2014 annual report There are a number of programmes being undertaken in addition to our investment plans for IT systems which will result in significant change. We have therefore concluded that this is a new risk which will increase in the short term. Risk rating Medium

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:

•    Tim Stevenson, Chairman

•    Robert MacLeod, Chief Executive

•    Den Jones, Group Finance Director

•    Larry Pentz, executive director

•    John Walker, executive director

•    Odile Desforges, non-executive director

•    Alan Ferguson, non-executive director

•    Colin Matthews, non-executive director

•    Chris Mottershead, non-executive director

•    Dorothy Thompson, non-executive director

states that to the best of his or her knowledge:

•    the group and parent company accounts, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the company and the undertakings included in the consolidation taken as a whole; and

•    the management report (which comprises the Strategic Report and the Directors' Report) includes a fair review of the development and performance of the business and the position of the company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

This responsibility statement was approved by the board on 3rd June 2015 and is signed on its behalf by Tim Stevenson, Chairman.

 

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