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 Â£128.6 million in R&D in the year (2010/11 Â£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.