15th June 2021
Johnson Matthey Plc
(the "Company")
Annual Report and Accounts
The Company announces that it has today published the 2021 Annual Report and Accounts and Notice of Annual General Meeting. Both documents are available on the Company's website, matthey.com.
In accordance with Listing Rule 9.6.1, copies of both documents, together with the Form of Proxy, have been submitted to the National Storage Mechanism and will shortly be available for viewing at https://data.fca.org.uk/#/nsm/nationalstoragemechanism.
The Annual General Meeting of the Company will be held at 11.00 am on Thursday 29th July 2021 in the Great Hall, JP Morgan, 60 Victoria Embankment, London EC4Y 0JP. A live webcast and conference call will also be available and details of how to join are in the Notice of Annual General Meeting.
The information in the Appendix below should be read in conjunction with the Company's preliminary results for the year ended 31st March 2021, issued on 27th May 2021. That information, together with the Appendix below, is provided in accordance with Rule 6.3.5R of the Disclosure Guidance and Transparency Rules in full unedited text. This announcement is not a substitute for reading the full Annual Report and Accounts. Page and note references in the text below refer to those in the 2021 Annual Report and Accounts.
APPENDIX
Risks and uncertainties
JM's principal risks and uncertainties
Principal risks are regularly reviewed to ensure that JM meets the challenges facing the business and strategic objectives. To understand the current risk universe for JM, GMC risk sponsors have assessed changes to their risks, prioritising principal risks as required, with focused mitigation plans. This has been enabled by the risk management process facilitated by the Group Assurance and Risk function.
The following provide an insight into the way we have further shaped our risk coverage, and clarity on opportunities and relevant actions in 2020/21:
· Climate change is an important part of our risk management process, driving certain principal risks, such as 'Future growth', 'Environment, health and safety' and 'Supply failure'. We recognise that we must manage our climate change risks effectively if we are to deliver our growth strategy and inspire confidence in our stakeholders. The rate and extent of change in our key markets in response to climate change is subject to extensive scenario planning as part of our TCFD preparations and we are carrying out further analysis on the validity of a stand alone risk for this area.
· We refined our 'Failure of operations' risk to focus specifically on 'Asset failure'. This better reflects the primary cause of this risk and the level of potential exposure across the business. Following discussions with our sectors and other principal risk owners, we have put in place sector focused actions to reduce our exposure.
· We reviewed our 'Quality' risk and developed sector specific views to acknowledge the different applications of this risk. We continued to work with sectors to help them own the risk, monitor its likelihood and ensure any specific actions are tracked.
· Cyber attacks remain a significant risk because of the evolving external landscape and a rise in the number and sophistication of those attacks. Under our 'Information technology and cyber security' risk (previously Applications, systems and cyber) we continue to develop our controls in line with good industry practice to help us respond to these new challenges. We developed our ongoing programme of work with independent oversight and will track and report progress within this risk.
· Following an assessment of JM's legal risk landscape, we have introduced 'Customer contract liability' as a new principal risk. This risk recognises our potential exposure to loss or damage because of existing or future customer contracts having potentially unfavourable terms against the backdrop of increasing regulation and collective actions, particularly in the automotive and pharmaceutical sectors.
· The Precious Metal Management (PMM) team has continued to enhance the governance procedures over our metal management. Despite initial disruption caused by the pandemic it has not had an immediate impact on our supply positions and JM has benefited from the volatile and higher than average precious metal prices. In addition, significant advances have been made in reducing the amount of working capital which has been assisted by the advances made by reducing our refinery backlogs.
The table below sets out our principal risks and uncertainties and the actions we have put in place to mitigate them. The risks discussed below, either individually or in combination, could have a material adverse effect on our strategy, business, financial performance, operations, cash flows and liquidity, prospects, shareholders value and reputation. We analyse the extent of the mitigation plans we need, knowing that our risk profile and the potential impact of each risk changes over time. JM's strategic risks are listed first followed by operational risks. Each principal risk is also linked to one or more of our three strategic priorities:
I Invest in growth areas targeted at climate change and circularity
M Manage our established businesses to support growth
P Promote a fast paced, efficient business and high performance culture
up Increased since 2020 annual report
- No change
down Decreased since 2020 annual report
n/a Risk movement not applicable as new risk
1 Existing market outlook
GMC sponsor: Robert MacLeod - I M P |
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Risks, opportunities and impactChanging assumptions in our key markets could have an unplanned or unforeseen impact that we are not agile enough to respond to. This risk includes the potential impact of legislative changes, other market movements outside of our predictions, the extended impact of global pandemics, and emerging trends, such as tariffs, as well as regional and global slowdowns to which our business may be sensitive. |
Key mitigations· We continue to execute our strategic planning process to assess and understand external trends and the associated effects on our sectors. This includes the balance, scale and focus of our investments. · We regularly review our portfolio to ensure that each part of the business is providing value to the group. In turbulent times the resilience of our portfolio demonstrates its benefits. · We monitor key viability and liquidity metrics, such as balance sheet strength, as part of our budgeting and going concern testing. · We monitor changes to key drivers, such as GDP and market assumptions, carry out scenario planning and adjust our business plans accordingly. · We have developed response mechanisms to ensure that we can react quickly when unforeseen market events take place. |
Changes since 2020 annual reportCoverage of this risk has evolved to reflect potential unforeseen changes in our key existing markets and our ability to respond at speed. We have split our risk scoring into two categories: 'normal' fluctuations in the business cycle that are identified through our strategic planning, and lower frequency 'black swan' events, such as COVID-19, which are intrinsically unforeseeable. As a result, we have strengthened our market intelligence across all sectors and we continue to monitor global macroeconomic factors and are improving our sensitivity analysis through our strategic planning and budgeting process. Furthermore, we have improved our ability to react to unexpected market changes. |
2 Future growth
GMC sponsor: Christian Günther down I M P |
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Risks, opportunities and impactIneffective execution of our strategic initiatives and investments could lead to failure to deliver planned growth and create value. |
Key mitigations· We continually review our strategy in light of new information, and our Strategic Transformation Office tracks our execution via a business review process. · We review and monitor new technologies and market competitiveness on an ongoing basis. · We invest in research and development, capital projects and people with the specific skills we need to deliver our strategy. · We work proactively with current and potential customers, as well as industry bodies, such as the Hydrogen Council, to understand future needs and potential product and market evolution. · Our dedicated group capital projects team conducts regular reviews of all strategic capital projects. |
Changes since 2020 annual reportWe have further refined this risk to focus not just on the growth opportunities we see in our two main core businesses (Clean Air and Efficient Natural Resources) but also on the key growth platforms that relate to our Battery Materials, Hydrogen and Fuel Cells businesses. Our future growth is in part driven by global macro trends, including climate change, acceleration of EV penetration and fuel cells, and an increase in the rate of decarbonisation that, on balance, create a suite of opportunities for JM. To drive growth, we recognise that we need to leverage our core businesses to support our growth platforms, identifying opportunities, strengthening our IP positions, developing the products and services that customers need and building the skills we need to deliver our strategy. We also recognise the inherent level of risk that embarking on new growth areas creates, including securing customer platforms. Overall, our net scoring (currently mitigated position) has reduced, recognising our regular monitoring and increased control through the Transformation Office. However, our appetite (desired position) has increased to reflect the alternative growth streams required and the higher percentage of revenue at risk as we balance our portfolio, expanding from our existing core businesses. |
3 Competitive advantage
GMC sponsor: Maurits van Tol - I M P |
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Risks, opportunities and impactFailure to maintain our competitive advantage in existing markets and, as a result, not meeting customers' evolving needs as effectively and profitably as our competitors. |
Key mitigations· We maintain strong customer relationships through our technical proposition, good market reputation and a high level of technical service. · We conduct research and development and use our capital management process to ensure resources are prioritised against the areas of greatest opportunity. · We maintain a strong innovation portfolio using our new technology platform and product development process. |
Changes since 2020 annual reportWe have processes in place to enable effective decisions to allocate innovation resource and capital. Through our innovation excellence programme, we continually improve the processes that further expand JM's product, application and technology toolbox. We added further mitigating actions to ensure we have the capabilities to 'place the right innovation bets' and respond to emerging opportunities at pace. |
4 Environment, health and safety (EHS)
GMC sponsor: Ron Gerrard - P |
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Risks, opportunities and impactLike other high hazard manufacturing companies, our business operations are subject to a wide range of challenging health, safety and environmental laws, standards and regulations set by government and non-governmental bodies around the world. If we fail to operate safely, we could injure our people or breach applicable laws, which could have a negative impact on our employees. This could result in lost production time and potentially attract negative interest from the media and regulators. |
Key mitigations· We have embedded a health and safety culture across the business. This includes clear policies, guidelines and standards, continual training and awareness activities and audits. · We continue to conduct process safety reviews at applicable sites. · We carry out investigations to determine the root cause of incidents and accidents and develop remediation plans to address the issue. · We manage and report on environmental data associated with our sites. |
Changes since 2020 annual reportThe health and safety of our employees is our priority. COVID-19 has continued to affect the way in which many of our employees work and we have adapted our processes to ensure that training, online hazard studies and other assessments can continue despite the pandemic. We have updated this risk to clearly articulate how we manage our exposure to health and safety risks, and to specifically include all relevant areas, such as our environmental impact. |
5 Supply failure
GMC sponsor: Jane Toogood (metal) and Ron Gerrard (other sourcing) - M P |
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Risks, opportunities and impactThe nature of JM's operations means there are limited suppliers from which to source certain strategic raw materials including precious metals. Any significant breakdown in the supply of these materials would lead to an inability to manufacture our products and satisfy customer demand. |
Key mitigations· We manage our supplier relationships through regular reviews and discuss their constraints and quality management processes. · Where appropriate, we carry strategic stocks of raw materials and regularly monitor our levels against changes in the external landscape. · We regularly investigate alternative materials as part of our research and development. · We continue to invest in our pgm refining business to ensure access to recycled precious metals. · We conduct ongoing market research to understand and monitor the impact of short term events on the longer term supply of metal. |
Changes since 2020 annual reportWe have continued to implement our procurement strategy and have further sharpened our supply chain understanding across the sectors, including our capital projects supply chain. We continue reviewing critical direct raw material suppliers to meet our product portfolio strategies. We have also continued to reduce the precious metal backlogs in our refineries, reducing pressure on our precious metal sources. |
6 People
GMC sponsor: Annette Kelleher up P |
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Risks, opportunities and impactTo successfully execute our strategy and deliver growth, we need an appropriate culture and a breadth and depth of leadership skills to drive a motivated, inclusive and engaged workforce, underpinned by adequate people data. |
Key mitigations· Our values and behaviours are embedded in all our internal processes, including hiring and performance reviews. · We run culture focused sessions with our leaders and have developed a culture statement roadmap. · We run ongoing leadership development and wellbeing programmes for our employees. · We conduct a global employee engagement survey every two years and intermediate pulse surveys. We then develop targeted action plans based on the feedback from them. |
Changes since 2020 annual reportWe have increased our scoring to reflect the pandemic and also the level of change we are currently undertaking. We have continued to prioritise our employees' health and safety, maintaining social distancing measures and supporting many homeworking employees. We have a series of leadership engagement and employee communications planned on a regular basis to support colleagues in times of uncertainty and maintain motivation across the group. |
7 Security of metal / highly regulated substances
GMC sponsor: Jane Toogood - P |
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Risks, opportunities and impactWe store and transport significant quantities of high value precious metals or highly regulated substances. Loss or theft due to a failure of our associated security management systems may result in financial loss and / or a failure to satisfy our customers, which could reduce customer confidence or result in legal action. |
Key mitigations· We have delivered the first year of a three year security improvement roadmap to further strengthen the function. · We continue to implement and apply our Group Security policies across all sites. · We regularly carry out security assessments and audits at sites. · We are members of intelligence groups that help us carry out regular threat evaluation and horizon scanning. · We run ongoing security awareness campaigns and training, including rigorous follow up of thefts and continuous learnings. |
Changes since 2020 annual reportOur level of control continues to increase through the delivery of the security improvement roadmap, which includes implementation of control measures across our critical sites. With the increase in metal prices comes a potential increase in the risk and we adapt our controls in line with the changing security risks to our materials. |
8 Intellectual property management
GMC sponsor: Maurits van Tol - I M P |
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Risks, opportunities and impactFailure to adequately manage our own, and third party, intellectual property, knowledge and information could lead to a loss in business advantage, loss of freedom to operate and reputational damage associated with litigation. |
Key mitigations· We carry out an annual review of our intellectual property portfolio against JM's strategic priorities to ensure continued alignment. · We regularly review our sector level intellectual property strategy to ensure consistent monitoring of intellectual property activity. · We actively manage our intellectual property portfolio and use digital tools to support governance. · We continue to provide training on, and raise awareness of, our Information Classification Policy. · Intellectual property lawyers provide specialist guidance, including on the use of intellectual property as a business tool. |
Changes since 2020 annual reportThe intellectual property landscapes for the technologies in which JM operates continue to be inherently challenging as, for example, sustainable technology development is a very dynamic space. To continue reducing our risk exposure, we are developing and implementing a trade secret management policy to ensure JM has a register of all its trade secrets and key knowhow. This will allow us to better manage our intellectual property and guard against loss, either inadvertent or deliberate. |
9 Asset failure
GMC sponsor: Ron Gerrard - M P |
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Risks, opportunities and impactWe may experience critical asset failures resulting in a material impact on the supply, performance, share value and reputation of JM. |
Key mitigations· We are implementing robust asset management programmes and rigorous operational technology support systems. · We have developed and embedded engineering standards. · We are prioritising key insurance review actions and business continuity planning. · We are detailing and prioritising critical spares and capital expenditure for ageing assets and infrastructure. · We are delivering competency programmes. |
Changes since 2020 annual reportWe have changed 'Failure of operations' to 'Asset failure' to avoid duplication and reflect the level of our exposure if not mitigated. Overall, even with mitigations in place, there is further work required to reach tolerance. Group scoring reflects the level of exposure within the PGM Services (PGMS) business due to the nature of the business with the highest potential impact. A multi year investment programme is underway in PGMS to renew assets that require replacing due to them approaching end of life. Part of this investment includes a new state of the art refinery at our PGMS Royston site. |
10 Ethics and compliance
GMC sponsor: Nick Cooper - P |
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Risks, opportunities and impactFailure to comply with ethical and regulatory standards could lead to reputational damage, and leave the company or individuals open to potential criminal or legal action. |
Key mitigations· We have shared our Code of Ethics and compliance policies with employees and provide regular training on them. Our senior leaders set the tone from the top. · Internal and external subject matter experts identify risks, set standards and provide advice and training. · Our third party due diligence programme assesses and manages the risks associated with various counterparty relationships. · We continued the 'speak up' facility for employees to raise concerns. Our Ethics Panel investigates any reported issues and recommends actions to address the issue, as needed. |
Changes since 2020 annual reportAs the ethics and compliance landscape continues to evolve and risk management techniques become more sophisticated, we continue to adapt our programme. During the last 12 months we have continued to monitor the heightened compliance risk due to the additional financial pressures that people and companies may be suffering because of COVID-19. In addition, we have increased our focus on ethical risks that may not have direct regulatory consequences by creating a new role of Head of Business Ethics. |
11 Business transition
GMC sponsor: Robert MacLeod down I M P |
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Risks, opportunities and impactFailure to manage and deliver change in a controlled manner to achieve expected business benefits. |
Key mitigations· The setup of the Strategic Transformation Office in April 2020 has ensured appropriate governance across key initiatives to coordinate and drive delivery of change in a controlled manner. · We continue to monitor JM wide risks and interdependencies associated with our transformation. · We carry out independent assurance on key change programmes. · We have introduced a project management and business change framework across all key initiatives. |
Changes since 2020 annual reportOur Strategic Transformation Office has driven delivery of the expected benefits in a controlled manner, thereby reducing the overall risk compared with last year. We have put new processes, tools, controls, governance, and focus on business change in place this year, which has lowered the overall risk in our workstreams. This year we will continue to use these measures across our sectors and in new workstreams and across asset disposal and sustainability. The model of the Strategic Transformation Office has been replicated in many of our sectors to manage the overall group risk. |
12 Product quality
GMC sponsor: Joan Braca up M P |
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Risks, opportunities and impactCustomers use our products in a wide range of their own end products, processes and systems. It is crucial, therefore, that our products work properly and meet the established quality criteria. Performance failure or quality defects could cause harm to consumers or leave us exposed to liability claims. This could lead to loss of future business, licence to operate and reputational damage. |
Key mitigations· We monitor and report on quality performance, taking corrective action where needed. · We continue to develop robust manufacturing and preventative maintenance systems supported by standardised processes. · We embed global quality management systems across our business and provide training and regular communications to help employees understand how to use them. · We adopt 'quality by design' in our new product introduction and product change management processes. |
Changes since 2020 annual reportThe regulatory environment continues to tighten, and our customers are experiencing greater scrutiny. We note an increase in risk profile due to better understanding of our sector quality programmes and relevant exposures. Our risk strategy has been to apply the highest exposure across our sectors which is driven predominantly by the Health Sector. We have strengthened our ability to recognise continuous improvement opportunities and how we apply inherently different quality management systems across our sectors. |
13 Information, technology and cyber security
GMC sponsor: Ron Gerrard - M P |
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Risks, opportunities and impactFailure to adapt our IT systems to changing business requirements, significant disruption to those systems or a major cyber security incident could adversely affect our financial position, harm our reputation and lead to regulatory penalties, or non-compliance with laws. |
Key mitigations· We continue to raise employee awareness and run technology training programmes. · We have enhanced key cyber security technologies to increase our ability to predict, prevent, detect and respond to cyber threats. · We continue to deliver our Cyber Security and Infrastructure Improvement Programme (CSIIP) to increase our organisational resilience. Controls have been increased in areas where we perceive a heightened risk. · We have introduced key policies and standards across JM. · We receive continued support and assurance from third party specialists. |
Changes since 2020 annual reportWe have refreshed this risk to reflect wider IT risks in line with good industry practices and it now includes innovation and digital areas. We continue to invest heavily in our cyber security and IT general controls providing better visibility and governance to support a more efficient business. We maintain a high level of communication and awareness activities ensuring our employees continue to be alert to the external risk associated with the exploitation of the COVID-19 pandemic. |
14 Customer contract liability
GMC sponsor: Nick Cooper n/a I M P |
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Risks, opportunities and impactUnfavourable customer contract terms could lead to significant loss or damage and expose us to high or unlimited liability, as well as other broader negative consequences. |
Key mitigations· Our in house legal team and commercial function work together to negotiate terms and liabilities within our customer contracts. · We provide ongoing legal training and activities to raise awareness. · Contracts that meet specific high risk triggers are subject to approval by our Legal Risk Committee. · Sector General Counsels are part of Sector Executive Committees and advise senior leadership teams on legal risk within their sectors. |
Changes since 2020 annual reportFollowing an assessment of our legal risks landscape and exposures we have concluded that the group's risk in relation to customer contract liability should be tracked. This is primarily due to increasing regulation and collective actions, particularly in the automotive and pharmaceutical sectors, raising our overall risk exposure. |
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:
· Patrick Thomas, Chair
· Robert MacLeod, Chief Executive
· Stephen Oxley, Chief Financial Officer
· John O'Higgins, Non-Executive Director
· Jane Griffiths, Non-Executive Director
· Xiaozhi Liu, Non-Executive Director
· Chris Mottershead, Non-Executive Director
· Doug Webb, Non-Executive Director
states that to the best of his or her knowledge:
· The group financial statements, which have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the group.
· The parent company financial statements, which have been prepared in accordance with United Kingdom Accounting Standards, comprising FRS 101, give a true and fair view of the assets, liabilities, financial position and profit of the parent company.
· 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.
· As at the date of this report there is no relevant audit information of which the company's auditor is unaware. Each director has taken all the steps he or she should have taken as a director in order to make himself or herself aware of any relevant audit information and to establish that the company's auditor is aware of that information.
ENDS
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Enquiries:
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Victoria Barlow |
Deputy Company Secretary |
020 7269 8431 |
Johnson Matthey Plc is listed on the London Stock Exchange (JMAT)
Registered in England & Wales number: 00033774
Legal Entity Identifier number: 2138001AVBSD1HSC6Z10
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