Group Strategy.

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Technology leadership forms the basis of Johnson Matthey’s strategy to deliver superior long term growth.

Johnson Matthey is a leading speciality chemicals company underpinned by science, technology and our people. A leader in sustainable technologies, many of the group’s products enhance the quality of life of millions through their beneficial impact on the environment, human health and wellbeing. The world has changed a lot since Johnson Matthey’s foundation in 1817. From its early days as a precious metals assayer, the company has always sought to build on its strengths and respond to changing global needs. Today the group continues to apply its expertise in science to develop world leading products and technologies for customers around the world.

Johnson Matthey’s strategy is central to its success and during 2010/11 the group carried out an extensive examination and review of its business strategy for the next ten years. This important piece of work has established the direction of the group over the next decade and outlines the actions it will take to achieve its goals.

Around 11% of the group’s employees work in research and development.

The Strategy Review Process.

The multi step review firstly considered how the group has evolved over the last decade in the face of some of the most severe economic conditions. The common features of a successful Johnson Matthey business were then defined and the group’s key strengths were considered. The review then identified the global ‘megatrends’ impacting the world around us and considered how and why these are important in driving future growth for Johnson Matthey. The strategic role of research and development (R&D) was examined together with the structure and investment required to drive future growth into new business areas. As a result of the process, a ten year strategy to deliver superior growth has been established as detailed in the Our Strategy for Future Growth section.

Johnson Matthey – Ten Years to Today.

Evolution of the Johnson Matthey Group – Sales 2001/02 to 2010/11.

Johnson Matthey has evolved its business portfolio over the last decade as illustrated in the figure on the right. Sales excluding the value of precious metals (sales) have more than doubled during that time and through a combination of organic growth and a series of key acquisitions and divestments, the group has successfully delivered good growth in shareholder value through its strategic focus on environmental technologies.

Today Johnson Matthey is a world leader holding number one or two positions in its core markets and with operations across the globe. It has around 9,700 employees, with more than 1,000 of these working in R&D. In the early part of the decade the group delivered good growth in profit before tax and earnings per share. This was followed by several years of particularly strong growth up to the recession. Whilst profit and earnings growth both flattened during the economic downturn, Johnson Matthey weathered the storm extremely well, supported by its diverse portfolio of businesses and global reach. Going forward, with recovery in the group’s markets, future prospects for growth are good.

Johnson Matthey Today.

In 2010/11 the group has reported sales of £2.3 billion and underlying profit before tax of £345.5 million. Its return on invested capital (ROIC) was 19.4%, close to our target of exceeding 20%. Over the ten year period to 31st March 2011, growth in underlying earnings per share (EPS) was 7.8% p.a., a solid performance against the backdrop of the recent global recession.

Definition of a Successful Johnson Matthey Business.

Establishing the common features of a successful Johnson Matthey business was an important aspect of the strategy review process. It helps us to understand what makes the company successful and also provides a focus for future investment decisions. The process identified the common attributes of our most successful operations and revealed a number of consistent and interdependent features as shown in the diagram below.

Johnson Matthey Attributes.

Starting at the top of the diagram above and working round clockwise, many of our businesses have an environmental focus and / or are driven by regulation, be it to provide products that enable our customers to meet lower emissions legislation, or the manufacture and supply of controlled substances etc. This opens up a number of markets where the group can apply its core chemistry skills in platinum group metals (pgms) and catalysis to develop products and technologies for its customers. We build deep relationships with our customers and this, together with our strong scientific knowledge, enables us to establish a good understanding of our markets and our customers. This in turn provides the basis from which to make informed decisions about how we invest in technology and product development. Through continued investment Johnson Matthey has maintained differentiation through technology, developing and manufacturing its products which is key to growing the business and maintaining a competitive edge. As a result, the group has been able to achieve leading industry positions with high margin products which, in combination with the other attributes, ensures that many of the markets in which we participate have high barriers to entry and provide an attractive platform for the future.

These common attributes are interdependent, with each attribute supporting the next. Equally important are the group’s people and culture which are, in essence, the ‘glue’ that binds these attributes together. The culture of an organisation is not easy to define, but there is a distinctive culture across Johnson Matthey, irrespective of division, business, function or geographic location, and we recognise this culture as a particular strength. The group believes that it must embrace the challenge of sustaining and integrating this culture as it continues to grow its international operations.

Whilst these attributes highlight the common features of a successful business within the group, the board recognises that these are not the sole determinant of a good Johnson Matthey business. However, identifying and recognising these attributes provides a good understanding of what makes the group successful and acts as a valuable focus for future investment decisions.