Report of the Directors
Business Review

Chief Executive’s Statement

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Neil Carson
Chief Executive

“We have made good progress this year on our strategy of delivering superior value to our stakeholders through technology leadership, continuing to increase our investment in research and development and state of the art manufacturing facilities around the world.”

I am very pleased to say that Johnson Matthey had a good year in 2011/12, continuing our strong financial performance and making good progress towards improving our environmental, health and safety performance. We have also increased our focus on developing our people and on defining and disseminating our culture, both of which are key to the success of our growing global business. The year has also seen us making good progress on our strategy of delivering superior value to our stakeholders through technology leadership, continuing to increase our investment in research and development and in state of the art manufacturing facilities around the world.

The year saw good growth across all three of our divisions. Sales excluding precious metals (sales) were substantially ahead of last year, up 17% at £2.7 billion, and the rate of growth in underlying operating profit was higher, at 23%.

Our Environmental Technologies Division had a very good year. Its Emission Control Technologies (ECT) business benefited from good growth in sales of light duty catalysts, ahead of growth in global vehicle production, and a substantial increase in demand for heavy duty diesel catalysts, particularly in North America. Our Process Technologies business performed well boosted by another excellent year from Davy Process Technology (DPT) and a good contribution from our Additives business (formerly Intercat), which was acquired in November 2010.

Precious Metal Products Division also performed well, especially in the first six months of the year. After a very strong first half, precious metal prices softened in response to concerns over the global economy which adversely impacted the division’s Services businesses. Its Manufacturing businesses saw good demand across their product range.

Fine Chemicals Division exceeded our expectations, delivering excellent results in 2011/12, supported by a very strong performance from its Active Pharmaceutical Ingredient (API) Manufacturing businesses. Its global Research Chemicals business also grew well in the year.

For the group as a whole, revenue was 20% up on last year at £12 billion and sales were £2.7 billion, 17% higher than last year. Underlying operating profit was 23% higher at £450.1 million, while underlying profit before tax was also 23% up at £426.0 million. The group’s underlying return on sales increased to 16.8% from 16.1% last year, primarily due to operational leverage, particularly in our heavy duty diesel catalyst business, and the excellent performance from our higher margin DPT business.

Sustainability is a key element of our strategy for growth and is well embedded in all of our businesses and embraced by our employees around the world. We continue to make good progress towards achieving our Sustainability 2017 Vision via the challenging targets that we set ourselves when we launched it back in December 2007. Our sustainability strategy and targets are subject to continuous review and during the year we have made some changes to our targets which are outlined in the Our Strategy section of this annual report. In particular we have taken a detailed look at our commitment to reduce carbon emissions from our operations.

Over the last few years we have gained a much better understanding of carbon legislation, markets and emissions from our processes and we have come to the conclusion that carbon neutrality is not an appropriate target for a growing manufacturing business like ours. However, we remain committed to driving down our carbon emissions as much as is realistically possible and with effect from 1st April 2012 we have replaced carbon neutrality with a new target to halve our carbon intensity, relative to our 2007 baseline figure, by 2017. I believe that this continues to be a stretching target.

Johnson Matthey is extremely well placed to benefit from a combination of improvements to the efficiency and environmental performance of its own manufacturing operations and from developing new products that bring significant sustainability benefits to our customers. Operational improvements and increased efficiency have undoubtedly been making a significant contribution to the growth and success of the company in the last few years. Manufacturing is at the very heart of our business. It is how we bring our science and technology to life and deliver what our customers want, when they want it. During the year we established and launched a groupwide Manufacturing Excellence programme. I believe that this important initiative will better equip us to produce high technology products for our customers in the most sustainable and efficient way and will bring major benefits to our business in the years ahead.

Our people play a vital role in the success of our business, they truly are our most valuable resource. Their training and development and protection of their health, safety and wellbeing have long been, and remain, key priorities. We have continued to make good progress during the year in developing our systems and improving performance in these very important areas.

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