Report of the Directors
Business Review

Group Key Performance Indicators

The KPIs we
use to monitor
and drive performance

Johnson Matthey uses a range of key performance indicators (KPIs) to monitor the group’s performance over time in line with its strategy.

These include key measures of the group’s financial performance as well as indicators to monitor ongoing investment in facilities and in R&D. In addition, the group also uses KPIs to track the carbon footprint of its operations and to measure and drive continuous improvement in the safety, wellbeing and development of its employees.

These principal KPIs, together with the group’s performance against them in 2011/12,
are described below:

Monitoring sales provides a measure of the growth of the business. In measuring the growth of the group, we focus on sales excluding the value of precious metals because total revenue can be heavily distorted by year on year fluctuations in precious metal prices. Not only that, in many cases, variations in the value of the precious metal contained within our products are passed directly on to our customers.

Performance in 2011/12

In 2011/12 sales excluding precious metals grew by 17% with good growth across all three divisions as described in the Financial Review of Operations.

Underlying earnings per share is the principal measure used by the board to assess the overall profitability of the group. The following items are excluded from underlying earnings because they can distort the trend in measuring results:

  • Amortisation and impairment of intangible assets arising on acquisition of businesses (acquired intangibles).
  • Major impairment or restructuring charges.
  • Profit or loss on disposal of businesses.
  • Tax on the above and major tax items arising from changes in legislation.

Performance in 2011/12

This year underlying earnings per share rose by 29% to 153.7 pence supported by a strong performance across the group. Further details are provided in in the Financial section.

In a business as capital intensive as Johnson Matthey’s, profitability alone is a poor measure of performance; it is possible to generate good operating margins but poor value for shareholders if assets are not used efficiently. Return on invested capital (ROIC) is therefore used alongside profit measures to ensure focus upon the efficient use of the group’s assets. ROIC is defined for the group as underlying operating profit divided by average capital employed (equity plus net debt). ROIC for individual divisions is calculated using average segmental net assets as the denominator.

Performance in 2011/12

The group’s ROIC increased from 19.4% to 22.3%, exceeding our target of 20%.

To enable the group to continue to grow, Johnson Matthey invests significant amounts in maintaining and improving our existing plants and in adding new facilities to provide additional capacity where necessary. All new capital expenditure is subject to detailed review to ensure that its investment case passes internal hurdles. Annual capital expenditure is measured as the cost of property, plant and equipment and intangible assets purchased during the year. The ratio of capital expenditure to depreciation gives an indication of the relative level of investment.

Performance in 2011/12

In 2011/12 the group’s capital expenditure was £149.6 million which represented 1.2 times depreciation (2010/11 1.1).

Johnson Matthey is fundamentally a technology company. To maintain our competitive position, we need to keep investing in research and development. Whilst absolute levels of research and development expenditure do not necessarily indicate how successful we are, that success rapidly feeds through to higher sales as lead times in our business can be quite short.

Performance in 2011/12

In 2011/12 the group increased its research and development expenditure by 17% to £128.6 million. Further details of the group’s research and development activities are described throughout the Business Review.

We measure our progress towards reducing the carbon footprint of our operations by looking at the group’s total global warming potential (GWP). Total GWP is based on our direct and indirect energy usage and CO2 equivalence which provide a strong platform for monitoring the impacts associated with energy use in our operations. We are working to broaden the scope of our GWP measurement to include all aspects of our business and to consider the beneficial impacts of our products and services.

Performance in 2011/12

This year the group’s GWP increased only slightly from 415,000 to 417,000 tonnes CO2 equivalent despite increased activity and a full year’s contribution from two operations acquired during 2010/11. Further information on the group’s GWP is given in the Environment section.

Johnson Matthey is a manufacturing business and a significant proportion of our employees work in production environments with chemicals and process machinery. Rigorous safety systems apply across all facilities and are essential if the group is to avoid accidents which could cause injury to people or damage to our property, both of which can impact the group’s performance. We actively manage our safety performance through monitoring the incidence and causes of accidents that result in more than three days lost time.

Performance in 2011/12

The group’s annual accident rate of greater than three day accidents reduced this year to 2.07 per 1,000 employees. Further details of our safety improvement programmes are provided in the Health and Safety section.

The health and wellbeing of our employees is a priority for Johnson Matthey and we are committed to minimising workplace related negative health effects. We manage our performance in this area by measuring the number of occupational illness cases arising as a result of exposure to workplace health hazards.

Performance in 2011/12

The annual incidence of occupational illness cases was unchanged this year at 3.5 per 1,000 employees, below our target of 3.7 cases per 1,000 employees, as a result of our initiatives to promote employee wellbeing across the group. Further details are provided in the Health and Safety section.

The success of Johnson Matthey is partly dependent upon the extent that we are able to attract and retain talented employees. This means that being an attractive employer is a prerequisite in a competitive environment. We monitor our success in retaining our staff using voluntary employee turnover statistics.

Performance in 2011/12

In 2011/12 the group’s voluntary employee turnover increased to 6.4% from 5.6% in 2010/11.

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