Report of the Directors
Business Review

Our Strategy

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Progress in 2011/12 and Future Developments

Having established and communicated its ten year strategy in 2010/11, the group has now focused on the process of embedding the strategy and on its delivery. During the year, all businesses were required to review and report on their long term strategic plans and key developments were discussed.

As a result of the strategic review, the group concluded that it would place more emphasis on new business development and work is now underway to identify new opportunities and leverage our R&D expertise to drive growth. A team has been established, tasked with finding novel applications outside our current products and markets but which align with our technology bases and wider capabilities. A rigorous market based approach has been adopted and during 2011/12, two main areas were explored. Opportunities within the water industry were investigated and a number of potential areas were identified where Johnson Matthey’s technology and capabilities could be applied. The team also looked at the implications of the introduction of electric automotive powertrains, considering a range of options including battery materials and other technologies. This has identified a range of possible new business activities for the company. As a result, we have formed a team who are developing and executing the group’s plans to address these markets. It is still early days, but we hope to make further progress during 2012/13.

Two additional sectors will be investigated during the year. This work is consistent with our overall objective of developing a new business with sales of more than £200 million within ten years.

Work has commenced this year to explore how we can more effectively articulate and communicate the group’s culture and values. This will continue in 2012/13 and their alignment with employee behaviours and performance management will be explored further.

During 2011/12 the group launched its global Manufacturing Excellence programme to support its strategic intent. Work will continue to implement and embed the programme and from the start of the 2012/13 financial year, performance against a number of key metrics will be reported by all manufacturing sites on a monthly basis and used internally to track progress and direct actions.

As discussed in last year’s annual report, in February 2011 the group reviewed its sustainability strategy to assess progress and ensure that its targets were still appropriate to business needs. The review concluded that there was no need to radically change direction, but highlighted areas where we could evolve our strategy to better support the future growth of the company. These were further investigated during 2011/12 and as a result, two amendments to our Sustainability 2017 targets have been introduced.

From April 2012 our target to achieve ISO 14001 at all major manufacturing facilities has been removed as all sites included in the original target have now achieved this. This requirement has now been included in our environment, health and safety (EHS) management system.

In 2012/13 we will continue to review the appropriateness of our target to achieve zero waste to landfill. We have made steady progress towards this target but recognise that waste to landfill is only a proportion of the waste generated by our operations. Therefore we will consider how we can broaden this target to encompass a wider definition of waste and resource efficiency with an overall goal of reducing waste across our business.

One aspect of the strategy we considered in detail was our commitment to reduce carbon emissions from our operations. The feedback from employees had suggested that our aspirational target to achieve carbon neutrality was a concept that was difficult to understand and was causing confusion internally. Furthermore, over four years into our sustainability programme, we have a much greater understanding and knowledge of carbon legislation, markets and emissions from our processes. Consequently, we now do not believe that carbon neutrality is an appropriate target for us.

As a manufacturing business and a business that is growing, this target cannot be achieved without purchasing carbon offsets. We have conducted a lot of research into offsets and are not convinced they offer an appropriate way of mitigating our carbon emissions. We have therefore concluded this is not an approach we wish to take.

As a group we remain committed to driving down our carbon emissions as far as is realistically possible and that any increase will be at a rate that is below the rate of business growth.

To support this commitment, from 1st April 2012 we have replaced our target to achieve carbon neutrality with a new target to halve our carbon intensity by 2017, relative to our 2007 baseline figure. Our carbon intensity is the group’s global warming potential (GWP) per £ million of sales excluding precious metals (sales). In 2007, our carbon intensity was 294 tonnes CO2 equivalent / £ million sales and so we have set a target to halve our carbon intensity to 147 tonnes CO2 equivalent / £ million sales by 2017.

Many of our products already reduce greenhouse gas emissions for our customers and we continue to focus on the development of products that mitigate climate change. Our own life cycle experts group is working to better quantify the in service benefits of our products.

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