Report of the Directors
Business Review

Chief Executive’s Statement

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“Technology leadership forms the basis of our strategy to deliver superior value to our stakeholders and during the year we have continued to invest in our people, our R&D efforts and our operations around the world to support the future growth of our business.”

Neil Carson
Chief Executive

Johnson Matthey had a challenging year in 2012/13 however the group has made continued progress in building a sustainable business and in delivering innovative high technology products that enhance quality of life. After two years of very strong financial performance, further progress this year was impacted by headwinds in some of our markets and our operations. Our environment, health and safety performance has continued to steadily improve.

In 2012/13 we saw some further growth in Environmental Technologies Division but this was more than offset by a poor performance from our Precious Metal Products Division and a weaker year for Fine Chemicals Division.

For the group as a whole, revenue decreased by 11% to £10.7 billion but our sales excluding precious metals (sales) were unchanged at £2.7 billion. Underlying operating profit reduced by 8% to £414.8 million and underlying profit before tax was 9% lower at £389.2 million. The group’s underlying return on sales decreased from 16.8% last year to 15.5%, primarily due to the poor performance in Precious Metal Products Division’s higher margin Services businesses.

Environmental Technologies Division grew slightly and improved its return on sales. The Emission Control Technologies business was impacted by the weak European automotive market which held back growth in its light duty vehicle catalyst business. However, its heavy duty diesel catalyst business continued to grow and overall its operating profit was slightly ahead. Process Technologies’ sales were also a little ahead and operating profit increased significantly, supported by a good result from Davy Process Technology.

Precious Metal Products Division had a difficult year particularly in its Services businesses. Lower average precious metal prices, reduced volumes and previously reported operational issues at our Salt Lake City refinery all contributed to a substantial reduction in profitability. The loss of our current contracts with Anglo American Platinum Limited (Anglo Platinum), announced in February 2013, will impact the performance of this division from Q4 2013/14. The performance of its Manufacturing businesses, which represent nearly 70% of the division’s sales, was similar to last year.

The underlying results from our Fine Chemicals Division were in line with last year but increased competition at our UK active pharmaceutical ingredient (API) manufacturing business constrained the division’s growth. In response, we have restructured our global API manufacturing business to better position it to return to growth. The US API manufacturing business and the division’s Research Chemicals business both performed broadly in line with last year.

Sustainability continues to be an important element of our long term strategy for growth and during the year we passed the halfway point of our Sustainability 2017 programme. As you will see in the Group Performance Review, our progress so far has had a major positive impact and we believe we remain on track to meet our goals. For us, sustainability is about doing the right thing for our business, our people and our planet over the longer term. We are approaching this in two ways; through focusing hard on improving the environmental footprint of our operations and by using our expertise to develop innovative, more sustainable products that provide solutions for our customers. This is supported by major global trends which offer strong opportunities for us to grow our business through providing high technology products that deliver sustainability benefits.

Innovation lies at the heart of Johnson Matthey’s long term success and I believe that as our business continues to grow, maintaining and developing our spirit of innovation is key. During the year we have launched ‘myJM’, a new web based system to enhance collaboration between our employees, wherever they are in the world. R&D is the conduit for our people to realise their innovative ideas and we have increased our investment in R&D again this year to support our business.

Around three quarters of the value we create comes from products that we manufacture at our facilities around the world and manufacturing represents a major cost for our business. 2012/13 saw the first full year of ‘Manufacturing Excellence’, a programme to better equip us in producing our high technology products in the most sustainable and efficient way. Operational and efficiency improvements as a result of the programme are already making an important contribution and will continue to benefit our business over the years ahead.

Our new business development efforts have also made good progress, as outlined in the Our Strategy section. We already have several programmes in place and made our first acquisition in the year to support this area.

In the face of a challenging operating environment this year, Johnson Matthey’s people have continued to do the company proud. Our people play a vital role in the success of our business and their development and wellbeing remain our key priorities. I am pleased that we have continued to make further progress this year in improving our performance in these important areas. Work has also continued on understanding and articulating our company’s culture and values.

The change in our arrangements with Anglo Platinum marks an important milestone for Johnson Matthey. For many years, platinum group metals (pgms) have formed a central part of our strategy and, as a result of our close relationship with Anglo Platinum and our R&D efforts, we have seen the market for pgms grow substantially, supported by new applications particularly in the industrial and jewellery sectors. Our new arrangements with Anglo Platinum signal a change in the depth of our relationship and will result in a loss of revenue for the group. However, we are confident that we will be able to access the pgms required for the manufacture of our products from a broad range of suppliers.

20 years ago our business and technologies were mostly pgm based but times have changed and non-pgm containing products are an ever increasing proportion of our product mix. Going forward, our R&D efforts will further reflect this. Today Johnson Matthey is a more agile and diverse business and our strategy review later this year provides a timely opportunity to look more pragmatically at how we use our chemistry and materials science expertise to deliver high technology products.

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