Johnson Matthey Regulatory News (JMAT)

1 Existing market outlook

ESIV

Risks, opportunities and impact

The impact of changing assumptions in our key markets is either unplanned or unforeseen and we are not agile enough to respond to them. This risk includes potential impact of legislative changes (e.g. those caused by Brexit), other market movements outside of our predictions, the extended impact of global pandemics such as COVID-19 and emerging trends such as the imposition of tariffs as well as regional and global slowdowns to which our business may be sensitive.

GMC sponsor: Christian Günther

Key mitigations

· Execution of the strategic planning process to assess and understand external trends and assessment of the associated impacts across our sectors (including the balance, scale and focus of investments).

· Regular review of our portfolio is undertaken to ensure that each part of the business is providing value to the group. In turbulent times the resilience of this portfolio demonstrates their benefits.

· Integration of strategic risk within the strategic planning process to challenge implicit assumptions and drive proactively the consideration of different market outcomes.

· Monitoring of key viability and liquidity metrics (including balance sheet strength) as part of budgeting and going concern testing.

· Technology road mapping to understand our response options to evolution in our markets and associated scientific and technological requirements.

· Monitoring of changes to key drivers (including GDP and market assumptions), scenario planning and adjusting business plans accordingly.

Changes since 2019 annual report

We continue to monitor global macroeconomic factors and we are improving our sensitivity analysis through the strategic planning and budgeting process. The agility of this process has allowed us to re-plan quickly and efficiently. COVID-19 has changed our market outlook through supply disruption, plant shutdowns and changing consumer demands.

We have so far seen significant impact to our business throughout Q1 2020/21 driven by COVID-19. Other than the health, safety and wellbeing of our employees, we have specifically focused our actions in managing cash flow, reducing cost and working capital to ensure JM remains robust, with sufficient liquidity.

COVID-19 has increased the volatility and uncertainty of our outlook in existing markets but over time we would expect volatility to reduce and with revised market understanding uncertainty to decline. While putting our own business strength and continuity first, we have also been assessing opportunities created by these market conditions.

2 Future growth

ESIV

Risks, opportunities and impact

Failure to deliver planned growth and value creation through ineffective execution of strategic initiatives and investments.

GMC sponsor: Robert MacLeod

Key mitigations

· A clear strategy, which is continuously reviewed in the light of new information, and a business review process to track execution of that strategy (Transformation Office).

· Ongoing reviews and monitoring of new technologies and market competitiveness.

· Targeted investment in research and development, capital projects and people with the specific skills necessary to deliver effectively and support the realisation of our strategy.

· Proactive engagement with current and potential customers as well as industry bodies, for example the Hydrogen Council, to understand future needs and potential product / market evolution.

· Regular reviews of all strategic capital projects by dedicated group capital projects team.

Changes since 2019 annual report

This risk has been refined to focus on the main elements that drive our growth (identifying opportunities, developing the products and services required and building the capability to deliver).

We have reviewed our growth choices, timing of investments and execution risks in light of COVID-19. Specifically, we have conducted detailed assessments of the impact on projects delivery and start up due to limitations on resource and equipment availability. We continue to ensure that our future growth is aligned with global macro trends (including climate change) such as fuel cell technology.

3 Competitive advantage

ESIV

Risks, opportunities and impact

Failure to maintain our competitive advantage in existing markets and, as a result, not meeting customers' evolving needs as effectively and profitably as our competitors.

GMC sponsor: Maurits van Tol

Key Mitigations

· Strong customer relationships due to JM's technical proposition, good market reputation and a high level of technical service.

· Regular engagement with customers at multiple levels and performing satisfaction surveys.

· Regular strategy reviews including a review of our competitive position and competitors' moves.

· Research and development as well as capital management process ensuring resources are prioritised against the areas of greatest opportunity.

· Strong innovation portfolio with new technology platform and product development process.

Changes since 2019 annual report

We are delivering and tracking our major capability building programmes including commercial, procurement and digital transformation.

We have processes in place to enable effective decisions to allocate innovation resource and capital. Through our innovation excellence programme, we continuously improve the processes that further expand JM's product, application and technology toolbox.

COVID-19 has provided both challenges and opportunities to our business. We have therefore also been focused with our response on emerging opportunities that would transform our business at pace.

4 Environment, health and safety (EHS)

ESV

Risks, opportunities and impact

As per similar high hazard manufacturing companies, our business operations are subject to a wide range of challenging health, safety and environmental laws, standards and regulations from government and non-governmental bodies around the world.

If we fail to operate safely, we could injure our people or breach applicable laws which could adversely impact our employees. This could result in lost production time and potentially attract negative interest from the media and regulator.

GMC sponsor: Robert MacLeod

Key mitigations

· Embedded health and safety culture, including clear policies and standards, continual training and awareness activities and audits.

· Continue to operate process safety reviews on applicable sites.

· Investigations carried out to determine the root cause of incidents and accidents and the development of remediation plans.

· Reporting and management of environmental data.

Changes since 2019 annual report

The health and safety of our employees continues to be our absolute priority across the business. We have made progress in embedding our policies across the business and continue our execution of all EHS improvement plans in a controlled manner, with rigorous and regular tracking which has resulted in improved leading and lagging indicators across the group.

This risk has been updated to clearly articulate the way we are managing our health and safety exposure, and specifically to encompass all relevant areas such as our environmental impact.

COVID-19 has impacted the ways of working for many of our employees. We have deployed new EHS policies and guidelines to protect our employees and we have further developed our wellbeing support programme.

5 Supply failure

ESIV

Risks, opportunities and impact

The nature of JM's operations means there are limited suppliers from which to source certain strategic raw materials including precious metals. Any significant breakdown in the supply of these materials would lead to an inability to manufacture and satisfy customer demand. The impact of COVID-19 has reduced customer demand and increased its volatility while simultaneously impacting the entire supply chain. It has changed the nature of this risk as it requires JM to respond at pace to the changing external environment.

GMC sponsor: Jane Toogood (metal) and Anna Manz (other sourcing)

Key mitigations

· Supplier relationship management through formalisation of regular reviews to discuss their constraints and quality management processes.

· Where deemed appropriate, we carry strategic stocks of raw materials and monitor those levels regularly in the context of the external environment.

· Strategic materials and key suppliers potentially susceptible to COVID-19 related supply disruption in and across geographies identified and hyper care plans in place to ensure continuity and future strength of our supply chain.

· Groupwide co-ordination of sourcing and sharing of resources to ensure personal protective equipment (PPE) continuity of supply and operations to protect our people.

· Improving resilience on supply chain logistics, goods security in particular.

· Regular investigation of alternative materials as part of research and development.

· Prioritised ramp up plans in place to ensure agile response to resumption in demand.

· Continued investment in our pgm refining business to ensure access to recycled precious metals.

· Ongoing market research to understand and monitor the impact of short term events on longer term supply of metal.

Changes since 2019 annual report

We have made progress in the implementation of our procurement strategy and sharpened our understanding of supply chain across the sectors including our capital projects supply chain.

We have committed, through Q1 of 2020/21, to support suppliers, particularly our smaller suppliers who may suffer hardship as a result of COVID-19. We are also placing greater emphasis on the customer and consumer impact of our supply chain and potential supply failure (e.g. to a major OEM).

We have reduced the precious metal backlogs in our refineries, providing access to precious metal meaning that we are currently able to continue servicing critical customers.

6. People

EV

Risks, opportunities and impact

To successfully execute our strategy and deliver growth, we need to ensure that we have the breadth and depth of leadership and the appropriate skills and capabilities to drive a motivated, inclusive and engaged workforce.

GMC sponsor: Annette Kelleher

Key mitigations

· Values and behaviours embedded in all internal processes including hiring and performance reviews.

· Culture focused sessions arranged with leadership and development of culture statement roadmap.

· Ongoing leadership development and wellbeing programmes.

· Global employee engagement survey conducted every two years followed by development and delivery of targeted action plans.

· Pulse surveys carried out to test the progress being made in specific areas and course correct as necessary.

Changes since 2019 annual report

We are continuing to invest in our leadership by clarifying the capabilities and behaviours required through the development at all levels of the organisation.

We have undertaken a further employment engagement survey and are implementing action plans relevant to local sites, as well as global programmes focused on communication, development and ways of working.

We have in place several mitigating actions in response to COVID-19. These include prioritising our employees' safety and health, social distancing and enabling a significant number of colleagues to work from home as well as necessary crisis cover. In the short term, while our leaders navigate the COVID-19 situation, we have put our leadership development programmes on hold and increased our focus on their resilience and wellbeing.

We have a series of leadership engagement and employee communications planned on a regular basis to support colleagues in times of uncertainty and maintain motivation across the group.

7. Security of metal / highly regulated substances

E

Risks, opportunities and impact

The group has significant quantities of high value precious metals or highly regulated substances on site and in transit. Loss or theft due to a failure of the security management systems associated with the protection of metal or highly regulated substances may result in financial loss and / or a failure to satisfy our customers which could reduce our customers' confidence in JM and potential legal action.

GMC sponsor: Jane Toogood

Key mitigations

· Continue execution of the security roadmap which sets out the three year plan to further strengthen the function.

· Implementation and application of the Group Security policies across all sites.

· Execution of security assessments and audits.

· Threat evaluation and horizon scanning regularly carried out.

· Insurance coverage in place.

· Ongoing security awareness campaigns and training including rigorous follow up of thefts and continuous learnings.

Changes since 2019 annual report

Our level of control will increase through the delivery of the security roadmap, which includes implementation of control measures across our critical sites.

In light of COVID-19, we have accelerated certain aspects of the security plan and are ensuring full and comprehensive security cover.

8. Intellectual property management

ESI

Risks, opportunities and impact

Failure to adequately manage our own, and third party, intellectual property, knowledge and information could lead to a loss in business advantage, loss of freedom to operate and reputational damage associated with litigation.

GMC sponsor: Maurits van Tol

Key mitigations

· Portfolio management of intellectual property and technology enabled governance.

· Continued training and awareness of Information Classification Policy.

· Implementation of business intellectual property management strategies.

· Intellectual property lawyers used to provide specialist guidance including in the use of intellectual property as a business tool.

Changes since 2019 annual report

The intellectual property landscapes for the technologies in which JM operates remains inherently challenging as, for example, sustainable technology development is a very dynamic space.

We have made progress implementing mitigating actions, notably rolling out the information security policies including information classification, a robust stage gating process and in developing intellectual property strategies on a per sector / business basis as appropriate.

9. Failure of operations

ES

Risks, opportunities and impact

We will experience interruptions which result in delays in the manufacturing and supply of our products. This may result in lost sales and / or profit affecting our financial performance and reputation.

GMC sponsor: Joan Braca

Key mitigations

· Continuous implementation of Group Business Continuity Policy and Manual, and manufacturing excellence programme across all sites.

· Regular maintenance of critical machinery and continued investment in infrastructure.

· Continue to develop comprehensive response plans with annual testing.

Changes since 2019 annual report

The Group Business Continuity Policy and Manual are embedded across all sites, personal process safety performance has been further enhanced.

In addition we have successfully implemented our Group Incident Management Team to manage our response to the current global pandemic and implemented a number of COVID-19 specific measures including a groupwide pandemic response plan, site operational procedures (focusing on social distancing measures), a groupwide alert level status matrix and a comprehensive site pandemic response measures playbook.

10. Ethics and compliance

SV

Risks, opportunities and impact

Failure to comply with ethical and regulatory compliance standards leading to reputational damage, possible criminal / legal exposure for the company or for individuals.

GMC sponsor: Robert MacLeod

Key mitigations

· Implementation of a refreshed Code of Ethics supported by continued training and tone from the top, set by senior leadership.

· Assurance programme in place to monitor business unit and sector compliance with key controls.

· Ethics panel and 'speak up' facility available and any issues fully investigated, and any recommended actions implemented.

· Use of internal and external subject matter experts to identify risks, set standards and provide advice and training.

· Annual ethical working practice certification by all management with any issues raised investigated.

Changes since 2019 annual report

We have launched several refreshed key policies (Gifts, Hospitality and Charitable Donations, Anti-bribery and Corruption) with aligned training.

We have also developed a more detailed action plan to address all identified risks.

We have increased the level of awareness activities to ensure our employees are aware of the heightened risk due to the additional financial pressures that people and companies may be suffering due to the impact of COVID-19 pandemic.

11. Business transition

ESIV

Risks, opportunities and impact

Failure to manage and deliver change in a controlled manner to achieve expected business benefits.

GMC sponsor: Robert MacLeod

Key mitigations

· Strategic Transformation Office set up to ensure appropriate governance across key initiatives to coordinate and drive delivery of change in a controlled manner.

· Monitoring of JM wide risks and interdependencies of the change.

· Support from subject matter experts in the execution of business change.

· Independent assurance on key change programmes.

· Implementation of project management framework across all key initiatives.

Changes since 2019 annual report

We have implemented strategic oversight of the key change initiatives by the creation of a Chief Transformation Officer role. This role orchestrates cross group initiatives and supports leaders to drive forward the delivery of the expected benefits creating an agile and efficient business, providing flexibility to consistently deliver to our people, customers and stakeholders.

Key programme themes are manufacturing footprints and target operating model reviews, customer and growth, innovation, people and culture. There has been minimal direct impact on these programmes due to COVID-19 and there is opportunity to accelerate in some areas to drive efficiency going forward.

We have introduced and embedded change in managing strategic capital projects and our procurement excellence programme has become part of business as usual activities.

Although we have continued to implement our global ERP solution (Unify) with a number of sites going live during 2019 in the Clean Air Sector, we have paused deployment in the US to prioritise resource in light of COVID-19.

12. Product quality

ESIV

Risks, opportunities and impact

Our products are used in a wide range of applications, processes and systems. The quality of these products is crucial to ensuring they function as intended and meet the established quality criteria. Should a product fail to perform as expected or have quality defects, we could cause harm to consumers or expose ourselves to liability claims. This could lead to loss of future business, reputational damage and loss of licence to operate.

GMC Sponsor: Robert MacLeod

Key mitigations

· Monitoring and reporting of quality performance, taking corrective action where required.

· Continue to develop robust manufacturing and preventative maintenance systems supported by standardised processes.

· Global quality management systems embedded and supported with training and regular communications.

· Embed quality-by-design into new product introduction and product change management processes.

Changes since 2019 annual report

The regulatory environment continues to tighten, and our customers are experiencing greater scrutiny and in-use testing.

We have progressed our thinking in understanding continuous improvement opportunities and how we apply inherently different quality management systems across our sectors.

In the context of post COVID-19 potential surges in demand, we have enhanced our planning to ensure product quality is maintained whilst we react and manage potential impacts to our supply base.

13. Applications, systems and cyber

SIV

Risks, opportunities and impact

Risks that our applications and systems security is inadequate or fails to adapt to changing business requirements and / or external threats. The impact of these may adversely affect our financial position and could harm our reputation.

JM's response to COVID-19 has increased employee remote working and presented new demands on applications, systems and cyber security. This has resulted in increased risks in the operational management of IT systems and cyber risks as malicious actors look to exploit the pandemic.

GMC sponsor: Anna Manz

Key mitigations

· Key cyber security technologies have been deployed to increase our ability to predict, prevent, detect and respond to cyber threats. These have been tuned for the increased risk of attack associated with COVID-19.

· Continued delivery of our Cyber Security and Infrastructure Improvement Programme (CSIIP) to increase our organisational resilience and we have prioritised this investment in the context of COVID-19. Controls have been increased in areas where we perceive the risk to be heightened.

· Implementation of key policies and standardsacross JM.

· Continued support and assurance from thirdparty specialists.

Changes since 2019 annual report

We have continued to invest heavily in our cyber security and IT general controls providing better visibility and governanceto support a more efficient business.

CSIIP programme deliverables have been met in a controlled manner, meeting the milestones set. Risk mitigations have been adjusted in light of COVID-19.

We have increased the level of communication and awareness activities to ensure our employees are more alert to the increased external risk associated with the exploitation of the COVID-19 pandemic. We continue to track external threats working with governments, law enforcement and industry specialists as appropriate.