The group uses a range of key performance indicators (KPIs) to monitor performance over time in line with the financial objectives and strategy summarised in the previous section. The principal KPIs, together with the group’s performance against them in 2007/08, are described below:
Financial
Underlying earnings per share growth and return on invested capital are two of the principal financial KPIs we use to measure the group’s performance. In calculating these measures we exclude the following items which can distort the trend in measuring results:
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Profits and losses on disposal of businesses.
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Amortisation of intangible assets arising on acquisition of businesses (acquired intangibles).
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Major restructuring or impairment charges.
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Major tax items arising from changes in legislation.
In 2007/08 the only adjustment in calculating underlying earnings per share and return on invested capital was amortisation of acquired intangibles, mainly arising on the acquisition of Argillon Group in February 2008. Underlying earnings per share were 89.5 pence, 9% up on 2006/07. Total earnings per share were 88.5 pence, 9% below 2006/07 which included the profit on sale of Ceramics Division. Over the five years from 2003/04, underlying earnings per share have grown at a compound annual rate of 9% p.a. Click here to see the group’s five year financial record.
In accordance with our policy of increasing dividends in line with earnings, the board is recommending a final dividend of 26.0 pence taking the total for the year to 36.6 pence, a 9% increase on 2006/07. Over the last five years dividends have also grown at a compound annual rate of 9%, in line with earnings.
We define return on invested capital (ROIC) for the group as underlying operating profit divided by average capital employed (equity plus net debt). ROIC for individual divisions is calculated using average segment assets minus average segment liabilities as the denominator.
In 2007/08 the group’s return on invested capital increased by 0.9% to 18.5%, well ahead of our long run pre-tax cost of capital, which we estimate to be 11.3% on a pre-tax basis. Over the five years from 2003/04, the group’s ROIC has increased by 2.3%. In 2007/08 Precious Metal Products Division achieved a return of 54.3%, well ahead of the group’s target of 20%. Environmental Technologies Division and Fine Chemicals & Catalysts Division achieved returns between our cost of capital and the 20% target of 15.2% and 13.9% respectively.
In measuring sales growth and return on sales we focus on sales excluding the value of precious metals. Total revenue can be distorted by trading activity as well as fluctuations in precious metal prices and do not provide a good guide to underlying growth or profitability. As it happens in 2007/08 both revenue (£7.5 billion) and sales excluding precious metals (£1.8 billion) grew at similar rates (22% and 20% respectively). Over five years sales excluding precious metals have grown by 9% p.a. despite the sale of Ceramics Division.
Johnson Matthey is a global business with operations in many countries around the world which report in different currencies. We report sales and operating profit translated both at actual exchange rates and at constant rates (translating last year’s results at this year’s rates) to measure underlying growth. We also monitor several key cash flow and capital ratios both for the group and individual divisions. More details of financial KPIs are given in the Financial Review and Operations section.
Market Shares
One measure we use to monitor the commercial performance of our businesses is market share. We aim to achieve a leading position (usually number one or two) in the global markets in which we operate. In Emission Control Technologies we estimate we have a 31% share of the available market (excluding in house manufacture by car companies) for light duty catalysts. Our two major competitors have similar shares with the remaining 5% of the market supplied by smaller competitors (mainly in China). In the new market for heavy duty diesel catalysts to original equipment manufacturers Johnson Matthey is the market leader with a share in excess of 45%.
The market for sales of platinum group metals (pgms) to end customers is more fragmented and precise shares are more difficult to estimate. Johnson Matthey is the global market leader. We are also the leader in fabricated pgm products for the industrial market with a worldwide share of about a third.
In Process Technologies and Fine Chemicals & Catalysts we sell a wide range of products into niche markets. Johnson Matthey is the market leader in syngas catalysts used in the manufacture of ammonia, methanol and hydrogen from hydrocarbon feedstocks. We are also the leader in the available market for catalysts used in pharmaceutical production.
Research and Development (R&D)
We monitor progress on all our R&D projects on a regular basis against individual milestones. One measure of ultimate success is the proportion of new products in our sales launched in the last four years as a result of R&D activity. Most of our R&D is concentrated in Environmental Technologies Division. We estimate that about 70% of the division’s sales are for products introduced in the last four years.
Employees
Our employees are our most valuable resource. We are committed to recruiting high calibre employees and providing them with the information, training and working environment they need to perform at the highest standards. Johnson Matthey has a relatively low voluntary staff turnover (7.6% in calendar year 2007 compared with 7.5% in 2006) with many employees staying with the company for the whole of their careers. More details of the group’s training and employment policies are given in the Sustainability section.
Health and Safety
We monitor health and safety performance very closely across all our sites. We collect data on near misses as well as actual accidents using an electronic AirsWeb system. Over the last five years the rate of greater than three day accidents has reduced from 9.1 per 1,000 employees to 2.7 per 1,000 in 2007/08. Further KPIs relating to our health and safety performance are set out in the Sustainability section and in our Sustainability Report on the company’s website at www.matthey.com.
Environment
Johnson Matthey is committed to running its business in a sustainable way which includes minimising the impact of our own activities on the environment. In the Sustainability section we set out the company’s five year record for total acid gas emissions, total global warming potential, energy consumption, water consumption and total waste. Many of Johnson Matthey’s products and technologies provide a significant positive benefit to the environment and details of some these are described in our Sustainability Report on the company’s website. For example, the amount of pollutants removed from the atmosphere by the company’s autocatalyst products since their introduction in 1974 now amounts to over four billion tonnes.
