It’s a perfect 180-degree strategic U-turn. As recently as April, Robert MacLeod, the chief executive of the FTSE 100 firm Johnson Matthey, whipped up the excitement about the group’s work on battery materials for electric vehicles – a very net zero venture and one intended to replace the looming decline in the company’s core business of catalytic converters for combustion engines.
A new production plant would be built in Finland, in addition to the one under construction in Poland, and long-term deals to secure supplies of raw materials – nickel, cobalt and lithium hydroxide – had been signed. Johnson Matthey, declared MacLeod, had passed “important milestones on our journey towards developing a sustainable battery materials ecosystem”.
The news also sounded excellent for the UK. Johnson Matthey is a low-profile member of the Footsie but was being talked about as a national champion in this new specialised field – not batteries themselves but key chemistry and raw materials within. The factories would be overseas, but 400 highly skilled research development jobs were concentrated in Oxfordshire and County Durham. There would be spillover battery benefits for the country.
And now? The adventure is being abandoned. In a complete reversal of his April enthusiasm, MacLeod says the numbers don’t add up. “We have concluded that we will not achieve the returns to justify further investment,” he admitted, blaming increased competition and commoditisation.
Come on, though, the idea that the competitive risks have become apparent only in recent months doesn’t stand up. More than a few City analysts have been making the same point for ages about the size advantages of Chinese, Korean and Japanese players. In Europe, Umicore, a Belgian rival, was deemed faster off the grid.
It’s impossible to know how the debate ran within the boardroom but one suspects a bad case for hoping for the best on the grounds that so much capital had already been committed. Bad call: analysts predict a hefty write-down on the unit’s £340m net asset value even if a buyer, or buyers, can be found.
MacLeod has decided it’s a good moment for him to retire (shareholders, looking at a share price down 19% on the day, would probably agree) but the real question is where Johnson Matthey goes next. This is a fine UK company with 200 years of history as a science-based enterprise that ought, in theory, to be well placed to capitalise on energy transition. Instead, the big battery bet has flopped and hydrogen cells and chemical decarbonisation, two other ventures billed as future technologies to replace earnings from catalytic converters, are at earlier stages of development.
The danger is that a private equity predator, or similar, decides the company is worth more dead than alive and takes a pop. It is too easy to imagine a depressing alternative strategy: milk the cashflows from catalytic converters, which City analysts say might still amount to £4bn over the next decade, and sell the rest of the business.
A new chief executive, Liam Condon, is on the way from German chemicals group Bayer but won’t arrive until next March. One assumes a strategic review will happen at that point but, in the meantime, Johnson Matthey’s board needs to get a grip. When you abandon your big project six months after giving it maximum hype, you look confused and vulnerable.
ING braces for ‘non-gigantic’ Brexit impact
“Nothing says that we’re in the run-up to Christmas more than Brexit negotiations,” says ING’s economics team, only half-joking.
The European Union is preparing possible retaliatory options, including suspension of the trade deal, should the UK make unilateral changes to the Northern Ireland protocol. So, yes, it’s a moment for City thinkers to dust off their “no-deal” Brexit analyses and examine which parts may yet apply.
ING’s answer, perhaps surprisingly, is fewer than you might assume. The UK’s departure from the single market and customs union at the end of 2020 was the “major sea change in trade terms” and many of the costs of Brexit have already accrued in terms of form-filling and custom processes. The additional economic hit “may not be gigantic”.
It’s a theory and will be tested only if the trade and cooperation agreement ends. But note that the analysts, looking primarily at the impact on sterling, are taking a big-picture perspective. As they concede there would be “a sharp blow to a few key sectors” where serious tariffs could hit. Well, quite. Financial markets may be relaxed about the current political rhetoric; that won’t be true in UK car and agriculture industries.