Investors are tired of energy transition ‘jam tomorrow’

{"text":[[{"start":null,"text":"

"}],[{"start":8.45,"text":"Should fossil fuel and industrial companies spend billions trying to build new, “cleaner” businesses? "},{"start":13.917,"text":"Or simply squeeze as much cash as possible from existing operations, even if they are in structural decline? "},{"start":19.934,"text":"This is one of the defining questions of the decade in many sectors. "}],[{"start":23.92,"text":"Successful case studies backing up option A are becoming fewer and farther between. "},{"start":28.837000000000003,"text":"The 207-year-old British industrial group Johnson Matthey’s latest transformation shows how well-meaning ideas can turn into expensive misfires — as well as the dangers of becoming a “jam tomorrow” energy transition stock. "}],[{"start":41.02,"text":"Standard Investments, Johnson Matthey’s largest shareholder, on Monday attacked the group for spending “significant capital” on “unproven” growth businesses. "},{"start":49.224000000000004,"text":"It is not hard to see why the group is coming under pressure: it trades about a fifth lower than rivals on a forward EV/ebitda basis on FactSet data. "}],[{"start":58.86,"text":"Johnson Matthey is known for its catalytic converter business, which is still highly cash generative, despite pressures on the auto sector. "},{"start":66.277,"text":"Indeed, the company has said the division will generate at least £4.5bn of cash in the decade to 2031, £2bn of which has already been delivered. "}],[{"start":76.7,"text":"Trouble is, catalytic converters should — over time — become obsolete as consumers switch from combustion engines. "},{"start":83.629,"text":"Liam Condon, who took over as chief executive in 2022, has hence pursued a strategy which relies, in part, on a bet that other technologies, such as “clean” hydrogen, will take off. "}],[{"start":95.69,"text":"This involves substantial upfront investment. "},{"start":98.51899999999999,"text":"Excluding disposals, Johnson Matthey’s underlying business has since April 1 2021 burnt £135mn of cash, on Standard’s estimates. "},{"start":107.699,"text":"Growth businesses aren’t solely to blame: Johnson Matthey is also investing in its traditional businesses, including building a more efficient refinery in China for critical materials including platinum. "}],[{"start":118.97999999999999,"text":"The hydrogen division — which makes components for fuel cells and electrolysers — has consumed £310mn of cash since the 2022 fiscal year, says Standard. "},{"start":129.059,"text":"That’s a concern given the clean hydrogen industry is faltering. "}],[{"start":null,"text":"

"}],[{"start":133.41,"text":"Johnson Matthey may be hoping that shareholders will be willing to wait and see. "},{"start":137.714,"text":"Already, it has taken steps to stabilise the ship. "},{"start":140.91899999999998,"text":"It has delayed the start of production at a UK hydrogen components factory. "},{"start":144.962,"text":"Overall group capex, which totalled £1.1bn in the past three years, should reduce to £900mn over the next three. "},{"start":152.97899999999998,"text":"Cash flow generation should stabilise, reckons Panmure Liberum’s Lacie Midgley. "}],[{"start":158.19,"text":"The problem is shareholders have already been burnt by Johnson Matthey’s expensive foray into cathodes for electric vehicle batteries under previous management, which resulted in a £363mn impairment and restructuring charge. "}],[{"start":171.47,"text":"As others such as BP know only too well, patience is wearing thin with “cash tomorrow” energy transition promises — no matter how visionary the strategy. "}],[{"start":179.79,"text":""}]],"url":"https://creatives.ftmailbox.cn/album/185458-1734484464.mp3"}