‘No sacred cows’ says Johnson Matthey, but strategic review needs to keep investors sweet
The board of Johnson Matthey still couldn’t summon a mea culpa as the financial pain of closing the electric battery unit was formalised as a thumping £314m impairment charge. Six months ago, remember, the chief executive, Robert MacLeod, was singing the praises of the adventure, including announcing a second factory in Finland. Acceptance that Johnson Matthey had been outmuscled by bigger competitors came very late.
Still, there was news of £200m share buyback, which was presumably an attempt to keep investors sweet until MacLeod’s replacement, Liam Condon, arrives next March from Bayer to conduct the inevitable strategic review. It was also a reminder that, even after wasting so much money on its dream of supplying materials for batteries for electric vehicles, the 200-year-old Johnson Matthey retains strengths.
One is a balance sheet where net debt of £700m represents only modest financial gearing – slightly less than a year’s pre-depreciation earnings. Another is the fact that catalytic converters for petrol and diesel vehicles aren’t dead yet.
It was the prospect of their eventual demise that tempted Johnson Matthey into battery materials in the first place. Now it says the converters will continue to generate at least £4bn of cash over the next decade, even though electrification is happening faster than forecast.
The question mark is over how Johnson Matthey deploys that cash, which is a matter of management credibility around the two remaining expansionary bets – hydrogen cells and chemical decarbonisation. Both are closer to the company’s traditional skills (it had fuel cells on the Apollo space missions). On the other hand, endorsement from an incoming boss is essential.
There will be “no sacred cows” in the review, says the board, which is the correct stance at this stage. One hopes investors keep faith. When on form, Johnson Matthey is a properly innovative company, but it currently looks horribly vulnerable to a break-up bid by private equity. The new boss can’t arrive soon enough.
The Chinese politburo is not noted for its sense of humour, so you can understand why Jamie Dimon, the big chief at JP Morgan, hurriedly expressed his “regret” for saying he’d bet that the Wall Street bank would outlast the Chinese Communist party in China.
There is a history with international banks’ utterances and China. In 2019, there was a fuss when a UBS economist referred to “Chinese pigs” in the context of swine flu in the country. One sloppy translation later, UBS was ditched as broker for a bond sale by a state-backed railway company.
Joking about the longevity of the regime probably counts as several grades more serious to Beijing. And Dimon’s additional remarks about how intervention in Taiwan could lead to “China’s Vietnam” may have gone down just as badly. And Dimon had just arrived back in the US after a trip to Hong Kong.
In the end, the affair will probably blow over. Beijing would only draw more attention to the remarks if it, say, withdrew a few of JP Morgan’s licences. But a slower process of non-appointments to state-related deals cannot be ruled out. After all, the thought behind Dimon’s theoretical wager was on the money: it is the big question.
Covid loans questions
When the National Audit Office last year picked over the coronavirus “bounce back” loan scheme for small companies, it concluded that taxpayers could lose £26bn through fraud and defaults. A follow-up inquiry to protect public money is planned – quite right, too.
But the spending watchdog could also usefully look at the scheme aimed at mid-sized companies: the Coronavirus Business Interruption Loan Scheme. Bloomberg reported yesterday that more than £130m of loans went to companies with questionable credentials – they had been dormant or were created after the pandemic struck.
Bloomberg’s analysis was based on examining almost half the data on borrowers – data that, interestingly, has emerged only through EU sources thanks to stateaid disclosures that still applied after Britain’s departure.
More transparency is essential. With the “bounce back” loans, one could accept that banks, under Treasury orders, were obliged to get loans of up to £50,000 out of the door in a hurry. With CBILS, though, it’s different.
Loans were for up to £5m. While default rates may be negligible, there is a clear public interest in knowing how the scheme was administered and whether it was effective. Pleas about commercial confidentiality are not persuasive.