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Analysis


SAD DAY FOR UK SCIENCE AND TECHNOLOGY AS JOHNSON MATTHEY ANNOUNCES BATTERY
MATERIALS EXIT

The volte-face kills off potential for the 204-year-old British company becoming
a domestic champion in the field which is key to the transition to electric
vehicles and currently dominated by Chinese firms.

Ian King

Business presenter @iankingsky

Fill 2 Copy 11 Created with Sketch.

Thursday 11 November 2021 15:18, UK



Image: The battery materials business is a key player in supporting the
transition to electric vehicles
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Why you can trust Sky News

The timing could not be more embarrassing for the government as it hosts COP26.

Johnson Matthey, one of the UK's premier industrial companies and a global
leader in sustainable technologies, announced today it is to sell its battery
materials business - a key player in supporting the transition to electric
vehicles.

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The decision effectively kills Britain's hopes of having a domestic champion in
battery technology, a field dominated by Chinese companies such Contemporary
Amperex Technology, a goliath which is getting on for 40 times the size of JM.


Image: JM has devised a technology which improves the efficiency of electric
vehicle batteries

South Korea also has two big players in Posco and LG while, closer to home,
European competitors include BASF of Germany and Umicore of Belgium.

All are significantly bigger than JM.

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The news comes just six months after JM announced it would invest up to £600m
this financial year in both battery materials and in hydrogen technology.



This investment was expected by investors to see the company scaling up its
battery materials business.


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JM has devised a technology called eLNO (enhanced lithium nickel oxide) which
improves the efficiency of electric vehicle batteries by increasing the amount
of power the battery delivers and by extending its life.

The company announced a partnership in April with Finnish Minerals Group to
support its second commercial plant in the country - the first is being built in
Poland - to produce cathode materials and had secured a long-term supply deal
with Nornickel, the Russian resources giant, for nickel and cobalt.

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1:09
'I don't believe in just offsetting': chemicals boss on net-zero effort
Johnson Matthey chief executive Robert MacLeod tells Sky's Ian King Live about
it's net-zero plans
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May 2021: 'I don't believe in just offsetting': chemicals boss on net-zero
effort

So the move is undoubtedly something of a volte-face.

Adding to the government's embarrassment is the fact that, only as recently as
May, Kwasi Kwarteng, the business secretary, opened JM's new state-of-the-art
battery technology centre near Oxford.

The centre was billed as enabling JM to "drive rapid improvements in battery
performance for customers and help drive the mass adoption of electric vehicles,
aligned with our vision for a cleaner, healthier world".

Central to that was building on JM's existing battery technology and testing
capabilities and accelerating the further development of its eLNO materials for
battery electric vehicle applications.

Today's announcement, which was accompanied by a warning that annual profits
will be towards the lower end of market expectations, stunned investors and sent
JM shares down by 18% - wiping just under £1bn from the company's stock market
valuation.

Explaining the decision, the company said that following a detailed review ahead
of reaching a number of critical investment milestones, it had concluded that
the potential returns from its battery materials business would not be adequate
to justify further investment.

It said that, while demand for battery materials was accelerating, so was
competition from alternative technologies and other manufacturers.

JM said it had become clear the business was consuming too much money compared
with other more established large scale and low-cost producers.


Image: The company has a history of innovation

Robert MacLeod, JM's chief executive, said: "While the testing of our eLNO
battery materials with customers is going well, the marketplace is rapidly
evolving with increasing commoditisation and lower returns.

"We have concluded that we will not achieve the returns necessary to justify
further investment.

"This decision will allow us to accelerate our investment and focus on more
attractive growth areas, especially where we have leadership positions such as
in hydrogen technologies, circularity and the decarbonisation of the chemicals
value chain."

JM also announced that Mr MacLeod himself would be stepping down in February
next year after nearly eight years in the job.

He will be succeeded by Liam Condon, who currently heads the crop science
division of Bayer, the German chemicals and pharmaceuticals giant.

There is now a big question over the type of business that Dublin-born Mr
Condon, who speaks six languages and has both Irish and German citizenship, will
be inheriting.

Battery materials was seen as a real growth opportunity for JM, whose core
business is in providing pollution filters for cars.

Roughly one in three cars around the world currently use JM's emission control
technology.


Image: Shares slumped on the announcement

Yet this sector is widely seen as in long term decline since it is tied to the
fortunes of the internal combustion engine.

By contrast, the global battery materials market was expected to be worth $90bn
per year by 2027, not only due to demand for batteries for electric vehicles but
also due to the ever-growing need for batteries to support laptops, smartphones
and other smart devices.

Mr MacLeod himself told investors this time last year that the "battery
materials market opportunity is very significant".

He went on: "Having a great product in the lab is not enough.

"We have to be able to manufacture at scale, and that's where our commercial
plants come in.

"Our first commercial plant in Poland is progressing well, and we have now
completed filing, so very soon, you'll see the building going up…it will start
production in 2022, and we will have commercial automotive production in 2024."

Yet JM's shareholders are thought to have become increasingly nervous about the
cost involved and about the likely return JM would see on its investment.

The company said last year it expected to see a return on its investment of 15%
- compared with the 20% target it has for the group as a whole.


Image: Business secretary Kwasi Kwarteng opened JM's new state-of-the-art
battery technology centre near Oxford earlier this year

So, over time, JM may receive some short term credit from investors for exiting
a field in which it could not afford to compete with better-heeled and
deeper-pocketed rivals.

Longer term, in terms of the transition to net zero, it means JM is putting all
its eggs in the basket marked hydrogen.

In the meantime, analysts are sceptical that JM will achieve value for the
business, given its comments.

The battery materials business employs 430 people, mainly in the UK, while it is
valued at £340m.

Some analysts fear this will have to be written off.

Margaret Schooley, analyst at stockbroker Stifel, said: "The exit from battery
materials is unexpected given the investment to date from the company with
today's announcement underscoring questions on the group's ability to maximise
value through the sale process.

"The decision will no doubt focus investors on the longer-term prospects for the
company given the structural decline faced by Clean Air."

JM has navigated numerous hurdles in its 204-year history and its inventions
have played a huge role in human progress.

Its electrocatalysts supported fuel cells used to provide electricity and water
on board missions carried out by the NASA space programme.

Its catalytic converters have reduced pollution.

Its platinum technology has helped battle many different kinds of cancer.

The company's battery materials division promised to be an innovation to rank
alongside those achievements.

The decision to sell it - while it may be right from a financial perspective -
makes this a sad day for the UK's science and technology sectors.

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