Johnson Matthey’s (JM) board has ordered the suspension of further capital spending on its green hydrogen technologies business after the firm’s largest investor demanded its de-risking or sale.
Following a board review of a letter from Standard Investments, which holds an 11% stake in JM, the company has said its board will be “resolute in its focus on driving a step change in cash generation and higher returns on capital.”
The letter, issued in December, urged JM to de-risk or sell its hydrogen technologies business, citing continued operating losses and a lack of clear profitability, amid broader calls for board reform and a strategic overhaul.
Read more:JM’s largest shareholder demands de-risking of hydrogen unit and board revamp
Now, JM has said it will increase cash conversion levels by 20-30% in FY2024/25, at least 50% in FY 2025/26, and above 80% in FY2026/27.
As part of the plans, JM’s board has ordered a CAPEX suspension in its hydrogen technologies unit – covering its green hydrogen and fuel cell technologies – and the reduction of CAPEX in the business to “maintenance levels” of £5m ($6.2m) or less per year from FY2025/26.
“This business remains on track to achieve operating profit break-even by the end of FY2025/26,” a JM statement said. However, the cutbacks could cut deeper, with the group “pursuing options to further de-risk this business.”
H2 View understands JM’s catalyst technologies unit – which covers low-carbon hydrogen – will be unaffected by the spending changes.
The move comes after JM in May 2024 cut back its hydrogen technologies investments from 30% of the group’s three-year CAPEX guidance to 10%.
Read more:Johnson Matthey scales back hydrogen investments amid market slowdown
Furthermore, the company is forming an Investment Committee of the board to “reinforce both cash generation, and disciplined and measured deployment of capital.”
Standard Investments previously criticised JM’s ability to take business units towards profitability, warning that its hydrogen unit could follow a similar path of its former batter materials segment, which consumed £340m ($424m) in capital before being sold for just £50m.
“Since FY22, JM’s hydrogen technologies has followed a similar path – the business has consumed £310m ($387m) of cash and continues to generate operating losses with no apparent path for return on capital,” the investor said.
A JM spokesperson previously told H2 View, “Hydrogen remains attractive in the long-term. We are being disciplined with our capital and slowing our investment to align with the changing demand environment.”
The British multinational has held a significant role in the hydrogen industry; providing catalysts used in hydrogen production, storage and fuel cells. It is involved in some of the world’s biggest low-carbon hydrogen projects.
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