JM’s largest shareholder demands de-risking of hydrogen unit and board revamp

Johnson Matthey’s (JM) largest shareholder has urged the company to either de-risk or sell its hydrogen technologies business, citing continued operating losses and a lack of clear profitability, as part of broader calls for board reform and a strategic overhaul to halt shareholder value erosion.

Standard Investments, which holds around 11% of JM’s outstanding shares, in an open letter to JM Chairman Patrick Thomas, said immediate action needs to be taken to prevent further value degradation for shareholders.

The investor said under Thomas’ six-year tenure, JM shares delivered a total shareholder return of -53%.

Despite stressing its belief in JM’s “unique value,” Standard wrote, “The Board continues to demonstrate a clear lack of discipline around expected returns and an inability to invest thoughtfully and to appropriately anticipate market changes.”

Investor concerns over business developments

Standard highlighted spending in business units with “no demonstrated path to profitability.” Having spent a cumulative £340m ($430m) on its Battery Materials unit, JM exited citing high capital intensity, but was only able to sell the unit for £50m ($63m).

The investor now fears the same could happen with its hydrogen unit, which JM reduced investments into earlier this year. As a supplier of catalysts used in hydrogen production, storage and fuel cells, the company noted slow progress across the value chain.

Read more:Johnson Matthey scales back hydrogen investments amid market slowdown

“Since FY22, JM’s Hydrogen Technologies has followed a similar path – the business has consumed £310m ($392m) of cash and continues to generate operating losses with no apparent path for return on capital,” the letter reads.

Additionally, the letter highlights underperformance in its Clear Air and PGM Services businesses, describing a lack of urgency in developing a plan to boost profitability.

Furthermore, it suggests JM has been obscuring its free cash flow position, describing it as “volatile and meagre.”

“JM reported cumulative free cash flow of £831m ($1bn) since April 1, 2021, when the proceeds from disposals of £966m ($1.22bn) are excluded, the underlying business experienced a cumulative cash burn of £135m ($171m),” the letter stated.

Demands for board overhaul and business review

Standard urged JM to refresh its board with “highly qualified independent directors,” saying the current Board “lacks the sense of urgency and strategic capabilities to improve the company’s performance.”

“JM requires new voices on its Board ready to take swift action and put a stop to the significant value destruction that the current Board and management have presided over.”

It also calls for the de-risking or the sale of the Hydrogen Technologies business unit, which it said faces a similar fate as Battery Materials.

Finally, it urged the board to hire advisors and launch a formal strategic review process to explore paths for maximising shareholder value, “including, but not limited to, a sale of part or all of the company.”

JM responds

JM issued a statement in which it said it “welcomes constructive input from all shareholders” and had had dialogue with Standard.

“The Board and management team are resolute in their focus on improving JM’s share price performance and recognise the need to restore shareholder returns. JM is fully committed to driving enhanced performance, higher cash flow and stronger capital discipline.

“JM is making progress in a challenging market environment through delivery of a comprehensive transformation strategy and will continue to adapt this strategy to the evolving market situation,” the statement said.