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Johnson Matthey warns of supply chain hit to profits as chief to step down

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Johnson Matthey warned supply chain disruptions will hit profits as its chief executive said he would step down next year, sending shares in the British chemicals company tumbling.

Shares plummeted 18 per cent to £22.86 by mid-morning on Thursday as the group also said it would sell its battery materials business, dealing a blow to its ambitions to transform itself into a key supplier for electric cars.

The FTSE 100 company warned that annual results for the year ending in March would suffer because of supply chain problems, lower precious metal prices and US labour shortages.

Chief executive Robert MacLeod, who announced he would leave in 2022, said the company would focus its investments on hydrogen technologies and decarbonising the chemicals supply chain instead of battery materials.

He will be replaced by Liam Condon, head of German group Bayer’s crop science unit, who faces a tough task in keeping the company relevant as the automotive and energy sectors transition to electric and green power.

Johnson Matthey said the potential returns from its capital-intensive battery materials unit would be inadequate as the market became commoditised, stripping away its ability to offer a unique product.

The exit knocks Britain’s ambitions to develop a homegrown champion with an important role to play in the European electric vehicle supply chain. The sector is predominantly led by Chinese producers such as CATL with Europe’s Umicore and BASF remaining as the large western competitors.

Johnson Matthey makes more than half of its revenues from catalytic converters that absorb harmful emissions from petrol and diesel cars, a sector facing chronic decline.

The 204-year-old company had been betting big on developing a jet-black substance called eLNO, made from nickel, cobalt and lithium and used in cathodes, the most expensive part of an electric car’s battery.

“Our technology is still good. It’s more about how rapidly this market has been accelerating to a large-scale, more commoditised market. The premium for our product has been eroded,” MacLeod said in an interview.

He denied that his departure was connected to the decision to exit the cathode materials business, saying he told the board of his desire to retire “many months ago”.

Rob Hales, an analyst at Morningstar, said: “This was the company’s biggest bet and it has proven to be a strategic failure.”

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The London-based company previously said its cathodes would help increase the range and reduce the cost of batteries, and it had been building eLNO production sites in Poland and Finland at a total cost of £800m-£850m.

Earlier this year, Johnson Matthey attempted unsuccessfully to find a partner for its battery materials venture, which has assets worth £340m.

Charlie Bentley, an analyst at Jefferies, said its lower returns meant the company would struggle to realise much value from any sale.

The declining catalyst business and cathode materials business exit put into question “its ability to be a supplier to the automotive chain over the longer term”, he added.

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