Friday, 28 June 2013

Company Focus – Johnson Matthey plc – From Gold to Platinum to a Catalyst of Eco-Tech

The last web-log sought to review the general methods and regional discrepancies pertaining to the recycling of steel-constructed vehicle bodies; by far the greatest production volume and so environmental impact upon the planet. The variability in capturing and extracting was eye-opening. Many western systems overtly simplistic given a largely unchanged, simplistic economic model for scrap steel and associated materials. Resulting in a feast or famine approach by metals collectors and recyclers given the western model's innate inadequacies.

However, one exception has been the catalytic converter and the precious materials within. This single item may though prompt a new sense of innate value for all materials, with a trickle-down effect from the high value recycling space into those presently less so, but more so into tomorrow.

This in turn posits the question as to how the world's leading participant corporations in the research, manufacturing and re-cycling loop will seek to gain a greater grasp upon a 21st century. A century that proffers once again Adam Smith's mantra regards the 'scarcity of resources', the fundamental issue which effectively created modern economics.

High Value Content

As economic impetus demands, the most prevalent incentive to salvage, extract and re-use will inevitably focus on the highest value materials. Hence even the worst laggards of environmentally-directed recycling typically remove a vehicle's catalytic converter for the precious metals which coat the internal cell-structure of the item. These micro-thin coatings able to be re-processed for re-use either as new internal coatings, or put to use in other industrial contexts, or indeed deployed into luxury consumer goods as and when market conditions are strong.

Previously the German conglomerate BASF was mentioned as a prime recycler, Recently Ricardo plc highlighted the research and development progress at BASF, which has now managed to alter the 'packaging' of the standard catalytic converter from two treatment chambers – one for gases, one for particulate matter – into a singular unit. So as to create an advanced “four-way cat”.

Such initiatives obviously seek to gain commercial leadership in emissions technology, providing a weight and functional advantage to the client volume manufacturer, and allowing BASF a broader 'high to low' flexible pricing capability for the unit. Presumably, at first seeking a premium for its reduced size and mass, so given greater under-body engineering freedom to the VM and initially applied to sports-cars and premium-cars. And latterly, gaining from the item's economies of scale both in terms reduced materials use of the 'cat' itself, and from growing production. Thus the new BASF catalytic converter provides a 'premium-win, mass market win' which offers 2 distinct income streams over a long time-line.

[NB This is perhaps the central commercial philosophy that many automotive research firms have well recognised, the likes of Ricardo plc seeing it central to its own business model].

Perhaps the best known counterpart to BASF in the automotive realm is Johnson Matthey plc, the UK head-quartered conglomerate.

Whilst BASF operates across specialist components (ie 'cats'), industrial chemicals, agricultural chemicals and GM crops, broad plastics and oil/ gas exploration and supply, and has about 45% of its workforce within Germany, Johnson Matthey itself could be said to have similar and alternative interests; most notably regards its metallurgical history.

1. Emissions Control Technologies [similar] (Cars, Truck/Bus, Generators, Power Stations)
2. Industrial Process Technologies (inc Ind-Catalysts, Oil/Gas, Measurement)
3. Precious Metals Products (Refining/Recycling and Manufacture)
4. Fine Chemicals [similar] (Agrochemical, Pharmaceutical, Research Chemicals)
5. New Business (Battery Technologies, Fuel Cell Technologies)

Though obviously somewhat marred by the present European financial malais, given its eco-engineering focus, Germany along with Japan presently holds much of the knowledge leadership regards environmental issues and solutions. Since the late 19th century Germany's industrial knowledge-base has very often been itself extracted and commercialised by the Anglo-American investment banking system, and as a result of such loss of direct German control and financial value creation, today much capability resides 'nationally protected' within the Mitttelstand SME empire, for deployment via its much domestically controlled AG companies.

In stark contrast, understandable given its London origins, Johnson Matthey was an early proponent of public markets, floating itself in 1901, seeking to utilise shareholder funds to expand geographical footprint and associated metallurgical activities. Re-funded again in 1942 to seize opportunities within wartime conditions and the expected economic boom in a post-war world.

Corporate History -

1817 - Origins in PN Johnson's profession as gold assayer (standards ratifier)
1851 - G.Matthey joins developed company to form modern basis
1852 - Appointed as Official Assayer to Bank of England
1861 - Approved as 'refiners' to Bank of England
1860s - Gold, Silver and associated materials supply
1874 - Provides approved measures for international metric standard
1875 - Involved in electric lighting component supply
1880 - Wire, sheet and tube provision
1919 - American market expansion
1920s - Development of platinum extraction/refining (S.Africa)
1942 - Release of Ordinary shares on London Stock Exchange
1948 – Australian/New Zealand expansion
1950s – European market expansion and central facility at Royston
1969 – Joint venture with Japanese company
1974 – Royston creates world's first vehicle catalytic converter
1981 – Renamed Johnson Matthey plc
1983 – Explores platinum-based anti-cancer drugs
1990s – Global expansion of automotive catalysts production
1991 – Sells jewellery related businesses
1999 – Sells electronic materials related businesses
2000s – Focus upon environmental technologies
2000 – India and China catalyst production expansion
2001 – Fuel cell and pharma materials investments
2002 – Acquisition of ICI catalysts division
2006 – Acquisition of Davy Process Technology
2007 – Ceramics division divested
2008 – Acquires Argillon nitrogen oxides emissions specialist
2010 – Expansion of catalysts production in Macedonia, China and USA
2010 – Acquires Intercat Inc, supplier of petroleum-refining additives
2012 – Acquisition of Axeon (Li-on batteries in Electric Vehicles)
2012 – Acquisition of Formox (Catalysts for Formaldehyde production)

Given its long standing as an LSE and FTSE member, with what have typically been defensive stock attributes, and having previously benefited from what had been a major commodities boom over the last 20 years with growing exposure to high-value eco-tech, Johnson Matthey has for many many years been a dependable stalwart within institutional investors portfolios.

Corporate Development -

Successive corporate leaders and boards have seemingly sought to create an organisation that has the philosophy of self-perpetual motion, by evolving synergistic and complementary activities around the core competencies built over the decades. A strategic and organically grown entity with broad outlook. This very different to many other century-old companies which sought temporary value creation from tactical bolt-on acquisitions.

The Company Today -

As easily seen, the firm has changed its fundamental shape enormously since its origins as a precious metals qualifier, refiner and marketeer. Yet its core remains.

Those latter activities are still present regards the prime interest in platinum: a rare metal with highly useful and so prized properties in various arenas; aswell as industrial silver and other base metals.

Yesteryear operations exploration and extraction of broader precious metals were over time divested, retaining higher-value recycling, refining and distribution activities, but most prominently seeking to extract as much commercialised industrial and scientific value from the apparent 'wonder-metal' that is platinum,. Hence its use in various applications, most notably in anti-smog manufacturing and transport, the drug industry, petroleum processing and very obviously luxury goods.

JM then retains its leading role in both the supply and deployment of platinum.

A 'Wiki-search' highlights that of the 245 tonnes sold in 2010, 46% went toward automotive catalysts, 31% toward luxury items, and the remaining 35% across: physically stored investment, electrodes, pharma, oxygen sensors (various), vehicle spark plugs and turbine engines (presumably mostly aero).

Recent Key Messages -

Taken from most recent official publications:

“2012/13 Turnover flat with 2011/12, but EPS down -2%”
“Growth in Environmental Tech Division offset contraction of Precious Metals Products Division”
“Purchase of Axeon and Formox provides additional growth opportunities”
“2013/14 seen a period of transition with steady growth expected”
“Positioned for future growth”

Underlying Results -
(end March 2013 YoY)

Turnover -11% (£10.73bn vs £12.02bn)
Sales (exc precious metals)
no change (£2.67bn vs £2.67bn)
EBIT -8% (£414.8m vs £450.1m)
PbT -9% (£389.2m vs £426m)
PaT -6% (£307m vs £326m)
EPS -2% (150p vs 153.7p)
Dividend (Ord) +4% (57p vs 55p)

At first glance it seems the case thatit has been the contraction in precious metals demand, both in B2B industrial and B2C luxury consumer spheres that has undermined overall revenues, that impact seen throughout the remainder of the income statement. However, this seems a falsehood, since on closer inspection the Emissions Technology division also saw notable decline over the previous year by -8% YoY, highlighted the fragile state of global automotive demand and its effect upon the Tier 1 and Tier 2 supply chain.

In order to retain the confidence of JM's prime shareholder base, the board of directors raised the ordinary share dividend by a not inconsiderable 4% during this low inflationary age. This may have also been because the company itself concerned that some fund managers may have (understandably) viewed the -11% turnover drop as akin to that of the core commodities sector (both mining and associated processing) so similarly categorising JM.

The Operational Cashflow suffered likewise by -14% (£396m vs £464m), but still obviously remained substantially positive. However Net Debt rose notably (£835m vs £454m) to enable the acquisitions of Axeon and Formox, and to provide a special dividend worth £212m (see above).

The rate of Cashflow Conversion (from Profits) increased sizeably to 93% of Underlying Operating Profit from 78% a year previously, seen in raised CapEx rates (£183m vs £142m). For FY2012/13 CapEx is expected to reach £192m and stand at over £200m p.a thereafter, approximately 65% of which will be directed at Environmental Technologies, 25% at Precious Metals and 10% at Fine Chemicals.

These monies to fund projects involving: a) extension of the Macedonian facility in E.Europe, precursing expected renewed industrial and vehicle growth across the Balkans, the whole of the EU and an eventually revived Greece, b) an expanded diesel filter facility in the UK no doubt in expectation of marked increase in commercial vehicles sales to fleets across the UK initially and latterly W.Europe (across LCV, MCV and especially HGV segments) with “Euro 6b” regulatory requirements, and c) new capacity in the US and India for Process Technologies.

From JM's presented bar charts the increased CapEx appears proportionate to each division.

Divisional Performance -
(end March 2013 vs end March 2012)

ETD (Environmental Technologies Division) [inc Ind. Process Tech].
PMPD (Precious Metals Products Division) [Refining, Manufacturing, Distribution].
FCD (Fine Chemicals Division)

ETD -8% (£3bn vs £3.2bn)
PMPD -14% (£8.5bn vs £9.8bn)
FCD -2% (£286m vs £292m)

Sales (exc Precious Metals):
ETD +2% (£1.9bn vs 1.87bn)
PMPD -6% (£548m vs 582m)
FCD -3% (£277m vs £285m)

Underlying Operating Profit:
ETD +7% (£226m vs £212m)
PMPD -27% (£147n vs 201m)
FCD +2% (71.1m vs 69.7m)

Return on Sales
ETD +0.6% (11.9% vs 11.3%)
PMPD -7.7% (26.8% vs 34.5%)
FCD +1.1% (25.6% vs 24.5%)

Return on Invested Capital
ETD +0.3% (14.5% vs 14.2%)
PMPD -19.7% (39.2% vs 58.9%)
FCD +0.2% (16.9% vs 16.7%)

The ETD (Environmental Technology Division) saw its revenue fall by -8% yet reported sales up +2% and O-P up by +7%, its RoS and ROIC nigh on flat. It is then presumed that some form of internal transfer pricing action was taken to buoy the division in what has been a relatively poor 12 months for emissions technology demand as clients await more positive economic and market data. It is presumed this was done so as to not induce financial (and so sentiment negativity) towards the expected mid and long-term success story of ETD.

The PMPD (Precious Metals Products Division) saw revenues fall by -14% and yet net sales fall by only -6%, presumably highlighting again the importance of in-house JM buyers. However, its underlying profits fell by -27% highlighting not only the drop in precious metals pricing/volumes but also operational problems at the Salt Lake refinery. Platinum itself saw prices drop by -7% and overall JM marketing/distribution fall by -28%, whilst general refining fell by -7%. A brighter aspect though was the improved demand for petro-chemical sector catalysts, this sub-portion up +3%.

Importantly, it should be noted that scrap/recycled automotive catalysts accounted for 35% of the refined metals throughput in the year.

The FCD (Fine Chemicals Division) saw a slight decline in activity, with revenues down -2%, sales down -3% whilst underlying operating profit grew by +2%, presumably thanks to fixed and variable cost savings and improved ADHD pharma sales in the USA, though impacted by a 14.2m restructuring charge in the API business unit.

CSR Overview -

Given that JM seeks to be seen as what could be an 'corporate environmental activist', the basic summary of its 'Non-Financial Performance' “account” makes for positive reading (though overtly basic) across its resource-use, sustainability and workforce well-being efforts.

The Corporate “Double-Play” Strategic Hedge -

As mentioned, the firm has to date ensured that growth derive from synergies and core competencies, so creating a growing web of processing and manufacturing relations, so as to maximise value.

However, JM also recognises that its pasts successes have been built upon activities which although less understood or indeed seen as inocuous decades ago, have come under increasing pressure regards the overall public good, and specifically that of direct and indirect workforces.
As a result JM's commercial world has become more socially and so politically polarised; with a critical need to off-set the possibility of one income stream becoming extinguished, with other diametrically opposed activities that both provide new solutions to the emergent problem and so create a neutralising and positive effect, aswell as obviously developing other income streams.

Hence JM has sought to hedge those activities rooted deep in the industrial past with others that offer great potential for people, commerce and the company alike.

Hedge #1...

Expansion of 'bread and butter' business is naturally critical, and so JM's acquisition of Formox offers additional capacity for the exploitation of platinum-based catalysts within the field of formaldehyde production by external parties.

The substance Formaldehyde is typically publicly known for its preservative properties, in liquid form able to assist in the storage of biological specimens. Less known is the near ubiqitous existence as a base chemical in industry and manufacturing. It spans: automotive, leisure vehicles, building materials (substrates and fibre-board), household products, cleaning agents, pharmaceutical and drug testing, hobby and other sectors.

But, it is now understood by health agencies to unfortunately have associative carcinogenic properties.
JM has long been involved with the production of 'process catalysts' for formaldehyde manufacturing sector, and recognises the need to maintain the chemical's prime characteristics and advantages whilst seeking to eradicate the carcinogens as far as possible. So maintaining a workable balance between chemical attributes and human health within factory settings and as an impact on public health is obviously key.
In answer to the human cancer problem partially created by Formaldehyde, itself viewed as a small portion of overall cancer causes, JM also participates in the pharmaceutical sector by deploying platinum as a core ingredient in anti-cancer treatments

Too this end, by virtue of circumstance, the more recent pharmaceutical involvement seeks to try and mitigate in the future any health damage not previously caught by the industrial catalyst activity of the past, today or tomorrow.

The pharma activity, with massive worldwide potential, this acts as a 'natural hedge'.

[NB Future Formox clients most likely to be located in developing African and Asian countries and N & W.China. However, as seen in a recent FT report, there are growing concerns in California about air-transported desert dust and pollutant particulates arriving via the jet-stream from China and Asia under certain conditions; creating possible respiratory problems and probable climate changes. Ultimately it raises worries about exactly how poor Chinese and Asian air quality has become in various regions. Raises the spectre of 'glocal pollution'].

Hedge #2...

This concerns the purchase of Axeon and its early-phase interests in electric vehicle battery development, notionally Lithium-ion batteries but states itself to be 'cell agnostic'.

This is seen by investment-auto-motives to be a strategic counterpoint 'hedge' to any far future commercial contraction of smoke-stack industries, upon which Formox relies.
As seen Formaldehyde production is central to industrial activity and thus the global economy yet also poses the health dilemma. Depending upon credible research methods and output data and the policy intervention of governments, it may be the case that in decades to come that Formaldehyde becomes a restricted product. If so substitutes will be sought, or its industrial use limited, eg grammes per product manufactured or total annual grammes in overall production.

Such a low probability/high impact outcome then would send shudders through smoke-stack industries such as traditional automotive, where Formaldehyde is a constituent base ingredient for materials used in making: engine blocks, transmission casings and gears and plasticised interior fittings such as door panels and dashboards.

But more far likely is the social and political pressured push towards lighter-mass vehicles for improved fuel efficiency so and reduced CO2 and NOX reasons.

Whilst ideas of the world's relying upon pure EVs is a far flung fantasy (see below), battery performance progress is undoubtedly central to a feasible world of multi-various Hybrid drive vehicles, from semi-trailers to buses to vans and trucks to passenger cars and onto (importantly) new generation off-highway specialist vehicles and railway locomotives and pull-push carriage sets.

Thus with a pro-environmental remit JM must become increasingly prominent in the battery space.

Given JM's exposure to and majority reliance upon old-world industries, Axeon offers both an evolutional hedge to as and when transformational technologies become truly credible in the new-world, and itself forms part of the lengthy and problematic 'technology bridge' to enable that transformation.

Current Challenges and Opportunities -

Aluminium Value Extraction...

The company stands generally in a good psuedo “moat-like” position given its strength in its sector. Yet there may be concerns regards certain business centres.

The Metal Joining section – focused on the provision of brazing and soldering consumable - will come under ever increasing competition given that effectively it is a very heavily 'commoditised' low-order industrial activity. To continue competing long into the future will demand continued economies of scale across the globe, something that may prove problematic as the EM nations (esp the BRICs) seek to self-control this sector, with improved quality, for their own continued industrial growth within trade and retail markets

JM obviously has strong EM presence, seemingly so especially in India, where it can no doubt defend its position, but it may find growing business in Brazil, Russia and China harder than has been the case to date, given those countries' natural domestic agendas to better integrate notional 'national ownership' via indigenous private enterprise.

This leaves India, and the CIVETS nations and other Asian, MENA, Sub-Sahara African and S.American 'frontier markets' as the expectant growth territories, where little or no national competition exists.

One avenue within the Metals Joining section that may well offer JM partial uniqueness is regards aluminium component manufacture and repair.

The metal has always been a favourite of the low-volume supercar and sportscar sector, still evident though supplanted by carbin fibre where practicable. And today within mass manufacture is gaining greater popularity as a steel replacement within automotive and other realms as mass/weight related eco-issues become more apparent. The once absent know-how for commercial feasibility in a mid-manufacture middle ground between niche and mass (40k to 500k units) now increasingly pioneered (eg Porsche, Jaguar land Rover)

This evolution of 'mass aluminium' provides an impetus for JM's Metals Joining section to become increasingly involved in aluminium engineering itself, working with auto-producers and their suppliers to become a credible knowledge leader (integrator) in the field; not simply a low-order consumables provider.

Given JM's presence in India, it would seem obvious that a prime client might be TATA Motors, with what seem ambitious far-horizon goals, and specifically its JLR holding. These premium vehicles from Range Rover to new F-Type now include high aluminium structural content, with no doubt increasing adoption of additional aluminium ancillaries and fitments as available from the JLR attuned supply chain.

However, whilst aluminium brazing is periodically used on low volume runs, given its high labour content, the evolution of aluminium vehicles has been primarily centred around specialist riveting and chemical bonding (glues) to provide ease of manufacture, reduced metal heat-deformity and consistency of structural performance. Certain aluminium production-line welding techniques have become feasible (thanks to JLR efforts), though not yet as easily nor quickly undertaken as with steel monocoque counterparts. Hence the mixed materials philosophy for conjoining panels.

If JM could solve the present dilemma regards yet higher production volumes (300k-1m+ units, perhaps with an innovative continuous-seam fast brazing technique (to provide greater rigidity to the mating of clam-like pressings ie inner A and B 'body-sides', lower suspension arms, or abutting invisible interior joined panels), it could secure itself as a powerful ally to those hi-tech engineering clients which themselves seek lead the publicly visible eco-tech wave whilst also increasing torsional rigidity.

[NB whilst impressive advancements have been made with chemical bonding techniques (tapes and beads), often with strong tensile loadings, little is yet able to match the strength of a structurally inter-melted seam].

Specialist Services...

Because of greater technical demands, the specialist sections of Aero and Industrial Tungsten Carbide appear to offer captive markets, themselves growing globally and especially so as the west re-strengthens and EM nations pursue higher value goods and services.

However, it is not without potential concerns.

Within Aero, it has been the emergence of 'single crystal grown alloys' from the likes of C-M Group and produced with the latest aero-turbine blades for Rolls Royce plc, which have overtaken what were traditional engineering methods.

Much obviously depends upon the requirements of any singular specific engineering project: its performance parameters, alternative solutions and the optimal mix of all ingredients to create an attractive overall business case.

But the vanguard of today could become the norm of tomorrow.

Thus it may be the case that the 'single crystal grown' method could be evolved and adapted to befit other less costly components. Or otherwise, the advancements in3D 'molecular-printing'. Whilst presently viewed by strategic 'scenario planners' as “high-impact / low probability”, over time such methods will be sought where feasible so as to reduce component and so project complexity, and avoiding the critical-path, risk-analysis and general costs of “yesteryear” conventional methods.

JM will undoubtedly be maintaining close interest of, and participation within, such technical leaps and appreciating the disruptive forces of such developments to business as usual.

The investor presentation of January 2013 should ideally convey its own assessments of such external factors to its shareholders.

JM Identified New Business Paths -

Through the firm's strategic business development process four specific arenas have been chosen as worthy of effort, time and investment to provide tangible results by the 2020 time-frame. These are:

1. Electric Vehicle Batteries
2. Water Purification
3. Air Purification
4. Advanced Food Packaging
Of these four areas, whilst investment-auto-motives recognises the synthesis between JM capabilities and these future PESTEL demands, given proprietary focus upon automotive matters and lack of deep knowledge in other areas, comment can only be given on point 1.

EV Batteries...

A constant stream of almost evangelical political, industry and press coverage has been devoted to the electric vehicle over the past 15 years or so. The desire to popularise the EV initially emerged from Silicon Valley prior to the bursting of the 1999 Tech Bubble, investment-banks and the IT leaders seeing the synergies and prospective fortunes that could be had from aligning IT and Auto sectors; with the obvious idea of replacing the conventional fuel tank and internal combustion engine with battery and electric motor substitutes.

Hundreds of millions of US$ was spent by angel investors and VC's and other private equity players creating a plethora of new and re-born EV companies, many of which collapsed in their formative year(s), having sought what they considered the right ingredients for a publicly acceptable EV. And equally private and government monies were injected into the new energy sphere, re-supporting smaller existing and new eco-tech advanced battery companies, the battery sector itself seen as a better investment given its integral commercial nature to the nascient EV scene. And of course wild-card projects such as Project Better Place – which initially projected the idea of swapping vehicle batteries en route – came to nothing as (wasted) public funding levels were contracted after the 2008 financial crisis.

The only notable late survivors of that period were Tesla Motors thanks to constant funding interests of Wall St and aligned privateers, and until recently Fisker, which itself inevitably (as investment-auto-motives predicted) filed for bankruptcy.

Public uncertainty regards EVs (ie company standing, product quality and distance 'range') plus the effects of the 2008 Crisis meant that the promised EV age never actually materialised; production and sales figures never matching overly ambitious forecasts, and instead only representing a marginal fraction of the credible Hybrid-drive eco-tech delivered by Toyota, Honda and to a lesser extent other auto-majors.

Whilst viewed as more recent 'market-makers', EV Products such as Nissan Leaf sedan and Renault e-Fluence sedan and Zoe small car, BMW Mini-e small car and BYD sedans, whilst providing supposed eco-kudos to their respective brands and a small coterie of users, are seen by many as little more than PR stories (eg the Beijing Olympic Games), with auto-industry experts recognising many of their innate flaws in structural mass, range and costs.

Such vehicles have offered some technical insight to VMs and their battery suppliers, allowing for improved theoretical modelling.

[NB Though it must be said that the Zoe improves the true functionality of the breed and its accordant commercial/user model helps to negate some of the usual EV related problem].

Yet the fact is that present and expected mid-term battery capabilities, whether Lead, Nickel or Lithium based may only provide 'real-world' usage when integrated into either advanced material sedans, or small conventionally built 'town buggies', with the best performance coming from a lightweight material city-buggy.

Ironically though to date the idealised structural and packaging solutions in themselves have undermined the very nature of the vehicle type. The lightweight sedan historically experienced raised NVH and so declined comfort levels over longer distances. And the city-buggy unable to deploy the enhanced power through performance or its gained range in the short-distance urban environment.

To date these very acute 'real-world' issues then make the development of the EV problematic, unless low cost, low performance, low comfort 'town buggies' can be popularised, or conventionally constructed small cars are used as limited range town-cars requiring additional attributes such as 'luxury' (eg Aston Martin EV Cygnet).

In contrast however a traditional ICE powered small car has no endemic range problem has a modicum of performance and comfort, and as seen with Japan's 660cc kei cars, India's 624cc Nano and Italy's recent two cylinder engines, which attain low emissions values. Whilst a driver-switchable Hybrid can offer zero emissions city-centre use, low emissions suburban use and 'low-average' emissions highway use.

However, recognising this dilemma, with investment in composite structures (via SGL) BMW Group have delineated its two 'i-car' models appropriately. The compact and so more plausible i3 EV demanding progress in the mass manufacture of carbon fibre bodies, and the i8 luxury convertible/coupe uses a 'range extender' combustion engine to maintain full charge. 

Understandably other premium car makers seek to keep BMW within competitive reach. Hence the contingent of British nameplates (Jaguar, Land Rover, Rolls Royce) and Germany's RUF relationship with Axeon, now under JM control.

Thus battery developers and manufacturers should work with auto-players in a manner that both recognises the real headwinds to mass adoption of EVs and the true depth of commitment and investment required to create what need to be highly credible town-buggies and compact cars.
But moreover recognise the more realistic eco-achievements to be secured from far more flexible switchable Hybrid power-trains.

As illustrated within its January investor presentation, JM well recognises the performance-boundary challenges facing contemporary battery development, and the need for leap-frog improvement.

However, investment-auto-motives does not support the 'scenario timeline' proposed whereby gasoline, diesel and hybrid systems decline so rapidly after 2020, with expectancy of massive market uptake in PHEVs, full EVs and FC (fuel cell) vehicles.

Thus, investment-auto-motives requests that JM be more cautious and so more risk-averse, and creates a technical routeway for Axeon and battery propelled vehicles that is wholly aligned with overall and proven auto-industry 'technical reach'. The sector has been here many times in the past, the 1950s and 1970s particularly, but full EVs have never managed to reach niche market 'escape velocity'. That theoretical 'goodwill' potential instead seen in the uptake of millions of Hybrid vehicles in recent years, given their wide-span functionality. Additional to the 'twist on a classical ICE theme' has been the turbo-charging of downsized engine capacities in motorsport, and its new focus on exacting fuel-flow levels and heat-energy recouparation, plus the high profile development of (reserve power) KERS. These evolutionary solutions provide a far more plausible and populist technology pathway for industry and consumers to 2020 and well beyond.

Axeon does well to remain 'cell agnostic' and whilst understanding the importance of new generation of 'high-density' batteries for specialist and general use, should investigate various possibilities well beyond automotive for knowledge transfer and application.

For the JM Group the interest in applying its metals knowledge and distribution reach in the battery sphere is highly tempting, but commercial pragmatism – seen in its very history - should rule over overt-optimism and so any remote possibility of inadvertently misleading investor expectations in this field.

To Conclude -

Johnson Matthey plc has always been run as a conservative business, growing its interests in a considered manner and expanding into directly complimentary areas within the immediate value-chain. Today, with an expanded scientific knowledge-bank and broader web of activities, it – still seemingly organically - takes on a far more distant-horizon perspective.

One which includes the importance of strategic business hedging, forming its new interests not simply as cyclical 'bolt-ons' in alien arenas, but as natural (some still cyclical aswell as anti-cyclical) counterpoints to its traditional activities; activities which may themselves be forced to fundamentally alter as industrial client activity evolves (and in some instances possibly dissapears) in years to come.

However, being so cyclically biased to date means that in recent years as the western slowdown was met by an EM contraction, income streams have undoubtedly suffered to differing degrees in different business units.

The Environmental Technologies Divison has seemingly been internally supported over the 2012/13 financial year, however with primary involvement in the process design and manufacture of catalytic converters for all types of vehicles and industrial processes is set to grow in-line with regional and global growth, with expected Heavy Truck demand an immediate income stream. Simplistically, being eco-centric it is able to benefit from the ecologically consciousness industrial and consumer wave which originated in Japan and California, onto Europe, back to mainland USA and then onto BRIC and other EM nations.

The Precious Metals Products Division suffered the greatest shrinkage of income, the mix of commodity markets mailais seen by a major reduction in industrial and consumer functional and emotional investment (Asia Especially), hitting the business unit hard. However, improving American sentiment in B2B and B2C realms should help reverse matters.

The Fine Chemicals Division saw less contraction given its exposure to stronger, less cyclically affected clients, and its interaction with the socially important, public and private funded and so arguably less distressed prescriptions and retail drug industry.

Possible warning signs of a faltering in future profitability of the Metals Joining Unit and Specialist Services Unit must be watched. The former more probable than the latter over the mid-term, given the likelihood of disruption to present-day relationships in EM regions as a function of national industrial policy, as opposed to the latter which depends upon the mass adoption of still nascient engineering advances.

The new business paths of: Electric Vehicle Batteries, Water Purification, Air Purification and Advanced Food Packaging undoubtedly follow prosaic new socio-economic trends. Trends which spawn from a heightened 21st century global demand for what ostensibly appears a static supply of regionally disparate resources. However, it will be the understanding of how to best navigate, and indeed partially form, those individual trend paths that will prove more problematic than their relatively simple identification, and moreover, the formation of powerful yet socially conscious and fair business models the ultimate aim.

All in all, though suffering from today's global economic trough, Johnson Matthey looks set to benefit from what will be a new,  possibly very lengthy, though shallow gradient global growth era. The ability of its much improved mid-term incomes from standard operations, together with an ongoing relatively low-interest age, then providing the funds required to help reshape some of those industries central to a satisfactory existence.

Presently standing with a (ttm) p/e of 19.5, the company presently appears over-valued, but it no doubt retains such worth since it is set to remain an institutional favourite. And a raised exposure to precious metals recycling via auto-catalysts (esp platinum and developed 'black platinum'), plus its macro-humanitarian new business causes, it may even benefit from a new brigade of long-termist eco-orientated investors from green funds and elsewhere.

The 'green economy' is strengthening, just "don't believe the hype" that often accompanies it (esp with chatter-bound start-ups), simply seek out the logical and rational interpretation of things,so perhaps better to focus those renowned firms that are able to merge old-tech and new-tech initiatives.