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Elementis a year of material strategic progress

Elementis plc (LON:ELM) have today provided their preliminary results for the year ended 31st December 2019.

Self-help actions partially offset challenging market demand environment

  • Revenue from continuing operations up 6% from $822m to $874m, driven by contribution from the recently acquired Talc business more than offsetting declines in other businesses.
  • Adjusted operating profit down 7% to $123m. Growth in Talc and self-help actions offset by market related declines in Chromium and Energy, weaker industrial production and destocking in Coatings, and competitive pressures in AP Actives as volumes recover ahead of India plant start up. Statutory operating profit up 19% to $101m.
  • Strong operating cash conversion of 130%4 driven by sustainable working capital reductions and capital discipline. Net debt reduced by $44m from $498m to $454m despite $29m of one off cash items in the first half. Year-end financial leverage5 up from 2.5x in 2018 to 2.7x.
  • Ordinary dividend up from 8.40c† to 8.55c per share, reflective of strong underlying cash generation and attractive medium term prospects.

Clear Innovation, Growth & Efficiency priorities underpin medium term objectives

  • Talc integration complete – on track for delivery of $20-25m revenue synergies by 2023.
  • Business fundamentals remain strong – a higher quality, advantaged portfolio in premium performance additives with clear growth opportunities.
  • Group focused on Innovation, Growth & Efficiency agenda to deliver medium term performance objectives; 17% adjusted operating profit margin, 90% plus operating cash conversion and financial leverage under 1.5x net debt/EBITDA.

Cautious 2020 outlook – stable performance expected with financial deleveraging

  • Market conditions remain challenging but solid start to the year.
  • Stable performance expected, with overall progress in Personal Care, Coatings and Talc (c.80% of Group earnings) offset by a weak market in Chromium. Performance to be supported by progress on delivery of $15m medium term cost savings and new business opportunities.

Commenting on the results, Elementis plc CEO, Paul Waterman said:

“2019 was a year of material strategic progress for Elementis. Talc was integrated and performed well, our Coatings transformation was completed and the ramp up of our new AP Actives site in India continued at pace.

Market trading conditions were challenging, with a notable deterioration in our two most cyclically exposed businesses, Chromium and Energy, along with ongoing competitive pressure in AP Actives. Nonetheless, our self help actions on cost savings and new business initiatives have helped to protect profits and margins.

Over the last three years, Elementis has been re-positioned as a premium performance additives company with advantaged positions in growing markets. Going forward, the execution of our Innovation, Growth and Efficiency strategy will address our customers’ most challenging problems whilst driving sustained value creation. We are excited about the potential for material growth opportunities, margin improvement and strong cash generation”.

Business performance overview

  • Personal Care revenue down 4% on an organic basis* (7% on a reported basis), from $210m to $195m. Adjusted operating profit down 16% on an organic basis* (18% on a reported basis); adjusted operating margin of 21.9%.

o Good performance in the high margin Cosmetics business (4% organic* sales growth), offset by decline in AP Actives due to competitive pricing actions ahead of the key India plant start up.

o Margins down from 24.8% in 2018 to 21.9% due to impact of US tariffs ($4m adjusted operating profit impact) and AP Actives revenue decline.

  • Coatings revenue down 8% on an organic basis* (12% on a reported basis), from $362m to $320m. Adjusted operating profit down 8% on an organic* and reported basis from $53m to $48m, with adjusted operating margin up from 14.5% to 15.1%.

o Revenue impacted by volume decline due to weak industrial market demand, portfolio rationalisation and some destocking, particularly in Asia in first half.

o Margins improved to 15.6% in H2 2019 due to improved portfolio, efficiency measures, new business wins and product launches.

  • Talc revenue, on a pro forma5 constant currency basis, up 1% to $151m (down 5% on a reported basis). Supported by a good H2, adjusted operating profit up 11% to $26m on a pro forma5 constant currency basis (4% up on a reported basis) with margins up from 15.5% to 17.1%.

o Good revenue growth in industrial talc of 4% (pro forma5 constant currency basis) with market share gains in coatings and technical ceramics, partially offset by weaker paper market.

o Margins improved to 17.1% as a result of improved product mix and cost synergies.

  • Chromium revenue down 7% to $171m; adjusted operating profit down 45% to $18m.

o Revenue impacted by lower volumes due to weaker industrial production and pricing declines in the second half, principally outside of North America.

o Margins down from 17.9% to 10.6% due to lower volumes and increased competitive intensity, particularly in H2 2019.

  • Energy revenue down 14% on a constant currency basis to $47m. Adjusted operated profit down 46% to $4m due to lower volumes.

o Revenue down as new business wins in eastern hemisphere more than offset by decline in drilling activity, particularly in North America in H2 2019.

o Margins down from 12.9% to 8.2% as a result of lower volumes and modestly weaker mix.

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