ii view: Elementis hit by reduced personal care demand

2020 was a year of pandemic challenges and a rejected takeover offer. We assess prospects.

Full-year results to 31 December 2020  

• Revenue down 14% to $751 million
• Reported loss of $67 million from profit of $46 million
• Adjusted operating profit down 34% to $82 million
• Net debt down 10% to $408 million
• No dividend payment

Chief executive Paul Waterman said:

"In 2020 we faced challenging demand conditions due to the unprecedented impact of Covid-19 on communities around the world. I am grateful for the support of all our stakeholders during this period, and I am proud of the way our people have remained focused on safe, reliable operations and taking care of our customers through such a difficult time.

“The fundamentals of our business remain strong and we have high quality assets with enduring competitive advantages. I am confident that the implementation of our Innovation, Growth and Efficiency strategy, in combination with our self-help actions, will position Elementis to capture growth, deliver our medium-term financial ambitions and generate significant shareholder value".

ii round-up:

Specialty chemicals company Elementis (LSE:ELM) today reported a loss of $67 million as reduced demand for its industrial customers under the pandemic sent sales 14% lower.

Revenues for its biggest coatings division fell 8% to $296 million as automotive customers used less product. Sales for chemicals going into personal care products such as deodorants retreated by 18% to $161 million as consumers socialised and travelled less under virus lockdowns. 

Elementis shares fell by more than 3% in UK trading, having gained by more than 150% since pandemic lows this time last year. Shares for rival Croda (LSE:CRDA) are up by just over 50%.

In November 2020, Elementis received an all-cash offer from rival Minerals Technologies (NYSE:MTX), an offer which it later rejected as being too low. 

The chemicals company declared no final dividend, having previously halted payments to conserve cash the pandemic, helping group net debt fall 10% over the year to $408 million. 

First-half Covid-19 related impairments taken across its energy and talc division assets provided the core move into a loss from last year’s profit. Adjusted operating profit retreated by a third to $82 million. 

Accompanying management outlook comments pointed to an encouraging start to 2021, although they remain cautious given the ongoing virus dynamic.

ii view:

Elementis employs over 1,600 people across more than 30 locations globally. Founded in 1844, the company today operates across five divisions including talc, used in plastics, paints and paper; chromium related chemicals; and energy where it produces drilling fluid and lubricant additives. Coatings generated almost 40% of 2020 sales, followed by personal care, chromium and talc all at around 20% each, and energy at approximately 3%.  

The repositioning over recent years towards the company as a premium performance additives business with advantaged positions in growing markets has been its central strategy. However, the benefits of acquisitions have been hindered by the pandemic. In 2021, it expects to deliver more than $30 million of new business opportunities, over 20 new products and $10 million of cost savings.

For investors, ongoing pandemic uncertainty and a halted dividend payment cannot be overlooked. Neither should exposure to the oil and gas sector, with divisional energy sales halving as oil majors reduced expenditure under non-travel lockdowns. More favourably, a rejected takeover approach appears to underline management’s long-term confidence and may indicate value at under 80p per share. In all, while room for longer term optimism persists, a bounce of around 70% in the share price since late October may leave the company up with events for now.  

Positives: 

• Diversity of both product and geographical sales
• Recently rejected takeover offer

Negatives:

• Uncertain Covid clouded outlook
• Dividend suspended

The average rating of stock market analysts:

Cautious buy