Elementis PLC Robust performance and continued positive momentum against strategy

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Elementis PLC (LON:ELM) 2018 Preliminary Results for the year ended 31 December 2018

Robust 2018 performance and continued positive momentum against strategy

· Revenue from continuing operations up 5% from $783m to $822m, driven by extra contribution from SummitReheis and Mondo. Underlying revenue progress in Personal Care, stable Coatings and declines in Chromium and Energy.

· Adjusted operating profit increased 8% to $133m with improved profitability in Personal Care and Chromium. Group adjusted operating margin up 40bps to 16.1%. Statutory operating profit down 7% to $85m4.

· Net debt to adjusted pro forma EBITDA 2.5x (1.9x at 31 December 2017) following Mondo acquisition; on track to reduce leverage to around 2.0x by end of 2019. Working capital reduction target increased from $18m to $25m by 2020.

· Ordinary dividend up 4% to 8.4c per share.

Portfolio transformation creating a higher quality, higher margin group

· Completed acquisition of Mondo; performance strong and in line with expectations, $2m cost synergies identified and full integration expected by end of 2019.

· Portfolio transformation has created a platform for improved returns and future growth, with c. 80% of pro forma earnings collectively from:

– A substantial, high margin Personal Care business

– A focused Coatings business delivering operational improvement, and

– A well-positioned, high margin Talc business with significant growth potential under Elementis ownership

In 2019 expect good progress led by self-help initiatives

· Whilst global market conditions remain challenging, expect good progress with focus on Talc integration, self-help initiatives and deleveraging.

· Investor day planned for November 2019.

FINANCIAL SUMMARY

	2018	2017	% Change
Revenue Statutory profit for the period Statutory basic earnings per share²	$822m $41m^∆ 7.9c^∆	$783m $118m^∆ 23.3c^∆^	+5% -65% -66%

Adjusted operating profit¹	$133m	$123m	+8%
Adjusted profit before tax¹	$113m	$110m	+3%
Adjusted diluted earnings per share²	16.9c	17.0c^	-1%
Adjusted operating cash flow³	$78m	$107m	-27%
Net debt³	$498m	$291m	+71%

Ordinary dividend per share	8.4c	8.1c^	+4%

Unless otherwise stated, KPIs refer to continuing operations only.

∆ – Total operations (both continuing and discontinued operations).

^ – Rebased for bonus element of rights issue.

1 – See note 5.

2 – See note 7.

3 – See Finance Report.

4 – Operating profit impacted by non-recurring items. See note 5.

Commenting on the results, CEO, Paul Waterman said:

“Elementis delivered good overall results for 2018 in a challenging operating environment, with adjusted operating profit rising by 8% to $133m.

The acquisition of Mondo in 2018 is a major step to further improve the quality of our portfolio. Elementis today is increasingly focused on three highly profitable businesses of scale in Personal Care, Coatings and Talc that each have attractive growth prospects.

In 2019, whilst global market conditions remain challenging, particularly in coatings, we will seek to capture synergies as we integrate Mondo, transform Coatings and grow Personal Care. This will reduce leverage via the Group’s inherently strong cash generation. We are confident of making further progress in the year ahead and over the longer term.”

Business performance overview

· Personal Care revenue up 17% to $210m driven by an extra quarter of SummitReheis. Organic* revenue growth of 1%. Adjusted operating profit up 17%; adjusted operating margin of 24.8%.

– After a subdued H1 in cosmetics and AP actives due to distributor de-stocking and raw material price inflation, improved H2 revenue performance with 6% and 5% organic* growth respectively. Cosmetics and AP actives represent c.90% Personal Care profits.

– Operating profit improvement driven by pricing actions and synergy delivery. Margin solid despite significant price inflation of two key raw materials, aluminium and zirconium.

· Coatings revenue $362m with flat organic* growth. Adjusted operating profit $53m, representing 7% organic* growth.

– Revenue growth* in Americas, but subdued H2 demand in Asia and EMEA.

– Excluding the impact of business disposals and FX, adjusted operating profit up 7% with early benefits from Coatings transformation programme; more to come in 2019.

· Talc performance in line with expectations. In two months of ownership revenue of $22m, adjusted operating profit $4m and strong margin of 18%.

– As expected at the time of the acquisition, full year constant currency revenue up 10% to $158m and adjusted operating profit up 26% to $25m due to continued momentum in industrial business and monetisation of other minerals.

– Integration plan in place and progressing well. Cost synergy opportunities of $2m identified.

· Chromium revenue down 1% to $184m; adjusted operating profit up 10% to $33m.

– Volumes down 6% due to weather related production outages, partially offset by improved pricing.

– Impact of outages on adjusted operating profit largely mitigated by insurance cover. Adjusted operating profit up 10% due to pricing benefit resulting from tightening market.

· Energy constant currency revenue down 7%; adjusted operating profit of $7m.

– Volumes impacted by lower drilling due to infrastructure constraints in North America.

– Adjusted operating profit down 27% to $7m on lower volumes and weaker mix.

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