Elementis plc

All right, good morning, everyone, and welcome to the Elementus 2025 results presentation, and thank you for joining us. Great to see you. In terms of agenda, I'll begin with our highlights for the year, and Cath, our new CFO, will then run you through our financial performance. Then I'll take you through our strategic progress over the past year, and finally, to our outlook for 2026. And we'll then open for questions. It's been quite the year. Looking back 10 months into the job, I'm really proud of everything we've achieved together. We delivered strong profit growth and margin expansion despite soft demand environment. And that's clear proof of the quality and resilience of our business. From a strategic perspective, the sale of the Talc business and launching our Elevate Elementis strategy were more than milestones. They set the foundation for what this company can achieve when we focus and move forward as one team. And we're making solid progress across all of our strategic priorities, such as innovation sales up to a record of 16.4% and zero lost time accidents. So lots of positive momentum. You might remember a version of this slide from our last half-year result presentations. Our portfolio has fundamentally transformed over the past years. We've reshaped Elementis into a pure-play specialty chemicals business, focused on our two segments, personal care and coatings. Selling talc was a major step forward. in making this happen, and it was my first priority when I started as CEO. And with Chromium sold in 2023, we exited these commoditized, capital-intensive businesses, and it was absolutely the right decision. It allows us to focus on our core strengths and capabilities. As you all have seen this morning, I'm pleased to share that we've agreed to sell our pharmaceutical business to ABF. And this sale is in line with our strategy as well, further sharpens our focus. More of this on the next slide. In November, we added Alchemy to the portfolio, a fantastic bolt-on, right in our personal care sweet spot. It's a fast-growing, high-margin business that strengthens our position in skincare and cosmetics. So, this is the new Elementis. We're a company with a unique position, built on three real differentiators, Hectorite, Rheology, and Formulation Solutions. And we're really pleased with the shape of the portfolio and we're well positioned for growth. So, we announced today that we reached an agreement to sell our non-core pharmaceutical manufacturing business to ABF. Last year, the business made $35 million in revenue. Our pharmaceutical business was originally acquired as a part of Summit Reheis in 2017. It manufactures antacids and pharmaceutical excipients from our Ludwigshafen site in Germany. And while the business has performed well, it's clear that it no longer fits with our strategic focus. And because of that, the sale we announce today is the best outcome for both the pharma business and for Elementis. It's a straightforward, clean transaction. It will reduce our capital intensity, and on a pro forma basis, will deliver an uplift to 2025 group operating margins. We're working towards the completion in Q2. With the telc business sold, we accelerated the delivery of all of our 2026 financial targets by one full year, which is a fantastic result. And with Elevate Elementis, we shared our new targets. mid-single-digit revenue growth, operating margins of more than 23%, and three-year operating cash conversion to be above 90%. ROSI excluding goodwill of more than 30%. And our proven track record gives us the confidence that we can meet these targets and be among the top of our peer group. Moving to sustainability, next slide. Starting with safety, which is fundamental to how we operate. Last year, we achieved our first zero-loss time accident since 2019. That's a big milestone. On the environment, we continue to make good progress. The divestments of talc and chromium have significantly reduced our carbon footprint, which is now nearly 80% lower than 2019. And we continue the transition to a more sustainable and responsible business. For example, at our Hectorite mine, we moved to almost entirely renewable energy from a 0% base last year. Finally, on people, we've made a lot of changes in the organization with Fit for the Future, which was a big reorganization for us. And the engagement scores actually improved with voluntary attrition down by 40%. We're well below industry average now. But for me, even more importantly, I see it when I visit our sites, how pride the team is when I visit the Newberry, which is where we have our Hectorite site, or when I visit the new Porto team. And with that, I'm delighted to hand you over to Kath, our new CFO, to cover our financial performance.

Thank you, Luke, and good morning, everybody. Before I begin, I'd just like to share some initial reflections of my first few months in Elementus. I've been here for four months now, and two months as the CFO, and I've been genuinely impressed and frankly relieved by what I've seen. I've had a really warm welcome, with lots of people taking time out of their busy schedules to help me on board. And it's clear, everyone is working with a real commitment to unlock the full potential of Elementus. I've had the opportunity to visit locations in the UK, Europe and USA, and I really enjoyed learning about the business. There's nothing quite like being in a manufacturing environment, seeing products being made and looking to see what we're talking about in meetings. And the real highlights for me have been hands-on in the Alchemy Lab and visiting the Hectorite mine. What has really stood out is the passion, dedication, commitment and pride of our people. They care deeply about the company, and rightly so. And I'm confident that we can continue to build on these strong foundations, demonstrating that we have opportunities to grow revenue and profit, and continue to generate strong cash and returns. When I look at the macro backdrop for 2025, we could be standing here looking at a very different set of results. And I'm definitely glad that I don't have to present that set. Despite the challenging market, we have made good progress in 2025 and the team have done a fantastic job. And it's in this context I'd like to cover the results for the prior year. Following the sale of Talc, the 2024 P&L and cash flow figures have been restated for continuing operations and used for comparison purposes. I wanted to show a brief overview of the metrics for 2025. Most of these we'll cover in the following slides, so we won't go into detail here, other than highlighting. Despite a small decline in group revenues, we delivered strong growth in adjusted operating profit and a 150 basis point improvement in margins. In combination with lower net finance costs and a lower number of shares following the buyback, adjusted earnings per share was up 14.2% to 13.7 cents. An outstanding performance considering the challenging operating environment that Luke referenced earlier. And as we turn to look at group revenue, you'll see that despite the backdrop, we delivered a resilient performance with overall revenue down 1% on a reported basis and 1.9% on a constant currency basis to $597.5 million. Bridging from 2024, we had favourable FX tailwind of approximately $5.2 million. Volumes were down $5.6 million due to the weak demand environment and coatings, resulting in a reduction of $14.1 million, and this was partially offset by volume growth and parcel care of $8.5 million. On pricing, we delivered $7.8 million across both businesses, a testament to the specialty nature of our portfolio. Of note, a combination of proactive pricing, procurement agility and supply chain optimisation actions helps us to fully offset the direct impact of tariffs in the year. And we believe the latest news on this topic, at least of Saturday 21st February, will continue to leave us in a neutral position. Turning lastly to MIX. This was down $13.7 million, primarily due to a combination of one-off sales and coatings of $3.4 million in 2024, not repeated in 2025. Along with the continued softness in industrial coatings and decorative end markets, AP Actives saw strong growth in lower-priced but margin-accretive products, as well as a consumer-driven shift from aerosol to roll-on formats in Matam. As we turned our eyes to adjusted operating profit, we delivered strong growth, which increased 4.6% to $126.7 million. Within this, we benefited from favourable FX of $1.9 million, lower volumes had an adverse impact of $1.9 million, and the net price impact after offsetting inflation was $10.5 million. These headwinds were mitigated by the ongoing delivery of our self-help initiatives, which led to $18 million of total cost savings in the year, and more to come on this shortly. As noted earlier, our strong profit performance helped drive higher margins, increasing 150 basis points to 21.2%. So let's take a look deeper into the reporting segments. starting with personal care. Revenue was up 2.4% to $224.5 million, with strong growth in skincare and cosmetics, offsetting a slight decline in AP actives. Looking at the regional performance, we saw higher revenues in EMEA and Americas, with Asia flat compared to last year. Adjusted operating profit was up strongly at $72.8 million, or 16.9%. And importantly, brings the absolute profitability of the personal care segment in line with the coaching segment. This improved profitability was driven by improved volumes and pricing alongside cost savings. The higher profits in turn helped to drive higher margin, which is up 410 basis points, to 32.4%, including the benefit of one-off volume and cost savings in H1, previously noted at the half year. And lastly on this slide, I wanted to highlight that our results in 2025 included the pro rata contribution from the recent acquisition of Alchemy. A small quantum for the year, given the late acquisition timing, but meaningful strategically. And now moving on to the coating segment. We delivered a resilient performance with revenue of $373 million compared to $386.4 million last year, with a decline in coatings partially offset by strong performance from our energy business. The year-on-year decline was impacted by the benefit of high margin one-off sales in Q4 2024. The drop through from the lower revenue led to a lower adjusted operating profit of $70.4 million. However, the combination of higher pricing and our self-help actions supported the operating margins finishing the year at 18.9% compared to 20.3% in the year before. You will recall at H1 we highlighted some operational challenges at St Louis that were holding back our coating's performance. While there's still progress to be made, I wanted to share positive news that the de-bottlenecking programme at St Louis is progressing well and needing to improve performance which Luke will cover more fully later. Last year, we successfully completed the balance of our two-year $30 million cost savings programme by delivering $12 million via our Fit for the Future restructuring and supply chain initiatives. In addition to this, we announced in July a further $10 million in savings that we were aiming to deliver over the remainder of 2025 and 2026. These and NET have planned additional R&D spend, which will increase our total spend from 2% of revenue to 3% over the next two years. As we announced this morning, we have delivered $6 million of savings already, and we will deliver the balance of $4 million by the end of 2026. Our cost-saving programs have reduced complexity and improved operational efficiency. We will continue to proactively identify opportunities to streamline our cost base and capture further efficiencies as we deliver on our growth agenda and become a simpler and leaner company. Now taking a look at free cash flow. A key feature of this business is its strong cash flow generation. And I'm pleased to report that we generated good free cash flow of $41 million in 2025 compared to $51 million in the prior year. Looking at the key components, higher adjusted EBITDA was more than offset by the working capital outflow in the year, driven by higher receivables due to lower debt factoring and strategic inventory bills. We also had higher capex as we increased our investment to support adjacent market growth and capital investment in support of the St Louis Improvement Programme. As a result of these movements, our adjusted operating cash flow was $104.7 million compared to $123.2 million the prior year. As we move down the cash flow statement, it's worth calling out two items. Firstly, our cash taxes were lowered by $4.4 million, primarily due to an IRS refund received relating to a 2024 claim to utilise net operating losses for prior periods. And also, adjusting items were $6.7 million lower as the Fit for the Future programme finished during the year. Our balance sheet remains robust, and whilst leverage ticked up to 1.3 times, this was after acquiring Alchemy and returning cash to shareholders. Looking at the key movements from left to right, we started the year with a net debt balance of $157.2 million. Adding back the free cash flow of $41 million, as well as the proceeds from the tout sale of $52.5 million, we had an increase in cash available for distribution of $93.5 million. Of this amount, we returned $79.1 million to our first buyback programme and the 2024 final dividend and the 2025 interim dividend. The share buyback programme led to the purchase and cancellation of approximately 4% of our issued share capital. In October, we completed the disposal of the disused Eaglescliff site for a negative cash consideration of $11.1 million. I would like to specifically note the strategic divestment of both Talc and the Eaglescliff site have enabled us to significantly reduce our environmental liabilities and provisions. In November, we completed the acquisition of Alchemy for a total upfront consideration of $20.1 million. Taking off the FX of $11.4 million, we ended the year with a net debt balance of $185.4 million and a net debt to EBITDA ratio of 1.3 times. Our aim is to maximise return on invested capital while maintaining a strong balance sheet and strategic optionality. In relation to investments, our CAPEX programme will be focusing on investing in growth and productivity. We will also invest in R&D and have plans to increase total spend here from 2% to 3% of revenue. To complement these organic growth investments, and as we demonstrated for the acquisition of Alchemy, we will selectively pursue bolt-on acquisitions whilst maintaining a strong balance sheet. On dividends, our policy is for a payout ratio of around 30% of adjusted earnings. And as we announced this morning, the board has recommended a final dividend of 3 cents, taking the full year dividend for 2025 to 4.3 cents, up 7.5% from last year, and represents a 31% payout ratio. In considering future additional returns, we will assess several factors, including prevailing market conditions, existing progressive dividend policy, the investment requirements of the business, and our desire to maintain a leverage around one-time net debt to EBITDA over time, which we anticipate we will achieve on an organic basis in 2026. In light of the announcement of the pharmaceutical manufacturing business disposal, our expectation is to distribute the net proceeds to shareholders following completion. And we will provide a further update upon closing. And lastly, for your reference, we've included some technical guidance for 2026 on slide 19. So with that, I'll now hand over to Luke, who will take you through our strategic progress over the last 12 months and the outlook for the year. Thank you.

Thank you, Kat. For those less familiar with Elevate Elementus, this is our new strategy. We present that in July. The plan is simple. We have three strategic priorities. First, top-line growth, and this is about focusing on what we do best in the areas that make Elementus unique without the distractions of talc and chromium. Our objective is to grow revenue by mid-single-digit over the medium term. And in the next slides, I'll share a view of our growth opportunities and our progress in 2025. The second priority is about service delivery. Our ambition is to be best in class and the first choice for our customers. We've made some great progress, and I will show that later. Third, simplification and agility. We're building a simpler and leaner Elementus that empowers colleagues, makes us more agile, and allows us to execute at pace. Delivering against these three priorities is what will drive value creation and will help us deliver the new medium-term targets. So looking at our first priority. For us to grow and unlock our full potential, it is important to focus on what makes Elementus unique and what will allow us to win. We call these our winning differentiators, and let me briefly touch upon them. Hectorite, this is a very special asset. It's a white mineral that comes from our mine with long-term reserves. It has really unique properties because of its chemical composition and its platelet structure. We don't just sell Hectorite. We modify it, add value to it, for example, by making pre-formulated gels for cosmetics. And our customers love its efficiency. You only need a tiny amount to get a big effect. It's natural, and it delivers a kind of premium skin feel that consumers are looking for. Rheology. This is the science of flow. It's what's needed to stabilize ingredients in a paint can. It's also what makes sunscreen spread evenly on the skin. And here, Elementus is the global leader. Formulation solutions, this is our expertise built up over the years of our customers' formulations. It's how our people work together with our customers to improve the performance of a paint or a skincare product day in, day out. And our colleagues in the labs have worked at Oxenobel or Estee Lauder. They talk our customers' language, and that's a huge benefit. Now, we operate in big, attractive markets, as you can see here. Our focus, though, is to target these niche areas where our winning differentiators set us apart. And we work together with our customers to improve their products. For example, in skincare, we're replacing synthetic additives by Hectride, giving it a more premium texture. And in industrial coatings, we help the transition from solvent-borne to high-performance water-based formulas. I'm not going to go into the detail of all of these here. But the point is, we are using our expertise and our unique portfolio to help our customers make better and more sustainable products. So lots to go for in our current markets. And outside of our existing markets, there's a large new adjacent space for us that we're tapping into as well. We're using the same model, and we have entered areas that we're going to scale. One example is Hectorite for geothermal energy. And here, because the wells are extremely deep, you're facing ultra high temperatures at which Hectride is stable. We're using our formulation knowledge and existing customer relationships to grow with this market. We had our first sales in 2025 and have a number of field trials planned for this year in the US and Germany. So lots of exciting opportunities and potential for growth. So we're focusing on the right areas, building on our winning differentiators, But what levers are we pulling to now bring in this growth? First, we're investing more in R&D, 50% more. For example, in application knowledge to support customers. And we're building a Hectorite center of excellence. We're already seeing the benefits. Last year, innovation sales reached a record of 16.4%. That has doubled in the last five years. We launched 19 new products, of which we sent more than 1,500 samples to our customers. Some of the innovation highlights from last year are on the right-hand box. We launched DIOLUX, our patent-pending non-metal-based active, and this is looking quite promising. Several large customers are testing, and we expect the first sales in the second half of this year. We also launched a number of new Hectorite products, Bento and Ultimate, also patent pending. It's a highly active Hectorite technology that delivers exceptional skin feel, mostly for lipstick and mascara. And in coatings, we launched Fixitrol 5050W for metallic pigment orientation and waterborne automotive coatings. So lots of excitement around innovation. And next, we're covering more customers directly, also local and regional accounts. We want to understand firsthand about their needs. And we've made good progress last year. We now service about 67% of our customers directly. We're also building a local for local footprint, and this reduces cost and increases reliability. More and more customers are demanding local supply, particularly in China. So this is how we're going to look at growing organically. To complement our organic growth, we're looking at bolt-on acquisitions, but in a very disciplined way, and only when it fits our strategy, which does not depend on M&A. But the acquisition of Alchemy is a great example. In November last year, we announced the acquisition of Alchemy right in our personal care sweet spot. And Alchemy develops innovative rheology modifiers for personal care, They're fully natural and can fully replace synthetic raw materials and cosmetics. And the business has done really well in recent years, delivering double-digit revenue growth and operating margins in line with our personal care business. And we're bringing on a team with incredible expertise in this market. We're already working together on new products, including with Hectorite. Quite a nice synergy. The point is, with Elementus behind it, Alchemy can scale faster, leveraging our global sales network as well as our application capabilities. It's a great example of how bolt-ons can strengthen our core and accelerate growth. To make the most of this growth agenda, we need to be the best supplier to our customers. An important measure is on-time in full. And in July, we shared our targets to deliver a 20% uplift over the medium term. And the police has shared that we're now already halfway, and we'll stay focused on this. Second, we talked about St. Louis in July, one of our largest sites, and we had been dealing with some backlogs there. We had a big opportunity, 30%, by unlocking capacity. I've made some leadership changes there, brought some experienced people back, and we're seeing the results, a 20%. improvement since the first half of 2025. That puts us two-thirds of the way there. At the end of the day, all of this comes down to customer focus and mindset, whether you work in sales, R&D, or in the plant. And with some of the changes we've made, we have a new top-notch customer service center in Porto. We've seen a 50% reduction in customer response times. We've also received external recognition that you can see on the screen, which is a great acknowledgement for the team. We're building a simpler, leaner Elementus. And to us, this means driving agility, faster execution, and responsiveness, so we can scale and deliver more value to our customers. And we've made good progress. We streamlined our organization and leadership team. We've eliminated the stranded costs related to talc. And some of these things were low-hanging fruit, like reducing office spaces that we didn't really need. And some things took more coordinated effort, like qualifying 50 new suppliers that led to quite significant procurement savings. Looking ahead of 2026, we're not done here. There'll be more procurement savings to come. We're making our supply chain more efficient. And we'll continue to move towards a local-for-local model. This is a continuous journey. All right, on to our last slide, Outlook. While we remain mindful of the recent geopolitical uncertainty, we're confident in another year of progress. We're seeing great momentum and excitement building in the business. And I'm pleased that we've made a solid start to 2026 and our priorities for the year are clear. Deliver organic growth through R&D and customer intimacy. Achieve best-in-class customer service levels. And lastly, drive operational efficiency and continue to deliver cost savings. And the team and I are fully focused on delivering this plan. Thank you very much. And with that, let's move to Q&A, please. If everybody could please say their name, speak to the microphone, so that folks on the call know who you are. Thank you.