At a well-attended capital markets event (CMD) on 14 November, new senior management presented a cohesive approach for improving earnings, returns and cash. This was no radical change, but greater emphasis is being placed on focused growth investment and operational efficiency. The platform is there, the strategy logical, so share price performance will be driven by execution.
Seeking operational leverage and growth
Elementis (LON:ELM)has a product portfolio with some market-leading positions, such as US chromium chemicals and speciality additives for applications in the international coatings, personal care and oil field segments. The CMD provided a wide-ranging overview of the current business in the context of its markets and key areas of internal and external opportunity. Deepening key customer relationships through service and innovation was a common growth theme in both coatings and personal care supplemented by driving newly launched formulations into adjacent, relatively under-represented segments and geographies (especially Asia, ex-China). Rigour in financial measurement and management – through prioritised and raised growth capex, sweating existing manufacturing assets, reducing costs/improving supply chain efficiency – is to be a key facilitator in targeting enhanced group returns.
Monitoring returns and cash
This was a ‘state of the nation’ address by the new executive team and senior management, now aligned with the stated objectives. The CMD was relatively light on specific group financial targets, but there was enough context at subsector level to gauge the scale of opportunity there. The rate of progress at group level may be influenced by the timing of any prospective M&A and rationalisation activity. We feel that ROCE development (FY15 18% pre-tax) and cash performance are likely to be key indicators of progress for the next couple of years. Investor attention will reflect the level of confidence in regaining FY14 profitability within a reasonable timescale.
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