Elementis shareholder calls for boss Paul Waterman to quit

A prominent Elementis shareholder has called on the FTSE 250 firm’s chief executive to stand down, saying the chemicals business requires ‘urgent change’.

Activist investor Gatemore Capital Management said in a scathing open letter published on Monday that Paul Waterman had presided over an extended period of weak results caused by ‘self-inflicted management failures’.

The so-called failures include spending more than half the firm’s current market capitalisation on acquisitions, such as that of Mondo Minerals, which it bought in 2018 for $500million from private equity giant Advent International.

Manufacturer: Elementis makes ingredients for use in deodorants and skin creams

Gatemore owns 0.6 per cent of Elementis shares.  

The letter accuses Elementis of overpaying for Mondo while failing to achieve the ‘promised synergies’ from the takeover, thereby causing higher debts and cash flow problems that led to a covenant reset and axed dividends.

In addition, the fund manager said the company’s financial performance had been ‘disappointing’, with earnings per share and operating profit margins both declining even after numerous cost-cutting measures.

Gatemore said Elementis shares have underperformed their peers and the FTSE 250 Index by 76 per cent and 86 per cent, respectively, since Waterman took over in 2016. They were 1.75 per cent up at 139.6p on early Monday afternoon.

Russ Mould, investment director at AJ Bell, said: ‘Naming and shaming in this way are classic techniques by investors who are fed up with a company.

‘Typically, this tends to be a measure of last resort, and it will be interesting to see if other investors rally together and put on more pressure to enforce change in the business.’

Elementis, which makes ingredients for use in deodorants and skin creams, has recently received takeover offers from US rivals Innospec and Minerals Technologies and investment group KPS Capital Partners.

While Gatemore acknowledged the problems facing London-listed firms had ‘clearly not helped’, it said this cannot justify Elementis’s ‘scale of underperformance’.

Gatemore said Elementis’s board was ‘not aligned’ with shareholders because corporate governance rules discourage businesses from incentivising directors with equity.

Less than 0.05 per cent of the firm’s shares are held by its non-executive directors, equivalent to £332,000, but they take in around £526,000 annually in fees.

‘The misalignment in interest as reflected in this configuration is, unfortunately, not uncommon in UK PLCs, where boards are disincentivised from acting decisively and with appropriate urgency for the benefit of shareholders,’ Gatemore added.

To turn things around, Gatemore wants Elementis to replace Waterman because he is ‘no longer trusted to be the individual’ to correct ‘past missteps’.

Gatemore is also urging Elementis to conduct a strategic review to make it ‘more attractive for a strategic buyer’ and speed up its cost savings programme. 

In response to the letter, Elementis said in a statement: ‘The board continues to believe that shareholder value is best driven by a focus on delivering the substantial actions that are currently being progressed at pace throughout the business and that underpin progress towards the 2026 targets of 19 per cent+ operating margin, >90 per cent cash conversion and >20 per cent return on capital, generated by $90million of above market revenue growth and $30million cost savings.

‘The Board continues to engage with, and welcomes feedback from, all shareholders, with a clear focus on driving shareholder value, and looks forward to updating the market in its trading update alongside its AGM tomorrow.’

This post first appeared on Dailymail.co.uk