Elementis makes incremental progress with debt burden

It would appear that the end of Covid restrictions has led consumers to take a renewed interest in their personal hygiene. In its half-year results, speciality chemical company Elementis (ELM) reported revenue for its Personal Care business was up 19 per cent at $106mn (£87mn). 

This is an increasingly rare bit of good news for the firm, which supplies key chemicals for colour cosmetics and antiperspirant deodorants, among other things. With an operating margin of 24.5 per cent, Personal Care is a key driver of profitability for Elementis. The company’s three other businesses – Coatings, Talc and Chromium – posted revenue growth of between -5 and 7 per cent. 

While it’s encouraging that improved demand is bringing margins in Personal Care back towards historical levels, Elementis remains a highly leveraged company. Net debt at the end of June totalled $393mn, down very slightly from $401mn at the end of last year. 

The company said it is on track to realise $10mn in annual cost savings by next year, and that it will continue to implement price increases where necessary in order to shield margins from the burden of inflation.

“We expect that steady demand coupled with our self-help agenda will drive an improved financial performance, towards the top end of expectations, alongside further deleveraging,” said Elementis CEO Paul Waterman.

FactSet broker consensus puts the forward price/earnings ratio at 11.2 times for this year, which is admittedly an improvement on 2021’s 16.6 times figure. However, the company has still not restarted its dividend programme, showing that it still has a long way to go before it’s on a stable footing. Sell.