Elementis : 2021 Interim Results Statement

29 July 2021

ELEMENTIS plc

INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2021 Strong financial performance improvement, profit before tax up 165%

• Revenue up 17% (up 12% on an underlying basis*) from COVID-19 impacted H1 2020 ($387m) to $452m driven by improved industrial demand, customer restocking and currency tailwinds.
• Adjusted operating profit up 29% (21% on an underlying basis*) to $54m with strong operational performance and underlying revenue growth partially offset by cost increases. Profit after tax of $28m, up from a loss of $51m in the prior year period due to performance improvement and a $66m reduction in adjusting items1.
• Net debt4 ($415m) in line with 31 December 2020 ($408m) as earnings growth and disciplined working capital management offset $20m EU state aid payment. Leverage ratio5 (3.0x net debt/EBITDA) declining and forecast to reduce further during the second half.

Further strategic progress, well positioned for sustainable growth and value creation

• Coatings revenue up 15% on an underlying basis* with adjusted operating margins increasing to 17% - reflective of a more efficient and higher quality business with attractive growth potential.
• Good progress on Innovation, Growth and Efficiency strategy to deliver medium term Group performance objectives. Delivered $25m of revenue from new business opportunities, 12 new product launches and increased new products** from 11% to 13% of sales.
• On course for targeted $10m underlying cost savings in 2021, offset by the reversal of $10m of temporary COVID-19 related savings in 2020. India plant on track to start up in Q3 with efficiency benefits in 2022 and beyond.

Outlook unchanged, in line with expectations; multi-year recovery in progress

• Full year outlook positive and unchanged, with the Group expected to deliver an improved financial performance and a reduction in leverage, in line with expectations.
• The second half of the year is expected to follow a normal level of seasonality, with continued demand recovery and self-help actions offset by short term margin headwinds from accelerating cost inflation and supply chain constraints.
• While the pace of recovery depends on COVID-19 developments, a continued strengthening of demand combined with further strategic progress are expected to drive a material multi-year performance improvement and delivery of the Group's medium term financial objectives.

FINANCIAL SUMMARY

	Six months ended	Six months ended	% Change
	30 June 2021	30 June 2020
Revenue	$452m	$387m	+17%
Adjusted operating profit1	$54m	$42m	+29%
Adjusted profit before tax1	$40m	$28m	+41%
Adjusted diluted earnings per share2	5.5c	3.5c	+57%
Adjusted operating cash flow3	$30m	$28m	+8%
Net debt4	$415m	$453m	-8%
Ordinary dividend per share	-	-	-
Reported results
Profit/(loss) for the period	$28m	$(51)m	+154%
Basic earnings/(loss) per share2	4.8c	(8.8)c	+155%

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Business performance overview

• Personal Care revenue down 5% on an underlying basis* (down 1% on a reported basis) at $89m. Adjusted operating profit down 8% on an underlying basis* (down 4% on a reported basis) to $19m, representing a 21.6% margin, modestly down on the prior year (22.4%).
  o Pace of category demand recovery for cosmetics and anti-perspirant deodorants uncertain due to ongoing COVID-19 related social and travel restrictions.
  o Margins resilient at 21.6%, with cost savings offset by product mix and lower volumes.
• Coatings revenue, which now includes the Energy business, up 15% on an underlying basis* (21% on a reported basis), from $162m to $197m. Adjusted operating profit of $33m significantly up on prior year ($21m), with adjusted operating profit margins up from 12.7% to 16.7%.
  o Strong industrial coatings volume recovery across all geographies and continued resilience in decorative demand.
  o Margin improvement reflective of improved product portfolio, new business wins and fixed cost savings from Charleston/St Louis consolidation, partially offset by accelerating raw material cost inflation.
• Talc revenue up 14% on an underlying basis* to $77m (26% on a reported basis). Adjusted operating profit up 18% on underlying basis (27% on a reported basis) to $8m, with margins in line with the prior year (10.2%) at 10.3%.
  o Strong industrial talc growth driven by automotive production recovery, new business wins and geographic expansion, partially offset by continued weak paper demand.
  o Margins stable with improved volumes offset by temporary weather-related cost increases.
• Chromium revenue up 16% to $90m. Adjusted operating profit up 48% to $5m.
  o Revenue improvement driven by demand recovery across industrial end markets, including metal plating and construction applications, partially offset by weaker year on year pricing. o Margins up from 4.0% to 5.1% with improved fixed cost absorption due to higher volumes
  offset by pricing and supply chain bottlenecks.

Commenting on the results, CEO, Paul Waterman said:

"We have made a strong start to the year benefiting from the combination of focused strategy execution and improved industrial demand. While the significant demand recovery has triggered ongoing supply chain challenges and accelerating cost inflation across the globe, we are well positioned to manage these impacts. Overall, the Group has encouraging trading momentum and is on track to deliver an improved financial performance and a reduction in leverage, in line with expectations.

Elementis is focused on developing high quality businesses that have enduring competitive advantages in structural growth markets. In the coming years, as end markets continue to recover and our Innovation, Growth and Efficiency strategy continues to be successfully executed, we are well positioned for material performance improvement that will support the delivery of our medium term financial ambitions."

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Notes:

• Adjusted for constant currency. Previously referred to as 'organic'. See Finance Report
• New products defined as products launched within the last 5 years, patented and protected products (excluding Chromium) 1 - See note 5
  2 - See note 9
  3 - See Finance report
  4 - See note 12
  5 - See unaudited information

Further information

A virtual presentation for investors and analysts will be held at 09:00 BST on 29 July 2021. The presentation will be webcast on www.elementis.com. Conference call dial in details:

UK: 020 3936 2999 Other locations: [phone]

Participant access code: 537261

Enquiries
Elementis
James Curran, Investor Relations	020 7067 2994
Tulchan
Martin Robinson	020 7353 4200
Olivia Peters

- ENDS -

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Business review

CEO's report

I am pleased with our performance in the first six months of 2021, which shows not only in the improved financial results but also in the operational progress demonstrated throughout the business. While industrial demand has improved, COVID-19 continues to impact many of our end markets and has created global supply challenges ranging from accelerating raw material inflation to logistical disruptions. Our performance reflects the strong positioning of our products and the importance of our self-help agenda, and we see scope for multi-year performance improvement as the macro-economic environment improves and we execute against our strategic priorities.

Group performance

Personal Care

In the six months to 30 June 2021, Personal Care revenue declined 5% on an underlying basis* (down 1% on a reported basis) due to continued demand weakness in our two key end markets, colour cosmetics and anti-perspirant deodorants. As a result of the impact of COVID-19 related social and travel restrictions, retail sales of cosmetics and deodorants fell 11% and 15% respectively in Europe in the first quarter. While there were early signs of improvement in the second quarter, demand in these end markets remains below pre- pandemic levels, and future recovery will be influenced by COVID-19 developments and the global measures taken to mitigate its impact.

Adjusted operating profit for Personal Care declined 8% on an underlying basis* (down 4% on a reported basis) to $19m, with adjusted operating margin modestly down on the prior year (22.4%) at 21.6%. The decline in adjusted operating profit was primarily driven by weaker volumes and product mix partially offset by tight cost management.

Coatings

In Coatings, revenue rose 15% on an underlying basis* to $197m due to strong market demand, particularly in industrial coatings, new business wins and customer restocking. Revenue from the Energy business, now reported as part of Coatings, was broadly flat on the prior year at $15m. Including currency translation impacts, Coatings revenue rose 21% on a reported basis. All regional performance commentary is on an underlying basis* unless otherwise stated.

• EMEA revenue rose 29% on the prior year period as decorative activity remained buoyant and industrial demand recovered across all geographies. Decorative coatings demand increased significantly driven by strong DIY demand. Industrial coatings volumes rose double digits, reflective of new business success, particularly for our Thixatrol® (organic thixotrope) products, improved activity across automotive and industrial machinery end markets, and customer restocking.
• In Asia, where over 80% of our sales come from industrial coatings, revenue rose 15% driven by volume growth as industrial activity rebounded, particularly in China in areas such as marine and protective coatings, and new business wins across our waterborne industrial additives platform. Outside of China, demand was mixed due to a resurgence of COVID-19 cases in South East Asia and raw material shortages at customers.
• Americas revenue rose 6% on the back of good decorative and industrial demand. In the US, decorative demand remained solid, driven by healthy construction and residential property activity, and continued new business momentum for our Rheolate® HX rheology series. Revenue from industrial coatings was higher than the prior year period as underlying demand improved, in areas such as automotive and protective coatings, and customers rebuilt inventories. Sales in Latin America rose modestly as the spread of COVID-19 continues to hold back the demand recovery.

Adjusted operating profit rose 48% on an underlying basis* (60% on a reported basis) from $21m to $33m with volume growth, improved price/mix and cost savings from the Charleston plant closure and St Louis capacity consolidation partially offset by accelerating raw material cost inflation. As a result, adjusted

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operating profit margins increased from 12.7% (restated to include the Energy business) to 16.7%. The Coatings transformation programme has created an integrated and more customer centric organisation that is well positioned for future success.

Talc

In Talc, revenue rose 14% on an underlying basis* from $61m to $77m with strong industrial demand more than offsetting continued weak demand from paper applications. Including the impact of currency translation, revenue rose 26% in the first half.

Revenue from industrial talc (representing over 85% of total Talc revenue) rose 22% on an underlying basis*, driven by demand recovery in key end markets, new business wins and geographic expansion. Long life plastics and technical ceramics applications both experienced strong growth in the first half as automotive production recovered, albeit somewhat impacted by semi-conductor related OEM production issues. Sales to coatings customers grew double digits on the prior year period, reflective of market share gains as we gained new customers and entered new geographies. Talc sales to customers in Asia and Americas rose 19% and 60% respectively as the business executed on the strategy to grow and gain market share beyond of its core European market.

Outside of industrial talc, sales to the graphic paper market declined as expected by over 30% driven by the ongoing shift to digital media. This market now represents only 8% of total Talc revenue.

Adjusted operating profit rose 18% on an underlying basis* from $6m to $8m, with adjusted operating margins of 10.3% in line with prior year as volume growth was offset by temporary weather related cost increases.

Chromium

Revenue in the period was $90m, up 16% from $78m in 2020 with double digit volume growth partially offset by weaker year on year average pricing and supply chain bottlenecks. Due to the rebound in industrial activity, demand for chromium chemicals increased across a range of end markets including automotive, leather tanning and protective applications. While average unit pricing decreased on the prior year period, pricing was sequentially stable on Q4 2020 levels. As a result of demand improvements and industry supply chain challenges, we estimate global chromium industry capacity utilisation rose from approximately 75% in 2020 to 80% in the first half of 2021. If sustained, it is anticipated this will result in spot market price increases that should benefit our performance in 2022 as they feed through to realised pricing.

Adjusted operating profit for the first six months of the year was $5m, up 48% on the prior year period with volume growth partially offset by weaker pricing. Adjusted operating profit margin rose from 4.0% to 5.1%.

Net debt and leverage

At the end of June 2021 net debt fell $38m on the prior year period (30 June 2020: $453m) to $415m as a result of underlying cash generation, representing a net debt to adjusted EBITDA ratio** of 3.0x (3.1x at 30 June 2020). Net debt was broadly in line with December 2020 ($408m) as earnings growth and disciplined working capital management offset a (previously announced) $20m tax cash outflow following the European Commission's State Aid investigation into the UK Finance Company Exemption ('FCE') regime.

Strong underlying cash generation and (last twelve months) earnings growth are expected to drive a reduction in leverage in the second half of 2021.

Interim dividend

We recognise the importance of a dividend to our shareholders. However, given the elevated financial leverage and continued COVID-19 related macroeconomic uncertainty the Board has decided it is prudent to preserve cash and will not be declaring an interim dividend for 2021. The Board will keep future dividends under review and will restart payments as soon as it is appropriate to do so.

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