Gatemore Capital calls on Elementis to replace CEO

(Sharecast News) - Activist investor Gatemore Capital said on Monday that Elementis was an attractive company that has "lost its direction" as it called for the chief executive to be replaced. In an open letter, Gatemore urged the speciality chemicals company to accelerate and confirm the details around its announced cost-savings programme, replace the current CEO and conduct a strategic review of the portfolio "with the aim of refocussing the business and making it more attractive for a strategic buyer".

The investor said it reckons many of the company's problems are self-inflicted and demonstrate a continued failure of judgement of the top leadership team, most notably the CEO.

It noted that since Paul Waterman came into the office in 2016, Elementis has delivered subpar total shareholder returns compared to its peers, despite the share price having been supported by three takeover approaches throughout the period.

Among the missteps that have been allowed under Waterman's watch, Gatemore highlighted about $650m spent on M&A net of disposals, which it said is equal to over a half of Elementis' current entire market capitalisation.

It said the company overpaid for the Mondo Minerals acquisition and failed to deliver on promised synergies. Instead of delivering growth, the acquisition resulted in increased financial leverage and deteriorating cash flow, ultimately leading to covenant reset and elimination of the dividend.

It also pointed to operational underperformance.

"Under the watch of the current management team, Elementis' financial performance has been disappointing, with operating profit margins and earnings per share declining despite multiple cost cutting initiatives," said Gatemore, which owns just under 1% of Elementis shares.

"Management's latest mid-term profitability guidance has been increased to 19%. Whilst shareholders will hope that this does indeed come to fruition, it is hard to overlook the fact that the company's 2023A reported 14.6%3 operating profit margin has not yet reached the previous guidance of 17%."