Shareholder Elementis calls on boss Paul Waterman to resign

A prominent Elementis shareholder has called for the FTSE 250 company’s CEO to resign, saying the chemicals sector requires ‘urgent change’.

Activist investor Gatemore Capital Management said in a scathing open letter published on Monday that Paul Waterman had presided over a long period of weak results caused by “self-inflicted management mistakes”.

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

Gatemore owns 0.6 percent of Elementis shares.

The letter accuses Elementis of overpaying for Mondo but failing to realize the “promised synergies” of the acquisition, causing higher debt and cash flow problems that led to a covenant reset and canceling dividends.

In addition, the fund manager said the company’s financial performance was ‘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 percent and 86 percent respectively since the Waterman acquisition in 2016. were 1.75 percent higher at 139.6p early Monday afternoon.

Russ Mould, investment director at AJ Bell, said: ‘Nameing and shaming in this way are classic techniques of investors who have had enough of a company.

‘Normally this is usually a last resort, and it will be interesting to see if other investors join together and put more pressure on forcing changes in the company.’

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

While Gatemore acknowledged that the problems faced by London listed companies have “clearly not helped”, the company said this cannot justify Elementis’ “scale of underperformance”.

Gatemore said Elementis’ board was “not aligned” with shareholders because corporate governance rules prevent companies from incentivizing directors with equity.

Less than 0.05 per cent of the company’s shares are held by the non-executive directors, amounting to £332,000, but they receive around £526,000 in compensation annually.

“The misalignment of interests reflected in this configuration is unfortunately not uncommon in UK PLCs, where boards are not incentivized to act decisively and with appropriate urgency for the benefit of shareholders,” Gatemore added.

To turn the tide, Gatemore wants Elementis to replace Aquarius because he is “no longer trusted as an individual” to correct “past missteps.”

Gatemore also urged Elementis to conduct a strategic review to make it “more attractive to a strategic buyer” and accelerate its cost savings program.

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 on the substantial actions currently being implemented at a rapid pace across the company that will accelerate progress towards support 2026 targets. of greater than 19 percent operating margin, >90 percent cash conversion and >20 percent return on capital, generated by $90 million above market revenue growth and $30 million cost savings.

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