- Gatemore Capital Management has written a scathing open letter to Elementis
- An activist investor noted that Elementis stock has underperformed its peers
A prominent Elementis shareholder has called on the FTSE 250 company’s chief executive to resign, saying the chemicals business requires “urgent change”.
Activist investor Gatemore Capital Management said in a scathing open letter published Monday that Paul Waterman had presided over a long period of weak results caused by “self-inflicted management failures.”
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 in 2018 for $500 million from private equity giant Advent International.
Manufacturer: Elementis manufactures ingredients for use in deodorants and skin creams.
Gatemore owns 0.6 percent of Elementis shares.
The letter accuses Elementis of overpaying for Mondo and failing to achieve the “promised synergies” of the acquisition, leading to higher debt and cash flow problems that led to a reinstatement of the deal and reduced dividends.
Additionally, the fund manager said the company’s financial performance had been “disappointing”, with earnings per share and operating profit margins declining even after numerous cost-cutting measures.
Gatemore said elementis stock They 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 rose 1.75 per cent to 139.6p in early Monday afternoon.
Russ Mould, investment director at AJ Bell, said: ‘Naming and shaming in this way are classic techniques of 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 come on board and apply more pressure to impose changes on the business.”
Elementis, which makes ingredients for use in deodorants and skin creams, recently received takeover offers from US rivals Innospec and Minerals Technologies and investment group KPS Capital Partners.
While Gatemore acknowledged that the problems facing London-listed companies had “clearly not helped”, he said this cannot justify Elementis’ “scale of poor performance”.
Gatemore said Elementis’ board was “not aligned” with shareholders because corporate governance rules discourage companies from incentivizing directors with equity.
Less than 0.05 per cent of the company’s shares are held by its non-executive directors, equivalent to £332,000, but they receive around £526,000 a year in fees.
“The misalignment of interests reflected in this configuration is, unfortunately, not uncommon in UK limited companies, where boards are not incentivized to act 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 right the “mistakes of the past.”
Gatemore is also urging Elementis to undertake a strategic review to make it “more attractive to a strategic buyer” and accelerate 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 focusing on the execution of the substantial actions that are currently progressing apace across the business and that support progress towards the 2026 goals”. of 19 percent+ operating margin, >90 percent cash conversion and >20 percent return on equity, driven by $90 million of above-market revenue growth and $30 million of cost savings.
“The Board continues to engage with all shareholders and welcomes their feedback, with a clear focus on driving shareholder value, and looks forward to updating the market in its trading update in conjunction with its Annual General Meeting tomorrow.”