# Strategic report

_Source: `DeepSeekOCR_Ardian_pruned_1k/basic-materials-specialty-chemicals/LSE_ELM.L_2021/LSE_ELM.L_2021.mmd` · pages 1-7_

---

Strategic report
Elementis today 01
2021 highlights 01
Our business at a glance 02
Chairman's statement 04
Chief Executive Officer's review 06
Investment case 10
Innovation at Elementis 12
Supply chain in action 14
Our market environment 16
Our business model 18
Our strategy 20
Key performance indicators 28
Sustainable business 30
Non-financial information statement 41
Taskforce for Climate-related
Financial Disclosures (TCFD) 42
Stakeholder engagement 48
Section 172 statement 52
Finance report 54
Operating review 60
Risk management 64
Principal risks and uncertainties 68
Viability and going concern statement 73

Corporate governance
Chairman's introduction to governance 74
Board of Directors 76
Executive Leadership team 78
UK Corporate Governance Code 80
Division of responsibilities 81
Board leadership and Company purpose 82
Workforce engagement 85
Shareholder engagement 87
Composition, succession and evaluation 88
Nomination Committee report 92
Audit Committee report 96
Directors' Remuneration report 101
Directors' report 128
Directors' responsibilities 131

Financial statements
Independent auditor's report 132
Consolidated income statement 140
Consolidated statement of
comprehensive income 140
Consolidated balance sheet 141
Consolidated statement of
changes in equity 142
Consolidated cash flow statement 143
Notes to the consolidated
financial statements 144
Company balance sheet 185
Statement of changes in equity 186
Notes to the company financial
statements of Elementis plc 187

Shareholder information
Alternative performance measures
and unaudited information 193
Five year record 195
Shareholder services 196
Corporate information 197
Glossary 198

For more information
www.elementis.com

<--- Page Split --->

## Resilience, recovery, progress

Elementis is a global specialty chemical company, delivering Enhanced Performance Through Applied Innovation. Our solutions make our customers' products easier to manufacture and perform better, with enhanced sustainability credentials.

## Operational highlights

Following the significant impact of COVID-19 in 2020, strong demand recovery in 2021 triggered ongoing supply chain challenges and cost inflation across the globe. In response, we focused on maintaining reliable supply to our customers and the execution of our self-help agenda via proactive cost and pricing actions.

## Our year in numbers

## Revenue

$880m

2020: $751m
2019: $874m

## Operating profit/(loss)

$26m

2020: $(28)m
2019: $101m

## Diluted earnings per share

0.4c

2020: (11.3)c
2019: 7.9c

## Total recordable incident rate (TRIR)

0.90

2020: 0.68
2019: 0.48

1 After adjusting items – see Note 5

2 Please see the Alternative Performance Measures section on page 193

## Cautionary statement

The Annual Report and Accounts for the financial year ended 31 December 2021, as contained in this document ('Annual Report'), contains information which viewers or readers might consider to be forward looking statements relating to or in respect of the financial condition, results, operations or businesses of Elementis plc. Any such statements involve risk and uncertainty because they relate to future events and circumstances. There are many factors that could cause actual results or developments to differ materially from those expressed or implied by any such forward looking statements. Nothing in this Annual Report should be construed as a profit forecast.

<--- Page Split --->

# Working with our customers across the world to solve their product performance and sustainability challenges

## Who we are

Elementis is a specialty chemicals company with around 1,400 employees, operating at 22 manufacturing sites across the globe.

Founded in 1844, we are listed on the London Stock Exchange and are a constituent of the FTSE 250 index.

![](images/3_0.jpg)

## Personal Care
Overview

We are a leading global supplier of rheology \( ^{*} \)  modifiers and anti-perspirant actives to personal care product manufacturers. Our products help make skin creams smooth, nail polish glow and anti-perspirants work.

Sales

![](images/3_1.jpg)

Adjusted operating profit

![](images/3_2.jpg)

Read more on page 60

## What we do

We create specialty chemicals that deliver crucial end product attributes across a range of industries including cosmetics, coatings and long life plastics. Innovation is at the heart of what we do; our focus is on creating solutions that deliver performance improvements and enhanced sustainability credentials.

![](images/3_3.jpg)

## Coatings Overview

We supply rheology* modifiers and other complementary specialty additives to manufacturers of industrial coatings and decorative paints. Our products help make industrial coatings last longer, decorative paints more stain resistant and sealants apply evenly.

Sales

![](images/3_4.jpg)

Adjusted operating profit

![](images/3_5.jpg)

Read more on page 61

## How we do it

Combining our leading positions in rheology*, surface modification and formulation, access to unique natural materials and global footprint, we deliver Enhanced Performance Through Applied Innovation to our customers around the world.

![](images/3_6.jpg)

## Talc

Overview

We are the second largest global supplier of talc based additives to industrial end markets including long life plastics, technical ceramics and packaging manufacturers. Talc helps to make long life plastics stronger and lighter, gasoline particulate filters work and food packaging recyclable.

Sales

![](images/3_7.jpg)

Adjusted operating profit

![](images/3_8.jpg)

Read more on page 62

<--- Page Split --->

## Where we operate
Total number of sites

![](images/4_0.jpg)

7 Personal Care and Coatings
5 Chromium

![](images/4_1.jpg)

2 Personal Care and Coatings
4 Talc

![](images/4_2.jpg)

4 Personal Care and Coatings

![](images/4_3.jpg)

## Chromium
Overview

We are the only producer of chromium chemicals in North America and supply our products to a broad range of industrial applications including metal plating, wood treatment and leather tanning. Chromium chemicals are essential to extending the life and improving the performance of many industrial components such as wind turbines, telegraph poles and jet engines.

## Sales

![](images/4_4.jpg)

Adjusted operating profit

![](images/4_5.jpg)

Read more on page 63

![](images/4_6.jpg)

<--- Page Split --->

# A resilient business recovering strongly

![](images/5_0.jpg)

It is a great honour to be serving as Elementis' new Chair and to be working with a strong Board, an impressive team of leaders, and many hugely dedicated and talented people all around the world. Since joining the Board in 2020, I have found a group with a clear strategy built on Innovation, Growth and Efficiency. It is well managed and run by people who are hardworking, engaged and enthusiastic. Elementis has significant potential and, having witnessed the resilience of the business model over the last two years, I am encouraged about its prospects.

John O'Higgins
Chairman

## Business performance

In 2021, our financial performance was much improved compared to the prior year. Sales increased 17% to $880m, driven by strong new business momentum, targeted pricing actions to offset inflationary cost increases and volume recovery across most of our end markets.

While this demand recovery is welcome, it has triggered well documented supply chain challenges and accelerating cost inflation across the globe. In response, the Group has demonstrated the resilience and agility of its business model, the strength of its global supply chain and the importance of its efficiency improvement projects. In such an environment, I am encouraged by the Group's performance and look forward to further improvement as end markets continue to recover and we make further strategic and operational progress.

## Strategic priorities

The Group's strategic priorities are clear and consistent. Innovation, Growth and Efficiency are the pillars of our strategic agenda. Execution of our priorities in these areas will drive the delivery of our medium term financial ambitions, namely a 17% adjusted operating profit margin, 90% operating cash conversion and net debt/EBITDA of under 1.5x.

This year our strategic progress has been encouraging. We launched 21 new products, all of which deliver enhanced product performance, manufacturing efficiency and sustainability credentials to our customers. The start-up of our new anti-perspirant actives plant in India and the delivery of $10m of cost savings were key efficiency milestones, and the achievement of $50m of new business opportunities is a clear sign that our growth platforms are well positioned for future success.
Although Tac recognised a $53m non-cash goodwill impairment, linked primarily to delays in the recovery of automotive markets, your Board believe the fundamentals of the business remain strong, built on a fully integrated value chain supported by unique processing and formulation capabilities. There are attractive long-term opportunities to grow in Asia and the Americas, increase market share in high value industrial applications and deliver $20-25m of revenue synergies by 2023.

## Balance sheet and shareholder returns

Net debt of \(401m was broadly unchanged on the prior year (\)408m). Net cash flow from operating activities reduced from \(107m in the prior year to \)67m in 2021, primarily due to \(32m working capital outflow to support growth and a \)20m one off EU state aid tax payment. The recovery in earnings resulted in the reduction of our financial leverage ratio from 3.2x net debt to EBITDA (31 December 2020) to 2.6x. The Board and management remain focused on reducing leverage as quickly as possible towards the medium term target of 1.5x net debt to EBITDA.

In 2020, at the height of COVID-19 related uncertainty, the Group took several steps to provide additional financial headroom and preserve cash, one of which was the suspension of the dividend. The Board recognises the value of dividends to shareholders and will look to reinstate the dividend in the medium term, conditional upon further financial deleveraging progress.

## Governance and Board

During 2021 Andrew Duff stepped down as Chairman and as a Director. I would like to thank Andrew for his strong leadership and guidance of the Board throughout his tenure. He left a Group with high quality businesses, good market positions, and a strong Board and Company leadership.

"Elementis' core asset is its people and 2021 has showcased the importance of this"

<--- Page Split --->

This year we completed an externally facilitated Board evaluation. The overall result was positive, concluding that the Board continues to perform effectively with good leadership, competent and engaged members, and with the appropriate focus on both in-year performance and strategy for the future.

Board succession planning is critical to ensure we have the right skills and capabilities to support strategic delivery. In the coming year, given the current Board size, we will look to appoint two additional members to the Board who can help us achieve our strategy and growth ambitions.

## Our people

Elementis' core asset is its people and 2021 has once again showcased the importance of this. Our colleagues around the world have gone above and beyond to support our customers and provide reliable supply. We value our people and have sought to recognise their dedication throughout the year.

Employee engagement activities are crucial to understand what we are doing well and where we can improve. I am pleased to report positive trends in this, with our key engagement score rising from 55% in 2020 to 63% in 2021. This is reflective of recent improvements to digital communications, flexible working and an enhanced overall engagement agenda, which included our inaugural Women in Leadership forum led by Christine Soden, our Designated Non-Executive Director for workforce engagement.

Talent is a key focus for the Board and during 2021 we continued to monitor and track our talent development programmes, focusing on ensuring that we have the right capabilities for the future and a strong succession pipeline across leadership positions. The Group is further developing its diversity programmes with unconscious bias training initiatives launched across the globe. Whilst gender is not the only focus for diversity, encouragingly the number of women in the senior leadership team has increased from 24% in 2018 to 31% this year, and women currently represent over 40% of the Board. We are committed to further developing programmes to support a diverse workforce.

## Our People in Action in 2021

![](images/6_0.jpg)

## Colleagues

Elementis' people have been on the front line during the COVID-19 pandemic, ensuring crucial supply chains continue to operate. The Group has taken appropriate measures to keep colleagues safe and ensure their outstanding efforts are rewarded.

## Sustainability

For consumers the COVID-19 pandemic has brought the environmental footprint of products and services into sharp focus. With 53% of our revenue generated from naturally derived products that are also closely aligned to megatrends such as the switch to natural personal care ingredients, water based industrial coatings and vehicle weight reduction, we are strategically aligned for the future and our innovation pipeline is positioned to further increase this number.

We also recognise the importance of reducing the impact of our global supply chain on the environment. This year we have made good progress towards our 2030 targets thanks to multiple efficiency initiatives throughout our operations. You can read more about our sustainability agenda on page 30.

## Stakeholder engagement

As a new Chair, I have sought to meet and get the views of our shareholders and other stakeholders. This engagement is a valuable way of assessing the success of our strategic delivery and where we can improve. During the year we received another unsolicited takeover offer, which we concluded significantly undervalued Elementis and its prospects, and therefore rejected. The Board appreciates the support of our shareholders and accepts the continued performance expectations that come with that support.

## Looking to the future

Elementis is well positioned; we have differentiated assets, market leading positions and clear strategic priorities for growth. We remain mindful of the continued uncertain external environment and the ongoing challenges that the COVID-19 pandemic brings, but we know that Elementis is heading in the right direction and well positioned to take advantage of the opportunities we see.

The Board and I are thankful to all our people for their hard work, commitment and passion in driving our business recovery and positioning Elementis for future progress.

## John O'Higgins
Chairman

![](images/6_1.jpg)

## Customers

Elementis' colleagues have gone above and beyond to support our customers during the pandemic and associated supply chain challenges. They have worked tirelessly to source and qualify alternative raw material suppliers, book alternative transportation modes, and support our customers' product innovation efforts around the world.

![](images/6_2.jpg)

## Communities

Elementis' businesses support the local communities in which they operate in various ways. Examples include financial donations in Brazil and India to support the local response to COVID-19, volunteering days in Cologne, London, New Jersey and Shanghai, and the sponsorship of local amateur sports teams in Finland and the UK.