LONDON, June 25,
2024 /PRNewswire/ --
24 June 2024
Mr. John O'Higgins
Chairman of the Board
Elementis PLC
The Bindery 5th floor
51-53 Hatton Garden
London EC1N 8HN
United Kingdom
Dear Mr. O'Higgins,
As you know, Gatemore Capital Management LLP
("Gatemore" or "we") manages the Gatemore Special Opportunities
Fund ("GSOF" or the "Fund"), which currently holds an economic
interest of over 4.5 million shares in Elementis PLC ("Elementis"
or the "Company").
Continued Lack of Action
Following a series of private discussions, in our
open letter published on 29 April
2024, we highlighted numerous missteps by the current
management concerning capital allocation and operations, which have
undermined investor confidence in the Company and resulted in a
significant gap between Elementis' intrinsic value and its share
price. We also proposed several urgent actions to rectify
Elementis' issues, urging the Board to take decisive steps to drive
meaningful change.
We were disappointed to read the Company's formal
response, which we considered to be wholly inadequate as it merely
reiterated the Company's existing, ineffective strategy without
addressing any of our concerns. We also note it was released only a
few hours after our letter was published, implying not only
hastiness, but also a fundamental unwillingness to engage with the
critical issues at hand.
In light of this, we are reiterating today our
firm belief that accelerating the cost-savings program, replacing
the current CEO, and conducting a strategic review — including a
potential disposal of the Talc business — are essential to
improving the Company's performance and unlocking shareholder
value.
Since our open letter we have continued to engage
with other active shareholders who closely follow the Company's
trajectory. We believe that the majority of top active shareholders
share our sentiment, are disappointed with the ineffective
engagement from the Company, and support the actions we recommended
in our letter.
Share Sale by Overpaid CEO Raises Further
Concerns
In our public letter, we emphasized the
misaligned interests between the Board and the shareholders, which
we believe accounts for the Board's chronic passivity. Indeed, the
Non-Executive Directors of Elementis collectively hold less than
0.05% of total shares outstanding, worth approximately £397k, while
earning approximately £526k per annum in Board fees[1]. This
misalignment of interests is unfortunately common in UK PLCs, where
boards are often disincentivized from acting decisively and with
appropriate urgency for the benefit of shareholders.
Adding to our concerns, on 30 May 2024, we learned that CEO Paul Waterman sold 350,000 shares, or
approximately 18% of his total vested holding[2] in the Company,
for total proceeds of £523k[3], leaving him with only 1.6 million
shares[4], or about 0.3% of the total shareholding. This sale of
shares by the CEO at such a critical time for Elementis is
tone-deaf in the context of extensive cost cuts. Furthermore, it
sends an extremely poor signal to shareholders on the CEO's views
on the future prospects of the business. Rather than inspiring
confidence in his leadership or judgement, the sale raises new
questions about his suitability to remain in office and commitment
to effectively leading Elementis toward a more prosperous
future.
We believe in strong rewards for strong
performance. Yet since the start of Waterman's tenure eight years
ago, the Board has decided to reward him with over £14 million in
total compensation, all while Elementis' share price has
underperformed its sector by 76 percentage points[5]. Most
perplexing is that last year, even with the hindsight of obvious
mistakes made by the current management, the Board nonetheless
chose to reward the CEO with record level of compensation.
We would add that this compensation is also
entirely disproportionate to the current total value of the CEO's
shareholding at £2.3 million[6]. This significant disparity is
alarming and suggests that the CEO's interests are increasingly
divorced from those of the shareholders he is supposed to
serve.
The decisions made by the Board around the CEO's
compensation underscore the divergence between the Board's
priorities and the interests of the shareholders whom the Board is
supposed represent.
Time for Action
The time is now for the Board to take immediate
and decisive actions to address these governance concerns and
realign the Company's strategy with the interests of its
shareholders. We have engaged with many of the largest active
shareholders of Elementis and believe there is unity on all these
issues. We strongly urge you and the Board to take prompt and
decisive action.
Failing this, we may be compelled to unite the
shareholders and pursue the replacement of the Chairman through an
Extraordinary General Meeting to drive the necessary change within
Elementis.
As always, we are committed to engaging
constructively with the Board to ensure the full value of Elementis
is achieved and would be glad to speak further privately. Thank you
for your attention.
Sincerely,
Liad Meidar
Managing Partner
Gatemore Capital Management LLP
For media enquiries:
Greenbrook
Rob White, Teresa Berezowski
Email: gatemore@greenbrookadvisory.com
Tel: +44 (0) 20 7952-2000
Disclaimer
Gatemore Capital Management LLP, together with
the funds it manages ("Gatemore") is acting on behalf of itself and
not as agent for or on behalf of any third party. This letter is
not intended as, and should not be construed as, an offer or
invitation or solicitation with respect to the purchase or sale of,
or a recommendation to invest in, any security. The content
of this letter has been prepared by Gatemore alone and is not, and
has not been, endorsed or approved by any other person. You should
assume that, as at the date hereof, Gatemore may have a position
(long or short) in one or more of the securities of any company
mentioned in this document (and/or options, swaps and other
derivatives related to one or more of these securities) and may
continue transacting in such securities.
This letter is not, and should not be regarded as
investment, accounting, legal or tax advice or as a recommendation
regarding any particular strategy. No reliance may be placed
for any purpose on the information and opinions contained in this
letter or their accuracy, sufficiency, or completeness. No
representation or warranty, express or implied, is or will be made,
and, save in the case of fraud, in no event will
Gatemore or any of its directors, officers or employees, advisers,
agents, consultants, affiliates, and/ or any funds managed by
Gatemore be liable to any person (in negligence or otherwise) for
any direct, indirect, special, consequential or other damages
arising from any use or misuse of the content or information
provided herein.
Certain information in this letter constitutes
"forward-looking statements", which can be identified by the use of
forward-looking terminology such as "may", "will", "should",
"expect", "anticipate", "target", "project", "estimate", "intend",
"continue", or "believe", or the negatives thereof or other
variations thereon or comparable terminology. By their
nature, forward-looking statements involve risks and uncertainties,
actual events or results may differ materially from those reflected
or contemplated in such forward-looking statements.
[1] Holding value based on Elementis 2023
Annual Report and RNS announcements and market capitalisation of
£850m as of 21 June 2024.
Non-Executive Board compensation per Elementis 2023 Annual
Report.
[2] Based on 1.6m
resulting CEO shareholding in the Company post sale as per
Elementis' email to Gatemore dated 31 May
2024.
[3] Elementis RNS announcement dated 30 May 2024.
[4] CEO shareholding in the Company post sale as
per Elementis' email to Gatemore dated 31
May 2024.
[5] Bloomberg as of 21
June 2024. Total Return Index (Gross Dividends). Sector peer
performance is based on is a simple average TSR of Ashland, Arkema,
Imerys, Evonik and Lanxess.
[6] Holding value based on 1.6m shares and market capitalisation of £850m as
of 21 June 2024. CEO compensation per
Elementis 2016 - 2023 Annual Reports.
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SOURCE Gatemore Capital Management LLP