Hello, everyone, and welcome to the Elementis 2024 Interim Results Call. My name is Nadia, and I'll be coordinating the call today. If you would like to ask a question, please press Star followed by One on your telephone keypad. I will now hand over to your host, Paul Waterman, CEO, to begin. Paul, please go ahead.
Good morning, and welcome to the Elementis 2024 Interim Results Call. Before we get into the presentation, I'd just like to share a few reflections on our first half results. The demand environment was flat, so there was no tailwind. The results were driven by execution of the innovation, growth, and efficiency strategy that we've been working at since 2020. At our Capital Markets Day last November, we shared how continued execution of this strategy would deliver materially improved financial performance by 2026. I believe the first half performance needs to be looked at in this context. Our performance was strong relative to the environment, and this was a result of our multi-year focus on launching innovative new products, developing new business, while simultaneously taking action to make Elementis more efficient. We now have a very solid foundation that we'll continue to build on.
So am I confident we'll deliver our 2026 CMD targets? Yes, I'm absolutely confident. And even if demand conditions remain as they are, we have the right strategy and a very talented team to deliver it, and we will continue to actively manage our portfolio, and we'll deliver both above-market growth and further efficiency. So while this first half is a down payment on our CMD commitments, there's more to come, and it will be to the benefit of our shareholders. I'm very excited about where we're going. It's a very exciting time to be leading Elementis. So with that, let's get into the presentation. In terms of the agenda, I'll start with highlights and business segment performance. Ralph will cover the group financials, and then I'll take you through the outlook. Following this, we'll take your questions.
We're pleased to report that Elementis delivered a strong first half performance, with revenue and earnings growth driven by coatings and personal care. The self-help actions we announced in November are progressing well. We delivered 5% revenue growth in a largely flat demand environment. This was underpinned by the growth platforms we set out at last year's Capital Markets Day. Our efficiency delivery is progressing faster, with $15 million of cost savings now expected this year. Our balance sheet continues to strengthen, with net debt to EBITDA down to 1.3x . Today we're announcing a strategic review of talc to determine whether its full potential can best be delivered as part of Elementis or via a divestment. In terms of outcomes, we've made good progress on our 2026 financial targets, delivering an operating profit margin of 17%.
That compares to 14.4% in the same period last year, so a demonstration of strong progress. Operating cash conversion was 81%, and return on capital employed improved from 15% for 2023 to 18%. I'll provide more detail on the targets shortly, but first, let me cover our safety performance, which improved further in the first half. We reported one recordable injury, which is a 50% improvement on the prior period, but equally one short of the zero injuries goal that we are targeting. That said, we've achieved notable milestones in the first half. 85% of our plants have now worked safely with no recordable injuries for over one year, and 60% have worked with zero injuries for over three years. There's still more to do. We continue to drive further improvement, training our people and maintaining our assets.
Let me just mention the Global HSE Management Framework, which we rolled out in the first half. This is aligned with the international standards for health and safety at work and part of our systemic approach to keeping our people safe. Turning to our headline financial performance on Slide Seven, revenue increased 5% to $383 million, reflecting more normalized volumes and improved mix. Operating profit of $65 million was up 24% on the prior period, the best first half profit result since 2019. Our operating margin was 17%, or 260 basis points higher than the 14.4% reported last year.
Adjusted earnings per share increased 9% to $0.061 per share, and we continued to delever, with net debt falling since the year-end and our gearing ratio at 1.3x versus 2x at this time last year. In line with our dividend policy, we've declared an interim dividend of $0.011 per share. Moving on to strategic progress, I'm pleased to say we're moving at pace towards our 2026 CMD objectives. Progress is demonstrated in our focus areas of innovation, growth, and efficiency. On innovation, we're on track to launch 15 products this year, with nine launched in the first half. These included bio-based foamers for industrial coatings and hectorite-based skincare products.
New products accounted for 15% of sales in the first half, up from 14% in the prior year, and we generated 69% of revenues from natural or naturally derived products. Our growth platforms are also on track, and we expect $20 million-$25 million of above-market revenue growth to come this year. In the first half, we delivered $29 million of new business across coatings and personal care, putting us well on track for $50 million of new business in 2024. Revenue growth in the first half was supported by strong growth in Asia, where Elementis sales increased 26%. On efficiency, I'm pleased to say delivery of our $30 million efficiency program is running ahead of plan, and we now expect to deliver $15 million of savings this year and another $50 million of savings in 2025.
The organizational restructuring, which we call Fit for the Future, is ahead of plan, while our procurement and supply chain cost savings program is progressing well, with the AP Actives Middletown, New York plant now closed. Ralph will provide more detail on both programs later on. All these actions are supporting progress against our financial targets. First, our operating profit margin continues to improve. 17% in the first half gets us materially closer to our 19%+ target in 2026. I'll reiterate that we've assumed 100% of the delivery is based on self-help, and we continue to assume the demand environment will be unchanged. Should demand improve, we believe our operating profit margin will exceed 19%. Our second target is to deliver operating cash conversion of over 90%.
The 3-year average operating cash conversion to end June 2024 was 81%, and performance over the last 12 months was 130%. So we're making good progress here. Our third target is to improve return on capital employed to over 20%. We improved to 18% in the first half from 15% last year. Around half of this improvement came from earnings growth, and the other half resulted from a write-down of the talc assets. Overall, we're making good progress, but there's more to do. Now let's look at the performance of our businesses by segment. Starting with Personal Care, where we delivered a record operating profit. Revenue was up 2% versus a strong first half last year.
Our adjusted operating profit is up 22% to $34 million, with the operating margin improving to 29.3%, supported by self-help actions. The expanded capabilities that we've been building over the last few years continue to drive momentum and have led to a higher quality business overall. This was mainly achieved by $10 million of new business with higher value products, with almost half of them being innovation sales. We continue to optimize our route to market, particularly in Asia, where we've built the capabilities to directly manage more strategic customers. That not only increases customer intimacy, but also drives higher margin. And finally, we're seeing the benefits of self-help cost and pricing management. Our plant in India is now successfully producing the majority of our AP Actives products, which has enabled us to consolidate our global production footprint.
On Slide 12, you can see that personal care is a high-quality business with attractive margins. To drive new business, we need new products, and our commitment to innovation is enabling this. Overall, the share of innovation sales as a percentage of total sales has been increasing year-over-year over the last five years. We've launched 29 products since 2020, which are not only creating a stronger, higher quality business, but have also helped drive our new business opportunities pipeline, which has now reached a record of $81 million. This gives me confidence about the future growth and the sustainability of our margins in the coming years. As you can see, this innovation and new business-led growth has created a business of scale, as personal care now represents 45% of the group's profits.
Now, let me tell you how we're going to deliver on our personal care growth platforms. We set out in our November CMD a $90 million above-market revenue growth target by 2026, driven by seven growth platforms, three in Personal Care, four in Performance Specialties. Personal Care platforms will deliver about 1/3 of the $90 million target. Here, we laid out the key deliverables to 2026 that support this delivery. The first is color cosmetics, which is currently the biggest application we're serving in Personal Care. Here we target above-market growth of $10 million by 2026. We're leveraging our strong market position and application knowledge to support customers who respond to the latest trends and need the ingredients for the finest makeup products. We're on track to deliver eight new product launches within the next eighteen months.
These products will focus on solving our customers' key challenges around formulation versatility, flexibility, and sustainability. Additionally, we will enter the field of film formation that is complementary to our current hectorite offering. Secondly, in skincare, we see a growth potential at 2x to 3x the market, with the biggest opportunity being the replacement of synthetic rheology control ingredients with our natural hectorite technology. We're on track to launch seven new products by 2026. We see significant growth potential in water-based skin and sun care products, as well as film formation, which works alongside the benefits of hectorite in sun care applications. Additionally, we continue to invest in existing product development of our hectorite series beyond their functional properties, promoting hectorite as a hero ingredient.
These developments will build on the successes we had in oil absorption and mattifying, opening the door to more sophisticated skin condition and skin improvement claims. Finally, in AP Actives, we target mid-single-digit revenue growth and margin expansion, driven by our high-efficacy AP Actives. We'll do this by entering a new market for deodorant actives while also targeting a significant regional sales expansion in Asia. This is enabled through our improved manufacturing footprint with a local presence in the region. This is the program to 2026, but let me cover the progress we've made over the last six months. First, skincare. In April, at the in-cosmetics trade show in Paris, which is the biggest show for personal ingredients in the world, we launched BENTONE HYDROLUXE 360.
This is our newest hectorite launch, which provides outstanding sensory and texture benefits, and also makes it easier for our customers to get the right stability and viscosity in their natural formulations. We received great feedback. It was among the top five most popular products at the show, and we sent out over 700 samples to customers worldwide. This is our first product in the new HYDROLUXE line. We're already planning the next launch at the in-cosmetics trade show in Amsterdam next April. Together with existing products, this will enable us to expand our share in the natural rheology modifier market for skincare that's worth over $200 million. We also made good progress in color cosmetics, mainly driven by Asia, where the business grew over 30%.
As I mentioned earlier, this was facilitated by our expanded capabilities in sales, marketing, and technology in this region, where we've doubled headcount since 2021. We saw strong growth in China, Korea, Taiwan, and Japan. Growth in China was driven by our relationships with the bigger local players, but also with some fast-growing manufacturing companies that export globally. I mentioned the changes to our route to market earlier, which means that in China, we now serve more of our customers on a direct basis. For the first time, we launched two customized products for our Chinese customers. But Asia growth is not all about China. In Korea, we're advancing with contract manufacturers, and in Indonesia, we supply big players for local but very popular color cosmetics brands.
So our continued investment in capabilities in Asia is delivering, and we'll continue to invest in this region to support further growth. Moving on to the last growth platform in Personal Care, antiperspirants. Here, we're focusing on revenue growth and, more importantly, further margin improvement. We've made great progress on high efficacy products launched over the last few years. I'm talking about products that allow for 72 or sometimes even a 96 hours sweat protection claim. Revenue from these products increased 16% in the first half. We also launched our first active based on waste aluminum. Using waste aluminum reduces Scope 3 carbon emissions, with no impact on the efficacy of the product. Hence, this is providing sustainability benefits for us and our customers. Last, we filed a patent for a new deodorant active that will offer both odor and sweat reduction benefits.
This will allow us to enter a new $80 million deodorant actives market and will nicely complement our leading position in antiperspirant actives. We plan to launch it in the first half of 2025. I'll now move on to Performance Specialties. Overall revenue increased 6% to $268 million, driven by coatings. Adjusted operating profit increased 22% to $42 million. Adjusted operating margin rose to 15.5%, driven by improved volumes and mix in coatings and $19 million of new business. Turning to coatings, which delivered a much improved financial performance, revenue increased 10% to $200 million, supported by growth platforms and some benefits from selective restocking. Adjusted operating profit increased 52% to $38 million, reflecting improved volume and cost management.
Adjusted operating margin improved to 19.3%, supported by self-help actions and better product mix. Our first half improvement reflects the quality of our coatings business. Slide 19 demonstrates the change we've made over the years, improving the portfolio and reducing costs. Looking back, you can see we had an average margin of around 14% between 2015 and 2020, even in a healthy demand environment. Since 2021, coatings margins have been driven significantly higher. The 19% margin we delivered in the first half in continued weak market conditions is a testament to the improved quality of this business. This hasn't been driven by a favorable market. The chart on the right-hand side shows average volumes of select chemical companies and industrial production growth and demonstrates the weak demand conditions we are still facing.
That puts our 19% margin into perspective. We are obviously looking forward to demand improving, but even without it, we have confidence we can continue to grow earnings in the coming years. Slide 20 shows the improvement in sales across the decorative and industrial sectors, driven by more normalized volumes post-destocking. All our regions saw revenue growth in the first half. In the Americas and Europe, where our business is split relatively evenly between decorative and industrial activity, revenue increased 8% and 7%, respectively. And in Asia, where we are more focused on industrial coatings in China, sales improved 25%. Let me just remind you that China was still in lockdown in H1 2023, and we've also seen modest restocking in this region. So we do not expect the rate of growth to continue at this pace in the second half.
And finally, revenue across our global key accounts was broadly flat, with many of our large customers facing quite challenging demand conditions. Let me now move on to our Performance Specialties growth platforms. Of our seven growth platforms, four are in Performance Specialties. These are expected to deliver around 2/3 of the $90 million revenue target by 2026. Now, let me tell you our program to deliver. First, architectural coatings, where we expect to grow at twice the market through 2026. We have a big opportunity to tap into the growing demand for high-end paints in Asia, which is an attractive $300 million ingredients market. To capture this opportunity, we're expanding our manufacturing footprint in Asia to increase our NISAT production capability. I'll talk about this more in a moment.
In addition, we will soon launch NISATs that are over 80% bio-based, without compromising on performance. And by next year, we will launch a full range of powdered NISATs, which help our customers reduce their carbon footprint. Our second growth platform is industrial coatings, where Elementis already has a strong position with our high-end rheology additives. There are some distinct opportunities here to build on that strong base, allowing us to add $30 million of incremental revenue by 2026. Over the next 12 months, we're launching a new hectorite and organic thixotrope-based line for powder coatings. Our leadership position in rheology additives supports our ability to provide full formulation to our customers. We already have a full range of dispersants and defoamers that we produce globally, and we're building capabilities in both Portugal and in China to support future growth.
The third growth platform is adhesives, sealants, and construction additives. This is a market where we're only starting to penetrate, but where our technologies bring both sustainability and performance benefits. We're looking to double our market share by 2026. One key area where we see rapid growth is in hectorite for tile mortars. This is a $100 million market, where we're replacing bentonite-based products and significantly improving end product efficiency. Another new area that we're looking to expand into is the clear sealant market, worth around $150 million. We will be launching an additive that will allow us to replace fumed silica. Innovation is crucial here, and we have six new products in the pipeline. We're also making sure that we have the right distribution network across the globe, with dedicated experts that can help us penetrate these exciting market segments.
Lastly, talc, where we aim to grow $15 million above the market by 2026. We will continue to focus on areas with the highest demand for differentiation, so highly technical applications where our premium talc is most valued. Those include long-life plastics, technical ceramics, and barrier coatings. I'll cover those later on. Let me now update you on the progress we've made in the last six months. In the second quarter, we opened a new state-of-the-art NISAT facility in China. NISATs, or non-ionic synthetic associative thickeners, are critical ingredients in formulating premium architectural coatings. Hence, the new facility is bringing enhanced performance and environmentally friendly benefits to the Chinese architectural sector. We are now the only supplier to have these technologies with manufacturing capabilities in the USA, Europe, and Asia.
With our unique position, we can efficiently serve global clients from each continent, as well as be close to the local champions. We can now deliver to 17 Asian countries locally from China, supported by in-region labs and improved distribution. Our continued focus on the Asian architectural market is already paying off. H1 delivered 35% growth in Asia and a sizable $29 million new business opportunity pipeline. In industrial coatings, we're focusing on powder coatings, entering the $200 million market, which is expected to grow at a compound annual growth rate of 5% over the next 5 years. This is an area of focus for many leading coatings producers due to the notable sustainability and durability benefits of these products. Akzo and PPG continue to invest and expand their capability, with over $100 million of investments announced in the last 12 months.
For Elementis, although we have a small base today, we already have the right offering and existing customer relationships to tap into this growth. Our hectorite-based products deliver durability as well as improved sustainability benefits. Some of the largest coatings manufacturers recognize this and are keen to adopt hectorite into more and more powder formulations. We believe that going forward, hectorite will be able to replace PFOS or so-called forever chemicals, while providing the same texture and other desired benefits. We're already working with over 30 customers globally, rapidly growing our client base. Adhesive sealants and construction additives are large markets, estimated at approximately $700 million, but a relatively new market for Elementis. Our recent growth has been supported by the success of our THIXATROL range, natural castor-based rheology additives.
We believe these products are also an excellent alternative to fumed silica, which is currently used in sealants and adhesives for its rheology. Silica is not an easy material to handle, nor is it easy to handle safely. Hence, many customers are looking for alternatives. Our THIXATROLs are natural, safer to handle, and provide the rheology profiles end products need. And importantly, our products can reduce in-process energy usage by up to 80%. So you can imagine there's a lot of excitement about these products. We're seeing increasing interest from direct buying customers, and we're hiring sales and technical experts to accelerate market penetration. Moving on to talc performance, which experienced challenging conditions in the first half.
This was driven by continued weak but improving demand and further worsened by a nationwide strike in Finland, which closed all ports and railways in the country for a month, and also forced a sharp reduction in activity at one of our key Finnish paper customers. As a result, we lost paper segment revenues and incurred additional logistics costs, continuing to fulfill customer orders. These are one-off factors that are not expected to repeat in the second half. Adjusted operating profit reduced 65% to $3 million, with margin declining to 5%. Over the past year, we've done quite a lot of work developing our 2025 to 2030 strategy. As a result, we decided to announce a strategic review of the talc business to establish whether the full potential of talc can best be delivered as part of Elementis or via a divestment.
I will update you in due course as work progresses on this. We continue to believe that talc is a business with strong fundamentals and attractive growth opportunities. We focus on higher margin applications that require talc of high and consistent quality. Those include, for example, long-life plastics, technical ceramics, and barrier coatings applications. In long-life plastics, our Finntalc K line boosts plastic strength by up to 20%. In the first half, we launched another product in this series, popular for its highly lamellar ore. Secondly, technical ceramics. These are internal combustion engine particulate filters, where a highly engineered grade of talc is needed to get the right efficiency. We've demonstrated the quality, purity, and consistency needed to grow in this market and built a solid base, but we have the opportunity to grow further.
We have technical approval from one of the largest manufacturer of these filters and expect to ramp up sales from early 2025. I'll now hand over to Ralph to cover the financials.
Thanks, Paul, and good morning, everyone. Let me start with group revenue, which increased 5% on both a reported and constant currency basis to $383 million. Both our segments grew revenues. Overall volumes increased 1%, with the improvement driven by the coatings business, which benefited from selective restocking, particularly in Asia. Price and mix contributed 4% or $14 million, largely driven by improved mix across each of the coatings, talc, and personal care businesses. This was due to growth in the highest quality parts of our product portfolio and enhanced routes to market. Moving on to group adjusted operating profit, this rose by 24% on both a reported and constant currency basis to $65 million. With a balanced contribution from revenue growth and cost savings, our operating margins expanded from 14.4% to 17%.
The volume impact was around $2 million. We don't expect the restocking benefit we saw, worth about $4 million, to repeat in the second half. The net impact of price and mix was $7 million. The overall impact of the Finnish strike on talc operating profit was around $3 million due to lost sales and higher costs. We delivered $7 million of cost savings. This is the first part of the $30 million cost program we announced in November, and I'll cover this in more detail later. Turning to cash flow, there are a few points to highlight. On working capital, we saw an outflow reflecting normal seasonality patterns of $21 million. This was materially lower than the $46 million in H1 2023. Our inventory levels improved from year-end 2023 and were around $15 million better than the first half last year.
In the second half, we anticipate a working capital inflow. Capital expenditure was $17 million, and our guidance for the full year remains at $40 million. Adjusting items of $12 million relate primarily to our Fit for the Future implementation costs and the settlement of a tax case in Brazil. After the impact of the dividend restart and the seasonal working capital outflow, our net cash flow was positive. Continued cash generation has reduced our net debt to $196 million, some $59 million below H1 2023. The debt reduction progress is part of a multi-year track record. Our net debt to EBITDA ratio has reduced from 2.6 times in 2021 to 1.3x now. We see the scope for further deleveraging in the future.
We also completed the refinancing of our revolving credit facility in the first half, reducing it by $125 million to $250 million. Our total debt facility is now around $500 million. Now, let me remind you of our capital allocation priorities. First, we will invest organically to grow our business. Capital expenditure will be approximately 5% of sales, focused on growth and productivity opportunities. Second, with a strong balance sheet and the reinstatement of dividends, we're committed to a progressive dividend policy with a payout ratio of around 30% of adjusted earnings. In line with our policy, the board has declared an interim dividend of $0.011 per share, and we continue to see scope for additional returns of surplus capital via appropriate mechanisms as we delever further. I will now cover our efficiency programs.
Delivery of our targeted $30 million annual cost savings is progressing faster than expected. In November last year, we announced a phasing of $12 million savings in 2024, with the remaining $18 million in 2025. We now expect to deliver $15 million of cost savings this year and another $15 million in 2025. Let me now provide a bit more detail on the progress of the two efficiency programs. First, the Fit for the Future organizational restructuring. This program, which is expected to deliver $20 million of the $30 million cost savings by 2025, is ahead of plan with faster implementation pace. We expect to deliver $8 million of savings this year, and savings come from three components. First, we're creating a simpler, more efficient corporate structure.
We've seen 40% of the announced 190 roles exit the organization by the end of June. Second, we're setting up our new R&D and support center in Porto with around 100 new roles. The recruitment is progressing very well, with 90% of roles hired so far. Third, we are outsourcing around 20 transactional roles to India. This process is also on track, with a contract in place with EXL and the first round of staff exits completed. Throughout these major changes, we continue to focus on implementation health metrics, which include voluntary attrition, employee engagement, knowledge transfer, and gender diversity. We're pleased to report that all remain positive. Moving on to the second part of the efficiency steps, which will deliver $10 million of cost savings by 2025. These are coming from supply chain optimization and procurement savings.
In March, we announced a planned closure of one of our AP Actives plants in the U.S., consolidating our manufacturing footprint. The Middletown plant closed in June, as expected. The closure underpins a large part of the targeted cost savings and will help to enhance our personal care margins. We have a dedicated continuous improvement team, which identified over 90 projects, generating over $1 million of cost savings in the first half. Across procurement, we implemented global category management strategies focusing on direct and indirect spend. Over the last 12 months, we've renegotiated 75% of direct spend contracts. We've also consolidated over $200 million of indirect spend so far to better leverage scale and discipline. We're currently implementing a new digital vendor management system, which is expected to go live in the third quarter this year, leading to better transparency and lower admin costs.
Taken together, these two efficiency programs are a critical driver of our 19% operating margins target. I will now hand back to Paul to cover the outlook for the year.
Thanks, Ralph. So to conclude, we've delivered a strong first half, driven by self-help actions and modest restocking. We do not expect these one-off benefits to recur in the second half and assume a stable macroeconomic environment for the remainder of the 2024 financial year, with no material improvement in demand. Our growth and efficiency programs are progressing well, with the growth supported by $348 million of new business pipeline and 15 new products in 2024. We expect to deliver $15 million of annual cost savings this year, with an additional $15 million next year. These ongoing self-help initiatives, together with the strong first half delivery, underpins an upgrade today to our full year guidance and underpins our confidence in our ability to deliver our 2026 financial targets. With that said, Ralph and I'd be happy to take your questions.
Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If you would like to remove your question, please press star followed by two. When preparing to ask your question, please ensure your phone is unmuted locally. The first question goes to Kevin Fogarty of Deutsche Numis. Kevin, please go ahead.
Morning, Kevin.
Hi. Morning, all. Hi there. How are you doing? Thanks for, for taking my call. Just, if we think about, first of all, on personal care, that sort of mix benefits that you've seen in H1 , just to be clear, that that's kind of outside of the impact of kind of growth initiatives coming through. So I just sort of wondered, I think you might have alluded to it as you were wrapping up, in terms of the visibility around kind of that dynamic repeating in the second half of the year. I just wondered, if you could sort of say something on, on that, just to clarify, kind of our, our thinking there would be quite useful. And just secondly, yeah, clearly you've outlined some good progress in terms of those growth initiatives.
So back in November, we saw kind of seven of those growth platforms outlined. The update today, obviously, kind of, you know, shows some good progress there and lots of ambition. I guess when you sort of think about those now, do you think about the need to kind of invest further behind those? You know, I know you're sort of guiding in terms of CapEx this year in and around kind of $40 million, but if we sort of roll that forward, is there any thinking in terms of the investment need that those initiatives now, now might require?
Yeah. Okay. Good questions, Kevin, as ever. I think on the personal care performance, I would say that the mix benefit that we saw in the first half. Quite honestly, we see no reason why that actually shouldn't continue. The activities that we're seeing in cosmetics and skincare behind new products, not just ones recently launched, but ones that have been cycling through the last few years, and the growth that we're seeing in Asia, it, I think it's good, it's good momentum, frankly, that we will continue to see. Clearly, there's seasonality, a little seasonality in the business, for sure.
I think a few of the customers have restocked a bit because of the, the whole, you know, Red Sea, Houthi, kind of the logistics, some of the logistics challenges. But I think the overall momentum that we're seeing should continue, actually. And it's quite honestly, it's our hope to build on it, you know, with more new products, as well as with the consolidation of the AP Actives manufacturing footprint, which the benefits of that haven't really come through yet.
In terms of the growth platforms, the kind of capital investment that we've laid out, it will suffice, frankly, to support our ambitions in these areas. So there isn't another, you know, shoe to drop on CapEx to pursue our ambitions on the growth platforms, frankly. You saw in the presentation, you know, we've done some expansion of NISATs in China that will serve Asia. That was long-term planning, frankly, and it wasn't, you know, a massive investment. So, you know, optimization, frankly, of where products are made that allow us to tap into growing geographies is something that will continue on an ongoing basis.
But, really with the footprint we have, and the capital spending that we're anticipating, you know, there isn't anything big to happen in that area.
Great. Okay, thanks very much for those. Thank you.
Thank you. The next question goes to Chetan Udeshi of JP Morgan. Chetan, please go ahead.
Yeah, hi. Thanks, thanks for taking my questions. And firstly, you know, congrats on good performance. I was just wondering, you know, if I look at your volume growth in H1 is not really that high. It's just like it seems around 1%, give or take. So, you know, it seems almost all of the profit improvements have come from, not volumes, but probably price mix, costs. Are you able to break down that more in a bit of a detail, just to get a sense of what could be driving the profitability? And I'm more curious around the pricing part, because, you know, we've seen many in chemical industry over the last year or so, given the weaker volumes and demand, have seen pricing pressure.
It doesn't seem that that's been a factor with Elementis in numbers, but just wanted to get some clarity on that. And the strategic review on talc. We, of course, will wait and see where it goes. But I remember, you know, when you sold the chromium business, you had, from memory, you know, $7million -$8 million of stranded costs at that point in time, initially. Assuming talc is sold, do you think we have a similar number to deal with initially before you take actions to mitigate those stranded costs, or would that number be very different?
Maybe the related question for Ralph would be, is there a way you can offset the dilution on earnings, either through repayment of debt, et cetera, or, you know, that may not be an option, given the maturity of your debt might be a bit longer duration? Thank you.
Okay. I think we'll take the second question first, 'cause it's more straightforward. We don't anticipate any material stranded costs related to a potential talc divestment, Chetan. We just t hat it's not in the same position as chromium was. In terms of performance drivers, I'll let Ralph give you the specific numbers. I would just say that, you're right, volume is not, it's not been a fair wind for sure. And when we were kind of putting together the planning for what we want to accomplish over the next few years, we didn't want to depend on that. Demand is, we say it's like the 900-pound gorilla in the room. I mean, what's it going to be? You don't know.
So, we assume that it would be pretty, pretty mediocre. And therefore, you know, the other things, like, the value of innovation, the new products, the new business that we've been working at, I mean, you know, these are, these are higher-margin products, so they, they help our mix, pretty considerably. The efficiency programs that Ralph kind of took you through, I mean, at which we're, you know, kind of halfway, frankly, halfway through. There's quite a bit more to come there. I think on pricing, the only thing I'll say is we've definitely been completely on top of how do changes in costs impact our margins.
You know, I think the challenge as a spec chems player is you, you want to be doing stuff that's special enough that you can charge for it when you need to, and offset inflation, protect your margins. We've been pretty disciplined about that. We'll continue to be. I do think that, you know, we're kind of coming down the curve pretty fast on inflation. So, to be overly reliant on pricing, it wouldn't be very smart, and I don't think we, I don't think we are. Ralph, do you, do you want to give any more detail?
Yeah. So just as a bit of I mean, you're right, in terms of the growth, very little of the growth came through in terms of volume, just about $1 million worth in, so $2 million worth in terms of operating profit. Most of the price mix benefit, we got about $7 million of that in the first half, was really down to mix, and there were sort of three things there in particular. One is in our coatings business, a relative tilt towards industrial sales, which is slightly higher margin decorative. In the U.S., in particular, decorative volumes were quite subdued, as reflected in other companies', results. And when we sell relatively more industrial, we tend to earn slightly higher margins.
Second, we went more direct, particularly in personal care, versus distributors, and that's generated a better mix effect in terms of our profitability. And the third thing is in cosmetics. We had a particularly good half in cosmetics, which we think will sustain. But the margins there are again some of the best in the group. Those three things together have really contributed to the mix effect. In terms of your comment about dilution, yeah, in the event we go down the road that you're talking about, we clearly would have a number of options. We certainly could repay the debt.
The main debt facility we've got now is a couple of term loans, which mature in June 2026, and we could repay those, or partly repay those. And in addition, we've got scope for doing additional returns to handle any dilutive effects. So I think we're confident we could manage the dilution on the business. But that's a long way down the road, yeah.
Thank you. Yeah, thank you.
Thank you, and as a reminder, if you would like to ask a question, please press star followed by one on your telephone keypad. The next question goes to Vanessa Jeffriess of Jefferies. Vanessa, please go ahead.
Morning. Thanks for taking my question, and sorry I've dialed in late, so I'm sorry if this is a repeating question before. Paul, you're doing work very well in new business, obviously. Just wondering about the pipeline. It looks like the total pipeline is down 15, but personal care is up 11. Is that reduction coming from coatings or from talc? And then just second of all, it looks like you're getting a very healthy margin contribution from those new products. How do we think about the margin differential between those and then your, you know, standard classic products?
Yeah, thanks for the question. Look, I think on the pipeline, you know, it does bounce around every month a bit. And certainly the momentum on personal care has been quite good. We're pretty pleased about it, particularly in Asia. The slight downshift that we saw was a bit of a mix actually between coatings and talc. But again, as I said, it's a very big number, and it does move around a bit. Sorry, what was the second question then?
Margin on new products.
Margins on the margin difference.
Yeah. It is certainly, it is certainly accretive, and the vast majority are in the 55%+ kind of place. Some are higher than that, and obviously it depends on the specific segment, you know, color cosmetics being a bit different than coatings products. But yeah, we manage that actually pretty proactively, frankly. And really what drives it is the level of innovation. I mean, you know, what you're bringing to the customer that they don't have, that they want, that's of value, which is why we're really focusing on superior performance, better sustainability, or being able to take costs out of their operations, their processes.
Great. Thank you.
We received a question-
We have a further question.
Sorry. We received a question via email as well from Sebastian Bray at Berenberg. So he asked: How have prices and volumes developed in talc? Does pricing pressure explain any of the headwinds year-on-year, leaving aside the strike? Any signs of increased competition? And there was a second question as well.
Okay. Hey, thanks, Sebastian. I would say that in the first half, our talc volumes were down about mid-single digits, and they were pretty well driven by paper, the problems that we had in the country strike, the sort of complete shutdown for four or five weeks that we kind of were dealing with. I think on a longer wavelength basis, you know, if you take your mind back to the Russia-Ukraine war and, you know, energy costs just exploding in 2022, and you can probably all remember, we were chasing those costs with pricing as quickly as we could, which is why we broke even that year.
So, you know, we obviously had to react, being a European dominant player, in a way that would be different than a few other competitors. And so pricing certainly had an impact there. But I would tell you that is materially different than what we've seen in the last few years, competitive-wise.
The second question was: What will determine whether talc remains part of the portfolio, and how long will the strategic review take? Is the decision to divest independent of the price offered by any potential buyer?
Yeah, look, I think on that one, I'll just back up, you know, a bit. We've, we've always said that there aren't any sacred cows in the Elementis portfolio, and, and we've taken some big decisions in the past. Getting rid of our surfactants business in 2018, selling the chromium business in 2022. And I think as we've been doing work on the Elementis 2025 to 2030 strategy over the last nine months, it's become pretty clear that Coatings and Personal Care businesses have both developed into much higher margin businesses, and they both have good organic growth potential. You look at Coatings margins approaching 20%, Personal Care approaching 30%.
So as we look at talc, it's, you know, it's a fundamentally strong business, but since the pandemic, a number of the European end markets have structurally declined, especially automotive. And so while there's good potential to grow the business, you know, it's not clear it can deliver the operating margins and the return on capital that meet our expectations, particularly those that we laid out at the Capital Markets Day last November. So it raises the question of whether or not we're the best owner going forward. And we've got to determine if our capital and our management attention should really be focused there. So we're going to be reviewing it. You know, we're going to move, obviously, as quickly as we can. Not an easy decision, but I think it's, it's certainly, it's certainly the right decision.
It was a long Sebastian question. I feel like I missed something, but-
It's whether the decision to divest is independent of the price offered by any potential bidder?
Look, I think, I think we've got to, we've got to go through the process, and see where it takes us. You know, we're always gonna, we're always gonna choose the option that we think is gonna create the highest value for shareholders. At least that's always the intent, that's what I would say. Any other questions?
We do have a follow-up from Kevin Fogarty of Deutsche Numis. Kevin, please go ahead.
Oh, hi, guys. Just a couple of follow-ups, if I could do. If we look at sort of personal care, during the period, we've seen some tweaking or change in terms of your kind of distribution channels or reach to market. And I just wondered, is that a kind of structural shift for you guys, or is it a, you know, sort of market-specific rationale kind of driving that? And then just secondly, obviously, on the coatings side, you know, your comments on what some of the coating majors have kind of pointed to recently, your performance, I guess, has kind of decoupled quite a bit from theirs, I would have said.
But could you sort of share with us kind of what they say to you, you know, in terms of their outlook, and, I guess, the role that you provide for them? Is there anything that you get from those customers that you can kind of share with us?
Thanks, Kevin. So to the question on sort of route to market on personal care, I would say that that is, it's market-specific in that about 2/3 of the personal care business is direct. And you know, when we're kind of coming into a country or growing a part of the world where we don't have very much presence at all, distributors obviously can play a really, really helpful role. But then kind of what happens ultimately is that you have customers that actually they start to grow up pretty quick, and you can see the runway is really substantial, and the judgment is that we want to own that relationship. We don't, we don't want you know, someone in between it, because that allows us-
Yeah
To accelerate innovation and, you know, frankly, more deeply penetrate what their needs are, and gain their share of wallet. And so we've taken that decision. Not to say we don't value distributors, we do, and it works really, really well. But there comes a point, frankly, very often in certain countries where you really wanna be direct with those customers that are kind of coming of age, is what I would say.
Sure.
In terms of the question on coatings, you know, I don't know that I could tell you anything you don't already know in the sense that, you know, if you look around by region, clearly in the United States, the housing situation is pretty negative, right? You're just not seeing the level of transactions that you did when there was 3% mortgage rates, and so that's clearly hurting Deco. But on the other hand, in industrial, you know, we do see some, it does look a little bit more positive with the Inflation Reduction Act and, you know, a bunch of government money is being spent, so that's a bit helpful.
Europe is pretty anemic all around, frankly, and the progress that we're making is much more new business driven. And that, I think that's helping us quite a lot. And then China, you know, well, there's kind of what's going on in China, a bunch of exporting, certainly some industrial activity, you know, military shipbuilding, things like that. So I feel like we're benefiting a bit from that. But their housing, you know, is a disaster right now. And so that's—
Yeah
That's certainly not, not helpful. And then I think in Southeast Asia, you know, India, we're certainly making some headway. There's we've got a relatively new customer, Aditya Birla, who they've come into the coatings market in India very aggressively. And, you know, we did almost $2 million of business with them in the first half. So we see bright spots in Southeast Asia as architectural coatings kind of start to, off a very, very small base, I think, start to, to grow, which is, which is why we made the investment we did in China. So I think that's kind of the-
Mm-hmm
You know, I think as rates start to get cut in the back half of this year. You know, I think it's very possible we'll start to see a little bit of a better environment in 2025. But, I mean, you know, it's a bit... We'll just have to see.
Understood. No, that's helpful, color . Thanks for that.
Thank you. We have one more follow-up from Chetan Udeshi of JP Morgan. Chetan, please go ahead.
Yeah, hi. Just a quick question, you know, maybe a difficult one, but just looking into 2025, can you remind us of what could be the key moving parts? You talked about $15 million of savings in accelerating in 2025. What would be the net contribution of that on earnings? And anything else that you'd think you know, outside of macro, which will help you continue to show the momentum that we see at the moment in H1?
I'll start, Ralph. Ralph can help me a bit. Look, I think that, you know, 2025, many of the things that we're doing right now, we're going to continue to be driving. So, yes, we have $15 million out there as our, as our number. Obviously, we're going to work hard to see if, if there's more that we can do. We've got to obviously manage the, the margins, so we pull, we pull the, the value through to the P&L. We're going to work pretty hard on that. You know, there are a number of, of, of, of new product launches that we have planned, and I think our ambition for new business will be just as strong.
I do think as we've continued to develop the business throughout Asia, you know, I think we'll be looking for more penetration and growth in both personal care and coatings. And then, obviously, you know, as I said, pricing is always a factor, but we're going to be thoughtful, frankly, given that it's not the 2022 inflationary environment anymore. It's kind of a different time. So, Chetan, I think it's... And really getting the cumulative effects of that focus, that's how I think what's going to underpin the kind of step change and improved performance that we can make in 2025.
And again, you know, I don't know what demand is going to be, and I'm absolutely adamant that I don't want to assume that we're going to get any help on that. Because that makes the game as hard as it can be for us, and therefore, we, you know, we take all the tough decisions we need to take in order to drive performance.
Yeah, so just, just to add to that, Chetan, I mean, with the $30 million set cost savings, we're saying $15 million this year, so there'll be $15 million, which really we've got well underpinned now, because there'll be a lot of that will come through from run rate effects from the, from this year's actions. So $50 million discrete additional cost savings targeted for next year. You saw the first fruits of that in the first half of this year was $7 million. So there's $15 million on the cost savings to come through.
In terms of the $90 million of growth that we set out for 2024, 2025, 2026, we're saying that in 2024, we expect $20 million-$25 million to come through, and therefore, you've got sort of $65 million-$70 million to come through evenly over the course of 2025 and 2026. Probably a little bit more as we get momentum into 2026. But those two, those two components are gonna be the biggest drivers of performance improvement into 2025.
Very clear. Thank you.
Thank you. We have no further questions, so I'll hand back to Paul for any closing comments.
Oh, thank you. Look, thanks very much to all of you for your time. You know, it's a good first half, but as I said, I think earlier, you know, our heads are down, and we wanna make it a good, very good 2024, and just as importantly, set the table for 2025 and 2026. So look forward to speaking with you all soon again.