Good morning, and thank you for taking the time to join us today. It's great to be here. For those of you who don't know me, I'm Luc Ravenstein. I took over as CEO of Elementis at the end of April. I know this business well. It's been part of my life for the last 13 years, and I've run both divisions. I'm passionate about this business and confident in the value we can create for all our stakeholders. In terms of the agenda, I will start with the highlights, then we'll hand over to Ralph to cover the financials and segment performance. I'll then take you through our plans for the future, and we can move on to some Q&A. Starting with the overview of H1, we delivered strong financial performance despite a soft demand environment, and we're on track to deliver full-year expectations.
We increased profits and margins. An important milestone in the period was the sale of the talc business, which we completed in May. This helped us to accelerate the delivery of our CMD targets a year ahead of plan. Lastly, I'm excited to announce the launch of our new Elevate Elementis strategy and medium-term financial targets that will take Elementis to the next level. More on that later. Turning to the first half financials on slide five, revenues were resilient at $308 million. Operating profit was up 6%, and margins increased to 21%. These margins are already sector-leading. Adjusted earnings per share increased 19%, and we have continued to deliver with net debt/EBITDA at 0.9 x. A very strong balance sheet to support our growth and returns. We have declared an interim dividend of $0.013 per share, up 18% from last year.
My first priority in the new job was to get the talc sale done. In May, we announced the simultaneous signing and completion of the sale to IMI Fabi for $121 million with cash proceeds of $55 million. We were delighted. It was a clean break with all assets and liabilities fully transferred to IMI Fabi, allowing us to move on and look at the future. We also started our first share buyback program of $50 million using the net proceeds. With the talc business sold, we have accelerated the delivery of our 2026 financial targets, as you can see here. Our operating margin is currently 21% compared to our target of 19%+. On operating cash conversion, we're currently at 94% compared to our 90% target. On ROCI, we're currently delivering 28%.
These financials put us among the top of our peer group, and that's a fantastic basis to build on. Let me now hand you over to Ralph to cover the highlights from the first half.
Thanks very much, Luc, and good morning, everyone. Before I cover the financials, I wanted to touch on our sustainability progress. On environment, I'm delighted to share that following the sale of the chromium and talc businesses, our carbon intensity has reduced significantly. Our Scope 1 and 2 greenhouse gas emissions intensity has reduced by 70% over the last six years. We were pleased to have had our science-based targets validated for Scope 1, 2, and 3 in the first half. We're committed to reducing Scope 1 and 2 emissions by 59% by 2034 and Scope 3 emissions by 35% over this timeframe. We're making good progress towards our target of achieving zero greenhouse gas emissions by 2050. Now, our people are fit for the future restructuring program has completed, whilst employee engagement has improved, a positive result given all the changes in the business.
Finally, moving on to safety, we're committed to becoming a zero-injury business, and we continue to invest in building a strong proactive safety culture. Regrettably, during the first half of the year, we had three recordable incidents compared to one last year. As a result of this, we doubled the number of audits and inspections across our sites to reinforce safe behaviors and identify improvement opportunities. Moving on to the financials and starting with group revenue. In a soft demand environment, revenue was down 1% on a constant currency basis to $308 million. FX headwinds were approximately $2 million, and volumes were down $2 million, with coatings down $6 million and personal care up $4 million. Price effects were positive, and we were up $5 million. Adverse mix impact was $7 million.
This was partly related to product mix in cosmetics, whilst in coatings there was an impact from lower demand from industrial and construction applications. Moving on to group operating profit, this rose by 6% on a reported basis or 7% on a constant currency basis to $65 million, driven by self-help and pricing actions. The price mix impact net of inflation was $4 million, and we delivered $8 million of cost savings in the period, and we're on track to achieve the targeted $12 million cost savings this year, part of the $30 million cost program we announced with the 2023 CMD financial targets. I'll cover this in more detail later. Turning next to our segmental performance and starting with personal care, sales were ahead 2% on a constant currency basis to $116 million, driven by growth in both our cosmetics and AP Actives businesses.
Adjusted operating profit was up 19% on a constant currency basis to $40 million, reflecting improved volumes and pricing alongside cost savings, including the impact of the closure of the Middletown AP Actives plant in the U.S. We also saw around $2 million of one-off benefits related to higher volumes and favorable cost absorption. As a result, the adjusted operating profit margin was up at 34% compared to 29% last year, a 460 basis points improvement. In terms of operational highlights from our personal care business, in color cosmetics, we launched two new Hectorite products based on a new gel technology that is 100% natural, and it gives formulators more flexibility due to its efficacy and stability benefits. Overall demand was weaker in color cosmetics in Asia in the first half due to the impact of tariffs. We do continue to see a growing demand for natural products and skinification.
In skincare, the biggest trend remains sustainability and replacing non-biodegradable polymers with natural thickness. That's driving sales in the Hydroclay range, which is up more than 40% compared to last year. During the second half, we expect to launch our new natural film former. Finally, on AP Actives, a significant highlight for the period was the launch of our non-metal sweat control antiperspirant and deodorant active, Deoluxe, at the InCosmetics Global Trade Fair in Amsterdam in April. Right after the launch, we received a tremendous amount of sample requests, and there's a lot of excitement about this product. Lastly, our high-efficacy AP Actives range is up 13% and now represents 50% of AP Actives. Moving next to our coatings business, we delivered a resilient performance in a soft global demand environment, with revenues down 4% on a constant currency basis to $192 million.
We had some operating challenges at our St. Louis site in the U.S. that affected volumes in the first half. We are now addressing these. Adjusted operating profit and margins were $35 million and 18.2%, respectively. In terms of highlights, starting with architectural coatings, we developed a new thickener for ultra-low VOC paints. This was developed together with a key customer, and we're now rolling it out globally. Our bio-based and powdered NISEP range is performing well. We're capturing the demand for sustainable products there. In industrial coatings, while the automotive market remains weak, we're seeing continued strong demand in marine and protective coatings. We launched Thixatrol 50/50 W, our latest innovation for waterborne automotive coatings, which has seen a lot of traction with Chinese EV manufacturers. It's not just in coatings our products perform well. We have other exciting adjacencies, which Luc will talk about later.
Turning next to our cash flow profile, working capital outflow was, as usual, reflecting normal seasonality alongside some modest stock builds to support new business gains. The CapEx run rate is slightly behind last year. We currently expect CapEx to be around $20 million for the full year. That's around 3% of sales. As Luc mentioned, the sale of the talc business generated $53 million. Of this amount, we used $8 million until the end of June to purchase shares as part of our first share buyback program. Net cash flow was $32 million. This cash flow has helped continue our net debt and leverage track record, which you can see here. From the difficult times in 2020, when our leverage was 3.2 x, we really have repaired the balance sheet and significantly strengthened our position.
Turning now to cost savings, as indicated in our March results, the delivery of our targeted $30 million annual cost savings is continuing to progress faster than expected. Having delivered $8 million of cost savings in the first half, a large part of which relates to the completion of our Fit for the Future restructuring program, we're on track to deliver the targeted final $12 million of cost savings for the full year. We remain focused on improving our operational performance and efficiency levels, and this will continue to be a feature of the business, as Luc will discuss shortly. Moving on to our capital allocation priorities, our capital intensity has reduced significantly, and we currently expect to spend around 3% - 4% of sales annually over the medium term, from around 6% historically. Our focus will be on investing in growth and productivity.
We have options for bolt-on acquisitions, whilst all the time taking a disciplined approach to maintaining balance sheet strength. On dividends, our policy is to pursue a payout ratio of around 30% of adjusted earnings, and our strong cash generation gives us future shareholder return optionality. This is in the context of preserving balance sheet strength. We will look to maintain leverage over time at around 1x net debt/EBITDA. Lastly, on pensions, I'm pleased to share that our UK pension scheme is well funded, and the assets are now significantly de-risked. With that, let me hand back to Luc to cover our strategic update and introduce you to our Elevate Elementis agenda.
Thank you, Ralph. This is a very exciting time for Elementis. We're in an inflection point here. We are ready to elevate Elementis. Let me begin by introducing you to the new Elementis. With talc and chromium sold, which were both quite commoditized and capital-intensive businesses, we're now a pure-play specialty additives leader in large and growing markets. That's a great place to be in because additives are a small part of formulations that are critical to performance, so think high margins. Elementis has a unique position today with three winning differentiators: Rheology, Hectorite, and Formulation Solutions. We'll talk more about these three advantages that make our business really stand out. This is a new Elementis. We've now got the portfolio we need, and we're ready for growth.
I've known Elementis long enough to know what makes this company really special, but also some of the challenges that have been holding us back. We have a big opportunity right here in front of us. This is not about venturing into businesses that we don't know about. This is about focusing on the things that make us really special and doing them really well. Our plan is not complicated. We have three simple strategic priorities. First, in terms of top-line growth, we haven't grown fast enough, and of course, markets have been challenging lately, but the distractions in talc haven't helped. My first priority is to accelerate growth. Secondly, our service delivery as a specialty additive supplier has to be top-notch to win new business and win it faster. Today we're good, but we can do better. We want to be best in class.
We want to be the first choice for our customers. Finally, we have an opportunity to simplify and streamline the way we work. We're building a simpler and leaner Elementis. Delivering on those three priorities will drive value creation. Our new ambitions are mid-single-digit growth through the cycle, adjusted operating profit margins of 23% +, three-year operating cash conversion greater than 90%, and ROCI greater than 30%. The team and I are focused on delivering and executing on this agenda. I'm going to be spending most of my time today talking about growth. This growth will come from the areas that make Elementis truly special, our winning differentiators. Starting with Hectorite. It's natural, very pure, and it's unique. It's used in many personal care and coatings formulations because it delivers superior Rheology. We've grown Hectorite nicely over the last years.
As you can see here, it's around a quarter of our sales today and a higher proportion of our margin. Next, Rheology. We have the broadest portfolio in the industry, and Rheology sales, including Hectorite, are about two-thirds of our business today. This is what makes formulations work. It stabilizes ingredients in a paint can, makes it flow from the brush, and builds a network that's needed to cover a wall. Here, Elementis is the global leader. Finally, Formulation Solutions. This is our expertise. We've built it up over years, and this is everything we do. It's about how we deliver value to our customers day in, day out. By focusing on these three differentiators, we will deliver mid-single-digit revenue through the cycle. I'm going to look at them, each of them in turn now. Starting with Hectorite. It has so many benefits.
It delivers premium flow for coatings, delivers a luxurious skin feel for cosmetics, and it's natural, so it aligns perfectly with sustainability trends. We own the world's only high-grade mine, giving us a unique competitive advantage. This is not just about an amazing asset. Over the years, we've developed the value chain for our plants, our labs, and with our customers, who can, in turn, offer consumers exciting new products. Our growth from Hectorite actually had been good, mid to high single digit, but we can do much more here. Let me tell you how. First, we're driving deeper penetration into personal care and coatings. Hectorite can replace other Rheology modifiers like synthetics, for example, in skincare. It's more efficient and natural. I'll give you a little example of that shortly. Second, we're moving up the value chain. We're developing pre-formulated Hectorite solutions that can offer our customers easier-to-use products.
We're building three-in-one systems that combine Rheology control with other functional additives. We've started this, but we're going to do much more of this. Hectorite's unique properties open doors well beyond personal care and coatings. Some exciting examples are in replacing PFAS, or forever chemicals, in powder coatings or improving the efficiency of fire retardants. We're just scratching the surface with Hectorite here. We're doubling down on Hectorite. This is a true gem in our portfolio and a massive opportunity. We are confident that Hectorite will deliver double-digit growth through the cycle. As I mentioned, Elementis is a global leader in Rheology. With operations on every continent, we're well positioned to serve customers worldwide. Our teams have decades of experience here, and that goes well beyond Hectorite. Anybody having a Rheology issue, whether it's L'Oreal or Sherwin-Williams, will come to Elementis. Our strategy to grow Rheology is clear and focused.
First, we'll gain market share regionally by leveraging our global presence. That's a big opportunity, not least in the current trade environment. For example, in Asia, where we today have a relatively small market share, we have a great manufacturing setup. Actually, today we're expanding our site in Anji, China, with local demand increasing. We also want to expand into adjacent markets. Today, we mostly serve personal care and coatings, but our technologies are a great fit for, for example, agrochemicals, construction, and other large markets. There's about $4 billion of white space in the Rheology market out there, and we're going to go after it. This is very exciting. OK, slide 26. Formulation Solutions. This is about how we translate our expertise into tailored solutions for our customers. We don't just sell additives.
Our teams develop paint concepts and personal care formulations that can readily be adopted by our customers. Paints and cosmetic formulations are continuously changing because of regulations, sustainability, or performance. These are complex systems. There are millions of different ones out there. For us, having this expertise is a huge enabler for growth. We want to do more of this. How are we going to do this? First, innovation. We will be scaling up our R&D investment from about 2% - 3% of sales. We're looking for fast delivery and high-impact projects. We're building a new applications lab and a dedicated Hectorite Center of Excellence in Porto, in Portugal. Our goal is to grow innovation-driven sales from 15% to 20%. These innovation sales, on average, generate margins that are about 10% above the rest.
On bolt-on M&A, for me, this is about looking for technologies that would be a great fit in our toolbox. Think complementary additives that we can plug into our Hectorite formulations or natural synthetic Rheology. We're highly disciplined and selective here, though. Our growth does not depend on M&A. Finally, we want to further enhance our customer intimacy. We want to call on more customers directly, also the smaller and local champions. This is where we can bring a lot of value and fast. We also learn a lot. Let me bring this to life with a little example. This key sun care customer was looking to replace synthetic thickeners. Because of our deep understanding of Rheology and how to formulate sun care products, we developed a new Hectorite-based formulation with excellent UV protection. It also gives a great sensory feel. This is a big success.
It was launched recently, and we've brought some bottles for you today to take on your vacation. Try it out. It feels great. To make the most of this growth agenda that we just discussed, we need to be the best supplier to our customers. We want to be best in class in terms of service levels. We're a premium additive supplier. That's what our customers expect from us, right? Getting there is not rocket science. The way I look at this is about mindset. It's about attention to detail. This is not a volume business. This is a value business. We have an opportunity here in front of us to improve our on-time and full performance. We're about 20% below best in class, and I know we can get there. Secondly, we have a big opportunity to de-bottleneck one of our biggest sites, actually, St.
Louis, where we make organoclays. There's a 30% opportunity by unlocking the capacity. That's a big upside. We've actually been dealing with some backlogs there. I made some leadership changes recently and brought back some experience, so we're seeing the first results. In the end, what all of this is about, it's about customer focus. This has to be ingrained in each and every Elementis employee. In some areas, we might have lost that a little bit over the last years. It's not just for colleagues that are in sales or in customer service. For us, as a leadership team, or if you're in HR or IT, how do our decisions and our actions, how do they impact and help our customers? I've built relationships with customers across the business over the years, and I will continue to foster them, clearly.
What we're doing here will bring us closer to our customers and reinforce our position as their trusted partner of choice. This is a mindset thing, which brings me to the next topic. We just discussed how we're going to deliver sustainable growth, but there's also a significant opportunity to simplify Elementis, make it a leader company. We've identified an additional $10 million of cost savings to be delivered over the remainder of this year and next. This amount is net of the increased R&D spend I just discussed. It's really important to execute this, certainly given the challenging demand environment we're in. These savings will come from two areas. First, on overheads, we're streamlining our cost base by creating a flatter, but also more efficient structure, I should say. We're also eliminating stranded costs associated with the talc business.
We'll be consolidating and reducing support offices and renegotiating tolling agreements. The team and I have started this. For example, we're saving $1 million starting this year on offices. We're taking things out like IT applications that we really didn't need, another $1 million of savings. This is important. Beyond cost savings, a real priority for me is to make Elementis a more dynamic and nimble company. That means stopping activities that have no clear value, but also by delegating decisions to the front line. If a plant manager orders a pump, I don't want that plant manager to have to go through all kinds of approval processes with me involved. I want that person to order the pump. They'll know it better than me. Like this, we'll become a more responsive and, frankly, more fun place to work and one that is better positioned to deliver our growth strategy.
It's also about smarter working. I don't want salespeople to be running around doing forecasts when AI can do that better. Elementis will be simpler and leaner and a place more rewarding to work and to do business with. That's our Elevate Elementis agenda. Three strategic, simple priorities to drive value for all of our stakeholders, not least our shareholders. That's it. To recap, we've delivered a strong first half. We're on track for the full year. With the sale of talc, our CMD targets have been delivered early. We're now a pure-play specialty additives business. We've set out today our Elevate Elementis agenda. I want to ask you to come with us on this journey. We have a plan, and we're very focused on delivering. I'll keep you updated on our progress as we take the business to the next level. Thank you so much for listening.
With that said, Ralph and I will be happy to take your questions. Thank you. We'll hand out the microphones. If you don't mind introducing yourself, Kevin.
Thank you very much. Morning. Kevin Fogarty from Deutsche Numis. If I could kick off with two, please. Just to add some sort of credibility to the targets outlined today, on these sort of growth targets, could you give us a snapshot of how parts of the portfolio have historically grown to give some believability to the objective that you've outlined today? Does that objective require any more kind of rationalization within the portfolio? Secondly, just in terms of the margin objective outlined today, could you help us with a snapshot as to how much of the portfolio is at or above that objective and maybe a sense of the R&D resource that now is supporting that objective, perhaps given the talc part of the business and any resources that may have been freed up to support that?
Thank you for those questions. I'll give it a shot and then might dial a friend if needed. First of all, on our portfolio, Kevin, and our growth agenda, this is about focus and about focus on what we know we're great at, things that make Elementis special. To give you an example, Hectorite, Rheology, we just discussed, Hectorite is about 25% of our portfolio, Rheology 2/3. We have grown those businesses nicely over the last years, high to mid-single digits. Clearly, this is about focus, and we know we can grow in those areas. In terms of our margin potential and how we're going to deliver that, first of all, we discussed our cost savings that will be a big benefit to our margin delivery. Also, those parts of the portfolio that we are growing, Hectorite and also Rheology, are accretive to our margins, as you can imagine.
That will help the mix. Perhaps further to your question around R&D and how we're going to grow all of this business, look, today we spend only 2% of our revenue on R&D. That's relatively little. The additional percent, give or take $6 million, that we look to invest in R&D, this will be focused on those areas that we just discussed. I want to build a Hectorite Center of Excellence. I want people in our R&D teams, but also on the road with customers, to be obsessing about where else can I sell this thing that makes Elementis so special. Frankly, today, and you're right, I mean, we've been a little bit distracted, right, by the rest of our portfolio about talc, which we just sold.
This is also about pivoting R&D efforts, pivoting capital, but most importantly, pivoting all of our attention to what makes us really, really special. By doing so, I'm convinced we can deliver what we just discussed.
Thank you.
Hey, Vanessa Jeffries from Jeffries. Just to follow up on the growth target, I don't want to ask you to give divisional targets, but maybe if you can just talk a bit about the divisional dynamics of growth and particularly how it pertains to Hectorite, because I guess there's probably a lot more room in coatings to grow Hectorite, given it represents a lower proportion.
Thank you, Vanessa, for that question. Indeed, Hectorite is a lower part of the coatings business than it is for personal care. In personal care, almost half of our business is composed of Hectorite or Hectorite blends, whereas in coatings, the penetration is a bit lower. It's perhaps 20% or less. There's a lot of space to grow in the coatings business with Hectorite. Absolutely agree with that. However, what I would say is that we discussed about three angles to grow Hectorite, one of them being going forward or operating the value chain, which is about can we add additives to Hectorite, to our Hectorite blends or our gels, to move forward to more pre-formulated products. That's very important for personal care. I do see, as we grow Hectorite strongly, also the personal care product and business to benefit from that significantly.
I do think that personal care, or actually from Hectorite perspective, might grow a little bit faster than coatings. As I said, we're obsessing about where we can grow it. It is also beyond coatings and personal care, right? We've just launched products into, for example, fire retardants that have taken off, and we've received the first orders into construction additives and to agrochemicals. For Hectorite, there's a big space beyond the two businesses that we just discussed.
You've had a really good performance in coatings, given the kind of updates that we've seen from your peers. Could you just let us know how you're thinking about the second half and if you expect that to deteriorate?
You know, the market out there has been pretty tough, right, in coatings, as you say. We're happy that we've been pretty resilient in terms of our margins, and we've been holding up pretty well. In terms of the second half, typically, our coatings business is about 52% first half, 48% second half. We expect that to be a little bit tighter, i.e., closer to 50/50 or 51/49. We do have some nice new business in the pipeline that we're starting to deliver. This is not about markets. I spend a lot of time with customers, understand what's going on there. They don't necessarily see the market to recover very quickly. We do have some nice new business in the pipeline and do see a resilient second half delivery from coatings as well. Are there any questions on the phone line?
If there are, please, if they could state their name.
We have a question from the phone line. Before we take the question, I just wanted to remind the participants on the phone lines that it is star one on your telephone keypad to ask a question. The first question comes from Chetan Udeshie with JP Morgan.
Hi, Ana. Thanks for taking my question. Luc, this is a question for you, actually. Apologies if this is a bit of a direct straight question. You're talking about accelerating growth, which is great. At the same time, you are talking about cutting costs. I would have thought, just to achieve that growth, especially in newer applications like ag or construction, etc., you probably would have had to put more resources rather than to be cutting costs. I'm just curious, how do those two things actually tie in together? On one hand, wanting to grow, and on the other hand, focusing on cutting costs. The second question is, and apologies if this was raised previously, but I'm just curious if you can talk about the trends as you see in the current quarter. There is some concern that June was perhaps quite a weak month in second quarter.
Exit rate into third quarter might be worse. It's not something Elementis specific, but more across the sector. Maybe if you can give some color on how you see trends across your different businesses in the current quarter. Thank you.
Thank you, Chetan, for those questions. Let me start with the first one, cost and growth. For me, this is not in contradiction because the kind of cost we're taking out here is all related also to making Elementis a simpler company, right? I mean, we talked about the IT applications. We talked about the offices. This is actually making us a more agile company that helps us to move faster. That's a big piece of the simpler, leaner Elementis. I think it will actually help us. Also, just to note that the cost, the $10 million that we discussed, is net of R&D investment. We're spending a percentage more on R&D, $6 million. A lot of that is going to be in the areas that you just mentioned, Chetan.
For example, I mentioned the Hectorite Center of Excellence, where we'll have a group of people looking at where else we can sell Hectorite. You mentioned agrochemicals. That's a great opportunity in terms of suspending agents in agrochemicals blends. That's what those people will be doing. I don't see our cost agenda and our simplification agenda to be in conflict with our growth agenda. I think it's rather the opposite. It will help each other. To your second question, in terms of trading and June, we haven't seen that, frankly. We saw June was pretty much in line with April and May. The point is that June last year was actually quite soft, so the comparison versus June last year was quite strong for us, but that was because of a soft comparative. No, we did not see that drop-off.
Obviously, the outlook, we have less visibility than we used to have five years ago, where you knew 12 weeks ahead in terms of your order pattern. Today, it's four to six weeks. No, we did not see that June drop-off that you mentioned.
Thank you.
Thank you, Chetan.
Thank you. As a reminder, if there are ones to ask a question on the telephone lines, the next question comes from Georgina Barnard with Ion Analytics.
Hi, there. Yes, just a couple of quick questions. The first one is quite, again, quite blunt, quite direct. Given some of your shareholders, you know, it's no secret they've voiced kind of logic in a takeover or breakup of the business, particularly given following the talc and chromium sales, what are your views on kind of the optimal structure of the group moving forward? The second one is just if you could go into any kind of more granular detail on any of the bolt-on M&A plans, just in terms of kind of more specific verticals, target regions, or size.
Thank you for those questions. The first question, honestly, my job is to maximize the value of this company and to focus on what we just discussed around growth platforms, growth opportunities, and delivering them. That's my focus. That's what I have in control. Honestly, I'm very excited about the opportunities we have here ahead of us. That's all, honestly, I can comment in that area. On the second point, bolt-on M&A. First point to mention here, though, is this growth agenda, our focus is on organic growth, right? We don't depend on bolt-on M&A. We focus on the areas we just discussed. If there are technologies out there that are a great fit with our portfolio, for example, that we can plug in with Hectorite, we talked about the functional additives that we add to Hectorite and bring value to our customers as such, that would be fantastic.
We're looking at that. This is about complementary, smaller bolt-on M&A that can help us grow faster. Our growth agenda doesn't depend on that.
Thank you.
Thank you. Just as a reminder, you start one to ask a question.
there any more questions on the phone line or on the web? No.
We have no further questions on the phone line, so I'll hand back over to the management team.
All right. I thank you very much for attending. I really appreciate that. Don't forget your sun care products because it's vacation time. You all escaped to Spain and Italy anyway, right? You Brits. Thank you so much for attending. I really appreciated this, and I look forward to continuing to interact with all of you. Thank you so much.