It's Elementis, My Dear Watson

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Good morning, Holmes.  Anything interesting in the news today?”

Yes, in fact, Dr. Watson there is.”

What is it, Holmes?  Are you not going to tell me?  Must I guess?

At this point, Holmes handed the disheveled paper to Dr. Watson and said with a sigh, “It’s Elementis, my dear Watson.  It’s Elementis.”

Holmes had handed the paper to Watson folded open to the financial section.  There it was right before his eyes, the share price of Elementis, the chemical company (LSE:ELM) had jumped 7.11%, a gain of 16.2 pence to 244.00 on the London Stock exchange.  “But why?”  Watson thought.  He read on.  He was not going to fall prey to asking that question of Holmes only to be demeaned by the great detective’s arrogance that was on a level with his deductive skills.

It didn’t take Watson long to discover the secret behind the increase.  Elementis had turned in a $141.2 million pre-tax profit  for 2012, an increase of 5% year-on-year.  But the company reported a decline in sales from $760.5 million to $757.0 million.  “That’s what has Holmes thinking that something is amiss at the chemical compound.”

It became apparent that in his haste Holmes had failed to read below the fold where the mystery was revealed.  Elementis had generated an operating profit of $144.0 million, up 5% from 2011 (7% at constant currency).  That boost in operating profit helped the company to increase its net cash position by about $19.0 million from $26.2 million to $44.0 million, a 68% increase.  Earnings per share  were the highest in company history at 23.3 cents, up 12% from 2011.

Watson quickly deduced that “Elementis is growing both organically and through sensible acquisitions.”  The integration of a Brazilian coatings additives company, Watercyl, in June 2012 is already delivering a number of exciting growth opportunities in Latin America.  It’s recent acquisition of Hi-Mar. a supplier of defoamers, appears to be filling a niche that Elementis need to cover.

Regarding the acquisitions, CEO David Dutro was quoted as saying,”We are in the enviable position of having manufacturing facilities that are extremely well invested, thus requiring only modest levels of maintenance capital.”

Then there was the announcement of the commencement of a special dividend program which will grant a return of up to 50% of the year-end net cash on the company balance sheet.  That surely piqued investor interest.

Watson had solved the mystery.  It was simply a matter of sound management.  Every piece of evidence was right there in the company’s preliminary financial report, if only Holmes had taken the time to read it.

Speaking of Holmes, he had returned to his chair and was drawing on his pipe and he was still pondering the mystery behind the results.  Watson rose, handed the paper back to Holmes, and said, “Case solved!”  Before Holmes could finish his sentence of “But how . . .?” Watson simply winked at Holmes and said, “Read the year-end report.  It’s Elementis, my dear Holmes.  It’s Elementis

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