Elementis profits hit by slowdown in oilfield drilling

Speciality chemicals group Elementis said it remains on track to hit earnings per share (EPS) forecasts this year due to a lower tax rate, but headline operating profits will be hit by a temporary slowdown in oilfield drilling.

The company, which provides functional additives to many markets including architectural and industrial coatings, personal care and oilfield drilling, said it saw a reduction in demand in oilfield drilling during the third quarter on the back of a slowdown in shale drilling activity in North America and a late start to the Canadian drilling season. Oilfield drilling - part of the Speciality Products division - accounts for 15% of group sales.

Elementis said: "This combined with some short term inventory adjustments by the major oil service companies, led to sales in the quarter being 23% lower than the previous year. However, the underlying fundamentals for this sector remain positive and the group expects to continue to benefit from attractive growth rates going forward."

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As such, the company said that group operating profit for the full year, "although comfortably ahead of the previous year", will be adversely affected by this slowdown. However, due to a lower-than-initially-expected group tax charge of 26-27%, full-year EPS will be in line with market expectations.

Despite the disappointment, the company reassured that investors will continue to see benefits of its strong cash generation. The firm currently expects to have a net cash position at the year-end of $50m and, as previously announced, intends to distribute up to 50% of this as a special dividend.

Mixed trading on the whole

Overall, sales in Speciality Products rose by 2% on a constant currency basis in the quarter, while the Chromium business experienced a 5% decline in sales volumes due to lower sales of chrome oxide for use in metal alloys in Europe.

Both divisions have seen operating margins decline in the third quarter, with the first half, but this does not reflect any structural changes in pricing or contribution margin, the firm said.

Elementis said: "Elementis continues to benefit from its strategy of supplying high value products and technical service to a broad range of end markets, while progressively expanding its portfolio of high value products and its geographic presence in high growth regions.

"This strategy continues to enable the group to deliver resilient earnings in the current environment of global economic uncertainty and dynamic end market demand."