Elementis PLC
LSE:ELM
Earnings Call Analysis
Q2-2023 Analysis
Elementis PLC
Elementis, in the face of a tumultuous market, persists unwaveringly. With safety as their priority, they aimed for zero injuries but recorded two. Financially, they posted a 6% sales decline to $364 million but managed an operating profit rise from $42 million to $53 million. Although this was a 10% drop from the prior year, the company's resilience is shown in its ability to maintain an operating margin of 14.4%, reflecting proactive management and strategic disposal gains.
Elementis is sailing through a challenging market, facing sluggish industrial production and significant destocking. Yet, by focusing on pricing discipline, cost control, and efficient innovation—such as catalyzing $25 million in new business—the company keeps its head above water, targeting $50 million new business for the year despite the slow demand.
The Personal Care segment blossoms, up 7% in revenue, notably in Cosmetics, leading to a 16% rise in operating profit to $27 million. This segment revives to pre-pandemic levels in Europe, thanks to resilient Color Cosmetics and antiperspirants/deodorants markets. Innovations like BENTONE HYDROCLAY 700 contribute significantly to this turnaround.
Elementis is seeing a 5% growth in Asia, outshining a sluggish start in China with robust progress in Southeast Asia, especially South Korea and Japan. This is accredited to strategic product launches and sales and marketing enhancements.
The Performance Specialties segment faced a 9% downturn to $252 million in sales, with a 21% decline in operating profits to $34 million, primarily weighed down by Coatings. Meanwhile, Coatings saw a 12% fall to $181 million due to weak demand and customer destocking, despite resilient pricing and mix actions.
Coatings confronted notable demand decreases in the Americas, Europe, and Asia. Despite such challenges, enhanced focus on innovation and new business, like launching 24 products since 2019, positions Elementis to recover when market conditions improve.
Elementis grapples with increased working capital expenses, due largely to inventory challenges and inflation. However, diligent cost management and strategic initiatives such as the new plant in India promise a leaner cost structure and more efficient operations moving forward, alongside focused working capital management.
By leveraging the proceeds from the Chromium disposal and prudent cash management, Elementis significantly reduced its debt from nearly $500 million to $255 million and touts a leverage of just under 2x. The aim is to push net debt to EBITDA down to 1.5x through continued focus on earnings and working capital enhancements.
Elementis reiterates its commitment to organic growth and maintaining capital expenditure at 5% of sales. Debt reduction remains at the forefront with the goal to reach a sub-1.5x leverage. Dividends are anticipated to resume when the conditions are deemed appropriate, signaling confidence in business robustness.
In conclusion, the company anticipates no change in demand for the second half of 2023 but relies on its inherent strengths to stay on track. Elementis' guidance remains firm, with no expected improvement in the demand environment, banking on cost management and existing business momentum to meet full-year expectations.
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Good morning or good afternoon, and welcome to the Elementis 2023 Interim Results Announcement. [Operator Instructions] I'll now hand the floor over to the CEO, Paul Waterman, to begin. So Paul, please go ahead when you are ready.
Good morning, and welcome to the Elementis 2023 Interim Results Call. Thank you for taking the time to join us today. In terms of the agenda, I'll start with highlights and business segment performance. Ralph will review the group financials, and then I will take you through our outlook and priorities. Following this, we will take your questions.
On Slide 5, the key messages for this morning are straightforward. First, and most crucially, our expectations for the full year are unchanged. The demand environment has been challenging, the pricing discipline and ongoing proactive cost management has helped to optimize our performance.
Personal Care, which has gone from being a niche part of the company to now accounting for 44% of earnings, was the standout performer in the period with strong revenue and earnings growth. Performance Specialties demonstrated encouraging resilience. Coatings was impacted materially by lower volumes due to both weak demand and customer destocking, and this was partially offset by a much improved Talc performance.
I'll start with safety on Slide 6. At Elementis, we're absolutely focused on putting the health and safety of our employees first. In the first half, there were 2 recordable injuries and no reportable spills. This was an improvement versus prior year, but not the zero injuries goal that we are targeting.
That said, we reached some notable milestones in the first half. 72% of our sites have now worked safely with no recordable injuries for over 1 year, and 50% of sites have worked with zero injuries over the last 3 years. To drive further improvement, we'll continue to invest in training our people and maintaining our assets.
Recent initiatives included our third Global Safety Week campaign involving all Elementis staff focused on promoting safety awareness to strengthen our safety culture and support our path to zero injuries. We also welcomed a new HSE Director to the business and are in the process of developing a global HSE management framework aligned with international standards for health and safety at work.
Turning to our headline financial performance. In the first half, we saw a resilient performance against the challenging backdrop. On a continuing basis, sales declined 6% to $364 million, with weaker volumes, partially offset by improved mix and pricing actions. Operating profit from continuing operations rose from the $42 million reported in the second half of last year to $53 million, but was down 10% versus a very strong prior year period as cost actions partially offset the revenue decline.
The operating margin in the first half was 14.4%, so up on the 13.7% reported last year when the business included Chromium and modestly down from 15% on a continuing basis. Earnings per share declined 8% to $0.056 per share and leverage reduced from 2.4x to 2x, primarily due to $139 million of proceeds received from the Chromium disposal.
Turning to Slide 8. The demand environment in the first half of the year has been challenging. Sluggish industrial production has been accompanied by significant destocking across the sector. In such an environment, we focused on what we can control. Long-term efficiency actions have been supplemented by increased discipline around discretionary spend in areas such as hiring, travel and professional fees.
We continue to win high-margin new business opportunities, and we remain very disciplined on pricing, reflective of the specialty nature of the majority of our product portfolio. All these steps have helped to underpin our first half delivery.
Turning to Slide 9. We've continued to implement our innovation, growth and efficiency strategy. On innovation, we launched 8 new products in areas such as bio-based defoamers for industrial coatings and hectorite-based skin care products. New products accounted for 14% of sales in the first half, up from 13% reported at the end of last year. At present, we have 27 joint development projects in progress with some of our biggest customers. This is a multiyear improvement story, up from 10 projects 3 years ago.
In terms of growth, we closed $25 million of new business across Coatings, Talc and Personal Care, putting us well on track for $50 million of new business this year. Color Cosmetics had a strong first half with sales rising 16% on the back of several new product launches. And in Talc, our performance significantly improves and our recovery is well on track.
On efficiency, we expect our continuous improvement and procurement teams to help deliver $10 million of cost savings by the end of 2023. We are on track to eliminate $7 million of stranded costs left behind by Chromium and the ramp-up of our new AP actives plant in India will complete in the second half. In a weak demand environment, efficiency actions are more important than ever. And we look forward to updating you on further actions planned at our Capital Markets Day in November, alongside other elements of our go-forward strategy.
Now let's look at the performance of our businesses by segment. Starting with Personal Care on Slide 11. Revenue rose 7%, driven by particularly strong growth in Cosmetics. Adjusted operating profit rose 16% to $27 million with revenue growth and cost management driving margins to just under 25%.
Looking at Personal Care market demand in more detail on Slide 12. Our 2 key end markets, Color Cosmetics and antiperspirant/deodorants were both materially impacted by COVID-19 as people work from home, traveled less and had more limited social interactions.
I'm pleased to report that these 2 key end markets continued to recover in the first half of 2023. Indeed, in Europe, one of our key regions, accounting for approximately 40% of revenue, retail volumes of cosmetics and antiperspirant/deodorants are now pretty much back to pre-COVID levels.
Turning to Slide 13. We've continued to make strategic progress. In Skin Care, we have roughly $20 million of annual sales. And in the first half, revenue grew 7% against the tough prior year comparative, continuing our recent momentum as we have sought to grow in this category. And our new business pipeline is very healthy at $22 million, up 47% on the prior year period, driven by recent new launches such as BENTONE HYDROCLAY 700.
In Color Cosmetics, our traditional area of strength, we grew 16%, supported by the launch of innovative new products such as BENTONE PLUS GLOW. Launched recently in Cosmetics, BENTONE PLUS GLOW is a new concept for Elementis. This product combines hectorite clay with synergistic active ingredients to create skin creams that deliver healthy, bright and natural complexions.
The customer feedback has been very positive, and it's an exciting development that opens up multiple product extension opportunities. In AP actives, the ramp-up of our new plant in India will be complete in the second half. This will create the most advantaged and resilient AP active supply chain in the world, while also offering better access to faster-growing Asian markets.
And on innovation, recent new product launches supporting critical performance attributes are gaining traction. In Asia, we grew 5% with a slow start in China, more than offset by 34% growth in Southeast Asia. Growth was notably strong in South Korea and Japan, where new products such as JSQI gels and capability investments in sales and marketing resources opened up new business.
Turning to Performance Specialties on Slide 14. Sales decreased 9% on a constant currency basis to $252 million, with improved price mix more than offset by volume weakness primarily within the Coatings business. Adjusted operating profit declined 21% to $34 million with weaker Coatings performance partially offset by stronger Talc results.
Turning to Coatings on Slide 15. Sales decreased 12% on a constant currency basis to $181 million, driven by weak end market demand and customer destocking. Pricing and mix remained resilient, reflective of our portfolio improvement actions in recent years.
However, the scale and speed of the decline in volumes meant earnings and margins declined significantly against a very strong prior year comparative. Performance in the first half was broadly similar to the second half of 2022, which was also a challenging demand environment.
On Slide 16, some additional detail on our performance. Compared to 2022, where we saw strong growth, 2023 was much more challenged. Demand across both industrial and decorative markets materially declined linked to weak industrial production and shrinking consumer expenditure, but compounded by significant destocking at some of our biggest customers.
In the Americas and Europe, where our business is split almost evenly between decorative and industrial activity, sales declined 18% and 15%, respectively. And in Asia, where we are largely focused on industrial activity in China, sales declined 13%. At our largest global key accounts, sales declined 11% on the prior year period with the continued focus on new business and innovation joint development, helping to deliver some protection against a tough market.
Taking a step back and looking at performance since 2019, the Coatings team have made great progress improving the business, driven by several factors. First, we've optimized our portfolio. We consolidated organoclay operations in Asia and the U.S., and that's lowered our cost to serve.
In 2018, we sold surfactants and colorants, areas that did not fit with our strategy, and we exited commodity resins in 2020. We've also invested in new capacity to support high-margin advantaged areas like NiSATs. So we now have a much better, higher-quality portfolio.
This has been further strengthened by accelerated innovation and improved product quality. In the first half of 2023, we launched 3 new products, including DAPRO BIO 9910, a defoamer that extends our waterborne industrial additives portfolio and being bio-based, enhances the sustainability credentials of our technology solutions.
In addition, we launched RHEOLATE PHX 7025, a NiSAT that delivers market-leading performance attributes for decorative coatings in a 100% active powder form that requires no biocides and significantly lowers transportation emissions. This is a continuation of a multiyear effort. Since 2019, we've launched 24 new coatings products.
And finally, new business momentum has continued to build. We generated $15 million in the first half. And since 2019, we've generated around $80 million of new business, increasing the proportion of sales generated by our high-margin technology platforms from 30% to 40%. So while we're currently in a very tough demand environment, with absolute volumes below even 2020 levels, we are well positioned to capitalize when the demand recovery comes.
Moving on to Talc on Slide 18. Sales in the period of $71 million were broadly flat on the prior year. As some of you will recall, volumes in the business declined as 2022 went on due to challenging demand conditions in markets such as automotive, plastics and paper.
In the first half of 2023, volumes remained lower than the prior year, but improved slightly on the second half of 2022. The benefit from prior year pricing actions and cost reductions helped to drive an improvement in first half operating profit, from $3 million to $9 million.
On Slide 19, I'd now like to discuss what we've done and what we'll continue to do to turn this business around. Multiple pricing actions that we took in 2022 are feeding through and benefiting performance. Importantly, we've been able to do this and maintain the loyalty of our customers. We formed the new Performance Specialties business segment to create greater market focus, improve our execution and reduce costs.
The new organizational structure under a simplified leadership has enabled the move to a single integrated sales force and a common global distribution network. We'll continue to focus our attention on value rather than volume, looking to serve the higher-margin segments of the market. New adjacencies that leverage our core competencies in inorganic chemistry and surface modification are developing. And we are on track for $2 million of organizational synergies by the end of 2024.
Now halfway through the year, we've seen some stabilization and recovery in volumes since the end of 2022. Together with more new business wins and cost control, this combination of self-help and moderately improving market conditions gives us confidence in a significant profit recovery for Talc this year. And I'll now hand over to Ralph to cover the financials.
Thanks so much, Paul, and hello, everyone. Turning to group revenue on Slide 21. Revenue from continuing operations declined 6% on a reported basis to $364 million. Excluding the impact of currency headwinds, the constant currency decline was $17 million or 4%. While volumes declined $56 million or 15%, over 2/3 of this decline was attributable to the Coatings business, which was impacted by weakened demand and destocking. The remainder of the decline was [indiscernible] Talc. Revenue grew by $25 million or 7% due to pricing actions mainly implemented in 2022 as we successfully responded to managing surging unit cost inflation. And mix rose by $14 million or 4% due to the impact of recent new product launches and growth in the highest quality parts of our product portfolio.
Looking at group adjusted operating profit on Slide 22. While this improved on the second half of last year, it was down 10% on a reported basis and down 7% on a constant currency basis to $53 million against a strong prior year comparative. In a tough volume environment, improved price mix and strong cost control helped to optimize our performance. And I've noticed that our fixed cost base was held flat compared to 2022 despite an adverse inflationary environment.
Let's take a look at cost in a bit more detail. In 2023, we're on track to deliver $10 million of cost savings. In response to the weak demand environment, we've taken steps to limit hiring, travel and overtime costs. Our sites have also been optimized to match this demand environment with maintenance brought forward, temporary plant shutdowns and production runs reduced.
The elimination of $7 million of stranded costs, which have reverted back to the group following the sale of Chromium is on track. And our team of global process engineers are driving our continuous improvement program. This, in combination with procurement activities, has generated $3 million of savings so far this year.
Looking beyond 2023, we have a substantial efficiency agenda in progress. The new AP actives plant in India is a key pillar of these savings. This plant will help to create a lower fixed cost base and optimize tariffs on key raw materials with the full benefits we felt in 2024. In addition, post Chromium, we have a much simplified organization with 2 business segments: full elimination of stranded costs associated with Chromium and further efficiency actions that we will outline at the CMD will drive our future efficiency agenda.
Turning to cash flow. There are a few points to highlight. Our working capital, we saw an outflow in line with our typical seasonality. This was driven by 2 factors: debtors rose $22 million compared to the year-end as sales are typically very low in November and December compared to [indiscernible]. And second trade payables declined by $34 million linked to lower manufacturing activity and more materials purchases as we adjusted to demand conditions.
And in the second half, we anticipate a more normalized working capital profile. Capital expenditure was $14 million, and our guidance for the full year is now $40 million, at the lower end of our previous range. Tax-related payments were $11 million and net cash flow in the period was $111 million, driven by the $139 million of proceeds from the Chromium disposal, resulting in a net debt of $255 million and the leverage ratio of just under 2.0x.
Turning to working capital. The total amount of working capital held in the business has increased over the past couple of years. This has been driven primarily by inventory. Like many companies, this is a result of several factors. Firstly, global supply chain challenges and strong demand at the start of 2022 saw inventories build and subsequent weakening customer demand has impacted physical inventories. Meanwhile, price inflation has materially increased dollar values.
Our focus in the coming months will be to improve on finished goods stock levels, supported by integrated forecasting while minimizing inventories of slow-moving goods. We've made some progress in recent months reducing inventories by $10 million, but there's a lot more cash to unlock here.
Taking a step back on leverage on Slide 26. We've made significant progress on debt reduction since 2018, reducing it from just under $500 million to $255 million. We remain committed and focused on moving further and faster in getting to our medium-term target of 1.5x net debt to EBITDA. Fundamentally, Elementis is a strongly cash-generative business, and we expect further debt reduction in the second half driven by earnings delivery and working capital improvement.
Finally, a word to reaffirm our capital allocation priorities. First, we will invest organically to grow our business. Capital expenditure will be approximately 5% of sales, and we're focused on growth and productivity opportunities. Second, debt reduction continues to be a major priority. We see a clear path to get to under 1.5x leverage while simultaneously investing for growth. And third, we recognize the value of dividends and shareholder returns and intend to restart the dividend when it's appropriate to do so.
I will now hand back to Paul to wrap up.
Thanks, Ralph. I'll make a few comments before turning to the outlook. Slide 29 highlights the progress against our medium-term financial objectives. As you can see, our margins are improving and there is more to come. Cash conversion remains strong with more to do on working capital, as Ralph has outlined. And leverage is coming down well as we progress towards our target net debt to EBITDA of under 1.5x.
Turning to the 2023 outlook on Slide 30. I'm pleased to say that our guidance is unchanged, and we're on track for continued financial progress and deleveraging. We have 2 strong businesses with compelling opportunities for growth in attractive end markets. We continue to focus on operational excellence and generating cash.
While the future is unknowable, this guidance assumes a stable macro in the second half of 2023. We are not assuming any improvement in the demand environment. And given our first half results, we're well positioned to deliver on expectations. We look forward to seeing as many of you as possible at our Capital Markets Day in November, where we will provide an update on our strategy.
With that said, Ralph and I will be happy to take your questions.
[Operator Instructions] And our first question comes from Kevin Fogarty from Numis.
Can I just start with two, please? And firstly, on Personal Care. So clearly, a pretty resilient performance during the first half of the year, also year-on-year and sequentially. There's been some evidence and in your presentation, you flagged the sort of category growth during H1. There's been some evidence of that sort of weakening as you get towards the end of that first quarter.
I just wondered what you're thinking more towards the sort of second half of the year. Perhaps any comments around exit rates there. Or any risk of kind of destocking if you think about the second half of the year within Personal Care? And then secondly, if I could ask about the cost actions. So clearly, pretty active on that front in H1. Just a point of clarity, in terms of the $3 million of savings delivered so far, does any of that sort of include the stranded costs that are left behind in terms of Chromium? And just a bit of clarity on the timing of reducing those stranded costs would be useful, please.
Okay. Thanks a lot, Kevin. I'll take the Personal Care question and I'll let Ralph have the cost question. We certainly have good momentum in Personal Care. The progress both in Color Cosmetics and in Skin Care, which is a relatively new initiative just a few years and we're doing well over $20 million annualized on Skin Care.
So that's behind new products, behind new business. We did $9 million of new business in the first half. Our pipeline is well in excess of $60 million. So I think we're kind of we have good momentum for sure. I think second half, there was certainly some restocking that has happened, for sure, but we can usually -- we can see 6 to 8 weeks out, and I would say that our momentum remains pretty solid in Personal Care.
So our view is sort of the market, it could soften a bit. But as we continue with new products, new business, making progress in Asia, Skin Care, et cetera, we sort of feel like we're going to be in a good track for second half and into 2024.
Ralph, do you want to take the cost question?
Yes. Yes, I mean, the $3 million you referred to is that relates to sort of continuous improvement, procurement costs, which are a part of our medium-term efficiency programs. They don't relate to the $7 million in stranded costs. We just detailed on the stranded costs is related to the Chromium business, costs that were left behind.
There are really sort of functional-type costs in the main IT, HR, legal costs. Now we've said we'll get the majority of those out this year and then the rest next year. Making good progress on that. These are areas that are reducing, for example, insurance, we have quite a bit more competition now to run our books without the Chromium business in there. Our audit fees are coming down. We're also reducing our functional costs. So yes, there's more to come on that in the second half and into next year, but that's separate from the $3 million you referenced.
The next question is from Chetan Udeshi from JPMorgan.
I was just following up on the previous question on Personal Care, and we've seen a few companies, there's not a trend across the board, but a few companies exposed to Personal Care like for rest of the chemical sector having seen big destocking. But I don't think that has been a flavor for Elementis in first half. And I'm just curious, as you compare and contrast, what could be the possible reasoning? Is it mainly because the categories themselves are different? Or is it mainly the industry structure? I mean just as you reflect on what you've seen versus in general, what we hear in the market. I think that would be useful.
And then coming to Talc, it's good to see some improvement in the business for sure. But we are still well below the $25 million run rate that you guys used to do or rather the business used to do when you bought it. Do you have a line of sight to that number? Or are there structural reasons why that $25 million is something you may not achieve in the next couple of quarters -- sorry, in the next couple of years? I wish it comes through next couple of quarters, but I guess, we'll have to wait and see how it develops.
And last question on Coatings. I remember you guys were talking about market share gains last year when some of the alternative products were in tight supply. And I'm just curious if any of the volume loss that you've seen in Coatings a result of some of the market share gains from last 2 years sort of starting to unwind because some of the competing products are now widely available again.
Yes. Okay. Thanks, Chetan. I'll start with the last one, which is the [indiscernible]. We are not seeing market share loss on Coatings. That is not the phenomenon but rather an environment of quite significant destocking, frankly followed by a great loss of demand, frankly and China not behaving in any way like it did in past years in terms of recovery. So our market share is quite good, and we continue to gain ground in high-end new products. We continue to gain ground kind of the new business. We did $15 million in the first half. We'll do $30 million this year, so Coatings is healthy.
On the Talc question, I mean, I think we're kind of -- what we really -- what we want to do is continue to make good progress. We certainly -- because it's an 80% European business and there has been such economic upset, frankly, in the last 18 to 24 months in Europe, it's been quite a big negative. I think if you look at some of the categories, for example, plastics, which is a pretty important category, auto as compared to 2019 pre-pandemic, down 15% to 20% depending on the European area. That's a structural change that will take a good while to come back.
I think that our desire to run the business for value rather than volume has been right. The pricing actions that we took have flowed through into 2023 and has been a key driver to the earnings performance recovery.
Having said that, I think we've also been focusing on really good cost management, good operational efficiency. That's going to take us a good way forward. And then I think our focus on new business on developing higher-margin categories, frankly, that can propel Talc forward even if some of these structural categories like for example, I call it plastics, don't come back anytime soon, we can continue to make progress.
So I mean that's kind of how we hold the Talc business. It's a business that's got lots of runway. How quickly it would be back to $25 million, I don't know, but I think that it can be a very nice returns business for Elementis.
On Personal Care, I would say the category recovery in both cosmetics and antiperspirants/deodorants has been really pretty well gotten back since 2019. I think our business is slightly different in the sense that probably ratio of new business, new products to the size of it is actually quite high right now. And so we're continuing to make really good inroads in sort of the cutting-edge Color Cosmetics products as well as the whole Skin Care sun care opportunity. That's just been a massive opening up for Elementis.
I'd also say, Asia is kind of coming back pretty nicely. Someone in the past here, we've talked about Southeast Asia up 34%. I mean we've added quite a lot of resources in Asia on doubled sales and marketing technology resources in the past 2, 3 years. So we're seeing a really good return on those investments in terms of how the customer base is developing.
So we're always going to be impacted by category performance. But there's an awful lot going on that's quite positive, but I think it's propelling us. And quite as I did mention pricing, we've done a nice job on pricing, frankly. It's a category that for us, we've got good leverage, frankly. So I think that's what I would say on those questions, Chetan.
And maybe if I can follow up just one more question is, typically your business as we look into second half versus first half, it's usually down in earnings in second half versus first half. And this is particularly more relevant, I guess, in the Coatings business. As you stand today, how are you thinking about each of these segments in terms of that second half trajectory versus first half and the normal seasonality?
I think what I would say is that we aren't expecting and forecasting any material improvement in demand. In other words, we thought all along 2023 was going to be quite difficult demand-wise, and it factored pretty heavily into our planning. And so our posture is really much more focused on self-help. And so we expect another $25 million of new business. Again, these are -- this is business behind new products, higher contribution margins. We expect that the turnaround in Talc will certainly continue. That will be pretty helpful.
We have quite a lot of pricing actions in 2023 increasing that float or from 2022 that are flowing through all of 2023. And then I have to say, I mean, cost management is a huge focus for us, getting out these Chromium stranded costs. When we get to November at the CMD, we're going to talk about the next wave of efficiency at Elementis that we're going to be delivering on. So we kind of feel we're in pretty good shape even if demand continues to be kind of soft. And really to look ahead, we can see 6 to 8 weeks out and the kind of orders revenues that we're seeing are pretty much what we had expected. Ralph, if you want to add on that.
Yes. I mean normally there are some -- weighting is about $52 million, $48 million first half, second half. I think last year was quite accentuated, so we did $58 million EBIT in the first half, $42 million in the second half. So as we go into the second half of the year on the back of sort of $53 million, I think that sort of normalized weighting is pretty logical. Bear in mind, last year, in the Talc business, in the second half, we lost $3 million. So with the Talc recovery that Paul mentioned coming through that, that should give us confidence of a stronger second half versus second half '22.
[Operator Instructions] The next question comes from David Farrell from Jefferies.
Congratulations on a really good set of results. A couple of questions from me. Firstly, on the Coatings side, is there anything you can say about any kind of signs of recovery in China? That would be useful. And then just thinking about kind of costs, you've talked a lot about kind of your own costs and the actions you can take. What's happening to things like energy cost though? Is that going to prove a tailwind as we go into the second half of the year?
Yes. I think on the first one, I'll take that and then Ralph, the cost one. You know what, I'm sorry to say we're not seeing demand recovery in China. There's an awful lot of talk about stimulating. And obviously, early in the year, it was real unlocking and et cetera, et cetera. And it just -- housing obviously is a real problem in China. They're just not exploring it. They were. It's tough. It's actually kind of tough. We will eventually -- will we see some green shoots in '24? Possibly. But our posture is not to expect anything to change materially in 2023, and that's pretty much what we are seeing. Ralph, do you want to talk to cost?
Yes. I mean on some variable costs overall, I mean, energy is relatively small part now. We don't have [ crowding ] of our overall input cost base. There are some favorable movements, I guess, coming through into the second half and possibly into next year. It hasn't helped us significantly in the first half of the year. If you look at our other input costs, first half of the year this year, where our input costs were up on a unit basis versus last year. I would say though that we're not a big buyer of some large commodities like TiO2 or soda ash. I think our biggest raw material now is [ crossing ] and there's quite a big range of smaller inputs after that.
I think that as we look at it today, whilst we didn't see any significant improvement in the first half, we're not expecting a big improvement in the second half, although there may be some slight favorability coming through as input costs progressing in the course of the second half of the year.
So I think going into '24, it's very uncertain in the environment. But if you look at the current energy spot prices, then they're getting maybe some tailwind going into '24, that remains to be seen. And we're pretty prudent and measured on our energy costs. We look at it very rigorously. We take opportunity to hedge where we can, where we think that's sensible. So I don't think there's really any dramatic change in that over the course of the next 12 to 18 months.
The next question is from Amy Lian from Barclays.
Just two from me. The first one is a quick one on the dividend. So I think obviously you've guided to reinstate the dividend later this year. I just wanted to track if that's changed at all. And then secondly, on new business wins. In an environment where generally demand is quite weak, do you have any concerns on the momentum and appetite for new business slowing? Just interested to your views there.
Let me take the dividend question. I mean, first of all, we recognize the importance of the dividend and a very great team to resume it. I think our key mantra here is no full stops. We did say we would look to reinstate the dividend this year. We had a look at the middle of the year and decided it wasn't the right time. That doesn't preclude us reinstating it at the end of the year at all. I think at the end of the year, the circumstances we'll look at will be number one is the leverage reducing, and we fully do expect the leverage to be significantly lower.
And the second is the economic conditions, which, of course, are unknowable at the moment. So I don't think our position has really changed on the dividend. We want to bring it back, but no full stops, and we want to bring it back at the right moment.
Yes, on the view question, I mean, Amy, you're right. I think when -- like as far as a certain category, it does make selling in deals a bit more difficult in the short term. But having said that, it's really all about the level of innovation and the quality of new products that you're coming out with.
And we said really be fixated on products that are either better performing, help the sustainability and lower operating costs. And if they can do any, 2 or 3, trifecta, that's just outstanding. And so what we found in Coatings is bringing a lot of technology to newer categories.
So for example, our organic thixotropes going into adhesives is the real place in momentum for us. And obviously, it's quite incremental. [ Flavored carton ], this is actually an area that we're making some really, really good headway. I talked about Personal Care and all the products that we launched, built to position in sun care and Skin Care.
In Color Cosmetics, there's just so much new product activity. We just -- I don't know, they're never done making a better face cream. And so it really does create some good opportunity. Yes, I think on the Talc business, good levels of innovation. India has been a little bit slower because of the demand considerations.
But overall, I think it's really much more a function of what kind of imitation you're coming out with, how game-changing is it? What kind of problem does it solve? And our customers have been really, really responsive in the past 3 or 4 years. And this is why we've kind of wrapped up the gains we have in the business.
[Operator Instructions]. Nothing further in the queue, so I'll hand back to the management team.
Hey, thanks, everybody, for coming online today. Our Capital Markets Day, advertised 14th November. We look forward to walking you all through how we're going to take the business forward over the next 3 years and kind of build on where we're at right now. Thanks again.
Thanks, everyone.
This concludes today's call. Thank you very much for your attendance. You may now disconnect your lines.