Specialty Chemical Megatrends and Wide Moats with Ben Gliklich, Element Solutions, Inc. (NYSE: ESI)

So Platform Specialty Products is a good place to start this discussion. Element Solutions is not Platform Specialty Products. It's a different company. In fact, we define ourselves in contrast to Platform, so it makes sense to start with what it is that we're defining ourselves in contrast to. The strategy or the thesis behind Platform Specialty Products was that there are many different specialty chemicals businesses that have shared attributes: they're asset light, they're very people intensive, in different segments, and that we could roll those businesses up and create an exceptional rare specialty chemicals portfolio. That thesis — one could argue about whether or not that strategy would work. It didn't work in the context of Platform Specialty Products for a couple of reasons: went too quickly, borrowed too much. The businesses that were acquired were high quality businesses, and that allowed for us to convert to become Element Solutions by selling a portfolio of excellent agricultural chemicals businesses and being left with a world-class industrial electronics portfolio. The work that we've done as Element Solutions really in the first year was about building our identity, shared values, a strong culture, and a vision. It all keys off of that vision, which is a different vision than that of Platform Specialty Products. The vision at Element Solutions is one of balancing operational excellence with prudent capital allocation, but it all starts with running these incredibly high quality businesses better. The vision is articulated very simply on three metrics: we want to be the best in class specialty chemicals company in terms of value that we provide to our customers, the opportunities we create for our people, and in terms of the value we create for our shareholders. We measure those three things actively. So we measure value to customers based on our gross margins — how much more are customers willing to pay for the value that we're bringing to them — and through voice of the customer and customer satisfaction surveys which we do regularly. We evaluate our performance around creating opportunities for our people based on internal culture surveys which we do every two years, and based on our internal fill rate — the percentage of positions above a certain level in our organization that are filled by internal candidates. Frankly, if you get happy customers and happy people, shareholder value takes care of itself. But we do regularly measure that, not with intraperiod fluctuations in share price because we can't control that, but based on our EPS growth — driving compounding EPS at a high rate — and intrinsic value math where we look at our cash flow projections based on our actions and ensure that that's going the right direction.

This business is incredibly customer intimate. The customers are very, very sticky, which is great — it provides a big moat. But it also provides a moat for customer wins and conversions. So we want to have that reputation as providing the best technology and the best service to our customers because that's a positive flywheel. The larger our share, the more leadership from technology, the more word of mouth we have in the industry, the more opportunities we will have to continue to grow organically. And once you have those customers, it's very, very hard to lose them. So that's why we started with the customers. And then it's a people-based business as well. This is not a conventional chemicals business with a big plant where if you get the plant math right and you play the cycle right you make money. This is a business where our customers rely intensely on our people for innovation and for technical service. The knowledge in this company — the learned knowledge — is incredibly valuable. A large part of our moat is associated with the experience that our customers have, that our people have, and the relationships our customers have with our people. So being that destination employer and being able to retain and grow people is a success factor for us.

Our customers rely on our people and our technology for their manufacturing processes. If you look at our cash flow, capital is less than two percent of assets. So our factories are not where the magic happens. Our magic happens in the labs at the customer site. As an example, our Circuitry Solutions business provides the chemistry that's used to turn a laminate — a small piece of plastic — into a printed circuit board. It's a series of chemical processes. Our customers are very good at manufacturing processes, but they're not chemists. The series of processes that that piece of plastic goes through to become a printed circuit board is comprised of aqueous chemistry with many, many different components, all of which can fall out of balance if it's particularly hot or require tweaks if the rate at which the plastic goes through changes. So our customers rely on our people to help them manage the chemistry to ensure they get the high value outcome from that printed circuit board. Our cost is a fraction of the overall cost of high-end electronics, but it's absolutely critical to the performance of those devices — whether that's the chrome plating on the grill of a car, or the electronics in a smartphone, or other type of high-end device. So the moat is the people and the innovation. Every next generation of technology requires just modest incremental tweaks to existing formulas. So a new entrant would have to overcome hundreds and hundreds of years of incremental development in order to bring a product to market that could meet this generation's need. And even still, they wouldn't have the technical service capability, know-how, and relationships on site to service that customer. So the moat is wide and it's growing as we continue to innovate, gain share, build market leadership, and train our world-class team at the customer site.

The past nine months have been an incredible challenge in global supply chains. We have a global supply chain — our customers are all over the world, our raw materials are sourced from all over the world. Navigating that has been an incredible challenge and a real testament to our team that we've been able to continue to supply and keep our customers going. We have been in a position to increase prices where our prices have increased. That's something that we said we would be able to do, and indeed we've been able to do that. In some instances we have contractual pass-throughs tied to raw material price fluctuations; in others we have surcharges; and then in others it's negotiated. Clearly we're in an environment that's inflationary — our costs are going up and our customers are taking price as well. So we've been able to take price and protect margin because of it.

I would expect our pricing to be sticky. We are, as we went through earlier, embedded into the manufacturing processes of our customers. The switching costs are high — you need to stop producing, change out some of the equipment, re-qualify, all to save just fractions of the cost to the end customer. But we can't be overly aggressive because we don't want to give customers the reason to change because of how sticky it is. So that's a balance that we walk. We've been able to retain customers through our pricing actions over the course of this year, and I do expect we should be able to retain pricing where we've negotiated new prices for the most part.

We are tied to units — the number of units drives the volumes for our business. We have an adder: there is increasing content per unit, whether that's next generation automotive or next generation smartphones, so we should outperform units. You mentioned semiconductor as an example. Semiconductor as an industry has been perceived as cyclical because fab capacity comes in and declines. But we're not tied to the price of the end unit; we're tied to the volume. From where we sit today, you see a huge surge in capacity in semiconductor fabs that will drive volume for us regardless of what happens to semiconductor chip prices. So there is some cyclicality, particularly in automotive, where we've seen some cyclicality that has driven the P&L and top line. Where we are from an electronics industry perspective is one of significant secular growth. Whether it's new mobile device technology — both units and infrastructure — we're in the very early innings of what should be tremendous growth. Not just in terms of units from a new replacement cycle on the handset side, but in terms of content: you get about 15% more content on a 5G phone than on a 4G phone. Also on the base station side, the infrastructure for this new generation of mobile technology investment has just begun to pick up, and that's a multi-year cycle. We play a critical role in enabling next-generation electric vehicles, and electric vehicle penetration of the automotive fleet remains very, very low. I think we can all sit here with a high level of confidence that that's going to increase. So those are the secular trends. Sustainability is another one where we're really enabling our customer sustainability: removing hazardous chemicals, improving water treatment technology. Those are the secular trends that are going to drive this business independent of cycles. The automotive business is clearly near a trough, and there's a significant amount of demand — it's just a supply chain constraint that's been preventing that demand from being met. So we see a cyclical recovery in the auto space in the years to come as well. What I'd note though is that while we are driven by units and there is a level of cyclicality, the margins in this business and the cash flow are very stable. We don't have significant fixed assets to service and maintain, so when we're not selling, we're not buying. The gross margins are very stable even when asset utilization declines because of units. Similarly, as we got through earlier, this is a people-based business and a lot of that people-based expense is variable — travel, marketing, incentive compensation — that all goes away in periods of weakness. So we can sustain strong EBITDA margins and we generate more cash in the downturn from working capital release. We used to say that about these businesses but we didn't have a proof point because this business in its current configuration didn't exist in a period of decline until COVID. Our results in 2020 clearly underpinned those points: we sustained margins, generated very stable cash flow, and then generated strong incremental margins on the way up, which folks were concerned about because of all the objects we took out. So we're demonstrating these attributes that yes, while there is a level of cyclicality in some portions of our business, the cash flows are stable, the margins are stable, and there's the secular growth that we're going to benefit from for several years to come.

We're the market leader in the niche markets in which we participate, and we have a seat at the table — not just with customers to do technology roadmap exchanges, but with the major OEMs for whom our technology and solutions are critical to the performance of their products. So we don't just have a sense from internal work of where the puck is going; we have it from customer engagement. Because of our scale and because we're market leaders, we believe we've got a better seat at that table because we've got a broader set of touch points in our customer supply chains than any of our competitors. We believe we've got a preferential seat. So we see where the puck is going and we make investments behind that. Importantly, those investments are incremental. This isn't blank sheet of paper whiteboard R&D; this is incremental developments based on existing technologies to meet that next generation need. So we will make investments, but they will be very high returning because we're not developing products looking for a market; we're developing products where the market need is well established.

It's a great question. It's one of the things I've been working on most over the past year and a half: the power of focus. We spent a huge amount of time working on identifying those needle-moving commercial opportunities in each of our markets, empirically based, deeply detailed, and focused on prioritizing where is the deepest pool of profit coming from and what do we need to win. Let's drop that list of opportunities and align our resources against them. The constraint is less on capital and more on capable, experienced team members. It's an HR constraint more than a dollars and cents constraint. Let's align our resources against those highest returning commercial opportunities, establish what it takes to win, develop the milestones that are proof points to us that we are winning or making progress — because these are long lead time activities, not a six month project, but a three year opportunity. And then not doing the other stuff. That's as hard as identifying and building the plans for the highest returning opportunities: getting the teams to de-prioritize that long list of other things that could be working.

This is a materials based business, so the breakthroughs and disruption don't happen from one day to the next. The incumbents from a hardware electronics perspective or even automotive OEM perspective, we know who's working on one. I believe we've got better visibility towards trends that are developing than you would in a technology company or a software company, for example. And deep relationships with the technical experts at the customer site and at the OEM site enable us to have that level of visibility. The way you don't allow for complacency is through incentives and culture. If you can see behind me, the first C of the five Cs of our culture is Challenge. The idea behind that is this is a challenging but rewarding place to work, and complacency has no place at Element Solutions.

In the open I talked about our vision. Establishing our vision when we became Element Solutions that first year was really all about building the identity for this company — becoming one company, an operating company, eliminating the layers associated with the corporate holding company at Platform and the operating unit inside what is now Element Solutions. That identity building is not something that we took lightly. We spent a lot of time studying the artifacts of the legacy cultures of the businesses we brought together, doing a detailed culture survey asking all of our employees in all of their languages: what's a good culture, what is our culture, what culture should we aspire to? That was the baseline for the culture surveys for that second point of our vision about employee satisfaction. In that exercise we came up with five Cs that we believe are the behaviors that we want to be embodying every single day. Challenge is the first: a challenging and rewarding environment. People derive a lot of value from their profession if they're fulfilled, if they're being asked to do a little bit more and improve upon themselves. That's what Challenge is about. This is a company that challenges people to be their best selves and rewards them for that. If you don't have the rewarding side of challenging, no one wants to work there. But if you have the rewards without the challenge, that's not particularly fulfilling either and not a good way to run a business. The second C is Commit, which is a way of saying this is a company that takes its commitments seriously and we deliver on our commitments. When we launched Element Solutions we talked about being in credibility building mode after coming from Platform Specialty Products. I found that we're permanently in credibility building mode. This is a company that delivers on its commitments. A committed employee thinks like an owner, not like a manager. That ownership mentality associated with commitment is what we're trying to drive with that second C. The third C is Collaborate. This is a business where no one can be the hero and do it all. Whether it's starting in the lab with scientists performing R&D, going to the pilot line, manufacturing, the customer, finance and collections — people are such an important part of the business, so HR plays a critical role, and we're enabled by systems and IT. No one can do all of that; it's impossible. So a success factor is good collaboration. We have to work well together in order to deliver on our challenging commitments. The fourth C is maybe the most idiosyncratic: Choose. The idea behind Choose is that every employee makes choices every day, and we recognize that. Choices not just at the customer side or in business, but around energy, integrity, and attitude. We empower people to make choices. As a global business, if decision making were central, we wouldn't be responsive enough. The business is incredibly local, so we need to give people the ability to make choices to meet that customer need on site. The center of gravity in this company needs to be in the lab at the customer site, not at the corporate headquarters. In recognizing that people make those choices, it has to be part of our culture. As a company we choose to reward people who exercise good judgment. This is a company where every employee has the ability to make the business better any given day. The fifth C is Care. It's a broad care: it's not just we care about our people or our customers, we care about our place in the world at large. We believe as a people-based business, it's more than just our own people. It's the communities in which they operate. A thriving community enables people to thrive at work. We set up a foundation last year with $5 million, and it matches employees' donations around the world. So we care about what our people care about. I read somewhere the other day a samurai saying that culture is not words, it's actions. So these are actions, they're behaviors more than just values that we aspire to every day.

I've been really fortunate to have terrific mentors and to learn from a lot of experiences, not all of them good. I joined Element Solutions as head of M&A, or I joined Platform Specialty Products at LMA, so I was responsible for that frenetic period of acquisitions. I got to know the businesses really well, got to know the people really well. It was very quickly apparent to me that businesses are just people. Having come from being an investor and a banker, it's very easy to get lost in spreadsheets and things make sense at your desk, but it's all about the people who are executing at the mine face. That became very apparent in the integrations associated with those acquisitions at Platform Specialty Products. When the first CEO of Platform left, because I knew the business well, our chairman Martin Franklin asked me to be the Chief Operating Officer, which I did for several months before the next CEO, Rakesh Sachdev, who I succeeded at Element Solutions, came on board. I was thrown pretty quickly into the deep end, and it wasn't a particularly easy time. We bought great businesses, but there were some risks associated with businesses we didn't fully understand, and we had to work our way out of them with a levered balance sheet, very international business. Very quickly I had to develop an appreciation for delegation and trusting people in the field, getting a sense for what the right incentives are, what the right strategies are to get people working and aligned on the right types of activities. I became the CEO in February of 2019. We had that first year of building that identity, working through corporate costs and things like that. I was thrown into the fire, and nothing creates a burning platform like a global pandemic. That really allowed our leadership team to coalesce. The mentors and leaders I've learned from aren't just former CEOs; they're the people on my team right now. We had to have an incredibly productive working relationship with trust and self-learning in order to have been as successful as we were. Martin Franklin, our executive chairman, has been an incredible mentor for me. I've learned a huge amount from him about running global businesses, strategic capital allocation, how to prioritize, and how to deal with people. One of the greatest attributes I've learned from him is being direct and an antipathy towards hierarchy, going to the source, treating people like people. Similarly my father, who is a physician at a hospital and regularly wins the award from the staff as the friendliest, kindest doctor in the facility, deeply ingrained in me to treat people like people. The value of people has been the thing that has allowed for our company's success, I believe. That general sentiment across this organization through a difficult time — the idea of caring as the fifth C and treating people like people — are very valuable cultural elements that probably are a little too rare among public companies.

General. How was that like? What was missing, and what maybe was not broken but maybe missing a part about the culture at Platform when you inherited it that kind of led to the five C's being so important? There just wasn't a platform; it didn't have a stated culture or vision. He built a portfolio of really great businesses. There was a holding company level that was focused first on growth and then on fixing the balance sheet, and so there wasn't as much energy from the senior-most leadership at Platform on running the businesses better and spending time with all the people all over the world because there was so much to do from a balance sheet perspective in those last several years. I think that in the absence of a stated culture, culture does just develop, but we wanted to be explicit about it and we wanted buy-in. By doing that culture survey, impressively 85% of the people all over the world completed that survey, and benchmarks suggest that 60% is a high level of participation, so people were looking for that. These were companies that were great companies, and they still were great companies; they were just hidden, I believe, under the platform umbrella. That's not a bad thing; they performed very well all throughout that period because they're great businesses with great people in them. But just by adding that additional focus, soliciting input, reinforcing it, increasing communication, and becoming one company as opposed to a holding company with portfolio companies, we've been able to throw gas on the fire and really accelerate performance.

We talked about Element Solutions being a company that's oriented towards and focused on operational excellence and prudent capital allocation, and they go hand in hand. Operational excellence takes the lead; the better you run these businesses, the more capital they generate, which allows you to reinvest at higher rates of return. This is an operating company, and we're focused on running the businesses we have in our portfolio today better more days than not. When we think about deploying that capital, this business generates a lot of cash, and we're looking for the highest returning avenues for that cash. We generate more cash than we can reinvest internally by far; we struggle to spend $35 million of capex because the projects are small and asset intensity is modest. We're generating several hundred million dollars of free cash flow a year, and we're opportunistic about where we deploy that capital. In the first several years as a company, we were buying back shares primarily. This year, we deploy capital towards acquisitions. Those acquisitions need to fit a very strict criteria: they need to fit behind our businesses within our existing portfolio; we're buying businesses we deeply understand, businesses that are better inside our company than outside, meaning we can add value through synergies; businesses that allow us to add more value to customers, coming back to the point in the vision that we want to provide the most value in our industry to customers. If it's not a direct product overlap, it's an adjacency, something a customer would be interested in buying from us, where we can broaden our portfolio of solutions for them. And businesses that are available at reasonable prices with great people. We found several of those; they're really compelling, and we've been executing against them. We always compare M&A to a share buyback, so we look at free cash flow yield of our company, the equity return, the cash return to equity of an acquisition, we risk-adjust them, and that's the calculus we do. Our business has enough surface area around it, but there's an almost indefinitely long list of small bolt-on opportunities that fit the criteria and that we can execute two or three every year.

We had just completed the sale of Arista. We had a huge amount of confidence in the quality of our businesses, which we thought was deeply misunderstood by the market and wasn't reflected in our share price. We had balance sheet capacity to deploy. We had our hands full operationally with not integration but becoming one company, handling corporate costs, and adding efficiency to the business. We wanted to take advantage of that opportunity. Going into the market to buy those shares would have taken months and months and would have driven the share price higher. We also understood that Pershing Square was considering an exit, and that was a likely overhang at some point, so it was a win-win. We were able to buy back a significant portion of the shares outstanding at a fixed price at market in one go and eliminate that overhang. We had a lot of confidence that that was the right thing to do at the time.

We've learned from our experiences, and we've been very clear with high conviction that we've got to keep leverage at this company at three and a half times debt. Why is that the right number? It's a business that generates very significant cash flow; it can support that leverage profile. Our credit ratings and the credit market appreciate the cash flow characteristics of this business, and the cost of debt is low even in excess of three and a half times. But it's the right ceiling from an overall cost of capital perspective; the equity gets penalized even if the debt doesn't if we go above three and a half times. That doesn't mean we want to live at three and a half times; we're going to be opportunistic. We've been running the business around three times. Operational excellence and prudent capital allocation at Element Solutions looks like the ability to make a $500 million acquisition in the middle of 2021 and have leverage below three times by the end of the year. We should de-lever half a turn to three-quarters of a turn a year between the cash flow and the earnings growth in this business.

The water treatment acquisition we made last year is a case study for how we think about these bolt-ons into adjacencies. This was a fine business, a domestic US company that made water treatment equipment and sold some chemistry into a multitude of markets. One of the big ones was the plating market, which is where we sell our chemistry. We were able to buy it on a negotiated basis for a single-digit multiple, so the margin of safety was good. This is a business that's going to grow because there's a secular trend around water treatment; it's got good technology. If we didn't do anything with this business, it was still an attractive return. But the reason we went into it is because it is an adjacency — and it might seem far afield — but our customers are incredibly focused on sustainability and particularly on water usage. Our chemistry goes into a series of tanks and then into a water treatment plant. So if we, having sold them the chemistry, can offer this value-added water treatment, they know us, they know our chemistry, we know the chemistry, we can be a partner to support their growth, as opposed to a general water treatment company selling equipment to the food service industry. We're focusing on our existing customers; we have deep relationships, we understand the chemistry. It's not just driving growth in equipment sales, which is less interesting, but it's intended to be another arrow in the quiver to convert those sticky customers. We'll sell you a piece of proprietary water treatment equipment if you convert the line next to ours that's using competitive chemistry to our chemistry. It's the tip of the spear for chemistry sales. What we've done with that business is we've stood up manufacturing and sales in Europe and Asia, and we were able first to prove to ourselves that we can make this equipment in other places, so we can transfer the technology and manufacturing know-how. That's happened. And can we sell? Indeed we have; we've proven an ability to sell equipment in Asia and in Europe within a year. So it's a market share driver, and it's helping solve an intractable huge issue for our customers that gives us preference and mind share. We should be able to grow it organically, and it should grow our chemistry business. If we can get confidence that it's a business that can grow organically, it may be an area where we could pursue inorganic growth. It's a gigantic addressable market, but we're still in the early innings; thus far the proof points are positive.

Given how sticky the customer is, it's really hard to dislodge competitors. Our market share in any given one of our businesses is between 20% and 30%. The way we grow market share is when new lines come. A customer is adding capacity; they do it one line at a time, maybe they'll build a new site with three, four, or five lines. The way we grow market share is by getting more than 20% or 30% — getting more than one or two out of the five lines. If our customers are happy with our performance, we get more lines, we grow share. That allows us to invest more in technical service and in customer relationships, which bring ideas and technology roadmap exchanges. That allows us to grow. That's the dynamic we're talking about. The larger our seat at the table, the better quality and scale we are perceived within our supply chain. The more share we have, the more opportunities we have to sell.

A couple of things. We talk about being pleased but never satisfied. Challenge is one of our C's; we're continually challenging folks. We maintain really high standards. The saying is: when you accept something below your standard, you've set a new standard. You have to maintain really high standards, particularly in times like this. In a good time, when we're after a recovery and getting credit for what we've been able to do, your standards have to go up. If you expect better performance, you can't do that with the same standards; you have to increase your standards. Similarly, I talked about focus and our strategy implementation process. We don't play for six-month or one-year wins. We're participating in markets that have huge long-term secular trends, so we play for three to five years. When we do our strategy planning, we're not looking at our goal in one year; we have a milestone in one year that's on the track to accomplishing our goal in three to five years. Those goals are breakthrough strategic objectives — we call them BTSOs. That's not just participating in market growth; that's delivering above-market growth and breaking through into a new market or new profit pool. There are plenty of those around our business. If you're focused on those — whatever you want to call them, BHAGs or BTSOs — near-term wins are just proof points on the way to long-term success. That doesn't allow folks to get too complacent.

The chip shortage is obviously having a material impact on the automotive sector; it's had some impact even on the handheld device sector. But you can draw a straight line from the chip shortage to the strength in our electronics business. The chips — this supply shortage is a demand crisis; people want more than folks can make. It's not that supply came off; it's that demand has strengthened, and we're benefiting from that demand more than we're suffering from it in the automotive sector. That being said, the chip shortage has become a shorthand, I believe, for broader logistics and supply chain disruption, and that is impacting us because there's an incredible scarcity of raw materials globally, and we're not immune from that. Our supply chain team has been working heroically to procure raw materials. When it looks like we might run out of something, we've been able to pull it in. Our team and supply chain folks at our sites are and were essential workers; they were showing up every day in 2020 through the heart of COVID. They believe 2021 was harder than 2020 because of the constraints in supply chain. We've been fortunate that an inability to supply hasn't had a material impact on our top line; we've been able to provide continuity to our customers.

Focus, communication, and the ability to rely more and more on people. I too strive every day to live up to the five C's. Collaboration is critical; I've got a wonderful team, the Element Solutions leadership team. Management has the right mix of deep experience and hungry, curious newcomers to challenge each other and drive really great outcomes. There's this tension with folks who are willing to question a lot of assumptions, and a leadership team with 30 years average experience that is willing to have those assumptions questioned and know when to push back, all in the pursuit of greater performance. Being able to rely on that organization more and more is something that's been learned. Communication is an ongoing, permanent journey — making sure that people understand our culture, our vision, and how they can contribute to our shared success. That's something we're doing every day, and not something I had to do a huge amount of previously. Working on my communication skills and modes of communication — being in front of people virtually, in person increasingly, written communication — has been incredibly helpful. Finally, focus. Big business, intensely global, fragmented supply chain, fragmented customers. There's an urge to put out little fires and focus on each little thing that crosses your desk. I've spent more and more time realizing that there are just a handful of things that I can directly impact, that each of the people on my team can directly impact, and it cascades down. If your organization from top to bottom is focused on those few right things and not distracted, they can do incredible things. Helping people understand what those few things are and empowering them to work on those is the game. Driving this organization's focus has been something we've been working on a lot now that we've established our identity and vision. What are the few things each person can do to deliver on that? Getting that well understood in the organization is where we've been spending our time this year. It's a skill I've been developing, and we've been encouraging the organization to develop with notable success.

It's a terrific business, but there's an opportunity to make it better. That's strategic execution — converting the biggest accounts, being present for our customers as they introduce new technologies, whether that's electric vehicles, next-generation wireless technology, or sustainable solutions to help eliminate hazardous materials or waste treatment. Not just identifying those as opportunities — that's the easy part — but actually having the organization there with the solutions that are best in class. That's execution. Strategic execution is a critical success factor to allow us to outgrow our markets. The wave is very strong; the secular growth is very strong, but to do even better requires strategic execution. The second thing is capital allocation. It's a business that generates substantial cash, and how we deploy that cash will be a determinant of our ability to compound our earnings per share, which is what we're incentivized and driving. I believe we'll have a robust opportunity set to deploy that capital. We're demonstrating a track record of doing so nimbly, whether it was buying back our stock at $10, making these bolt-on acquisitions that are proving to be successful, and entering adjacent markets. We need to continue to do that, and if we do, we should be able to compound earnings in the teens, which is our goal.

For the most part, the feedback loops are pretty long, so it's a hard question to answer. In some instances, act more quickly is one thing I've learned. We have a bias towards action, and we have taken decisions very quickly, whether it was around COVID safety protocols or building safety stocks. But there are a handful of issues I can think about where it probably could have been more decisive. I think we missed an opportunity last year to buy our own shares. From a values perspective, we said we won't buy back our own shares if our people are on reduced salaries; it's just not the message we want to send. If we're not paying people full salary, we shouldn't be taking capital to retire shares. But that was a really robust opportunity; we caught the tail end of it. There was a window where, from a long-term value creation perspective, we could have done some real powerful retirement of a significant portion of shares at very attractive values. Those are the two things that popped to mind. But if you ask me the question in three more years, maybe I'll have more — hopefully not too many, hopefully none.

In a business like ours, which requires a huge amount of collaboration — the process from the lab to the customer to the collection touches so many people — an appreciation for the people and the culture is essential. The culture is what drives that marginal decision, and that marginal decision can create or destroy a huge amount of value. That's why we prioritized up front getting the culture right, getting people a deep understanding of what it is we're working towards. That's probably the first thing and the most important thing.

There are countless opportunities where a corporate leader can either create an impediment to execution and success or break down barriers to performance. There are so many things about the way we did business that didn't make sense intuitively, but because I'm not sitting in the seat at the plant or in the collections department or in the R&D department, I don't feel that. We've created mechanisms for feedback — idea chests in the office where everybody at this company can talk about how their decisions can improve the business and the day-to-day outcomes, and they can actually improve the processes. We solicit feedback all the time from people; they have many different avenues to suggest process improvement. Sometimes you get a comment like, 'The bathroom needs to be cleaned up,' in which case we clean up the bathroom, but sometimes you get really powerful insights. We're incredibly receptive to front-line feedback on how to do things better. When you accumulate those across a 5,000-person organization over years, you can get significant process improvement. There are many things we've rethought in terms of day-to-day execution. The other thing that is incredibly intuitive is the Pareto principle — 80/20 — and the fact that 20% of your customers and 20% of your products are driving at least 80% of your profits. How you allocate resources to that in an organization that's so customer-centric is something we're trying to rethink to ensure that the needle-moving handful of customers and products are getting the necessary focus, because those are the drivers.

I think there are two that come to mind. The first is we've got 60% of our sales in the electronics industry, which is growing very quickly with very exciting secular trends behind it, and 40% of our sales in our industrial and specialty segment. People don't fully appreciate the quality of those industrial businesses. While they may not have as much of a secular trend behind them, these are market-leading, incredibly sticky, incredibly high-returning assets. They are very high quality from a return on capital perspective; they are industry-beating. People say, 'Why don't you just become an electronics company?' That's missing the unbelievable cash returns of our industrial business and the significant growth we have to drive those businesses forward. So I think the quality of our industrial businesses is misunderstood. The second is the cash flow characteristics of this business. Investors and analysts all talk about EBITDA multiples, and maybe higher quality businesses get a higher valuation multiple than lower quality businesses, but what's that quality measurement? Our business turns EBITDA into cash more efficiently and more steadily than other chemicals companies. That manifests itself in a free cash flow yield. Even though our valuation has trended in the right direction on a free cash flow basis, on a maintenance capex basis it still trails the median of chemical companies, which is odd when you think about the stickiness of the customer relationships, the stability of the margins, the variability of the operating expenses, the lack of lumpiness in capex. In our perspective, it is an above-median chemical business, but investors don't seem to focus on cash; they focus on EBITDA. While EBITDA might be a proxy for cash for many companies, it's a worse proxy for cash for our company. I think people don't fully appreciate the cash flow characteristics of this business because we've only been around in this configuration for a couple years. But it was tested — the stability of our cash flow characteristics were tested last year — and the cash flow growth in front of us is robust. In the meantime, that misunderstanding represents an opportunity for us to deploy capital very compellingly at times in our own shares.

Thanks very much, Ben. It's a complete testament to the excellent people not just in my leadership team but across all of Element Solutions. Thank you.