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Chemours reveals audit results, regulators ask questions

Katie Tabeling
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One month after placing executives on leave, Chemours has revealed its updated financials for the fourth quarter of 2023 and 2023 as a whole. | DBT PHOTO BY KATIE TABELING

WILMINGTON Chemours is cooperating with information requests from both regulators and federal prosecutors after an internal probe found that top three executives shifted cash flows to trigger a higher bonus payout.

Within five days after appointing new leadership, Chemours finalized its 2023 annual report and fourth quarter earnings for the same year. It was released late Wednesday night, detailing a smaller loss in the fourth quarter as revenues rose.

In its annual report, Chemours stated that it was contacted by the U.S. Securities and Exchange Commission and the U.S Attorney’s Office for the Southern District of New York. Both parties raised questions concerning the results of the internal audit’s early findings.

The chemical company, known for manufacturing Teflon and Nafion, has been facing turbulent times in the past month. Chemours delayed reporting its financial results in February and ultimately suspended multiple executives, including the now former President and CEO Mark Newman. Eventually, that internal investigation found that the executives in question looked to alter financial records that were tied to their incentive package.

In her first meeting with potential investors and just days after she began her new role in the company, Chemours President and CEO Denise Dignam delivered a forceful and optimistic address Wednesday morning before the stock market opened.

“Change has already begun,” she said. “We have fundamentally changed how we operate at the top of this organization. We are now business-led, rather than corporate-led. This means more decision-making at the business level, and it means lowering corporate costs and embedding resources in the businesses, closer to our bottom line and closer to our customers.”

“Our values are why people choose Chemours. Recent events will only make us stronger,” Dignam added.

Financial results

Chemours reported a loss of $18 million for the quarter that ended Dec. 31, compared to a loss of $97 million from a year earlier. Revenue rose 1.7% to $1.36 billion.

For the quarter, net sales increased 2% to $1.4 billion, led primarily by the company’s titanium technologies division. In particular, Chemours saw the titanium dioxide demand grow outside North America. Another driving force behind the increase in sales was demand for Chemours’ Opteon, a cooling immersion fluid that is expected to hit the market in 2025.

For the entire year, sales were down $6 billion, down 11% from the previous year. That was driven by lower demand in Chemours’ titanium technologies division and its advanced materials portfolio.

Dignam said that Chemours faces the future with a plan to reduce costs and focus efforts in high-return markets. During an earnings call on Wednesday, she told investors that means focusing on mature market businesses with the lowest-cost position, like titanium technologies and advanced performance materials. 

She pointed to the company’s success in streamlining the titanium technologies to reduce costs and closing a plant in Taiwan and moving funding for other mining operations for ore to pigment plants.

“We will relentlessly take costs out of all of our businesses, like what we are doing [there]…You will see the impact of these actions in our results. We achieved approximately $50 million in cost savings in 2023, even in the face of headwinds,” she said.

What the audit found

An internal investigation found that Newman, Chief Financial Officer Jonathan Lock and Principal Accounting Officer Carmela Wisel had delayed cash flow targets that were linked to Chemours annual stock and bonus awards. In fact, the company’s free cash flows reported at the time drove 40% of Newman’s $1 million bonus.

In all, Chemours found that payments up to $100 million were delayed to the fourth quarter of 2024 and $260 million of receivables were recognized ahead of time. The company also said that its internal review found that similar actions had been taken in the fourth quarter of 2022, though to a “lesser extent.”

Newman exited the company on March 22, and the company’s board of directors appointed Denise Dignam as the next leader. Newman reached a settlement agreement with Chemours, granting him vested stock options until 2027 but made him ineligible for any bonuses in 2023 and 2024.

But the settlement agreement also requires Newman to cooperate with Chemours on the board’s review on its accounting practices. Chemours is currently searching for a new chief financial officer.

Actions taken

Since the investigation was triggered by an anonymous complaint made to the in-house ethics hotline, questions were also raised about Chemours’ internal controls over its financials. 

According to filings from Chemours, once the anonymous call was connected to its 2023 audit process, Chemours’ general council notified the company’s audit committee. The audit showed that senior management failed to “set an appropriate tone at the top” in terms of communication on the cash flow targets openly shared with the public.

The audit also found that Chemours “did not design and maintain effective controls” to ensure proper communication between different aspects of the company. That includes contracts with vendors and areas that focus on business developments that impact the company’s key assumptions on its future. It also contributed to the flaw in escalating tips made to the Chemours Ethics Hotline.

Finally, Chemours did not have a system in place to prevent or detect unauthorized changes to vendor master files.

In the weeks that followed from when the ethics breach was found, Chemours appointed interim leadership like Dignam and Matthew Abbott as interim chief financial officer. Senior leadership also held multiple all staff meetings to emphasize the company’s values and focus on integrity. 

Chemours also reworked its disclosure committee process, conducted new training on financial reporting and financial securities laws as well as internal processes, enhanced its process for sharing internal information on the finances and wrote a procedure for ethics complaints that involve senior executives to be quickly escalated for review.

Looking to the future, Chemours is looking into revamping its policies and training when it comes to vendor file changes and internal communications. The company’s compensation committee is also taking a look at revising metrics on executive and employee incentive plans starting in 2024.

Who is Denise Dignam?

Dignam had served as interim CEO for about a month before she was formally appointed to the top job. She joined Chemours in 2015, roughly around the same time the chemical titan spun off from DuPont.

After graduating from Drexel University, she joined DuPont in 1988 as a design engineer. While she worked her shifts as the first woman at the New Jersey plant, she said she learned firsthand about the people who underpinned such a complicated process.

“In a manufacturing business like Chemours, the safety and wellbeing of our people come first. It’s where integrity starts, and I learned this early on too,” Dignam said.

She moved into sales and marketing roles and eventually led Chemours’ North American region for Fluoropolymers, as well as other markets like Nafion and Krytox businesses. There, Dignam said she saw Nafion’s potential in a then-unknown hydrogen industry.

Dignam also served as Chemours’ president of the advanced performance materials segment where she reduced costs by 10% and doubled margins in the business. She later served as president of Titanium Technologies since March 2023. On her watch, that division saw significant operational savings and developed process improvements for better resource use across the manufacturing circuit.

“I have great confidence in our values, and our people, and I am energized to lead our important work going forward. I acknowledge that we face challenges. At the same time, though, we have the opportunity to unlock the potential of Chemours, and we are moving ahead with a sense of focus and urgency to do so,” Dignam said.

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