Shares in iodine producer Iofina (IOF:AIM) have slumped 18.5% to 175.7p on the unfortunate news that the company's president and chief executive officer (CEO) Lance Baller is set to take a leave of absence for health reasons.

Full-year results, which are expected to reveal the £223 million cap's first positive EBITDA (earnings before interest, tax, depreciation and amortisation) at the end of next month, will be an important step in reassuring the market that the growth story remains on track despite this set-back.

The sharp reaction to the announcement was another reminder that the success and failure of small cap companies is often perceived as being reliant on the strength of their management team. Gold miner Pan African Resources (PAF:AIM) has suffered a large decline in its share price since the surprise resignation of CEO Jan Nelson on 27 February. He was considered to be the driving force behind significant value creation in preceding years.

Warren Buffett is quoted as saying that he tries 'to buy stock in businesses that are so wonderful that an idiot can run them. Because sooner or later, one will.' This logic only applies to established firms, not groups which are in the early stages of their growth.

Baller will remain on the Iofina board and look to return following a period of treatment. He helped transform the group from a interesting play which had largely stalled post its May 2008 IPO to a company which is now generating tangible revenues and is on the cusp of moving into the black. House broker Investec is forecasting an EBITDA of £1 million for 2012 and expects pre-tax profits to hit £8.2 million in 2013, rising to £12.8 million the year after. Since he stepped up to the top job from the role of finance director in March 2010, Baller has rewarded shareholders with a 351.3% increase in the share price.

IOF - Comparison Line Chart (Rebased to first)

Iodine is a relatively rare element which is used in pharmaceuticals, animal feed and disinfectant. Chile is the largest global producer with more than half of the world's production. Iofina's business model involves extracting iodine from the waste water produced at US shale oil and shale gas fields.

The first two plants, which use the group's IOsorb technology to process iodine, came on stream in the second half of last year and, going forward, Baller has said the company will aim to open a new facility each quarter. Iofina pays 100% of the install costs, operates and retains 100% of the iodine output. In exchange, the third party operator receives 10-20% of the sale price of the iodine. The company sells the iodine into its own specialty chemical iodine derivatives business in Kentucky.

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Issue Date: 15 Apr 2013