Final Results - Year Ended 31 December 1999

Elementis PLC 29 February 2000 ELEMENTIS plc PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 1999 Elementis beats operational efficiency targets - Sales on continuing operations £535.1 million (1998: £534.2 million) - Operating profit on continuing operations £56.8 million* (1998: £61.5 million*) - Profit before tax £51.4 million* (1998: £49.6 million*) - Earnings per share 9.3 pence* (1998: 9.0 pence*) - Working capital cash inflow of £20.5 million in second half, £5.5 million over target - Headcount reduced by 322 versus target of 300 - £7.5 million annualised cost savings achieved to end December *before goodwill amortisation and exceptionals Lyndon Cole, Group Chief Executive of Elementis plc, said: 'The difficult trading conditions experienced towards the end of 1998 continued throughout 1999. Rigorous action has been taken throughout Elementis to strengthen global management, improve operational efficiencies and provide greater focus on customers. This is reflected in the improved performance in the second half. There has been an encouraging start to 2000, although the continuing weakness of the euro remains a concern. The Group-wide focus on business re-engineering should increasingly be reflected in enhanced business performance as the year progresses.' Enquiries Elementis Lyndon Cole Group Chief Executive 020 7398 1400 George Fairweather Group Finance Director Anna Passey Head of Corporate Communications Brunswick Andrew Fenwick 020 7404 5959 Rupert Young Overview and financial results The difficult trading conditions experienced towards the end of 1998 continued throughout 1999. In particular, Chromium was impacted by increased competition from producers in the Former Soviet Union and by low demand for chrome oxide; Specialties was affected by lower sales of rheological additives to the oil exploration drilling sector. Chemical Distribution benefited from the strong US economy, although chlorine margins were under pressure in the last few months of the year. Specialty Rubber was impacted by reduced mining activity. Operating profit on continuing operations, before goodwill amortisation and exceptionals, was £56.8 million compared to £61.5 million in 1998. Operating profit on the same basis for the second half of 1999 was £29.3 million, up 7 per cent on the first half and 17 per cent on the second half of 1998, reflecting the continuing underlying improvement in business performance. Profit before goodwill amortisation, exceptionals and tax was £51.4 million, compared to £49.6 million in 1998 which included the results of discontinued operations. Basic earnings per share before goodwill amortisation and exceptionals increased by 3 per cent year on year to 9.3 pence. Net exceptional charges before tax were £8.7 million (1998: £28.8 million). Net cash inflow from operating activities was £74.1 million, compared to £84.5 million in 1998 which included £7.1 million from discontinued operations. Net borrowings at the year end were £45.5 million (1998: £48.0 million). In 1999, the primary focus was on improving performance through business re-engineering. Rigorous action has been taken to strengthen global management, improve operational efficiencies and provide greater focus on customers. In August, targets were announced to improve operational efficiencies throughout Elementis; year on year headcount would be reduced by around 300 by the end of 1999; improved use of working capital would result in a cash inflow of at least £15 million in the second half of 1999. These targets have been exceeded as headcount was reduced by 322 and there was a working capital cash inflow of £20.5 million in the second half. The Group is also on track to achieve its target of cutting Chromium and Pigments & Specialties' costs by £10 million on an annualised basis by June 2000, when compared to the start of 1999. Annualised savings achieved to the end of December 1999 were £7.5 million. Dividends and issue of redeemable B shares The Board is constantly seeking to manage the Group's affairs in a more tax efficient manner for the overall benefit of shareholders. An important element of this is to find ways to reduce the UK tax burden through the utilisation of surplus advance corporation tax (ACT) (currently £23.7 million). Since April 1999, the amount of ACT that can be recovered against mainstream corporation tax is restricted by shadow ACT on dividends. The Board is not proposing to pay a final dividend (1998: 3.0 pence). Instead, it proposes to issue redeemable B shares to shareholders on the register on 28 April 2000, such that they will receive redeemable B shares with a total nominal value of 3.1 pence for each ordinary share held. This will be coupled with an offer to redeem these new shares for cash at their nominal value on 2 May 2000. The total dividend for the year is therefore 2.0 pence per share (1998: 5.0 pence). By not paying a final dividend, Elementis estimates that it will be able to recover £1.4 million of ACT previously paid. The Board will consider making further redeemable share issues until surplus ACT is utilised. Shadow ACT on ordinary dividends would otherwise be around £5 million per annum. Further details of the issue of redeemable B shares will be set out in a letter to shareholders accompanying the Annual Report. Strategy The Board of Elementis remains committed to creating value for shareholders through organic growth and selective acquisitions that have the capacity to earn returns above the cost of capital. In May, a direct and technical sales presence was set up in Japan, the world's second largest specialty chemicals market, to grow market share. This made a positive contribution to operating profit in 1999. A similar direct presence has also been established in Northern Asia. Acquisition focus is on specialty additives and specialty colour. Health, safety and the environment The drive for operational excellence continues, while preserving the integrity of our commitment to the health and safety of employees, their communities and the environment. The significant improvement in safety performance in 1999 is encouraging. The chemical industry's key measure, lost time accident frequency, reduced by 36 per cent year on year, the fifth consecutive year of improvement. Current trading and outlook The Group-wide focus on business re-engineering should increasingly be reflected in enhanced performance as the year progresses. The Chromium and Pigments & Specialties annualised cost savings target has now been increased by 10 per cent to £11 million by June 2000. A new target has been set for Specialty Rubber to achieve annualised cost savings of £3 million by June 2001. Chromium continues to benefit from the introduction of CA21 chromic acid product into the metal finishing market, although trading conditions in leather tanning and metal alloys for aerospace markets remain difficult. There are signs that a number of Asian economies are improving, particularly benefiting Pigments & Specialties. Specialty Rubber continues to be impacted by the difficult minerals processing market. Overall, there has been an encouraging start to 2000, although the continuing weakness of the euro remains a concern; sales in January were up 7 per cent year on year. Review of operations Continuing operations For the year ended 31 December 1999 1998 Sales Operating Sales Operating profit* profit* £million £million £million £million Chromium 118.2 20.3 129.7 27.1 Pigments & Specialties 222.9 28.5 213.9 27.1 Chemical Distribution 144.5 5.5 139.2 2.6 Specialty Rubber 54.9 2.4 56.7 4.7 Associates - 0.1 - - Inter-group (5.4) - (5.3) - ________ _________ ________ _________ 535.1 56.8 534.2 61.5 ======== ========= ======== ========= *before goodwill amortisation and exceptionals Chromium Operating profit before exceptionals was £20.3 million compared to £27.1 million in 1998; sales decreased by 9 per cent to £118.2 million. Operating profit before exceptionals in the second half of 1999 was £10.8 million, up 14 per cent on the first half and 7 per cent on the second half of 1998. This reflects the continuing focus on operational excellence, the drive to reduce costs and the move to managing Elementis Chromium on a global basis. A new managing director was appointed to Elementis Chromium in July. Since then, customer focus has been significantly enhanced with the appointment of a commercial director and business leaders for each of the principal products. Chrome oxide sales volumes were substantially lower, mainly due to relatively low demand from the metal alloy market, particularly aerospace, which first impacted results in the second half of 1998. Demand for North American tanned hide remained strong and shipments into the Asia Pacific leather sector have started to recover. Low demand in domestic markets in the Former Soviet Union has driven chromium producers to compete more aggressively in their export markets. Currency devaluation has significantly improved their cost competitiveness, the effect of which was evident throughout the year. Chromium profitability was also impacted by substantially lower selling prices of the sodium sulphate by-product. Chromic acid volumes grew modestly in timber treatment markets; volumes of the branded chromic acid product CA21 grew substantially in the metal finishing market, reflecting the superior handling properties of the product. CA21 was awarded Millennium Product status for innovation by the UK's Design Council. Construction of the new $30 million kiln at Corpus Christi, Texas is mechanically complete and in the commissioning phase. Following a period of dual operation, it is anticipated that the rotary hearth it replaces will be decommissioned around the mid-year. Expansion of the pure salt plant at Eaglescliffe, UK is also mechanically complete, and will be commissioned for full operation in the late Spring. Focus on operational excellence and the move to managing Elementis Chromium on a global basis has reduced costs by around £4 million on an annualised basis over the course of 1999. A further £2 million cost reduction is targeted by June 2000 on an annualised basis from the operation of the new kiln as previously announced. Total savings will therefore exceed the £5 million target announced in August 1999 by 20 per cent. Exceptional restructuring costs of £2.4 million were incurred during the year to achieve these savings. The ratio of trade working capital to sales reduced from 24 per cent at the end of 1998 to 19 per cent at the end of 1999, with inventory down by over £5 million. Pigments & Specialties Operating profit before goodwill amortisation and exceptionals was £28.5 million, compared to £27.1 million for 1998 which included only 11 months results for Rheox. On a like for like basis, sales increased by 1 per cent year on year to £222.9 million. Operating profit before goodwill amortisation and exceptionals for the second half was £14.4 million, up 2 per cent on the first half and 36 per cent on the second half of 1998. At Elementis Pigments, operating profit before exceptionals was lower than in 1998 due to higher overhead absorption rates arising from the restructuring process and reduced sales in the low margin European construction market. Overall sales to the coatings market were modestly up in 1999, with sales in Asia up by over 80 per cent. Sales of construction grade Ferrispec doubled in 1999 with 18 customer equipment installations completed. Sales of Copperas Red, a calcined synthetic product, and high purity blacks into the personal care and cosmetics industries both grew substantially during 1999. Demand for synthetic black iron oxide magnetite for the toner market remained strong throughout the year. The major restructuring and upgrading plans announced in 1997 are substantially complete. The Deanshanger site, near Milton Keynes in the UK, closed in June and its finishing plant relocated to Birtley, near Durham in the UK. The upgrading of the two major US facilities at East St. Louis, Illinois and Easton, Pennsylvania is nearing completion. Within the next few months, the Northampton, UK distribution and administration centre will be consolidated into Birtley. The decision has also been taken to close the anhydrous aluminium chloride production facility in Birtley in order to focus production in Allentown, Pennsylvania in the US; and the small pigments manufacturing facility in Toronto, Canada will be consolidated into Easton later in the year. At Elementis Specialties, operating profit before goodwill amortisation and exceptionals increased year on year on a comparable basis. Total sales and sales of rheological additives for solvent based coatings and ink applications were at a similar level to the full year in 1998. Sales of water based rheological additives for coatings grew by around 15 per cent year on year as the acceptance rate by major customers develops and the product offering broadens. The £2 million investment in the Rheolate production facility for water based coatings in Livingston, Scotland is scheduled for completion in June 2000. This will enable Elementis Specialties to meet growing worldwide demand for these technically innovative products. Capacity in Livingston is also being increased to replace the small, high cost production unit in Germany which closed in December 1999. Sales of rheological additives to the oil exploration drilling sector declined year on year by one third, but strengthened considerably over the last four months of the year. Sales of specialty additives were up by around 15 per cent year on year, driven by the key coatings customers' increased need for low volatile organic compounds (VOC) and alkyl phenol ethoxylate free products. Elementis Specialties offers a range which can be applied in both solvent and water based systems. Twelve new products were launched during 1999, the most significant being Nanox, a patented specialty grade zinc derivative with a full range of ultraviolet absorbency and transparency properties. Nanox is gaining approval at several key personal care specifiers and customers and was awarded Millennium Product status for innovation by the UK's Design Council. Other successful products launched in 1999 were: - Bentone 38V - vegetable based rheological gels for the personal care market - Rheolate 400 series - an extension of the water based Rheolate range of additives that broadens the Elementis offering to the coatings market - Eclipse - a patented ultraviolet cure elastomer for the electrical encapsulation industry The former Rheox sales force has added colourants and additives to their product offering, giving customers improved access to the full Elementis Specialties range of products and services. Certain support functions were also integrated in the first half of the year. In May, a direct and technical sales presence was established in Japan, the world's second largest specialty chemicals market. Sales in Japan increased by nearly 70 per cent year on year; as a result, this new venture made a positive contribution to operating profit in 1999. A similar direct presence has also been established in Northern Asia (excluding Japan) where sales grew by just under 25 per cent year on year. The Elementis Pigments restructuring programme, the Elementis Specialties integration project and the focus on operational excellence have reduced costs by around £3.5 million on an annualised basis over the course of 1999, with a further £1.5 million reduction targeted by June 2000. Exceptional restructuring costs of £2.4 million were incurred during the year to achieve these savings, with approximately £1.5 million to be charged in 2000 to complete the project. A £2.7 million asset impairment charge was made in 1999, mainly relating to the Toronto pigments and Birtley anhydrous aluminium chloride plant closures and for the Shenzhen plant in China, where the Group is seeking to re- negotiate arrangements with one of its joint venture partners who wishes to exit. The ratio of trade working capital to sales reduced from 24 per cent at the end of 1998 to 19 per cent at the end of 1999, with inventory down by nearly £8 million. Chemical Distribution Operating profit increased for the third consecutive year to £5.5 million, of which £2.8 million was in the second half. This compared to £2.6 million in 1998 (1998: second half £1.4 million). The year on year increase is the result of continued volume growth, particularly in caustic soda, margin improvement across the majority of the product range and the ongoing focus on cost control. Overall volumes grew by 4 per cent year on year, driven by caustic soda up 31 per cent and sodium hypochlorite up 40 per cent, partially offset by rock salt down 28 per cent. Despite price pressure, margins improved across the majority of the product range, although chlorine margins eroded in the latter part of the year. Sales at £144.5 million were at a similar level to 1998 in US dollar terms, reflecting lower pricing. Specialty Rubber Operating profit before exceptionals was £2.4 million, compared to £4.7 million in 1998. Sales reduced by 3 per cent to £54.9 million. Operating profit before exceptionals in the second half of the year was £1.2 million, flat on the first half but 60 per cent below the second half of 1998. Trading was significantly affected as reduced mining activity impacted the minerals processing markets, particularly in the US and Australia. Copper and iron ore production fell by over 10 per cent in the US as four out of the top 15 mines closed. High South African interest rates and low gold pricing also impacted sales. Minerals processing sales were down by more than 10 per cent year on year as a result. Following completion of the first stage of a strategic review, Linatex re- organised its regional-based operations into three global business units; minerals processing, process technologies and industrial rubber, plus a separate European distribution business. Process technologies' sales were up by around 5 per cent in 1999. Linatex has embarked on a programme to reduce the complexity of its manufacturing sites and service centres and to simplify commercial activity by using distributors to service smaller customers. This will re-focus the business on its core specialty rubber capability and profitable sales opportunities. Installation of a state-of-the-art £1.5 million rubber conversion and mixing plant in Malaysia is currently in a commissioning phase and will provide a lower cost, more consistent quality feedstock for the Linatex sheet manufacturing and moulding processes. Over the next 18 months the number of operating sites will be cut from 25 to 12, which will reduce annualised costs by £3 million and headcount by 125. Exceptional costs of this restructuring are estimated at £3.5 million, of which £1.2 million was charged in 1999. Exceptionals Net exceptional charges before tax were £8.7 million, compared to £28.8 million in 1998. For 1999, exceptionals comprised: - £6.6 million charge for the settlement of US litigation - £6.0 million of restructuring costs - £2.7 million of asset impairment charges - £6.6 million profit on the disposal of surplus properties, including the last two former Harcros builders' merchants branches Interest Net interest payable was £5.4 million, compared to £8.3 million in 1998. This decrease reflects lower net borrowing levels throughout the year, partially offset by narrowing sterling/US dollar interest rate differentials. Interest cover (the number of times that the net interest charge is covered by operating profit before goodwill amortisation and exceptionals) was 10.5 times for 1999 (1998: 7.0 times). Taxation The effective rate of tax on profit before goodwill amortisation and exceptionals was 22.0 per cent, compared with 14.5 per cent in 1998. This rate is substantially lower than the standard UK corporate tax rate for a number of reasons, including tax relief on purchased US goodwill and the utilisation of surplus advance corporation tax, partially offset by higher overseas tax rates and unrelieved overseas tax losses. The rate in 1998 was lower than in 1999 because of favourable prior year adjustments in 1998 and writing down allowances on impaired BOCM PAULS assets until that business was sold. Tax on exceptional items was a credit of £0.8 million (1998: charge of £1.2 million). At 31 December 1999, surplus advance corporation tax available for offset against future tax liabilities on UK profits was £23.7 million. Earnings per share Basic earnings per share before goodwill amortisation and exceptionals increased by 3 per cent year on year to 9.3 pence. Basic earnings per share, after goodwill and exceptionals, was 4.6 pence (1998: 0.3 pence). The weighted average number of shares in issue during the year was 431.5 million (1998: 472.9 million); the number of shares in issue at the year end was 431.5 million. Cash flow and balance sheet Net cash inflow from operating activities was £74.1 million, compared to £84.5 million in 1998 which included £7.1 million from discontinued operations. The inflow from reduced working capital was £19.4 million, compared to £4.6 million inflow from continuing operations in 1998; this reflects the ongoing focus on reducing working capital towards industry best practice standards. In the second half of the year, the working capital inflow was £20.5 million which was £5.5 million ahead of the £15 million target published in August. In the three years to December 1998, aggregate working capital cash inflow, including discontinued operations up until their date of sale, was £88.7 million. Cash expenditure on fixed assets in 1999 totalled £43.9 million (1998: £32.6 million); this compares with net depreciation of £15.3 million (1998: £16.6 million). Significant projects in 1999 included construction of the new chromium kiln in the US, expansion of the pure salt plant in the UK and the upgrading of pigments manufacturing facilities in the US. Cash expenditure on fixed assets is likely to be significantly lower in 2000 but still well ahead of depreciation due to extended payment terms on work completed in 1999. Net cash inflow before the use of liquid resources and financing was £9.6 million compared to an outflow of £98.1 million in 1998. Excluding acquisitions and disposals, which significantly impacted the 1998 figures, free cash inflow was £10.3 million, compared to £24.5 million in 1998. Net borrowings at the year end were £45.5 million (1998: £48.0 million). Consolidated profit & loss account for the year ended 31 December 1999 Before goodwill Goodwill amort- amort- Except- 1999 1998 isation isation ionals & exceptionals Note £mill- £mill- £mill- £mill- £mill- ion ion ion ion ion Turnover Continuing operations 535.1 - - 535.1 534.2 Discontinued operations - - - - 508.4 ______ ______ ______ ______ _______ Turnover: Group and share of joint venture 535.1 - - 535.1 1,042.6 Less share of discontinued joint venture's turnover - - - - (68.2) ______ ______ ______ ______ _______ Group turnover 3 535.1 - - 535.1 974.4 ====== ====== ====== ====== ====== Group operating profit Continuing operations Before goodwill amortisation and exceptionals 56.7 - - 56.7 61.5 Goodwill amortisation - (12.5) - (12.5) (11.2) Exceptionals - - (15.3) (15.3) (3.2) 56.7 (12.5) (15.3) 28.9 47.1 Discontinued operations - - - - (7.0) ______ _______ ______ ______ _______ 3/4 56.7 (12.5) (15.3) 28.9 40.1 Share of operating profit/(loss): Joint venture - discontinued operations - - - - 2.1 Associates - continuing operations 0.1 - - 0.1 - Associates - discontinued operations - - - - (0.1) ______ 56.8 _______ ______ ______ _______ Operating profit (12.5) (15.3) 29.0 42.1 Profit on disposal of properties - - 6.6 6.6 5.0 Loss on disposal of - - - - (26.9) businesses - discontinued operations ______ _______ ______ ______ _______ Profit on ordinary 56.8 (12.5) (8.7) 35.6 20.2 activities before interest Interest rate swap cancellation costs - - - - (2.3) Net interest payable (5.4) - - (5.4) (8.3) ______ _______ ______ ______ _______ Profit on ordinary activities before tax Before goodwill amortisation and exceptionals 51.4 - - 51.4 49.6 Goodwill amortisation - (12.5) - (12.5) (11.2) Exceptionals - - (8.7) (8.7) (28.8) 51.4 (12.5) (8.7) 30.2 9.6 Tax on profit on ordinary activities 5 (11.3) - 0.8 (10.5) (8.4) ______ _______ ______ ______ _______ Profit on ordinary activities after tax 40.1 (12.5) (7.9) 19.7 1.2 Minority interests - equity 0.1 - 0.2 0.3 - ______ _______ ______ ______ _______ Profit for the financial year 40.2 (12.5) (7.7) 20.0 1.2 Dividends (8.6) - - (8.6) (21.6) ______ _______ ______ ______ _______ Amount transferred to/(from) reserves 31.6 (12.5) (7.7) 11.4 (20.4) ====== ======= ====== ====== ======= Earnings per ordinary share 6 Basic and diluted 4.6p 0.3p Basic and diluted before goodwill amortisation and exceptionals 9.3p 9.0p Balance sheets at 31 December 1999 Group Company 1999 1998 1999 1998 £mill- £mill- £mill- £mill- ion ion ion ion Fixed assets Goodwill 225.5 231.9 - - Tangible assets 182.7 155.5 - - Investments 1.8 1.6 959.0 959.0 ______ _______ _______ ________ 410.0 389.0 959.0 959.0 ______ _______ _______ ________ Current assets Stocks 71.6 85.5 - - Debtors 104.9 108.8 1.1 - Cash at bank and in hand 79.9 224.7 - - ______ _______ _______ ________ 256.4 419.0 1.1 - ______ _______ _______ ________ Creditors: amounts falling due within one year Borrowings 11.2 24.6 7.7 8.8 Proposed dividend - 13.0 - 13.0 Creditors 109.4 98.7 0.4 0.8 ______ _______ _______ _______ 120.6 136.3 8.1 22.6 ______ _______ _______ _______ Net current assets/(liabilities) 135.8 282.7 (7.0) (22.6) ______ ______ _______ _______ Total assets less current liabilities 545.8 671.7 952.0 936.4 ______ _______ _______ _______ Creditors: amounts falling due after more than one year Borrowings 114.2 248.1 - - Government grants 0.8 0.8 - - Amounts due to subsidiary undertakings - - 304.9 342.7 ______ _______ _______ _______ 115.0 248.9 304.9 342.7 Provisions for liabilities and charges 48.1 52.6 0.3 - ______ _______ _______ _______ 163.1 301.5 305.2 342.7 ______ _______ ______ _______ 382.7 370.2 646.8 593.7 ====== ======= ====== ======= Capital and reserves Called up share capital 21.6 21.6 21.6 21.6 Share premium 1.1 1.1 1.1 1.1 Other reserves - - 534.4 534.4 Profit and loss account 357.7 345.1 89.7 36.6 ______ ______ _______ _______ Shareholders' funds - equity 380.4 367.8 646.8 593.7 Minority interests - equity 2.3 2.4 - - ______ _______ _______ _______ 382.7 370.2 646.8 593.7 ====== ======= ======= ======= Net borrowings (45.5) (48.0) Cash flow statement for the year ended 31 December 1999 1999 1998 Note £mill- £mill- £mill- £mill- ion ion ion ion Net cash inflow from operating activities Continuing operations 74.1 77.4 Discontinued operations - 7.1 ____ _____ 74.1 84.5 Dividends from joint venture - 0.2 Returns on investments and servicing of finance Interest rate swap cancellation costs - (2.3) Private placement redemption costs - (9.8) Interest received 8.8 13.8 Interest paid (14.4) (20.4) Dividends paid to minority shareholders in subsidiaries - (0.4) ______ ______ (5.6) (19.1) Taxation (4.7) (7.0) Capital expenditure and financial investment Purchase of fixed assets (43.9) (32.6) Fixed assets disposals 12.0 7.1 ______ _______ (31.9) (25.5) Acquisitions and disposals Acquisition of businesses (0.2) (283.7) Disposal of businesses (0.5) 161.1 ______ _______ (0.7) (122.6) Equity dividends paid (21.6) (8.6) ______ _______ Cash inflow/(outflow) before use of liquid resources and financing 9.6 (98.1) Financing and management of liquid resources 7 (1.7) 103.3 ______ ______ Increase in cash 8 7.9 5.2 ====== ====== Reconciliation of operating profit to net cash inflow from operating activities for the year ended 31 December 1999 1999 1998 £mill- £mill- ion ion Operating profit 29.0 42.1 Goodwill amortisation 12.5 11.2 Depreciation (less grants credited) 15.3 16.6 Share of profits of joint venture - (2.1) Share of (profits)/losses of associated undertakings (0.1) 0.1 Loss on disposal of fixed assets 0.2 0.1 Exceptionals in operating profit 15.3 4.6 Cash outflow on exceptionals (12.2) (3.4) Fundamental restructuring costs - (2.7) Decrease in stocks 15.0 17.6 (Increase)/decrease in debtors (6.2) 14.7 Increase/(decrease) in creditors 10.6 (13.6) Decrease in provisions (5.3) (0.7) ______ ______ 74.1 84.5 ====== ====== Statement of total recognised gains and losses for the year ended 31 December 1999 1999 1998 £mill- £mill- ion ion Profit for the financial year 20.0 1.2 Currency translation differences 2.2 (0.5) Taxation on currency translation differences on foreign currency borrowings (1.0) (0.4) ______ ______ Total recognised gains for the year 21.2 0.3 ====== ====== Reconciliation of movements in shareholders' funds for the year ended 31 December 1999 1999 1998 £mill- £mill- ion ion Profit for the financial year 20.0 1.2 Dividends (8.6) (21.6) ______ _______ Amounts transferred to/(from) reserves 11.4 (20.4) Share option schemes allotments - 1.1 Return of capital to shareholders - (402.2) Goodwill on disposal of businesses acquired - prior to 1 January 1998 charged to profit and loss account 26.0 Currency translation differences 2.2 (0.5) Taxation on currency translation differences on foreign currency borrowings (1.0) (0.4) ______ _______ Net increase/(decrease) in shareholders' funds 12.6 (396.4) At 1 January 367.8 764.2 ______ _______ At 31 December 380.4 367.8 ====== ======= Notes to the financial statements 1. Preparation of preliminary announcement The financial information in this statement does not constitute statutory accounts within the meaning of Section 240 of the Companies Act 1985. The financial information for the year ended 31 December 1998 has been extracted from the financial statements for that year which have been delivered to the Registrar of Companies. The report of the auditors on those financial statements was unqualified and did not contain a statement under Section 237 of the Companies Act 1985. 2. Exchange rates The principal currency in which the Group conducts its business is the US dollar. In 1999, the average exchange rate was $1.62 compared with $1.66 in 1998. The US dollar exchange rate at 31 December 1999 was $1.61 compared with $1.66 at 31 December 1998. 3. Segmental information Group turnover Group operating Net assets profit 1999 1998 1999 1998 1999 1998 £mill- £mill- £mill- £mill- £mill- £mill- ion ion ion ion ion ion Analysis by activity Chromium Before exceptionals 118.2 129.7 20.3 27.1 118.0 109.5 Inter-group turnover (5.4) (5.3) - - - - Exceptionals - - (8.8) - - - ______ _____ ______ ______ ______ ______ 112.8 124.4 11.5 27.1 118.0 109.5 ______ _____ ______ ______ ______ ______ Pigments & Specialties Before goodwill amortisation and exceptionals 222.9 213.9 28.5 27.1 332.3 338.6 Goodwill amortisation - - (12.5) (11.2) - - Exceptionals - - (5.3) (3.2) - - ______ _____ ______ ______ ______ ______ 222.9 213.9 10.7 12.7 332.3 338.6 ______ _____ ______ ______ ______ ______ Chemical Distribution 144.5 139.2 5.5 2.6 5.0 3.4 ______ _____ ______ ______ ______ ______ Specialty Rubber Before exceptionals 54.9 56.7 2.4 4.7 21.9 22.9 Exceptionals - - (1.2) - - - ______ _____ ______ ______ ______ ______ 54.9 56.7 1.2 4.7 21.9 22.9 ______ _____ _____ ______ ______ ______ Total - continuing operations Before goodwill amortisation and exceptionals 535.1 534.2 56.7 61.5 477.2 474.4 Goodwill amortisation - - (12.5) (11.2) - - Exceptionals - - (15.3) (3.2) - - ______ _____ ______ ______ ______ ______ 535.1 534.2 28.9 47.1 477.2 474.4 ______ _____ ______ ______ ______ ______ Total - discontinued operations Before exceptionals - 440.2 - (5.6) - - Exceptionals - - - (1.4) - - ______ _____ ______ ______ ______ ______ - 440.2 - (7.0) - - ______ _____ ______ ______ ______ ______ Unallocated liabilities - - - - (94.5) (104.2) ______ _____ ______ ______ ______ ______ 535.1 974.4 28.9 40.1 382.7 370.2 ====== ===== ====== ====== ====== ====== Group Group operating Net assets turnover profit 1999 1998 1999 1998 1999 1998 £mill- £mill- £mill- £mill- £mill- £mill- ion ion ion ion ion ion Analysis by area of operations Continuing operations: North America 357.6 343.9 24.2 27.4 336.4 330.7 Europe 157.3 171.6 4.8 18.1 127.2 131.1 Rest of the World 20.2 18.7 (0.1) 1.6 13.6 12.6 _____ _____ _______ ______ _____ _____ 535.1 534.2 28.9 47.1 477.2 474.4 Discontinued operations: Europe - 440.2 - (7.0) - - Unallocated liabilities - - - - (94.5) (104.2) _____ _____ ______ ______ ______ ______ 535.1 974.4 28.9 40.1 382.7 370.2 ===== ===== ====== ====== ====== ====== Unallocated liabilities comprise: 1999 1998 £mill- £mill- ion ion Net borrowings (45.5) (48.0) Taxation and dividends (15.2) (21.7) Post retirement benefits and government grants (15.9) (16.9) Other (17.9) (17.6) _______ ________ (94.5) (104.2) ======= ======== Group turnover analysed by geographical markets Continuing Discontinued Total operations operations 1999 1998 1999 1998 1999 1998 £mill- £mill- £mill- £mill- £mill- £mill- ion ion ion ion ion ion North America 336.8 322.7 - 0.1 336.8 322.8 Europe 141.4 159.5 - 435.0 141.4 594.5 Rest of the World 56.9 52.0 - 5.1 56.9 57.1 ______ _____ _____ ______ ______ ______ 535.1 534.2 - 440.2 535.1 974.4 ====== ===== ===== ====== ====== ====== 4. Exceptionals Group operating profit includes the following: Settlement of Restructur- Impairment of Total US litigation ing costs assets 1999 1998 1999 1998 1999 1998 1999 1998 £mill- £mill- £mill- £mill- £mill- £mill- £mill- £mill- ion ion ion ion ion ion ion ion Continuing operations: Chromium 6.4 - 2.4 - - - 8.8 - Pigments & Specialties 0.2 - 2.4 3.2 2.7 - 5.3 3.2 Specialty Rubber - - 1.2 - - - 1.2 - _____ _____ ____ ____ _____ ____ ____ ____ 6.6 - 6.0 3.2 2.7 - 15.3 3.2 Discontinued operations - - - 1.4 - - - 1.4 _____ _____ ____ ____ _____ ____ ____ ____ 6.6 - 6.0 4.6 2.7 - 15.3 4.6 ===== ===== ==== ==== ===== ==== ==== ==== Tax on these charges was a credit of £0.8 million (1998: £0.4 million). 5. Tax on profit on ordinary activities The charge for United Kingdom tax has been based on a corporation tax rate of 30.25 per cent (1998: 31 per cent). If deferred tax had been fully provided in 1999 under the liability method, the tax charge for the year would have increased by £4.1 million (1998: decreased by £3.5 million). 1999 1998 £mill- £mill- ion ion Reconciliation of the tax charge: Notional tax charge before goodwill amortisation and exceptionals at UK corporation tax rate (1999: 30.25 per cent, 1998: 31 per cent) 15.5 15.4 Recoverable ACT (1.0) (1.6) Benefit of excess capital allowances in discontinued operations - (1.8) Differences in overseas effective tax rates 3.9 2.2 Benefit of US goodwill (5.7) (5.7) Overseas tax losses unrelieved 0.4 2.6 Other current tax items 0.2 (0.7) Deferred tax under provided on excess capital allowances and other timing differences (2.0) (1.0) Prior year adjustments - (2.2) ______ ______ 11.3 7.2 Tax (credit)/charge on exceptionals (0.8) 1.2 ______ ______ 10.5 8.4 ====== ====== 6. Earnings per ordinary share 1999 1998 Profit Weighted Profit Weighted for the average for the average financial number Earnings financial number Earnings year of per year of per £mill- shares share £mill- shares share ion million pence ion million pence Basic earnings per share 20.0 431.5 4.6 1.2 472.9 0.3 Share - 1.8 - - 1.6 - options ________ _______ _______ _______ _______ _______ Diluted earnings per share 20.0 433.3 4.6 1.2 474.5 0.3 ________ _______ _______ _______ _______ _______ Basic earnings per share 20.0 431.5 4.6 1.2 472.9 0.3 Goodwill amortisation 12.5 - 2.9 11.2 - 2.4 Exceptionals net of taxation 7.7 - 1.8 30.0 - 6.3 _______ _______ _______ _______ _______ _______ Basic earnings per share before goodwill amortisation and exceptionals 40.2 431.5 9.3 42.4 472.9 9.0 Share - 1.8 - - 1.6 - options ________ _______ _______ _______ _______ _______ Diluted earnings per share before goodwill amortisation and exceptionals 40.2 433.3 9.3 42.4 474.5 9.0 ======= ======= ======= ======= ======= ======= Earnings per share before goodwill amortisation and exceptionals provides a measure of the underlying financial performance of the Group on a comparable basis with many other groups. 7. Financing and management of liquid resources 1999 1998 £mill- £mill- ion ion Financing Issue of ordinary share capital - share options - 1.1 Funds provided by minority interests - 1.0 Return of capital to shareholders - (402.2) Loan notes issued - 19.5 Loan notes redeemed (1.3) (10.7) Decrease in borrowings repayable within one year (6.3) (108.4) (Decrease)/increase in borrowings repayable after one year (140.1) 245.5 ________ _________ (147.7) (254.2) ________ _________ Management of liquid resources New cash deposits (5.4) (5.6) Repayment of cash deposits 151.4 363.1 _______ ________ 146.0 357.5 ________ ________ Total financing and management of liquid resources (1.7) 103.3 ======== ======== 8. Reconciliation of net cash flow to movement in net (borrowings)/cash 1999 1998 £mill- £mill- ion ion Change in net (borrowings)/cash resulting from cash flows: Increase in cash in the period 7.9 5.2 Decrease/(increase) in borrowings 147.7 (145.9) Decrease in liquid resources (146.0) (357.5) _______ ________ 9.6 (498.2) Currency translation differences (7.1) (0.4) _______ ________ Decrease/(increase) in net borrowings 2.5 (498.6) Net (borrowings)/ cash at 1 January (48.0) 450.6 _______ ________ Net borrowings at 31 December (45.5) (48.0) ======= ======= 9. Contingent liabilities The Group has been notified of a potential warranty claim, under the contract for the sale of Pauls Malt, relating to export refunds from the Intervention Board for Agricultural Produce. Should such a claim materialise, this will be vigorously defended and, in any event, in the opinion of the directors, this will not have a significant effect on the financial position of the Group. 10. Annual General Meeting and Annual Report The Annual General Meeting of Elementis plc will be held on Friday 28 April 2000 at 10.00 am at the City Conference Centre, 80 Coleman Street, London EC2R 5BJ. The Annual Report of Elementis plc for 1999 will be posted on or about 20 March 2000. Copies will be available from the Company's registered office.

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