Interim Results

ELEMENTIS PLC 5 August 1999 ELEMENTIS plc INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 1999 * Sales on continuing operations £266.9 million (1998: £278.6 million) * Operating profit on continuing operations £27.5 million* (1998: £36.4 million*) * Profit before tax £24.5 million* (1998: £36.0 million*) * Earnings per share 4.5 pence* (1998: 5.8 pence*) * Interim dividend 2.0 pence per share (1998: 2.0 pence) * 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 the first half of 1999. We have continued to take action to strengthen global management, improve operational efficiencies and provide greater focus on customers. Costs are being cut by more than £10 million on an annualised basis by June 2000; headcount will be reduced by around 300 by the end of 1999 and improved use of working capital is expected to result in a cash inflow of at least £15 million in the second half. 'Despite the short-term trading pressures, we are increasingly confident that the actions currently underway will lead to a sustained long-term improvement in business performance across the Group.' Enquiries Elementis Lyndon Cole Group Chief Executive 0207 398 1400 George Fairweather Group Finance Director Anna Passey Head of Corporate Communications Brunswick Andrew Fenwick 0207 404 5959 Overview The difficult trading conditions experienced towards the end of 1998 continued throughout the first half of 1999. Chromium was impacted by increased competition from producers in the Former Soviet Union and low demand for chromic oxide; Specialties was affected by lower sales of rheological additives to the oil exploration drilling sector. Rigorous action has been taken to strengthen global management, improve operational efficiencies and provide greater focus on customers. Plans are being executed to reduce costs in Chromium and Pigments & Specialties by more than £10 million on an annualised basis by June 2000 when compared to the start of 1999; headcount will be reduced by around 300 by the end of the year. Building upon the success achieved over the last two years, programmes to improve trade working capital utilisation continue to deliver results; this should result in a cash inflow of at least £15 million in the second half. Results Operating profit on continuing operations, before goodwill amortisation and exceptionals, was £27.5 million, compared with £36.4 million in the first half of 1998 and £25.1 million in the second half. Profit before goodwill amortisation, exceptionals and tax was £24.5 million, compared to £36.0 million in the first half of 1998. Basic earnings per share, before goodwill and exceptionals, was 4.5 pence, compared with 5.8 pence in the first half of 1998 and 3.2 pence in the second half. Net exceptional charges before tax were £6.8 million; net borrowings at the end of June were £60.4 million. The Board has declared an unchanged interim dividend of 2.0 pence per share which will be paid on 9 November 1999 to shareholders on the register on 15 October 1999. Business re-engineering The 1998 Annual Report stated that improved business performance is being driven by four key processes: operational excellence, customer focus, innovation and human resources. Considerable progress has been made in each of these areas since global business leaders were appointed to run Chromium, Pigments, Specialties, and Specialty Rubber. Operational excellence: In addition to the cost reduction and working capital programme, focus continues on improving safety performance. Lost time accidents reduced by 40 per cent in the first half compared with the first half of 1998; in May, the Elementis Chromium site at Corpus Christi, Texas, completed five years without a single lost time accident. Customer focus: Sales and marketing functions have been significantly strengthened; combined Elementis sales forces have been established in certain regions, including, for the first time, a direct sales presence in Japan and Northern Asia. Over 200 personnel are currently undertaking a new, tailor- made sales training programme. Innovation: New products launched during the period included Nanox, a patented specialty grade zinc derivative. Human resources: A number of senior appointments have been made and new incentive schemes introduced for senior management to more closely align their remuneration with the future success of the Group. The Board The Board was further strengthened in July by the appointment of two new non- executive directors, Jim Ratcliffe and Eddie Wilson, both of whom have extensive chemicals industry experience. Current trading and outlook Trading conditions continue to be difficult, particularly at Chromium. However, sales of chromic acid are expected to grow, building upon the success of the new branded product 'CA21'. Sales of rheological additives to the oil exploration drilling sector are expected to recover towards the end of the year. As the second half of the year progresses, the performance of Pigments & Specialties should start to benefit from the significant restructuring measures and the enhanced sales organisation. Despite the short-term trading pressures, we are increasingly confident that the actions currently underway will lead to a sustained long-term improvement in business performance across the Group. Review of Operations Continuing operations - six months to 30 June 1999 1998 Operating Operating Sales profit* Sales profit* £ million £ million £ million £ million Chromium 58.9 9.5 69.9 17.0 Pigments & Specialties 111.8 14.1 111.7 16.5 Chemical Distribution 73.1 2.7 72.1 1.2 Specialty Rubber 25.7 1.2 27.2 1.7 Inter-group (2.6) - (2.3) - --------- --------- --------- --------- 266.9 27.5 278.6 36.4 ========= ========= ========= ========= * before goodwill amortisation and exceptionals Chromium Operating profit before exceptionals for Elementis Chromium was £9.5 million, compared to £17.0 million in the first half of 1998; sales decreased by 16 per cent to £58.9 million. Chromic oxide sales volumes were substantially lower than in the first half of 1998, mainly due to a continuation of the low demand from the aerospace/metal alloy industries that impacted the 1998 second half results. Demand for tanned leather grew in North America but weak demand elsewhere depressed dichromate and chrome sulphate volumes. Low demand in the domestic markets of chrome producers in the Former Soviet Union has driven them to compete more aggressively in their export markets; currency devaluation has significantly improved their cost competitiveness. Chromium profitability was also impacted by substantially lower selling prices of the sodium sulphate by-product. Chromic acid volume grew by nearly 10 per cent compared with the first half of last year, building on the successful launch of the branded chromic acid product 'CA21' in December 1998. The product gives significant customer benefits as it is easy to handle, flows well and is dust-free. Construction of the new $30 million kiln at Corpus Christi, Texas, is on schedule; the plant will be mechanically complete by the end of this year, in preparation for start-up early next year. Expansion of the pure salt plant at Eaglescliffe in the UK is also on track for start-up early next year. The new kiln will reduce operating costs by over £2 million on an annualised basis by June 2000 when compared to the start of 1999. On a similar basis, cost savings from managing Chromium on a global basis and focus on operational excellence will reduce costs by at least £3 million. Together these will substantially strengthen the business' cost competitive position. Exceptional restructuring costs to achieve these savings are estimated at £3 million of which £0.8 million was charged in the period. Since the half year, the Chromium management team has been strengthened by the appointment of a new Managing Director and Commercial Director. Pigments & Specialties Operating profit for Pigments & Specialties, before goodwill and exceptionals, was £14.1 million, compared to £16.5 million in the first half of 1998 which included only five months results from Rheox. Sales were level at £111.8 million. At Elementis Pigments, operating profit was lower in the first half, profitability being impacted by higher overhead absorption rates arising from the restructuring process. Sales of the new range of high performance red and yellow coatings grade pigments and construction grade Ferrispec granular product from the new plant at Easton, Pennsylvania, both launched late last year, are growing rapidly as new and existing customers approve the products. The major restructuring and upgrading plans announced in 1997 are on schedule for completion later this year. The Deanshanger site, near Milton Keynes in the UK, closed in June with its finishing plant relocated to the Elementis Specialties facility at Birtley near Durham. The upgrading of the two major US facilities is progressing well. At Elementis Specialties (including Rheox), operating profit before goodwill and exceptionals, was also lower. Sales of rheological additives to the oil exploration drilling sector declined by over 40 per cent compared to the first half of 1998. Sales of rheological additives for water based coatings grew by 7 per cent as the acceptance rate at major customers develops. Since the half year end, plans have been approved to invest £2 million in the Livingston production facility in Scotland 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 will close around the end of the year. A number of new products were launched during the period, the most significant being Nanox, a patented specialty grade zinc derivative with full range ultraviolet absorbency and transparency properties. During the period, a combined Pigments & Specialties selling organisation was established. The former Rheox sales force in North America now sells colourants and additives, giving customers access to the full Elementis range. In Europe, the Specialties sales force will also represent Pigments in the coatings market. In May, a joint venture was established in Japan to give Elementis a direct and technical sales presence in the world's second largest specialty chemicals market. Certain Elementis Specialties support functions have also recently been integrated. Completion of the Elementis Pigments restructuring plans, the Elementis Specialties integration project and focus on operational excellence will reduce costs by at least £5 million on an annualised basis by June 2000 when compared to the start of 1999. Future exceptional restructuring costs to achieve these savings are estimated at £3.5 million, including £2.5 million of Pigments costs previously announced; these are in addition to a £0.3 million fixed asset impairment charge incurred in the first half for the closure of rheological additives production in Germany. Chemical Distribution Operating profit increased to £2.7 million, from £1.2 million in the first half of 1998, as a result of continued volume growth and margin improvement across the majority of the product range and the ongoing focus on cost control. Sales at £73.1 million were 5 per cent lower in US dollar terms reflecting lower pricing. Specialty Rubber Operating profit before exceptionals at Linatex was £1.2 million, compared to £1.7 million in the first half of 1998. Sales reduced by 6 per cent to £25.7 million. Trading was impacted by difficult minerals processing markets and customer rescheduling of engineering projects, some of which is expected to be recovered in the second half. Following completion of the first stage of the strategic review announced late last year, Linatex reorganised its regional-based operations into three global business units: Industrial Rubber Applications, Minerals Processing and Engineering Process Technologies plus a separate European distribution business. This resulted in £0.5 million of initial exceptional restructuring costs. Business plans for each global unit are being developed. These will focus on sales growth opportunities and on achieving a step reduction in operating costs. Further details will be announced in the Autumn. Exceptionals Net exceptional charges before tax were £6.8 million. These comprised: * £6.6 million for the settlement of a US lawsuit relating to the death of an employee in 1989 as announced in May; * £1.3 million of restructuring costs; * £0.3 million fixed asset impairment charge; * £1.4 million profit on the disposal of a former Harcros builders' merchants branch. Contracts have been exchanged to sell the remaining former Harcros branch at Kingston, UK for £5.3 million; this should result in a second half exceptional profit of £5.0 million on completion which is scheduled for November. Cash flow and balance sheet Net cash inflow from continuing operating activities was £32.7 million compared to £23.0 million in the first half of 1998. Cash expenditure on fixed assets totalled £21.9 million, of which just over half was at Elementis Chromium. Working capital outflow was £1.1 million compared to £17.1 million for continuing operations in the first half of 1998. Building upon the success achieved over the last few years, programmes to improve working capital utilisation continue to deliver results; this should result in a net working capital cash inflow of at least £15 million in the second half. Net borrowings at the end of June were £60.4 million compared to £48.0 million at the end of December 1998. Shareholders' funds at the half year were £369.7 million compared to £367.8 million at December 1998. Year 2000 The Group's year 2000 computer technology compliance programme is now largely complete. Work on the remaining outstanding items is scheduled for completion over the coming weeks. The estimate of the total cost of resolving year 2000 issues is unchanged at £1 million. Consolidated Profit & Loss Account for the six months ended 30 June 1999 Before goodwill 1999 1998 amortisat Six Six 1998 ion Goodwill months months Year & except- amortis- Except- to 30 to 30 to 31 ionals ation ionals June June Dec Note £million £million £million £million £million £million Turnover Continuing operations 266.9 - - 266.9 278.6 534.2 Discontinued operations - - - - 306.2 508.4 --------- --------- --------- --------- --------- --------- Turnover: Group and share of joint venture 266.9 - 266.9 584.8 1,042.6 Less share of discontinued joint venture's turnover - - - - (45.7) (68.2) --------- --------- --------- --------- --------- --------- Group turnover 3 266.9 - - 266.9 539.1 974.4 ========= ========= ========= ========= ========= ========= Group operating profit Continuing operations ------------------------------------------------------------------------------ --------------------------------------------------------------------------- Before goodwill amortisation and exceptionals 27.5 - - 27.5 36.4 61.5 Goodwill amortisation - (6.3) - (6.3) (5.0) (11.2) Exceptionals - - (8.2) (8.2) - (3.2) ------------------------------------------------------------------------------ --------------------------------------------------------------------------- 27.5 (6.3) (8.2) 13.0 31.4 47.1 Discontinued operations - - - - (0.7) (7.0) --------- --------- --------- --------- --------- --------- 3/4 27.5 (6.3) (8.2) 13.0 30.7 40.1 Share of operating profit: Joint venture - discontinued operations - - - - 1.5 2.1 Associates - discontinued operations - - - - (0.1) (0.1) --------- --------- --------- --------- --------- --------- Operating profit 27.5 (6.3) (8.2) 13.0 32.1 42.1 Profit on disposal of property 4 - - 1.4 1.4 - 5.0 Loss on disposal of businesses - discont- inued operations - - - - (11.5) (26.9) --------- --------- --------- --------- --------- --------- Profit on ordinary activities before interest 27.5 (6.3) (6.8) 14.4 20.6 20.2 Interest rate swap cancellation costs - - - - - (2.3) Net interest payable (3.0) - - (3.0) (2.5) (8.3) --------- --------- --------- --------- --------- --------- Profit on ordinary activities before tax ------------------------------------------------------------------------------ --------------------------------------------------------------------------- Before goodwill amortisation and exceptionals 24.5 - - 24.5 36.0 49.6 Goodwill amortisation - (6.3) - (6.3) (5.0) (11.2) Exceptionals - - (6.8) (6.8) (12.9) (28.8) ------------------------------------------------------------------------------ --------------------------------------------------------------------------- 24.5 (6.3) (6.8) 11.4 18.1 9.6 Tax on profit on ordinary activities 5 (5.4) - 0.3 (5.1) (5.8) (8.4) --------- --------- --------- --------- --------- --------- Profit on ordinary activities after tax 19.1 (6.3) (6.5) 6.3 12.3 1.2 Minority interests - equity 0.1 - - 0.1 - - --------- --------- --------- --------- --------- --------- Profit for the financial period 19.2 (6.3) (6.5) 6.4 12.3 1.2 Dividends 6 (8.6) - - (8.6) (8.6) (21.6) --------- --------- --------- --------- --------- --------- Amount transferred (from)/to reserves 10.6 (6.3) (6.5) (2.2) 3.7 (20.4) ========= ========= ========= ========= ========= ========= Earnings per ordinary share 7 Basic and diluted 1.5p 2.4p 0.3p Basic and diluted before goodwill amortisation and exceptionals 4.5p 5.8p 9.0p Consolidated Balance Sheet at 30 June 1999 1999 1998 1998 30 June 30 June 31 Dec £million £million £million Fixed assets Goodwill 236.0 236.7 231.9 Tangible assets 172.0 165.0 155.5 Investment in joint venture - 38.7 - Investment in associated undertakings 1.8 1.6 1.6 -------- -------- -------- 409.8 442.0 389.0 -------- -------- -------- Current assets Stocks 76.6 117.1 85.5 Debtors 122.6 225.8 108.8 Cash at bank and in hand 212.5 84.1 224.7 -------- -------- -------- 411.7 427.0 419.0 -------- -------- -------- Creditors: amounts falling due within one year Borrowings 14.3 41.3 24.6 Proposed dividend 8.7 8.6 13.0 Creditors 114.1 126.1 98.7 -------- -------- -------- 137.1 176.0 136.3 -------- -------- -------- Net current assets 274.6 251.0 282.7 -------- -------- -------- Total assets less current liabilities 684.4 693.0 671.7 -------- -------- -------- Creditors: amounts falling due after more than one year Borrowings 258.6 263.1 248.1 Government grants 0.8 0.8 0.8 -------- -------- -------- 259.4 263.9 248.9 Provisions for liabilities and charges 52.9 50.7 52.6 -------- -------- -------- 312.3 314.6 301.5 -------- -------- -------- 372.1 378.4 370.2 ======== ======== ======== Capital and reserves Called up share capital 21.6 21.6 21.6 Share premium 1.1 0.9 1.1 Profit and loss account 347.0 353.3 345.1 -------- -------- -------- Shareholders' funds - equity 369.7 375.8 367.8 Minority interests - equity 2.4 2.6 2.4 -------- -------- -------- 372.1 378.4 370.2 ======== ======== ======== Net borrowings (60.4) (220.3) (48.0) Cash Flow Statement for the six months ended 30 June 1999 1999 1998 Six Six 1998 months months Year to 30 to 30 to 31 June June Dec Note £million £million £million Net cash inflow from operating activities Continuing operations 32.7 23.0 77.4 Discontinued operations - 9.3 7.1 -------- -------- -------- 32.7 32.3 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) (9.8) Net interest (paid)/received (1.8) 0.8 (6.6) Dividends paid to minority shareholders in subsidiaries - (0.1) (0.4) Tax received/(paid) 0.8 (2.0) (7.0) Capital expenditure and financial investment Purchase of fixed assets (21.9) (17.5) (32.6) Fixed assets disposals 2.3 0.7 7.1 Acquisitions and disposals Acquisition of businesses (0.2) (282.9) (283.7) Disposal of businesses (0.2) 4.5 161.1 Equity dividends paid (12.9) - (8.6) -------- -------- -------- Cash outflow before use of liquid resources and financing (1.2) (274.0) (98.1) Financing and management of liquid resources 8 1.3 274.8 103.3 -------- -------- -------- Increase in cash 9 0.1 0.8 5.2 ======== ======== ======== Reconciliation of Operating Profit to Net Cash Inflow from Operating Activities for the six months ended 30 June 1999 1999 1998 Six Six 1998 months months Year to 30 to 30 to 31 June June Dec £million £million £million Operating profit 13.0 32.1 42.1 Goodwill amortisation 6.3 5.0 11.2 Depreciation (less grants credited) 8.2 8.5 16.6 Share of profits of joint venture - (1.5) (2.1) Share of losses of associated undertakings - 0.1 0.1 (Profit)/loss on disposal of fixed assets - (0.1) 0.1 Exceptionals in operating profit 8.2 1.4 4.6 Cash outflow on exceptionals (0.7) (1.7) (3.4) Fundamental restructuring costs - (2.3) (2.7) Decrease in stocks 11.1 9.8 17.6 (Increase)/decrease in debtors (11.2) (1.6) 14.7 Decrease in creditors (1.0) (17.0) (13.6) Provisions (1.2) (0.4) (0.7) -------- -------- -------- Net cash inflow from operating activities 32.7 32.3 84.5 ======== ======== ======== Statement of Total Recognised Gains and Losses for the six months ended 30 June 1999 1999 1998 Six Six 1998 months months Year to 30 to 30 to 31 June June Dec £million £million £million Profit for the financial period 6.4 12.3 1.2 Currency translation differences 4.8 (2.4) (0.5) Taxation on currency translation differences on foreign currency borrowings (0.7) - (0.4) -------- -------- -------- Total recognised gains for the financial period 10.5 9.9 0.3 ======== ======== ======== Reconciliation of Movements in Shareholders' Funds for the six months ended 30 June 1999 1999 1998 Six Six 1998 months months Year to 30 to 30 to 31 June June Dec £million £million £million Profit for the financial period 6.4 12.3 1.2 Dividends (8.6) (8.6) (21.6) Share option schemes allotments - 1.0 1.1 Return of capital to shareholders - (402.2) (402.2) Goodwill on disposal of businesses acquired prior to 1 January 1998 charged to profit and loss account - 11.5 26.0 Currency translation differences 4.8 (2.4) (0.5) Taxation on currency translation differences on foreign currency borrowings (0.7) - (0.4) -------- -------- -------- Net increase/(decrease) in shareholders' funds 1.9 (388.4) (396.4) At beginning of the financial period 367.8 764.2 764.2 -------- -------- -------- At end of the financial period 369.7 375.8 367.8 ======== ======== ======== Notes 1. Accounting policies Basis of preparation The financial information for the first six months of 1999 and 1998, which is unaudited but has been reviewed by the Company's auditors, does not constitute statutory accounts within the meaning of section 240 of the Companies Act 1985 and it is presented on the basis of accounting policies set out in the financial statements of Elementis plc for the year ended 31 December 1998. Comparatives for the six months to 30 June 1998 have been restated in accordance with FRS12. 2. Exchange rates The principal currency in which the Group conducts its business is the US dollar. For the six months to 30 June 1999, the average exchange rate was $1.61 (1998: $1.65, Year to 31 December 1998: $1.66). The US dollar rate at 30 June 1999 was $1.58 (1998: $1.67, 31 December 1998: $1.66). 3. Segmental information Group turnover Group operating profit 1999 1998 1999 1998 Six Six 1998 Six Six 1998 months months Year months months Year to 30 to 30 to 31 to 30 to 30 to 31 June June Dec June June Dec £million £million £million £million £million £million Analysis by activity Chromium Before exceptionals 58.9 69.9 129.7 9.5 17.0 27.1 Exceptionals - - - (7.4) - - Inter-group turnover (2.6) (2.3) (5.3) - - - -------- -------- -------- -------- -------- -------- 56.3 67.6 124.4 2.1 17.0 27.1 -------- -------- -------- -------- -------- -------- Pigments & Specialties Before exceptionals 111.8 111.7 213.9 14.1 16.5 27.1 Exceptionals - - - (0.3) - (3.2) -------- -------- -------- -------- -------- -------- 111.8 111.7 213.9 13.8 16.5 23.9 Goodwill amortisation - - - (6.3) (5.0) (11.2) -------- -------- -------- -------- -------- -------- 111.8 111.7 213.9 7.5 11.5 12.7 -------- -------- -------- -------- -------- -------- Chemical Distribution 73.1 72.1 139.2 2.7 1.2 2.6 -------- -------- -------- -------- -------- -------- Specialty Rubber Before exceptionals 25.7 27.2 56.7 1.2 1.7 4.7 Exceptionals - - - (0.5) - - -------- -------- -------- -------- -------- -------- 25.7 27.2 56.7 0.7 1.7 4.7 -------- -------- -------- -------- -------- -------- Total - continuing operations Before exceptionals 266.9 278.6 534.2 27.5 36.4 61.5 Exceptionals - - - (8.2) - (3.2) -------- -------- -------- -------- -------- -------- 266.9 278.6 534.2 19.3 36.4 58.3 Goodwill amortisation - - - (6.3) (5.0) (11.2) -------- -------- -------- -------- -------- -------- 266.9 278.6 534.2 13.0 31.4 47.1 -------- -------- -------- -------- -------- -------- Total - discontinued operations Before exceptionals - 260.5 440.2 - 0.7 (5.6) Exceptionals - - - - (1.4) (1.4) -------- -------- -------- -------- -------- -------- - 260.5 440.2 - (0.7) (7.0) -------- -------- -------- -------- -------- -------- 266.9 539.1 974.4 13.0 30.7 40.1 ======== ======== ======== ======== ======== ======== Analysis by area of operations North America 180.6 176.6 343.9 9.9 15.8 27.4 Europe 77.5 92.2 171.6 2.7 15.3 18.1 Rest of the World 8.8 9.8 18.7 0.4 0.3 1.6 -------- -------- -------- -------- -------- -------- Continuing operations 266.9 278.6 534.2 13.0 31.4 47.1 Discontinued operations - 260.5 440.2 - (0.7) (7.0) -------- -------- -------- -------- -------- -------- 266.9 539.1 974.4 13.0 30.7 40.1 ======== ======== ======== ======== ======== ======== 4. Exceptionals 1999 Six months to 30 June £million Operating exceptional costs Chromium Settlement of US lawsuit 6.6 Restructuring costs 0.8 Pigments & Specialties Impairment of fixed assets 0.3 Specialty Rubber Restructuring costs 0.5 ------ 8.2 ====== Profit on disposal of property 1.4 ====== Tax on exceptionals was a credit of £0.3 million. 5. Tax The tax charge of £5.4 million is based on an estimated effective tax rate on profit before goodwill amortisation and exceptionals for the Year to 31 December 1999 of 22 per cent. The rate is lower than the standard UK corporation tax rate for a number of reasons including tax relief on purchased US goodwill and deferred tax timing differences. 6. Dividends An interim dividend of 2.0 pence per share (1998: 2.0 pence) will be paid on 9 November 1999 to shareholders on the register at the close of business on 15 October 1999. 7. Earnings per share 1999 1998 1998 Six months Six months Year to 30 June to 30 June to 31 Dec pence pence pence per share per share per share Basic earnings per ordinary share 1.5 2.4 0.3 Goodwill amortisation 1.5 1.0 2.4 Exceptionals net of taxation 1.5 2.4 6.3 ---------- ---------- ---------- Basic earnings per ordinary share before goodwill amortisation and exceptionals 4.5 5.8 9.0 ========== ========== ========== Basic earnings per share are based on profit for the period of £6.4 million (1998: £12.3 million, Year to 31 December 1998: £1.2 million) and on the weighted average number of ordinary shares in issue during the period of 431.5 million (1998: 515.1 million, Year to 31 December 1998: 472.9 million). Basic earnings per ordinary share before goodwill amortisation and exceptionals are based on earnings of £19.2 million (1998: £30.1 million, Year to 31 December 1998: £42.4 million). Diluted earnings per share are based on an adjusted weighted average number of shares of 431.5 million, (1998: 515.6 million, Year to 31 December 1998: 474.5 million). 8. Financing and management of liquid resources 1999 1998 1998 Six months Six months Year to 30 June to 30 June to 31 Dec £million £million £million Issue of ordinary share capital - 1.0 1.1 Funds provided by minority interests - 0.9 1.0 Return of capital to shareholders - (402.2) (402.2) Increase in net borrowings 1.3 675.1 503.4 ---------- ---------- ---------- 1.3 274.8 103.3 ========== ========== ========== 8. Reconciliation of net cash flow to movement in net borrowings 1999 1998 1998 Six months Six months Year to 30 June to 30 June to 31 Dec £million £million £million Change in net borrowings resulting from cash flows: Increase in cash in the period 0.1 0.8 5.2 Decrease/(increase) in debt and leasing finance 6.2 (170.7) (145.9) Decrease in liquid resources (7.5) (504.4) (357.5) ---------- ---------- ---------- (1.2) (674.3) (498.2) Currency translation differences (11.2) 3.4 (0.4) ---------- ---------- ---------- Movement in net borrowings (12.4) (670.9) (498.6) Net (borrowings)/cash at beginning of the financial period (48.0) 450.6 450.6 ---------- ---------- ---------- Net borrowings at end of the financial period (60.4) (220.3) (48.0) ========== ========== ========== 10. 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. Auditors' independent review report to Elementis plc Introduction We have been instructed by the Company to review the attached financial information and we have read the other information contained in the interim report for any apparent misstatements or material inconsistencies with the financial information. Directors' responsibilities The interim report, including the financial information contained therein, is the responsibility of, and has been approved by the directors. The Listing Rules of the London Stock Exchange require that the accounting policies and presentation applied to the interim figures should be consistent with those applied in preparing the preceding annual financial statements except where any changes, and the reasons for them, are disclosed. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4 issued by the Auditing Practices Board. A review consists principally of making enquiries of Group management and applying analytical procedures to the financial information and underlying financial data, and based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit performed in accordance with Auditing Standards and, therefore, provides a lower level of assurance than an audit. Accordingly, we do not express an audit opinion on the financial information. Review conclusion On the basis of our review, we are not aware of any material modifications that should be made to the financial information as presented for the six months ended 30 June 1999. PricewaterhouseCoopers Chartered Accountants London 5 August 1999

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