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Elementis PLC (ELM)

  Print      Mail a friend       Annual reports

Thursday 28 February, 2002

Elementis PLC

Final Results

Elementis PLC
28 February 2002

PRESS INFORMATION

28 February 2002



                         ELEMENTIS plc

     PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2001

* Sales on continuing operations £392.9 million (2000: £413.8 million)

* Operating profit on continuing operations £15.8 million+ (2000: £57.5
  million+)

* Profit before tax £14.0 million+ (2000: £58.4 million+)

* Earnings per share 4.0 pence+ (2000: 11.6 pence+)

* Net year end borrowings £40.0 million (2000: £41.7 million)

* Net year end gearing 9.1 per cent++ (2000: 9.2 per cent++)

+ before goodwill amortisation and exceptionals

++ ratio of net borrowings to shareholders' funds plus net borrowings


Geoff Gaywood, Chief Executive of Elementis plc, said:

'2001 was a particularly difficult year. Our business was very severely
impacted by the global economic downturn. Although market conditions continue
to be tough, there are some indications that customer destocking down the
chain, experienced in the last quarter of 2001, has come to an end.

'In the first half of 2002 Elementis will benefit from lower energy costs and
the rigorous measures taken to reduce inventory levels. All areas of cost and
capital expenditure continue to be tightly controlled.

'Benefits from ongoing business improvement projects, including Six Sigma,
which is targeted at further reducing costs, should increase as the year
progresses. Strategic programmes addressing opportunities for step change
financial performance improvement have been initiated in each of the
businesses.'

                               - Ends -

  An interview with Geoff Gaywood in video/audio format can be viewed on
        www.elementis.com  and www.cantos.com  from 0700 hours GMT.

Enquiries

Elementis                                                     01784 224212
Geoff Gaywood              Chief Executive
George Fairweather         Group Finance Director
Anna Passey                Head of Corporate Communications

Brunswick                                                     020 7404 5959
Andrew Fenwick
Rupert Young

Overview

2001 was a particularly difficult year. Our business was very severely
impacted by the global economic downturn. Conditions were worst in the US
where the majority of our business is situated. As a result, profits before
goodwill amortisation and exceptionals were halved in the first half of 2001
and then, as markets deteriorated further, virtually eliminated in the second
half.

In response to these pressures, a number of measures were adopted. First,
great attention was paid to cash conservation and a programme implemented
which ensured that, in spite of the profits decline, cashflow remained
positive for the year as a whole. Secondly, the overriding focus of
management was concentrated on the short-term trading position. Thirdly, a
new Chief Executive was appointed who has moved swiftly to strengthen the
management team, streamline the managerial process and address strategic
issues.

Financial results

Operating profit before goodwill amortisation and exceptionals on continuing
operations was £15.8 million, compared to £57.5 million in 2000. Operating
profit on the same basis for the second half of 2001 was £0.2 million,
compared to £28.3 million in the second half of 2000.

A major factor was lower sales. Sales on continuing operations decreased in
sterling terms by 5 per cent on 2000 and by 8 per cent on a constant currency
basis. Sales on continuing operations in the second half of the year were 11
per cent lower than in the second half of 2000.

In addition, higher energy costs adversely impacted operating profit by £9.3
million versus 2000 on a comparable basis, of which £7.2 million was in the
first half. Other adverse factors included some pressure on prices, lower
pension credits on historic surpluses and manufacturing inefficiencies caused
by the actions taken to reduce inventory levels. Unusually high maintenance
expenditure at Elementis Chromium and losses on Linatex process technology
equipment contracts also contributed.

Profit before goodwill amortisation, exceptionals and tax was £14.0 million,
compared to £58.4 million in 2000. Basic earnings per share before goodwill
amortisation and exceptionals was 4.0 pence, compared to 11.6 pence in 2000.

Net exceptional charges before tax were £3.7 million (2000: £3.0 million),
including £4.6 million of costs incurred in preparing the Company for sale
and a £1.4 million profit on the disposal of Harcros Chemicals.

Cash conservation

The cash position was strengthened in a number of ways. The US chemical
distribution business, classified as non core to the Group's future, was sold
for £21.4 million. Working capital levels received particular attention with
the result that there was a £9.8 million inflow during the year from this
area, £6.6 million resulting from inventory reductions. As a result net
borrowings at year end were £40.0 million, a £1.7 million reduction. Net year
end gearing was 9.1 per cent (2000: 9.2 per cent).

Short-term focus

Managers throughout the Group were closely focused on short-term trading. In
addition to increased efforts to maximise revenue from all sources,
additional cost controls have been put in place throughout the Group.
Headcount on continuing operations was cut by 152, or 6 per cent, taking the
total reduction over two years to 17 per cent.

New Chief Executive

A new Chief Executive, Geoff Gaywood, was appointed in October 2001. Geoff
joined from Ernst & Young LLP where he was a Director of Chemicals.
Previously he ran the European division of International Specialty Products,
Inc and before that was with the Dow Chemical Company for 24 years. Geoff's
wide experience of the chemical industry internationally and leadership
skills will benefit Elementis substantially over the coming years.

Since the year end, the Board has announced that Brian Taylorson, currently
Director of Corporate Finance, is to join the Board at the beginning of April
as Finance Director. He will replace George Fairweather who is leaving to
take up a similar position at Alliance UniChem Plc. The Board would like to
thank George for his significant contribution to Elementis over the last five
years.

New heads of functions have also been appointed in human resources and
information technology.

Dividends and issue of redeemable B shares

The Board did not declare an interim dividend and, similarly, is not
proposing a final dividend. Instead, it will continue with the programme,
started in 2000, of issuing and redeeming redeemable B shares. The total
nominal value of redeemable B shares issued to shareholders during 2001 was
5.4 pence per ordinary share (2000: 5.2 pence). The Board intends to issue
further redeemable B shares to ordinary shareholders on the register on 26
April 2002, such that they receive redeemable B shares with a total nominal
value of 1.0 pence for each ordinary share held. This compares with 3.3 pence
for the comparable issue last year. This will be coupled with an offer to
redeem these new shares for cash at their nominal value on 2 May 2002. A
further offer will also be made to existing holders of redeemable B shares to
redeem these shares for cash at their nominal value on 2 May 2002.

By not paying dividends on ordinary shares during 2001, Elementis will
recover £5.8 million of advance corporation tax previously paid. Elementis
estimates that it will be able to recover a further £1.1 million of advance
corporation tax by not paying a final dividend for 2001.

A circular providing full details of the issue and redemption of redeemable B
shares will be posted to all ordinary shareholders on 19 March 2002.

Strategy

In addition to the short-term focus referred to above, steps are being taken to
enable the Group to grow. The strategy is to grow in high margin businesses,
particularly Elementis Specialties, with a continuing Group-wide focus on
operational excellence and leveraging the market and brand leadership
positions of the other businesses.

Programmes addressing opportunities for step change financial performance
improvements have been initiated in each of the businesses. Elementis
Chromium has a competitive and well invested manufacturing base in the UK and
US and has scope to strengthen its market position. At Elementis Specialties,
additional management resource is now in place to develop and deliver a high
growth strategy based on accelerated organic growth and including the inward
licensing of technology, market alliances and acquisitions. Elementis
Pigments has a strong market position, but reduced volumes, driven by the
North American downturn, have challenged the business's ability to coverfixed
costs. This is being addressed on several fronts including a strategic review
of the Birtley, UK facility. To enhance profitability in Linatex, further step
change improvements in manufacturing structure are being evaluated.

A programme is under way to evaluate the potential of a Group-wide Enterprise
Resource Planning (ERP) system. The decision whether to proceed will depend
on the strength of the business case demonstrated and is also dependent on
trading conditions and future outlook.

A review of incentives for senior management is also under way.

Chromated copper arsenate

On 12 February 2002, the US Environmental Protection Agency (EPA) announced
restrictions, from 2004, on the use of chromated copper arsenate (CCA) as a
wood preservative in the US, affecting CCA treated timber for consumer use.
Elementis Chromium supplies chromic acid which is used in the manufacture of
CCA and acts primarily as a binding agent. As previously indicated, Elementis
estimates that as a result of the EPA's decision, the global and US demand
for chromium chemicals would reduce by around 5 and 30 per cent respectively.

Elementis Chromium's sales for industrial applications of CCA, such as
utility poles, rail sleepers and marine pilings are relatively strong and are
not affected by the EPA ruling. Nevertheless, Elementis Chromium's global
sales of chromium chemicals could be adversely affected by around 15 per cent
by 2004. Elementis does not now expect its sales in 2002 to be materially
affected by the EPA ruling.

Current trading and outlook

Although market conditions continue to be tough, there are some indications
that the customer destocking down the chain experienced in the last quarter
of 2001 has come to an end.

In the first half of 2002 Elementis will benefit from lower energy costs and
the rigorous measures taken to reduce inventory levels. All areas of cost and
capital expenditure continue to be tightly controlled.

Benefits from ongoing business improvement projects, including Six Sigma,
which is targeted at further reducing costs, should increase as the year
progresses.

Review of operations

For the year ended 31 December 2001

                                          2001                      2000
                               2001  Operating          2000   Operating
                              Sales    profit*         Sales     profit*
                           £million   £million      £million    £million

  Continuing operations
  Chromium                    126.9        4.0         131.7        23.7
  Pigments & Specialties      228.0       12.2         234.9        31.1
  Specialty Rubber             46.0       (0.5)         54.1         2.6
  Associates                      -        0.1             -         0.1
  Inter-group                  (8.0)         -          (6.9)          -
                           _________  _________     _________   _________

                              392.9       15.8         413.8        57.5
  Discontinued operations     137.5        2.4         160.0         6.0
                           _________  _________     _________   _________

                              530.4       18.2         573.8        63.5

                           =========  =========     =========   =========

*before goodwill amortisation and exceptionals

Chromium

Operating profit before exceptionals was £4.0 million, compared to £23.7
million in 2000, on sales down 4 per cent to £126.9 million. On a constant
currency basis, sales decreased by around 7 per cent. Operating loss before
exceptionals in the second half of 2001 was £0.2 million, compared to an
operating profit before exceptionals of £11.7 million in the second half of
2000, on sales down 11 per cent.

The business estimates that the global chromium chemicals market fell a few
per cent in volume terms year on year, the decline taking place in the second
half of the year. Demand was lower for all product categories with the
exception of chromic oxide for use in metal alloys.

Elementis Chromium sales volume fell by 9 per cent year on year, with second
half volume being 15 per cent lower than the comparable period in 2000.

Sales volumes were lower year on year for all product categories, reflecting
increased competition, mainly from Former Soviet Union producers, and reduced
demand. The best performing product category was chromic acid, which
continues to benefit from the success of the superior handling properties of
our CA21 product. Sales volumes of CA21 increased by around 15 per cent
year on year, almost all of which was achieved in the first half.

Average pricing of chromium products was also lower, mainly as a result of
increased competition.

Higher energy costs adversely impacted operating profit by £6.2 million
versus 2000 on a comparable basis, of which around £4.9 million was in the
first half.

Early in 2001, headcount reduced by more than 10 per cent as a result of a
business process re-engineering exercise at Corpus Christi, Texas. The
one-off cost of £2.3 million was largely recouped over the balance of the
year. At the year end the business employed 439 people, 18 per cent below the
comparable figure two years ago.

Despite the headcount savings, underlying fixed costs increased year on year
in excess of inflation, mainly as a result of unusually high maintenance
expenditure, particularly in the second half of the year. Additional controls
on maintenance expenditure are now in place.

A new gas cleaning system for the chromic oxide plant at Eaglescliffe, UK was
commissioned in the first quarter of 2001 costing £2.6 million. This will
further enhance environmental performance standards. Some production capacity
of chromic oxide for use in metal alloys was unavailable during the period as
a result of this project.

A project is under way to link the Corpus Christi manufacturing facility to a
combined steam and electricity co-generation plant being constructed at an
adjacent oil refinery. This will come on-stream in late summer 2002, reducing
energy costs.

The ratio of trade working capital to sales at the end of 2001 was 14 per
cent, unchanged from the end of 2000 on a similar level of inventories.

On 12 February 2002, the US Environmental Protection Agency (EPA) announced
restrictions, from 2004, on the use of chromated copper arsenate (CCA) as a
wood preservative in the US affecting CCA treated timber for consumer use.
Elementis Chromium supplies chromic acid which is used in the manufacture of
CCA and acts primarily as a binding agent.

In its statement, the EPA announced the transition from the use of CCA in a
variety of consumer uses by 31 December 2003 in favour of alternative
products. The statement confirmed that the transition affects virtually all
residential uses of wood treated with CCA, including wood used in
play-structures, decks, picnic tables, landscaping timbers, residential
fencing, patios and walkways/boardwalks. By January 2004, the EPA will not
allow CCA products for any of these residential uses.

The statement goes on to state, that in the current year, the CCA
manufacturers expect a decline in production of CCA products for affected
residential uses up to 25 per cent. During 2003, the CCA manufacturers expect
the transition away from CCA to continue and increase, with a decline in
production of CCA products for affected residential uses up to 70 per cent.

Elementis understands that, following the CCA manufacturers' request to amend
the pesticide registrations, the EPA will publish a notice in the Federal
Register and a 30 day period for public comment will follow.

As previously indicated, Elementis estimates that, as a result of the EPA's
decision, the global and US demand for chromium chemicals would reduce by
around 5 and 30 per cent respectively. Elementis Chromium sales for
industrial applications of CCA, such as utility poles, rail sleepers and
marine pilings, are relatively strong and are not affected by the EPA ruling.
Nevertheless, Elementis Chromium's global sales of chromium chemicals could
be adversely affected by around 15 per cent by 2004.

Elementis does not now expect its sales in 2002 to be materially affected by
the EPA ruling.

Pigments & Specialties

Operating profit before goodwill amortisation and exceptionals was £12.2
million, compared to £31.1 million in 2000, on sales down 3 per cent at
£228.0 million. On a constant currency basis, sales reduced by around 6 per
cent year on year. Operating profit before goodwill amortisation and
exceptionals in the second half of 2001 was £1.7 million, compared to £15.5
million in the second half of 2000 on 7 per cent lower sales.

The ratio of Pigments & Specialties trade working capital to sales decreased
from 21 per cent at the end of 2000 to 17 per cent at the end of 2001,
primarily as a result of lower inventories at Elementis Pigments and higher
trade creditor levels at Elementis Specialties.

At Elementis Pigments, sales decreased year on year, the rate of decline
being greater in the second half of the year. Demand for iron oxide pigments
for coatings, construction and chemical applications was generally weak
throughout the year, particularly in North America. Coatings pricing was
stable; in contrast, prices for construction grade material declined,
particularly in Asia Pacific and Europe. Construction sales in Europe reduced
significantly. Sales in Asia Pacific grew strongly throughout the year using
product sourced from the Shenzhen manufacturing facility in China. Margins
were also under pressure as a result of higher US energy costs.

Fixed costs in the second half of the year were adversely impacted by around
£1.9 million following a decision to close both US iron oxide particle
manufacturing facilities for approximately six weeks to reduce inventories by
around £3 million.

Following the installation of additional production equipment in Shenzhen
early in the year, a new range of coatings grade iron oxide pigments was
successfully commercialised in the second half . Sales of Ferrispec
granular product grew strongly.

Operating losses were incurred by the zinc and carboxylates part of the
business based in Birtley near Durham in the UK. Zinc continues to be
impacted by the continuing decline of the UK automotive tyre market. The
profitability of the catalysts part of the business also declined year on
year.

Elementis Pigments has a strong market position but reduced volumes, driven
by the North American downturn, have challenged the business's ability to
cover fixed costs. This is being addressed on several fronts including a
strategic review of the Birtley operation.

As a result of losses that occurred in the second half, for the reasons
explained above, Elementis Pigments made an operating loss for the full year.

At Elementis Specialties, sales were flat year on year as a result of the
stronger US dollar. Higher first half sales were offset by lower sales in the
second half.

Throughout the year, strong growth was achieved in rheological additives sales
to the oil exploration market. This was offset by lower sales for coatings
applications, particularly in North America, and, in the second half, for ink
applications, the latter being impacted by a reduction in print advertising
and competition. Total Rheolate sales for aqueous coatings applications
grew modestly year on year. European trading remained relatively robust when
compared to North America and Japan. Pricing in local currency increased
marginally.

Operating profit before goodwill amortisation was lower than in 2000 for a
number of reasons. The principal factors were unfavourable sales mix, higher
energy and quaternary amine costs, other cost inflation not recovered through
pricing or productivity gains and expenditure on upgrading sales and
marketing capabilities including e-commerce. Second half profitability was
particularly impacted by these factors.

Thixatrol Max, a new thixotrope rheological additive, was launched in
Europe during the year. This new generation thixotrope provides improved
properties to a range of industrial coatings systems. Recently introduced
products Rheolate 450, a high efficiency associate thickener for vinyl
acrylic paints, and Bentone 42, a drilling mud organoclay for high heat
environments, continue to contribute good growth.

Additional management resource is now in place to develop and deliver a high
growth strategy based on accelerated organic growth and including the inward
licensing of technology, market alliances and acquisitions.

Specialty Rubber

Operating loss before exceptionals was £0.5 million, compared to an operating
profit before exceptionals of £2.6 million in 2000, on sales 15 per cent
lower at £46.0 million. On a constant currency basis, sales decreased by
around 14 per cent. Operating loss before exceptionals in the second half of
the year was £1.4 million, compared to an operating profit before
exceptionals of £1.0 million in the second half of 2000, on sales down 20 per
cent.

The full year sales decline was primarily the result of the decision taken
early in 2001 not to pursue new process technology equipment contracts and
the exit of other unprofitable sales lines. Adjusting for these factors,
lower underlying sales in North America (reflecting output reductions by West
Coast mining customers) were offset by strong sales growth in South Africa
and Latin America. Sales in Europe were impacted by disruption caused by the
aircraft crash at the Yateley, UK, facility in late December 2000.

Losses on the completion of remaining process technology equipment contracts
were just under £1.0 million, all of which occurred in the second half.

Several new products were launched; LinaCrepe, a form of uncured rubber,
can be moulded into shape and is particularly suitable for belting,
hoses and roller covering applications. LinaDek abrasion resistant modular
screens for the mining and construction industry were launched in the US.
Cut-end hose lined with Linatex is now available to the construction industry
in the US.

The programme to refocus and simplify the Linatex business was completed in
February 2001, with the closure in Montreal of the last of 13 sites. Total
headcount fell by 93 over the course of the year, a 13 per cent reduction.
Exceptional restructuring costs of £0.5 million were charged in the first
half. Cost savings from this programme were, however, more than offset by
higher expenditure in other areas.

Further actions are under way to improve the cost competitiveness of the
business, including the evaluation of step change improvements in
manufacturing structure.

A £4.0 million continuous rubber sheet press was installed towards the end of
the year and is currently being commissioned. This equipment will reduce
operating costs further and enable Linatex sheet to be produced within
tighter thickness tolerances for new applications and with enhanced bonding
capabilities.

The ratio of trade working capital to sales reduced from 20 per cent at the
end of 2000 to 14 per cent at the end of 2001, primarily as a result of an
effective inventory reduction programme similar to that at Elementis Pigments.

Discontinued operations

Operating profit at Harcros Chemicals up to the point of disposal in October
2001 was £2.4 million, on sales of £137.5 million. This compares with an
operating profit of £6.0 million on sales of £160.0 million for the full year
2000.

The exceptional profit arising on the disposal of this business was £1.4
million.

Health, safety and the environment

Compared to 2000, lost time accident frequency for continuing operations
reduced by 53 per cent. This is due to the increased focus on safety and the
introduction of a new incident investigation reporting system that identifies
the root causes of reportable incidents and 'near misses' and enables
processes to be put in place to prevent reoccurrence. Non-compliance with
environmental consents for continuing operations rose from 16 to 28 in the
year. A similar investigation reporting system has now been implemented for
all environmental incidents and the Board is committed to reversing this
trend.

Exceptionals

Net exceptional charges before tax were £3.7 million, compared to £3.0
million in 2000. For 2001, exceptionals comprised:

* £4.6 million costs incurred in preparing the Company for sale;

* £0.5 million of additional inventory write downs relating to the Specialty
  Rubber restructuring; and

* £1.4 million profit arising on the disposal of the Harcros Chemicals
  chemical distribution business.

Currency

Currency transaction and translation favourably impacted full year operating
profit by around £1.0 million.

Interest

Net interest payable was £4.2 million, compared to £5.1 million in 2000.
Interest cover (the number of times that the net interest charge is covered
by operating profit before goodwill amortisation and exceptionals) was 4.3
times (2000: 12.5 times).

Taxation

The tax credit for the year was £8.5 million compared to a charge of £7.8
million in 2001.

The effective rate of tax on profit before goodwill amortisation and
exceptionals, before the impact of prior period adjustments, was 14.0 per
cent (2000: 14.0 per cent). This rate is substantially lower than the
standard UK corporate tax rate for a number of reasons, including the
utilisation of surplus advance corporation tax partially offset by unrelieved
overseas tax losses. The tax credit on profit before goodwill amortisation
and exceptionals for the year arose principally from the release of certain
tax provisions following the resolution of historic issues with the UK Inland
Revenue. Tax on net exceptional charges was £nil million (2000: credit of
£0.4 million). In addition, there was an exceptional tax credit of £4.9
million arising in respect of historic business disposals.

FRS19 'Deferred Tax' will be implemented in 2002. Had the standard been used
for the 2001 financial statements, the credit to the profit & loss account
would have been reduced by £0.5 million, comprising an underlying current
year credit of £7.3 million offset by a prior year adjustment charge of £7.5
million and an exceptional charge of £0.3 million; year end shareholders'
funds would have been £1.0 million lower.

Earnings per share

Basic earnings per share before goodwill amortisation and exceptionals
decreased from 11.6 pence in 2000 to 4.0 pence in 2001. Basic earnings per
share, after goodwill and exceptionals, was 1.1 pence (2000: 7.9 pence). The
weighted average number of shares in issue during the year was 431.5 million
(2000: 431.5 million); the number of shares in issue at the year end was
431.6 million (2000: 431.5 million).

Cash flow and balance sheet

Net cash inflow from operating activities was £37.9 million, compared to
£58.4 million in 2000.

Working capital inflow was £9.8 million, compared to a £12.4 million outflow
in 2000. Debtors decreased by £13.5 million, of which £8.6 million was
attributed to decreased sales. Trade debtor days for continuing businesses
decreased by eight days during the year. Stock levels continue to be tightly
controlled overall, with a £6.6 million reduction in the year.

Cash expenditure on fixed assets totalled £16.8 million (2000: £22.1 million)
and compares with depreciation of £18.8 million (2000: £17.5 million).
Looking forward to 2002, capital expenditure is likely to be below
depreciation excluding any expenditure on a Group-wide Enterprise Resource
Planning system which is currently being evaluated.

Net cash inflow from the sale of Chemical Distribution was £16.6 million.

Net cash inflow before the use of liquid resources and financing was £26.2
million, compared to an inflow of £32.4 million in 2000. Free cash inflow was
£9.9 million, compared to £33.4 million in 2000.

Net borrowings at the year end were £40.0 million (2000: £41.7 million).
Net gearing (the ratio of net borrowings to shareholders' funds plus net
borrowings) was 9.1 per cent (2000: 9.2 per cent). Shareholders' funds at the
year end were £397.5 million, compared to £411.2 million at the end of 2000.

Pensions and other post retirement benefits

The total cost of post-retirement health care and pensions was £3.3 million
compared to £2.1 million in 2000. This charge includes a credit of £2.6
million (2000: £4.0 million) for variations from regular pension costs in
respect of the amortisation of the surplus/deficit arising on the main UK
pension scheme.

These figures incorporate, for the final quarter of the year, the preliminary
results of an actuarial valuation of the UK scheme at 30 September 2001. At
that date, the market value of the scheme's assets was £388.7 million, of
which £68.9 million related to pension assets to be transferred out in
respect of historic business disposals, £15.7 million related to insured
annuities and £2.2 million related to money purchase benefits. The balance of
£301.9 million has been used for the purposes of the actuarial valuation and
is sufficient to cover 97 per cent of the benefits that had accrued to
members after allowing for expected future inreases in salaries.

The most recent actuarial valuation of the US funded defined benefits schemes
was at 31 December 2001; at that date the market value of the schemes' assets
was £46.8 million, which is sufficient to cover 85 per cent of the benefits
that had accrued to members, after allowing for expected future increases in
salaries.

The Group has made use of the transitional requirements of FRS17 'Retirement
Benefits'. Had the standard been adopted in full for the 2001 financial
statements, profit before tax would have increased by £0.5 million (being a
£3.2 million increase in operating costs, more than offset by a £3.7 million
interest credit). The net pension liability under FRS17 at 31 December 2001
was £25.3 million; this comprises £11.2 million for UK pension schemes, £15.7
million for US pension schemes, £11.6 million for US post retirement medical
benefits and £0.8 million for other schemes, partially offset by a £14.0
million deferred tax asset. Had the standard been adopted in full at the year
end, shareholders' funds would have been lower by £13.8 million as a result.
FRS17 will be adopted in full in 2002.

Net pension costs as a result are estimated to increase in 2002 by around
£3.1 million compared to the FRS17 figures for 2001, primarily in relation to
net finance costs.

Consolidated profit & loss account
for the year ended 31 December 2001

                           Before
                         goodwill
                   amortisation &      Goodwill
            Note     exceptionals  amortisation Exceptionals     2001      2000
                         £million      £million     £million £million  £million

Turnover      4

Continuing
operations                  392.9             -            -    392.9     413.8

Discontinued
operations                  137.5             -            -    137.5     160.0

                   ______________  ____________ ____________ ________  ________


Group turnover              530.4             -            -    530.4     573.8

                   ______________  ____________ ____________ ________  ________


Group
operating
profit/(loss) 4/5

________________________________________________________________________________


Continuing operations

Before goodwill
amortisation
and exceptionals             15.7             -            -     15.7      57.4

Goodwill amortisation
amortisation                    -         (14.0)           -    (14.0)    (13.3)

Exceptionals                    -             -         (5.1)    (5.1)     (3.0)

________________________________________________________________________________

                             15.7         (14.0)        (5.1)    (3.4)     41.1

Discontinued operations       2.4             -            -      2.4       6.0

                   ______________  ____________ ____________ ________  ________

                             18.1         (14.0)        (5.1)    (1.0)     47.1
Associates                    0.1             -            -      0.1       0.1

                   ______________  ____________ ____________ ________  ________

Operating profit/(loss)      18.2         (14.0)        (5.1)    (0.9)     47.2

Profit on disposal of
business - discontinued
operations                      -             -          1.4      1.4         -

                   ______________  ____________ ____________ ________  ________

Profit on ordinary
activities before
interest                     18.2         (14.0)        (3.7)     0.5      47.2

Net interest payable         (4.2)            -            -     (4.2)     (5.1)

                   ______________  ____________ ____________ ________  ________


Profit/(loss) on
ordinary activities
before tax

________________________________________________________________________________

Before goodwill
amortisation and
exceptionals                 14.0             -            -     14.0      58.4

Goodwill amortisation           -         (14.0)           -    (14.0)    (13.3)

Exceptionals                    -             -         (3.7)    (3.7)     (3.0)

________________________________________________________________________________

                             14.0         (14.0)        (3.7)    (3.7)     42.1


Tax on profit/ 6
(loss) on
ordinary
activities                    3.6             -          4.9      8.5      (7.8)

                   ______________  ____________ ____________ ________  ________

Profit on ordinary
activities after tax         17.6         (14.0)         1.2      4.8      34.3

Minority interests
- equity                     (0.1)            -            -     (0.1)     (0.1)

                   ______________  ____________ ____________ ________  ________

Profit for the
financial year               17.5         (14.0)         1.2      4.7      34.2

Dividends -  non-            (0.1)            -            -     (0.1)     (0.1)
equity
                   ______________  ____________ ____________ ________  ________


Amount transferred
to reserves                  17.4         (14.0)         1.2      4.6      34.1

                   ==============  ============ ============ ========  ========

Earnings per  7
ordinary share

Basic and diluted                                                 1.1p      7.9p
Basic before goodwill amortisation and exceptionals               4.0p     11.6p
Diluted before goodwill amortisation and exceptionals             4.0p     11.5p


Balance sheet
at 31 December 2001

                                                            2001         2000
                                                        £million     £million

Fixed assets
Goodwill                                                   219.2        228.8
Tangible fixed assets                                      192.0        192.1
Investments                                                  3.8          2.0
                                                        _________    _________

                                                           415.0        422.9

                                                        _________    _________


Current assets
Stocks                                                      56.3         76.7
Debtors                                                     86.6        109.2
Cash at bank and in hand                                    39.5         51.2
                                                        _________    _________

                                                           182.4        237.1
                                                        _________    _________

Creditors: amounts falling due within one year
Borrowings                                                   5.8          7.3
Creditors                                                   73.1        106.2
                                                        _________    _________

                                                            78.9        113.5
                                                        _________    _________

Net current assets                                         103.5        123.6
                                                        _________    _________

Total assets less current liabilities                      518.5        546.5
                                                        _________    _________

Creditors: amounts falling due after more than one year
Borrowings                                                  73.7         85.6
Government grants                                            0.8          0.6
                                                        _________    _________

                                                            74.5         86.2
Provisions for liabilities and charges                      43.8         46.6
                                                        _________    _________

                                                           118.3        132.8
                                                        _________    _________

                                                           400.2        413.7
                                                        =========    =========

Capital and reserves
Called up share capital                                     23.9         23.6
Share premium                                                1.2          1.1
Capital redemption reserve                                  43.4         20.4
Profit and loss account                                    329.0        366.1
                                                        _________    _________

Shareholders' funds                                        397.5        411.2
Minority interests                                           2.7          2.5
                                                        _________    _________

                                                           400.2        413.7
                                                        =========    =========
Shareholders' funds
Equity                                                     395.2        409.2
Non-equity                                                   2.3          2.0
                                                        _________    _________

                                                           397.5        411.2

                                                        =========    =========

Net borrowings                                             (40.0)       (41.7)
                                                        =========    =========


Cash flow statement
for the year ended 31 December 2001

                                            2001                 2000
                              Note  £million   £million   £million   £million

Net cash inflow/(outflow)
from operating activities
Continuing operations                   37.1                  60.6
Discontinued operations                  0.8                  (2.2)
                                    _________             _________

                                                   37.9                  58.4

Returns on investments and
servicing of finance
Interest received                        6.7                   9.3
Interest paid                          (11.5)                (14.4)
                                    _________             _________

                                                   (4.8)                 (5.1)
Taxation                                           (7.2)                 (4.5)
Capital expenditure and
financial investment
Purchase of fixed assets
(less grants received)                 (16.8)                (22.1)
Disposal of fixed assets                 0.8                   6.7
                                    _________             _________

                                                  (16.0)                (15.4)

Acquisitions and disposals
Disposal of businesses
in prior years                          (0.3)                 (1.0)
Disposal of businesses
in current year                 10      16.6                     -
                                    _________             _________

                                                   16.3                  (1.0)
                                               _________             _________

Cash inflow before use of
liquid resources and financing                     26.2                  32.4
Financing and management of
liquid resources                 8                (18.1)                (35.7)
                                               _________             _________

Increase/(decrease) in cash      9                  8.1                  (3.3)
                                               =========             =========

Reconciliation of operating profit/(loss) to net cash inflow from operating
activities for the year ended 31 December 2001

                                 Continuing  Discontinued
                                 operations    operations
                                       2001          2001      2001      2000
                                   £million      £million  £million  £million

Operating profit                       (3.3)          2.4      (0.9)     47.2
Goodwill amortisation                  14.0             -      14.0      13.3
Depreciation (less
grants credited)                       18.8             -      18.8      17.3
Share of profits of                    (0.1)            -      (0.1)     (0.1)
associated undertakings
Exceptionals in operating profit        5.1             -       5.1       3.0
Cash outflow on exceptionals           (5.2)            -      (5.2)     (3.9)
Decrease/(increase) in stocks           6.6             -       6.6      (1.8)
Decrease/(increase) in debtors         12.6           0.9      13.5      (8.4)
Decrease in creditors                  (8.7)         (1.6)    (10.3)     (2.2)
Decrease in provisions                 (2.7)         (0.9)     (3.6)     (6.0)
                                    ________      ________  ________  ________

                                       37.1           0.8      37.9      58.4
                                    ========      ========  ========  ========

Statement of total recognised gains and losses
for the year ended 31 December 2001


                                                             2001        2000
                                                         £million    £million

Profit for the financial year                                 4.7        34.2
Currency translation differences                              5.0        19.4
Taxation on currency translation differences on
foreign currency borrowings                                  (1.0)       (2.0)
                                                         _________   _________

Total recognised gains for the year                           8.7        51.6
                                                         =========   =========

Reconciliation of movements in shareholders' funds
for the year ended 31 December 2001
                                                             2001        2000
                                                         £million    £million

Profit for the financial year                                 4.7        34.2
Dividends - redeemable B shares                              (0.1)       (0.1)
                                                         _________   _________

Amounts transferred to reserves                               4.6        34.1
Redemption of redeemable B shares (including issue costs)   (23.1)      (20.7)
Share option scheme allotments                                0.1           -
Goodwill on disposal of business acquired prior to
1 January 1998 charged to profit and loss account             0.7           -
Currency translation differences                              5.0        19.4
Taxation on currency translation differences on
foreign currency borrowings                                  (1.0)       (2.0)
                                                         _________   _________

Net (decrease)/increase in shareholders' funds              (13.7)       30.8
At beginning of the financial year                          411.2       380.4
                                                         _________   _________

At end of the financial year                                397.5       411.2
                                                         =========   =========

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 2000 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   Basis of preparation

     The financial information is presented on the basis of accounting policies
     set out in the financial statements for the year ended 31 December 2000.
     FRS 18 'Accounting Policies' has been adopted in the current year but this
     did not require any change in accounting policy.

3   Exchange rates

     In 2001, the average sterling exchange rate was $1.45 and Euro 1.61
     compared with $1.52 and Euro 1.64 in 2000.  The sterling exchange rate at
     31 December 2001 was $1.46 and Euro 1.63, compared with $1.49 and
     Euro 1.59 at 31 December 2000.

4   Segmental information


                                           Group operating
                          Group turnover    profit/(loss)      Net assets
                            2001     2000     2001     2000     2001     2000
                        £million £million £million £million £million £million

Analysis by activity
Chromium
Before exceptionals        126.9    131.7      4.0     23.7    118.0    122.1
Inter-group turnover        (8.0)    (6.9)       -        -        -        -
Exceptionals                   -        -        -      0.7        -        -
                          _______  _______  _______  _______  _______  _______

                           118.9    124.8      4.0     24.4    118.0    122.1
                          _______  _______  _______  _______  _______  _______

Pigments & Specialties
Before goodwill
amortisation and
exceptionals               228.0    234.9     12.2     31.1    330.7    349.9
Goodwill amortisation          -        -    (14.0)   (13.3)       -        -
Exceptionals                   -        -        -     (1.4)       -        -
                          _______  _______  _______  _______  _______  _______

                           228.0    234.9     (1.8)    16.4    330.7    349.9
                          _______  _______  _______  _______  _______  _______

Specialty Rubber
Before exceptionals         46.0     54.1     (0.5)     2.6     22.9     23.7
Exceptionals                   -        -     (0.5)    (2.3)       -        -
                          _______  _______  _______  _______  _______  _______

                            46.0     54.1     (1.0)     0.3     22.9     23.7
                          _______  _______  _______  _______  _______  _______

Group exceptionals             -        -     (4.6)       -        -        -
                          _______  _______  _______  _______  _______  _______

Total - continuing
operations
Before goodwill
amortisation
and exceptionals           392.9    413.8     15.7     57.4    471.6    495.7
Goodwill amortisation          -        -    (14.0)   (13.3)       -        -
Exceptionals                   -        -     (5.1)    (3.0)       -        -
                          _______  _______  _______  _______  _______  _______

                           392.9    413.8     (3.4)    41.1    471.6    495.7
                          _______  _______  _______  _______  _______  _______

Total - discontinued       137.5    160.0      2.4      6.0        -      7.6
operations
Unallocated liabilities        -        -        -        -    (71.4)   (89.6)
                          _______  _______  _______  _______  _______  _______

                           530.4    573.8     (1.0)    47.1    400.2    413.7
                          =======  =======  =======  =======  =======  =======


                                            Group operating
                         Group turnover      profit/(loss)       Net assets
                            2001     2000     2001     2000     2001     2000
                        £million £million £million £million £million £million

Analysis by area of
operations

Continuing operations:
North America              213.3    229.0     (1.8)    27.4    334.8    351.4
Europe                     156.7    163.4     (3.0)    12.2    122.6    128.9
Rest of the World           22.9     21.4      1.4      1.5     14.2     15.4
                          _______  _______  _______  _______  _______  _______

                           392.9    413.8     (3.4)    41.1    471.6    495.7

Discontinued operations:
North America              137.5    160.0      2.4      6.0        -      7.6
Unallocated liabilities        -        -        -        -    (71.4)   (89.6)
                          _______  _______  _______  _______  _______  _______

                           530.4    573.8     (1.0)    47.1    400.2    413.7
                          =======  =======  =======  =======  =======  =======

Unallocated liabilities
comprise:

                                                                2001     2000
                                                            £million £million

Net borrowings                                                 (40.0)   (41.7)
Taxation and dividends                                          (6.0)   (20.7)
Post retirement benefits and government grants                 (12.3)   (14.8)
Other                                                          (13.1)   (12.4)
                                                              _______  _______

                                                               (71.4)   (89.6)
                                                              =======  =======


                            Continuing       Discontinued
                            operations        operations            Total
                            2001     2000     2001     2000     2001     2000
                        £million £million £million £million £million £million

Group turnover analysed
by geographical markets
North America              197.0    208.3    137.5    160.0    334.5    368.3
Europe                     134.6    143.0        -        -    134.6    143.0
Rest of the World           61.3     62.5        -        -     61.3     62.5
                          _______  _______  _______  _______  _______  _______

                           392.9    413.8    137.5    160.0    530.4    573.8
                          =======  =======  =======  =======  =======  =======
5   Exceptionals

Group operating profit/(loss) includes the following charges/(income):

                          Costs in
                         preparing
                        the Company  Restructuring  Settlement of
                          for sale       costs      US litigation     Total
                         2001   2000   2001   2000   2001   2000   2001   2000
                        £mill  £mill  £mill  £mill  £mill  £mill  £mill  £mill
                          ion    ion    ion    ion    ion    ion    ion    ion

Continuing
operations:

Chromium                    -      -      -      -      -   (0.7)     -  (0.7)

Pigments &
Specialties                 -      -      -    1.4      -      -      -   1.4

Specialty Rubber            -      -    0.5    2.3      -      -    0.5   2.3

Group                     4.6      -      -      -      -      -    4.6     -
                         _____  _____  _____  _____  _____  _____  _____ _____

                          4.6      -    0.5    3.7      -   (0.7)   5.1   3.0
                         =====  =====  =====  =====  =====  =====  ===== =====

Tax on these charges was £nil million (2000: credit of £0.4 million).

There was an exceptional tax credit of £4.9 million arising in respect of
historic business disposals (2000: £nil million).

Profit on disposal of business:


                                                              2001        2001
                                                2001      Goodwill        Total
                                       Profit before    previously
                                            goodwill    charged to
                                         adjustments      reserves
                                            £million      £million     £million
Discontinued operation:
Harcros Chemicals                                2.1         (0.7)          1.4

                                         ===========   ===========  ===========

6   Tax on profit/(loss) on ordinary activities

The charge for United Kingdom tax has been based on a corporation tax rate of
30 per cent (2000: 30 per cent). If deferred tax had been fully provided in
2001 under the liability method, the tax credit for the year would have
decreased by £2.3 million (2000: £0.2 million).

                                                             2001        2000
                                                         £million    £million

  Reconciliation of the tax (credit)/charge:

  Notional tax charge before goodwill amortisation
   and exceptionals at UK corporation tax rate
   (2001: 30 per cent, 2000: 30 per cent)                    4.2         17.5
  Recoverable ACT                                           (4.5)        (4.6)
  Differences in overseas effective tax rates               (0.7)         2.2
  Benefit of US goodwill                                    (6.5)        (6.0)
  Overseas tax losses unrelieved/(relieved)                 14.4         (0.3)
  Other current tax items                                    0.2          0.6
  Deferred tax not provided on excess capital
  allowances and other timing differences                   (6.3)        (1.2)
  ACT utilised on remittance of overseas profits             1.2            -
  Prior year adjustments                                    (5.6)           -
                                                          _______      _______

                                                            (3.6)         8.2

  Tax credit on exceptionals                                   -         (0.4)
  Prior year tax exceptionals                               (4.9)           -
                                                          _______      _______

  Tax (credit)/charge                                       (8.5)         7.8
                                                          =======      =======

The prior year tax exceptional credit relates to historic business disposals.

7   Earnings per ordinary share

                            2001                            2000
                  Profit  Weighted                Profit   Weighted
                 for the   average               for the    average
               financial    number   Earnings  financial  number.of  Earnings
                    year*   shares  per share      year*     shares per share
                £million   million      pence   £million    million     pence

  Basic
  earnings
  per share          4.6     431.5        1.1       34.1      431.5       7.9

  Share
  options              -       3.6          -          -        2.6         -
                _________ _________  _________  _________  _________ _________

  Diluted
  earnings
  per share          4.6     435.1        1.1       34.1      434.1       7.9
                _________ _________  _________  _________  _________ _________

  Basic
  earnings
  per share          4.6     431.5        1.1       34.1      431.5       7.9

  Goodwill
  amortisation      14.0         -        3.2       13.3          -       3.1

  Exceptionals
  net of
  taxation          (1.2)        -       (0.3)       2.6          -       0.6
                _________ _________  _________  _________  _________ _________

  Basic
  earnings
  per share
  before
  goodwill
  amortisation
  and
  exceptionals      17.4     431.5        4.0       50.0      431.5      11.6

  Share
  options              -       3.6          -          -        2.6      (0.1)
                _________ _________  _________  _________  _________ _________

  Diluted
  earnings
  per share
  before
  goodwill
  amortisation
  and
  exceptionals      17.4     435.1        4.0       50.0      434.1      11.5

                ========= =========  =========  =========  ========= =========

*after non-equity dividends


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.

8  Financing and management of liquid resources



                                                             2001        2000
                                                         £million    £million

  Financing

  Issue of ordinary share capital - share options             0.1           -
  Redemption of B shares (including issue costs)            (23.1)      (20.7)
  Loan notes redeemed                                        (0.9)       (3.1)
  Increase in borrowings repayable within one year            0.2           -
  Decrease in borrowings repayable after one year           (12.7)      (37.3)
                                                           _______     _______

                                                            (36.4)      (61.1)
                                                           _______     _______

  Management of liquid resources
  New cash deposits                                             -        (0.1)
  Repayment of cash deposits                                 18.3        25.5
                                                           _______     _______

                                                             18.3        25.4
                                                           _______     _______

  Total financing and management of liquid resources        (18.1)      (35.7)

                                                           =======     =======

Redeemable B shares of nominal value £23.3 million were issued for nil
consideration during the year (2000: £22.4 million).

9  Reconciliation of net cash flow to movement in net borrowings


                                                             2001        2000
                                                         £million    £million

  Change in net borrowings resulting from cash flows:
  Increase/(decrease) in cash in the period                   8.1        (3.3)
  Decrease in borrowings                                     13.4        40.4
  Decrease in liquid resources                              (18.3)      (25.4)
                                                           _______     _______

                                                              3.2        11.7
  Currency translation differences                           (1.5)       (7.9)
                                                           _______     _______

  Decrease in net borrowings                                  1.7         3.8
  Net borrowings at beginning of the financial year         (41.7)      (45.5)
                                                           _______     _______

  Net borrowings at end of the financial year               (40.0)      (41.7)
                                                           =======     =======


10  Disposal of business

                                                                      Harcros
                                                                    Chemicals
                                                                     £million

   Net assets disposed of
   Stocks                                                                13.5
   Debtors                                                               20.6
   Creditors                                                            (17.6)
                                                                       _______

                                                                         16.5
   Accrued costs & related items                                          2.8
   Goodwill previously charged against reserves                           0.7
   Gain on disposal                                                       1.4
                                                                       _______

   Gross consideration                                                   21.4
   Costs of disposal                                                     (1.7)
                                                                       _______

                                                                         19.7
   Deferred consideration                                                (3.1)
                                                                       _______

   Net proceeds on disposal of business in current year                  16.6
                                                                       _______

Deferred consideration comprises £1.7 million of non-voting redeemable
preferred stock in Harcros Chemicals, Inc (formerly Harcros Chemicals
Acquisitions, Inc), with the balance being payable upon agreement of the
completion accounts.

The subsidiary undertakings disposed of during the year contributed £0.8
million to the Group's net cash inflow from operating activities.

11  Contingent liabilities

The Group was notified of a potential warranty claim in 1998, under the
contract for the sale of Pauls Malt Limited, relating to export refunds from
the Intervention Board for Agricultural Produce (now the Rural Payments
Agency). 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.

12  Annual General Meeting

The Annual General Meeting of Elementis plc will be held on 25 April 2002 at
11am at The Lincoln Centre, 18 Lincoln's Inn Fields, London WC2A 3ED.


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