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Elementis PLC (ELM)

  Print      Mail a friend       Annual reports

Thursday 26 February, 2004

Elementis PLC

Final Results

Elementis PLC
26 February 2004


PRESS INFORMATION

26 February 2004

                                 ELEMENTIS plc

PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2003


Financial Highlights

   • Sales £368.2 million (2002: £364.9 million)
   • Operating profit up 20% to £24.5 million* (2002: £20.5 million*)
   • Profit before tax £18.3 million* (2002: £19.7 million*)
   • Earnings per share 3.0p* (2002: 3.4p*)
   • Operating profit after goodwill amortisation and exceptionals £10.9 million 
     (2002: loss of £37.7 million)
   • Profit before tax, after goodwill amortisation and exceptionals £5.5 million 
     (2002: loss of £34.2 million)
   • Basic earnings per share 1.0p (2002: loss of 7.1p)
   • Net year end borrowings £46.9 million (2002: £37.4 million)
   • Net year end gearing 16 per cent** (2002: 12 per cent**)

*before goodwill amortisation and exceptionals
**ratio of net borrowings to shareholders' funds plus net borrowings

Business Highlights

   • Financial performance in line with expectations
   • Improved operating performance
   • New Specialties innovation model delivering accelerated product pipeline
   • Strong Pigments operating profit improvement
   • Successful integration of OxyChem acquisition delivers an estimated £15 million
     in synergy benefits
   • Specialty Rubber breaks even before exceptionals, sales increase by 13 per cent
   • Establishment of Asia Pacific infrastructure
   • First implementation of ERP system

Geoff Gaywood, Chief Executive of Elementis plc, said:
'I am pleased with our performance this year, with each of our businesses
achieving improved market positions in challenging economic conditions.'

'In Chromium, the acquisition of the OxyChem business has delivered savings in
line with, and more rapidly than, our most recently stated expectations. Margins
have continued to be under pressure due to weakness in demand in premium product
markets and ongoing price decline due to industry overcapacity. However, global
capacity rationalisation is continuing, with three plants in China and Japan,
which together represent approximately 7 per cent of global capacity, having
closed within the last four months. In our view, it is probable that some
further 15 per cent of global capacity will close. In December 2003 we announced
a phased 10-15 per cent chromium price increase. In January 2004, prices rose by
5 per cent on volumes similar to the prior year. Following the de-registration
of the wood preservative CCA for residential use, a decision by the US
Environmental Protection Agency regarding the registration of a chromium-based
alternative is still pending.'


'As stated at the time of our December 2003 trading update, we are assuming
continued overall low economic growth in 2004. Our ongoing view is that the
outlook for Elementis in 2004 is likely to be clouded by continued raw material
cost pressure, the cost of implementation of the ERP system ahead of delivery of
anticipated savings, start-up costs of the Taicang plant, and a lack of
immediate growth prospects for Chromium chemicals. While the key elements of the
programme to bring about step change improvements in the financial performance
of all Elementis businesses are expected to be implemented in the next 12
months, it is still by no means clear at this stage that Elementis will be able
to improve operating profit in 2004.'


                                    - 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 227000

Geoff Gaywood Chief Executive
Brian Taylorson Finance Director
Hilary Reid Evans Head of Corporate Communications

Brunswick         020 7404 5959

Andrew Fenwick
Wendel Carson
Chi Lo

Chairman's Statement

Overview

The Board is pleased to report an operating profit for the year, before goodwill
amortisation and exceptionals, of £24.5 million, an improvement of 20 per cent
over the previous year. This has been achieved despite the difficult economic
environment, particularly in North America, and is a result of Elementis
strengthening its market positions and improving costs.

Further progress has been made towards transforming the Company's earnings,
despite difficult market conditions. The Elementis Specialties business has
begun to show early signs of accelerated growth as a result of recent investment
in technology development. The chromium chemicals market, in decline since 2000,
has shown signs of rationalisation and an end to the sustained price erosion of
the last several years. Elementis Pigments has continued to deliver steady
operating profit recovery on structural cost improvement, which should be
supported by the start-up of the new plant in Taicang, China, due to be fully
commissioned in late 2004. Finally, the Specialty Rubber business has eliminated
previous operating losses on the back of strong sales recovery.

Earnings per share, before goodwill amortisation and exceptionals, is 3.0 pence
for the year versus 3.4 pence last year. Earnings per share on this basis were
lower than last year, despite the higher operating profit, as the result of
higher FRS17 finance charges and a higher tax rate. Basic earnings per share is
1.0 pence versus a loss of 7.1 pence last year.

Health Safety and the Environment

Environmental performance improved during 2003 and overall safety has also shown
a positive trend. Elementis management and employees are acutely conscious of
the Company's environmental, social and ethical responsibilities to all its
stakeholders.

Management

Richard (Rick) McNeel resigned from the Board as a non-executive director at the
end of December 2003, due to his relocation back to the US and the assumption of
further business commitments. Rick had served as a member of the Elementis Board
since 2000. We thank him for his contribution to the development of the Company
during that time and wish him well for the future. We anticipate the appointment
of a replacement non-executive director during the course of 2004.

Distribution to Shareholders

Once again, the distribution to shareholders will take the form of an issue of
redeemable B shares. Ordinary shareholders on the register on 27 April 2004 will
receive redeemable B shares with a total nominal value of 1.1 pence for each
ordinary share held. This compares with 1.1 pence for the comparable issue last
year.

The total nominal value of redeemable B shares issued to shareholders during
2003 was 2.2 pence per ordinary share.

Outlook

Assuming continued low overall economic growth, the outlook for Elementis in
2004 is likely to be clouded by continued raw material cost pressure, the cost
of implementation of the ERP system ahead of delivery of anticipated savings,
start-up costs of the Taicang plant and a lack of immediate growth prospects for
Chromium chemicals. While the key elements of the programme to bring about step
change improvements in the financial performance of all Elementis businesses are
expected to be implemented in the next 12 months, it is by no means clear at
this stage that Elementis will be able to improve operating profit in 2004.

Jonathan Fry
Chairman

Business and Financial Review
                        2003      2002           2003           2002           2003             2002
£million               Sales     Sales      Operating      Operating      Operating        Operating
                                               profit         profit         profit           profit
                                               before         before          after            after
                                             goodwill       goodwill       goodwill         goodwill
                                         amortisation   amortisation   amortisation     amortisation
                                                  and            and            and              and
                                         exceptionals   exceptionals   exceptionals     exceptionals
----------------------------------------------------------------------------------------------------

Specialties &
Pigments              209.3     225.0           17.6           18.7             3.7             0.7
Chromium              121.9     109.0            6.8            3.7             7.4           (35.8)
Specialty
Rubber                 42.7      37.8              -           (2.0)           (0.3)           (2.7)
Inter-group/as
sociates               (5.7)     (6.9)           0.1            0.1             0.1             0.1
----------------------------------------------------------------------------------------------------
            Total     368.2     364.9           24.5           20.5            10.9           (37.7)
----------------------------------------------------------------------------------------------------


Overview

All Elementis businesses made significant progress towards achieving their
targeted step change improvements in financial performance. Cost control and
cash conservation disciplines were maintained, while significant investments in
future growth and efficiency drivers were made. Industrial markets, however,
showed little overall sign of recovery and energy and raw materials price
increases caused pressure on margins. Nevertheless, Elementis sales rose and
operating profit performance continued to improve.

Sales increased by 1 per cent to £368.2 million versus the previous year. The
increase after adjusting for businesses sold during 2002 was 3 per cent which on
a constant currency basis amounted to an increase of 6 per cent. The major
factor in the sales increase were volume gains at Elementis Chromium, largely as
a result of the OxyChem acquisition, offset to some extent by price erosion in
the same business.

Operating profit before goodwill amortisation and exceptionals improved by 20
per cent over the previous year to £24.5 million and on a constant currency
basis was similar to the previous year.


Elementis Specialties & Pigments

£million                   2003      2002

Sales                     209.3     225.0
Operating Profit*          17.6      18.7
*before goodwill amortisation and exceptionals

Sales on continuing businesses in constant currency were in line with the
previous year, while reported sales in sterling were lower by £15.7 million at
£209.3 million. £7.6 million of the decrease was due to currency movements and
£7.8 million related to businesses sold during 2002.

Operating profit before goodwill amortisation and exceptionals was £1.1 million
lower than the previous year at £17.6 million. Marginally higher volumes and
currency benefits, arising largely from a stronger Euro, were more than offset
by higher energy and raw material costs, ERP spend and a planned increase in
spending on R&D and the Innovation programme.

Elementis Specialities

Elementis Specialties is a leading producer of rheological and surface chemistry
additives that affect the feel, flow and finish of everyday products.

Elementis Specialties successfully increased sales revenue in US dollars,
despite difficult economic conditions. Sales were marginally lower in constant
currency terms as strong growth in the personal care and oilfield sectors was
partially offset by weak demand in the US coatings market. Overall market growth
was low. The North American coatings market declined, while the markets in
Europe and Asia grew by 3 and 6 per cent respectively. Specialties outperformed
the market in four key areas of focus: aqueous coatings, oil, consumer and Asia
Pacific, with volume growth in consumer and oil markets in particular offsetting
the weak demand for North American coatings.

Continued investment in the long-term growth drivers of the business has
resulted in significant progress, including the introduction of the Elementis
Specialties innovation model. The model is fully operational and has generated a
pipeline of promising development projects as well as facilitating the
introduction of four new products to the marketplace in 2003.

Elementis Specialties celebrated the successful 'go live' of the new Elementis
ERP system in late 2003. This system increases the ability of Elementis
Specialties to share information, manage transactions and anticipate the needs
of the customer base.

Elementis Specialties' strategic goal is to become a leading specialty chemicals
business in rheology and surface chemistry and to achieve significant
step-change growth. Assessment of acquisition opportunities continued throughout
2003. Acquisition remains a key element of our strategy for accelerated growth
in Elementis Specialties.

Elementis Pigments

Elementis Pigments is a world-leading producer of a broad range of synthetic
iron oxides and complementary products.

Elementis Pigments achieved an increase in both US dollar sales from continuing
operations and in US dollar operating profit in 2003, despite the generally
difficult business environment experienced in most markets. The same trends were
evident on a constant currency basis. The important paint and coatings market
was negatively impacted in 2003 by a combination of economic uncertainty and
poor weather, particularly in the Eastern US. Sales growth has nevertheless been
achieved by leveraging customer relationships and broadening the product
portfolio, with several product lines experiencing double-digit year on year
volume growth. Operating profit improved over the previous year as higher energy
costs were more than offset by lower manufacturing costs and positive currency
effects.

Tight cost control measures remained in place throughout 2003. Additional cost
and operational efficiencies were achieved through a commitment to Six Sigma
programmes and stable operations initiatives.

Growth in productivity for a number of operations, such as paint dryer and toner
black production, resulted in increased customer service levels, scheduling
flexibility and cost absorption.

During the course of 2003 the Elementis Pigments operation based in Birtley, UK,
was successfully restructured. Construction also began on a new plant at
Taicang, China, which will be the second Elementis Pigments manufacturing base
in the region. Full commissioning of the new world class Chinese plant is
expected to take place in late 2004. Increasing the percentage of manufactured
products sourced from the Elementis Pigments Asian supply base is an important
factor in revenue growth.

Implementation of the Elementis ERP system is expected to take place in mid
2004. Anticipated operational benefits include improved supply chain visibility.


Elementis Chromium

£million                   2003      2002

Sales                     121.9     109.0
Operating Profit*           6.8       3.7
*before exceptionals

Elementis Chromium is the world's largest producer of chromium chemicals.

Elementis Chromium's operating profit increased by 84 per cent to £6.8 million
in 2003 with sales increasing by 12 per cent to £121.9 million, 15 per cent on a
constant currency basis, in the same period. The OxyChem business, acquired in
December 2002, added around £30.0 million to sales, while average pricing versus last
year was down by around 9 per cent. Benefits of the OxyChem acquisition to the
operating profit, including integration savings, which exceeded the original
expectations in both size and timing, were offset by lower selling prices and
higher energy costs. It is estimated that between 2002 and 2003 the total
Western market for chromium chemicals fell by 3 per cent in volume terms.

Demand in most market sectors was weak and, in particular, the market for
chromic oxide was affected by the continuing slowdown in aerospace, refractories
and pigments. In contrast to this general market slowdown, the market for
chromium chemicals in China is estimated to have grown by approximately 7 per cent.
New business won by Elementis Chromium in the Asia Pacific region doubled
in 2003 to over £10 million including product supplied by Elementis Chromium to
Nippon Chemical, following the phased closure of Nippon Chemical's Japanese
chromium dichromate facility, announced in October 2003.

The US Environmental Protection Agency, following concerns regarding the
potential impact of the arsenic content on end users, withdrew registration for
Chromated Copper Arsenate (CCA) for residential uses from the market with effect
from 1 January 2004. With proposed replacements meeting customer resistance on
performance and cost grounds, it remains unclear which products will now replace
CCA. A decision by the EPA to allow registration of ACC, an arsenic-free
chromium based alternative, which is currently used in the German market, is
still pending.

Following the acquisition of the OxyChem chemicals business in December 2002,
integration of the existing Elementis Chromium US operations with those of the
acquired business proceeded throughout 2003. Integration synergies have exceeded
original expectations in both size and timing. Extension of the Elementis Six
Sigma initiative to the acquired operation contributed to annualised savings in
2003 of approximately £1.4 million for the Chromium business. Customer retention
during the period has been close to 100 per cent.

In December 2003 Elementis Chromium launched a new chromic acid product known as
CA Ultra. The product is complementary to the existing Elementis CA21 product
range and should provide opportunities for growth.

Downward pressure on pricing was evident throughout 2003 and capacity
rationalisation continued in the chromium producing sector, with three plants in
China and Japan, which together represent 7 per cent of global capacity, closing
in the last four months. Prices for a wide range of raw materials continued to
increase throughout 2003. A phased price increase of 10-15 per cent, effective
from January 2004, was announced by Elementis Chromium to customers in late 2003.


Elementis Specialty Rubber

£million                   2003      2002

Sales                      42.7      37.8
Operating Profit*             -      (2.0)
*before exceptionals

Specialty Rubber is an international manufacturer of high quality wet abrasion
resistant rubber products. These products, marketed under the Linatex brand
name, protect plant and equipment from the wear and tear generated in high
abrasion operating environments, such as those to be found in the mining
industry.

Significant progress was made in 2003 with sales increasing by 13 per cent to
£42.7 million, despite low growth in the global mining sector, a primary market
for Specialty Rubber. The decline in the value of the US dollar negatively
impacted the mining markets in Australia and South Africa in particular. The
sales increase was driven by strong volume growth across most sectors and
positive currency effects as a result of significant sales in Europe, South
Africa and Asia Pacific. Specialty Rubber achieved a break even operating result
before exceptionals for the year, versus a loss on the same basis for 2002 of
£2.0 million. The new plant in Malaysia has delivered improved operating
efficiencies.

Sales growth was secured in cured rubber sheet, a primary product, and
especially strong growth was seen in three additional product categories:
moulded products, hoses and capital equipment. We did not, however, see strong
growth in our operating markets during 2003. Mining remains the primary market
for the exceptional anti-abrasion qualities of Linatex rubber.

During 2003, additional investment was made in expanding the moulded products
capacity in order to meet the strong demand. Continued robust growth in this
area is anticipated as moulded products made from Linatex rubber have
significant benefits, especially in equipment protection. Following the
acquisition of the Dunlop Hose business in 2002, there has been strong sales
growth in this product range, especially in Australia. Capital equipment sales
have also increased following a renewed commitment to this product category and
focused sales and marketing efforts targeting the world's major mine sites.

Throughout 2003 there was a continued transfer of production from higher cost
areas of the world to the new plant in Malaysia. Specialty Rubber is pursuing
rapid sales growth in order to optimise utilisation of these production
capacities. In support of this strategy, special programmes are underway to
improve quality and supply chain processes. These are expected to remain key
areas of focus during 2004.

China

The strategic importance of China to Elementis, both as a dynamic growth market
and as a manufacturing base, was recognised in 2003 with the promotion of Godwin
Lee to the newly created post of General Manager, China Region. He has
leadership responsibility for expanding the Elementis presence in this region
and is a member of the Management Team.

ERP

The Elementis global Enterprise Resource Planning (ERP) system is designed to
provide a platform for operational excellence, best practice business processes
and knowledge transfer across all Elementis businesses. Already live in
Specialties, implementation will proceed in Chromium, Pigments and Specialty
Rubber during the course of 2004. The total costs of the programme are estimated
at approximately £13 million, with cost saving benefits estimated at
approximately £3.0 million per annum once implementation is complete. The full
benefits will be realised from 2005 onwards.

Six Sigma

Since its introduction in 2001, the total accumulated benefits from the
Elementis Six Sigma programme have passed £8.2 million, with total associated
costs estimated at £2.3 million. During 2003, a number of Six Sigma senior
practitioners (Black Belts) were temporarily assigned to the ERP programme,
reducing the savings directly attributable to Six Sigma in the year.

Exceptionals

Total exceptional items in the year were £0.4 million (2002: £40.4 million).
These comprised:

                                       £ million
Operating:
Redundancy and restructuring costs          (2.0)
Insurance proceeds                           0.8
                                            (1.2)
Non operating:
Profit on disposal of property               0.8
---------------------------------------------------
                             Total          (0.4)
---------------------------------------------------

The redundancy and restructuring costs arose following the introduction of the
new ERP system and the re-organisation of financial and administrative
activities into two shared service centres. Insurance proceeds relate to the
partial recovery of costs charged to exceptionals in previous years. A profit on
disposal of property arose from the sale of two properties that remained from a
business sold in 2001. Net proceeds were £1.1 million.

Interest

£million                   2003            2002
On net borrowings          (1.9)           (1.9)
Pension finance charge     (4.2)            0.1
Discount on provisions     (0.9)           (1.0)
Other                       0.8             2.0
--------------------------------------------------
               Total       (6.2)           (0.8)
--------------------------------------------------

Interest payable on net borrowings was unchanged during the year at
£1.9 million. The finance charge in respect of pension and post-retirement
benefits increased by £4.3 million in the year due to a £38.3 million increase
in the net deficit in the schemes at the beginning of 2003 versus the previous
year.

Interest cover, the ratio of operating profit before goodwill amortisation and
exceptionals to interest on net borrowings, was 12.9 times (2002: 10.8 times).

Taxation

The effective rate of tax on profit before goodwill amortisation and
exceptionals was 29 per cent (2002: 25 per cent).

The increase in the rate was due to the overall mix of taxable profits across
the countries in which Elementis operates. This mix would have resulted in a
higher rate than 29 per cent in 2003 but was offset by the release of provisions
against prior years where a number of open issues have been resolved.

Cash Flow

Net borrowings increased by £9.5 million in the year to £46.9 million. Working
capital increased following the acquisition of the OxyChem chromium chemicals
business in December 2002. At the end of the year the working capital increase
was £2.9 million (2002: decrease of £4.9 million) and as a consequence, the
ratio of working capital to sales decreased from 17.9 per cent to 17.5 per cent.

Capital expenditure

Capital expenditure in the year was £21.0 million (2002: £16.2 million) which
represented 134 per cent of depreciation (2002: 89 per cent). Total spend in the
year included £7.7 million (2002: £3.8 million) in relation to the ERP project
and £1.9 million (2002: £nil) for the Pigments plant in China. These projects
are expected to be completed during 2004, incurring a further planned
expenditure of approximately £10.0 million.

Balance Sheet

Net borrowings at year-end were £46.9 million compared to £37.4 million in 2002
and gearing was 16.0 per cent compared to 12.0 per cent in 2002.

During the year the Group re-negotiated its main sources of finance and entered
into new facilities totalling £175 million. The main financing source for the
Group is a £160 million syndicated bank facility, signed in November 2003, which
falls due for repayment in January 2007.

The majority of the Group's assets are stated in US dollars and the weakening of
the US dollar in 2003 reduced shareholders funds by £21.5 million.

Pensions and other post retirement benefits

In 2002, the Group fully adopted FRS17 and the net pension liability reflected
on the balance sheet was £63.6 million. The net pension liability, which is
calculated by the Group's actuaries and based upon market values of the schemes'
assets and liabilities, was reduced in the year by £10.8 million to £52.8 million.
The general upturn in global equity markets, which increased the value
of the assets, was partly offset by an increase in the value of liabilities as a
result of lower corporate bond rates.

The total cost of pensions and post retirement health care in the year was 
£8.5 million (2002: £5.3 million). This included a credit in respect of past service
of £1.3 million (2002: £nil) and finance charges of £4.2 million (2002: credit
of £0.1 million). Pension contributions in the year amounted to £14.4 million
(2002: £7.7 million). The estimated contribution in 2004 is approximately £8.4 million.

Consolidated profit & loss account
for the year ended 31 December 2003
                                    Before goodwill
                                       amortisation       Goodwill
                                     & exceptionals   amortisation   Exceptionals       2003       2002
                                
                                Note       £million       £million       £million   £million   £million
Turnover                           2          368.2              -              -      368.2      364.9
Operating profit/(loss)
Before goodwill
amortisation and
exceptionals                                   24.4              -              -       24.4       20.4
Goodwill
amortisation                                      -          (12.4)             -      (12.4)     (13.5)
Exceptionals                                      -              -           (1.2)      (1.2)     (44.7)
                                               24.4          (12.4)          (1.2)      10.8      (37.8)
Associates                                      0.1              -              -        0.1        0.1
----------------------------------------------------------------------------------------------------------
Total operating
profit/(loss)                      2           24.5          (12.4)          (1.2)      10.9      (37.7)
Profit on
disposal of
properties -
continuing
operations                                        -              -              -          -        4.8
Profit on
disposal of
properties -
discontinued
operations                                        -              -            0.8        0.8        1.4
Loss on disposal
of businesses -
continuing
operations                                        -              -              -          -       (2.9)
Profit on
disposal of
businesses -
discontinued
operations                                        -              -              -          -        1.0
--------------------------------------------------------------------------------------------------------
Profit/(loss) on
ordinary
activities before
interest                                       24.5          (12.4)          (0.4)      11.7      (33.4)
Net interest
payable                            4           (6.2)             -              -       (6.2)      (0.8)
--------------------------------------------------------------------------------------------------------
Profit/(loss) on ordinary
activities before tax
Before goodwill
amortisation and
exceptionals                                   18.3              -              -       18.3       19.7
Goodwill
amortisation                                      -          (12.4)             -      (12.4)     (13.5)
Exceptionals                                      -              -           (0.4)      (0.4)     (40.4)
                                               18.3          (12.4)          (0.4)       5.5      (34.2)
Tax on
profit/(loss) on
ordinary
activities                         5           (5.3)           4.4           (0.2)      (1.1)       3.5
---------------------------------------------------------------------------------------------------------
Profit/(loss) on
ordinary
activities after
tax                                            13.0           (8.0)          (0.6)       4.4      (30.7)
Minority
interests - equity                             (0.1)             -              -       (0.1)      (0.1)
----------------------------------------------------------------------------------------------------------
Profit/(loss) for the financial year
transferred to/(from)
Reserves                                       12.9           (8.0)          (0.6)       4.3      (30.8)
----------------------------------------------------------------------------------------------------------

Earnings/(loss)
per ordinary
share                              6
Basic and diluted                                                                        1.0p      (7.1p)
Basic and diluted
before goodwill
amortisation and
exceptionals                                                                             3.0p       3.4p
---------------------------------------------------------------------------------------------------------

Balance sheet
at 31 December 2003
                                                    Group
                                                 2003       2002
                                             £million   £million
Fixed assets
Goodwill                                        159.3      187.9
Tangible fixed assets                           157.7      161.9
Investments                                       3.2        3.6
-------------------------------------------------------------------
                                                320.2      353.4
-------------------------------------------------------------------
Current assets
Stocks                                           54.4       60.8
Debtors                                          68.9       76.6
Cash at bank and in hand                         23.8       44.4
------------------------------------------------------------------
                                                147.1      181.8
------------------------------------------------------------------
Creditors: amounts falling due within one
year
Borrowings                                       (5.3)      (5.0)
Creditors                                       (63.5)     (78.0)
------------------------------------------------------------------
                                                (68.8)     (83.0)
------------------------------------------------------------------
Net current assets/(liabilities)                 78.3       98.8
------------------------------------------------------------------
Total assets less current liabilities           398.5      452.2
------------------------------------------------------------------
Creditors: amounts falling due after more
than one year
Borrowings                                      (65.4)     (76.8)
Government grants                                (1.3)      (1.5)
Amounts due to subsidiary undertakings              -          -
------------------------------------------------------------------
                                                (66.7)     (78.3)
Provisions for liabilities and charges          (24.8)     (33.1)
------------------------------------------------------------------
                                                (91.5)    (111.4)
------------------------------------------------------------------
Net assets excluding net pension liability      307.0      340.8
------------------------------------------------------------------
Net pension liability                           (52.8)     (63.6)
------------------------------------------------------------------
Net assets including net pension liability      254.2      277.2
------------------------------------------------------------------

Capital and reserves
Called up share capital                          23.5       23.4
Share premium                                     1.2        1.2
Capital redemption reserve                       62.3       52.9
Other reserves                                      -          -
Profit and loss account                         165.3      197.8
------------------------------------------------------------------
Shareholders' funds                             252.3      275.3
Minority interests                                1.9        1.9
------------------------------------------------------------------
                                                254.2      277.2
------------------------------------------------------------------

Shareholders' funds
Equity                                          250.4      273.5
Non-equity                                        1.9        1.8
------------------------------------------------------------------
                                                252.3      275.3
------------------------------------------------------------------

Cash flow statement
for the year ended 31 December 2003
                                                                  2003               2002
                                               Note           £million           £million
Net cash inflow from operating activities         7               18.3               38.0
Returns on investments and servicing of
finance
Interest received                                                  2.0                5.0
Interest paid                                                     (3.6)              (4.5)
-------------------------------------------------------------------------------------------
                                                                  (1.6)               0.5
Taxation                                                          (1.3)               1.7
Capital expenditure and financial
investment
Purchase of fixed assets (less grants
received)                                                        (21.0)             (16.2)
Disposal of fixed assets                                           0.4                0.9
Disposal of properties - exceptional                               1.1                9.4
-------------------------------------------------------------------------------------------
                                                                 (19.5)              (5.9)
Acquisitions and disposals
Acquisition of businesses                                         (0.3)             (28.2)
Disposal of businesses                                               -                3.5
-------------------------------------------------------------------------------------------
                                                                  (0.3)             (24.7)
-------------------------------------------------------------------------------------------
Cash (outflow)/inflow before use of liquid
resources and financing                                           (4.4)               9.6
Financing
Redemption of B shares                                            (9.5)              (9.6)
Increase/(decrease) in borrowings repayable
within one year                                                    0.2               (0.8)
(Decrease)/increase in borrowings repayable
after one year                                                    (7.0)               7.4
Capital element of finance lease payments                         (0.2)                 -
-------------------------------------------------------------------------------------------
                                                                 (20.9)              (3.0)
Management of liquid resources
Repayment of cash deposits                                        14.5                4.1
-------------------------------------------------------------------------------------------
(Decrease)/increase in cash                                       (6.4)              10.7
-------------------------------------------------------------------------------------------
Movement in net borrowings
for the year ended 31 December 2003
                                                                2003            2002
                                                            £million        £million
Change in net borrowings resulting from cash flows:
(Decrease)/increase in cash                                     (6.4)           10.7
Decrease/(increase) in borrowings                                7.0            (6.6)
Decrease in liquid resources                                   (14.5)           (4.1)
--------------------------------------------------------------------------------------
                                                               (13.9)              -

New finance leases                                              (0.6)              -
Currency translation differences                                 5.0             2.6
--------------------------------------------------------------------------------------
(Increase)/decrease in net borrowings                           (9.5)            2.6
Net borrowings at beginning of the financial year              (37.4)          (40.0)
--------------------------------------------------------------------------------------
Net borrowings at end of the financial year                    (46.9)          (37.4)
--------------------------------------------------------------------------------------


Statement of total recognised gains and losses
for the year ended 31 December 2003
                                                             2003       2002
                                                         £million   £million
Profit/(loss) for the financial year                          4.3      (30.8)
Actuarial gain/(loss) on pension and other
post-retirement schemes                                       6.0      (59.4)
Deferred tax associated with pension and other
post-retirement schemes                                      (2.3)      18.2
Currency translation differences                            (21.5)     (25.7)
Taxation on currency translation differences on foreign
currency borrowings                                             -        1.5
------------------------------------------------------------------------------
Total recognised losses for the year                        (13.5)     (96.2)
------------------------------------------------------------------------------
Reconciliation of movements in shareholders' funds
for the year ended 31 December 2003
                                                             2003       2002
                                                         £million   £million
Profit/(loss) for the financial year                          4.3      (30.8)
Redemption of redeemable B shares (including issue
costs)                                                       (9.5)      (9.6)
Goodwill on businesses disposed                                 -        2.6
Actuarial gain/(loss) on pension and other
post-retirement schemes                                       6.0      (59.4)
Deferred tax associated with pension and other
post-retirement schemes                                      (2.3)      18.2
Currency translation differences                            (21.5)     (25.7)
Taxation on currency translation differences on foreign
currency borrowings                                             -        1.5
------------------------------------------------------------------------------
Net decrease in shareholders' funds                         (23.0)    (103.2)
At beginning of the financial year                          275.3      378.5
------------------------------------------------------------------------------
At end of the financial year                                252.3      275.3
------------------------------------------------------------------------------



Notes to the financial statements

1 Preparation of the 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 2002 has been extracted
from the financial statements for that year which have been delivered to the
Registrar of Companies. The financial information for the year ended 31 December
2003 has been extracted from the financial statements for that year which will
be delivered to the Registrar of Companies following the Company's Annual
General Meeting. The report of the auditors on the financial statements for both
years was unqualified and did not contain a statement under either Section 237
(2) or Section 237(3) of the Companies Act 1985. The financial information is
presented on the basis of accounting policies set out in the financial
statements for the year ended 31 December 2002.

The preliminary announcement was approved by the Board of Directors on 26
February 2004.

2 Segmental information
                                Group turnover         Group operating        Net assets
                                                       profit/(loss)
                                  2003       2002       2003       2002       2003       2002
                              £million   £million   £million   £million   £million   £million
a) Before goodwill amortisation and
exceptionals
Analysis by activity
Chromium                         121.9      109.0        6.8        3.7       90.3       95.4
Inter-group
turnover                          (5.7)      (6.9)         -          -          -          -
-----------------------------------------------------------------------------------------------
                                 116.2      102.1        6.8        3.7       90.3       95.4
Specialties &
Pigments                         209.3      225.0       17.6       18.7      259.7      284.6
Specialty
Rubber                            42.7       37.8          -       (2.0)      18.5       19.9
Associates                           -          -        0.1        0.1          -          -
-----------------------------------------------------------------------------------------------
                                 368.2      364.9       24.5       20.5      368.5      399.9
-----------------------------------------------------------------------------------------------
Geographical analysis
North America                    198.2      191.1       18.7       12.6      268.9      278.1
Europe                           144.6      151.4        3.9        5.2       81.3      105.9
Rest of the
World                             25.4       22.4        1.9        2.7       18.3       15.9
-----------------------------------------------------------------------------------------------
                                 368.2      364.9       24.5       20.5      368.5      399.9
Unallocated
liabilities                          -          -          -          -     (114.3)    (122.7)
-----------------------------------------------------------------------------------------------
                                 368.2      364.9       24.5       20.5      254.2      277.2
-----------------------------------------------------------------------------------------------

b) After goodwill amortisation and
exceptionals
Analysis by activity
Chromium                         121.9      109.0        7.4      (35.8)      90.3       95.4
Inter-group
turnover                          (5.7)      (6.9)         -          -          -          -
-----------------------------------------------------------------------------------------------
                                 116.2      102.1        7.4      (35.8)      90.3       95.4
Specialties &
Pigments                         209.3      225.0        3.7        0.7      259.7      284.6
Specialty
Rubber                            42.7       37.8       (0.3)      (2.7)      18.5       19.9
Associates                           -          -        0.1        0.1          -          -
-----------------------------------------------------------------------------------------------
                                 368.2      364.9       10.9      (37.7)     368.5      399.9
-----------------------------------------------------------------------------------------------
Geographical analysis
North America                    198.2      191.1        7.0      (39.4)     268.9      278.1
Europe                           144.6      151.4        2.0       (1.0)      81.3      105.9
Rest of the
World                             25.4       22.4        1.9        2.7       18.3       15.9
-----------------------------------------------------------------------------------------------
                                 368.2      364.9       10.9      (37.7)     368.5      399.9
Unallocated
liabilities                          -          -          -          -     (114.3)    (122.7)
-----------------------------------------------------------------------------------------------
                                 368.2      364.9       10.9      (37.7)     254.2      277.2
-----------------------------------------------------------------------------------------------


3 Exceptionals
                                                     2003       2002
                                                 £million   £million

Operating exceptionals:
Restructuring costs 1                                 1.7          -
Chromium insurance recovery                          (0.8)      (1.0)
Impairment charge against Chromium assets               -       35.4
Restructuring of combined Chromium businesses           -        5.1
Restructuring of Linatex business                     0.3        0.7
Restructuring of Specialties & Pigments Birtley
operation                                               -        4.5
----------------------------------------------------------------------
                                                      1.2       44.7
Non-operating exceptionals:
Profit on disposal of properties - continuing           -       (4.8)
operations
Profit on disposal of properties - discontinued
operations                                           (0.8)      (1.4)
Loss on disposal of businesses - continuing             -        2.9
operations
Profit on disposal of businesses - discontinued
operations                                              -       (1.0)
----------------------------------------------------------------------
                                                     (0.8)      (4.3)
----------------------------------------------------------------------
                                                      0.4       40.4
Tax charge / (credit) on exceptionals                 0.2       (3.6)
----------------------------------------------------------------------
                                                      0.6       36.8
----------------------------------------------------------------------

1      The exceptional restructuring costs arose following the introduction of
an enterprise resource planning system and subsequent re-organisation of
financial and administrative activities into two shared service centres.

4 Net interest payable
                                                  2003       2002
                                              £million   £million
a) Interest on net borrowings
Interest payable:
On bank loans                                      3.0        3.2
On other loans                                     0.2        0.2
-------------------------------------------------------------------
                                                   3.2        3.4
Interest receivable:
On bank deposits                                  (0.8)      (1.5)
On other loans                                    (0.5)         -
-------------------------------------------------------------------
                                                  (1.3)      (1.5)
-------------------------------------------------------------------
                                      Total        1.9        1.9
b) Other finance charges/(income)
Unwind of discount on provisions                   0.9        1.0
Pension and post-retirement liabilities            4.2       (0.1)
Interest receivable in respect of corporation
tax refunds                                       (0.8)      (2.0)
------------------------------------------------------------------
                                      Total        4.3       (1.1)
-------------------------------------------------------------------
Net interest payable                               6.2        0.8
-------------------------------------------------------------------


5 Taxation
Analysis of tax charge in the year:
                                                      2003       2002
                                                  £million   £million
Current tax:
UK corporation tax at 30.0%                              -        2.2
Overseas corporation tax                               1.8        1.4
Adjustments in respect of prior years                 (1.0)      (1.0)
Recoverable ACT                                          -       (1.5)
-----------------------------------------------------------------------
Total current tax                                      0.8        1.1
Deferred tax:
United Kingdom                                        (1.4)       0.3
Overseas                                              (0.5)      (7.6)
Adjustments in respect of prior periods                1.2        2.3
Recoverable ACT                                        1.0        0.4
-----------------------------------------------------------------------
Total deferred tax                                     0.3       (4.6)
-----------------------------------------------------------------------
Tax charge/(credit)                                    1.1       (3.5)
-----------------------------------------------------------------------

6 Earnings/(loss) per ordinary share
                                          2003                              2002
                                                                      
                                       Weighted                           
                            Profit      average                   Loss   Weighted         
                           for the       number   Earnings     for the    average   Earnings
                         Financial           of        per   financial  number of        per
                              year       shares      share        year     shares      share
                          £million      million      pence    £million    million      pence
Basic
earnings/(loss)
per share                        4.3      431.6        1.0       (30.8)      431.6      (7.1)
Share options                      -        6.2          -           -         3.5         -
----------------------------------------------------------------------------------------------
Diluted
earnings/(loss)
per share                        4.3      437.8        1.0       (30.8)      435.1      (7.1)
----------------------------------------------------------------------------------------------

Basic
earnings/(loss)
per share                        4.3      431.6        1.0       (30.8)      431.6      (7.1)
Goodwill
amortisation
net of
taxation                         8.0          -        1.9         8.7           -       2.0
Exceptionals
net of
taxation                         0.6          -        0.1        36.8           -       8.5
----------------------------------------------------------------------------------------------
Basic earnings per share
before goodwill
amortisation
and
exceptionals                    12.9      431.6        3.0        14.7       431.6       3.4
Share options                      -        6.2          -           -         3.5         -
----------------------------------------------------------------------------------------------
Diluted earnings per
share before goodwill
amortisation
and
exceptionals                    12.9      437.8        3.0        14.7       435.1       3.4
----------------------------------------------------------------------------------------------

Earnings per share before goodwill amortisation and exceptionals provides a
measure of the underlying financial performance of the Group on a comparable
basis with many other groups.

7 Net cash inflow from operating activities
                                                            2003       2002
                                                        £million   £million
Operating profit / (loss)                                   10.9      (37.7)
Operating exceptionals                                       1.2       44.7
Goodwill amortisation                                       12.4       13.5
Depreciation (less grants credited)                         15.6       18.3
-----------------------------------------------------------------------------
Earnings before interest, tax, depreciation and
amortisation                                                40.1       38.8
Share of profits of associated undertakings                 (0.1)      (0.1)
Cash inflow on exceptionals                                  0.2        0.3
Decrease/(increase) in stocks                                4.8       (3.0)
(Increase)/decrease in debtors                              (2.8)       0.6
(Decrease)/increase in creditors                            (4.9)       7.3
Provisions movement                                         (8.7)      (2.6)
Pension contributions net of current service cost          (10.3)      (3.3)
-----------------------------------------------------------------------------
                                                            18.3       38.0
-----------------------------------------------------------------------------

8 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 the repayment of export refunds
to the Intervention Board for Agricultural Produce (now the Rural Payments
Agency). The Group has recently been informed that the amount of the repayment
has been agreed between Pauls Malt Limited and the Rural Payments Agency. Should
a warranty 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.

9 Annual General Meeting

The Annual General Meeting of Elementis plc will be held on 22 April 2004 at
11am at The Lincoln Centre, 18 Lincoln's Inn Fields, London WC2A 3ED.









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