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Elementis PLC (ELM)

  Print      Mail a friend       Annual reports

Wednesday 28 July, 2004

Elementis PLC

Interim Results

Elementis PLC
28 July 2004



PRESS INFORMATION


28 July 2004

                                 ELEMENTIS plc

              INTERIM RESULTS FOR THE HALF YEAR ENDED 30 JUNE 2004

   • Sales £176.8 million (2003: £188.7 million); $321.6 million (2003:
     $303.3 million)
   • Price increases implemented across all businesses
   • Servo integration benefits of £2.5 million in operating profits expected
     by end 2006


Before goodwill amortisation and exceptionals:

   • Operating profit £5.7 million (2003: £14.5 million)
   • Profit before tax £3.1 million (2003: £11.4 million)
   • Earnings per share 0.6 pence (2003: 2.0 pence)

After goodwill amortisation and exceptionals:

   • Operating (loss)/profit £(0.9) million (2003: £7.3 million)
   • (Loss)/profit before tax £(3.5) million (2003: £5.0 million)
   • (Loss)/earnings per share (0.7) pence (2003: 1.0 pence)


Geoff Gaywood, Chief Executive of Elementis plc, said:

'In US dollars, sales increased by 6 per cent overall. As anticipated, sales in
our Chromium business declined by 4 per cent due to the impact of price erosion,
an unfavourable business mix relating to the de-registration of CCAs and volumes
lost as a result of the first round of price increases. In sterling, total Group
sales were 6 per cent lower at £176.8 million, reflecting the impact of the
weaker dollar.

'Inflationary cost pressures, currency effects and a decline in performance at
Chromium have substantially impacted operating profit during the first six
months of 2004.

'Given current trends, we anticipate that an improvement in operating profit is
likely to be evident in the second half.'

                                    - 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 plc
Tel: +44 (0)1784 227 000
Geoff Gaywood                Chief Executive
Brian Taylorson              Finance Director
Hilary Reid Evans            Head of Corporate Communications


Brunswick Group LLP
Tel: +44 (0) 207 404 5959
Andrew Fenwick
Wendel Carson


Chairman's Statement

When measured in US dollars, the operating currency for the Group, sales for
Elementis plc increased by 6 per cent to $321.6 million compared to the first
half of 2003. On conversion to sterling, the reporting currency for the Group,
sales declined by 6 per cent to £176.8 million, reflecting the continued
weakness of the US dollar.

Operating profit, before goodwill amortisation and exceptionals, was
£5.7 million, down from £14.5 million in the same period last year. Operating
profit at Elementis Chromium declined by £6.1 million largely due to price
erosion, an unfavourable business mix caused by the de-registration of chromated
copper arsenate (CCA) and volumes lost as a result of first round price
increases. Inflationary cost pressures and adverse currency movements
significantly affected operating profit performance across all four Elementis
businesses, offsetting good underlying sales growth in Elementis Specialties,
Elementis Pigments and Specialty Rubber.

The Elementis Specialties business has continued to show signs of accelerated
organic growth following implementation of its innovation strategy. The
acquisition of Sasol Servo B.V., which will add to future revenue and earnings
growth in Elementis Specialties, was completed on 30 June 2004.

Currency movements
Exchange rate movements have continued to be a significant factor in the period.
The average US dollar rate was 13 per cent weaker against sterling versus the
prior year and the euro was 1 per cent weaker. These movements lowered dollar
and euro denominated sales reported in sterling, and impacted margins.

For the Group as a whole currency movements reduced operating profit by
£2.7 million versus the same period last year.

Dividends and issue of redeemable B shares
The Board has not declared an interim ordinary dividend. Instead, it will
continue with the programme, started in 2000, of issuing and redeeming
redeemable B shares. The Board intends to issue further redeemable B shares to
ordinary shareholders on the register on 27 October 2004, such that they receive
redeemable B shares with a total nominal value of 1.1 pence for each ordinary
share held. The Board believes that this is appropriate for the business, taking
into account our stated strategy to focus on growth.

The issue will be coupled with an offer to redeem the new shares for cash at
their nominal value on 2 November 2004. 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 the same date.

A circular providing full details of the issue and redemption of redeemable
B shares will be posted to all ordinary shareholders on 24 September 2004.

Board change
It is with great pleasure I welcome Dr Keith Hopkins to the Board. Keith is
non-executive Chairman of Scapa Group plc and a non-executive Director of
British Vita plc. He was non-executive Chairman of Croda International plc from
1999 to 2001 and Chief Executive of Croda from 1987 to 1999. Keith brings with him
a wealth of chemicals industry expertise, particularly in the Specialty
Chemicals sector. It is anticipated that Keith will assume the role of
non-executive Chairman of Elementis plc when I retire from the Board in October
2004.

Current trading and outlook
As anticipated first half results for 2004 have shown higher US dollar sales
while operating profit has been significantly impacted by inflationary cost
pressures, currency effects across all businesses and reduced profitability at
Elementis Chromium. Given current market trends the Board continues to
anticipate that an improvement in operating profit performance will be evident
in the second half.

Jonathan Fry
Chairman
28 July 2004


Chief Executive's Strategic and Operating Review

Strategic Progress Report
Our key objectives for 2004 include an acceleration of growth in Elementis
Specialties, margin recovery in Elementis Chromium, commissioning of the new
Elementis Pigments plant in China, continued strong top line growth in Specialty
Rubber and completion of implementation of the Elementis ERP system.

Substantial progress has been made towards all these goals during the first half
of 2004. Elementis Specialties has shown an increased rate of sales growth, with
market share gains across targeted market sectors. The integration of the
recently acquired Sasol Servo B.V. business is in progress and will add further
revenue and earnings growth for Elementis Specialties. Elementis Chromium has
implemented a price increase programme to offset cost pressures and improve
margins. By the end of the first half of 2004 the volume lost due to the
de-registration of CCA for residential use had been replaced, albeit in lower
margin sectors. Commissioning of the new Elementis Pigments plant will begin in
the second half of 2004 and two of our four businesses - Elementis Specialties
and Elementis Chromium - have now successfully 'gone live' with the Elementis
ERP system. Elementis Specialty Rubber and Elementis Pigments are expected to
complete implementation during 2004/5.

Six Sigma benefits during the first half year were £0.8 million. A number of
senior Six Sigma practitioners (Black Belts) have continued on temporary
assignment to the ERP programme, reducing the savings directly attributable to
Six Sigma in the period. Total accumulated benefits from the Six Sigma programme
since its introduction in 2001 are in excess of £9.0 million. Six Sigma is a
methodology widely used in process industries to increase quality and efficiency
by reducing process variability.

Health, safety and the environment have received continued emphasis during the
first half of 2004 with the Group's safety record to date showing significant
improvement. The Group's Sustainable Development report, first issued this year,
has met with widespread approval. Elementis Chromium has won the first ever
Chemical Industries Association Sustainable Development Award, with the judges
commenting that the Group's Sustainable Development report is considered best
practice for the industry.

Specialties and Pigments
At Elementis Specialties an improvement in market demand has been experienced
across all product and geographic areas in the first half of 2004. Market prices
generally are showing an upward trend, progressively mitigating increased
energy, raw material and freight costs. In the critical North American coatings
market, indications are that seasonal demand will exceed that experienced in
2003. The construction sector is showing signs of accelerating growth rates. The
consumer products market continues to experience solid growth. Elementis
Specialties has achieved market share gains in its key product markets and sales
in both Europe and the Far East continue to exceed expectations.

Elementis Specialties strategy is targeted on the achievement of leadership in
the high margin and growth sectors of rheology and surface chemistry. Key to the
achievement of this strategy is the need to gain technology leadership in
targeted sectors. Elementis Specialties has developed a number of new product
and technology concepts. It has established a solid pipeline of projects and is
on schedule to deliver further new products to the market in 2004.

The Elementis Specialties 'Customer Intimacy' programme, which seeks to
constantly improve and develop the quality of the customer interface, has
continued to deliver benefits during the first half of 2004. New product-related
orders were generated from existing customers and new customers were added to
the customer base.

In addition to innovation and customer development activities, which are
expected to generate sustainable double digit organic sales growth, Specialties
delivered the first major acquisition in line with its stated strategy. The
purchase of Sasol Servo B.V. was announced in April 2004 and the transaction
completed on 30 June 2004. Servo's turnover in the year to 30 June 2004 was
£70.9 million (2003: £73.9 million). The Servo business is now being integrated
into the Elementis Specialties organisation where it is expected to contribute
to accelerated future revenue and earnings growth. The acquisition brings with
it complementary rheology and surface chemistry additive products, which will
broaden the range and performance characteristics of the Elementis Specialties
product portfolio. Servo also brings with it an important new product and
knowledge base in the area of surfactant development and manufacture. This
knowledge base is expected to significantly expand the Elementis Specialties
innovation platform.

The Servo site at Delden, The Netherlands, is a well-invested and versatile
manufacturing facility that will augment the capacity and flexibility of
Elementis Specialties.

At this early stage of the integration process, it is estimated that operating
efficiencies will improve annual operating profit by approximately £2.5 million
by the end of the second year of combined operations. One time implementation
costs will be of a similar amount.

Elementis Specialties went live with the Elementis ERP system in late 2003 and
it is now fully operational. Benefits are expected to begin to accrue during the
latter part of 2004.

At Elementis Pigments, global demand has been strong throughout the first half
of 2004, and sales have continued to grow in the premium sector of the market,
particularly in North America. On a like for like basis, allowing for businesses
disposed in the previous year, sales were significantly ahead of the same period
in 2003.

During the period the cost of raw materials, in particular the cost of steel
scrap, a key input to the Pigments production process, significantly increased.
The steel scrap supply situation eased however during the latter part of the
period and prices have stabilised. An aggressive cost containment programme
remains in place.

A series of phased price increases was successfully introduced from April
onwards.

Construction of the new iron oxide manufacturing plant at Taicang, China,
continues on schedule and commissioning will begin during the second half of
2004. Production at the existing Elementis Pigments manufacturing facility at
Shenzhen, China is at record levels.

Preparation for the implementation of the Elementis ERP system continues, with
Pigments scheduled to 'go live' early in 2005.

Elementis Chromium
Overall volumes at Elementis Chromium were 3 per cent lower than prior year,
largely due to volumes lost during the first round of price increases. The
volume lost due to the de-registration of CCAs for residential use, which
accounted for approximately 12 per cent of Elementis Chromium sales during 2003,
was replaced by sales to Asia, albeit in lower margin sectors, by the
end of the first half of 2004. Average prices improved throughout the first half
of 2004 but were still 5 per cent lower than during the first half of 2003.

Demand, especially in the premium aerospace, refractory and pigments markets,
has recovered in the US and Europe during the period. Global supply and demand
of chrome oxide, chrome sulphate and dichromate are closely balanced and prices
have moved upwards, albeit from a historic low. Rationalisation of the industry
is expected to continue, driven by both economic and environmental factors and
geographically focussed on the Far East. China and Japan have become significant
net importers of chromium chemicals. Elementis is now the world's largest
supplier to the Asia Pacific market, which has increasing strategic
significance.

Costs of energy, freight and sulphuric acid have moved upwards significantly
throughout the first half year, with consequent margin impacts. Currency had a
negative effect on operating profit, largely due to the weaker dollar.

Phased price increases, introduced by Elementis Chromium from January 2004, have
now reversed the previous downward pricing trend. Further price increases have
been announced for the third quarter and it is anticipated that prices will
continue to move upwards during the latter part of the year. It is anticipated
that margins will consequently improve. General market prices are increasing,
availability of all chromium chemicals is tightening and producers are running
at high levels of capacity utilisation.

During the first half of 2004 Elementis Chromium successfully implemented the
Elementis ERP programme, the second of the four Elementis businesses to do so.
It is expected that benefits from this implementation will be fully realised
from 2005 onwards.

Specialty Rubber
Sales revenues have continued to increase at a robust rate. Sales into all
geographic regions have increased over 2003 levels, with Asia Pacific in
particular showing significant growth. The extent of the opportunity for
Specialty Rubber products in China is currently being assessed. Implementation
of an expansion strategy into the high-growth Latin American market is underway
with a planned joint venture in Chile expected to accelerate growth in this
region.

Specialty Rubber sales have increased in South Africa when compared with the
same period last year. This is largely due to a re-focused management team
effort, aided by higher mining maintenance spend as equipment purchases are
delayed.

A general round of price increases and an improved sales mix have helped improve
underlying operating profit in the period, despite an increase in both steel and
latex prices.

Optimisation of production at the Malaysian plant has continued throughout the
period.

Specialty Rubber will begin to go live with the Elementis ERP programme in the
second half of 2004. Implementation costs are expected to impact profitability
throughout 2004, with longer term business benefits accruing from 2005 onwards.

Board Change
Jonathan Fry, the current Chairman of Elementis plc, will retire from the Board
on 7 October 2004. I would like to pay tribute to the invaluable contribution
Jonathan has made as Chairman of Elementis plc and previously as Chairman of
Harrisons & Crosfield, since joining the Group in 1997. Jonathan's outstanding
leadership has guided Elementis from its creation through challenge and
transformation in the past few years to a new threshold of development and
growth. It is intended that Dr Keith Hopkins will assume the role of Chairman,
following Jonathan's retirement. I am delighted to welcome Keith to the Board.
He brings with him a wealth of experience and insight specific to our industry
and is ideally suited to lead the Board in the next phase of the development of
Elementis as a leading global specialty chemical company.

Geoff Gaywood
Chief Executive
28 July 2004




Financial review of operations
for the six months to 30 June 2004
----------------------------------------------------------------------------------------------------
                   2004            2004           2004       2003            2003            2003
                  Sales       Operating      Operating      Sales       Operating       Operating
                                 profit     loss after                     profit          profit
                        before goodwill       goodwill            before goodwill  after goodwill
                           amortisation   amortisation               amortisation    amortisation
                                    and            and                        and             and
                           exceptionals   exceptionals               exceptionals    exceptionals
               £million        £million       £million   £million        £million        £million
----------------------------------------------------------------------------------------------------
Specialties
and Pigments      104.0             7.2            1.6      108.1             9.7             2.0
----------------------------------------------------------------------------------------------------
Chromium           53.1            (1.3)          (2.3)      62.4             4.8             5.4
---------------------------------------------------------------------------------------------------
Specialty
Rubber             22.7            (0.2)          (0.2)      21.2               -            (0.1)
---------------------------------------------------------------------------------------------------
Inter-group        (3.0)              -              -       (3.0)              -               -
---------------------------------------------------------------------------------------------------
                  176.8             5.7           (0.9)     188.7            14.5             7.3
---------------------------------------------------------------------------------------------------



Financial results
Sales for the first half of 2004 were £176.8 million, 6 per cent lower than the
same period in 2003. On a constant currency basis, and after allowing for
businesses disposed in the previous year, net sales increased by 1 per cent. A
4 per cent improvement in Specialties and Pigments and a 7 per cent increase in
Specialty Rubber was offset by a 7 per cent decline in Chromium.

Sales volumes increased by 3 per cent with increases in Specialties and Pigments
and Specialty Rubber being offset by lower volumes in Chromium. In terms of
geography, lower volumes in North America and Europe, largely due to the loss of
CCA business in the US and the effect of price increases in Chromium, were more
than offset by increased volumes into Asia and the Rest of the World.

Operating profit before goodwill amortisation and exceptionals was £8.8 million
(61 per cent) below the same period last year at £5.7 million. The improvement
in constant currency sales was offset by increases in raw material and freight
costs of around £3.0 million and increases in energy costs of £1.6 million. The
weaker US dollar was largely responsible for adverse currency movements, which
reduced operating profit by £2.7 million. The first half of 2004 also included
planned spending increases on the Group's ERP implementation and the Innovation
programme in Specialties.

Profit before tax, goodwill and exceptionals was £3.1 million versus
£11.4 million in the first half of 2003, while basic earnings per share were
0.6p versus 2.0p last year, largely due to lower operating profit.

The Group recorded a loss after tax of £3.1 million for the period versus a
profit of £4.2 million in the first half of 2003. This was after charging
goodwill amortisation of £5.6 million (2003: £6.3 million) and exceptional items
of £1.0 million (2003: £0.1 million).

The Group's basic earnings per share was a loss of 0.7p in the current period
versus basic earnings per share of 1.0p in the first half of 2003.

Specialties and Pigments
Sales in Specialties and Pigments were £104.0 million in the first half of 2004,
4 per cent lower than the same period last year. On a constant currency basis,
and after allowing for businesses disposed in the previous year, sales increased
by 4 per cent.

Operating profit before goodwill and exceptionals was £7.2 million versus
£9.7 million in the same period last year.

Sales in Specialties in the first half of 2004 were down 4 per cent versus the
first half of 2003, while on a constant currency basis they were up 3 per cent.
Volumes were up 8 per cent largely due to new business in the growing but lower
margin markets in Asia, Latin America and the Middle East. Additional sales to
some larger customers where rebates are more prominent had a mitigating effect
on realised sales values and margins. Prices improved in some key sectors, but
were on average at levels similar to the previous year.

Operating profit was lower than the first half of 2003. Higher constant currency
sales were offset by higher energy, raw material and freight costs, as well as
planned spending increases in innovation and ERP implementation costs. Currency
also negatively impacted operating profit.

Sales in Pigments for the first half of 2004 were 4 per cent lower than the
previous year. On a constant currency basis, and after allowing for businesses
disposed in the previous year, sales were up 7 per cent. Volumes improved by
4 per cent and prices improved in key sectors.
Operating profit was lower than the first half of 2003. Higher sales on a
constant currency basis were offset by higher raw material costs, while the
impact from energy and currency was relatively small.

Chromium
Sales in Chromium for the first half of 2004 were £53.1 million, down 15 per
cent versus the same period last year. On a constant currency basis sales were
down 7 per cent. Overall volumes were lower by 3 per cent versus the first half
of 2003, largely due to volumes lost during the first round of price increases.
The loss of CCA business for residential use in the US was replaced by sales
into Asia, albeit at lower margins. Average prices improved throughout the first
half of 2004, but were still 5 per cent lower than the first half of 2003.

Chromium reported an operating loss of £1.3 million before exceptionals for the
first half of 2004, versus a profit of £4.8 million for the same period last
year. In addition to the lower constant currency sales, energy costs increased
by £1.2 million and currency negatively impacted operating profit by
£1.8 million.

Specialty Rubber
Sales increased by 7 per cent in the first half of 2004 to £22.7 million and
overall currency effects were minimal. Volumes were up 6 per cent and average
prices were up 2 per cent.

An operating loss of £0.2 million was recorded for the first half of 2004,
versus break even for the same period last year. Higher sales were offset by
higher raw material costs plus additional spending in preparation for the ERP
implementation planned for later this year.

Exceptionals
Net exceptional charges before tax were £1.0 million (2003: £0.1 million) and
comprised redundancy costs incurred at Chromium's Eaglescliffe site following a
review of business processes.

Interest
£million                                                 2004             2003
--------------------------------------------------------------------------------
On net borrowings                                         1.7              1.0
Pension finance charge                                    0.4              2.0
Discount on provisions                                    0.5              0.5
Other                                                       -             (0.4)
--------------------------------------------------------------------------------
                                       Total              2.6              3.1
                                    --------------------------------------------

Interest payable on net borrowings was £0.7 million higher than previous year
due to increased borrowings and a higher cost of borrowing.

Pension finance charges are £1.6 million lower than in 2003 due to a lower
pension deficit and an improvement on the expected return on UK scheme assets.

Interest cover (the ratio of operating profit before goodwill amortisation and
exceptionals to interest on net borrowings) was 6.0 times (2003: 8.8 times)

Taxation
Tax (charge)/credit                             £million         Effective rate
Before goodwill amortisation and 
exceptionals                                        (0.7)                  (21)%
Goodwill amortisation                                0.9                    17%
Exceptionals                                         0.2                    20%
--------------------------------------------------------------------------------
                                    Total            0.4                    11%
                                  ----------------------------------------------

In the first half of 2004 the effective rate of tax on profit before goodwill
amortisation and exceptionals was 21 per cent (2003: 25 per cent).

A shortfall in taxable profits in the US restricted the amount of goodwill
amortisation that could be utilised in the first half of 2004. This reduced the
rate of tax relief on goodwill amortisation to 17 per cent (2003: 36 per cent).

Earnings per share
Earnings per share before goodwill amortisation and exceptionals was 0.6 pence
(2003: 2.0 pence) due to the lower operating profit. Earnings per share after
goodwill amortisation and exceptionals was a loss of 0.7 pence (2003: earnings
of 1.0 pence).

Cash Flow
Net borrowings increased by £59.3 million in the period to £106.2 million
primarily as a result of the acquisition of Sasol Servo BV for £34.8 million on
30 June 2004. Working capital increased by £18.8 million (2003: £25.0 million)
reflecting seasonal trading. Although the working capital increase was
£6.2 million lower than in 2003, the prior period reflected unusually high
creditor levels at 31 December 2002 and an additional working capital
requirement from the Oxychem acquisition.

The cash flow is summarised below:

                                                           2004           2003
                                                       £million       £million
--------------------------------------------------------------------------------
Earnings before interest, exceptionals,
depreciation and amortisation                              12.6           22.2
Change in working capital                                 (18.8)         (25.0)
Other                                                      (4.5)          (6.6)
Capital expenditure                                        (9.7)          (8.7)
--------------------------------------------------------------------------------
                                                          (20.4)         (18.1)
--------------------------------------------------------------------------------
Redemption of B shares                                     (4.6)          (4.8)
Acquisitions and disposals                                (34.8)           0.6
Currency translation on net borrowings                      0.5            1.5
--------------------------------------------------------------------------------
                                                          (59.3)         (20.8)
--------------------------------------------------------------------------------
Net borrowings at start of period                         (46.9)         (37.4)
--------------------------------------------------------------------------------
Net borrowings at end of period                          (106.2)         (58.2)
--------------------------------------------------------------------------------

Capital Expenditure
Capital expenditure on fixed assets was £9.7 million (2003: £8.7 million). This
included £0.5 million in respect of the ERP project and £3.4 million on the
construction of the Pigments plant in Taicang, China. Excluding these projects
capital expenditure was 84 per cent of depreciation (2003: 55 per cent).

Balance Sheet
                                                     2004                 2003
                                                 £million             £million
--------------------------------------------------------------------------------
Tangible Fixed Assets                               175.2                160.2
Other net assets                                    174.5                166.3
--------------------------------------------------------------------------------
                                                    349.7                326.5
--------------------------------------------------------------------------------
Shareholders' funds                                 243.5                268.3
Net borrowings                                      106.2                 58.2
--------------------------------------------------------------------------------
                                                    349.7                326.5
--------------------------------------------------------------------------------
Gearing1                                             30%                  18%
--------------------------------------------------------------------------------
1 the ratio of net borrowings to shareholders' funds plus net borrowings


The Group acquired Sasol Servo B.V. for £34.8 million on 30 June 2004. The net
assets acquired, subject to the finalisation of audited completion accounts,
were £28.5 million. Goodwill on the transaction provisionally amounted to
£6.3 million. The fair value exercise is in progress and will be completed for
the year end financial statements.

Currency Effect on Turnover
--------------------------------------------------------------------------------------------
                            Turnover   Effect of   Businesses    Increase/        Turnover
                       Six months to    exchange     disposed   (decrease)   Six months to
                        30 June 2003       rates      in 2003         2004    30 June 2004
                            £million    £million     £million     £million        £million
--------------------------------------------------------------------------------------------

Specialties
and Pigments                   108.1        (7.7)        (0.8)         4.4           104.0
Chromium                        62.4        (5.3)           -         (4.0)           53.1
Specialty
Rubber                          21.2        (0.2)           -          1.7            22.7
Inter-company                   (3.0)        0.2            -         (0.2)           (3.0)
--------------------------------------------------------------------------------------------
                               188.7       (13.0)        (0.8)         1.9           176.8
--------------------------------------------------------------------------------------------

Currency fluctuations negatively impacted shareholders' funds and the reported
result. The main sterling currency exchange rates in the period were:
--------------------------------------------------------------------------------
                                                                
                              2004             2004          2003           2003
                             Period         Average        Period        Average
                                End                           End
-----------------------------------------------------------------------------------
US dollar                      1.81            1.82          1.65           1.61
Euro                           1.49            1.48          1.44           1.47
----------------------------------------------------------------------------------

The majority of the Group's assets are stated in US dollars and the weakening of
the US dollar reduced shareholders' funds by £1.1 million in the first half.

Pensions and other post retirement benefits
The net pension liability was £53.7 million at 30 June 2004 compared to
£52.8 million at 31 December 2003. The pension schemes were not revalued at
30 June 2004 and the net liability calculated by the Group's actuaries at
31 December 2003 has been updated for contributions paid and amounts expensed in
the six months to 30 June 2004. In the first half £3.0 million (2003:
£2.9 million) was charged to the profit and loss account including £0.5 million
(2003: £2.0 million) of finance charges and £3.9 million (2003: £4.1 million)
was paid in contributions. The net pension liability also increased by
£1.8 million at 30 June 2004 following the acquisition of Sasol Servo B.V.

International Accounting Standards
All listed companies are required to present consolidated financial information
that fully complies with International Financing Reporting Standards (IFRS) for
accounting periods starting on or after 1 January 2005.

During 2004, Elementis has implemented its IFRS project plan and has reviewed in
detail all of the International Accounting Standards.

The main differences between IFRS GAAP and UK GAAP that are expected to affect
Elementis are deferred taxation, share based payments, goodwill amortisation,
business combinations, financial instruments and hedging. Elementis is currently
calculating the financial effect of the differences and will incorporate these
into its planning for 2005.

The Group's is considering, in conjunction with its auditor, the optimal way of
presenting the IFRS results in the 2004 Annual Report and as a minimum will
include a reconciliation between the financial statements under UK GAAP and IFRS
GAAP.

Brian Taylorson
Finance Director
28 July 2004



Consolidated profit & loss account
for the six months to 30 June 2004
----------------------------------------------------------------------------------------------------------------
                                    Before
                                  goodwill                                       2004         2003        2003
                              amortisation       Goodwill                  Six months   Six months        Year
                            & exceptionals   amortisation   Exceptionals   to 30 June   to 30 June   to 31 Dec
                       Note       £million       £million       £million     £million     £million    £million
----------------------------------------------------------------------------------------------------------------
Turnover                  2          176.8              -              -        176.8        188.7       368.2
Group operating (loss)/
profit                          
----------------------------------------------------------------------------------------------------------------
Before
goodwill
amortisation
and
exceptionals                           5.7              -              -          5.7         14.5        24.4
Goodwill
amortisation                             -           (5.6)             -         (5.6)        (6.3)      (12.4)
Exceptionals                             -              -           (1.0)        (1.0)        (0.9)       (1.2)
----------------------------------------------------------------------------------------------------------------
                                       5.7           (5.6)          (1.0)        (0.9)         7.3        10.8
----------------------------------------------------------------------------------------------------------------
Associates                               -              -              -            -            -         0.1
----------------------------------------------------------------------------------------------------------------
Operating
(loss)/profit             2            5.7           (5.6)          (1.0)        (0.9)         7.3        10.9
----------------------------------------------------------------------------------------------------------------
Profit on disposal of properties -
discontinued
operations                               -              -              -            -          0.8         0.8
----------------------------------------------------------------------------------------------------------------
(Loss)/profit on ordinary
activities before
interest                               5.7           (5.6)          (1.0)        (0.9)         8.1        11.7
----------------------------------------------------------------------------------------------------------------
                                                                                                 
Net interest
payable                   3           (1.7)             -              -         (1.7)        (0.6)       (1.1)
----------------------------------------------------------------------------------------------------------------
Other finance
charges                   3           (0.9)             -              -         (0.9)        (2.5)       (5.1)
----------------------------------------------------------------------------------------------------------------
(Loss)/profit on ordinary
activities before tax           
-----------------------------------------------------------------------------------------------------------------
Before
goodwill
amortisation
and
exceptionals                           3.1              -              -          3.1         11.4        18.3
Goodwill
amortisation                             -           (5.6)             -         (5.6)        (6.3)      (12.4)
Exceptionals                             -              -           (1.0)        (1.0)        (0.1)       (0.4)
----------------------------------------------------------------------------------------------------------------
                                       3.1           (5.6)          (1.0)        (3.5)         5.0         5.5
 ---------------------------------------------------------------------------------------------------------------
Tax on
(loss)/profit
on ordinary
activities                4           (0.7)           0.9            0.2          0.4         (0.8)       (1.1)
----------------------------------------------------------------------------------------------------------------
(Loss)/profit
on ordinary
activities
after tax                              2.4           (4.7)          (0.8)        (3.1)         4.2         4.4
----------------------------------------------------------------------------------------------------------------
Minority
interests -
equity                                   -              -              -            -            -        (0.1)
----------------------------------------------------------------------------------------------------------------
(Loss)/profit
for the
financial
period                                 2.4           (4.7)          (0.8)        (3.1)         4.2         4.3
----------------------------------------------------------------------------------------------------------------
Basic and diluted
earnings per share     
----------------------------------------------------------------------------------------------------------------
(Loss)/earnings
per ordinary
share                     5                                                      (0.7)p        1.0p        1.0p
----------------------------------------------------------------------------------------------------------------
Earnings per ordinary
share before
goodwill
amortisation
and
exceptionals              5                                                       0.6p         2.0p        3.0p
----------------------------------------------------------------------------------------------------------------

Turnover and operating profit in the current financial period are derived from
continuing operations.

Consolidated balance sheet
at 30 June 2004
--------------------------------------------------------------------------------
                                                    2004       2003       2003
                                                 30 June    30 June     31 Dec
                                                £million   £million   £million
--------------------------------------------------------------------------------
Fixed assets
---------------------------------------------------------------------------------
Goodwill                                           158.2      177.8      159.3
--------------------------------------------------------------------------------
Tangible assets                                    175.2      160.2      157.7
--------------------------------------------------------------------------------
Investment in associated undertakings                3.8        3.4        3.2
--------------------------------------------------------------------------------
                                                   337.2      341.4      320.2
--------------------------------------------------------------------------------
Current assets
--------------------------------------------------------------------------------
Stocks                                              68.1       62.6       54.4
--------------------------------------------------------------------------------
Debtors                                             93.4       79.5       68.9
--------------------------------------------------------------------------------
Cash at bank and in hand                            32.4       38.0       23.8
--------------------------------------------------------------------------------
                                                   193.9      180.1      147.1
--------------------------------------------------------------------------------
Creditors: amounts falling due within one
year                                             
--------------------------------------------------------------------------------
Borrowings                                          (8.7)      (4.4)      (5.3)
--------------------------------------------------------------------------------
Creditors                                          (66.6)     (61.0)     (63.5)
--------------------------------------------------------------------------------
                                                   (75.3)     (65.4)     (68.8)
--------------------------------------------------------------------------------
Net current assets                                 118.6      114.7       78.3
--------------------------------------------------------------------------------
Total assets less current liabilities              455.8      456.1      398.5
--------------------------------------------------------------------------------
Creditors: amounts falling due after more than
one year                                         

Borrowings                                        (129.9)     (91.8)     (65.4)
--------------------------------------------------------------------------------
Government grants                                   (2.4)      (1.4)      (1.3)
--------------------------------------------------------------------------------
                                                  (132.3)     (93.2)     (66.7)
--------------------------------------------------------------------------------
Provisions for liabilities and charges             (24.4)     (28.9)     (24.8)
--------------------------------------------------------------------------------
                                                  (156.7)    (122.1)     (91.5)
--------------------------------------------------------------------------------
Net assets excluding net pension liability         299.1      334.0      307.0
--------------------------------------------------------------------------------
Net pension liability                              (53.7)     (63.8)     (52.8)
--------------------------------------------------------------------------------
Net assets including net pension liability         245.4      270.2      254.2
--------------------------------------------------------------------------------
Capital and reserves
--------------------------------------------------------------------------------
Called up share capital                             23.6       23.3       23.5
--------------------------------------------------------------------------------
Share premium                                        1.2        1.2        1.2
--------------------------------------------------------------------------------
Capital redemption reserve                          66.9       57.7       62.3
--------------------------------------------------------------------------------
Profit and loss account                            151.8      186.1      165.3
--------------------------------------------------------------------------------
Shareholders' funds                                243.5      268.3      252.3
--------------------------------------------------------------------------------
Minority interests                                   1.9        1.9        1.9
--------------------------------------------------------------------------------
                                                   245.4      270.2      254.2
--------------------------------------------------------------------------------
Shareholders' funds
-------------------------------------------------------------------------------
Equity                                             241.5      266.6      250.4
--------------------------------------------------------------------------------
Non-equity                                           2.0        1.7        1.9
--------------------------------------------------------------------------------
                                                   243.5      268.3      252.3
--------------------------------------------------------------------------------

Consolidated cash flow statement
for the six months to 30 June 2004
--------------------------------------------------------------------------------
                                                 2004         2003        2003
                                           Six months   Six months        Year
                                           to 30 June   to 30 June   to 31 Dec
                                    Note     £million     £million    £million
--------------------------------------------------------------------------------
Net cash (outflow)/inflow from
operating activities                   6         (8.5)        (8.2)       18.3
--------------------------------------------------------------------------------
Returns on investments and
servicing of finance                 
--------------------------------------------------------------------------------
Interest received                                 0.3          1.1         2.0
--------------------------------------------------------------------------------
Interest paid                                    (2.0)        (1.8)       (3.6)
--------------------------------------------------------------------------------
                                                 (1.7)        (0.7)       (1.6)
--------------------------------------------------------------------------------
Taxation                                         (0.5)        (0.8)       (1.3)
--------------------------------------------------------------------------------
Capital expenditure and financial
investment                           
---------------------------------------------------------------------------------
Purchase of fixed assets                         (9.7)        (8.7)      (21.0)
--------------------------------------------------------------------------------
Disposal of fixed assets                            -          0.3         0.4
--------------------------------------------------------------------------------
Disposal of properties -                            -          1.0         1.1
exceptional                          
--------------------------------------------------------------------------------
                                                 (9.7)        (7.4)      (19.5)
Acquisitions and disposals
--------------------------------------------------------------------------------
Acquisition of business                         (34.8)           -           -
--------------------------------------------------------------------------------
Acquisition of businesses in prior
periods                                             -         (0.4)       (0.3)
--------------------------------------------------------------------------------
                                                (34.8)        (0.4)       (0.3)
--------------------------------------------------------------------------------
Cash outflow before use of liquid
resources and financing                         (55.2)       (17.5)       (4.4)
--------------------------------------------------------------------------------
Financing
--------------------------------------------------------------------------------
Redemption of B shares                           (4.6)        (4.8)       (9.5)
--------------------------------------------------------------------------------
Increase/(decrease) in borrowings
due                                               3.6         (0.6)        0.2
within one year                     
--------------------------------------------------------------------------------
Increase/(decrease) in borrowings
repayable after one year                         65.6         15.6        (7.0)
--------------------------------------------------------------------------------
Capital element of finance lease
payments                                            -            -        (0.2)
--------------------------------------------------------------------------------
                                                 64.6         10.2       (20.9)
 -------------------------------------------------------------------------------
Management of liquid resources
--------------------------------------------------------------------------------
(Increase)/decrease in cash                      (9.0)         4.1        14.5
deposits                             
--------------------------------------------------------------------------------
Increase/(decrease) in cash in the
period                                            0.4         (3.2)       (6.4)
--------------------------------------------------------------------------------

Reconciliation of net cashflow to movement in net borrowings
for the six months to 30 June 2004
--------------------------------------------------------------------------------
                                                 2004         2003        2003
                                           Six months   Six months        Year
                                           to 30 June   to 30 June   to 31 Dec
                                             £million     £million    £million
--------------------------------------------------------------------------------
Change in net borrowings resulting from
cash flows:                                    
--------------------------------------------------------------------------------
Increase/(decrease) in cash in the
period                                            0.4         (3.2)       (6.4)
--------------------------------------------------------------------------------
(Increase)/decrease in borrowings               (69.2)       (15.0)        7.0
--------------------------------------------------------------------------------
Increase/(decrease) in liquid resources           9.0         (4.1)      (14.5)
--------------------------------------------------------------------------------
                                                (59.8)       (22.3)      (13.9)
--------------------------------------------------------------------------------
New finance leases                                  -            -        (0.6)
--------------------------------------------------------------------------------
Currency translation differences                  0.5          1.5         5.0
--------------------------------------------------------------------------------
Increase in net borrowings                      (59.3)       (20.8)       (9.5)
--------------------------------------------------------------------------------
Net borrowings at beginning of the
financial period                                (46.9)       (37.4)      (37.4)
--------------------------------------------------------------------------------
Net borrowings at end of the financial
period                                         (106.2)       (58.2)      (46.9)
--------------------------------------------------------------------------------



Consolidated statement of total recognised gains and losses
for the six months to 30 June 2004
 -------------------------------------------------------------------------------
                                                2004         2003        2003
                                          Six months   Six months        Year
                                          to 30 June   to 30 June   to 31 Dec
                                            £million     £million    £million
-------------------------------------------------------------------------------
(Loss)/profit for the financial period          (3.1)         4.2         4.3
-------------------------------------------------------------------------------
Actuarial gain on pension and other post
retirement schemes                                 -            -         6.0
-------------------------------------------------------------------------------
Deferred tax associated with pension and
other post retirement schemes                      -            -        (2.3)
-------------------------------------------------------------------------------
Currency translation differences                (1.1)        (6.4)      (21.5)
-------------------------------------------------------------------------------
Total recognised gains and losses for
the financial period                            (4.2)        (2.2)      (13.5)
-------------------------------------------------------------------------------



Reconciliation of movements in shareholders' funds

for the six months to 30 June 2004
-------------------------------------------------------------------------------
                                              2004          2003         2003
                                        Six months    Six months         Year
                                        to 30 June     to 30 June   to 31 Dec
                                          £million      £million     £million
-------------------------------------------------------------------------------
(Loss)/profit for the financial period        (3.1)          4.2          4.3
-------------------------------------------------------------------------------
Redemption of redeemable B shares             (4.6)         (4.8)        (9.5)
-------------------------------------------------------------------------------
Other recognised gains and losses             (1.1)         (6.4)       (17.8)
-------------------------------------------------------------------------------
Net decrease in shareholders' funds           (8.8)         (7.0)       (23.0)
-------------------------------------------------------------------------------
At beginning of the financial period         252.3         275.3        275.3
-------------------------------------------------------------------------------
At end of the financial period               243.5         268.3        252.3
-------------------------------------------------------------------------------

Notes to the financial statements

1         Accounting policies
Basis of preparation The financial information for the first six months of 2004
and 2003, which is unaudited but has been reviewed by the Company's auditor,
does not constitute statutory accounts within the meaning of section 240 of the
Companies Act 1985 and, is presented on the basis of accounting policies set out
in the financial statements of Elementis plc for the year ended 31 December
2003.

2         Segmental information

--------------------------------------------------------------------------------------------
                            Group turnover                 Group operating profit/(loss)
                        2004         2003        2003         2004         2003        2003
                  Six months   Six months        Year   Six months   Six months        Year
                  to 30 June   to 30 June   to 31 Dec   to 30 June   to 30 June   to 31 Dec
                    £million     £million    £million     £million     £million    £million
---------------------------------------------------------------------------------------------
a) Before goodwill
amortisation and
exceptionals
Analysis by activity
---------------------------------------------------------------------------------------------
Chromium                53.1         62.4       121.9         (1.3)         4.8         6.8
---------------------------------------------------------------------------------------------
Inter-group
turnover                (3.0)        (3.0)       (5.7)           -            -           -
---------------------------------------------------------------------------------------------
                        50.1         59.4       116.2         (1.3)         4.8         6.8
---------------------------------------------------------------------------------------------
Specialties
and Pigments           104.0        108.1       209.3          7.2          9.7        17.6
---------------------------------------------------------------------------------------------
Specialty
Rubber                  22.7         21.2        42.7         (0.2)           -           -
---------------------------------------------------------------------------------------------
Associates                 -            -           -            -            -         0.1
---------------------------------------------------------------------------------------------
                       176.8        188.7       368.2          5.7         14.5        24.5
---------------------------------------------------------------------------------------------
Analysis by area
of operations       
---------------------------------------------------------------------------------------------
North America           88.6        101.2       198.2          7.7         10.6        18.7
---------------------------------------------------------------------------------------------
Europe                  74.0         75.7       144.6         (3.3)         2.9         3.9
---------------------------------------------------------------------------------------------
Rest of the
World                   14.2         11.8        25.4          1.3          1.0         1.9
---------------------------------------------------------------------------------------------
                       176.8        188.7       368.2          5.7         14.5        24.5
---------------------------------------------------------------------------------------------

b) After goodwill amortisation and exceptionals  

---------------------------------------------------------------------------------------------

Analysis by
activity        
---------------------------------------------------------------------------------------------
Chromium                53.1         62.4       121.9         (2.3)         5.4         7.4
---------------------------------------------------------------------------------------------
Inter-group
turnover                (3.0)        (3.0)       (5.7)           -            -           -
---------------------------------------------------------------------------------------------
                        50.1         59.4       116.2         (2.3)         5.4         7.4
---------------------------------------------------------------------------------------------
Specialties
and Pigments           104.0        108.1       209.3          1.6          2.0         3.7
---------------------------------------------------------------------------------------------
Specialty
Rubber                  22.7         21.2        42.7         (0.2)        (0.1)       (0.3)
---------------------------------------------------------------------------------------------
Associates                 -            -           -            -            -         0.1
---------------------------------------------------------------------------------------------
                       176.8        188.7       368.2         (0.9)         7.3        10.9
---------------------------------------------------------------------------------------------
Analysis by area
of operations         
---------------------------------------------------------------------------------------------
North America           88.6        101.2       198.2          2.6          4.3         7.0
---------------------------------------------------------------------------------------------
Europe                  74.0         75.7       144.6         (4.8)         2.0         2.0
---------------------------------------------------------------------------------------------
Rest of the
World                   14.2         11.8        25.4          1.3          1.0         1.9
---------------------------------------------------------------------------------------------
                       176.8        188.7       368.2         (0.9)         7.3        10.9
---------------------------------------------------------------------------------------------



3 Net interest payable

--------------------------------------------------------------------------------
                                               2004          2003         2003
                                         Six months    Six months         Year
                                         to 30 June    to 30 June    to 31 Dec
                                           £million      £million     £million
--------------------------------------------------------------------------------
a) Net interest payable:
--------------------------------------------------------------------------------
Interest payable                               (2.0)         (1.7)        (3.2)
--------------------------------------------------------------------------------
Interest receivable - bank                      0.3           0.7          1.3
--------------------------------------------------------------------------------
Interest receivable - corporation tax
refunds                                           -           0.4          0.8
--------------------------------------------------------------------------------
Net interest payable                           (1.7)         (0.6)        (1.1)

b) Other finance charges:
Pension and post-retirement liabilities        (0.4)         (2.0)        (4.2)
--------------------------------------------------------------------------------
Unwind of discount on provisions               (0.5)         (0.5)        (0.9)
--------------------------------------------------------------------------------
Other finance charges                          (0.9)         (2.5)        (5.1)
--------------------------------------------------------------------------------
Total net interest payable                     (2.6)         (3.1)        (6.2)
--------------------------------------------------------------------------------

4 Taxation
The tax charge of £0.7 million (2003: £2.9 million) is based on an estimated
effective tax rate on profit before goodwill amortisation and exceptionals for
the year to 31 December 2004 of 21 per cent (2003: 25 per cent). The rate is
lower than the standard UK corporation tax rate primarily due to the utilisation
of losses and surplus ACT. Tax on exceptionals was a credit of £0.2 million
(2003: charge of £0.2 million).

5 Basic and diluted (loss)/earnings per ordinary share
-------------------------------------------------------------------------------
                                                2004         2003        2003
                                          Six months   Six months        Year
                                          to 30 June   to 30 June   to 31 Dec
                                               pence        pence       pence
                                           per share    per share   per share
-------------------------------------------------------------------------------
Basic (loss)/earnings per ordinary share        (0.7)         1.0         1.0
-------------------------------------------------------------------------------
Goodwill amortisation net of taxation            1.1          0.9         1.9
-------------------------------------------------------------------------------
Exceptionals net of taxation                     0.2          0.1         0.1
-------------------------------------------------------------------------------
Basic earnings per ordinary share before
goodwill amortisation and exceptionals           0.6          2.0         3.0
-------------------------------------------------------------------------------

Basic earnings per ordinary share is based on the loss for the period of
£3.1 million (2003: profit of £4.2 million, year to 31 December 2003: profit of
£4.3 million) and on the weighted average number of ordinary shares in issue
during the period of 431.8 million (2003: 431.6 million, year to 31 December
2003: 431.6 million). Basic earnings per ordinary share before goodwill
amortisation and exceptionals is based on earnings of £2.4 million (2003:
£8.5 million, year to 31 December 2003: £12.9 million).

Diluted earnings per ordinary share are based on an adjusted weighted average
number of shares of 438.5 million (2003: 435.6 million,
year to 31 December 2003: 437.8 million).

6 Net cash flow from operating activities
-------------------------------------------------------------------------------
                                                2004         2003        2003
                                          Six months   Six months        Year
                                          to 30 June   to 30 June   to 31 Dec
                                            £million     £million    £million
-------------------------------------------------------------------------------
Operating profit before goodwill
amortisation and exceptionals                    5.7         14.5        24.5
-------------------------------------------------------------------------------
Depreciation (less grants credited)              6.9          7.7        15.6
-------------------------------------------------------------------------------
Earnings before interest, tax,
depreciation and amortisation                   12.6         22.2        40.1
-------------------------------------------------------------------------------
(Increase)/decrease in stocks                   (4.1)        (1.7)        4.8
-------------------------------------------------------------------------------
Increase in debtors                            (12.9)       (13.9)       (2.8)
-------------------------------------------------------------------------------
Decrease in creditors                           (1.8)        (9.4)       (4.9)
-------------------------------------------------------------------------------
Provisions movement                             (1.4)        (4.7)       (8.7)
-------------------------------------------------------------------------------
Pension contributions net of current
service cost                                    (0.9)        (1.3)      (10.3)
-------------------------------------------------------------------------------
Other                                              -          0.6         0.1
-------------------------------------------------------------------------------
Net cash (outflow)/inflow from operating
activities                                      (8.5)        (8.2)       18.3
-------------------------------------------------------------------------------


7 Acquisition
On 30  June 2004, the company acquired a 100 per cent interest in Sasol Servo
B.V. for a cash consideration of £34.8 million. The net assets acquired, subject
to the finalisation of completion accounts were £28.5 million. Goodwill on the
transaction provisionally amounted to £6.3 million. The fair value exercise is
in progress and will be completed for the year end financial statements. In the
year ended 30 June 2004, Sasol Servo B.V. reported sales of £70.9 million (2003:
£73.9 million) and an operating profit before exceptional items of £2.0 million
(2003: £3.6 million)

8 Contingent liabilities
Particulars of Claim were served on the Company on 2 April 2004 alleging
breaches of warranties under the contract for the sale of Pauls Malt Limited,
relating to the repayment of export refunds to the Department for Environment,
Food and Rural Affairs. The claim which amounts to approximately £5.2 million is
being vigorously defended. The claim was first notified to the Company in 1998.

9 Auditors
As mentioned in the letter from the Chairman of the Company dated 17 March 2004
included in the document sent to shareholders incorporating the notice of Annual
General Meeting of the Company held on 22 April 2004, a review of the
appointment of auditors took place during the first half of the year. As a
result of that review it was decided to appoint KPMG Audit Plc as auditor of the
Company in place of PricewaterhouseCoopers. As a consequence
PricewaterhouseCoopers LLP resigned as auditors of the Company on 18 June 2004
and KPMG Audit Plc was appointed as auditor to fill the casual vacancy created.
A formal resolution to appoint KPMG Audit Plc as auditor of the Company will be
put to the next Annual General Meeting.







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