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Elementis PLC (ELM)

  Print      Mail a friend       Annual reports

Thursday 17 February, 2005

Elementis PLC

Final Results

Elementis PLC
17 February 2005



17 February 2005


                                 ELEMENTIS plc


PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2004



Financial Highlights

   • Sales £389.2 million (2003: £368.2 million)
   • Operating profit before goodwill amortisation and exceptionals £11.8
     million (2003: £24.5 million)
   • Profit before tax, goodwill amortisation and exceptionals £6.2 million
    (2003: £18.3 million)
   • Earnings per share before goodwill amortisation and exceptionals 1.4p
    (2003: 3.0p)
   • Operating loss £2.5 million (2003: profit of £10.9 million)
   • Loss before tax £7.8 million (2003: profit of £5.5 million)
   • Basic loss per share 1.8p (2003: earnings of 1.0p)
   • Net year end borrowings £90.2 million including £36.3 million for the
     acquisition of Sasol Servo (2003: £46.9 million)
   • Net year end gearing 30 per cent* (2003: 16 per cent*)

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


Business Highlights

   • By January 2005 Chromium chemicals prices up 25 per cent from late 2003
     low point
   • Volumes and prices up in Specialties, Pigments and Specialty Rubber
   • Accelerated sales growth and increased synergy expectations in
     Specialties
   • Chinese Pigments plant complete and commissioning underway
   • Specialty Rubber restored to profitability

Geoff Gaywood, Chief Executive of Elementis plc, said:
'Although external conditions were exceptionally challenging, 2004 has seen the
implementation of the major transformational steps in the Elementis strategy.'

'The chromium chemicals market turned and by January 2005 prices had reached
their highest level since 2001. This positive trend is expected to continue.
Specialties completed a key acquisition, the successful integration of which, 
together with geographical expansion and new product introductions drove a 37
per cent sales increase in US dollar terms. Our new world-scale Pigments plant
in China is complete and will transform the cost base of this business.
Specialty Rubber has demonstrated its performance potential and we have now
begun the process of considering the strategic options for this business.'

'However, rapidly escalating energy, raw material and freight costs, adverse
currency movements and extreme weather conditions in Northern and Central
America have hampered performance and eroded profitability.  Higher variable
costs and  and a weak US dollar are likely to remain a challenge in 2005 and are
the subject of intense management focus'

'Current trading conditions are characterised by good demand in all business
sectors and a general upward movement in prices with the benefits of the
structural improvements implemented during 2004 expected to become increasingly 
apparent during 2005. We anticipate progressive price increases in chromium
chemicals,  supported by expanding demand and a tightening of global supply;
organic growth  in Specialties and cost savings ahead of plan from the Sasol
Servo acquisition;  significant cost benefits from the new Chinese pigments
plant; further strong sales  growth at Specialty Rubber and operational
efficiencies as a result of the implementation of the ERP system.'


                                    - 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

Kate Holgate
Wendel Verbeek
Chi Lo

Chairman's Statement

Turnover for the year was £21.0 million higher than 2003 at £389.2 million. Our
acquisition of Sasol Servo accounted for £34.2 million of the increase while
currency effects reduced turnover by £24.3 million.

Operating profit for the year, before goodwill amortisation and exceptional
items, was £11.8 million (2003: £24.5 million). After operating exceptionals of
£2.9 million and goodwill amortisation the operating loss was £2.5 million
(2003: profit of £10.9 million).

Our Chromium business had a turbulent year following the de-registration of CCA
(chromated copper arsenate) in the US for preserving timber for residential use.
Margins were also affected by increased energy and freight costs and the weak
dollar. During 2004 our average chromium chemical prices began to recover and
better margins are expected in 2005 despite increases in input costs.

Elementis Specialties increased underlying sales volumes by 6 per cent. Profits
were 3 per cent lower than 2003 mainly due to a planned increase in innovation
spend and the implementation of a new ERP system. The integration of Sasol
Servo, acquired on 30 June 2004, is proceeding well, with benefits from the
acquisition now expected to exceed initial estimates. Servo complements our
technology and extends our market coverage. Continuing investment in R&D in our
Specialty business is the key both to growth and good margins. Our Innovation
Strategy continues to make good progress.

At Elementis Pigments, the commissioning of the new iron oxide plant at TaiCang,
China, is underway and when fully operational will result in a substantial
reduction in manufacturing cost. Sales turnover grew by 8 per cent in Specialty
Rubber and profits increased as a consequence.

After a tax credit following the resolution of a number of issues, earnings per
share for 2004 before goodwill amortisation and exceptionals, were 1.4 pence
(2003: 3.0 pence). Basic earnings per share were a loss of 1.8 pence
(2003: 1.0 pence). Capital expenditure for the year was £22.0 million (2003:
£21.0 million) compared to depreciation of £15.4 million. With the acquisition
of Servo net debt ended the year at £90.2 million giving an interest cover of
3.1 times.

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 26 April 2005 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.

Strategy
Our objective is to create shareholder value by improving the performance of our
businesses and drive them towards high margin speciality markets for our
products. We intend to intensify our efforts to return our chromium business to
good profitability and have strengthened its top management to achieve this end.
During the course of 2005 we expect further progress in Specialties led by
innovation and cost reductions in Europe, while the year will be one of
transformation for our Pigments business, with the new plant at TaiCang
substantially impacting Pigments' cost base. With the improved results at
Specialty Rubber confirming its performance potential we are now considering the
strategic options for this business.

Health Safety and the Environment
Environmental and safety performance continues to improve and is now first
class. We are planning further initiatives to continue this performance. For the
second year, we will publish a full Sustainable Development Report. Copies of
the document can be obtained from our Corporate Communications department at our
head office in Staines, UK.

The Board
Our previous Chairman, Jonathan Fry, retired from the Board in October 2004,
having served as Chairman of the Group since 1997. Jonathan's leadership guided
Elementis from its creation and helped establish today's solid platform for
growth. We wish him every happiness in his retirement and thank him for his
invaluable contribution to the Group. We have today announced that Dr Kevin
Matthews, Chief Executive of Oxonica Ltd, has joined our board as a
non-executive director. Kevin's experience both of the chemicals industry and of
new technology start-ups brings additional strength to the Board.

People
The progress we have made towards our objectives in 2004 has been realised
thanks to the skill, hard work and commitment of our employees. On behalf of the
directors and shareholders I thank everyone for their contribution.

Outlook
This is my first statement as Chairman. It is clear that the key elements of the
programme to bring about a step change in financial performance of the Group are
in place. After a challenging year we expect to see improvements from our
businesses in 2005. Signs of the long awaited recovery in Chromium are evident
but there remain the continuing challenges of higher input costs and a weak
dollar.


Keith Hopkins
Chairman
17 February 2005



Business Review

Sales volumes rose during 2004 in our Specialties, Pigments and Specialty Rubber
businesses and were flat at Elementis Chromium, where increased sales to China
compensated in volume terms for the loss of the residential market for CCAs in
the US. Prices have risen in all businesses. However these increases were not
sufficient to offset the negative impact on Group profitability of rapidly
escalating energy, raw material and freight costs, adverse currency movements
and extreme weather conditions in Northern and Central America.

Although very challenging, 2004 has seen the successful implementation of some
of the major transformational steps planned as part of the Elementis strategy.
The chromium chemicals market has turned and by January 2005 realised prices
were 25 per cent ahead of the low point of late 2003. Elementis Specialties
completed a key acquisition and growth accelerated. Pigments executed an
investment in China which will transform its cost base. Profitability was
restored in Specialty Rubber and our company-wide ERP implementation progressed
successfully.

At Elementis Specialties our strategy is to achieve sustainable high growth by
expanding our market and technology platforms. Sales at Specialties in 2004 have
increased by approximately 37 per cent in US dollars, with the acquisition of
Sasol Servo, geographical expansion and new product introductions contributing
significantly. Potential synergies from the Sasol Servo acquisition are
currently expected to exceed our original estimates by approximately 40 per
cent.

The Elementis Pigments strategy is to secure leadership in premium markets while
transforming our cost base in Asia Pacific to drive growth and profitability.
Our new world scale Pigments plant in China is now complete and will be in
commercial operation by the end of February 2005.

Following the streamlining of global operations at Elementis Specialty Rubber,
our strategy is to leverage our well-invested, low cost manufacturing cost base,
local market presence in key mining areas, product performance advantages and
brand recognition to drive volume and continue to improve profitability.
Specialty Rubber has maintained high sales growth and delivered a corresponding
improvement in margins. The performance potential of Specialty Rubber has now
been demonstrated and Elementis has therefore begun a process of considering the
strategic options for this business.

At Elementis Chromium, our strategy is to strengthen and leverage our market
leadership to achieve superior returns on capital over the cycle. Elementis
Chromium successfully led a sustained recovery in global prices during 2004,
after a four year period of decline. Margin recovery was not however achieved
during the year, due to intense variable cost pressures and adverse currency
trends, which led to a drop in overall Group profitability. Sales at Elementis
Chromium decreased by 9 per cent to £110.5 million. The operating loss for the
year was £3.8 million compared to a profit of £6.8 million in 2003.

Greg McClatchy, who has led the turn-around in performance at Specialty Rubber
since his appointment as Managing Director in 2002, was appointed as Managing
Director, Elementis Chromium, in February 2005. Neil MacLeod, previously Finance
Director, Specialty Rubber, has taken over as Managing Director, Specialty
Rubber, on an interim basis.

Elementis Chromium announced the first in a series of global price increases at
the end of 2003. Early resulting volume losses were recovered and the prices of
all chromium chemicals have risen world-wide since that time. During the course
of 2004, operations at our plant at Castle Hayne, US, were suspended on two
occasions in anticipation of hurricanes, which resulted in lost production. In
January 2005, aggregated selling prices for Elementis Chromium's products
reached the highest level since December 2001 and were more than 25 per cent
higher than the historic low levels experienced in November 2003.

The trading outlook for Elementis Chromium is encouraging. Fixed costs have been
further lowered as a result of a manufacturing rationalisation at the
Eaglescliffe, UK, plant. Global industry capacity utilisation is now estimated
to be in excess of 90 per cent and it is anticipated this figure will continue
to rise throughout 2005 as demand increases and further industry capacity
rationalisation occurs. Elementis Chromium is today announcing price increases
of up to 20 per cent effective from 1 April 2005. We anticipate that selling
prices for chromium chemicals will continue to increase as the year progresses.

At Elementis Specialties, a recovery in demand in the coatings and construction
markets world-wide, increased sales in Asia Pacific and new product
introductions drove a 6 per cent sales growth in volume terms, excluding the
impact of the Sasol Servo acquisition. Good growth was experienced in the
critical coatings and construction markets, with European sales in particular
showing significant increases. Our oilfield business was however impacted by two
months of hurricane-related oil rig shut-downs in the Gulf of Mexico.

The Specialties Innovation Board has generated a significant number of new
technology platforms and the business is targeted with building a new product
pipeline to deliver sustainable double-digit growth. Innovation spend, despite
2004 increases, is trending towards industry averages, and the contribution of
new products to sales is now growing. Production at the Changxing, China, plant
tripled during 2004. The performance of the Sasol Servo acquisition has fully
met expectations to date. Annualised synergistic benefits, originally estimated
at £2.5 million, are now expected to be £3.5 million. These benefits will be
fully realisable in 2006. In sterling, operating profit before goodwill
amortisation and exceptionals has decreased by 3 per cent, reflecting the impact
of planned increases in innovation spend and ERP implementation costs.

Volumes and turnover continued to improve at Elementis Pigments during 2004.
While price increases and improved volumes had a substantial favourable impact
on profitability, this was reversed by rapidly escalating raw material and
freight prices, and pre-start-up costs for the new Chinese plant. Full-scale
production was rapidly resumed at the plant at Easton, US, following flash
flooding in September. Although the flooding affected performance in 2004, no
long term financial or operating impact is anticipated. In addition to the new
plant at TaiCang, the Pigments plant at Shenzhen, China was expanded. These
activities will substantially lower the aggregate cost base for this business
and provide a strong platform for further growth.

Elementis Specialty Rubber has once again shown significant growth in 2004, with
sales increasing by over 20 per cent in US dollars for the second year in
succession and all regions showing good volume increases. On conversion to
sterling, the sales increase was 8 per cent, again reflecting the impact of the
weaker US dollar. In sterling, Specialty Rubber's operating profit increased
from breakeven in 2003 to £0.2 million in 2004. During the course of 2004 a new
operation was established in China to address the needs of the rapidly
modernising Chinese mining industry, while in January 2005 Specialty Rubber
announced the opening of a new joint venture in Santiago to serve the large,
fast growing Chilean mining market.

Health and Safety
Elementis achieved an outstanding level in its safety performance in 2004 as
evidenced by its lowest ever Recordable Incident Rate of 1.46 per 200,000 hours
for the year. The performance of the Specialties, Chromium and Specialty Rubber
businesses was below 1.0 per 200,000 hours worked, which is in line with the top
quartile of the world's chemical companies.

Sustainable Development
Our Sustainable Development programme, which was summarised in our 2003 annual
report, won the UK Chemical Industry Association's Sustainable Development
Award. Elementis was cited as an example of industry best practice.

ERP
The ERP system was implemented in our Chromium and Specialty Rubber businesses
during 2004, without any significant disruption to operations. Francis Lenders
joined Elementis as Director, Global Supply Chain, in December 2004. Francis is
a member of the Management Team and is charged with bringing operational
excellence to our supply chain operations and ensuring that the full potential
benefits of the ERP system are realised.

Six Sigma
The Elementis Six Sigma programme continued to contribute operational savings in
2004. Since its introduction in 2001, the total accumulated benefits from the
Elementis Six Sigma programme have passed £9.0 million, with total associated
costs estimated at £2.6 million. Six Sigma is a methodology widely used in
process industries to increase quality and efficiency by reducing process
variability.

REACH
Throughout 2004 senior management at Elementis has continued to work alongside
the European and UK chemical industry associations to press for improvements to
the workability of the proposed European REACH (registration, evaluation and
authorisation of chemicals) regulation. While there has been considerable
progress, the proposed regulation still needs substantial improvement to avoid
damaging the competitiveness of the chemical industry, particularly of smaller
companies.

Outlook
Current trading conditions are characterised by good demand in all business
sectors, accompanied by a general upward movement in prices. Continued raw
material, energy and freight cost inflation, combined with the impact of the
weaker US dollar are however ongoing concerns. Variable costs are receiving
intense management focus and are being fixed or hedged as considered
appropriate. We anticipate that the benefits of structural improvements
implemented during 2004 will become apparent during 2005. These improvements
include progressive price increases in chromium chemicals supported by expanding
demand and a tightening of global supply; cost savings and sales growth from the
Sasol Servo acquisition and organic growth at Specialties; the cost benefits of
the new TaiCang plant in Pigments; further strong sales growth at Specialty
Rubber and operational efficiencies as a result of the implementation of the ERP
system.



Financial Review

Sales
--------------------------------------------------------------------------------
                        Sales       Effect of   Acquired   Inc/(dec)      Sales
                         2003   exchange rates   in 2004        2004       2004
                     £million        £million   £million    £million   £million
--------------------------------------------------------------------------------
Specialties &           
Pigments                209.3           (14.4)      34.2         9.1      238.2
--------------------------------------------------------------------------------
Chromium                121.9            (9.5)         -        (1.9)     110.5
--------------------------------------------------------------------------------
Specialty Rubber         42.7            (0.4)         -         3.6       45.9
--------------------------------------------------------------------------------
Inter-company            (5.7)              -          -         0.3       (5.4)
--------------------------------------------------------------------------------
                        368.2           (24.3)      34.2        11.1      389.2
--------------------------------------------------------------------------------

Operating profit before goodwill amortisation and exceptionals
--------------------------------------------------------------------------------
                      Operating   Effect of                          Operating
                        profit*    exchange   Acquired   Inc/(dec)     profit*
                           2003       rates    in 2004        2004        2004
                       £million    £million   £million    £million    £million
--------------------------------------------------------------------------------
Specialties &              
Pigments                   17.7        (0.5)       0.9        (2.7)       15.4
--------------------------------------------------------------------------------
Chromium                    6.8        (2.9)         -        (7.7)       (3.8)
--------------------------------------------------------------------------------
Specialty Rubber              -           -          -         0.2         0.2
--------------------------------------------------------------------------------
                           24.5        (3.4)       0.9       (10.2)       11.8
--------------------------------------------------------------------------------
* before goodwill amortisation and exceptionals

Sales increased by 6 per cent from the previous year to £389.2 million. This
includes Sasol Servo BV, which was acquired on 30 June 2004 and contributed
£34.2 million to sales in the second half. After adjusting for the acquisition
and exchange rates, sales increased by 3 per cent at constant currency.

The sales increase was mainly due to higher volumes at Specialties & Pigments
and Specialty Rubber. Marginally higher average prices for the Group were offset
by adverse mix effects.

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 Pacific and the
rest of the world.

Operating profit before goodwill amortisation and exceptionals was £12.7 million
below previous year at £11.8 million. On a constant currency basis the decrease
was £9.3 million.

The increase in sales was more than offset by increases in raw materials,
freight costs and energy particularly in the second half of 2004, and costs
associated with the implementation of the ERP system.

The operating loss after goodwill amortisation and exceptionals was £2.5 million
(2003: profit of £10.9 million) for the year. Goodwill amortisation in the year
amounted to £11.4 million (2003: £12.4 million) and operating exceptional costs
were £2.9 million (2003: £1.2 million).

Specialties & Pigments
--------------------------------------------------------------------------------
                                                       2004              2003
                                                   £million          £million
--------------------------------------------------------------------------------
Sales                                                 238.2             209.3
--------------------------------------------------------------------------------
Adjusted operating profit *                            15.4              17.7
--------------------------------------------------------------------------------
Operating profit                                        2.4               3.8
--------------------------------------------------------------------------------
* before goodwill amortisation and exceptionals

Sales in Specialties & Pigments increased by 14 per cent to £238.2 million.
After adjusting for the business acquired in June 2004, sales in constant
currency were 4 per cent higher than previous year. This was primarily due to
increased volumes while higher prices were offset by adverse mix in the year due
to higher sales into lower price geographies, such as Asia Pacific.

Operating profit before goodwill amortisation and exceptionals was £2.3 million
lower than the previous year at £15.4 million. After adjusting for acquisitions
and currency, operating profit was £2.7 million lower. Increased volumes were
more than offset by higher raw materials, energy and fixed costs.

Sales in Elementis Specialties on a constant currency basis excluding the
acquisition were 3 per cent higher than the previous year. Volumes were up 6 per
cent largely due to a strong performance in the coatings and construction
sectors, and included new business in the growing but lower margin markets in
Asia, Latin America and the Middle East. Increased 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 similar levels to the previous year.

Operating profit before goodwill amortisation and exceptionals on a constant
currency basis was 5 per cent lower than the previous year. Higher volumes were
offset by adverse mix, planned increases in the innovation programme and ERP
implementation costs.

Sales in Elementis Pigments on a constant currency basis increased by 7 per cent
due to higher volumes and improved pricing. Operating profit was however lower
than the previous year as higher raw material costs and start up costs in
TaiCang, offset volume and price improvements.

Elementis Chromium

--------------------------------------------------------------------------------
                                                    2004                  2003
                                                £million              £million
--------------------------------------------------------------------------------
Sales                                              110.5                 121.9
--------------------------------------------------------------------------------
Adjusted operating (loss)/profit *                  (3.8)                  6.8
--------------------------------------------------------------------------------
Operating (loss)/profit                             (5.1)                  7.4
--------------------------------------------------------------------------------
* before exceptionals

Sales in Elementis Chromium decreased by 9 per cent to £110.5 million and on a
constant currency basis decreased by 2 per cent.

Overall volumes which were 3 per cent down in the first half following an
initial round of price increases, recovered strongly in the second half to be in
line with previous year. The loss of CCA business for residential uses in the
US, which reduced sales by approximately £15.0 million, was offset by strong
demand for Chrome Oxide and by sales into the Asia Pacific market. Prices were
increased throughout the year and average US Dollar prices were around 10 per
cent higher in December 2004 than twelve months earlier. However average pricing
for the whole year was still marginally below that for the previous year, and
accounted for most of the decrease in constant currency sales.

The operating loss before exceptionals for the year was £3.8 million compared to
a profit of £6.8 million in the previous year. The increase in energy costs was
£2.2 million while the weakness of the US Dollar was the main cause of an
adverse currency impact of £2.9 million. Higher raw material and freight costs
accounted for most of the remaining reduction.

Specialty Rubber
--------------------------------------------------------------------------------
                                              2004                        2003
                                          £million                    £million
--------------------------------------------------------------------------------
Sales                                         45.9                        42.7
--------------------------------------------------------------------------------
Adjusted operating profit *                    0.2                           -
---------------------------------------------------------------------------------
Operating profit/(loss)                        0.2                        (0.3)
---------------------------------------------------------------------------------
* before exceptionals

Sales in Specialty Rubber increased by 8 per cent to £45.9  million, due to
strong volume growth largely in Asia Pacific, South Africa and Europe. Higher
sales volumes and improved pricing were partly offset by fixed cost increases.
The operating profit before exceptionals for the year was £0.2 million compared
to break even in the previous year.

Exceptionals
Total exceptional items before taxation in the year were £2.6 million (2003:
£0.4 million). These comprised:

                                                                      £million
---------------------------------------------------------------------------------
Operating :
--------------------------------------------------------------------------------
Redundancy and restructuring costs                                        (2.9)
---------------------------------------------------------------------------------
Non operating:
---------------------------------------------------------------------------------
Profit on disposal of property                                             2.6
--------------------------------------------------------------------------------
Loss on termination of business                                           (2.3)
---------------------------------------------------------------------------------
                                                                          (2.6)
-------------------------------------------------------------------------------
                              
The redundancy and restructuring costs comprise £1.3 million of redundancy costs
at Chromium's Eaglescliffe site and £1.6 million incurred in the first phase of
the integration of Sasol Servo BV following its acquisition in June 2004.

The profit on disposal of property of £2.6 million is from the sale and
leaseback of Specialty Rubber's Yateley, UK property. The loss on termination of
business of £2.3 million is to provide for the book value of the Group's 50 per
cent interest in Enenco together with any residual site clean-up costs. This
follows a decision made by the joint venture parties during 2004 to close the
business.

Interest
--------------------------------------------------------------------------------
                                                      2004                2003
                                                  £million            £million
--------------------------------------------------------------------------------
On net borrowings                                     (3.8)               (1.9)
--------------------------------------------------------------------------------
Pension finance charge                                (1.1)               (4.2)
---------------------------------------------------------------------------------
Discount on provisions                                (0.9)               (0.9)
--------------------------------------------------------------------------------
Other                                                  0.2                 0.8
---------------------------------------------------------------------------------
Total                                                 (5.6)               (6.2)
-------------------------------------------------------------------------------

Interest payable on net borrowings increased during the year by £1.9 million due
to higher borrowings and a higher cost of borrowing. The finance charge in
respect of pension and post-retirement benefits decreased by £3.1 million in the
year due a lower pension deficit and an improvement on the expected return on
pension scheme assets.

Interest cover - the ratio of operating profit before goodwill amortisation and
exceptionals to interest on net borrowings - was 3.1 times (2003: 12.9 times).

Taxation
---------------------------------------------------------------------------------
                                                                     Effective
Tax (charge)/credit                                    £million           rate
--------------------------------------------------------------------------------
Before goodwill amortisation and exceptionals              (0.2)             2%
--------------------------------------------------------------------------------
Goodwill amortisation                                         -              -
---------------------------------------------------------------------------------
Exceptionals                                                0.2              9%
---------------------------------------------------------------------------------
Total                                                         -              -
--------------------------------------------------------------------------------

The effective rate of tax on profit before goodwill amortisation and
exceptionals was 2 per cent (2003: 29 per cent).

The decrease in the rate was due to the resolution of open issues from prior
periods and the utilisation of losses. Potential deferred tax assets of
£28.8 million (2003: £23.2 million) have not yet been recognised.

The effective tax rate on profit before goodwill amortisation and exceptionals
in 2005 will continue to be dependent on the mix of profits primarily between
the UK and overseas.

Earnings per share
Earnings per share for the year was a loss of 1.8 pence per share (2003:
earnings of 1.0 pence per share), mainly due to the lower operating profit for
the year. Earnings per share before goodwill amortisation and exceptionals was
60 per cent lower at 1.4 pence (2003: 3.0 pence) due to the lower operating
profit but partly offset by lower FRS17 pension finance charges and a lower tax
rate.

Dividends and issue of redeemable B shares
The Board did not declare an interim dividend and, similarly, is not proposing a
final dividend. The Board instead intends to continue with the programme,
started in 2000, of issuing and redeeming redeemable B shares.

The total nominal value of redeemable B shares issued to shareholders during
2004 was 2.2 pence per ordinary share.

The Board intends to issue further redeemable B shares to ordinary shareholders
on the register on 26 April 2005, such that they 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. This will be coupled
with an offer to redeem these new shares for cash at their nominal value on
3 May 2005. 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 3 May 2005.

Cash flow
Net borrowings increased by £43.3 million in the year to £90.2 million. The cash
outflow due to changes in working capital increased by £5.1 million as higher
stocks and debtors due to increased volumes and the transitional effects of the
ERP implementation, were partially offset by higher creditors. The ratio of
working capital to sales increased from 17.5 per cent to 18.3 per cent after
adjusting for the acquisition in Specialties which was made part way through the
year.

The cash flow is summarised below:
--------------------------------------------------------------------------------
                                                            2004          2003
                                                        £million      £million
--------------------------------------------------------------------------------
Earnings before interest, tax, exceptionals,
depreciation and amortisation                               27.2          40.1
--------------------------------------------------------------------------------
Change in working capital                                   (5.1)         (2.9)
--------------------------------------------------------------------------------
Other                                                       (7.0)        (22.0)
--------------------------------------------------------------------------------
Capital expenditure                                        (22.0)        (21.0)
--------------------------------------------------------------------------------
                                                            (6.9)         (5.8)
--------------------------------------------------------------------------------

Redemption of B shares                                      (9.2)         (9.5)
--------------------------------------------------------------------------------
Acquisitions and disposals                                 (30.7)          0.8
--------------------------------------------------------------------------------
Currency fluctuations                                        3.5           5.0
--------------------------------------------------------------------------------
                                                           (43.3)         (9.5)
--------------------------------------------------------------------------------
Net borrowings at start of year                            (46.9)        (37.4) 
--------------------------------------------------------------------------------
Net borrowings at end of year                              (90.2)        (46.9)
--------------------------------------------------------------------------------

Other cash flows decreased by £15.0 million, due to lower contributions to
pension schemes, less paid on provisions, and net tax refunds of £4.5 million.

Capital expenditure
Capital expenditure in the year was 143 per cent of depreciation (2003: 134 per
cent) as the Group continued to invest in the ERP project and largely completed
the construction of a new Pigments plant in TaiCang, China.

Total spend in the year included £2.6 million (2003: £7.7 million) in relation
to the ERP project and £7.3 million (2003: £1.9 million) for the Pigments plant
in China.


Balance Sheet
--------------------------------------------------------------------------------
                                                      2004                2003
                                                  £million            £million
--------------------------------------------------------------------------------
Intangible fixed assets                              144.4               159.3
--------------------------------------------------------------------------------
Other net assets                                     155.7               139.9
--------------------------------------------------------------------------------
                                                     300.1               299.2
--------------------------------------------------------------------------------
Shareholders' funds                                  209.9               252.3
--------------------------------------------------------------------------------
Net borrowings                                        90.2                46.9
--------------------------------------------------------------------------------
                                                     300.1               299.2
--------------------------------------------------------------------------------

Gearing 1                                              30%                 16%

1 the ratio of net borrowings to shareholders' funds plus net borrowings

Currency fluctuations had a significant impact on shareholders' funds. The main
currency exchange rates relevant to Elementis are set out below:
--------------------------------------------------------------------------------
                                                  2004                    2003
                                 Year end         Avge      Year end      Avge
--------------------------------------------------------------------------------
US Dollar                            1.92         1.83          1.79      1.64
Euro                                 1.41         1.47          1.42      1.45
--------------------------------------------------------------------------------

The majority of the Group's assets are stated in US dollars and the weakening of
the US dollar in 2004 reduced shareholders' funds by a net £11.8 million. The
balance of the reduction was due to the current year trading result, the issue
and redemption of B shares, actuarial adjustments to the pension fund valuation
and associated deferred taxation.

Pensions and other post retirement benefits
The Group provides retirement benefits for the majority of its employees mainly
through defined benefit schemes. A small number of defined contribution schemes
are also provided and an unfunded post-retirement medical benefit scheme is
provided in the US.

The net pension liability, which is calculated by the Group's actuaries and
based upon market values of the schemes' assets and liabilities, increased by
£11.7 million to £64.5 million. The increase was primarily due to a change in
the rate of deferred tax related to the UK pension scheme from 30 per cent to
10 per cent to reflect surplus ACT. This change increased the net pension
liability by £9.8 million and the balance was due to the acquisition of Sasol
Servo B.V.

The total cost of pensions and post-retirement health care in the year was
£7.2 million (2003: £8.5 million). The charge in 2003 included a credit in
respect of past service of £1.3 million. Costs were lower in 2004 principally
due to a £3.1 million reduction in finance charges to £1.1 million (2003:
£4.2 million). Total contributions to pension and post retirement schemes in the
year amounted to £10.7 million (2003: £14.4 million). The estimated contribution
in 2005 is approximately £12.0 million.

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. The project to assess
the impact of this change of accounting standards is almost complete and a
separate announcement will be made in March 2005. The current indications are
that the comparative for earnings per share before goodwill amortisation and
exceptionals under UK Gaap will not be materially different under IFRS.

Consolidated profit & loss account
for the year ended 31 December 2004
------------------------------------------------------------------------------------------------------------
                              Before                                     Before
                            goodwill        Goodwill                   goodwill        Goodwill
                        amortisation    amortisation              amortisation &  amortisation &
                       & exceptionals  & exceptionals      2004    exceptionals    exceptionals       2003
                Note        £million        £million   £million        £million        £million   £million
-------------------------------------------------------------------------------------------------------------
Turnover
-------------------------------------------------------------------------------------------------------------
Continuing
operations:                     
-------------------------------------------------------------------------------------------------------------
Ongoing                        355.0               -      355.0           368.2               -      368.2
-------------------------------------------------------------------------------------------------------------
Acquisitions                    34.2               -       34.2               -               -          -
-------------------------------------------------------------------------------------------------------------
                   2           389.2               -      389.2           368.2               -      368.2
-------------------------------------------------------------------------------------------------------------
Operating profit/
(loss)                        
-------------------------------------------------------------------------------------------------------------
Continuing operations:
-------------------------------------------------------------------------------------------------------------

Ongoing                         10.9           (12.5)      (1.6)           24.5           (13.6)      10.9
-------------------------------------------------------------------------------------------------------------
Acquisitions                     0.9            (1.8)      (0.9)              -               -          -
-------------------------------------------------------------------------------------------------------------
Operating
profit/(loss)    2,3            11.8           (14.3)      (2.5)           24.5           (13.6)      10.9
-------------------------------------------------------------------------------------------------------------
Loss on
termination of
business (1)       3               -            (2.3)      (2.3)              -               -          -
------------------------------------------------------------------------------------------------------------
Profit on
disposal of
properties (1)     3               -             2.6        2.6               -               -          -
------------------------------------------------------------------------------------------------------------
Profit on
disposal of
properties (2)     3               -               -          -               -             0.8        0.8
-------------------------------------------------------------------------------------------------------------
Profit/(loss) on
ordinary activities
before interest                 11.8           (14.0)      (2.2)           24.5           (12.8)      11.7
-------------------------------------------------------------------------------------------------------------
Net interest
payable            4            (3.6)              -       (3.6)           (1.1)              -       (1.1)
-------------------------------------------------------------------------------------------------------------
Other finance
charges            4            (2.0)              -       (2.0)           (5.1)              -       (5.1)
-------------------------------------------------------------------------------------------------------------
Profit/(loss) on
ordinary activities
before tax                       6.2           (14.0)      (7.8)           18.3           (12.8)       5.5
-------------------------------------------------------------------------------------------------------------
Tax on profit
/(loss) on
ordinary
activities         5            (0.2)            0.2          -            (5.3)            4.2       (1.1)
-------------------------------------------------------------------------------------------------------------
Profit /(loss)on
ordinary activities
after tax                        6.0           (13.8)      (7.8)           13.0            (8.6)       4.4
-------------------------------------------------------------------------------------------------------------
Minority
interests -
equity                             -               -          -            (0.1)              -       (0.1)
-------------------------------------------------------------------------------------------------------------
Profit/(loss) for the
financial year
transferred
(from)/ to
reserves                         6.0           (13.8)      (7.8)           12.9            (8.6)       4.3
------------------------------------------------------------------------------------------------------------

Earnings/(loss)
per ordinary
share              6
------------------------------------------------------------------------------------------------------------
Basic and
diluted                          1.4p                      (1.8)p           3.0p                       1.0p
-------------------------------------------------------------------------------------------------------------

(1) Continuing operations
(2) Discontinued operations


Balance sheet
at 31 December 2004
-------------------------------------------------------------------------------
                                                                    Group
                                                               2004       2003
                                                           £million   £million
--------------------------------------------------------------------------------
Fixed assets
---------------------------------------------------------------------------------
Intangible assets                                             144.4      159.3
--------------------------------------------------------------------------------
Tangible fixed assets                                         173.4      157.7
---------------------------------------------------------------------------------
Investments                                                     1.9        3.2
---------------------------------------------------------------------------------
                                                              319.7      320.2
--------------------------------------------------------------------------------
Current assets
--------------------------------------------------------------------------------
Stocks                                                         70.1       54.4
--------------------------------------------------------------------------------
Debtors                                                        85.5       68.9
---------------------------------------------------------------------------------
Cash at bank and in hand                                       11.5       23.8
--------------------------------------------------------------------------------
                                                              167.1      147.1
---------------------------------------------------------------------------------
Creditors: amounts falling due within one year
---------------------------------------------------------------------------------
Borrowings                                                     (4.4)      (5.3)
--------------------------------------------------------------------------------
Creditors                                                     (81.0)     (63.5)
--------------------------------------------------------------------------------
                                                              (85.4)     (68.8)
--------------------------------------------------------------------------------
Net current assets                                             81.7       78.3
--------------------------------------------------------------------------------
Total assets less current liabilities                         401.4      398.5
--------------------------------------------------------------------------------
Creditors: amounts falling due after more than one year
--------------------------------------------------------------------------------
Borrowings                                                    (97.3)     (65.4)
--------------------------------------------------------------------------------
Government grants                                              (2.4)      (1.3)
--------------------------------------------------------------------------------
                                                              (99.7)     (66.7)
--------------------------------------------------------------------------------
Provisions for liabilities and charges                        (25.5)     (24.8)
--------------------------------------------------------------------------------
                                                             (125.2)     (91.5)
--------------------------------------------------------------------------------
Net assets excluding net pension liability                    276.2      307.0
--------------------------------------------------------------------------------
Net pension liability                                         (64.5)     (52.8)
--------------------------------------------------------------------------------
Net assets including net pension liability                    211.7      254.2
--------------------------------------------------------------------------------

Capital and reserves
--------------------------------------------------------------------------------
Called up share capital                                        23.8       23.5
--------------------------------------------------------------------------------
Share premium                                                   1.2        1.2
--------------------------------------------------------------------------------
Capital redemption reserve                                     71.5       62.3
--------------------------------------------------------------------------------
Profit and loss account                                       113.4      165.3
--------------------------------------------------------------------------------
Shareholders' funds                                           209.9      252.3
--------------------------------------------------------------------------------
Minority equity interests                                       1.8        1.9
--------------------------------------------------------------------------------
                                                              211.7      254.2
--------------------------------------------------------------------------------

Shareholders' funds
--------------------------------------------------------------------------------
Equity                                                        207.7      250.4
--------------------------------------------------------------------------------
Non-equity                                                      2.2        1.9
--------------------------------------------------------------------------------
                                                              209.9      252.3
--------------------------------------------------------------------------------


Consolidated cash flow statement
for the year ended 31 December 2004
--------------------------------------------------------------------------------
                                                       2004               2003
                                    Note           £million           £million
--------------------------------------------------------------------------------
Net cash inflow from operating         
activities                             7               13.1               18.3
--------------------------------------------------------------------------------
Returns on investments and
servicing of finance               
--------------------------------------------------------------------------------
Interest received                                       1.4                2.0
--------------------------------------------------------------------------------
Interest paid                                          (4.1)              (3.6)
--------------------------------------------------------------------------------
                                                       (2.7)              (1.6)
--------------------------------------------------------------------------------
Taxation                                                4.5               (1.3)
--------------------------------------------------------------------------------
Capital expenditure and financial
investment                         
--------------------------------------------------------------------------------
Purchase of fixed assets (less
grants received)                                      (22.0)             (21.0)
--------------------------------------------------------------------------------
Disposal of fixed assets                                0.2                0.4
--------------------------------------------------------------------------------
Disposal of properties -                                5.6                1.1
exceptional                        
--------------------------------------------------------------------------------
                                                      (16.2)             (19.5)
--------------------------------------------------------------------------------
Acquisitions and disposals
--------------------------------------------------------------------------------
Acquisition of businesses                             (36.3)              (0.3)
--------------------------------------------------------------------------------
Cash outflow before use of liquid
resources and financing                               (37.6)              (4.4)
--------------------------------------------------------------------------------
Financing
--------------------------------------------------------------------------------
Redemption of B shares                                 (9.2)              (9.5)
--------------------------------------------------------------------------------
(Decrease)/increase in borrowings
repayable within one year                              (0.8)               0.2
--------------------------------------------------------------------------------
Increase/(decrease) in borrowings
repayable after one year                               35.8               (7.0)
--------------------------------------------------------------------------------
Capital element of finance lease                       
payments                                               (0.2)              (0.2)
--------------------------------------------------------------------------------
                                                      (12.0)             (20.9)
--------------------------------------------------------------------------------
Management of liquid resources
--------------------------------------------------------------------------------
Repayment of cash deposits                                -               14.5
--------------------------------------------------------------------------------
Decrease in cash in the year                          (12.0)              (6.4)
--------------------------------------------------------------------------------
Reconciliation of net cash flow to movement in net borrowings
for the year ended 31 December 2004
--------------------------------------------------------------------------------
                                                          2004             2003
                                                      £million         £million
--------------------------------------------------------------------------------
Change in net borrowings resulting from cash flows:
--------------------------------------------------------------------------------
Decrease in cash in the year                           (12.0)             (6.4)
--------------------------------------------------------------------------------
(Increase)/decrease in borrowings                      (34.8)              7.0
--------------------------------------------------------------------------------
Decrease in liquid resources                               -             (14.5)
--------------------------------------------------------------------------------
                                                       (46.8)            (13.9)
--------------------------------------------------------------------------------
New finance leases                                         -              (0.6)
--------------------------------------------------------------------------------
Currency translation differences                         3.5               5.0
--------------------------------------------------------------------------------
Increase in net borrowings                             (43.3)             (9.5)
--------------------------------------------------------------------------------
Net borrowings at beginning of the financial year      (46.9)            (37.4)
--------------------------------------------------------------------------------
Net borrowings at end of the financial year            (90.2)            (46.9)
--------------------------------------------------------------------------------


Consolidated statement of total recognised gains and losses
for the year ended 31 December 2004
--------------------------------------------------------------------------------
                                                            2004          2003
                                                        £million      £million
--------------------------------------------------------------------------------
(Loss)/profit for the financial year                        (7.8)          4.3
--------------------------------------------------------------------------------
Actuarial (loss)/gain on pension and other
post-retirement schemes                                     (4.7)          6.0
--------------------------------------------------------------------------------
Deferred tax associated with pension and other
post-retirement schemes                                     (8.9)         (2.3)
--------------------------------------------------------------------------------
Currency translation differences                           (11.8)        (21.5)
--------------------------------------------------------------------------------
Total recognised gains and losses for the year             (33.2)        (13.5)
--------------------------------------------------------------------------------
Reconciliation of movements in shareholders' funds
for the year ended 31 December 2004
--------------------------------------------------------------------------------
                                                             2004         2003
                                                         £million     £million
--------------------------------------------------------------------------------
(Loss)/profit for the financial year                         (7.8)         4.3
--------------------------------------------------------------------------------
Redemption of redeemable B shares (including issue
costs)                                                       (9.2)        (9.5)
--------------------------------------------------------------------------------
Actuarial (loss)/gain on pension and other
post-retirement schemes                                      (4.7)         6.0
--------------------------------------------------------------------------------
Deferred tax associated with pension and other
post-retirement schemes                                      (8.9)        (2.3)
--------------------------------------------------------------------------------
Currency translation differences                            (11.8)       (21.5)
--------------------------------------------------------------------------------
Net decrease in shareholders' funds                         (42.4)       (23.0)
-------------------------------------------------------------------------------
At beginning of the financial year                          252.3        275.3
--------------------------------------------------------------------------------
At end of the financial year                                209.9        252.3
--------------------------------------------------------------------------------



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 2003 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
2004 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 2003.

The preliminary announcement was approved by the Board of Directors on
17 February 2005.

2 Segmental information
----------------------------------------------------------------------------------------
                        Group turnover      Group operating profit        Net assets
                        2004       2003         2004         2003       2004       2003
                    £million   £million     £million     £million   £million   £million
------------------------------------------------------------------------------------------
a) Before goodwill
amortisation and
exceptionals
Analysis by
activity
Chromium               110.5      121.9         (3.8)         6.8       92.6       90.3
-----------------------------------------------------------------------------------------
Inter-group
turnover                (5.4)      (5.7)           -            -          -          -
------------------------------------------------------------------------------------------
                       105.1      116.2         (3.8)         6.8       92.6       90.3
------------------------------------------------------------------------------------------
Specialties &
Pigments               238.2      209.3         15.4         17.7      282.3      259.7
------------------------------------------------------------------------------------------
Specialty
Rubber                  45.9       42.7          0.2            -       17.1       18.5
------------------------------------------------------------------------------------------
                       389.2      368.2         11.8         24.5      392.0      368.5

-----------------------------------------------------------------------------------------
Geographical
analysis by           
origin
-----------------------------------------------------------------------------------------
North America          180.9      198.2         15.3         18.7      237.6      268.9
-----------------------------------------------------------------------------------------
Europe                 178.9      144.6         (6.6)         3.9      128.2       81.3
------------------------------------------------------------------------------------------
Rest of the
World                   29.4       25.4          3.1          1.9       26.2       18.3
------------------------------------------------------------------------------------------
                       389.2      368.2         11.8         24.5      392.0      368.5
------------------------------------------------------------------------------------------
Unallocated
liabilities                -          -            -            -     (180.3)    (114.3)
------------------------------------------------------------------------------------------
                       389.2      368.2         11.8         24.5      211.7      254.2
------------------------------------------------------------------------------------------

b) After goodwill amortisation
and exceptionals
Analysis by
activity
Chromium               110.5      121.9         (5.1)         7.4       92.6       90.3
-----------------------------------------------------------------------------------------
Inter-group
turnover                (5.4)      (5.7)           -            -          -          -
------------------------------------------------------------------------------------------
                       105.1      116.2         (5.1)         7.4       92.6       90.3
-----------------------------------------------------------------------------------------
Specialties &
Pigments               238.2      209.3          2.4          3.8      282.3      259.7
------------------------------------------------------------------------------------------
Specialty
Rubber                  45.9       42.7          0.2         (0.3)      17.1       18.5
------------------------------------------------------------------------------------------
                       389.2      368.2         (2.5)        10.9      392.0      368.5
------------------------------------------------------------------------------------------
Geographical
analysis by           
origin
-----------------------------------------------------------------------------------------
North America          180.9      198.2          4.5          7.0      237.6      268.9
-----------------------------------------------------------------------------------------
Europe                 178.9      144.6        (10.1)         2.0      128.2       81.3
------------------------------------------------------------------------------------------
Rest of the
World                   29.4       25.4          3.1          1.9       26.2       18.3
-----------------------------------------------------------------------------------------
                       389.2      368.2         (2.5)        10.9      392.0      368.5
-----------------------------------------------------------------------------------------
Unallocated
liabilities                -          -            -            -     (180.3)    (114.3)
-----------------------------------------------------------------------------------------
                       389.2      368.2         (2.5)        10.9      211.7      254.2
------------------------------------------------------------------------------------------

Notes to the financial statements
continued

3. Goodwill amortisation and exceptionals
--------------------------------------------------------------------------------
                                                              2004        2003
                                                          £million    £million
--------------------------------------------------------------------------------
Operating:
--------------------------------------------------------------------------------
Restructuring costs                                            2.9         1.7
--------------------------------------------------------------------------------
Chromium insurance recovery                                      -        (0.8)
--------------------------------------------------------------------------------
Restructuring of Specialty Rubber                                -         0.3
--------------------------------------------------------------------------------
                                                               2.9         1.2
--------------------------------------------------------------------------------
Goodwill amortisation                                         11.4        12.4
--------------------------------------------------------------------------------
                                                              14.3        13.6
--------------------------------------------------------------------------------
Non-operating:
--------------------------------------------------------------------------------
Profit on disposal of properties - continuing operations      (2.6)          -
--------------------------------------------------------------------------------
Profit on disposal of properties - discontinued
operations                                                       -        (0.8)
--------------------------------------------------------------------------------
Loss on termination of business - continuing operations        2.3           -
--------------------------------------------------------------------------------
                                                              (0.3)       (0.8)
--------------------------------------------------------------------------------
                                                              14.0        12.8
--------------------------------------------------------------------------------
Tax credit on goodwill amortisation and
exceptionals                                                  (0.2)       (4.2)
--------------------------------------------------------------------------------
                                                              13.8         8.6
--------------------------------------------------------------------------------

The restructuring costs comprise £1.3 million in Chromium following an
efficiency review at their site in Eaglescliffe, UK and £1.6 million in respect
of Sasol Servo B.V. which was acquired on 30 June 2004. The restructuring costs
in 2003 related to the introduction of the Group's ERP system. The profit on
sale of property of £2.6 million was in respect of the sale and leaseback of
Specialty Rubber's Yateley, UK property. The loss on termination of business of
£2.3 million arose following a decision by the joint venture partners to close
Enenco Inc, in which the Group held a 50 per cent interest.

4         Net interest payable
--------------------------------------------------------------------------------
                                                             2004         2003
                                                         £million     £million
--------------------------------------------------------------------------------
a) Net interest payable
Interest payable:
--------------------------------------------------------------------------------
On bank loans                                                 4.4          3.0
--------------------------------------------------------------------------------
On other loans                                                0.1          0.2
--------------------------------------------------------------------------------
                                                              4.5          3.2
--------------------------------------------------------------------------------
Interest receivable:
--------------------------------------------------------------------------------
On bank deposits                                             (0.3)        (0.8)
--------------------------------------------------------------------------------
On other loans                                               (0.4)        (0.5)
--------------------------------------------------------------------------------
Interest receivable in respect of corporation tax
refunds                                                      (0.2)        (0.8)
--------------------------------------------------------------------------------
                                                             (0.9)        (2.1)
--------------------------------------------------------------------------------
Net interest payable                                          3.6          1.1
--------------------------------------------------------------------------------
b) Other finance charges
--------------------------------------------------------------------------------
Unwind of discount on provisions                              0.9          0.9
--------------------------------------------------------------------------------
Pension and post-retirement liabilities                       1.1          4.2
--------------------------------------------------------------------------------
Other finance charges                                         2.0          5.1
--------------------------------------------------------------------------------
Total interest payable                                        5.6          6.2
--------------------------------------------------------------------------------

Notes to the financial statements
continued
5         Taxation
Analysis of tax charge in the year
--------------------------------------------------------------------------------
                                                            2004         2003
                                                        £million     £million
-------------------------------------------------------------------------------
Current tax:
-------------------------------------------------------------------------------
UK corporation tax at 30.0%                                    -            -
-------------------------------------------------------------------------------
Overseas corporation tax                                     0.5          1.8
-------------------------------------------------------------------------------
Adjustments in respect of prior years- overseas             (2.2)        (1.0)
-------------------------------------------------------------------------------
Total current tax                                           (1.7)         0.8
-------------------------------------------------------------------------------
Deferred tax:
-------------------------------------------------------------------------------
United Kingdom                                              (2.5)        (1.4)
-------------------------------------------------------------------------------
Overseas                                                     0.1         (0.5)
-------------------------------------------------------------------------------
Adjustments in respect of prior periods                      1.3          1.2
-------------------------------------------------------------------------------
Recoverable ACT                                              2.8          1.0
-------------------------------------------------------------------------------
Total deferred tax                                           1.7          0.3
-------------------------------------------------------------------------------
Tax charge                                                     -          1.1
-------------------------------------------------------------------------------

6 (Loss)/earnings per ordinary share
                                        2004                                2003
                           (Loss)/
                            profit      Weighted                  Profit    Weighted
                           for the       average     (Loss)/     for the     average
                         financial     number of    earnings   financial   number of    Earnings
                              year        shares   per share        year      shares   per share
                          £million       million       pence    £million     million       pence
-------------------------------------------------------------------------------------------------
Basic
(loss)/earnings
per share                    (7.8)       431.9         (1.8)        4.3       431.6         1.0
-------------------------------------------------------------------------------------------------
Share options                   -            -            -           -         6.2           -
-------------------------------------------------------------------------------------------------
Diluted(loss)/
earnings per
share                        (7.8)       431.9         (1.8)        4.3       437.8         1.0
-------------------------------------------------------------------------------------------------
Basic
(loss)/earnings
per share                    (7.8)       431.9         (1.8)        4.3       431.6         1.0
-------------------------------------------------------------------------------------------------
Goodwill
amortisation
net of
taxation                      11.4           -          2.6         8.0           -         1.9
-------------------------------------------------------------------------------------------------
Exceptionals
net of
taxation                       2.4           -          0.6         0.6           -         0.1
-------------------------------------------------------------------------------------------------
Basic earnings per
share before
goodwill
amortisation
and
exceptionals                   6.0       431.9          1.4        12.9       431.6         3.0
-------------------------------------------------------------------------------------------------
Share options                     -          -            -           -         6.2           -
-------------------------------------------------------------------------------------------------
Diluted earnings per
share before
goodwill
amortisation
and
exceptionals                    6.0      431.9           1.4        12.9       437.8         3.0
-------------------------------------------------------------------------------------------------

Earnings per share before goodwill amortisation and exceptionals provides a
measure of the underlying financial performance of the Group on a comparable
basis with many other groups. In accordance with the requirements of FRS14,
6.4 million of share options have not been included in the calculation of the
diluted earnings per share in 2004 as the basic calculation is based upon a loss
for the financial year.


Notes to the financial statements
continued

7 Net cash inflow from operating activities
---------------------------------------------------------------------------------
                                                             2004         2003
                                                         £million     £million
--------------------------------------------------------------------------------
Operating (loss)/profit                                      (2.5)        10.9
--------------------------------------------------------------------------------
Operating exceptionals                                        2.9          1.2
--------------------------------------------------------------------------------
Goodwill amortisation                                        11.4         12.4
--------------------------------------------------------------------------------
Depreciation (less grants credited)                          15.4         15.6
--------------------------------------------------------------------------------
Earnings before interest, tax, depreciation,
amortisation and exceptionals                                27.2         40.1
--------------------------------------------------------------------------------
Share of profits of associated undertakings                     -         (0.1)
--------------------------------------------------------------------------------
Cash outflow on exceptionals                                 (2.0)         0.2
--------------------------------------------------------------------------------
(Increase)/decrease in stocks                                (7.2)         4.8
-------------------------------------------------------------------------------
Increase in debtors                                          (3.4)        (2.8)
--------------------------------------------------------------------------------
Increase/(decrease) in creditors                              5.5         (4.9)
--------------------------------------------------------------------------------
Provisions movement                                          (2.4)        (8.7)
--------------------------------------------------------------------------------
Pension contributions net of current service cost            (4.6)       (10.3)
--------------------------------------------------------------------------------
                                                             13.1         18.3
-------------------------------------------------------------------------------

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.








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