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Elementis PLC (ELM)

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Tuesday 01 August, 2006

Elementis PLC

Interim Results

Elementis PLC
01 August 2006

PRESS INFORMATION

1 August 2006

                                 Elementis plc

              INTERIM RESULTS FOR THE HALF YEAR ENDED 30 JUNE 2006


                                                                      2006              2005
Sales*                                                             £210.9m           £199.6m              +6%
Operating profit*                                                   £18.1m             £7.4m            +145%
Profit before tax*                                                  £14.4m             £3.9m            +269%
Earnings per share before exceptional items*                          3.2p              0.8p            +300%
Earnings per share after exceptional items                            3.2p            (0.5)p
Dividend/distribution to shareholders                                 1.2p              1.1p              +9%


* from continuing businesses and before exceptional items



•    Volumes in Specialty Products and Pigments up 10%, driven by coatings and 
     oilfield sectors

•    Specialty Products operating margin 15.4%, up by 43%

•    Operating profit up in Pigments and Chromium

•    £6.8 million of restructuring cost savings achieved in first half of 2006.


Commenting on the results, Executive Chairman, Edward Bramson said:

'Sales of Pigments and of Speciality Products, principally rheological
additives, increased significantly from the prior year.  While this is partly
attributable to favourable conditions in the coatings and oilfield markets, we
believe that Elementis also gained market share due to improved customer service
levels and more effective sales efforts resulting from actions taken as part of
the strategic review.  Operating margins increased in each line of business
except surfactants as fixed cost reductions announced in the strategic review
were combined with improved pricing in Chromium and higher sales in other
products. Speciality Products in particular generated a significant increase in
sales and operating margins, and we are pleased that this business is now
generating returns that compare well with other leading specialty chemical
companies.'

'The Company is continuing its efforts to generate organic sales growth, to
increase new product development and to achieve further operating efficiencies.
Current indications are that market conditions in the second half will be
similar to those in the first half which should enable the company to generate
earnings that are ahead of full year expectations.'



                                    - Ends -



Enquiries

Elementis plc                                          Tel: +44 (0) 7408 9300
Edward Bramson , Executive Chairman
Brian Taylorson, Finance Director

Financial Dynamics                                     Tel: +44 (0) 20 7831 3113
Andrew Dowler
Greg Quine


Executive Chairman's Statement

Overview

Sales from continuing operations for the first half of 2006 increased to £210.9
million from £199.6 million in the equivalent period of last year.  Excluding
the effects of currency and businesses divested in 2005, underlying sales growth
was approximately 4 per cent.  In line with the steps previously announced in
our strategic review, Chromium sales were essentially the same as in the prior
year. This reflects higher prices which were offset by lower volumes resulting
from the reduction in chromium capacity in the UK.  Sales of Pigments and of
Specialty Products, principally rheological additives, increased significantly
from the prior year. While this is partly attributable to favourable conditions
in the coatings and oilfield markets, we believe that Elementis also gained
market share due to improved customer service levels and more effective sales
efforts resulting from actions taken as part of the strategic review.

Operating profit from continuing operations for the first half of 2006, before
exceptional items was £18.1 million versus £7.4 million in the previous period.
Operating margins increased in each line of business except for Surfactants, as
fixed cost reductions implemented as part of the strategic review were combined
with improved pricing in Chromium and higher sales in other products. Specialty
Products in particular generated a significant increase in sales and operating
margins, and we are pleased that this business is now generating returns that
compare well with other leading specialty chemical companies.

Profit before tax from continuing operations before exceptional items increased
to £14.4 million and earnings increased to 3.2 pence per share, from £3.9
million and 0.8 pence per share in the first half of 2005. Exceptional items in
the first half of 2006 had no net effect on earnings whereas in the same period
last year they contributed a loss before tax of £7.6 million or 1.4 pence per
share.

In July we replaced the Company's banking facilities with new arrangements,
extending until 2011 on terms more favourable than those previously in place.

Environmental, health and safety performance in the first half of the year
continues to compare well with industry standards. However, there were a small
number of incidents requiring time away from work and our goal continues to be
to eliminate such incidents entirely.

Dividend

The Board has declared an interim dividend of 1.2 pence per share compared with
an interim distribution of 1.1 pence in 2005 which took the form of redeemable B
shares. The Board expects to continue to review distributions to shareholders in
the light of future earnings performance.

Current trading and outlook

The Company is continuing its efforts to generate organic sales growth, to
increase new product development and achieve further operating efficiencies.
Current indications are that market conditions in the second half will be
similar to those in the first half which should enable the Company to generate
earnings that are ahead of full year expectations.


Edward Bramson
Executive Chairman
1 August 2006



Operating and financial review
for the six months ended 30 June 2006


Revenue                                                 Effect of                    Increase/
                                            Revenue      exchange                   (decrease)       Revenue
                                               2005         rates     Disposals           2006          2006
                                           £million      £million      £million       £million      £million
Specialties
- Specialty Products                           69.5           1.7         (4.8)           10.4          76.8
- Surfactants                                  24.8           0.3             -          (0.4)          24.7

                                             ______        ______        ______         ______        ______
                                               94.3           2.0         (4.8)           10.0         101.5
Pigments                                       46.7           2.7             -            1.5          50.9
Chromium                                       62.0           2.9             -          (3.0)          61.9
Specialty Rubber                               24.0             -        (24.0)              -             -
Inter-segment                                 (3.4)             -             -              -         (3.4)
                                              223.6           7.6        (28.8)            8.5         210.9

                                             ______        ______        ______         ______        ______



Group results

Group sales from continuing operations increased by 6 per cent to £210.9 million
in the first half of 2006, compared to £199.6 million in the previous period.
Excluding the effects of currency and businesses sold in 2005, underlying sales
were up by 4 per cent. Specialty Products experienced strong volume growth in
2006, while volumes were lower in Elementis Chromium due to the effects of the
2005 price improvement programme and the rebalancing that is underway in the
market following the UK plant closure in March 2006. Average pricing across the
Group improved by 6 per cent versus the previous year, largely driven by
Chromium prices which were on average 18 per cent higher than 2005. More modest
price improvement was seen in the other businesses.

Operating profit from continuing operations before exceptional items was £18.1
million, which is £10.7 million higher than the previous period. All businesses
showed improved operating margins compared to the previous year, except for
Surfactants where margins were more or less flat. In addition to the improvement
in sales, operating profit also benefited from cost reductions resulting from
the restructuring undertaken as part of the Board's recent strategy review. In
October 2005 the Group announced that 2006 would benefit from cost reductions of
£11.1 million and approximately £6.8 million of this has been delivered in the
first half of the year. Energy costs increased by £5.6 million due to price
increases of over 30 per cent versus the first half of 2005. In the early part
of 2006 approximately 40 per cent of the Group's energy requirements were fixed
for the whole year and this has helped stabilise energy costs during the first
half. Other variable costs increased by around 5 per cent. Currency exposure for
2006 has also been hedged during the first half of 2006, so that approximately
80 per cent of the total exposure for 2006 and 2007 has been fixed. During the
first half of 2006 the effect of this hedging was to improve operating profit by
£0.6 million, with most of the benefit accruing to Elementis Specialties and
Elementis Chromium. As a result, currency movements had no material impact on
operating profit compared to the previous period.

Profit before tax and exceptional items from continuing operations for the first
half of 2006 was £14.4 million compared to £3.9 million last year as a result of
the higher operating profit, while net finance costs were at a similar level to
the previous year.

Basic and diluted earnings per share from continuing businesses before
exceptional items, was 3.2p (2005: 0.8p) as a result of the increase in
operating profit.

Elementis Specialties

Specialty Products

The first half performance for Specialty Products was characterised by strong
volume growth and improved margins supported by the initial cost benefits from
the restructuring announced in October 2005.


Operating profit                                                                                         2006
for the six months ended 30 June                              Operating        Exceptional           Adjusted
                                                                 profit             items*   operating profit

£million
Continuing operations
Specialties
      - Specialty Products                                         10.7                1.1               11.8
      - Surfactants                                                 0.1                0.3                0.4

                                                                 ______             ______             ______
                                                                   10.8                1.4               12.2
Pigments                                                            4.0              (1.0)                3.0
Chromium                                                            6.4              (0.4)                6.0
Central costs                                                     (3.1)                  -              (3.1)

                                                                 ______             ______             ______
                                                                   18.1                  -               18.1
Discontinued operations
Specialty Rubber                                                      -                  -                  -
                                                                   18.1                  -               18.1

                                                                 ______             ______             ______

* excluding profit/(loss) on disposal of business



(continued from table above)


Operating profit                                                                                         2005
for the six months ended 30 June                              Operating        Exceptional           Adjusted
                                                                 profit             items*   operating profit

£million
Continuing operations
Specialties
      - Specialty Products                                          7.5                  -                7.5
      - Surfactants                                               (3.3)                4.0                0.7

                                                                 ______             ______             ______
                                                                    4.2                4.0                8.2
Pigments                                                          (6.0)                7.1                1.1
Chromium                                                            2.9                  -                2.9
Central costs                                                     (5.9)                1.1              (4.8)

                                                                 ______             ______             ______
                                                                  (4.8)               12.2                7.4
Discontinued operations
Specialty Rubber                                                    0.7                  -                0.7
                                                                  (4.1)               12.2                8.1

                                                                 ______             ______             ______

* excluding profit/(loss) on disposal of business





Sales for the first half of 2006 were 19 per cent higher than the previous year
at £76.8 million after allowing for business disposals, and 16 per cent higher
after excluding currency effects. Improved volumes were the main contributor and
increased by 15 per cent over the previous year. There was stronger demand from
the coatings sector in the first half of 2006, where volumes were 17 per cent
higher, due to a strong cyclical recovery following a year of softer demand in
2005 and partly as a result of consolidation in the sector. All regions showed
good volume growth; North America (19 per cent increase) was strong across all
categories, while Europe (13 per cent increase) was strong in decorative
coatings but showed more modest growth in the industrial sector. The commercial
teams also made good progress in further penetrating the Asia Pacific markets,
where volumes increased by more than 20 per cent.

Sales were also notably higher in the oilfield sector, where volumes increased
by 22 per cent. High oil prices and rig count increases of around 20 per cent in
both North America and Europe were the main driver, but Elementis is also
benefiting from increased drilling in extreme conditions which leads to a
greater quantity of additives being used. Sales in Europe were also helped by
new business in the Nordic region. Other sectors also performed well in the
first half. Pricing in Specialty Products was marginally higher than the
previous year but management believes that this is an area where performance can
be improved, and selective price increases of between 2 and 5 per cent are
planned for the second half of 2006.

Operating profit before exceptional items improved by 57 per cent over the
previous year to £11.8 million and the operating margin was 15.4 per cent,
compared to 10.8 per cent in 2005. Margins improved due to the leveraging effect
of higher sales volumes, but also from reductions in fixed costs following the
Board's strategy review in the second half of 2005. As part of that review it
was identified that selling, general and administrative costs in Specialty
Products were out of line with other specialty chemical companies and prompt
action has been taken to correct this. Reductions have been made in all cost
categories and, as a result, fixed costs are around 10 per cent lower than they
were in the first half of 2005. Raw materials and other variable costs increased
by approximately 6 per cent versus the previous year.

Surfactants

Surfactant sales for the first half of 2006 were in line with the previous year
at £24.7 million. Sales improved in the oilfield sector due to strong demand,
but this was offset by the optimisation process that has been ongoing in the
business since it was acquired in 2004. As part of this process, surfactant
manufacturing volumes have been reduced either to eliminate low margin products
or to preferentially utilise plant capacity to produce higher margin additives
for Specialty Products.

Operating profit before exceptional items for the first half was £0.4 million
versus £0.7 million in 2005. Lower volumes and raw material inflation were
partly offset by the positive mix benefits of the optimisation process described
above, plus fixed cost savings from the restructuring of the Delden site
announced in 2005.

Elementis Pigments

The Pigments business has undergone a significant reorganisation of its
manufacturing base, following the successful start up of the Taicang plant in
China during the second half of 2005. The new facility augments the existing
manufacturing cost model and, following the successful transitioning of key
customers to the new product, 2006 operating performance is beginning to show
the benefits of this strategic repositioning.

Sales in Pigments were £50.9 million in the first half of 2006 compared to £46.7
million in the previous year, an increase of 9 per cent, or 3 per cent if
currency effects are excluded. Volumes were 3 per cent ahead of the previous
year, but this overall increase masks good growth in coatings and chemical
applications as well as in construction. In coatings and chemicals volumes
increased by 6 per cent driven by a stronger coatings market this year, and
sales were particularly strong in Asia Pacific where volumes increased by almost
30 per cent.

In the construction sector volumes improved by 10 per cent over the previous
year and the North American market was strong across most sectors, with volumes
12 per cent higher. In Europe volumes were somewhat softer as a result of lower
demand, but also due to some low margin business being exited. Strong
construction growth is still evident in Asia Pacific and volumes grew by over 50
per cent versus the previous year.

Overall volumes in Pigments were tempered by a 15 per cent reduction in sales
volumes of driers. This business has undergone significant restructuring
following the acquisition of the Servo business in 2004, and towards the end of
the first half of 2006 the decision was made to exit the North American business
by selling the inventory and customer list to a third party for £0.9 million. In
addition, sales in Europe were reduced in order to focus on areas where the
business was more differentiated.

Average prices in coatings and chemical applications increased by 4 per cent due
to increases in some key coatings products in response to escalating natural gas
prices. Prices in construction were relatively flat year on year.

Operating profit before exceptional items was £3.0 million for the first half of
2006 versus £1.1 million in the previous year. Operating margin progressed to
5.9 per cent in 2006 versus 2.4 per cent last year, largely due to the higher
sales and the cost benefits of the new Taicang plant. The sale of the North
American driers business resulted in a one time charge in the first half of 2006
of £0.3 million.



Elementis Chromium


Sales                                                                            2006              2005
£million
US                                                                               34.9              31.5
UK                                                                               27.0              30.5
                                                                                 61.9              62.0

                                                                               ______            ______
Adjusted operating profit/(loss)*
US                                                                                5.6               4.4
UK                                                                                0.4             (1.5)
                                                                                  6.0               2.9

                                                                               ______            ______

* before exceptional items



The Chromium business was significantly restructured during the first half of
2006 following the Board's strategic review announced in October 2005. Part of
the plant at Eaglescliffe, UK, was closed in March 2006 reducing the Group's
global manufacturing capacity by 25 per cent. In addition, more hedging activity
has taken place in areas such as energy and currency, and contract discussions
have taken place with customers with a view to sharing the effects of some of
the more volatile cost elements. All of this has been done to reduce the
volatility, and thereby improve the predictability, of Chromium earnings going
forward. Performance in the first half of 2006 has also benefited from the
aggressive price improvement programme that was implemented throughout 2005.
Consequently average prices in the first half of 2006 are 18 per cent higher
than the previous year, more than offsetting increases of around £4.0 million in
both raw materials and energy, with some key raw materials increasing in price
by up to 20 per cent. The combination of the restructuring of the business and
the significant improvement in pricing has inevitably led to some changes in the
sales mix versus last year, and the balance of product sales is still in
transition as the market adjusts to the effects of the recent UK plant closure.
Pricing has remained stable during the first half of 2006.

In the US, sales for the first half of 2006 were 11 per cent higher than the
previous period at £34.9 million and 5 per cent higher after adjusting for
currency movements. Price was the main driver of the improvement, offset by some
changes in sales mix. Chromic acid volumes were 10 per cent lower than the prior
period due to a combination of changes in the CCA market for timber treatment at
the beginning of last year, the effects of the price improvement programme and
the loss of sales in the US of the UK product following its withdrawal in March
this year. Conversely, sales volumes of sodium dichromate were 7 per cent higher
than the previous year due to additional sales to Japan following plant closures
in that country during 2005. Operating profit before exceptional items for the
first half of 2006 was £5.6 million, an increase of £1.2 million over the
previous period. Improved pricing contributed approximately £5.5 million which
more than offset increases in energy and raw materials and changes in sales mix.

In the UK, sales for the first half of 2006 were 11 per cent lower than the
prior period at £27.0 million. Excluding the effects of currency and the plant
closure, underlying sales were 18 per cent higher, largely due to higher prices
although some volume was lost as a result of the price improvement programme.
Similar to the US business, higher prices contributed about £5.5 million to
operating profit which more than offset increases in energy and raw materials.
The net impact of the plant closure was essentially neutral as the loss of sales
volume was balanced by the associated reduction in fixed costs.

Central Costs

As disclosed in the 2005 Annual Report, the Group has restated its 2005
segmental information to provide a clearer view of the underlying profit
performance of the business units. Consequently central costs, which are not
identifiable as costs of particular segments, are reported separately and
comprise expenditure incurred by the Board of Directors and the corporate
office.

Central costs have continued to fall following the restructuring that took place
during 2005, in which head office functions were downsized or absorbed by the
business units. Consequently, central costs for the first half of 2006 were £1.7
million lower than the previous year at £3.1 million.

Exceptional items

In the first half of 2006, there were two exceptional items which resulted in no
net charge to the income statement (2005: £6.3 million). A curtailment gain of
£1.7 million arose due to changes to the US defined benefit pension scheme. This
was offset by further restructuring of the general and administrative activities
in Specialties, resulting in a head count reduction of 34 and a one-time expense
of £1.7 million.



Net interest - continuing operations
£million                                                                      2006               2005

                                                                            ______             ______
Finance income                                                                 0.2                0.2
Pension finance income                                                         0.9                  -
Finance cost of borrowings                                                   (4.3)              (2.9)
Pension finance charge                                                           -              (0.5)
Discount on provisions                                                       (0.5)              (0.3)

                                                                            ______             ______
Total                                                                        (3.7)              (3.5)

                                                                            ______             ______





Net interest was £0.2 million higher than previous year at £3.7 million. Pension
and post-retirement benefit finance income was £0.9 million compared to a charge
of £0.5 million in 2005. This was mainly due to a reduction in the assumed cost
of pension liabilities as well as a reduction in the pension deficit. The cost
of financing borrowings increased in the period by £1.4 million to £4.3 million.
On average, the cost of borrowing was 1.75 per cent higher in 2006 than previous
year. This increased the interest charge by £1.1 million which together with
accelerated amortisation costs and the effects of currency translation, more
than offset the saving due to a reduction in average borrowings.

Interest cover (the ratio of operating profit before exceptional items to
interest on net borrowings) was 3.9 times (2005: 3.1 times).

Taxation

The Group's tax rate on profit before exceptional items was 1.3 per cent and is
lower than the standard UK corporation tax rate primarily due to the
amortisation of goodwill in the US for tax purposes and the resolution of open
issues from prior periods. The charge in the first half of 2006 includes a
credit of £0.8 in respect of deferred tax and £0.5 million in respect of the
resolution of prior period issues.

Earnings per share

Basic and diluted earnings per share from continuing operations before
exceptional items was 3.2 pence (2005: 0.8 pence) due to the improved trading
performance. This includes a benefit of 0.3 pence in the period as a result of
pension finance income of £0.9 million compared to a charge of £0.5 million in
the first of half of 2005.

Cash flow

Net borrowings increased by £10.3 million in the period to 30 June 2006 to
£109.7 million. The majority of the increase was due to cash outflows of £8.1
million in respect of exceptional items charged in 2005. Working capital
increased by £16.5 million (2005: £9.0 million) reflecting seasonal trading and
increased inventory in Chromium to facilitate customer requirements during the
UK plant closure and restructuring programme. The increase is also larger than
the previous period due to favourable timing of supplier payments experienced in
June 2005. Currency fluctuations reduced net borrowings by £4.4 million.



The cash flow is summarised below:
                                                               30 June          30 June
                                                                  2006             2005
                                                              £million         £million
Earnings before interest, tax, exceptionals,
depreciation and amortisation                                     25.4             16.9
Change in working capital                                       (16.5)            (9.0)
Pension                                                          (1.6)            (1.8)
Interest and tax                                                 (4.2)            (3.5)
Restructuring                                                    (8.1)                -
Other                                                              0.1            (0.5)
Capital expenditure                                              (5.0)            (9.0)

                                                                ______           ______
                                                                 (9.9)            (6.9)
Distribution to shareholders                                     (4.8)            (4.6)
Acquisitions and disposals                                           -              7.8
Reclassification of B shares                                         -            (2.2)
Currency fluctuations                                              4.4            (5.0)

                                                                ______           ______
                                                                (10.3)           (10.9)
Net borrowings at start of period                               (99.4)           (90.2)

                                                                ______           ______
Net borrowings at end of period                                (109.7)          (101.1)

                                                                ______           ______



The Group refinanced its borrowing facilities on improved terms on 17 July 2006
and entered into a £150.0 million, five year, revolving credit facility with a
syndicate of lenders. The facility will be used to finance existing working
capital and debt requirements. At 30 June 2006 loans drawn under the facility
that was replaced on 17 July 2006 were classified within current liabilities as
they were due for repayment in January 2007. In the previous year these loans
were classfied as non-current liabilities.

Capital expenditure

Following a number of years of significant investment, capital expenditure was
£4.0 million lower than the comparative period at £5.0 million (2005: £9.0
million). This represented less than 70 per cent of the depreciation charge
(2005: 101 per cent).



Balance sheet
                                                                         30 June             30 June
                                                                            2006                2005
                                                                        £million            £million
Tangible fixed assets                                                      130.4               174.2
Other net assets                                                           166.7               151.5

                                                                          ______              ______
                                                                           297.1               325.7

                                                                          ______              ______
Equity                                                                     187.4               224.6
Net borrowings                                                             109.7               101.1

                                                                          ______              ______
                                                                           297.1               325.7

                                                                          ______              ______
Gearing(1)                                                                   37%                 31%

                                                                          ______              ______

(1) the ratio of net borrowings to equity attributable to parent plus net
borrowings



Equity is £37.2 million lower than the value at 30 June 2005 primarily due to
the restructuring charges in the second half of 2005. Equity at 31 December 2005
was £189.8 million and the net decrease of £2.4 million in the period is due to
currency fluctuations, primarily on US Dollar denominated goodwill, which more
than offset the profit for the period.





The main sterling currency exchange rates in the period were:

                                     2006                  2006                  2005                  2005
                                  30 June               Average               30 June               Average

                                   ______                ______                ______                ______
US dollar                            1.85                  1.79                  1.79                  1.87
Euro                                 1.45                  1.45                  1.48                  1.45

                                   ______                ______                ______                ______





Pensions and other post retirement benefits

The pension liability was £55.8 million at 30 June 2006 compared to £62.0
million at 31 December 2005.  The pension schemes were not revalued at 30 June
2006 and the net liability calculated by the Group's actuaries at 31 December
2005 has been updated for contributions paid and amounts expensed in the six
months ended 30 June 2006. In the first half, a net amount of £1.5 million
(2005: £3.4 million) was charged to the profit and loss account after a finance
income credit of £0.9 million (2005: charge of £0.5 million). Contributions paid
amounted to £4.0 million (2005: £5.1 million), and a curtailment gain in respect
of the US defined benefit scheme reduced the pension liability by £1.7 million
(2005: nil).


Brian Taylorson
Finance Director
1 August 2006



Consolidated interim income statement
for the six months ended 30 June 2006
                                                                                  Six months ended 30 June 2005
                                         Note         Six months          Before    Exceptional           After
                                                           ended     exceptional          Items     exceptional
                                                    30 June 2006           items       (note 6)           items
                                                        £million        £million       £million        £million
Continuing operations
Revenue                                     3              210.9
Cost of sales                                            (145.9)           199.6              -           199.6
Gross profit                                                65.0         (140.9)          (8.1)         (149.0)
Distribution costs                                        (29.0)            58.7          (8.1)            50.6
Administrative expenses                                   (17.9)          (29.5)          (1.3)          (30.8)
Operating profit/(loss)                     3               18.1          (21.8)          (2.8)          (24.6)
Profit on disposal of business                                 -             7.4         (12.2)           (4.8)
Finance income                              4                1.1               -            4.6             4.6
Finance costs                               5              (4.8)             0.2              -             0.2
Profit/(loss) before income tax             3               14.4           (3.7)              -           (3.7)
Tax                                         7              (0.2)             3.9          (7.6)           (3.7)
Profit/(loss) from continuing                               14.2           (0.1)            1.3             1.2
operations
                                                          ______          ______         ______          ______
Discontinued operation                                                       3.8          (6.3)           (2.5)
Profit from discontinued operation                             -
Profit for the period                                       14.2             0.6              -             0.6
Attributable to:

Equity holders of the parent                                14.1             4.4          (6.3)           (1.9)
Minority interests                                           0.1                                          (2.1)
                                                                             4.2          (6.3)
                                                            14.2             0.2              -             0.2

                                                          ______          ______         ______          ______
Earnings/(loss) per share                                                    4.4          (6.3)           (1.9)
From continuing and discontinued
operations:
Basic and diluted (pence)                   8                3.2
From continuing operations:                                                  1.0                          (0.5)
Basic and diluted (pence)                   8                3.2
                                                                             0.8                          (0.6)







Consolidated interim income statement (continued)


                                                                                 Year ended 31 December 2005
                                                                        Before    Exceptional          After
                                                           Note    exceptional          items    exceptional
                                                                         items       (note 6)          items
                                                                      £million       £million       £million
Continuing operations
Revenue                                                       3          399.4              -          399.4
Cost of sales                                                          (280.8)         (41.0)        (321.8)
Gross profit                                                             118.6         (41.0)           77.6
Distribution costs                                                      (58.5)          (2.6)         (61.1)
Administrative expenses                                                 (41.0)          (0.9)         (41.9)
Operating profit/(loss)                                       3           19.1         (44.5)         (25.4)
Profit on disposal of business                                               -            4.6            4.6
Finance income                                                4            0.3              -            0.3
Finance costs                                                 5          (7.8)              -          (7.8)
Profit/(loss) before income tax                               3           11.6         (39.9)         (28.3)
Tax                                                           7          (0.3)          (3.1)          (3.4)
Profit/(loss) from continuing operations                                  11.3         (43.0)         (31.7)
Discontinued operations
Profit/(loss) from discontinued operation                                  1.1          (7.8)          (6.7)
Profit/(loss) for the year                                                12.4         (50.8)         (38.4)
Attributable to:
Equity holders of the parent                                              12.2         (50.3)         (38.1)
Minority interests                                                         0.2          (0.5)          (0.3)
                                                                          12.4         (50.8)         (38.4)

                                                                        ______         ______         ______
Earnings per share
From continuing and discontinuing operations
Basic and diluted (pence)                                     8            2.8                         (8.8)
From continuing operations:
Basic and diluted (pence)                                     8            2.6                         (7.2)



Consolidated interim statement of recognised income and expense
for the six months ended 30 June 2006


                                                                           2006            2005            2005
                                                                     Six months      Six months      Year ended
                                                                          ended           ended     31 December
                                                                        30 June         30 June        £million
                                                                       £million        £million
Exchange differences on translation of foreign operations                (11.6)            11.5            18.3
Actuarial loss on pension and other post retirement schemes                   -               -           (1.5)
Deferred tax associated with pension and other post retirement
schemes                                                                       -               -           (0.9)
Gains on cash flow hedges                                                   0.6               -             0.7
Net income/(expense) recognised in equity                                (11.0)            11.5            16.6
Profit/(loss) for the period                                               14.1           (2.1)          (38.4)
Total recognised income and expense for the period                          3.1             9.4          (21.8)
Effect of change in accounting policy
Effect of adoption of IAS 32 and 39 on 1 January 2005 on:
Share capital                                                                 -           (2.2)           (2.2)
                                                                            3.1             7.2          (24.0)
Attributable to:

Equity holders of the parent                                                3.0             7.0          (23.7)
Minority interests                                                          0.1             0.2           (0.3)
                                                                            3.1             7.2          (24.0)

                                                                         ______          ______          ______



Consolidated interim balance sheet
at 30 June 2006


                                                                           2006            2005            2005
                                                                        30 June         30 June     31 December
                                                                       £million        £million        £million
Non-current assets
Goodwill and other intangible assets                                      159.8           164.6           170.6
Property, plant and equipment                                             130.4           174.2           141.1
Interests in associates and other investments                               3.2             2.2             3.3
Deferred tax assets                                                        11.2            17.6            11.1
Total non-current assets                                                  304.6           358.6           326.1

                                                                         ______          ______          ______


Current assets
Inventories                                                                70.8            73.9            63.5
Trade and other receivables                                                77.5            95.6            75.6
Cash and cash equivalents                                                  19.1            12.6            13.0
Total current assets                                                      167.4           182.1           152.1
Total assets                                                              472.0           540.7           478.2


Current liabilities
Bank overdrafts and loans                                               (128.8)           (6.2)           (4.6)
Trade and other payables                                                 (62.7)          (77.2)          (69.5)
Current tax liabilities                                                   (6.7)           (7.3)           (5.6)
Provisions                                                                (5.2)           (7.6)          (11.8)
Total current liabilities                                               (203.4)          (98.3)          (91.5)


Non-current liabilities
Loans and borrowings                                                          -         (107.5)         (107.8)
Retirement benefit obligations                                           (55.8)          (81.8)          (62.0)
Deferred tax liabilities                                                      -           (1.8)           (0.3)
Provisions                                                               (21.3)          (21.9)          (22.4)
Government grants                                                         (2.4)           (2.3)           (2.3)
Total non-current liabilities                                            (79.5)         (215.3)         (194.8)
Total liabilities                                                       (282.9)         (313.6)         (286.3)
Net assets                                                                189.1           227.1           191.9

                                                                         ______          ______          ______


Equity
Share capital                                                              22.0            22.1            21.8
Share premium                                                               2.6             1.2             1.9
Other reserves                                                             78.8            75.9            89.5
Retained earnings                                                          84.0           125.4            76.6
Equity attributable to equity holders of the parent                       187.4           224.6           189.8
Minority equity interests                                                   1.7             2.5             2.1
Total equity and reserves                                                 189.1           227.1           191.9

                                                                         ______          ______          ______





Consolidated interim cash flow statement
for the six months ended 30 June 2006


                                                                           2006            2005            2005
                                                                     Six months      Six months      Year ended
                                                                          ended           ended     31 December
                                                                        30 June         30 June
                                                                       £million        £million        £million
Operating activities:
Profit/(loss) for the period                                               14.2           (1.9)          (38.4)
Adjustments for:
Finance income                                                            (1.1)           (0.2)           (0.3)
Finance costs                                                               4.8             3.8             7.9
Tax                                                                         0.2           (1.2)             3.4
Depreciation and amortisation                                               7.3             8.9            18.2
Decrease in provisions                                                    (0.5)           (1.5)           (1.3)
Pension contributions net of current service cost                         (1.6)           (1.8)          (14.1)
Share-based payments                                                        0.4             0.3             0.8
Exceptional items charged less cash outflow                               (8.1)             7.7            35.0
Operating cash flows before movements in working capital                   15.6            14.1            11.2
Increase in inventories                                                   (6.8)           (3.7)           (1.0)
Increase in trade and other receivables                                   (2.5)          (12.1)             0.3
(Decrease)/increase in trade and other payables                           (7.2)             6.8             2.6
Cash generated by operations                                              (0.9)             5.1            13.1
Income taxes (paid)/received                                              (0.3)           (0.7)           (2.6)
Interest paid                                                             (4.1)           (3.1)           (7.2)

                                                                         ______          ______          ______
Net cash flow from operating activities                                   (5.3)             1.3             3.3
Investing activities:
Interest received                                                           0.2             0.3             0.4
Purchase of property, plant and equipment                                 (5.0)           (9.0)          (16.8)
Proceeds from sale of property, plant and equipment                         1.2               -               -
Disposal of businesses                                                        -             7.8            23.7

                                                                         ______          ______          ______
Net cash used in investing activities                                     (3.6)           (0.9)             7.3
Financing activities:
Issue of shares                                                             0.9             0.6             0.9
Redemption of B shares                                                        -           (4.6)           (9.7)
Purchase of own shares                                                    (1.9)               -               -
Dividends paid                                                            (4.8)               -               -
Decrease in borrowings repayable within one year                              -           (3.0)           (3.0)
Increase/(decrease) in borrowings repayable after one year                 25.4             2.7           (0.9)
Repayments of obligations under finance leases                                -           (0.2)           (0.2)

                                                                         ______          ______          ______
Net cash (used in)/from financing activities                               19.6           (4.5)          (12.9)

                                                                         ______          ______          ______
Net increase/(decrease) in cash and cash equivalents                       10.7           (4.1)           (2.3)
Cash and cash equivalents at beginning of period                            8.4            10.3            10.3
Foreign exchange on cash and cash equivalents                             (0.5)             0.2             0.4

                                                                         ______          ______          ______
Cash and cash equivalents at end of period                                 18.6             6.4             8.4

                                                                         ______          ______          ______



Notes to the interim financial statements
for the six months ended 30 June 2006

1    General Information

The financial information for the first six months of 2006 and 2005, 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 2005.

The comparative figures for the year ended 31 December 2005 are not the
Company's statutory accounts for that financial year.  Those accounts, which
were prepared and approved by the directors in accordance with International
Financial Reporting Standards as adopted by the EU (adopted IFRS), have been
reported on by the Company's auditor and delivered to the Registrar of
Companies. The auditor's report was unqualified and did not contain statements
under section 237 (2) or (3) of the Companies Act 1985.

2    Accounting estimates and judgements

The preparation of interim financial statements requires management to make
judgements, estimates and assumptions that affect the application of accounting
policies and the reported amounts of income, expense, assets and liabilities.
Other than reassessing its estimates in respect of previously unrecognised
deferred tax assets, the significant estimates and judgements made by management
were consistent with those applied to the consolidated financial statements for
the year ended 31 December 2005.

3    Segment reporting

For management purposes the Group is currently organised into three operating
divisions - Specialties, Pigments and Chromium. Principal activities are as
follows:

Specialties - production of rheological and surface chemistry additives;

Pigments - production of synthetic iron oxides and complementary products;

Chromium - production of chromium chemicals.


                                                                                Six months ended 30 June 2006
                                                                Gross       Inter-segment            External
                                                             £million            £million            £million
Revenue from continuing operations
Specialties                                                     101.5               (0.2)               101.3
Pigments                                                         50.9               (0.2)                50.7
Chromium                                                         61.9               (3.0)                58.9
                                                                214.3               (3.4)               210.9

                                                               ______              ______              ______



(continued from table above)
                                                                                Six months ended 30 June 2005
                                                               Gross       Inter-segment             External
                                                            £million            £million             £million
Revenue from continuing operations
Specialties                                                     94.3               (1.4)                 92.9
Pigments                                                        46.7               (0.1)                 46.6
Chromium                                                        62.0               (1.9)                 60.1
                                                               203.0               (3.4)                199.6

                                                              ______              ______               ______




                                                                                Six months ended 30 June 2006
                                                              Before                                    After
                                                         exceptional         Exceptional          exceptional
                                                               items               items                items
                                                            £million            £million             £million
Result from continuing operations
Specialties                                                     12.2               (1.4)                 10.8
Pigments                                                         3.0                 1.0                  4.0
Chromium                                                         6.0                 0.4                  6.4
Central costs                                                  (3.1)                   -                (3.1)
                                                                18.1                   -                 18.1
Profit on disposal of business                                     -                   -                    -
Finance income                                                   1.1                   -                  1.1
Finance costs                                                  (4.8)                   -                (4.8)

                                                              ______              ______               ______
Profit/ (loss) before tax                                       14.4                   -                 14.4

                                                              ______              ______               ______



(continued from table above)
                                                                                Six months ended 30 June 2005
                                                              Before         Exceptional    After exceptional
                                                   exceptional items               items                items
                                                            £million            £million             £million
Result from continuing operations
Specialties                                                      8.2               (4.0)                  4.2
Pigments                                                         1.1               (7.1)                (6.0)
Chromium                                                         2.9                   -                  2.9
Central costs                                                  (4.8)               (1.1)                (5.9)
                                                                 7.4              (12.2)                (4.8)
Profit on disposal of business                                     -                 4.6                  4.6
Finance income                                                   0.2                   -                  0.2
Finance costs                                                  (3.7)                   -                (3.7)

                                                              ______              ______               ______
Profit/ (loss) before tax                                        3.9               (7.6)                (3.7)

                                                              ______              ______               ______




                                                                                  Year ended 31 December 2005
                                                                           Revenue from continuing operations
                                                               Gross       Inter-segment             External
                                                            £million            £million             £million
Specialties                                                    185.4               (1.5)                183.9
Pigments                                                        90.7               (0.2)                 90.5
Chromium                                                       129.4               (4.4)                125.0
Central costs                                                      -                   -                    -
                                                               405.5               (6.1)                399.4
Profit on disposal of business
Finance income
Finance costs
Profit before tax



(continued from table above)
                                                                                  Year ended 31 December 2005
                                                                            Result from continuing operations
                                                              Before                                    After
                                                         exceptional         Exceptional          exceptional
                                                               items               items                items
                                                            £million            £million             £million
Specialties                                                     17.6               (2.9)                 14.7
Pigments                                                         1.2               (7.1)                (5.9)
Chromium                                                         7.8              (29.5)               (21.7)
Central costs                                                  (7.5)               (5.0)               (12.5)
                                                                19.1              (44.5)               (25.4)
Profit on disposal of business                                     -                 4.6                  4.6
Finance income                                                   0.3                   -                  0.3
Finance costs                                                  (7.8)                   -                (7.8)
Profit before tax                                               11.6              (39.9)               (28.3)

                                                              ______              ______               ______



4    Finance income
                                                                2006                 2005                 2005
                                                          Six months           Six months                 Year
                                                               ended                ended                ended
                                                             30 June              30 June          31 December
                                                            £million             £million             £million
Continuing operations
Interest on bank deposits                                        0.2                  0.2                  0.3
Pension and other post-retirement liabilities
     Expected return on pension scheme assets                   13.2                    -                    -
     Interest on pension scheme liabilities                   (12.3)                    -                    -
                                                                 0.9                    -                    -
                                                                 1.1                  0.2                  0.3



5    Finance costs
                                                                2006                 2005                 2005
                                                          Six months           Six months                 Year
                                                               ended                ended                ended
                                                             30 June              30 June          31 December
                                                            £million            £ million             £million
Continuing operations
Interest on bank loans                                           4.2                  2.8                  6.5
Interest on other loans                                            -                    -                  0.1
Total borrowing costs                                            4.2                  2.8                  6.6
Interest on corporation tax payments                             0.1                  0.1                  0.1
Unwind of discount on provisions                                 0.5                  0.3                  0.7
Pension and other post-retirement liabilities
     Expected return on pension scheme assets                      -               (12.2)               (24.8)
     Interest on pension scheme liabilities                        -                 12.7                 25.2
                                                                   -                  0.5                  0.4
                                                                 4.8                  3.7                  7.8

                                                              ______               ______               ______



6    Exceptional items
                                                                  2006                  2005                   2005
                                                            Six months            Six months                   Year
                                                                 ended                 ended                  ended
                                                               30 June               30 June            31 December
                                                             £ million             £ million              £ million
Continuing operations
Central restructuring charge                                         -                 (1.1)                  (3.4)
Pigments East St Louis rationalisation                               -                 (7.1)                  (7.1)
Restructure of Chromium                                              -                     -                 (31.4)
Integration of Servo business                                        -                 (4.0)                  (6.5)
Integration of Specialties and Pigments                          (1.7)                     -                  (3.3)
Insurance recovery                                                   -                     -                    1.1
Settlement of legal claims                                           -                     -                  (2.4)
Curtailment gains on pension schemes                               1.7                     -                    8.5
Profit on disposal of business                                       -                   4.6                    4.6

                                                                ______                ______                 ______
                                                                     -                 (7.6)                 (39.9)
Discontinued operations
Disposal of business                                                 -                     -                  (7.8)

                                                                ______                ______                 ______
                                                                     -                 (7.6)                 (47.7)
Tax credit/(charge) on exceptional items                             -                   1.3                  (3.1)
                                                                     -                 (6.3)                 (50.8)

                                                                ______                ______                 ______



7    Tax

The tax charge on profit before exceptional items of £0.2 million (2005: £0.1
million) is based on an estimated effective tax rate on profit before
exceptional items for the year to 31 December 2006 of 1.3 per cent (2005: 2.6
per cent).  The rate is lower than the standard UK corporation tax rate
primarily due to the amortisation of goodwill in the US for tax purposes.



8    Earnings per share
                                                                2006                 2005                 2005
                                                          Six months           Six months                 Year
                                                               ended                ended                ended
                                                             30 June              30 June          31 December
                                                            £million             £million             £million
Earnings for the purposes of basic earnings per                 14.1                (2.1)               (38.1)
share
Exceptional items net of tax                                       -                  6.3                 50.3

                                                              ______               ______               ______
Adjusted earnings                                               14.1                  4.2                 12.2

                                                              ______               ______               ______

                                                           Number(m)            Number(m)            Number(m)
Weighted average number of shares for the
purposes of basic earnings per share                           435.5                433.0                434.2
Effect of dilutive share options                                11.0                  8.1                  7.4

                                                              ______               ______               ______
Weighted average number of shares for the
purposes of diluted earnings per share                         446.5                441.1                441.6

                                                              ______               ______               ______





The calculation of the basic and diluted earnings per share from continuing
operations attributable to the ordinary equity holders of the parent is based on
the following:


                                                                2006                  2005                 2005
                                                          Six months            Six months                 Year
                                                               ended                 ended                ended
                                                             30 June               30 June          31 December
                                                            £million              £million             £million
Profit/(loss) for the period attributable to
equity holders of the parent                                    14.1                 (2.1)               (38.1)
(Profit)/loss for the period from discontinued
operations                                                         -                 (0.6)                  6.7
Profit/(loss) from continuing operations                        14.1                 (2.7)               (31.4)
Exceptional items from continuing operations
before minority interests                                          -                   6.3                 42.5

                                                              ______                ______               ______
Adjusted earnings from continuing operations                    14.1                   3.6                 11.1

                                                              ______                ______               ______




                                                                2006                 2005                 2005
                                                          Six months           Six months                 Year
                                                               ended                ended                ended
                                                             30 June              30 June          31 December
                                                               pence                pence                pence
Earnings per share:
From continuing and discontinuing operations:
Basic and diluted                                                3.2                (0.5)                (8.8)
Basic and diluted before exceptional items                       3.2                  1.0                  2.8
From continuing operations:
Basic and diluted                                                3.2                (0.6)                (7.2)
Basic and diluted before exceptional items                       3.2                  0.8                  2.6

                                                              ______               ______               ______





9    Dividends

The following dividends were declared and paid by the Group:
                                                                2006                 2005                 2005
                                                          Six months           Six months                 Year
                                                               ended                ended                ended
                                                             30 June              30 June          31 December
                                                            £million             £million             £million
1.1 pence per ordinary share (2005: nil)                         4.8                    -                    -
Preference dividend on B shares                                    -                    -                  0.1

                                                             _______               ______               ______
                                                                 4.8                    -                  0.1

                                                              ______               ______               ______



An interim dividend of 1.2 pence per share (2005: nil) is proposed and will be
paid on 3 November 2006.



10   Movement in net borrowings
                                                                2006                 2005                 2005
                                                          Six months           Six months                 Year
                                                               ended                ended                ended
                                                             30 June              30 June          31 December
                                                            £million             £million             £million
Change in net borrowings resulting from cash
flows
Increase/(decrease) in cash and cash                            10.7                (4.1)                (2.3)
equivalents
(Increase)/decrease in borrowings                             (25.4)                  0.4                  4.1
                                                              (14.7)                (3.7)                  1.8
Transfer of B shares from equity                                   -                (2.2)                (2.2)
Currency translation differences                                 4.4                (5.0)                (8.8)
Increase in net borrowings                                    (10.3)               (10.9)                (9.2)
Net borrowings at beginning of period                         (99.4)               (90.2)               (90.2)
Net borrowings at end of period                              (109.7)              (101.1)               (99.4)

                                                              ______               ______               ______






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