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Elementis PLC (ELM)

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Tuesday 27 February, 2007

Elementis PLC

Final Results

Elementis PLC
27 February 2007



27 February 2007


                                 ELEMENTIS plc




PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2006


Elementis plc, the Global Specialty Chemicals Company, announces its results for
the year ended 31 December 2006.



HIGHLIGHTS

From continuing operations


  • Underlying sales up 6 per cent.
  • Operating profit before exceptional items up 97 per cent.
      • Improved operating profit in all business segments.
  • Profit before tax and exceptional items up 159 per cent.
      • Restructuring of overheads reduced costs by over £13 million.
  • Retirement benefit obligations reduced by £24.7 million (40 per cent).
  • Proposed final dividend up 9 per cent.



Financial Summary
                                                                                        2006             2005
Sales*                                                                               £395.9m          £399.4m
Operating profit*                                                                     £37.6m           £19.1m
Profit before tax*                                                                    £30.1m           £11.6m
Diluted earnings per share*                                                             6.7p             2.6p
Dividend/distribution to shareholders  - final proposed                                 1.2p             1.1p
                                       - full year                                      2.4p             2.2p
Operating profit/(loss) after exceptional items                                       £40.6m         £(25.4)m
Diluted earnings per share after exceptional items                                      7.0p           (8.8)p


* from continuing businesses and before exceptional items


Commenting on the results, Group Chief Executive, David Dutro said:

'We are pleased to report the significant improvement in the Group's
performance.  We successfully implemented the strategic plan announced in
October 2005 which, combined with strong global demand for our products,
increased earnings and resulted in underlying sales growth of 6 per cent.

Specialty Products reduced selling, general and administrative expenses by over
£5 million while underlying sales improved by 7 per cent due to good growth in
the Coatings, Construction and Oilfield segments.

Pigments' manufacturing costs were reduced by over £2 million by transitioning
our North America based customers to our Tai Cang plant in China and underlying
sales improved by 6 per cent due to robust demand in Coatings, Chemicals and
Construction.

In Chromium, the manufacturing base was restructured, reducing UK capacity by 50
per cent and operating profit before exceptional items improved due to higher
average selling prices.

Profit improvement programs continued throughout 2006 and provide confidence in
the Group's ability to drive earnings progression.  2007 has started on a
positive note and we believe that the current global environment will support
further progress and growth in shareholder value.  With the restructuring
program completed, we anticipate a positive cash flow in 2007 and a
corresponding reduction in debt.'


                                    - Ends -


Enquiries

Elementis
Robert Beeston, Chairman                                 020 7408 9300
Brian Taylorson, Finance Director


Financial Dynamics                                       020 7831 3113
Andrew Dowler
Greg Quine



Chairman's Statement

The business strategy announced by the Group in October 2005 was targeted to
improve the base level of the Group's profits in 2006 from which to grow
earnings in subsequent years.  This objective would be achieved through a
combination of overhead cost reduction, leveraging the Pigments cost base,
increased focus on the Specialties business segment and repositioning of the
Chromium business to stabilise earnings and reduce volatility.

It is pleasing to report the very significant result that has been achieved
through the successful implementation of this strategy.


Results

Operating profit from continuing operations, before exceptional items, improved
by 97 per cent over the previous year to £37.6 million and all businesses showed
an increase. This significant improvement was in large part due to the Group's
restructuring exercise announced during 2005 which has resulted in fixed costs
falling by over £13 million in 2006. In addition Specialties and Pigments have
benefited from strong markets in most parts of the world and Chromium showed
improved earnings on the back of higher selling prices and the restructuring of
the Eaglescliffe site.

Revenue for the year was £395.9 million which is an increase of 6 per cent after
adjusting for businesses sold or exited. Pricing in Chromium was 11 per cent
higher than the previous year, largely due to actions taken in 2005, while more
modest price improvements were achieved in our other businesses and margin
improvement will remain a priority for 2007. Pigments and Specialties both
benefited from strong markets and the Surfactants business was restructured by
eliminating low margin business to provide a sound platform as we move into
2007.

Diluted earnings per share from continuing operations, before exceptional items,
was 6.7 pence versus 2.6 pence in 2005. There were a number of exceptional items
recorded in the year as part of the restructuring exercise which resulted in a
net gain of £3.0 million. After exceptional items diluted earnings per share was
7.0 pence. Debt levels remained at a similar level to the previous year.


Dividend

The Board is recommending a final dividend of 1.2 pence taking the total return
to shareholders for the year to 2.4 pence.  Subject to approval at the Annual
General Meeting, the dividend will be paid on 5 May 2007 to members on the
register at the close of business on 10 April 2007. The Board intends to
continue to review the dividend policy as earnings performance permits.


The Board

I joined the Board as Chairman in September 2006 at which time Edward Bramson
stepped down as Executive Chairman, but remains on the Board as non-executive
Director. Edward was the architect of the recent restructuring and I would like
to thank him on behalf of the whole Board for his excellent contribution to
shareholder value and the future prospects of the Group. In January 2007 David
Dutro joined the Board as Group Chief Executive having previously been Chief
Operating Officer, Elementis Worldwide and before that President of Elementis
Pigments.  David brings a wealth of experience in our businesses and our
industry, and has played a leading role in developing and implementing the
recent reorganisation and improvement in performance. I am confident that
Elementis will continue to benefit from his leadership going forward.


Environmental, health and safety

Our performance in this area continues to be at the high end of industry
standards and the Board is committed to driving continuous improvement in this
important part of our business.


People

In the short time I have been on the Board I have visited a number of sites and
offices around the Group, and have been impressed by the quality and dedication
of our people. I would like to thank them for their hard work in delivering the
excellent results in 2006.


Outlook

We will continue to focus on the highest margin Specialties business segment as
the most significant driver of profitable growth in 2007.  The Group will also
continue to benefit across all business segments from the successful
restructuring, undertaken during the last two years, to improve business
efficiency.  Improved cash flow and corresponding debt reduction will also be
evident now that the cash costs of restructuring are largely behind us.

2007 has started on a positive note and we believe that the current global
environment will support further progress and growth in shareholder value.



Robert Beeston
Chairman
27 February 2007




Financial Performance

Revenue                                             Effect of                         Increase/
                                     Revenue         exchange        Disposals       (decrease)          Revenue
                                        2005            rates             2006             2006             2006
                                    £million         £million         £million         £million         £million
Specialties
- Specialty Products                   139.7              0.1            (4.7)              9.7            144.8
- Surfactants                           45.7              0.4                -                -             46.1
                                      ______           ______           ______           ______           ______

Specialties total                      185.4              0.5            (4.7)              9.7            190.9
Pigments                                90.7              0.7            (1.5)              4.3             94.2
Chromium                               129.4            (0.6)                -           (12.0)            116.8
Specialty Rubber                        40.5                -           (40.5)                -                -
Inter-segment                          (6.1)                -                -              0.1            (6.0)
                                      ______           ______           ______           ______           ______

                                       439.9              0.6           (46.7)              2.1            395.9
                                      ______           ______           ______           ______           ______




Introduction

IFRS requires separate disclosure of items of income and expense which are
material by virtue of their nature or amount. These items are considered to be
most appropriately disclosed as exceptional.

Elementis management consider that the information presented in the tables in
this review provide useful financial information relating to the performance of
the Group. This information should not be considered as an alternative, but as
supplementary to the full IFRS income statement presented on page 11.


Group results

Group revenue increased by 6 per cent to £395.9 million in 2006, after adjusting
for businesses sold or exited and the Chromium, UK capacity rationalisation.
Higher average selling prices were the main driver of the increase with pricing
across the Group up by 5 per cent over the previous year, due to increases in
Chromium and Specialties. Volumes improved in both Speciality Products and
Pigments due to good market demand in Coatings, Oilfield and Construction. In
Chromium volumes were lower due to the price increases implemented in 2005,
while Surfactant volumes were lower due to product mix optimisation initiatives
which resulted in lower volumes but which will achieve higher margins.

Group operating profit from continuing businesses, before exceptional items, was
£37.6 million versus £19.1 million in the previous year, an increase of 97 per
cent. Energy costs increased by £3.3 million, just under 10 per cent versus the
previous year and other raw materials and variable costs increased by around 9
per cent, with most of the increases occurring in Chromium. These increases were
more than offset by improvements in sales and, in addition, Group fixed costs
were reduced by over £13.0 million versus the previous year as a result of the
restructuring program that was initiated by the Board in 2005.  Operating profit
also benefited from £1.8 million of currency hedging gains which were split
equally between Specialties and Chromium.

Diluted earnings per share from continuing businesses, before exceptional items,
was 6.7 pence compared to 2.6 pence in the previous year. The increase was
largely driven by the improvement in operating profit. After exceptional gains
of £3.0 million, which are described below, diluted earnings per share was 7.0
pence versus a loss per share of 7.2 pence in 2005.


Elementis Specialties


Specialty Products

Revenue in Specialty Products was £144.8 million in 2006, an increase of 7 per
cent over the previous year after adjusting for a business sold in 2005.
Improved volumes in both Coatings and Oilfield additives was the



Operating profit                                                                                        2006
                                                       Operating           Exceptional              Adjusted
£million                                                  profit                items*      operating profit
Continuing operations
Specialties
      - Specialty Products                                  25.9                 (0.9)                  25.0
      - Surfactants                                          0.3                   0.3                   0.6
                                                          ______                ______                ______

                                                            26.2                 (0.6)                  25.6
Pigments                                                     7.1                 (1.0)                   6.1
Chromium                                                    13.3                 (1.4)                  11.9
Central costs                                              (6.0)                     -                 (6.0)
                                                          ______                ______                ______

                                                            40.6                 (3.0)                  37.6
Discontinued operations
Speciality Rubber                                              -                     -                     -
                                                          ______                ______                ______

                                                            40.6                 (3.0)                  37.6
                                                          ______                ______                ______

* excluding profit / (loss) on disposal of business


(continued from table above)
Operating profit                                                                                        2005
                                                       Operating           Exceptional    Adjusted operating
£million                                                  profit                items*                profit
Continuing operations
Specialties
      - Specialty Products                                  14.6                   2.4                  17.0
      - Surfactants                                          0.1                   0.5                   0.6
                                                          ______                ______                ______

                                                            14.7                   2.9                  17.6
Pigments                                                   (5.9)                   7.1                   1.2
Chromium                                                  (21.7)                  29.5                   7.8
Central costs                                             (12.5)                   5.0                 (7.5)
                                                          ______                ______                ______

                                                          (25.4)                  44.5                  19.1
Discontinued operations
Speciality Rubber                                            1.2                     -                   1.2
                                                          ______                ______                ______
                                                          (24.2)                  44.5                  20.3
                                                          ______                ______                ______

* excluding profit / (loss) on disposal of business



main cause of the increase, while overall pricing was over 2 per cent better
than the previous year largely due to selective increases in these two sectors
during the second half. In Coatings, strong demand drove volume improvements of
close to 15 per cent in Europe and Asia, while demand in North America was
initially strong, it slowed in the second half due to a slow down in housing
starts so that full year volumes ended higher by around 5 per cent. Oilfield
volumes improved by around 8 per cent versus the previous year due to higher oil
prices and increased drilling activity, and were particularly strong in Europe
due to new business in the Nordic region. In the US, the largest region, volumes
improved by around 4 per cent while Canadian markets were somewhat softer due to
some switching of drilling resources away from deeper wells and growing activity
in oil sands projects.

Operating profit before exceptional items in 2006 improved by 47 per cent to
£25.0 million. Fixed costs decreased by more than £5.0 million due to the
restructuring program initiated in 2005 to reduce selling, general and
administration costs. Otherwise, higher revenue more than offset increases in
raw materials and energy.


Surfactants

Revenue in Surfactants was £46.1 million in 2006, marginally higher than the
previous year. Good volume growth was seen in the oilfield sector but this was
offset by the planned optimisation initiative.  As part of this initiative, low
margin business has been reduced and margin enhancement programs were introduced
during the second half of the year which should continue to benefit the business
into 2007.

Operating profit before exceptional items was unchanged at £0.6 million in 2006.
Improvements in the sales mix were not sufficient to offset around £3.0
million of increases in raw materials and energy costs, but the business also
benefited from over £2.0 million of fixed cost improvements due to
rationalisation of the manufacturing site in the Netherlands.


Elementis Pigments

Revenue in Pigments increased by 4 per cent in 2006 to £94.2 million and by 6
per cent excluding sales to the US driers market which was exited during the
year. Higher volumes in Coatings, Chemical and Construction applications were
the main driver of the increase and prices were raised on a number of key
products in response to higher energy and raw material prices, although pricing
measured across the whole business was relatively stable year on year. In
Coatings the North American customers were successfully transitioned to the new
Chinese product following the start up of the plant in Tai Cang, and volumes
increased with key customers due to strong consumer demand. Volumes also
improved in Europe and Asia Pacific. Construction volumes were higher in North
America and Asia Pacific due to good demand while volumes in Europe were
impacted by a decision to exit from some low margin sales. The granular iron
oxide product continued to make good progress. In Driers a decision was made
during the year to exit the unprofitable North American business and this
reduced revenue by around £1.5 million.

Operating profit before exceptional items was £6.1 million for the year versus
£1.2 million in 2005. As well as the positive impact of higher sales, the
current year also benefited from a reduction of £3.6 million in fixed costs due
mainly to improved manufacturing costs following the start up of the Tai Cang
plant in 2005.


Elementis Chromium

The Chromium business was significantly restructured during the first half of
2006. Part of the Eaglescliffe, UK plant was closed in March 2006 reducing the
global manufacturing capacity of the business by 25 per cent. The net impact of
this on operating profit in 2006 was largely neutral as the loss of sales
volumes was offset by a reduction in manufacturing costs. In addition more
hedging activity has been undertaken in both energy and currency, and contract
discussions with customers have focussed more on sharing the volatile cost
elements or setting a fixed price that allows Elementis to hedge them. All of
this has been done to improve the quality of earnings by reducing volatility and
thereby improving predictability. Results for the year also benefited from the
aggressive price improvement program that was implemented throughout 2005.
Consequently average selling prices in 2006 were around 11 per cent higher than
the previous year, more than offsetting increases in raw materials and energy of
around £13.0 million, of which £1.7 million was energy. Selling prices have been
relatively stable during 2006.

                                                                                              2006         2005
                                                                                          £million     £million
Sales
  - UK                                                                                        38.4         56.4
  - US                                                                                        78.4         73.0
                                                                                            ______       ______

                                                                                             116.8        129.4
                                                                                            ______       ______
Adjusted operating profit/(loss)*
  - UK                                                                                         1.7        (0.3)
  - US                                                                                        10.2          8.1
                                                                                            ______       ______

                                                                                              11.9          7.8
                                                                                            ______       ______
* before exceptional items


In the US sales increased by 7 per cent over the previous year with higher
pricing being the main driver of the improvement. Otherwise volumes were lower
in the chromic acid market due to changes in the Chromated Copper Arsenate ('
CCA') market for timber treatment at the beginning of 2005.  Operating profit
before exceptional items improved by 26 per cent to £10.2 million as higher
selling prices outpaced increases in energy and raw materials, and fixed costs
benefited from £0.5 million of insurance recoveries relating to a historic legal
settlement.

In the UK sales also increased by 7 per cent over the previous year after
adjusting for the effects of the plant closure. Metal oxide volumes were down by
around 10 per cent due to increases in price implemented in 2005, but sales of
first pass oxide to the Southern European ceramics market were up on higher
demand. Operating profit before exceptional items improved to £1.7 million in
2006 from a loss of £0.3 million in the previous year. Higher selling prices
more than offset lower volumes and increases in energy and raw materials.


Central costs

Central costs are costs that are not identifiable as expenses of a particular
business, and are comprised of expenditures of the Board of Directors and the
corporate office. In 2006, as a result of restructuring initiated in 2005 to
reduce overheads, central costs have been reduced by £1.5 million to £6.0
million.


Exceptional items

There were net exceptional gains before taxation of £3.0 million (2005: charges
of £47.7 million) in the year.  In the first half of 2006 there was a
curtailment gain of £1.7 million which arose as a result of changes to the
Group's US defined benefit pension scheme.  This was offset by a charge of £1.7
million in relation to further restructuring of the administrative activities of
Elementis Specialties which reduced the head count by 34 employees.

In the second half, Elementis has amended its post retirement medical benefit
scheme in its Specialties division where participants have become eligible for
similar benefits from the government.  As a result an exceptional gain of £2.0
million was recorded.  In addition, a credit of £1.0 million is included as
exceptional which relates to the release of restructuring provisions no longer
required.


Interest

Continuing operations                                                                       2006          2005
                                                                                        £million      £million

Finance income                                                                               0.2           0.3
Finance cost of borrowings                                                                 (8.3)         (6.6)
                                                                                          ______        ______

                                                                                           (8.1)         (6.3)
Pension finance income/(charge)                                                              1.6         (0.4)
Discount on provisions                                                                     (1.0)         (0.8)
                                                                                           (7.5)         (7.5)
                                                                                          ______        ______


An increase of £1.8 million in net interest payable on bank borrowings, due to a
combination of higher interest rates and higher borrowings, was offset by a
favourable variance of £2.0 million in pension finance income/(charge). An
increased return on UK pension scheme assets and lower interest costs on scheme
liabilities resulted in pension income of £1.6 million in 2006 compared to an
expense in the previous year of £0.4 million.

Interest cover, the ratio of operating profit before exceptional items to
interest on net borrowings, was 4.6 times (2005: 3.3 times).


Taxation

Tax charge                                                                              £million       Effective
                                                                                                   rate per cent

Before exceptional items                                                                   (0.1)               -
Exceptional items                                                                          (1.3)            43.3
                                                                                          ______          ______

Total                                                                                      (1.4)             4.2
                                                                                          ______          ______


The tax charge on profit before exceptional items comprised overseas corporation
tax of £1.1 million less prior period credits of £1.0 million.

Tax on exceptional items of £1.3 million relates to deferred taxation in respect
of exceptional gains of £3.7 million on pension and post retirement medical
benefits.  The overall tax charge was 4.2 per cent of profit before taxation
which is lower than the standard rate of UK corporation tax due to the
amortisation of goodwill in the US for tax purposes.


Earnings per share

Reported basic and diluted earnings per share from continuing operations were
7.1 pence (2005: loss of 8.8 pence) and 7.0 pence (2005: loss of 8.8 pence)
respectively.  After adjusting for exceptional items, basic and diluted earnings
per share from continuing operations were 6.8 pence (2005: 2.6 pence) and 6.7
pence (2005: 2.6 pence) per share respectively.  Diluted earnings per share from
continuing operations, before exceptional items increased by 158 per cent on
previous year mainly due to the increase in operating profit before exceptional
items.


Distribution to shareholders

In 2005 the Group ceased its policy of issuing and redeeming B shares to
shareholders as a method of making a distribution.  As a result, all of the
redeemable B shares outstanding on 1 November 2006 were compulsorily redeemed
for £2.1 million.  During 2006 the Group paid a final dividend in respect of the
year ended 31 December 2005 of 1.1 pence per share.  An interim dividend of 1.2
pence per share was paid on 3 November 2006 and the Board is proposing a final
dividend of 1.2 pence per share which will be paid on 5 May 2007.


Cash flow

The cash flow is summarised below:
                                                                                            2006            2005
                                                                                        £million        £million

Ebitda1                                                                                     52.4            38.5
Change in working capital                                                                 (13.0)             1.9
Capital expenditure                                                                       (13.2)          (16.8)
Pension                                                                                    (7.8)          (14.1)
Interest and tax                                                                           (8.7)           (9.4)
Other                                                                                      (0.2)           (1.8)
                                                                                          ______          ______
                                                                                             9.5           (1.7)
Distribution to shareholders                                                              (10.1)           (9.7)
Acquisitions and disposals                                                                   1.4            23.7
Exceptional items                                                                         (10.8)          (12.7)
Currency fluctuations                                                                        8.8           (8.8)
                                                                                          ______          ______
Increase in net borrowings                                                                 (1.2)           (9.2)
Net borrowings at start of year                                                           (99.4)          (90.2)
                                                                                          ______          ______
Net borrowings at end of year                                                            (100.6)          (99.4)
                                                                                          ______          ______

1 Ebitda - earnings before interest, tax, exceptional items, depreciation and
amortisation


Ebitda1 increased by 36 per cent to £52.4 million (2005: £38.5 million) in the
year due to the higher operating profit.  The Group invested £13.0 million in
additional working capital, partly due to a strategic build of inventory at
Elementis Chromium and partly to support growth at Elementis Specialties.
Capital expenditure amounted to 89 per cent of depreciation (2005: 93 per cent)
and payments to pension schemes, net of service cost, decreased by £6.3 million
following a £7.0 million contribution in 2005 in connection with the disposal of
Specialty Rubber.  As a result of the restructuring that was announced in 2005,
there was a cash outflow on exceptional items of £10.8 million (2005: £12.7
million) in the year.

Currency fluctuations had a positive impact on net borrowings in the year of
£8.8 million and despite the restructuring spend and investment in working
capital, the increase in net debt was limited to £1.2 million.


Balance sheet
                                                                                             2006          2005
                                                                                         £million      £million

Intangible fixed assets                                                                     151.6         170.6
Other net assets                                                                            148.3         118.6
                                                                                           ______        ______

                                                                                            299.9         289.2
                                                                                           ______        ______

Equity                                                                                      199.3         189.8
Net borrowings                                                                              100.6          99.4
                                                                                           ______        ______

                                                                                            299.9         289.2
                                                                                           ______        ______

Gearing 2 (per cent)                                                                           34            34


2 the ratio of net borrowings to equity plus net borrowings

Currency fluctuations also had a significant effect on equity during the year.
The main exchange rates relevant to the Group are set out below:


                                                                             2006                       2005
                                                            Year end      Average      Year end      Average
US dollar                                                       1.96         1.84          1.72         1.82
Euro                                                            1.48         1.47          1.46         1.46
                                                              ______       ______        ______       ______


The majority of the Group's assets are denominated in US dollars and the weaker
US dollar in the year resulted in a reduction to equity of £23.0 million (2005:
increase of £18.3 million).  Goodwill, which the Group does not hedge, decreased
by £18.7 million as a result of currency fluctuations.

The main movements in equity were the retained profit for the year of £31.7
million, actuarial gains on pension schemes of £8.6 million, the exchange loss
on translation of foreign operations of £23.0 million and dividends paid of
£10.1 million.


Pensions and other post retirement benefits

Retirement benefit obligations decreased by £24.7 million in the year to £37.3
million (2005: £62.0 million).  Total contributions to pension and post
retirement benefit schemes amounted to £12.0 million (2005: £19.1 million).
Actuarial gains of £8.6 million (2005: loss of £1.5 million) and curtailment
gains and settlements of £3.7 million (2005: 10.4 million) also reduced the
liability.  In addition, net finance income of £1.6 million (2005: expense of
£0.4 million) and currency gains of £2.9 million were partly offset by the
current service cost of £4.2 million (2005: £6.0 million).  This was lower than
previous year because of the Elementis Chromium and Elementis Specialties Delden
restructuring in 2005 and as a result of changes to the US defined benefit
pension scheme.



Consolidated income statement
for the year ended 31 December 2006
                                                                                                          2006
                                                              Before          Exceptional                After
                                                         exceptional                items          exceptional
                                                               items             (note 5)                items
                                           Note             £million             £million             £million
Continuing operations
Revenue                                                        395.9                    -                395.9
Cost of sales                                                (274.7)                    -              (274.7)
                                                              ______               ______               ______
Gross profit                                                   121.2                    -                121.2
Distribution costs                                            (52.6)                    -               (52.6)
Administrative expenses                                       (31.0)                  3.0               (28.0)
                                                              ______               ______               ______
Operating profit/(loss)                                         37.6                  3.0                 40.6
Profit on disposal of business                                     -                    -                    -
Investment income                             3                  0.2                    -                  0.2
Finance costs                                 4                (7.7)                    -                (7.7)
                                                              ______               ______               ______
Profit/(loss) before income tax                                 30.1                  3.0                 33.1
Tax                                           6                (0.1)                (1.3)                (1.4)
                                                              ______               ______               ______
Profit/(loss) for the year from
continuing operations                                           30.0                  1.7                 31.7

Discontinued operations
Profit/(loss) from discontinued operation                          -                    -                    -
Profit/(loss) for the year                                      30.0                  1.7                 31.7
                                                              ______               ______               ______
Attributable to:
Equity holders of the parent                                    29.9                  1.7                 31.6
Minority interests                                               0.1                    -                  0.1
                                                              ______               ______               ______
                                                                30.0                  1.7                 31.7
                                                              ______               ______               ______

Earnings per share
From continuing and discontinued
operations:
Basic (pence)                                 7                  6.8                                       7.1
Diluted (pence)                               7                  6.7                                       7.0
From continuing operations:
Basic (pence)                                 7                  6.8                                       7.1
Diluted (pence)                               7                  6.7                                       7.0



(continued from table above)
                                                                                                          2005
                                                              Before          Exceptional                After
                                                         exceptional                items          exceptional
                                                               items             (note 5)                items
                                           Note             £million             £million             £million
Continuing operations
Revenue                                                        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)                                         19.1               (44.5)               (25.4)
Profit on disposal of business                                     -                  4.6                  4.6
Investment income                             3                  0.3                    -                  0.3
Finance costs                                 4                (7.8)                    -                (7.8)
                                                              ______               ______               ______

Profit/(loss) before income tax                                 11.6               (39.9)               (28.3)
Tax                                           6                (0.3)                (3.1)                (3.4)
                                                              ______               ______               ______
Profit/(loss) for the year 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 discontinued
operations:
Basic (pence)                                 7                  2.8                                     (8.8)
Diluted (pence)                               7                  2.8                                     (8.8)
From continuing operations:
Basic (pence)                                 7                  2.6                                     (7.2)
Diluted (pence)                               7                  2.6                                     (7.2)




Consolidated balance sheet
at 31 December 2006

                                                                                     2006                2005
                                                                              31 December         31 December
                                                                                 £million            £million
Non-current assets
Goodwill and other intangible assets                                                151.6               170.6
Property, plant and equipment                                                       126.1               141.1
Interests in associates                                                               0.7                 0.7
Other investments                                                                     1.0                 2.6
Deferred tax assets                                                                   7.3                11.1
                                                                                   ______              ______
Total non-current assets                                                            286.7               326.1
                                                                                   ______              ______

Current assets
Inventories                                                                          67.7                63.5
Trade and other receivables                                                          73.1                75.6
Cash and cash equivalents                                                            14.5                13.0
                                                                                   ______              ______
Total current assets                                                                155.3               152.1
                                                                                   ______              ______
Total assets                                                                        442.0               478.2
                                                                                   ______              ______

Current liabilities
Bank overdrafts and loans                                                           (0.7)               (4.6)
Trade and other payables                                                           (61.8)              (69.5)
Current tax liabilities                                                             (3.3)               (5.6)
Provisions                                                                          (2.4)              (11.8)
                                                                                   ______              ______
Total current liabilities                                                          (68.2)              (91.5)
                                                                                   ______              ______

Non-current liabilities
Loans and borrowings                                                              (114.4)             (107.8)
Retirement benefit obligations                                                     (37.3)              (62.0)
Deferred tax liabilities                                                                -               (0.3)
Provisions                                                                         (19.0)              (22.4)
Government grants                                                                   (2.2)               (2.3)
                                                                                   ______              ______
Total non-current liabilities                                                     (172.9)             (194.8)
                                                                                   ______              ______
Total liabilities                                                                 (241.1)             (286.3)
                                                                                   ______              ______
Net assets                                                                          200.9               191.9
                                                                                   ______              ______

Equity
Share capital                                                                        22.1                21.8
Share premium                                                                         3.6                 1.9
Other reserves                                                                       71.0                89.5
Retained earnings                                                                   102.6                76.6
                                                                                   ______              ______

Total equity attributable to equity holders of the parent                           199.3               189.8
Minority equity interests                                                             1.6                 2.1
                                                                                   ______              ______
Total equity                                                                        200.9               191.9
                                                                                   ______              ______


Consolidated cash flow statement
for the year ended 31 December 2006

                                                                                     2006                2005
                                                                                 £million            £million
Operating activities:
Profit/(loss) for the year                                                           31.7              (38.4)
Adjustments for:
Investment income                                                                   (0.2)               (0.3)
Finance costs                                                                         7.7                 7.9
Tax charge                                                                            1.4                 3.4
Depreciation and amortisation                                                        14.8                18.2
Decrease in provisions                                                              (2.2)               (1.3)
Pension contributions net of current service cost                                   (7.8)              (14.1)
Share based payments                                                                  0.9                 0.8
Exceptional items                                                                   (3.0)                47.7
Cash flow in respect of exceptional items                                          (10.8)              (12.7)
                                                                                   ______              ______

Operating cash flow before movement in working capital                               32.5                11.2
Increase in inventories                                                             (9.8)               (1.0)
(Increase)/decrease in trade and other receivables                                  (1.6)                 0.3
                                                                                   ______

(Decrease)/increase in trade and other payables                                     (1.6)                 2.6
                                                                                   ______              ______

Cash generated by operations                                                         19.5                13.1
Income taxes (paid)/received                                                        (0.7)               (2.6)
Interest paid                                                                       (8.3)               (7.2)
                                                                                   ______              ______

Net cash flow from operating activities                                              10.5                 3.3
Investing activities:
Interest received                                                                     0.3                 0.4
Disposal of property, plant and equipment                                             1.5                   -
Purchase of property, plant and equipment                                          (13.2)              (16.8)
Disposal of businesses                                                                1.4                23.7
                                                                                   ______              ______

Net cash flow from investing activities                                            (10.0)                 7.3
Financing activities:
Issue of shares                                                                       2.0                 0.9
Redemption of B shares                                                              (2.1)               (9.7)
Dividends paid                                                                     (10.1)                   -
Purchase of own shares                                                              (2.4)                   -
Decrease in borrowings repayable within one year                                        -               (3.0)
Increase/(decrease) in borrowings repayable after one year                           17.9               (0.9)
Repayment of obligations under finance lease                                            -               (0.2)
                                                                                   ______              ______

Net cash from/(used in) financing activities                                          5.3              (12.9)
                                                                                   ______              ______

Net increase/(decrease) in cash and cash equivalents                                  5.8               (2.3)
Cash and cash equivalents at 1 January                                                8.4                10.3
Foreign exchange on cash and cash equivalents                                       (0.4)                 0.4
                                                                                   ______              ______

Cash and cash equivalents at 31 December                                             13.8                 8.4
                                                                                   ______              ______



Consolidated statement of recognised income and expense
for the year ended 31 December 2006
                                                                                     2006                2005
                                                                                 £million            £million

Exchange differences on translation of foreign operations                          (23.0)                18.3
Actuarial gain/(loss) on pension and other post-retirement schemes                    8.6               (1.5)
Deferred tax associated with pension and other post-retirement schemes                  -               (0.9)
Gains on cash flow hedges taken to equity                                             1.9                 0.7
                                                                                   ______              ______

Net expense/(income) recognised in equity                                          (12.5)                16.6
Profit/(loss) for the year                                                           31.7              (38.4)
                                                                                   ______              ______

Total recognised income and expense                                                  19.2              (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)
                                                                                   ______              ______

                                                                                     19.2              (24.0)
                                                                                   ______              ______

Total recognised income and expense is attributable to:
Equity holders of the parent                                                         19.1              (23.7)
Minority interests                                                                    0.1               (0.3)
                                                                                   ______              ______

                                                                                     19.2              (24.0)
                                                                                   ______              ______


Notes to the financial statements

1          Preparation of the preliminary announcement

The financial information in this statement is unaudited and does not constitute
statutory accounts within the meaning of section 240 of the Companies Act 1985.
The comparative figures for the year ended 31 December 2005 are not the Group's
financial statements for that year.  Those financial statements, which were
prepared under International Financial Reporting Standards as adopted by the EU
(adopted IFRS), have been reported on by the Group's auditor and delivered to
the Registrar of Companies.  The report of the auditor was unqualified and did
not contain statements under section 237(2) or (3) of the Companies Act 1985.
This preliminary announcement was approved by the Board of Directors on 27
February 2007.


2                     Basis of preparation

Elementis plc is a company incorporated in the UK. The information within this
document has been prepared and approved by the directors in accordance with
adopted IFRS.

The Group's financial statements have been prepared on the historical cost basis
except that derivative financial instruments and financial instruments held for
trading or available for sale are stated at their fair value.  Non-current
assets held for sale are stated at the lower of carrying amount and fair value
less costs to sell. The accounting policies have been consistently applied
across group companies to all periods presented.

3          Investment income

                                         Continuing operations           Discontinued                   Total
                                                                           operations
                                             2006         2005        2006       2005       2006         2005
                                         £million     £million    £million   £million   £million     £million
Interest on bank deposits                     0.2          0.3           -          -        0.2          0.3
                                           ______       ______      ______     ______     ______       ______


4          Finance costs

                                        Continuing operations           Discontinued                   Total
                                                                          operations
                                            2006         2005        2006       2005        2006        2005
                                        £million     £million    £million   £million    £million    £million
Interest on bank loans                       8.3          6.5           -        0.1         8.3         6.6
Interest on other loans                        -          0.1           -          -           -         0.1
                                          ______       ______      ______     ______      ______      ______

Total borrowing costs                        8.3          6.6           -        0.1         8.3         6.7
Interest on corporation tax payments           -          0.1           -          -           -         0.1
Unwind of discount on provisions             1.0          0.7           -          -         1.0         0.7
Expected return on pension scheme assets  (26.2)       (24.8)           -          -      (26.2)      (24.8)
Interest on pension scheme liabilities      24.6         25.2           -          -        24.6        25.2
                                          ______       ______      ______     ______      ______      ______
Pension and other post retirement
liabilities                                (1.6)          0.4           -          -       (1.6)         0.4
                                          ______       ______      ______     ______      ______      ______

                                             7.7          7.8           -        0.1         7.7         7.9
                                          ______       ______      ______     ______      ______      ______



5          Exceptional items
                                                                                            2006             2005
                                                                                        £million         £million
Continuing operations:
Pigments East St Louis rationalisation                                                         -            (7.1)
Chromium restructure                                                                           -           (31.4)
Integration of Specialties and Pigments                                                    (1.7)            (3.3)
Integration of Servo business                                                                  -            (6.5)
Disposal of business                                                                           -              4.6
Insurance recovery                                                                             -              1.1
Settlement of legal claims                                                                     -            (2.4)
Head office restructure                                                                        -            (3.4)
Curtailment gains on pension schemes                                                         3.7              8.5
Release of prior year restructuring provisions                                               1.0                -
                                                                                          ______           ______

                                                                                             3.0           (39.9)
Discontinued operations:
Disposal of business                                                                           -            (7.8)
                                                                                          ______           ______

                                                                                             3.0           (47.7)
Tax (charge)/ credit on exceptional items                                                  (1.3)            (3.1)
                                                                                          ______           ______

                                                                                             1.7           (50.8)
                                                                                          ______           ______
  

Following the implementation of adopted IFRS, the Group has decided to continue
its separate presentation of certain items as exceptional.  These are items
which, in management's judgement, need to be disclosed separately by virtue of
their size or incidence in order for the reader to obtain a proper understanding
of the financial information.  Exceptional items in the year, which were all
administrative expenses, comprise a charge of £1.7 million to restructure
further the general and administrative activities at Elementis Specialties and
Pigments which resulted in a head count reduction of 34 employees.  Changes to
the Group's US defined benefit pension scheme and to its post retirement medical
benefit scheme resulted in past service gains of £3.7 million in the year.  In
addition, exceptional items includes a credit of £1.0 million which relates to
the release of restructuring provisions no longer required.


6          Income tax expense
                                         Continuing operations           Discontinued                   Total
                                                                           operations
                                             2006         2005        2006       2005         2006       2005
                                         £million     £million    £million   £million     £million   £million
Current tax:
UK corporation tax at 30%                       -        (0.3)           -          -            -      (0.3)
Overseas corporation tax                      1.3          0.5           -        0.1          1.3        0.6
Adjustments in respect of prior years
United Kingdom                              (0.1)            -           -          -        (0.1)          -
Overseas                                    (2.3)          0.3           -      (0.3)        (2.3)          -
                                           ______       ______      ______     ______       ______     ______

Total current tax                           (1.1)          0.5           -      (0.2)        (1.1)        0.3
Deferred tax:
United Kingdom                                  -        (4.0)           -          -            -      (4.0)
Overseas                                      1.5          2.4           -          -          1.5        2.4
Adjustments in respect of prior years         1.0          2.1           -        0.2          1.0        2.3
ACT written off                                 -          2.4           -          -            -        2.4
                                           ______       ______      ______     ______       ______     ______

Total deferred tax                            2.5          2.9           -        0.2          2.5        3.1
                                           ______       ______      ______     ______       ______     ______

Income tax expense for the year               1.4          3.4           -          -          1.4        3.4
                                           ______       ______      ______     ______       ______     ______


The tax charge on profit before exceptional items was £0.1 million (2005: £0.3
million) and represents an effective tax rate on profit before exceptional items
for the year to 31 December 2006 of nil (2005: 2.6 per cent).  The rate is lower
than the standard UK corporation tax due to the amortisation of goodwill in the
US for tax purposes.  Tax on exceptional items was a charge of £1.3 million
(2005: £3.1 million) and this related to deferred taxation on gains of £3.7
million in respect of pension and post retirement benefit schemes.


7          Earnings per share

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

                                                                                          2006             2005
                                                                                      £million         £million
Earnings:
Earnings for the purpose of basic earnings per share                                      31.6           (38.1)
Exceptional items net of tax                                                             (1.7)             50.3
                                                                                        ______           ______

Adjusted earnings                                                                         29.9             12.2
                                                                                        ______           ______


                                                                                          2006             2005
Number of shares:
Weighted average number of shares for the purposes of basic earnings per share           439.4            434.2
Effect of dilutive share options                                                           7.4              7.4
                                                                                        ______           ______

Weighted average number of shares for the purposes of diluted earnings per share         446.8            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
                                                                                      £million         £million
Profit/(loss) for the year attributable to equity holders of the parent                   31.6           (38.1)
Profit for the year from discontinued operations                                             -              6.7
                                                                                        ______           ______

Profit/(loss) from continuing operations                                                  31.6           (31.4)
Exceptional items from continuing operations after minority interest                     (1.7)             42.5
                                                                                        ______           ______

Adjusted earnings from continuing operations                                              29.9             11.1
                                                                                        ______           ______


                                                                                          2006             2005
                                                                                         pence            pence
Earnings per share:
From continuing and discontinued operations:
Basic                                                                                      7.1            (8.8)
Diluted                                                                                    7.0            (8.8)
Basic before exceptional items                                                             6.8              2.8
Diluted before exceptional items                                                           6.7              2.8
From continuing operations:
Basic                                                                                      7.1            (7.2)
Diluted                                                                                    7.0            (7.2)
Basic before exceptional items                                                             6.8              2.6
Diluted before exceptional items                                                           6.7              2.6
                                                                                        ______           ______



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