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Elementis PLC (ELM)

  Print      Mail a friend       Annual reports

Tuesday 31 July, 2007

Elementis PLC

Interim Results

Elementis PLC
31 July 2007


31 July 2007

                                 ELEMENTIS plc


INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2007

Elementis plc, a Global Specialty Chemicals Company, announces its results for
the six months ended 30 June 2007.


HIGHLIGHTS
     
•    Underlying sales up 5 per cent (adjusted for currency and exited plant
     capacity).
     o    Good demand in most key markets.
          
•    Operating profit up 26 per cent.
     o    Specialty Products operating margin increased to 21 per cent (15 per
          cent in 2006).
     o    Includes one-time energy rebate of £1.4 million in Chromium.

•    Earnings per share 4.2 pence, up 31 per cent (22 per cent excluding energy 
     rebate).

•    Net debt reduced by £14.9 million since the end of 2006, to £85.7 million.

•    Dividend increased to 1.3 pence (up 8 per cent).


Financial Summary
                                                                                         2007             2006

Sales*                                                                                £197.7m          £210.9m
Operating profit*                                                                      £22.8m           £18.1m
Profit before tax*                                                                     £19.6m           £14.4m
Diluted earnings per share*                                                              4.2p             3.2p
Dividend per share to shareholders                                                       1.3p             1.2p

* Including the results of the Pigments business, classified as
discontinued.


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

'We are pleased to report the continued improvement in the Group's performance.
Demand in most of our key markets was positive which enabled us to grow our
underlying sales by 5 per cent, and by maintaining our focus on operating
efficiencies Elementis has increased both earnings and cash flow during the
first half of 2007.

Specialty Products' operating margins increased from 15 to 21 per cent,
reflecting the inherent quality of this business, and underlying sales improved
by 4 per cent with good growth in Oilfield and European and Asia Pacific
coatings sectors.

Chromium experienced robust demand for chromic acid, and chrome oxide sales
benefited from improved demand in North America and Europe following recent
structural tax changes in China. The operating result of £7.5 million included
the benefit of a one-time energy rebate of £1.4 million; otherwise the result
reflected a consistent performance compared to last year.

In May 2007 we signed an agreement with Rockwood Holdings to sell our Pigments
business for US$140 million. The transaction is subject to regulatory approvals,
including a filing under the Hart-Scott-Rodino Act in the United States, and is
expected to close before the end of 2007. In the first half of 2007 the business
delivered a similar result to the previous year in challenging market
conditions.

Our Surfactants business made a slower start but demand improved toward the end
of the first half of the year and should continue into the second half.

Overall market dynamics have been positive for the Group in the first half of
2007 and we expect this trend to continue into the second half of the year. Our
main priorities for the second half will be a continued focus on driving
profitable growth in Specialty Products, stable progress in Chromium and the
successful closing of the Pigments transaction.'


                                    - Ends -


Enquiries

Elementis plc                                              Tel: +44 (0) 20 7408 9300
David Dutro, Group Chief Executive
Brian Taylorson, Finance Director

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


Chairman's Statement

I am pleased to report that Elementis has continued to make good progress by
further improving operating performance and reducing debt through positive
operating cash flow. In addition, the Group made an important strategic step in
May this year when it announced that it had agreed to sell its global Pigments
business to Rockwood Holdings for US$140 million. This was the result of an
unsolicited offer from Rockwood that the Board considered to be an appropriate
value for the business, which has made good progress following the successful
completion of its China manufacturing base. The transaction is subject to
regulatory approvals, including a filing under the Hart-Scott-Rodino Act in the
United States, and is expected to close before the end of 2007. Proceeds from
the sale will initially be used to reduce net borrowings, but the Board is
reviewing other potential uses and will provide an update before completion.


Results

Operating profit increased by 26 per cent in the first half of 2007 to £22.8
million. Almost all of the increase was from the Specialty Products business
where operating margins improved to 21 per cent in the current period versus 15
per cent in the first half of 2006. This is particularly pleasing as it
demonstrates the inherent quality of this business, which is being restored
through the efforts of David Dutro and his management team. Consistent with our
strategy of reducing earnings volatility in the Chromium business, operating
profit for the first half of 2007 was £7.5 million compared to £6.0 million in
the same period last year, with the current period benefiting from a one time
energy rebate in the United States of £1.4 million. Operating profit for
Pigments was in line with previous year, while Surfactants started more slowly
than expected but improved towards the end of the first half.

Revenue for the first half of 2007 was £197.7 million which, after adjusting for
currency movements and the effect of closing part of the Chromium manufacturing
facility in 2006, represents an increase of 5 per cent compared to the previous
year. On the same basis, Specialty Products and Chromium showed good growth on
increased volumes, while Pigments' sales were slightly lower than last year due
to the recent slowdown in the US housing market. Surfactants' sales were similar
to last year.

Diluted earnings per share was 4.2 pence for the first half of 2007, an increase
of 31 per cent over the previous year, and the Group's net debt level has fallen
by £14.9 million since the end of 2006 demonstrating the ability that our
businesses have to convert operating profit into cash.


Dividend

The Board is declaring an interim dividend of 1.3 pence per share compared with
1.2 pence at this time last year. The Board intends to progress dividend
payments as earnings performance permits.


The Board

At the Company's Annual General Meeting in April this year Edward Bramson
announced his decision to step down from the Board. As I commented in my
statement in April, we thank Edward for his excellent contribution to the Board
and wish him success in his future endeavours.


Environmental, Health and Safety

Our performance in this area has continued to be of a high standard, with only
one employee incident recorded in the current period under review which required
three days or more away from work. However the Group is not complacent in this
important area of our business and will continue to strive for the highest
standards.


Current trading and outlook

Overall market dynamics have been positive for the Group in the first half of
2007 and we expect this trend to continue into the second half of the year. Our
main priorities for the second half will be a continued focus on driving
profitable growth in Specialty Products, stable progress in Chromium and the
successful closing of the Pigments sale transaction.


Robert Beeston
Chairman
31 July 2007


Business review
for the six months ended 30 June 2007
Revenue                                                                  Partial
                                                       Effect of      closure of       Increase/
                                         Revenue        exchange              UK      (decrease)         Revenue
                                            2006           rates        Chromium            2007            2007
                                        £million        £million        £million        £million        £million

Specialty Products                          76.8           (5.4)               -             2.8            74.2
Surfactants                                 24.7           (1.0)               -             0.8            24.5
Chromium                                    61.9           (5.2)           (7.0)             7.5            57.2
Inter-segment                              (3.2)               -               -             0.3           (2.9)
                                          ______          ______          ______          ______          ______
Continuing operations                      160.2          (11.6)           (7.0)            11.4           153.0
Pigments                                    50.7           (3.7)               -           (2.3)            44.7
                                          ______          ______          ______          ______          ______
                                           210.9          (15.3)           (7.0)             9.1           197.7
                                          ______          ______          ______          ______          ______


Group results

Group revenue from continuing operations was £153.0 million in the first half of
2007 which, after adjusting for currency effects and the closure of part of the
UK Chromium facility in March 2006, represents an increase of 8 per cent over
the previous period. All three businesses showed an increase on this basis.
Market trends were generally positive for the businesses with good demand in
most regions except for the North American coatings and construction markets
which were impacted by the slowdown in US housing.  Volumes were higher in
Chromium and Specialty Products but lower in Surfactants due to the product
optimisation program in that business. Pricing was also increased in all three
businesses when compared to the previous period. Revenue including discontinued
operations was £197.7 million (2006: £210.9 million) which is 5 per cent higher
than prior period after making the same adjustments.

Operating profit from continuing operations before exceptional items increased
by 33 per cent to £20.1 million (2006: £15.1 million).  Specialty Products was
the main driver of the increase, while Chromium benefited from a one time energy
rebate of £1.4 million. Excluding this, energy costs across the businesses were
relatively flat versus the prior period due to more stable markets and the
impact of hedging approximately 70 per cent of total energy costs. The results
also include the benefit of £2.1 million (2006: £0.6 million) from the currency
hedging program where approximately 80 per cent of the main exposures have been
fixed for 2007, with most of the benefit falling in Specialties and Chromium.
As a result of the hedging program the net effect of currency movements on
operating profit for the first half of 2007 was minimal when compared to the
previous period.  Operating profit including discontinued operations increased
by 26 per cent in the first half of 2007 to £22.8 million (2006: £18.1 million).

Net borrowings have reduced by £24.0 million since 30 June 2006 and by £14.9
million in the period.


Elementis Specialty Products

Demand for rheological products in the first half of 2007, which represent
around 70 per cent of total sales, was good in all major sectors with the
exception of North American coatings which felt the impact of the slowdown in
the US housing market. Sales volumes of coatings in Europe and Asia Pacific were
strong, more than offsetting the softer US demand.  Sales to construction,
personal care and oilfield segments globally were ahead of 2006 levels.  In
addition, the new management team has been working on further improving the
operating performance of the business and new product development. As a result
operating margins have improved from 15 per cent in the first half of 2006 to
around 21 per cent in the current period and new products, including a range of
colourant stability additives, are currently being tested in the market.

Sales for the first half of 2007 were £74.2 million versus £76.8 million in the
previous year, and currency movements reduced sales by £5.4 million. Excluding
these currency effects sales increased by 4 per cent mainly due to improved
volumes but also from improved selling prices.  Sales volumes to the coatings
sector increased by 7 per cent, despite slower demand in North America, and
oilfield volumes increased by 8 per cent. In the oilfield sector, the current
high levels of drilling activity are a positive influence, but also new drilling
techniques for adverse conditions are providing opportunities for new
applications of premium organoclays.  In other sectors, construction sales
volumes improved by 3 per cent with strong growth in Europe and Asia Pacific
offsetting reduced demand in North America, which is a trend that was also
evident in personal care as both sectors continued to benefit from the unique
properties of hectorite clay.  Sales also benefited from improved pricing as a
result of across the board increases at the end of 2006.  Relatively higher
coatings sales in Europe and Asia Pacific in the first half of 2007 softened the
impact of these increases as margins are slightly lower in these regions
compared to North America.



Operating profit
for the six months ended 30 June 2007                                                                 Adjusted
                                                             Operating         Exceptional           Operating
£million                                                        profit               items              profit

Specialty Products                                                15.3                   -                15.3
Surfactants                                                        0.5                   -                 0.5
Chromium                                                           7.5                   -                 7.5
Central costs                                                    (3.2)                   -               (3.2)
                                                                ______              ______              ______
Continuing operations                                             20.1                   -                20.1
Pigments                                                           2.7                   -                 2.7
                                                                ______              ______              ______
                                                                  22.8                   -                22.8
                                                                ______              ______              ______


(continued from table above)

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

Specialty Products                                                10.7                 1.1                11.8
Surfactants                                                        0.1                 0.3                 0.4
Chromium                                                           6.4               (0.4)                 6.0
Central costs                                                    (3.1)                   -               (3.1)
                                                                ______              ______              ______
Continuing operations                                             14.1                 1.0                15.1
Pigments                                                           4.0               (1.0)                 3.0
                                                                ______              ______              ______
                                                                  18.1                   -                18.1
                                                                ______              ______              ______


Operating profit before exceptional items was £15.3 million in the first half of
2007 compared to £11.8 million in the same period last year, representing an
increase of 30 per cent with no material currency effect year on year.
Approximately half of this improvement came from the increased sales with the
balance coming from structural cost improvements, especially in selling, general
and administration.


Elementis Surfactants

In the first half of 2007 the Surfactants business has continued to focus on
optimising its product mix by exiting low margin business and improving
operating efficiencies.  Progress has been made, although sales to the oilfield
sector started the year more slowly than anticipated due to initial delays in
some drilling projects, but improved towards the end of the first half.  Sales
for the first half of 2007 were £24.5 million; similar to the same period last
year, but 3 per cent higher after adjusting for currency movements. Volumes were
12 per cent lower than the previous period due to the sales optimisation process
and the slower start to the oilfield sales, but this was more than offset by
positive improvements in pricing as a result of price increases introduced at
the end of 2006.

Operating profit before exceptional items was similar to the same period last
year at £0.5 million, with higher selling prices compensating for increases in
raw materials.


Elementis Chromium

As part of the Chromium business strategy, several steps have been taken to help
reduce earnings volatility. These include more hedging of currency and energy
costs, better optimisation of production capacity and a greater focus on
sustainable sales. These steps have contributed to the operating profit before
exceptional items in the first half of 2007 being at a similar level to the
previous year before taking account of one time items. In addition, after a
slower start, demand for chromium products during the first half of 2007 has
been positive overall. Changes in Chinese tax regulations affecting chrome metal
and other basic materials, since the beginning of the year, have helped create
additional demand for chrome oxide in North America and Europe. This momentum is
likely to continue into the second half of the year resulting in the
announcement of price increases with effect from July.

Sales for the first half of 2007 were £57.2 million versus £61.9 million in the
same period last year. The closure of part of the Eaglescliffe, UK plant in
March 2006 reduced sales by approximately £7.0 million and currency movements by
a further £5.0 million. Excluding these two items sales increased by 16 per cent
with increased volumes being the main contributor. Chromic acid sales volumes
manufactured in the US increased by 46 per cent as product exited due to the
closure of the UK plant was largely replaced with US product, but sales were
also positively impacted by strong demand from Latin America and China. Sales
volumes of chrome oxide increased by 31 per cent largely due to the tax changes
in China. Chrome sulphate sales volumes for leather tanning increased by 5 per
cent as a result of good demand from leather tanneries, while sales volumes of
sodium dichromate were 12 per cent lower as production was optimised to produce
higher margin products in response to the stronger demand. Pricing was flat
overall due to the increased demand coming later in the first half of 2007, but
this is being addressed in the second half of the year.

Operating profit before exceptional items in the first half of 2007 was £7.5
million compared to £6.0 million in the same period last year. Currency had no
net effect versus last year, but the business benefited from a one time rebate
of energy costs in the US as a result of an electricity industry reorganisation
by the State of Texas, and amounted to £1.4 million. Otherwise energy costs were
similar to the previous year and raw material inflation was offset by the
increase in sales. The impact of the UK plant closure on the year on year
comparison of operating profit was largely neutral, with lost sales volumes
being offset by a reduction in fixed costs.


Elementis Pigments

A challenging market environment for Pigments driven by the recent slowdown in
the US housing market impacted sales to both the US coatings and construction
markets, which together account for almost 50 per cent of total sales.  Despite
this down turn the business was able to achieve an operating profit similar to
the previous year through disciplined cost management and innovative marketing,
including the launch of a new Ready Mix product into the construction market.
This product offering provides enhanced processing capabilities to our
customers, and established more than ten new accounts during the first half of
2007.

Sales in Pigments were 12 per cent lower in the first half of 2007 at £44.7
million when compared to the same period last year. Currency movements reduced
reported sales by 7 per cent, while volumes were 6 per cent lower. Sales volumes
in coatings and chemical applications were up 15 per cent in Asia Pacific which
partly offset lower volumes in both North America and Europe. Price increases of
between 3 and 5 per cent were implemented at selected accounts. In the
construction sector volumes were lower in most regions. Sales of driers in
Europe made good progress with volumes up 3 per cent over the previous year.

Operating profit before exceptional items was £2.7 million for the first half of
2007, which is £0.3 million lower than the previous year, as cost efficiencies
partly offset the effects of the lower sales volumes.


Net  finance costs

Net finance costs on continuing operations were £0.4 million lower than for the
six months ended 30 June 2006.  Lower average borrowings, partly offset by
higher interest rates, reduced net finance costs by £0.3 million and the balance
was due to increased finance income on pension funds.  Interest cover, the ratio
of operating profit before exceptional items to interest on net borrowings, was
5.2 times (2006: 3.9 times).


Taxation

The Group's tax charge on profit before exceptional items was 5.0 per cent
(2006: 1.3 per cent).  This is lower than the standard rate for UK Corporation
tax primarily because the Group benefits from a tax deduction in the US in
respect of goodwill amortisation.


Earnings per share

Basic and diluted earnings per share increased by 31 per cent to 4.2 pence
(2006: 3.2 pence) in the period.  This includes 0.3 pence (2006: nil) in respect
of an energy refund to the Chromium business.  From continuing operations, basic
earnings per share before exceptional items was 3.7 pence (2006: 2.7 pence) and
the diluted equivalent figure was 3.7 pence (2006: 2.6 pence).


Cash flow
The cash flow is summarised below:
                                                                                    30 June            30 June
                                                                                       2007               2006
                                                                                   £million           £million
Earnings before interest, tax, exceptionals,
depreciation and amortisation (Ebitda)                                                 29.9               25.4
Change in working capital                                                             (2.7)             (16.5)
Pension                                                                               (1.5)              (1.6)
Interest and tax                                                                      (4.8)              (4.2)
Restructuring                                                                         (1.0)              (8.1)
Other                                                                                   1.6                0.1
Capital expenditure                                                                   (3.2)              (5.0)
                                                                                     ______             ______
                                                                                       18.3              (9.9)
Distribution to shareholders                                                          (5.3)              (4.8)
Currency fluctuations                                                                   1.9                4.4
                                                                                     ______             ______
                                                                                       14.9             (10.3)
Net borrowings at start of period                                                   (100.6)             (99.4)
                                                                                     ______             ______
Net borrowings at end of period                                                      (85.7)            (109.7)
                                                                                     ______             ______



In the first half of 2007 the Group reduced borrowings by £14.9 million (2006:
increase of £10.3 million) and, at the period end, net borrowings were £24.0
million lower than at 30 June 2006.  During the first half, Ebitda increased by
18 per cent above the comparative period, which increased cash flow by £4.5
million.  Working capital outflows, which typically increase in the first six
months due to seasonal factors, were £13.8 million lower than 2006.  This was
partly due to a strategic build of inventory in the second half of 2006 and as a
result inventory decreased by £1.1 million in the first six months of 2007
(2006: increase of £6.8 million).  In addition, cash outflows to suppliers were
£8.1 million better than previous year due to more efficient management of
payments which increased creditors days by 3 days compared to June 2006.  The
other main positive variance compared to prior period was a £7.1 million
reduction in restructuring spend as the programmes implemented in 2005 and 2006
are now virtually complete.


Balance sheet
                                                                                    30 June            30 June
                                                                                       2007               2006
                                                                                   £million           £million

Tangible fixed assets                                                                  96.9              130.4
Other net assets                                                                      199.1              166.7
                                                                                      296.0              297.1
Equity                                                                                210.3              187.4
Net borrowings                                                                         85.7              109.7
                                                                                      296.0              297.1
Gearing1                                                                                29%                37%

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


Tangible fixed assets are £33.5 million lower than 30 June 2006 because the
assets and liabilties of the Pigments division have been reclassified as 'held
for sale'.  Other net assets have increased as a consequence.  Equity has
increased by £22.9 million since 30 June 2006, primarily due to retained
earnings of £26.1 million.  Currency differences on translation of foreign
operations reduced equity by £14.2 million, but this has been partly offset by
actuarial gains on pension schemes of £8.9 million and other credits to equity
of £2.1 million. Gearing was reduced to 29 per cent (2006: 37 per cent) at the
end of June 2007.


The main sterling currency exchange rates in the period were:

                                             2007                2007                2006                2006
                                          30 June             Average             30 June             Average

US dollar                                    2.01                1.97                1.85                1.79
Euro                                         1.45                1.45                1.45                1.45
                                           ______              ______              ______              ______


The majority of the Group's assets are denominated in US dollars and the weaker
US dollar has reduced equity by £14.2 million in the last twelve months.
Elementis uses dollar and euro borrowings to mitigate the currency translation
exposure on its assets denominated in foreign currencies, subject to the
provisions of IAS 39 in respect of hedge accounting.  Profits of overseas
operations are translated at average rates in each period and the average US
dollar rate has weakened by 9 per cent against sterling in the first half of
2007.  Forward contracts taken out in 2005 and 2006 have reduced the impact of
the dollar weakness on the reported results in the period ended 30 June 2007.


David Dutro                                              Brian Taylorson
Chief Executive Officer                                  Finance Director
31 July 2007                                             31 July 2007


Consolidated income statement
for the six months ended 30 June 2007
                                                       Note              2007              2006              2006
                                                                   Six months        Six months              Year
                                                                        ended             ended             ended
                                                                      30 June           30 June       31 December
                                                                     £million          £million          £million
Continuing operations
Revenue                                                   3             153.0             160.2             302.0
Cost of sales                                                         (101.5)           (106.9)           (203.1)
                                                                       ______            ______            ______
Gross profit                                                             51.5              53.3              98.9
Distribution costs                                                     (20.5)            (24.3)            (43.5)
Administrative expenses                                                (10.9)            (13.9)            (21.9)
                                                                       ______            ______            ______
Operating profit before exceptional items                                20.1              15.1              31.5
Exceptional items                                                           -             (1.0)               2.0
                                                                       ______            ______            ______
Operating profit                                          3              20.1              14.1              33.5
Finance income                                            4               1.2               1.1               1.9
Finance costs                                             5             (4.1)             (4.4)             (8.6)
                                                                       ______            ______            ______
Profit before tax and exceptional items                                  17.2              11.8              24.8
Exceptional items                                                           -             (1.0)               2.0
                                                                       ______            ______            ______
Profit before income tax                                  3              17.2              10.8              26.8
Tax                                                       8             (0.9)             (0.1)             (0.9)
                                                                       ______            ______            ______
Profit from continuing operations                                        16.3              10.7              25.9
                                                                       ______            ______            ______
Discontinued operation
Post tax profit from discontinued operation               7               2.3               3.5               5.8
                                                                       ______            ______            ______
Profit for the period                                                    18.6              14.2              31.7
                                                                       ______            ______            ______
Attributable to:

Equity holders of the parent                                             18.6              14.1              31.6
Minority interests                                                          -               0.1               0.1
                                                                       ______            ______            ______
                                                                         18.6              14.2              31.7
                                                                       ______            ______            ______
Earnings per share
From continuing and discontinued operations
Basic (pence)                                             9               4.2               3.2               7.1
Diluted (pence)                                           9               4.2               3.2               7.0
From continuing operations
Basic (pence)                                             9               3.7               2.7               5.9
Diluted (pence)                                           9               3.7               2.6               5.8
                                                                       ______            ______            ______



Consolidated statement of recognised income and expense
for the six months ended 30 June 2007
                                                                        2007              2006              2006
                                                                  Six months        Six months              Year
                                                                       ended             ended             ended
                                                                     30 June           30 June       31 December
                                                                    £million          £million          £million

Exchange differences on translation of foreign operations              (2.5)            (11.7)            (23.0)
Actuarial gain/(loss) on pension and other post retirement
schemes                                                                    -                 -               8.6
(Loss)/gain on cash flow hedges                                        (1.3)               0.6               1.9
Net (expense)/income recognised in equity                              (3.8)            (11.1)            (12.5)
Profit for the period                                                   18.6              14.2              31.7
                                                                      ______            ______            ______
Total recognised income and expense for the period                      14.8               3.1              19.2
                                                                      ______            ______            ______
Attributable to:                                                        14.8               3.0              19.1

Equity holders of the parent
Minority interests                                                         -               0.1               0.1
                                                                      ______            ______            ______
                                                                        14.8               3.1              19.2
                                                                      ______            ______            ______


Consolidated balance sheet
at 30 June 2007


                                                                         2007              2006              2006
                                                                      30 June           30 June       31 December
                                                       Note          £million          £million          £million
Non-current assets
Goodwill and other intangible assets                                    146.6             159.8             151.6
Property, plant and equipment                                            96.9             130.4             126.1
Interests in associates and other investments                             0.6               3.2               1.7
Deferred tax assets                                                       6.4              11.2               7.3
                                                                       ______            ______            ______
Total non-current assets                                                250.5             304.6             286.7
                                                                       ______            ______            ______


Current assets
Inventories                                                              47.2              70.8              67.7
Trade and other receivables                                              57.1              77.5              73.1
Cash and cash equivalents                                                17.4              19.1              14.5
                                                                       ______            ______            ______
Current assets                                                          121.7             167.4             155.3
Non-current assets classified as held for sale            7              64.9                 -                 -
                                                                       ______            ______            ______
Total current assets                                                    186.6             167.4             155.3
                                                                       ______            ______            ______
Total assets                                                            437.1             472.0             442.0
                                                                       ______            ______            ______


Current liabilities
Bank overdrafts and loans                                               (0.7)           (128.8)             (0.7)
Trade and other payables                                               (51.5)            (62.7)            (61.8)
Current tax liabilities                                                 (2.4)             (6.7)             (3.3)
Provisions                                                              (1.6)             (5.2)             (2.4)
                                                                       ______            ______            ______
Current liabilities                                                    (56.2)           (203.4)            (68.2)
Liabilities associated with non-current assets            7            (14.5)                 -                 - 
classified as held for sale
                                                                       ______            ______            ______
Total current liabilities                                              (70.7)           (203.4)            (68.2)
                                                                       ______            ______            ______

Non-current liabilities
Loans and borrowings                                                  (102.4)                 -           (114.4)
Retirement benefit obligations                                         (34.3)            (55.8)            (37.3)
Provisions                                                             (16.3)            (21.3)            (19.0)
Government grants                                                       (1.5)             (2.4)             (2.2)
                                                                       ______            ______            ______
Total non-current liabilities                                         (154.5)            (79.5)           (172.9)
                                                                       ______            ______            ______
Total liabilities                                                     (225.2)           (282.9)           (241.1)
                                                                       ______            ______            ______
Net assets                                                              211.9             189.1             200.9
                                                                       ______            ______            ______


Equity
Share capital                                                            22.2              22.0              22.1
Share premium                                                             5.0               2.6               3.6
Other reserves                                                           67.8              78.8              71.0
Retained earnings                                                       115.3              84.0             102.6
                                                                       ______            ______            ______
Equity attributable to equity holders of the             12             210.3             187.4             199.3
parent
Minority equity interests                                                 1.6               1.7               1.6
                                                                       ______            ______            ______
Total equity and reserves                                               211.9             189.1             200.9
                                                                       ______            ______            ______


Consolidated cash flow statement
for the six months ended 30 June 2007

                                                                        2007              2006              2006
                                                                  Six months        Six months              Year
                                                                       ended             ended             ended
                                                                     30 June           30 June       31 December
                                                                    £million          £million          £million
Operating activities:
Profit for the period                                                   18.6              14.2              31.7
Adjustments for:
Finance income                                                         (1.2)             (1.1)             (0.2)
Finance costs                                                            4.4               4.8               7.7
Tax                                                                      1.0               0.2               1.4
Depreciation and amortisation                                            7.1               7.3              14.8
Decrease in provisions                                                     -             (0.5)             (2.2)
Pension contributions net of current service cost                      (1.5)             (1.6)             (7.8)
Share based payments                                                     0.5               0.4               0.9
Exceptional items charged less cash outflow                            (1.0)             (8.1)            (13.8)
                                                                      ______            ______            ______

Operating cash flows before movements in working capital                27.9              15.6              32.5
Decrease/(increase) in inventories                                       1.1             (6.8)             (9.8)
Increase in trade and other receivables                                (4.7)             (2.5)             (1.6)
Increase/(decrease) in trade and other payables                          0.9             (7.2)             (1.6)
                                                                      ______            ______            ______
Cash generated by operations                                            25.2             (0.9)              19.5
Income taxes paid                                                      (1.2)             (0.3)             (0.7)
Interest paid                                                          (3.6)             (4.1)             (8.3)
                                                                      ______            ______            ______
Net cash flow from operating activities                                 20.4             (5.3)              10.5
Investing activities:
Interest received                                                        0.1               0.2               0.3
Purchase of property, plant and equipment                              (3.2)             (5.0)            (13.2)
Proceeds from sale of property, plant and equipment                      0.1               1.2               1.5
Acquisition of business                                                (0.6)                 -                 -
Disposal of businesses                                                   0.5                 -               1.4
                                                                      ______            ______            ______
Net cash used in investing activities                                  (3.1)             (3.6)            (10.0)
Financing activities:
Issue of shares                                                          1.6               0.9               2.0
Redemption of B shares                                                     -                 -             (2.1)
Purchase of own shares                                                 (0.6)             (1.9)             (2.4)
Dividends paid                                                         (5.3)             (4.8)            (10.1)
(Decrease)/increase in borrowings repayable after one year             (9.9)              25.4              17.9
Net cash(used in)/from financing activities                           (14.2)              19.6               5.3
                                                                      ______            ______            ______
Net increase in cash and cash equivalents                                3.1              10.7               5.8
Cash and cash equivalents at beginning of period                        13.8               8.4               8.4
Foreign exchange on cash and cash equivalents                          (0.2)             (0.5)             (0.4)
                                                                      ______            ______            ______
Cash and cash equivalents at end of period                              16.7              18.6              13.8
                                                                      ______            ______            ______



Notes to the interim financial statements
for the six months ended 30 June 2007


1    General Information

Elementis plc ('the Company) and its subsidiaries (together, 'the Group')
manufactures specialty chemicals.  The Group has operations in the US, UK, the
Netherlands and China.  On 11 May 2007, the Group announced the sale of its
global Pigments business subject to regulatory approvals.  This business has
been classified as a discontinued operation and comparatives have been restated
in accordance with IFRS 5.  The assets and liabilities of the Pigments have been
classified as a 'held for sale' in the balance sheet at 30 June 2007.  Balance
sheet comparatives are not restated under IFRS 5.  In addition, the Group has
restated its segment reporting to provide greater clarity of the underlying
performance of its business units and now discloses financial information
separately for Specialty Products and Surfactants.  The Company is a limited
liability company incorporated and domiciled in the UK.  The Company has its
primary listing on the London Stock Exchange.

The financial information for the first six months of 2007 and 2006, 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 2006.  This interim
financial information was approved for issue on 31 July 2007.

The comparative figures for the year ended 31 December 2006 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.
The significant estimates and judgements made by management were consistent with
those applied to the consolidated financial statements for the year ended 31
December 2006.


3          Segment reporting

For management purposes the Group is currently organised into four operating
divisions - Specialty Products, Surfactants, Chromium, and Pigments (now
classified as a discontinued operation). Principal activities are as follows:

Specialty Products - production of rheological and surface chemistry additives;
Surfactants - production of surface active ingredients;
Chromium - production of chromium chemicals.

                                                                                 Six months ended 30 June 2007
                                                                     Gross     Inter-segment          External
                                                                  £million          £million          £million
Revenue from continuing operations
Specialty Products                                                    74.2             (0.1)              74.1
Surfactants                                                           24.5                 -              24.5
Chromium                                                              57.2             (2.8)              54.4
                                                                    ______            ______            ______
                                                                     155.9             (2.9)             153.0

All revenues relate to the sale of goods


(continued from table above)
                                                                                 Six months ended 30 June 2006
                                                                     Gross     Inter-segment          External
                                                                  £million          £million          £million
Revenue from continuing operations
Specialty Products                                                    76.8             (0.2)              76.6
Surfactants                                                           24.7                 -              24.7
Chromium                                                              61.9             (3.0)              58.9
                                                                    ______            ______            ______
                                                                     163.4             (3.2)             160.2
                                                                    ______            ______            ______

All revenues relate to the sale of goods

                                                                                 Six months ended 30 June 2007
                                                                    Before                               After       
                                                               exceptional       Exceptional       exceptional
                                                                     items             items             items
                                                                  £million          £million          £million
Result from continuing operations
Specialty Products                                                    15.3                 -              15.3
Surfactants                                                            0.5                 -               0.5
Chromium                                                               7.5                 -               7.5
Central costs                                                        (3.2)                 -             (3.2)
                                                                    ______            ______            ______
                                                                      20.1                 -              20.1
Finance income                                                         1.2                 -               1.2
Finance costs                                                        (4.1)                 -               4.1
                                                                    ______            ______            ______
Profit before tax                                                     17.2                 -              17.2
                                                                    ______            ______            ______



(continued from table above)
                                                                                 Six months ended 30 June 2006
                                                                    Before                               After       
                                                               exceptional         Exceptional     exceptional
                                                                     items               items           items
                                                                  £million            £million        £million
Result from continuing operations
Specialty Products                                                    11.8               (1.1)            10.7
Surfactants                                                            0.4               (0.3)             0.1
Chromium                                                               6.0                 0.4             6.4
Central costs                                                        (3.1)                   -           (3.1)
                                                                    ______              ______          ______
                                                                      15.1               (1.0)            14.1
Finance income                                                         1.1                   -             1.1
Finance costs                                                        (4.4)                   -           (4.4)
                                                                    ______              ______          ______
Profit before tax                                                     11.8               (1.0)            10.8
                                                                    ______              ______          ______



                                                                                   Year ended 31 December 2006
                                                                            Revenue from continuing operations
                                                                     Gross     Inter-segment          External
                                                                  £million          £million          £million

Specialty Products                                                   144.8             (0.3)             144.5
Surfactants                                                           46.1                 -              46.1
Chromium                                                             116.8             (5.4)             111.4
Central costs                                                            -                 -                 -
                                                                    ______            ______            ______
                                                                     307.7             (5.7)             302.0
Finance income
Finance costs
Profit before tax


(continued from table above)
                                                                                   Year ended 31 December 2006
                                                                             Result from continuing operations
                                                                    Before                               After       
                                                               exceptional       Exceptional       exceptional
                                                                     items             items             items
                                                                  £million          £million          £million

Specialty Products                                                    25.0               0.9              25.9
Surfactants                                                            0.6             (0.3)               0.3
Chromium                                                              11.9               1.4              13.3
Central costs                                                        (6.0)                 -             (6.0)
                                                                    ______            ______            ______
                                                                      31.5               2.0              33.5
Finance income                                                         1.8                 -               1.8
Finance costs                                                        (8.5)                 -             (8.5)
                                                                    ______            ______            ______
Profit before tax                                                     24.8               2.0              26.8
                                                                    ______            ______            ______


4          Finance income
                                                                      2007              2006               2006
                                                                Six months        Six months               Year
                                                                     ended             ended              ended
                                                                   30 June           30 June        31 December
                                                                  £million          £million           £million
Continuing operations
Interest on bank deposits                                              0.1               0.2                0.2
Pension and other post-retirement liabilities
 Expected return on pension scheme assets                             11.4              13.2               26.2
        Interest on pension scheme liabilities                      (10.3)            (12.3)             (24.5)
                                                                    ______            ______             ______
                                                                       1.1               0.9                1.7
                                                                    ______            ______             ______
                                                                       1.2               1.1                1.9
                                                                    ______            ______             ______


5          Finance costs
                                                                      2007              2006               2006
                                                                Six months        Six months               Year
                                                                     ended             ended              ended
                                                                   30 June           30 June        31 December
                                                                  £million         £ million           £million
Continuing operations
Interest on bank loans                                                 3.7               3.9                7.8
Interest on corporation tax payments                                     -               0.1                  -
Unwind of discount on provisions                                       0.4               0.4                0.8
                                                                    ______            ______             ______
                                                                       4.1               4.4                8.6
                                                                    ______            ______             ______


6   Exceptional items
                                                                         2007               2006                2006
                                                                   Six months         Six months                Year
                                                                        ended              ended               ended
                                                                      30 June            30 June         31 December
                                                                    £ million          £ million           £ million 
Continuing operations
Integration at Specialty Products and Surfactants                           -              (1.7)               (1.7)
Curtailment gains on pension schemes                                        -                0.7                 2.7
Release of prior year restructuring provision                               -                  -                 1.0
                                                                       ______             ______              ______
                                                                            -              (1.0)                 2.0
Tax charge on exceptional items                                             -                  -               (0.9)
                                                                       ______             ______              ______
                                                                            -              (1.0)                 1.1
                                                                       ______             ______              ______


7   Discontinued operation

On 11 May 2007, the Group entered into a sale agreement to dispose of its
Pigments division.  This transaction, which is expected to complete within six
months, has been classified as a disposal group held for sale and therefore been
presented separately in the balance sheet.  The proceeds of disposal are
expected to exceed the book value of the related net assets and accordingly no
impairment losses have been recognised on the classification of this operation
as held for sale.  The results of this business are reported within discontinued
operations as follows:

                                                                          2007               2006               2006
                                                                     Unaudited          Unaudited          Unaudited
                                                                    Six months         Six months               Year
                                                                         ended              ended              ended
                                                                       30 June            30 June        31 December
                                                                     £ million          £ million          £ million
Income statement:
Revenue                                                                   44.7               50.7               93.9
Cost of sales                                                           (34.3)             (39.0)             (71.6)
                                                                        ______             ______             ______
Gross profit                                                              10.4               11.7               22.3
Distribution costs                                                       (4.5)              (4.7)              (9.1)
Administrative expenses                                                  (3.2)              (3.0)              (6.1)
                                                                        ______             ______             ______
Operating profit before exceptional items                                  2.7                3.0                6.1
Exceptional items                                                            -                1.0                1.0
Finance costs                                                            (0.3)              (0.4)              (0.8)
                                                                        ______             ______             ______
Profit before tax                                                          2.4                3.6                6.3
Tax                                                                      (0.1)              (0.1)              (0.5)
                                                                        ______             ______             ______
Post tax profit for the period from discontinued operation                 2.3                3.5                5.8
                                                                        ______             ______             ______

Earnings per share from discontinued operations:
Basic (pence)                                                              0.5                0.8                1.2
Diluted (pence)                                                            0.5                0.8                1.2
                                                                        ______             ______             ______



The major classes of assets and liabilities of the Pigments division classified
as held for sale are as follows:
                                                                                                               2007
                                                                                                          Unaudited
                                                                                                            30 June
                                                                                                          £ million

Goodwill and other intangible assets                                                                            2.4
Property, plant and equipment                                                                                  24.4
Investments                                                                                                     0.5
Inventories                                                                                                    18.5
Trade and other receivables                                                                                    19.1
                                                                                                             ______
Total assets classified as held for sale                                                                       64.9
                                                                                                             ______

Trade and other payables                                                                                     (10.8)
Provisions                                                                                                    (3.7)
                                                                                                             ______
Total liabilities associated with assets classified as held for sale                                         (14.5)
                                                                                                             ______


8          Tax

The tax charge on profit before exceptional items from continuing operations of
£0.9 million (2006: £0.1 million) is based on an estimated effective tax rate on
profit before exceptional items for the year to 31 December 2006 of 5.0 per cent
(2006: 1.3 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.
 The tax charge on profit from the discontinued operation was £0.1 million
(2006: £0.1 million).



9          Earnings per share
                                                                        2007             2006             2006
                                                                  Six months       Six months             Year
                                                                       ended            ended            ended
                                                                     30 June          30 June       31December
                                                                    £million         £million         £million
Earnings for the purposes of basic earnings per share                   18.6             14.1             31.6
Exceptional items net of tax                                               -                -            (1.7)
                                                                      ______           ______           ______
Adjusted earnings                                                       18.6             14.1             29.9
                                                                      ______           ______           ______

                                                                   Number(m)        Number(m)        Number(m)
Weighted average number of shares for the purposes of basic            442.9            435.5            439.4
earnings per share
Effect of dilutive share options                                         3.3             11.0              7.4
                                                                      ______           ______           ______
Weighted average number of shares for the purposes of                  446.2            446.5            446.8
diluted earnings per share
                                                                      ______           ______           ______



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:


                                                                        2007             2006             2006
                                                                  Six months       Six months             Year
                                                                       ended            ended            ended
                                                                     30 June          30 June      31 December
                                                                    £million         £million         £million
Profit for the period attributable to equity holders of the
parent
                                                                        18.6             14.1             31.6
Profit for the period from discontinued operations                     (2.3)            (3.5)            (5.8)
Profit from continuing operations                                       16.3              0.6             25.8
Exceptional items from continuing operations before                        -              1.0            (1.1)
minority interests
Adjusted earnings from continuing operations                            16.3             11.6             24.7


                                                                        2007             2006             2006
                                                                  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                                                                    4.2              3.2              7.1
Diluted                                                                  4.2              3.2              7.0
Basic before exceptional items                                           4.2              3.2              6.8
Diluted before exceptional items                                         4.2              3.2              6.7

From continuing operations:
Basic                                                                    3.7              2.4              5.9
Diluted                                                                  3.7              2.4              5.8
Basic before exceptional items                                           3.7              2.7              5.6
Diluted before exceptional items                                         3.7              2.6              5.5
                                                                      ______           ______           ______


10         Dividends

The following dividends were declared and paid by the Group:
                                                                        2007             2006             2006
                                                                  Six months       Six months             Year
                                                                       ended            ended            ended
                                                                     30 June          30 June      31 December
                                                                    £million         £million         £million

Dividends paid on ordinary shares                                        5.3              4.8             10.1



An interim dividend of 1.3 pence per share (2006: 1.2 pence) has been approved
and will be paid on 5 October 2007 to shareholders on the register at 7
September 2007.


11         Movement in net borrowings
                                                                        2007             2006             2006
                                                                  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 in cash and cash equivalents                                    3.1             10.7              5.8
Decrease/(increase) in borrowings                                        9.9           (25.4)           (17.9)
                                                                      ______           ______           ______
                                                                        13.0           (14.7)           (12.1)
Redeemable B shares                                                        -                -              2.1
Currency translation differences                                         1.9              4.4              8.8
                                                                      ______           ______           ______
Decrease/(increase) in net borrowings                                   14.9           (10.3)            (1.2)
Net borrowings at beginning of period                                (100.6)           (99.4)           (99.4)
                                                                      ______           ______           ______
Net borrowings at end of period                                       (85.7)          (109.7)          (100.6)
                                                                      ______           ______           ______


12         Changes in equity
                                                                        2007             2006             2006
                                                                  Six months       Six months             Year
                                                                       ended            ended            ended
                                                                     30 June          30 June      31 December
                                                                    £million         £million         £million
Total recognised income and expense for the period                      14.8              3.0             19.1
Purchase of own shares                                                 (0.6)            (1.9)            (2.4)
Issue of shares                                                          1.6              0.9              2.0
Share based payments                                                     0.5              0.4              0.9
Dividends paid                                                         (5.3)            (4.8)           (10.1)
                                                                      ______           ______           ______
Net increase/(decrease) in equity attributable to the                   11.0            (2.4)              9.5
parent
At beginning of period                                                 199.3            189.8            189.8
                                                                      ______           ______           ______
At end of period                                                       210.3            187.4            199.3
                                                                      ______           ______           ______




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