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Elementis PLC (ELM)

  Print      Mail a friend       Annual reports

Thursday 18 March, 2010

Elementis PLC

Annual Financial Report 2009 and Notice of 2010...

Copies of the Elementis plc Annual Report and Accounts 2009 and Notice of Annual
General  Meeting 2010 have been submitted to  the UK Listing Authority, and will
be  available  shortly  for  inspection  at  the UK Listing Authority's Document
Viewing Facility, which is situated at:

Financial Services Authority
25 The North Colonnade
Canary Wharf
E14 5HS

Tel: (0) 20 7066 8224.

Printed  copies of the  above documents, together  with forms of  proxy, will be
posted  to shareholders tomorrow. PDF and interactive PDF versions of the Annual
Report  and Accounts and Notice  of Meeting can also  be viewed on the Company's
website                  from                  19 March                 2010 at:

Annual Financial Report
In  accordance with Disclosure and  Transparency Rule 6.3.5, Elementis plc ("the
Company")  sets out  below the  following additional  information required to be
made  through  a  Regulatory  Information  Service  ("RIS"): Principal risks and
uncertainties;  and Directors' responsibility  statement. The information below,
which  is extracted from the 2009 Annual report and accounts, is included solely
for  the purpose of complying with  DTR 6.3.5(2) and the requirements it imposes
on issuers as to how to make public annual financial reports.
The  information  below  should  be  read  in  conjunction  with  the  Company's
Preliminary  results announcement for the year ended 31 December 2009, which was
published  through  a  RIS  on  23 February  2010. Together  these announcements
constitute the material required by DTR 6.3.5 to be communicated to the media in
unedited full text through a RIS.


All  references  to  'Annual  report',  page  references and cross-references to
'notes  to the financial statements' below  relate to the 2009 Annual report and
accounts, a copy of which is available as described above.

"Principal risks and uncertainties

Risk management framework and review
The  Board is ultimately  responsible for the  management of risk  in the Group.
With  guidance from management and advisers, where appropriate, it sets the tone
for the Group's policies on risk, appetite for risk and levels of risk tolerance
and  specifically approves: the Group's  insurance programme and risk management
policies   and   plans;   significant   insurance  and/or  legal  claims  and/or
settlements;  major acquisitions,  disposals and  capital expenditures;  and the
Group's  Annual Operating and  Three Year Plans.   The day to  day management of
risk  is delegated to the executive directors  and the management team, who have
specific  responsibility for ensuring compliance  with and implementing policies
at corporate, divisional and business unit level. The Board retains an oversight
role  and has a  schedule of matters  specifically reserved to  it for decision,
with   strict  delegation  of  authority  limits  that  have  been  communicated
throughout  the businesses  and are  well understood  by the management team and
business leaders.

During  2009, the Chief Executive,  Finance Director and  the rest of the senior
management team (comprising the business managing directors and other functional
heads)  met formally eleven  times to review  business strategy and performance,
including  matters  concerning  risk  management,  where appropriate. Management
reports  key risk management activities to the Board at least four times a year,
with further reports on an ad hoc basis as appropriate.  The first report was in
June  to  present  the  Group's  insurance  renewal  proposals and highlight any
significant  change in  insurance underwriters'  perception of  the organisation
from  a risk  transference standpoint.  The second  briefing in October involved
presentations  from the  businesses on  health, safety,  environmental and legal
risks.  In  December,  a  summary  of  the  Group's  risk  management processes,
including  a summary of the key risks identified by management during its formal
annual review of risk and risk management activities, was presented to the Board
for  approval. At  the December  Board review,  business and corporate risk maps
prepared  by management were  discussed and approved.  These risk maps summarise
key  risks from a list of risks identified by the businesses and are categorised
and  ranked according to severity and likelihood, along with actions recommended
or  implemented to  reduce or  eliminate the  risk. The  Board then reviewed and
approved   the   disclosures  on  principal  risks  and  uncertainties  and  the
description  of risk management activities in the  Annual Report, as well as the
statement on internal control, at its meeting in February.

At  its other meetings  during 2009, the Board  discussed other risks related to
the  triennial valuation of the  UK pension fund, the  economic downturn and the
Group's  borrowing  facility  and  associated  covenants.  In  addition  to  the
presentation  of legal risks at its meeting in October, the Board receives legal
reports  at its February  and July meetings,  as part of  the general review and
approval  of the respective  preliminary results announcement  and Annual Report
and  the interim  management report  and half  year results.  The Board  is kept
appropriately  advised  throughout  the  year  of  any  material legal issues or
developments that may arise.

Another  important part of the Board's  approach to risk management concerns the
Company's  system of internal  control and the  processes that have  been put in
place  to manage the associated financial,  operational and compliance risks and
keep  them under review. A  key aspect of the  internal control framework is the
internal  audit service and the  role of the Audit  Committee. The report of the
Audit  Committee,  including  a  description  of  its role, and the statement on
internal  control are set out in the Corporate governance report on pages 27 and

The  Group carried out a benchmarking  exercise of its risk management processes
last  year, comparing  its processes  and standards  with the UK Risk Management
Standard  ("Standard"), issued by the Association of Insurance and Risk Managers
and  the Institute  of Risk  Management.  One  or two  areas of improvement were
identified,  which  have  since  been  addressed,  but  otherwise  the  Group is
considered  to have met most of the  requirements of the Standard which are that
the  Group  is  aware  of  the  need  for  sound  risk management procedures and
demonstrates  strong  risk  awareness  and  a  culture  built  around mitigation
wherever  possible.  In  2009 the Group  continued to  invest time  and resource
across  a range of risk management  strategies. These included actions to reduce
the  severity and likelihood of some risks, and working closely with the Group's
insurance  broker and  major insurer  to transfer  other risks. However, despite
best  efforts,  it  is  recognised  that  there  remains the possibility that an
identified  risk may turn into a reality, or that a previously unidentified risk
manifests  itself, causing  loss to  the Company.   Elementis has an established
Business  Continuity Plan ("BCP") to help  ensure that the business can continue
to  operate in  the event  of a  major incident  or crisis.  The BCP is embedded
throughout  the organisation and is periodically  tested, audited and subject to
continual improvement.

Commercial risk
The  main risk  and uncertainty  currently facing  the Group's businesses is the
extent  to which the economy can recover  from the recent economic recession and
the  threat of  a double-dip  recession in  2010.  However, the actions taken by
management  in 2009 have lowered the business' cost base, thereby making it more
resilient against the effects of a further deterioration in economic conditions.
The  geographical spread  of customers  and the  breadth of product applications
help  to reduce the Group's exposure to local economic downturns. The closure of
the  UK  chromium  facility  in  2009 has  reduced  the exposure of the Chromium
business  to economic downturn as the  remaining US business' manufacturing base
is  better  able  to  maintain  margins  because of its more flexible production
facilities and more differentiated products.

Regulatory risk
Regulations such as REACh (the EU's regulations on the Registration, Evaluation,
Authorisation  and  Restrictions  of  Chemicals)  could  affect  sales  of  some
chemicals.  The Group mitigates this  risk by ensuring that  all of its products
are  fully compliant with the  REACh regulations. There is  also a risk that new
regulations  could restrict the Group's  sales of some of  its products or cause
customers  to look for  alternative products.  The  Group mitigates this risk by
continually  seeking to diversify its product range and to develop products that
meet or anticipate its customers' needs, including any regulatory concerns.

Raw materials and energy risks
A  significant part of the Specialty Products business depends on hectorite clay
from  the Group's own open pit mine  in California. While this provides a secure
source  of clay, there  remains a risk  from the exposure  to flash flooding and
earthquake,  which is known to  have occurred in the  past in that region and so
may  recur in  the future.   Sufficient inventory  of mined  ore is  held at the
surface  level to minimise  the impact and  disruption that such  an event might

The  Chromium  business  is  particularly  sensitive  to energy pricing. Climate
change regulations designed to reduce carbon dioxide emissions from fossil fuels
as  well  as  global  supply/demand  trends  for  energy  could make energy more
expensive  in  the  future.   To  mitigate  this, the Group works continually on
improving energy efficiency and to secure stable energy supplies through hedging
contracts and by investing in a capability to use multiple sources of fuel.

IT risk
The  Group is highly dependent on IT  systems for managing its businesses. There
is the ever present threat of a security breach and disruption to voice and data
infrastructure,  which is a risk common to  many organisations. The Group has an
ongoing  review  programme  in  place  to  ensure  that  systems are updated and
maintained  adequately and  in a  timely manner.  Overall Elementis is confident
that it has a high level of resilience in its IT systems and infrastructure, and
that  IT management has  adopted good industry  practices for protecting against
malicious  attacks and  operational downtime  from other  non malicious problems
including fire, natural perils and staff unavailability.

Legal, governance, compliance and insurance risk
Other risks faced by the Company include governance and compliance risk. Lack of
Board  oversight  and  processes  or  ineffective  management  teams can lead to
significant  financial  loss  or  loss  of  strategic direction. These risks are
mitigated  by  regular  Board  meetings  with  a  comprehensive  agenda, regular
evaluations  of Board and  management team members  and regular Board reviews of
strategy,  business plans  and compliance  programmes. Like  many companies, the
Company's  UK pension fund  has seen the  size of its  deficit increase over the
past  few years, largely as a result of  changes in assumptions that are used in
the  valuation of pension liabilities, such as the rate of mortality, as well as
depressed  equity prices  and bond  yields. Changes  to these  assumptions or to
pensions  legislation could have  a material impact  on the size  of the pension
fund deficit and the Company's ongoing funding liability.

Breach  of  anti-trust,  HSE  or  other  laws  or regulations from historical or
ongoing  operations can lead to a major  financial loss, public censure or both,
thereby  damaging the creditworthiness and or  reputation of the Company; either
of  which can damage the Company's long and short term market value. These risks
are mitigated by our risk management programmes, including: web-based compliance
training  for employees;  regular HSE  compliance audits,  supported by external
advisers and the internal audit service; and insurance.

In  terms  of  the  key  legal  risks,  there  is a risk of material toxic tort,
environmental  and other claims from historical  and ongoing operations. Some of
these  risks, in the  case of previously  owned operations, may  be mitigated or
reduced  as a result of continuing warranties or indemnity provisions negotiated
when  such operations were disposed of.  Despite having insurance in place there
is  always the possibility  of an under-insured  or uninsured claim  and, in the
extreme,  an insured  limit might  be exceeded.  However, Elementis has a robust
programme  in place to actively manage and defend against legal action or claims
relating to its operations, products and manufacturing facilities. The programme
is  led by the Group  General Counsel, who is  supported by an in-house team and
professional advisers. Litigation reports are reviewed regularly by the Board.

In  connection  with  the  EU  Commission  investigation into competition issues
relating  to  heat  stabilisers,  the  outcome  of  that  investigation  and the
Company's response to it is described in the Chairman's statement.

Treasury policies and objectives
Treasury  activities  are  governed  by  policies  and  procedures  approved and
monitored  by the Board.   The Group operates  a central treasury function which
manages  and  monitors  external  and  internal  funding  requirements  and  the
following treasury risks:

-  Credit risk,
-  Liquidity risk,
-  Market risk.

These  risks and the Group's  policies to manage them  are set out in note 22 to
the Financial Statements."

Directors' responsibility statement
The  2009 Annual report and  accounts contain a  responsibility statement in the
form set out below on page 25.

"The  directors, all of whom  are shown on page  20, confirm that to the best of
their knowledge:

  * the  financial  statements,  prepared  in  accordance with applicable set of
    accounting  standards, give a true and fair view of the assets, liabilities,
    financial  position and profit  or loss of  the Company and the undertakings
    included in the consolidation taken as a whole; and

  * the  Directors'  report  includes  a  fair  review  of  the  development and
    performance  of the business and position of the issuer and the undertakings
    included  in the consolidation taken as a whole, together with a description
    of the principal risks and uncertainties they face.

The  Directors'  responsibility  statement  has  been  approved by the Board and
signed on its behalf by:

Brian Taylorson
Finance Director
23 February 2010"

Wai Wong
Company Secretary
020 7408 9303

18 March 2010




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