Final Results
PRESS INFORMATION
28 February 2002
ELEMENTIS plc
PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2001
Sales on continuing operations £392.9 million (2000: £413.8 million)
Operating profit on continuing operations £15.8 million* (2000: £57.5 million*)
Profit before tax £14.0 million* (2000: £58.4 million*)
Earnings per share 4.0 pence* (2000: 11.6 pence*)
Net year end borrowings £40.0 million (2000: £41.7 million)
Net year end gearing 9.1 per cent** (2000: 9.2 per cent**)
* before goodwill amortisation and exceptionals
** ratio of net borrowings to shareholders' funds plus net borrowings
Geoff Gaywood, Chief Executive of Elementis plc, said:
'2001 was a particularly difficult year. Our business was very severely
impacted by the global economic downturn. Although market conditions continue
to be tough, there are some indications that customer destocking down the
chain, experienced in the last quarter of 2001, has come to an end.
'In the first half of 2002 Elementis will benefit from lower energy costs and
the rigorous measures taken to reduce inventory levels. All areas of cost and
capital expenditure continue to be tightly controlled.
'Benefits from ongoing business improvement projects, including Six Sigma,
which is targeted at further reducing costs, should increase as the year
progresses. Strategic programmes addressing opportunities for step change
financial performance improvement have been initiated in each of the
businesses.'
Ends -
An interview with Geoff Gaywood in video/audio format can be viewed on
www.elementis.com and www.centos.com from 0700 hours GMT.
Enquiries
Elementis
01784 224212
Geoff Gaywood Chief
Executive
George Fairweather Group Finance Director
Anna Passey Head of Corporate Communications
Brunswick
020 7404 5959
Andrew
Fenwick
Rupert Young
Overview
2001 was a particularly difficult year. Our business was very severely
impacted by the global economic downturn. Conditions were worst in the US
where the majority of our business is situated. As a result, profits before
goodwill amortisation and exceptionals were halved in the first half of 2001
and then, as markets deteriorated further, virtually eliminated in the second
half.
In response to these pressures, a number of measures were adopted. Firstly,
great attention was paid to cash conservation and a programme implemented which
ensured that, in spite of the profits decline, cashflow remained positive for
the year as a whole. Secondly, the overriding focus of management was
concentrated on the short-term trading position. Thirdly, a new Chief
Executive was appointed who has moved swiftly to strengthen the management
team, streamline the managerial process and address strategic issues
Financial results
Operating profit before goodwill amortisation and exceptionals on continuing
operations was £15.8 million, compared to £57.5 million in 2000. Operating
profit on the same basis for the second half of 2001 was £0.2 million, compared
to £28.3 million in the second half of 2000.
A major factor was lower sales. Sales on continuing operations decreased in
sterling terms by 5 per cent on 2000 and by 8 per cent on a constant currency
basis. Sales on continuing operations in the second half of the year were 11
per cent lower than in the second half of 2000.
In addition, higher energy costs adversely impacted operating profit by £
9.3 million versus 2000 on a comparable basis, of which £7.2 million was in the
first half. Other adverse factors included some pressure on prices, lower
pension credits on historic surpluses and manufacturing inefficiencies caused
by the actions taken to reduce inventory levels. Unusually high maintenance
expenditure at Elementis Chromium and losses on Linatex process technology
equipment contracts also contributed.
Profit before goodwill amortisation, exceptionals and tax was £14.0 million,
compared to £58.4 million in 2000. Basic earnings per share before goodwill
amortisation and exceptionals was 4.0 pence, compared to 11.6 pence in 2000.
Net exceptional charges before tax were £3.7 million (2000: £3.0 million),
including £4.6 million of costs incurred in preparing the Company for sale and
a £1.4 million profit on the disposal of Harcros Chemicals.
Cash conservation
The cash position was strengthened in a number of ways. The US chemical
distribution business, classified as non core to the Group's future, was sold
for £21.4 million. Working capital levels received particular attention with
the result that there was a £9.8 million inflow during the year from this area,
£6.6 million resulting from inventory reductions. As a result net borrowings
at year end were £40.0 million, a £1.7 milion reduction. Net year end gearing
was 9.1 per cent (2000: 9.2 per cent).
Short-term focus
Managers throughout the Group were closely focused on short-term trading. In
addition to increased efforts to maximise revenue from all sources, additional
cost controls have been put in place throughout the Group. Headcount on
continuing operations was cut by 152, or 6 per cent , taking the total
reduction over two years to 17 per cent .
New Chief Executive
A new Chief Executive, Geoff Gaywood, was appointed in October 2001. Geoff
joined from Ernst & Young LLP where he was a Director of Chemicals. Previously
he ran the European division of International Specialty Products, Inc and
before that was with the Dow Chemical Company for 24 years. Geoff's wide
experience of the chemical industry internationally and leadership skills will
benefit Elementis substantially over the coming years.
Since the year end, the Board has announced that Brian Taylorson, currently
Director of Corporate Finance, is to join the Board at the beginning of April
as Finance Director. He will replace George Fairweather who is leaving to take
up a similar position at Alliance UniChem Plc. The Board would like to thank
George for his significant contribution to Elementis over the last five years.
New heads of functions have also been appointed in human resources and
information technology.
Dividends and issue of redeemable B shares
The Board did not declare an interim dividend and, similarly, is not proposing
a final dividend. Instead, it will continue with the programme, started in
2000, of issuing and redeeming redeemable B shares. The total nominal value of
redeemable B shares issued to shareholders during 2001 was 5.4 pence per
ordinary share (2000: 5.2 pence). The Board intends to issue further
redeemable B shares to ordinary shareholders on the register on 26 April 2002,
such that they receive redeemable B shares with a total nominal value of
1.0 pence for each ordinary share held. This compares with 3.3 pence for the
comparable issue last year. This will be coupled with an offer to redeem these
new shares for cash at their nominal value on 2 May 2002. A further offer will
also be made to existing holders of redeemable B shares to redeem these shares
for cash at their nominal value on 2 May 2002.
By not paying dividends on ordinary shares during 2001, Elementis will recover
£5.8 million of advance corporation tax previously paid. Elementis estimates
that it will be able to recover a further £1.1 million of advance corporation
tax by not paying a final dividend for 2001.
A circular providing full details of the issue and redemption of redeemable B
shares will be posted to all ordinary shareholders on 19 March 2002.
Strategy
In addition to the short-term focus refered to above, we aretaking steps to
enable the Group to grow. The strategy is to grow in high margin businesses,
particularly Elementis Specialties, with a continuing Group-wide focus on
operational excellence and leveraging the market and brand leadership positions
of the other businesses.
Programmes addressing opportunities for step change financial performance
improvements have been initiated in each of the businesses. Elementis Chromium
has a competitive and well invested manufacturing base in the UK and US and has
scope to strengthen its market position. At Elementis Specialties, additional
management resource is now in place to develop and deliver a high growth
strategy based on accelerated organic growth and including the licensing of
technology, market alliances and acquisitions. Elementis Pigments has a strong
market position, but reduced volumes, driven by the North American downturn,
have challenged the business's ability to cover fixed costs. This is being
addressed on several fronts including a strategic review of the Birtley, UK
facility. To enhance profitability in Linatex, further step change
improvements in manufacturing structure are being evaluated.
A programme is underway to evaluate the potential of a Group-wide Enterprise
Resource Planning (ERP) system. The decision whether to proceed will depend on
the strength of the business case demonstrated and is also dependent on trading
conditions and future outlook.
A review of incentives for senior management is also under way.
Chromated copper arsenate
On 12 February 2002, the US Environmental Protection Agency (EPA) announced
restrictions, from 2004, on the use of chromated copper arsenate (CCA) as a
wood preservative in the US, affecting CCA treated timber for consumer use.
Elementis Chromium supplies chromic acid which is used in the manufacture of
CCA and acts primarily as a binding agent. As previously indicated, Elementis
estimates that as a result of the EPA's decision, the global and US demand for
chromium chemicals would reduce by around 5 and 30 per cent respectively.
Elementis Chromium's sales for industrial applications of CCA, such as utility
poles, rail sleepers and marine pilings are relatively strong and are not
affected by the EPA ruling. Nevertheless, Elementis Chromium's global sales of
chromium chemicals could be adversely affected by around 15 per cent by 2004.
Elementis does not now expect its sales in 2002 to be materially affected by
the EPA ruling.
Current trading and outlook
Although market conditions continue to be tough, there are some indications
that the customer destocking down the chain experienced in the last quarter of
2001 has come to an end.
In the first half of 2002 Elementis will benefit from lower energy costs and
the rigorous measures taken to reduce inventory levels. All areas of cost and
capital expenditure continue to be tightly controlled.
Benefits from ongoing business improvement projects, including Six Sigma, which
is targeted at further reducing costs, should increase as the year progresses.
Review of operations
For the year ended 31
December 2001
2001 2001 2000 2000
Sales Operating Sales Operating
£ profit* £million profit*
million
£million £million
Continuing operations
Chromium 126.9 4.0 131.7 23.7
Pigments & 228.0 12.2 234.9 31.1
Specialties
Specialty Rubber 46.0 (0.5) 54.1 2.6
Associates - 0.1
0.1 -
Inter-group (8.0) - (6.9)
-
392.9 15.8 413.8 57.5
Discontinued 137.5 2.4 160.0 6.0
operations
530.4 18.2 573.8 63.5
*before goodwill amortisation and exceptionals
Chromium
Operating profit before exceptionals was £4.0 million, compared to £23.7
million in 2000, on sales down 4 per cent to £126.9 million. On a constant
currency basis, sales decreased by around 7 per cent. Operating loss before
exceptionals in the second half of 2001 was £0.2 million, compared to an
operating profit before exceptionals of £11.7 million in the second half of
2000, on sales down 11 per cent.
The business estimates that the global chromium chemicals market fell a few per
cent in volume terms year on year, the decline taking place in the second half
of the year. Demand was lower for all product categories with the exception of
chromic oxide for use in metal alloys.
Elementis Chromium sales volume fell by 9 per cent year on year, with second
half volume being 15 per cent lower than the comparable period in 2000.
Sales volumes were lower year on year for all product categories, reflecting
increased competition, mainly from Former Soviet Union producers, and reduced
demand. The best performing product category was chromic acid, which continues
to benefit from the success of the superior handling properties of our CA21伯
span> product. Sales volumes of CA21伯span> increased by around 15 per cent
year on year, almost all of which was achieved in the first half.
Average pricing of chromium products was also lower, mainly as a result of
increased competition.
Higher energy costs adversely impacted operating profit by £6.2 million versus
2000 on a comparable basis, of which around £4.9 million was in the first half.
Early in 2001, headcount reduced by more than 10 per cent as a result of a
business process re-engineering exercise at Corpus Christi, Texas. The one-off
cost of £2.3 million was largely recouped over the balance of the year. At the
year end the business employed 439 people, 18 per cent below the comparable
figure two years ago.
Despite the headcount savings, underlying fixed costs increased year on year in
excess of inflation, mainly as a result of unusually high maintenance
expenditure, particularly in the second half of the year. Additional controls
on maintenance expenditure are now in place.
A new gas cleaning system for the chromic oxide plant at Eaglescliffe, UK was
commissioned in the first quarter of 2001 costing £2.6 million. This will
further enhance environmental performance standards. Some production capacity
of chromic oxide for use in metal alloys was unavailable during the period as a
result of this project.
A project is under way to link the Corpus Christi manufacturing facility to a
combined steam and electricity co-generation plant being constructed at an
adjacent oil refinery. This will come on-stream in late summer 2002 reducing
energy costs.
The ratio of trade working capital to sales at the end of 2001 was 14 per cent,
unchanged from the end of 2000 on a similar level of inventories.
On 12 February 2002, the US Environmental Protection Agency (EPA) announced
restrictions, from 2004, on the use of chromated copper arsenate (CCA) as a
wood preservative in the US affecting CCA treated timber for consumer use.
Elementis Chromium supplies chromic acid which is used in the manufacture of
CCA and acts primarily as a binding agent.
In its statement, the EPA announced the transition from the use of CCA in a
variety of consumer uses by 31 December 2003 in favour of alternative
products. The statement confirmed that the transition affects virtually all
residential uses of wood treated with CCA, including wood used in
play-structures, decks, picnic tables, landscaping timbers, residential
fencing, patios and walkways/boardwalks. By January 2004, the EPA will not
allow CCA products for any of these residential uses.
The statement goes on to state, that in the current year, the CCA manufacturers
expect a decline in production of CCA products for affected residential uses up
to 25 per cent. During 2003, the CCA manufacturers expect the transition away
from CCA to continue and increase, with a decline in production of CCA products
for affected residential uses up to 70 per cent.
Elementis understands that, following the CCA manufacturers' request to amend
the pesticide registrations, the EPA will publish a notice in the Federal
Register and a 30 day period for public comment will follow.
As previously indicated, Elementis estimates that, as a result of the EPA's
decision, the global and US demand for chromium chemicals would reduce by
around 5 and 30 per cent respectively. Elementis Chromium sales for industrial
applications of CCA, such as utility poles, rail sleepers and marine pilings,
are relatively strong and are not affected by the EPA ruling. Nevertheless,
Elementis Chromium's global sales of chromium chemicals could be adversely
affected by around 15 per cent by 2004.
Elementis does not now expect its sales in 2002 to be materially affected by
the EPA ruling.
Pigments & Specialties
Operating profit before goodwill amortisation and exceptionals was £12.2
million, compared to £31.1 million in 2000, on sales down 3 per cent at £228.0
million. On a constant currency basis, sales reduced by around 6 per cent year
on year. Operating profit before goodwill amortisation and exceptionals in the
second half of 2001 was £1.7 million, compared to £15.5 million in the second
half of 2000 on 7 per cent lower sales.
The ratio of Pigments & Specialties trade working capital to sales decreased
from 21 per cent at the end of 2000 to 17 per cent at the end of 2001,
primarily as a result of lower inventories at Elementis Pigments and higher
trade creditor levels at Elementis Specialties.
At Elementis Pigments, sales decreased year on year, the rate of decline being
greater in the second half of the year. Demand for iron oxide pigments for
coatings, construction and chemical applications was generally weak throughout
the year, particularly in North America. Coatings pricing was stable; in
contrast, prices for construction grade material declined, particularly in Asia
Pacific and Europe. Construction sales in Europe reduced significantly. Sales
in Asia Pacific grew strongly throughout the year using product sourced from
the Shenzhen manufacturing facility in China.
Margins were also under pressure as a result of higher US energy costs.
Fixed costs in the second half of the year were adversely impacted by around £
1.9 million following a decision to close both US iron oxide particle
manufacturing facilities for approximately six weeks to reduce inventories by
around £3 million.
Following the installation of additional production equipment in Shenzhen early
in the year, a new range of coatings grade iron oxide pigments was successfully
commercialised in the second half . Sales of FerrispecTM granular product
grew strongly.
Operating losses were incurred by the zinc and carboxylates part of the
business based in Birtley near Durham in the UK. Zinc continues to be impacted
by the continuing decline of the UK automotive tyre market. The profitability
of the catalysts part of the business also declined year on year.
Elementis Pigments has a strong market position but reduced volumes, driven by
the North American downturn, have challenged the business's ability to cover
fixed costs. This is being addressed on several fronts including a strategic
review of the Birtley operation.
As a result of losses that occurred in the second half, for the reasons
explained above, Elementis Pigments made an operating loss for the full year.
At Elementis Specialties, sales were flat year on year as a result of the
stronger US dollar. Higher first half sales were offset by lower sales in the
second half.
Throughout the year strong growth was achieved in rheological additives sales
to the oil exploration market. This was offset by lower sales for coatings
applications, particularly in North Amercia, and, in the second half, for ink
applications, the latter being impacted by a reduction in print advertising and
competition. Total RheolateTM sales for aqueous coatings applications grew
modestly year on year. European trading remained relatively robust when
compared to North America and Japan.
Pricing in local currency increased marginally.
Operating profit before goodwill amortisation was lower than in 2000 for a
number of reasons. The principal factors were unfavourable sales mix, higher
energy and quaternary amine costs, other cost inflation not recovered through
pricing or productivity gains and expenditure on upgrading sales and marketing
capabilities including e-commerce. Second half profitability was particularly
impacted by these factors.
Thixatrol® Max, a new thixotrope rheological additive, was launched in Europe
during the year. This new generation thixotrope provides improved properties
to a range of industrial coatings systems. Recently introduced products
Rheolate® 450, a high efficiency associate thickener for vinyl acrylic paints,
and Bentone® 42,, a drilling mud organoclay for high heat environments,
continue to contribute good growth.
Additional management resource is now in place to develop and deliver a high
growth strategy based on accelerated organic growth and including inward
licensing of technology, market alliances and acquisitions.
Specialty Rubber
Operating loss before exceptionals was £0.5 million, compared to an operating
profit before exceptionals of £2.6 million in 2000, on sales 15 per cent lower
at £46.0 million. On a constant currency basis, sales decreased by around 14
per cent. Operating loss before exceptionals in the second half of the year
was £1.4 million, compared to an operating profit before exceptionals of £1.0
million in the second half of 2000, on sales down 20 per cent.
The full year sales decline was primarily the result of the decision taken
early in 2001 not to pursue new process technology equipment contracts and the
exit of other unprofitable sales lines. Adjusting for these factors, lower
underlying sales in North America (reflecting output reductions by West Coast
mining customers) were offset by strong sales growth in South Africa and Latin
America. Sales in Europe were impacted by disruption caused by the aircraft
crash at the Yateley, UK, facility in late December 2000.
Losses on the completion of remaining process technology equipment contracts
were just under £1.0 million, all of which occurred in the second half.
Several new products were launched; LinaCrepeTM, a form of uncured rubber that
can be moulded into shape and is particularly suitable for belting, hoses and
roller covering applications. LinaDekTM abrasion resistant modular screens for
the mining and construction industry was launched in the US. Cut-end hose
lined with Linatex is now available to the construction industry in the US.
The programme to refocus and simplify the Linatex business was completed in
February 2001, with the closure in Montreal of the last of 13 sites. Total
headcount fell by 93 over the course of the year, a 13 per cent reduction.
Exceptional restructuring costs of £0.5 million were charged in the first
half. Cost savings from this programme were, however, more than offset by
higher expenditure in other areas.
Further actions are under way to improve the cost competitiveness of the
business, including the evaluation of step change improvements in manufacturing
structure.
A £4.0 million continuous rubber sheet press was installed towards the end of
the year and is currently being commissioned. This equipment will reduce
operating costs further and enable Linatex sheet to be produced within tighter
thickness tolerances for new applications and with enhanced bonding
capabilities.
The ratio of trade working capital to sales reduced from 20 per cent at the end
of 2000 to 14 per cent at the end of 2001, primarily as a result of an
effective inventory reduction programme similar to that at Elementis Pigments
Discontinued operations
Operating profit at Harcros Chemicals up to the point of disposal in October
2001 was £2.4 million, on sales of £137.5 million. This compares with an
operating profit of £6.0 million on sales of £160.0 million for the full year
2000.
The exceptional profit arising on the disposal of this business was £1.4
million.
Health, safety and the environment
Compared to 2000, lost time accident frequency for continuing operations
reduced by 53 per cent. This is due to the increased focus on safety and the
introduction of a new incident investigation reporting system that identifies
the root causes of reportable incidents and 'near misses' and enables processes
to be put in place to prevent reoccurrence. Non-compliance with environmental
consents for continuing operations rose from 16 to 28 in the year. A similar
investigation reporting system has now been implemented for all environmental
incidents and the Board is committed to reversing this trend.
Exceptionals
Net exceptional charges before tax were £3.7 million, compared to £3.0 million
in 2000. For 2001, exceptionals comprised:
£4.6 million costs incurred in preparing the Company for sale;
£0.5 million of additional inventory write downs relating to the Specialty
Rubber restructuring; and
£1.4 million profit arising on the disposal of the Harcros Chemicals chemical
distribution business.
Currency
Currency transaction and translation favourably impacted full year operating
profit by around £1.0 million.
Interest
Net interest payable was £4.2 million, compared to £5.1 million in 2000.
Interest cover (the number of times that the net interest charge is covered by
operating profit before goodwill amortisation and exceptionals) was 4.3 times
(2000: 12.5 times).
Taxation
The tax credit for the year was £8.5 million compared to a charge of £7.8
million in 2001.
The effective rate of tax on profit before goodwill amortisation and
exceptionals, before the impact of prior period adjustments, was 14.0 per cent
(2000: 14.0 per cent). This rate is substantially lower than the standard UK
corporate tax rate for a number of reasons, including the utilisation of
surplus advance corporation tax partially offset by unrelieved overseas tax
losses. The tax credit on profit before goodwill amortisation and exceptionals
for the year arose principally from the release of certain tax provisions
following the resolution of historic issues with the UK Inland Revenue. Tax on
net exceptional charges was £nil million (2000: credit of £0.4 million). In
addition, there was an exceptional tax credit of £4.9 million arising in
respect of historic business disposals.
FRS19 'Deferred Tax' will be implemented in 2002. Had the standard been used
for the 2001 financial statements, the credit to the profit & loss account
would have been reduced by £0.5 million, comprising an underlying current year
credit of £7.3 million offset by prior year adjustment charge of £7.5 million
and an exceptional charge of £0.3 million; year end shareholders' funds would
have been £1.0 million lower.
Earnings per share
Basic earnings per share before goodwill amortisation and exceptionals
decreased from 11.6 pence in 2000 to 4.0 pence in 2001. Basic earnings per
share, after goodwill and exceptionals, was 1.1 pence (2000: 7.9 pence). The
weighted average number of shares in issue during the year was 431.5 million
(2000: 431.5 million); the number of shares in issue at the year end was 431.6
million (2000: 431.5 million).
Cash flow and balance sheet
Net cash inflow from operating activities was £37.9 million, compared to £58.4
million in 2000.
Working capital inflow was £9.8 million, compared to a £12.4 million outflow in
2000. Debtors decreased by £13.5 million, of which £8.6 million was attributed
to decreased sales. Trade debtor days for continuing businesses decreased by
eight days during the year. Stock levels continue to be tightly controlled
overall, with a £6.6 million reduction in the year.
Cash expenditure on fixed assets totalled £16.8 million (2000: £22.1 million)
and compares with depreciation of £18.8 million (2000: £17.5 million). Looking
forward to 2002, capital expenditure is likely to be below depreciation
excluding any expenditure on a Group-wide Enterprise Resource Planning system
which is currently being evaluated.
Net cash inflow from the sale of Chemical Distribution was £16.6 million.
Net cash inflow before the use of liquid resources and financing was £26.2
million, compared to an inflow of £32.4 million in 2000. Free cash inflow was
£9.9 million, compared to £33.4 million in 2000.
Net borrowings at the year end were £40.0 million (2000: £41.7 million).
Gearing (the ratio of net borrowings to shareholders' funds plus net
borrowings) was 9.1 per cent (2000: 9.2 per cent). Shareholders' funds at the
year end were £397.5 million, compared to £411.2 million at the end of 2000.
Pensions and other post retirement benefits
The total cost of post-retirement health care and pensions was £3.3 million
compared to £2.1 million in 2000. This charge includes a credit of £2.6
million (2000: £4.0 million) for variations from regular pension costs in
respect of the amortisation of the surplus/deficit arising on the main UK
pension scheme.
These figures incorporate, for the final quarter of the year, the preliminary
results of an actuarial valuation of the UK scheme at 30 September 2001. At
that date, the market value of the scheme's assets was £388.7 million, of which
£68.9 million related to pension assets to be transferred out in respect of
historic business disposals, £15.7 million related to insured annuities and £
2.2 million related to money purchase benefits. The balance of £301.9 million
has been used for the purposes of the actuarial valuation and is sufficient to
cover 97 per cent of the benefits that had accrued to members after allowing
for expected future inreases in salaries.
The most recent actuarial valuation of the US funded defined benefits scheme
was at 31 December 2001; at that date the market value of the scheme's assets
was £46.8 million, which is sufficient to cover 85 per cent of the benefits
that had accrued to members, after allowing for expected future increases in
salaries.
The Group has made use of the transitional requirements of FRS17 'Retirements
Benefits'. Had the standard been adopted in full for the 2001 financial
statements, profit before tax would have increased by £0.5 million (being a £
3.2 million increase in operating costs, more than offset by a £3.7 million
interest credit). The net pension liability under FRS17 at 31 December 2001
was £25.3 million; this comprises £11.2 million for UK pension schemes, £15.7
million for US pension schemes, £11.6 million for US post retirement medical
benefits and £0.8 million for other schemes, partially offset by a £14.0
million deferred tax asset. Had the standard been adopted in full at the year
end, shareholders' funds would have been lower by £13.8 million as a result.
FRS17 will be adopted in full in 2002.
Net pension costs as a result are estimated to increase in 2002 by around £
3.1 million compared to the FRS17 figures for 2001, primarily in relation to
net finance costs.
Consolidated profit & loss account
for the year ended 31 December 2001
Note Before Goodwill Exceptionals 2001 2000
goodwill amortisation £million £ £
million million
amortisation £million
&
exceptionals
£1million
Turnover 4
Continuing 392.9 - - 392.9 413.8
operations
Discontinued 137.5 - - 137.5 160.0
operations
Group 530.4 - - 530.4 573.8
turnover
Group 4/5
operating
profit/(loss)
Continuing
operations
Before 15.7 - - 15.7 57.4
goodwill
amortisation
and
exceptionals
Goodwill - (14.0) - (14.0) (13.3)
amortisation
Exceptionals - - (5.1) (5.1) (3.0)
15.7 (14.0) (5.1) (3.4) 41.1
Discontinued 2.4 - - 2.4 6.0
operations
18.1 (14.0) (5.1) (1.0) 47.1
Associates 0.1 - - 0.1 0.1
Operating 18.2 (14.0) (5.1) (0.9) 47.2
profit/(loss)
Profit on disposal
of business -
discontinued
operations - - 1.4 1.4 -
Profit on
ordinary
activities
before
interest 18.2 (14.0) (3.7) 0.5 47.2
Net interest
payable (4.2) - - (4.2) (5.1)
Profit/(loss) on
ordinary
activities before
tax
Before 14.0 - - 14.0 58.4
goodwill
amortisation
and
exceptionals
Goodwill - (14.0) - (14.0) (13.3)
amortisation
Exceptionals - - (3.7) (3.7) (3.0)
14.0 (14.0) (3.7) (3.7) 42.1
Tax on profit 6 3.6 - 4.9 8.5 (7.8)
/(loss) on
ordinary
activities
Profit on 17.6 (14.0) 1.2 4.8 34.3
ordinary
activities
after tax
Minority (0.1) - - - (0.1) (0.1)
interests -
equity
Profit for 17.5 (14.0) 1.2 4.7 34.2
the financial
year
Dividends - (0.1) - - (0.1) (0.1)
non-equity
Amount 17.4 (14.0) 1.2 4.6 34.1
transferred
to reserves
Earnings per 7
ordinary
share
Basic and 1.1p 7.9p
diluted
Basic before 4.0p 11.6p
goodwill
amortisation and
exceptionals
Diluted before 4.0p 11.5p
goodwill
amortisation and
exceptionals
Balance sheet
at 31 December 2001
2001 2000
£million £million
Fixed assets
Goodwill 219.2 228.8
Tangible fixed assets 192.0 192.1
Investments 3.8 2.0
415.0 422.9
Current assets
Stocks 56.3 76.7
Debtors 86.6 109.2
Cash at bank and in hand 39.5 51.2
182.4 237.1
Creditors: amounts falling due within one year
Borrowings 5.8 7.3
Creditors 73.1 106.2
78.9 113.5
Net current assets/(liabilities) 103.5 123.6
Total assets less current liabilities 518.5 546.5
Creditors: amounts falling due after more than one year
Borrowings 73.7 85.6
Government grants 0.8 0.6
74.5 86.2
Provisions for liabilities and charges 43.8 46.6
118.3 132.8
400.2 413.7
Capital and reserves
Called up share capital 23.9 23.6
Share premium 1.2 1.1
Capital redemption reserve 43.4 20.4
Profit and loss account 329.0 366.1
Shareholders' funds 397.5 411.2
Minority interests 2.7 2.5
400.2 413.7
Shareholders' funds
Equity 395.2 409.2
Non-equity 2.3 2.0
397.5 411.2
Net borrowings (40.0) (41.7)
Cash flow statement
for the year ended 31 December 2001
2001 2000
Note £ £ £ £
million million million million
Net cash inflow/(outflow) from
operating activities
Continuing operations 37.1 60.6
Discontinued operations 0.8 (2.2)
37.9 58.4
Returns on investments and servicing of
finance
Interest received 6.7 9.3
Interest paid (11.5) (14.4)
(4.8) (5.1)
Taxation (7.2) (4.5)
Capital expenditure and financial
investment
Purchase of fixed assets (less grants (16.8) (22.1)
received)
Disposal of fixed assets 0.8 6.7
(16.0) (15.4)
Acquisitions and disposals
Disposal of businesses in prior years (0.3) (1.0)
Disposal of businesses in current year 10 16.6 -
16.3 (1.0)
Cash inflow before use of liquid 26.2 32.4
resources and financing
Financing and management of liquid 8 (18.1) (35.7)
resources
Increase/(decrease) in cash 9 8.1 (3.3)
Reconciliation of operating profit/(loss) to net cash inflow from operating
activities
for the year ended 31 December 2001
Continuing Discontinued
operations operations
2001 2001 2001 2000
£million £million £ £
million million
Operating profit (3.3) 2.4 (0.9) 47.2
Goodwill amortisation 14.0 - 14.0 13.3
Depreciation (less grants credited) 18.8 - 18.8 17.3
Share of profits of associated (0.1) - (0.1) (0.1)
undertakings
Exceptionals in operating profit 5.1 - 5.1 3.0
Cash outflow on exceptionals (5.2) - (5.2) (3.9)
Decrease/(increase) in stocks 6.6 - 6.6 (1.8)
Decrease/(increase) in debtors 12.6 0.9 13.5 (8.4)
Decrease in creditors (8.7) (1.6) (10.3) (2.2)
Decrease in provisions (2.7) (0.9) (3.6) (6.0)
37.1 0.8 37.9 58.4
Statement of total recognised gains and losses
for the year ended 31 December 2001
2001 2000
£ £
million million
Profit for the financial year 4.7 34.2
Currency translation differences 5.0 19.4
Taxation on currency translation differences on foreign (1.0) (2.0)
currency borrowings
Total recognised gains for the year 8.7 51.6
Reconciliation of movements in shareholders' funds
for the year ended 31 December 2001
2001 2000
£ £
million million
Profit for the financial year 4.7 34.2
Dividends - redeemable B shares (0.1) (0.1)
Amounts transferred to reserves 4.6 34.1
Redemption of redeemable B shares (including issue costs) (23.1) (20.7)
Share option scheme allotments 0.1 -
Goodwill on disposal of business acquired prior to 1 January
1998 0.7 -
charged to profit and loss account
Currency translation differences 5.0 19.4
Taxation on currency translation differences on foreign (1.0) (2.0)
currency borrowings
Net (decrease)/increase in shareholders' funds (13.7) 30.8
At beginning of the financial year 411.2 380.4
At end of the financial year 397.5 411.2
Notes to the financial statements
Preparation of preliminary announcement
The financial information in this statement does not constitute statutory
accounts within the meaning of Section 240 of the Companies Act 1985. The
financial information for the year ended 31 December 2000 has been extracted
from the financial statements for that year which have been delivered to the
Registrar of Companies. The report of the auditors on those financial
statements was unqualified and did not contain a statement under Section 237 of
the Companies Act 1985.
2 Basis of preparation
The financial information is presented on the basis of accounting policies set
out in the financial statements for the year ended 31 December 2000. FRS 18
'Accounting Policies' has been adopted in the current year but this did not
require any change in accounting policy.
3 Exchange rates
In 2001, the average sterling exchange rate was $1.45 and Є1.61 compared with
$1.52 and Є1.64 in 2000. The sterling exchange rate at 31 December 2001 was
$1.46 and Є1.63, compared with $1.49 and Є1.59 at 31 December 2000.
4 Segmental information
Group turnover Group operating Net assets
profit/(loss)
2001 2000 2001 2000 2001 2000
£ £ £ £million £million £million
million million million
Analysis by
activity
Chromium
Before 126.9 131.7 4.0 23.7 118.0 122.1
exceptionals
Inter-group (8.0) (6.9) - -
turnover - -
Exceptionals - - - 0.7
- -
118.9 124.8 4.0 24.4 118.0 122.1
Pigments &
Specialties
Before goodwill 228.0 234.9 12.2 31.1 330.7 349.9
amortisation and
exceptionals
Goodwill - - (14.0) (13.3) -
amortisation -
Exceptionals - - - (1.4) -
-
228.0 234.9 (1.8) 16.4 330.7 349.9
Specialty Rubber
Before 46.0 54.1 (0.5) 2.6 22.9 23.7
exceptionals
Exceptionals - - (0.5) (2.3)
- -
46.0 54.1 (1.0) 0.3 22.9 23.7
Group - - (4.6)
exceptionals - - -
Total -
continuing
operations
Before goodwill 392.9 413.8 15.7 57.4 471.6 495.7
amortisation and
exceptionals
Goodwill - - (14.0) (13.3)
amortisation - -
Exceptionals - - (5.1) (3.0)
- -
392.9 413.8 (3.4) 41.1 471.6 495.7
Total - 137.5 160.0 2.4 6.0 7.6
discontinued -
operations
Unallocated - - - (71.4) (89.6)
liabilities -
530.4 573.8 (1.0) 47.1 400.2 413.7
Group turnover Group operating Net assets
profit/(loss)
2001 2000 2001 2000 2001 2000
£million £ £million £million £ £
million million million
Analysis by area of
operations
Continuing
operations:
North America 213.3 229.0 (1.8) 27.4 334.8 351.4
Europe 156.7 163.4 (3.0) 12.2 122.6 128.9
Rest of the World 22.9 21.4 1.4 1.5 14.2 15.4
392.9 413.8 (3.4) 41.1 471.6 495.7
Discontinued
operations:
North America 137.5 160.0 2.4 6.0 - 7.6
Unallocated - - - (71.4) (89.6)
liabilities -
530.4 573.8 (1.0) 47.1 400.2 413.7
Unallocated liabilities comprise:
2001 2000
£million £million
Net borrowings (40.0) (41.7)
Taxation and dividends (6.0) (20.7)
Post retirement benefits and government grants (12.3) (14.8)
Other (13.1) (12.4)
(71.4) (89.6)
4 Segmental information (continued)
Continuing Discontinued Total
operations operations
2001 2000 2001 2000 2001 2000
£million £million £million £million £ £
million million
Group turnover analysed by
geographical markets
North America 197.0 208.3 137.5 160.0 334.5 368.3
Europe 134.6 143.0 - - 134.6 143.0
Rest of the World 61.3 62.5 - - 61.3 62.5
392.9 413.8 137.5 160.0 530.4 573.8
5 Exceptionals
Group operating profit/(loss) includes the following charges/(income):
Costs in Restructuring costs Settlement of Total
preparing the US litigation
Company for sale
2001 2000 2001 2000 2001 2000 2001 2000
£ £ £ £million £million £ £ £million
million million million million million
Continuing
operations:
Chromium - - - - (0.7) - (0.7)
-
Pigments & - - - 1.4 - - - 1.4
Specialties
Specialty - - 0.5 2.3 - - 0.5 2.3
Rubber
Group 4.6 - - - - 4.6
- -
4.6 - 0.5 3.7 - (0.7) 5.1 3.0
Tax on these charges was £nil million (2000: credit of £0.4 million).
There was an exceptional tax credit of £4.9 million arising in respect of
historic business disposals (2000: £nil million).
Profit on disposal of business:
2001 2001
Profit before Goodwill
goodwill previously 2001
Total
adjustments charged to
reserves
£million £million £million
Discontinued operation:
Harcros Chemicals 2.1 (0.7) 1.4
6 Tax on profit/(loss) on ordinary activities
The charge for United Kingdom tax has been based on a corporation tax rate of
30 per cent (2000: 30 per cent). If deferred tax had been fully provided in
2001 under the liability method, the tax credit for the year would have
decreased by £2.3 million (2000: £0.2 million).
2001 2000
£million £million
Reconciliation of the tax (credit)/charge:
Notional tax charge before goodwill amortisation 4.2
and exceptionals at UK corporation tax rate 17.5
(2001: 30 per cent, 2000: 30 per cent)
Recoverable ACT (4.5) (4.6)
Differences in overseas effective tax rates (0.7) 2.2
Benefit of US goodwill (6.5) (6.0)
Overseas tax losses unrelieved/(relieved) 14.4 (0.3)
Other current tax items 0.2 0.6
Deferred tax not provided on excess capital (6.3) (1.2)
allowances and other timing differences
ACT utilised on remittance of overseas profits 1.2
-
Prior year adjustments (5.6)
-
(3.6) 8.2
Tax credit on exceptionals (0.4)
-
Prior year tax exceptionals (4.9)
-
Tax (credit)/charge (8.5) 7.8
The prior year tax exceptional credit relates to historic business disposals.
7 Earnings per ordinary share
2001 2000
Profit Weighted average Earnings Profit Weighted Earnings
number of shares average
for the million per for the number per share
financial share of pence
year £million pence financial shares
million
year*
£million
Basic 4.6 431.5 1.1 34.1 431.5 7.9
earnings per
share
Share 3.6 - - 2.6
options - -
Diluted 4.6 435.1 1.1 34.1 434.1 7.9
earnings per
share
Basic 4.6 431.5 1.1 34.1 431.5 7.9
earnings per
share
Goodwill 14.0 3.2 13.3 - 3.1
amortisation -
Exceptionals (1.2) (0.3) 2.6 - 0.6
net of -
taxation
Basic 17.4 431.5 4.0 50.0 431.5 11.6
earnings per
share before
goodwill
amortisation
and
exceptionals
Share 3.6 - - 2.6 (0.1)
options -
Diluted 17.4 435.1 4.0 50.0 434.1 11.5
earnings per
share before
goodwill
amortisation
and
exceptionals
*after non-equity dividends
Earnings per share before goodwill amortisation and exceptionals provides a
measure of the underlying financial performance of the Group on a comparable
basis with many other groups.
8 Financing and management of liquid resources
2001 2000
£million £million
Financing
Issue of ordinary share capital - share options 0.1 -
Redemption of B shares (including issue costs) (23.1) (20.7)
Loan notes redeemed (0.9) (3.1)
Increase in borrowings repayable within one year 0.2 -
Decrease in borrowings repayable after one year (12.7) (37.3)
(36.4) (61.1)
Management of liquid resources
New cash deposits - (0.1)
Repayment of cash deposits 18.3 25.5
18.3 25.4
Total financing and management of liquid resources (18.1) (35.7)
Redeemable B shares of nominal value £23.3 million were issued for nil
consideration during the year (2000: £22.4 million).
9 Reconciliation of net cash flow to movement in net borrowings
2001 2000
£million £million
Change in net borrowings resulting from cash flows:
Increase/(decrease) in cash in the period 8.1 (3.3)
Decrease in borrowings 13.4 40.4
Decrease in liquid resources (18.3) (25.4)
3.2 11.7
Currency translation differences (1.5) (7.9)
Decrease in net borrowings 1.7 3.8
Net borrowings at beginning of the financial year (41.7) (45.5)
Net borrowings at end of the financial year (40.0) (41.7)
10 Disposal of business
Harcros Chemicals
£million
Net assets disposed of
Stocks 13.5
Debtors 20.6
Creditors (17.6)
16.5
Accrued costs & related items 2.8
Goodwill previously charged against reserves 0.7
Gain on disposal 1.4
Gross consideration 21.4
Costs of disposal (1.7)
19.7
Deferred consideration (3.1)
Net proceeds on disposal of business in current year 16.6
Deferred consideration comprises £1.7 million of non-voting redeemable
preferred stock in Harcros Chemicals Inc (formerly Harcros Chemicals
Acquisitions Inc), with the balance being payable upon agreement of the
completion accounts.
The subsidiary undertakings disposed of during the year contributed £0.8
million to the Group's net cash inflow from operating activities.
11 Contingent liabilities
The Group was notified of a potential warranty claim in 1998, under the
contract for the sale of Pauls Malt Limited, relating to export refunds from
the Intervention Board for Agricultural Produce (now the Rural Payments
Agency). Should such a claim materialise, this will be vigorously defended
and, in any event, in the opinion of the directors, this will not have a
significant effect on the financial position of the Group.
12 Annual General Meeting
The Annual General Meeting of Elementis plc will be held on 25 April 2002 at
11am at The Lincoln Centre, 18 Lincoln's Inn Fields, London WC2A 3ED.
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