Final Results

Elementis PLC 17 February 2005 17 February 2005 ELEMENTIS plc PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2004 Financial Highlights • Sales £389.2 million (2003: £368.2 million) • Operating profit before goodwill amortisation and exceptionals £11.8 million (2003: £24.5 million) • Profit before tax, goodwill amortisation and exceptionals £6.2 million (2003: £18.3 million) • Earnings per share before goodwill amortisation and exceptionals 1.4p (2003: 3.0p) • Operating loss £2.5 million (2003: profit of £10.9 million) • Loss before tax £7.8 million (2003: profit of £5.5 million) • Basic loss per share 1.8p (2003: earnings of 1.0p) • Net year end borrowings £90.2 million including £36.3 million for the acquisition of Sasol Servo (2003: £46.9 million) • Net year end gearing 30 per cent* (2003: 16 per cent*) *ratio of net borrowings to shareholders' funds plus net borrowings Business Highlights • By January 2005 Chromium chemicals prices up 25 per cent from late 2003 low point • Volumes and prices up in Specialties, Pigments and Specialty Rubber • Accelerated sales growth and increased synergy expectations in Specialties • Chinese Pigments plant complete and commissioning underway • Specialty Rubber restored to profitability Geoff Gaywood, Chief Executive of Elementis plc, said: 'Although external conditions were exceptionally challenging, 2004 has seen the implementation of the major transformational steps in the Elementis strategy.' 'The chromium chemicals market turned and by January 2005 prices had reached their highest level since 2001. This positive trend is expected to continue. Specialties completed a key acquisition, the successful integration of which, together with geographical expansion and new product introductions drove a 37 per cent sales increase in US dollar terms. Our new world-scale Pigments plant in China is complete and will transform the cost base of this business. Specialty Rubber has demonstrated its performance potential and we have now begun the process of considering the strategic options for this business.' 'However, rapidly escalating energy, raw material and freight costs, adverse currency movements and extreme weather conditions in Northern and Central America have hampered performance and eroded profitability. Higher variable costs and and a weak US dollar are likely to remain a challenge in 2005 and are the subject of intense management focus' 'Current trading conditions are characterised by good demand in all business sectors and a general upward movement in prices with the benefits of the structural improvements implemented during 2004 expected to become increasingly apparent during 2005. We anticipate progressive price increases in chromium chemicals, supported by expanding demand and a tightening of global supply; organic growth in Specialties and cost savings ahead of plan from the Sasol Servo acquisition; significant cost benefits from the new Chinese pigments plant; further strong sales growth at Specialty Rubber and operational efficiencies as a result of the implementation of the ERP system.' - Ends - An interview with Geoff Gaywood in video/audio format can be viewed on www.elementis.com and www.cantos.com from 0700 hours GMT. Enquiries Elementis 01784 227000 Geoff Gaywood Chief Executive Brian Taylorson Finance Director Hilary Reid Evans Head of Corporate Communications Brunswick 020 7404 5959 Kate Holgate Wendel Verbeek Chi Lo Chairman's Statement Turnover for the year was £21.0 million higher than 2003 at £389.2 million. Our acquisition of Sasol Servo accounted for £34.2 million of the increase while currency effects reduced turnover by £24.3 million. Operating profit for the year, before goodwill amortisation and exceptional items, was £11.8 million (2003: £24.5 million). After operating exceptionals of £2.9 million and goodwill amortisation the operating loss was £2.5 million (2003: profit of £10.9 million). Our Chromium business had a turbulent year following the de-registration of CCA (chromated copper arsenate) in the US for preserving timber for residential use. Margins were also affected by increased energy and freight costs and the weak dollar. During 2004 our average chromium chemical prices began to recover and better margins are expected in 2005 despite increases in input costs. Elementis Specialties increased underlying sales volumes by 6 per cent. Profits were 3 per cent lower than 2003 mainly due to a planned increase in innovation spend and the implementation of a new ERP system. The integration of Sasol Servo, acquired on 30 June 2004, is proceeding well, with benefits from the acquisition now expected to exceed initial estimates. Servo complements our technology and extends our market coverage. Continuing investment in R&D in our Specialty business is the key both to growth and good margins. Our Innovation Strategy continues to make good progress. At Elementis Pigments, the commissioning of the new iron oxide plant at TaiCang, China, is underway and when fully operational will result in a substantial reduction in manufacturing cost. Sales turnover grew by 8 per cent in Specialty Rubber and profits increased as a consequence. After a tax credit following the resolution of a number of issues, earnings per share for 2004 before goodwill amortisation and exceptionals, were 1.4 pence (2003: 3.0 pence). Basic earnings per share were a loss of 1.8 pence (2003: 1.0 pence). Capital expenditure for the year was £22.0 million (2003: £21.0 million) compared to depreciation of £15.4 million. With the acquisition of Servo net debt ended the year at £90.2 million giving an interest cover of 3.1 times. Distribution to Shareholders Once again, the distribution to shareholders will take the form of an issue of redeemable B shares. Ordinary shareholders on the register on 26 April 2005 will receive redeemable B shares with a total nominal value of 1.1 pence for each ordinary share held. This compares with 1.1 pence for the comparable issue last year. Strategy Our objective is to create shareholder value by improving the performance of our businesses and drive them towards high margin speciality markets for our products. We intend to intensify our efforts to return our chromium business to good profitability and have strengthened its top management to achieve this end. During the course of 2005 we expect further progress in Specialties led by innovation and cost reductions in Europe, while the year will be one of transformation for our Pigments business, with the new plant at TaiCang substantially impacting Pigments' cost base. With the improved results at Specialty Rubber confirming its performance potential we are now considering the strategic options for this business. Health Safety and the Environment Environmental and safety performance continues to improve and is now first class. We are planning further initiatives to continue this performance. For the second year, we will publish a full Sustainable Development Report. Copies of the document can be obtained from our Corporate Communications department at our head office in Staines, UK. The Board Our previous Chairman, Jonathan Fry, retired from the Board in October 2004, having served as Chairman of the Group since 1997. Jonathan's leadership guided Elementis from its creation and helped establish today's solid platform for growth. We wish him every happiness in his retirement and thank him for his invaluable contribution to the Group. We have today announced that Dr Kevin Matthews, Chief Executive of Oxonica Ltd, has joined our board as a non-executive director. Kevin's experience both of the chemicals industry and of new technology start-ups brings additional strength to the Board. People The progress we have made towards our objectives in 2004 has been realised thanks to the skill, hard work and commitment of our employees. On behalf of the directors and shareholders I thank everyone for their contribution. Outlook This is my first statement as Chairman. It is clear that the key elements of the programme to bring about a step change in financial performance of the Group are in place. After a challenging year we expect to see improvements from our businesses in 2005. Signs of the long awaited recovery in Chromium are evident but there remain the continuing challenges of higher input costs and a weak dollar. Keith Hopkins Chairman 17 February 2005 Business Review Sales volumes rose during 2004 in our Specialties, Pigments and Specialty Rubber businesses and were flat at Elementis Chromium, where increased sales to China compensated in volume terms for the loss of the residential market for CCAs in the US. Prices have risen in all businesses. However these increases were not sufficient to offset the negative impact on Group profitability of rapidly escalating energy, raw material and freight costs, adverse currency movements and extreme weather conditions in Northern and Central America. Although very challenging, 2004 has seen the successful implementation of some of the major transformational steps planned as part of the Elementis strategy. The chromium chemicals market has turned and by January 2005 realised prices were 25 per cent ahead of the low point of late 2003. Elementis Specialties completed a key acquisition and growth accelerated. Pigments executed an investment in China which will transform its cost base. Profitability was restored in Specialty Rubber and our company-wide ERP implementation progressed successfully. At Elementis Specialties our strategy is to achieve sustainable high growth by expanding our market and technology platforms. Sales at Specialties in 2004 have increased by approximately 37 per cent in US dollars, with the acquisition of Sasol Servo, geographical expansion and new product introductions contributing significantly. Potential synergies from the Sasol Servo acquisition are currently expected to exceed our original estimates by approximately 40 per cent. The Elementis Pigments strategy is to secure leadership in premium markets while transforming our cost base in Asia Pacific to drive growth and profitability. Our new world scale Pigments plant in China is now complete and will be in commercial operation by the end of February 2005. Following the streamlining of global operations at Elementis Specialty Rubber, our strategy is to leverage our well-invested, low cost manufacturing cost base, local market presence in key mining areas, product performance advantages and brand recognition to drive volume and continue to improve profitability. Specialty Rubber has maintained high sales growth and delivered a corresponding improvement in margins. The performance potential of Specialty Rubber has now been demonstrated and Elementis has therefore begun a process of considering the strategic options for this business. At Elementis Chromium, our strategy is to strengthen and leverage our market leadership to achieve superior returns on capital over the cycle. Elementis Chromium successfully led a sustained recovery in global prices during 2004, after a four year period of decline. Margin recovery was not however achieved during the year, due to intense variable cost pressures and adverse currency trends, which led to a drop in overall Group profitability. Sales at Elementis Chromium decreased by 9 per cent to £110.5 million. The operating loss for the year was £3.8 million compared to a profit of £6.8 million in 2003. Greg McClatchy, who has led the turn-around in performance at Specialty Rubber since his appointment as Managing Director in 2002, was appointed as Managing Director, Elementis Chromium, in February 2005. Neil MacLeod, previously Finance Director, Specialty Rubber, has taken over as Managing Director, Specialty Rubber, on an interim basis. Elementis Chromium announced the first in a series of global price increases at the end of 2003. Early resulting volume losses were recovered and the prices of all chromium chemicals have risen world-wide since that time. During the course of 2004, operations at our plant at Castle Hayne, US, were suspended on two occasions in anticipation of hurricanes, which resulted in lost production. In January 2005, aggregated selling prices for Elementis Chromium's products reached the highest level since December 2001 and were more than 25 per cent higher than the historic low levels experienced in November 2003. The trading outlook for Elementis Chromium is encouraging. Fixed costs have been further lowered as a result of a manufacturing rationalisation at the Eaglescliffe, UK, plant. Global industry capacity utilisation is now estimated to be in excess of 90 per cent and it is anticipated this figure will continue to rise throughout 2005 as demand increases and further industry capacity rationalisation occurs. Elementis Chromium is today announcing price increases of up to 20 per cent effective from 1 April 2005. We anticipate that selling prices for chromium chemicals will continue to increase as the year progresses. At Elementis Specialties, a recovery in demand in the coatings and construction markets world-wide, increased sales in Asia Pacific and new product introductions drove a 6 per cent sales growth in volume terms, excluding the impact of the Sasol Servo acquisition. Good growth was experienced in the critical coatings and construction markets, with European sales in particular showing significant increases. Our oilfield business was however impacted by two months of hurricane-related oil rig shut-downs in the Gulf of Mexico. The Specialties Innovation Board has generated a significant number of new technology platforms and the business is targeted with building a new product pipeline to deliver sustainable double-digit growth. Innovation spend, despite 2004 increases, is trending towards industry averages, and the contribution of new products to sales is now growing. Production at the Changxing, China, plant tripled during 2004. The performance of the Sasol Servo acquisition has fully met expectations to date. Annualised synergistic benefits, originally estimated at £2.5 million, are now expected to be £3.5 million. These benefits will be fully realisable in 2006. In sterling, operating profit before goodwill amortisation and exceptionals has decreased by 3 per cent, reflecting the impact of planned increases in innovation spend and ERP implementation costs. Volumes and turnover continued to improve at Elementis Pigments during 2004. While price increases and improved volumes had a substantial favourable impact on profitability, this was reversed by rapidly escalating raw material and freight prices, and pre-start-up costs for the new Chinese plant. Full-scale production was rapidly resumed at the plant at Easton, US, following flash flooding in September. Although the flooding affected performance in 2004, no long term financial or operating impact is anticipated. In addition to the new plant at TaiCang, the Pigments plant at Shenzhen, China was expanded. These activities will substantially lower the aggregate cost base for this business and provide a strong platform for further growth. Elementis Specialty Rubber has once again shown significant growth in 2004, with sales increasing by over 20 per cent in US dollars for the second year in succession and all regions showing good volume increases. On conversion to sterling, the sales increase was 8 per cent, again reflecting the impact of the weaker US dollar. In sterling, Specialty Rubber's operating profit increased from breakeven in 2003 to £0.2 million in 2004. During the course of 2004 a new operation was established in China to address the needs of the rapidly modernising Chinese mining industry, while in January 2005 Specialty Rubber announced the opening of a new joint venture in Santiago to serve the large, fast growing Chilean mining market. Health and Safety Elementis achieved an outstanding level in its safety performance in 2004 as evidenced by its lowest ever Recordable Incident Rate of 1.46 per 200,000 hours for the year. The performance of the Specialties, Chromium and Specialty Rubber businesses was below 1.0 per 200,000 hours worked, which is in line with the top quartile of the world's chemical companies. Sustainable Development Our Sustainable Development programme, which was summarised in our 2003 annual report, won the UK Chemical Industry Association's Sustainable Development Award. Elementis was cited as an example of industry best practice. ERP The ERP system was implemented in our Chromium and Specialty Rubber businesses during 2004, without any significant disruption to operations. Francis Lenders joined Elementis as Director, Global Supply Chain, in December 2004. Francis is a member of the Management Team and is charged with bringing operational excellence to our supply chain operations and ensuring that the full potential benefits of the ERP system are realised. Six Sigma The Elementis Six Sigma programme continued to contribute operational savings in 2004. Since its introduction in 2001, the total accumulated benefits from the Elementis Six Sigma programme have passed £9.0 million, with total associated costs estimated at £2.6 million. Six Sigma is a methodology widely used in process industries to increase quality and efficiency by reducing process variability. REACH Throughout 2004 senior management at Elementis has continued to work alongside the European and UK chemical industry associations to press for improvements to the workability of the proposed European REACH (registration, evaluation and authorisation of chemicals) regulation. While there has been considerable progress, the proposed regulation still needs substantial improvement to avoid damaging the competitiveness of the chemical industry, particularly of smaller companies. Outlook Current trading conditions are characterised by good demand in all business sectors, accompanied by a general upward movement in prices. Continued raw material, energy and freight cost inflation, combined with the impact of the weaker US dollar are however ongoing concerns. Variable costs are receiving intense management focus and are being fixed or hedged as considered appropriate. We anticipate that the benefits of structural improvements implemented during 2004 will become apparent during 2005. These improvements include progressive price increases in chromium chemicals supported by expanding demand and a tightening of global supply; cost savings and sales growth from the Sasol Servo acquisition and organic growth at Specialties; the cost benefits of the new TaiCang plant in Pigments; further strong sales growth at Specialty Rubber and operational efficiencies as a result of the implementation of the ERP system. Financial Review Sales -------------------------------------------------------------------------------- Sales Effect of Acquired Inc/(dec) Sales 2003 exchange rates in 2004 2004 2004 £million £million £million £million £million -------------------------------------------------------------------------------- Specialties & Pigments 209.3 (14.4) 34.2 9.1 238.2 -------------------------------------------------------------------------------- Chromium 121.9 (9.5) - (1.9) 110.5 -------------------------------------------------------------------------------- Specialty Rubber 42.7 (0.4) - 3.6 45.9 -------------------------------------------------------------------------------- Inter-company (5.7) - - 0.3 (5.4) -------------------------------------------------------------------------------- 368.2 (24.3) 34.2 11.1 389.2 -------------------------------------------------------------------------------- Operating profit before goodwill amortisation and exceptionals -------------------------------------------------------------------------------- Operating Effect of Operating profit* exchange Acquired Inc/(dec) profit* 2003 rates in 2004 2004 2004 £million £million £million £million £million -------------------------------------------------------------------------------- Specialties & Pigments 17.7 (0.5) 0.9 (2.7) 15.4 -------------------------------------------------------------------------------- Chromium 6.8 (2.9) - (7.7) (3.8) -------------------------------------------------------------------------------- Specialty Rubber - - - 0.2 0.2 -------------------------------------------------------------------------------- 24.5 (3.4) 0.9 (10.2) 11.8 -------------------------------------------------------------------------------- * before goodwill amortisation and exceptionals Sales increased by 6 per cent from the previous year to £389.2 million. This includes Sasol Servo BV, which was acquired on 30 June 2004 and contributed £34.2 million to sales in the second half. After adjusting for the acquisition and exchange rates, sales increased by 3 per cent at constant currency. The sales increase was mainly due to higher volumes at Specialties & Pigments and Specialty Rubber. Marginally higher average prices for the Group were offset by adverse mix effects. In terms of geography, lower volumes in North America and Europe, largely due to the loss of CCA business in the US and the effect of price increases in Chromium, were more than offset by increased volumes into Asia Pacific and the rest of the world. Operating profit before goodwill amortisation and exceptionals was £12.7 million below previous year at £11.8 million. On a constant currency basis the decrease was £9.3 million. The increase in sales was more than offset by increases in raw materials, freight costs and energy particularly in the second half of 2004, and costs associated with the implementation of the ERP system. The operating loss after goodwill amortisation and exceptionals was £2.5 million (2003: profit of £10.9 million) for the year. Goodwill amortisation in the year amounted to £11.4 million (2003: £12.4 million) and operating exceptional costs were £2.9 million (2003: £1.2 million). Specialties & Pigments -------------------------------------------------------------------------------- 2004 2003 £million £million -------------------------------------------------------------------------------- Sales 238.2 209.3 -------------------------------------------------------------------------------- Adjusted operating profit * 15.4 17.7 -------------------------------------------------------------------------------- Operating profit 2.4 3.8 -------------------------------------------------------------------------------- * before goodwill amortisation and exceptionals Sales in Specialties & Pigments increased by 14 per cent to £238.2 million. After adjusting for the business acquired in June 2004, sales in constant currency were 4 per cent higher than previous year. This was primarily due to increased volumes while higher prices were offset by adverse mix in the year due to higher sales into lower price geographies, such as Asia Pacific. Operating profit before goodwill amortisation and exceptionals was £2.3 million lower than the previous year at £15.4 million. After adjusting for acquisitions and currency, operating profit was £2.7 million lower. Increased volumes were more than offset by higher raw materials, energy and fixed costs. Sales in Elementis Specialties on a constant currency basis excluding the acquisition were 3 per cent higher than the previous year. Volumes were up 6 per cent largely due to a strong performance in the coatings and construction sectors, and included new business in the growing but lower margin markets in Asia, Latin America and the Middle East. Increased sales to some larger customers, where rebates are more prominent, had a mitigating effect on realised sales values and margins. Prices improved in some key sectors, but were on average at similar levels to the previous year. Operating profit before goodwill amortisation and exceptionals on a constant currency basis was 5 per cent lower than the previous year. Higher volumes were offset by adverse mix, planned increases in the innovation programme and ERP implementation costs. Sales in Elementis Pigments on a constant currency basis increased by 7 per cent due to higher volumes and improved pricing. Operating profit was however lower than the previous year as higher raw material costs and start up costs in TaiCang, offset volume and price improvements. Elementis Chromium -------------------------------------------------------------------------------- 2004 2003 £million £million -------------------------------------------------------------------------------- Sales 110.5 121.9 -------------------------------------------------------------------------------- Adjusted operating (loss)/profit * (3.8) 6.8 -------------------------------------------------------------------------------- Operating (loss)/profit (5.1) 7.4 -------------------------------------------------------------------------------- * before exceptionals Sales in Elementis Chromium decreased by 9 per cent to £110.5 million and on a constant currency basis decreased by 2 per cent. Overall volumes which were 3 per cent down in the first half following an initial round of price increases, recovered strongly in the second half to be in line with previous year. The loss of CCA business for residential uses in the US, which reduced sales by approximately £15.0 million, was offset by strong demand for Chrome Oxide and by sales into the Asia Pacific market. Prices were increased throughout the year and average US Dollar prices were around 10 per cent higher in December 2004 than twelve months earlier. However average pricing for the whole year was still marginally below that for the previous year, and accounted for most of the decrease in constant currency sales. The operating loss before exceptionals for the year was £3.8 million compared to a profit of £6.8 million in the previous year. The increase in energy costs was £2.2 million while the weakness of the US Dollar was the main cause of an adverse currency impact of £2.9 million. Higher raw material and freight costs accounted for most of the remaining reduction. Specialty Rubber -------------------------------------------------------------------------------- 2004 2003 £million £million -------------------------------------------------------------------------------- Sales 45.9 42.7 -------------------------------------------------------------------------------- Adjusted operating profit * 0.2 - --------------------------------------------------------------------------------- Operating profit/(loss) 0.2 (0.3) --------------------------------------------------------------------------------- * before exceptionals Sales in Specialty Rubber increased by 8 per cent to £45.9 million, due to strong volume growth largely in Asia Pacific, South Africa and Europe. Higher sales volumes and improved pricing were partly offset by fixed cost increases. The operating profit before exceptionals for the year was £0.2 million compared to break even in the previous year. Exceptionals Total exceptional items before taxation in the year were £2.6 million (2003: £0.4 million). These comprised: £million --------------------------------------------------------------------------------- Operating : -------------------------------------------------------------------------------- Redundancy and restructuring costs (2.9) --------------------------------------------------------------------------------- Non operating: --------------------------------------------------------------------------------- Profit on disposal of property 2.6 -------------------------------------------------------------------------------- Loss on termination of business (2.3) --------------------------------------------------------------------------------- (2.6) ------------------------------------------------------------------------------- The redundancy and restructuring costs comprise £1.3 million of redundancy costs at Chromium's Eaglescliffe site and £1.6 million incurred in the first phase of the integration of Sasol Servo BV following its acquisition in June 2004. The profit on disposal of property of £2.6 million is from the sale and leaseback of Specialty Rubber's Yateley, UK property. The loss on termination of business of £2.3 million is to provide for the book value of the Group's 50 per cent interest in Enenco together with any residual site clean-up costs. This follows a decision made by the joint venture parties during 2004 to close the business. Interest -------------------------------------------------------------------------------- 2004 2003 £million £million -------------------------------------------------------------------------------- On net borrowings (3.8) (1.9) -------------------------------------------------------------------------------- Pension finance charge (1.1) (4.2) --------------------------------------------------------------------------------- Discount on provisions (0.9) (0.9) -------------------------------------------------------------------------------- Other 0.2 0.8 --------------------------------------------------------------------------------- Total (5.6) (6.2) ------------------------------------------------------------------------------- Interest payable on net borrowings increased during the year by £1.9 million due to higher borrowings and a higher cost of borrowing. The finance charge in respect of pension and post-retirement benefits decreased by £3.1 million in the year due a lower pension deficit and an improvement on the expected return on pension scheme assets. Interest cover - the ratio of operating profit before goodwill amortisation and exceptionals to interest on net borrowings - was 3.1 times (2003: 12.9 times). Taxation --------------------------------------------------------------------------------- Effective Tax (charge)/credit £million rate -------------------------------------------------------------------------------- Before goodwill amortisation and exceptionals (0.2) 2% -------------------------------------------------------------------------------- Goodwill amortisation - - --------------------------------------------------------------------------------- Exceptionals 0.2 9% --------------------------------------------------------------------------------- Total - - -------------------------------------------------------------------------------- The effective rate of tax on profit before goodwill amortisation and exceptionals was 2 per cent (2003: 29 per cent). The decrease in the rate was due to the resolution of open issues from prior periods and the utilisation of losses. Potential deferred tax assets of £28.8 million (2003: £23.2 million) have not yet been recognised. The effective tax rate on profit before goodwill amortisation and exceptionals in 2005 will continue to be dependent on the mix of profits primarily between the UK and overseas. Earnings per share Earnings per share for the year was a loss of 1.8 pence per share (2003: earnings of 1.0 pence per share), mainly due to the lower operating profit for the year. Earnings per share before goodwill amortisation and exceptionals was 60 per cent lower at 1.4 pence (2003: 3.0 pence) due to the lower operating profit but partly offset by lower FRS17 pension finance charges and a lower tax rate. Dividends and issue of redeemable B shares The Board did not declare an interim dividend and, similarly, is not proposing a final dividend. The Board instead intends to 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 2004 was 2.2 pence per ordinary share. The Board intends to issue further redeemable B shares to ordinary shareholders on the register on 26 April 2005, such that they receive redeemable B shares with a total nominal value of 1.1 pence for each ordinary share held. This compares with 1.1 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 3 May 2005. 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 3 May 2005. Cash flow Net borrowings increased by £43.3 million in the year to £90.2 million. The cash outflow due to changes in working capital increased by £5.1 million as higher stocks and debtors due to increased volumes and the transitional effects of the ERP implementation, were partially offset by higher creditors. The ratio of working capital to sales increased from 17.5 per cent to 18.3 per cent after adjusting for the acquisition in Specialties which was made part way through the year. The cash flow is summarised below: -------------------------------------------------------------------------------- 2004 2003 £million £million -------------------------------------------------------------------------------- Earnings before interest, tax, exceptionals, depreciation and amortisation 27.2 40.1 -------------------------------------------------------------------------------- Change in working capital (5.1) (2.9) -------------------------------------------------------------------------------- Other (7.0) (22.0) -------------------------------------------------------------------------------- Capital expenditure (22.0) (21.0) -------------------------------------------------------------------------------- (6.9) (5.8) -------------------------------------------------------------------------------- Redemption of B shares (9.2) (9.5) -------------------------------------------------------------------------------- Acquisitions and disposals (30.7) 0.8 -------------------------------------------------------------------------------- Currency fluctuations 3.5 5.0 -------------------------------------------------------------------------------- (43.3) (9.5) -------------------------------------------------------------------------------- Net borrowings at start of year (46.9) (37.4) -------------------------------------------------------------------------------- Net borrowings at end of year (90.2) (46.9) -------------------------------------------------------------------------------- Other cash flows decreased by £15.0 million, due to lower contributions to pension schemes, less paid on provisions, and net tax refunds of £4.5 million. Capital expenditure Capital expenditure in the year was 143 per cent of depreciation (2003: 134 per cent) as the Group continued to invest in the ERP project and largely completed the construction of a new Pigments plant in TaiCang, China. Total spend in the year included £2.6 million (2003: £7.7 million) in relation to the ERP project and £7.3 million (2003: £1.9 million) for the Pigments plant in China. Balance Sheet -------------------------------------------------------------------------------- 2004 2003 £million £million -------------------------------------------------------------------------------- Intangible fixed assets 144.4 159.3 -------------------------------------------------------------------------------- Other net assets 155.7 139.9 -------------------------------------------------------------------------------- 300.1 299.2 -------------------------------------------------------------------------------- Shareholders' funds 209.9 252.3 -------------------------------------------------------------------------------- Net borrowings 90.2 46.9 -------------------------------------------------------------------------------- 300.1 299.2 -------------------------------------------------------------------------------- Gearing 1 30% 16% 1 the ratio of net borrowings to shareholders' funds plus net borrowings Currency fluctuations had a significant impact on shareholders' funds. The main currency exchange rates relevant to Elementis are set out below: -------------------------------------------------------------------------------- 2004 2003 Year end Avge Year end Avge -------------------------------------------------------------------------------- US Dollar 1.92 1.83 1.79 1.64 Euro 1.41 1.47 1.42 1.45 -------------------------------------------------------------------------------- The majority of the Group's assets are stated in US dollars and the weakening of the US dollar in 2004 reduced shareholders' funds by a net £11.8 million. The balance of the reduction was due to the current year trading result, the issue and redemption of B shares, actuarial adjustments to the pension fund valuation and associated deferred taxation. Pensions and other post retirement benefits The Group provides retirement benefits for the majority of its employees mainly through defined benefit schemes. A small number of defined contribution schemes are also provided and an unfunded post-retirement medical benefit scheme is provided in the US. The net pension liability, which is calculated by the Group's actuaries and based upon market values of the schemes' assets and liabilities, increased by £11.7 million to £64.5 million. The increase was primarily due to a change in the rate of deferred tax related to the UK pension scheme from 30 per cent to 10 per cent to reflect surplus ACT. This change increased the net pension liability by £9.8 million and the balance was due to the acquisition of Sasol Servo B.V. The total cost of pensions and post-retirement health care in the year was £7.2 million (2003: £8.5 million). The charge in 2003 included a credit in respect of past service of £1.3 million. Costs were lower in 2004 principally due to a £3.1 million reduction in finance charges to £1.1 million (2003: £4.2 million). Total contributions to pension and post retirement schemes in the year amounted to £10.7 million (2003: £14.4 million). The estimated contribution in 2005 is approximately £12.0 million. International Accounting Standards All listed companies are required to present consolidated financial information that fully complies with International Financing Reporting Standards (IFRS) for accounting periods starting on or after 1 January 2005. The project to assess the impact of this change of accounting standards is almost complete and a separate announcement will be made in March 2005. The current indications are that the comparative for earnings per share before goodwill amortisation and exceptionals under UK Gaap will not be materially different under IFRS. Consolidated profit & loss account for the year ended 31 December 2004 ------------------------------------------------------------------------------------------------------------ Before Before goodwill Goodwill goodwill Goodwill amortisation amortisation amortisation & amortisation & & exceptionals & exceptionals 2004 exceptionals exceptionals 2003 Note £million £million £million £million £million £million ------------------------------------------------------------------------------------------------------------- Turnover ------------------------------------------------------------------------------------------------------------- Continuing operations: ------------------------------------------------------------------------------------------------------------- Ongoing 355.0 - 355.0 368.2 - 368.2 ------------------------------------------------------------------------------------------------------------- Acquisitions 34.2 - 34.2 - - - ------------------------------------------------------------------------------------------------------------- 2 389.2 - 389.2 368.2 - 368.2 ------------------------------------------------------------------------------------------------------------- Operating profit/ (loss) ------------------------------------------------------------------------------------------------------------- Continuing operations: ------------------------------------------------------------------------------------------------------------- Ongoing 10.9 (12.5) (1.6) 24.5 (13.6) 10.9 ------------------------------------------------------------------------------------------------------------- Acquisitions 0.9 (1.8) (0.9) - - - ------------------------------------------------------------------------------------------------------------- Operating profit/(loss) 2,3 11.8 (14.3) (2.5) 24.5 (13.6) 10.9 ------------------------------------------------------------------------------------------------------------- Loss on termination of business (1) 3 - (2.3) (2.3) - - - ------------------------------------------------------------------------------------------------------------ Profit on disposal of properties (1) 3 - 2.6 2.6 - - - ------------------------------------------------------------------------------------------------------------ Profit on disposal of properties (2) 3 - - - - 0.8 0.8 ------------------------------------------------------------------------------------------------------------- Profit/(loss) on ordinary activities before interest 11.8 (14.0) (2.2) 24.5 (12.8) 11.7 ------------------------------------------------------------------------------------------------------------- Net interest payable 4 (3.6) - (3.6) (1.1) - (1.1) ------------------------------------------------------------------------------------------------------------- Other finance charges 4 (2.0) - (2.0) (5.1) - (5.1) ------------------------------------------------------------------------------------------------------------- Profit/(loss) on ordinary activities before tax 6.2 (14.0) (7.8) 18.3 (12.8) 5.5 ------------------------------------------------------------------------------------------------------------- Tax on profit /(loss) on ordinary activities 5 (0.2) 0.2 - (5.3) 4.2 (1.1) ------------------------------------------------------------------------------------------------------------- Profit /(loss)on ordinary activities after tax 6.0 (13.8) (7.8) 13.0 (8.6) 4.4 ------------------------------------------------------------------------------------------------------------- Minority interests - equity - - - (0.1) - (0.1) ------------------------------------------------------------------------------------------------------------- Profit/(loss) for the financial year transferred (from)/ to reserves 6.0 (13.8) (7.8) 12.9 (8.6) 4.3 ------------------------------------------------------------------------------------------------------------ Earnings/(loss) per ordinary share 6 ------------------------------------------------------------------------------------------------------------ Basic and diluted 1.4p (1.8)p 3.0p 1.0p ------------------------------------------------------------------------------------------------------------- (1) Continuing operations (2) Discontinued operations Balance sheet at 31 December 2004 ------------------------------------------------------------------------------- Group 2004 2003 £million £million -------------------------------------------------------------------------------- Fixed assets --------------------------------------------------------------------------------- Intangible assets 144.4 159.3 -------------------------------------------------------------------------------- Tangible fixed assets 173.4 157.7 --------------------------------------------------------------------------------- Investments 1.9 3.2 --------------------------------------------------------------------------------- 319.7 320.2 -------------------------------------------------------------------------------- Current assets -------------------------------------------------------------------------------- Stocks 70.1 54.4 -------------------------------------------------------------------------------- Debtors 85.5 68.9 --------------------------------------------------------------------------------- Cash at bank and in hand 11.5 23.8 -------------------------------------------------------------------------------- 167.1 147.1 --------------------------------------------------------------------------------- Creditors: amounts falling due within one year --------------------------------------------------------------------------------- Borrowings (4.4) (5.3) -------------------------------------------------------------------------------- Creditors (81.0) (63.5) -------------------------------------------------------------------------------- (85.4) (68.8) -------------------------------------------------------------------------------- Net current assets 81.7 78.3 -------------------------------------------------------------------------------- Total assets less current liabilities 401.4 398.5 -------------------------------------------------------------------------------- Creditors: amounts falling due after more than one year -------------------------------------------------------------------------------- Borrowings (97.3) (65.4) -------------------------------------------------------------------------------- Government grants (2.4) (1.3) -------------------------------------------------------------------------------- (99.7) (66.7) -------------------------------------------------------------------------------- Provisions for liabilities and charges (25.5) (24.8) -------------------------------------------------------------------------------- (125.2) (91.5) -------------------------------------------------------------------------------- Net assets excluding net pension liability 276.2 307.0 -------------------------------------------------------------------------------- Net pension liability (64.5) (52.8) -------------------------------------------------------------------------------- Net assets including net pension liability 211.7 254.2 -------------------------------------------------------------------------------- Capital and reserves -------------------------------------------------------------------------------- Called up share capital 23.8 23.5 -------------------------------------------------------------------------------- Share premium 1.2 1.2 -------------------------------------------------------------------------------- Capital redemption reserve 71.5 62.3 -------------------------------------------------------------------------------- Profit and loss account 113.4 165.3 -------------------------------------------------------------------------------- Shareholders' funds 209.9 252.3 -------------------------------------------------------------------------------- Minority equity interests 1.8 1.9 -------------------------------------------------------------------------------- 211.7 254.2 -------------------------------------------------------------------------------- Shareholders' funds -------------------------------------------------------------------------------- Equity 207.7 250.4 -------------------------------------------------------------------------------- Non-equity 2.2 1.9 -------------------------------------------------------------------------------- 209.9 252.3 -------------------------------------------------------------------------------- Consolidated cash flow statement for the year ended 31 December 2004 -------------------------------------------------------------------------------- 2004 2003 Note £million £million -------------------------------------------------------------------------------- Net cash inflow from operating activities 7 13.1 18.3 -------------------------------------------------------------------------------- Returns on investments and servicing of finance -------------------------------------------------------------------------------- Interest received 1.4 2.0 -------------------------------------------------------------------------------- Interest paid (4.1) (3.6) -------------------------------------------------------------------------------- (2.7) (1.6) -------------------------------------------------------------------------------- Taxation 4.5 (1.3) -------------------------------------------------------------------------------- Capital expenditure and financial investment -------------------------------------------------------------------------------- Purchase of fixed assets (less grants received) (22.0) (21.0) -------------------------------------------------------------------------------- Disposal of fixed assets 0.2 0.4 -------------------------------------------------------------------------------- Disposal of properties - 5.6 1.1 exceptional -------------------------------------------------------------------------------- (16.2) (19.5) -------------------------------------------------------------------------------- Acquisitions and disposals -------------------------------------------------------------------------------- Acquisition of businesses (36.3) (0.3) -------------------------------------------------------------------------------- Cash outflow before use of liquid resources and financing (37.6) (4.4) -------------------------------------------------------------------------------- Financing -------------------------------------------------------------------------------- Redemption of B shares (9.2) (9.5) -------------------------------------------------------------------------------- (Decrease)/increase in borrowings repayable within one year (0.8) 0.2 -------------------------------------------------------------------------------- Increase/(decrease) in borrowings repayable after one year 35.8 (7.0) -------------------------------------------------------------------------------- Capital element of finance lease payments (0.2) (0.2) -------------------------------------------------------------------------------- (12.0) (20.9) -------------------------------------------------------------------------------- Management of liquid resources -------------------------------------------------------------------------------- Repayment of cash deposits - 14.5 -------------------------------------------------------------------------------- Decrease in cash in the year (12.0) (6.4) -------------------------------------------------------------------------------- Reconciliation of net cash flow to movement in net borrowings for the year ended 31 December 2004 -------------------------------------------------------------------------------- 2004 2003 £million £million -------------------------------------------------------------------------------- Change in net borrowings resulting from cash flows: -------------------------------------------------------------------------------- Decrease in cash in the year (12.0) (6.4) -------------------------------------------------------------------------------- (Increase)/decrease in borrowings (34.8) 7.0 -------------------------------------------------------------------------------- Decrease in liquid resources - (14.5) -------------------------------------------------------------------------------- (46.8) (13.9) -------------------------------------------------------------------------------- New finance leases - (0.6) -------------------------------------------------------------------------------- Currency translation differences 3.5 5.0 -------------------------------------------------------------------------------- Increase in net borrowings (43.3) (9.5) -------------------------------------------------------------------------------- Net borrowings at beginning of the financial year (46.9) (37.4) -------------------------------------------------------------------------------- Net borrowings at end of the financial year (90.2) (46.9) -------------------------------------------------------------------------------- Consolidated statement of total recognised gains and losses for the year ended 31 December 2004 -------------------------------------------------------------------------------- 2004 2003 £million £million -------------------------------------------------------------------------------- (Loss)/profit for the financial year (7.8) 4.3 -------------------------------------------------------------------------------- Actuarial (loss)/gain on pension and other post-retirement schemes (4.7) 6.0 -------------------------------------------------------------------------------- Deferred tax associated with pension and other post-retirement schemes (8.9) (2.3) -------------------------------------------------------------------------------- Currency translation differences (11.8) (21.5) -------------------------------------------------------------------------------- Total recognised gains and losses for the year (33.2) (13.5) -------------------------------------------------------------------------------- Reconciliation of movements in shareholders' funds for the year ended 31 December 2004 -------------------------------------------------------------------------------- 2004 2003 £million £million -------------------------------------------------------------------------------- (Loss)/profit for the financial year (7.8) 4.3 -------------------------------------------------------------------------------- Redemption of redeemable B shares (including issue costs) (9.2) (9.5) -------------------------------------------------------------------------------- Actuarial (loss)/gain on pension and other post-retirement schemes (4.7) 6.0 -------------------------------------------------------------------------------- Deferred tax associated with pension and other post-retirement schemes (8.9) (2.3) -------------------------------------------------------------------------------- Currency translation differences (11.8) (21.5) -------------------------------------------------------------------------------- Net decrease in shareholders' funds (42.4) (23.0) ------------------------------------------------------------------------------- At beginning of the financial year 252.3 275.3 -------------------------------------------------------------------------------- At end of the financial year 209.9 252.3 -------------------------------------------------------------------------------- Notes to the financial statements 1 Preparation of the 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 2003 has been extracted from the financial statements for that year which have been delivered to the Registrar of Companies. The financial information for the year ended 31 December 2004 has been extracted from the financial statements for that year which will be delivered to the Registrar of Companies following the Company's Annual General Meeting. The report of the auditors on the financial statements for both years was unqualified and did not contain a statement under either Section 237 (2) or Section 237(3) of the Companies Act 1985. The financial information is presented on the basis of accounting policies set out in the financial statements for the year ended 31 December 2003. The preliminary announcement was approved by the Board of Directors on 17 February 2005. 2 Segmental information ---------------------------------------------------------------------------------------- Group turnover Group operating profit Net assets 2004 2003 2004 2003 2004 2003 £million £million £million £million £million £million ------------------------------------------------------------------------------------------ a) Before goodwill amortisation and exceptionals Analysis by activity Chromium 110.5 121.9 (3.8) 6.8 92.6 90.3 ----------------------------------------------------------------------------------------- Inter-group turnover (5.4) (5.7) - - - - ------------------------------------------------------------------------------------------ 105.1 116.2 (3.8) 6.8 92.6 90.3 ------------------------------------------------------------------------------------------ Specialties & Pigments 238.2 209.3 15.4 17.7 282.3 259.7 ------------------------------------------------------------------------------------------ Specialty Rubber 45.9 42.7 0.2 - 17.1 18.5 ------------------------------------------------------------------------------------------ 389.2 368.2 11.8 24.5 392.0 368.5 ----------------------------------------------------------------------------------------- Geographical analysis by origin ----------------------------------------------------------------------------------------- North America 180.9 198.2 15.3 18.7 237.6 268.9 ----------------------------------------------------------------------------------------- Europe 178.9 144.6 (6.6) 3.9 128.2 81.3 ------------------------------------------------------------------------------------------ Rest of the World 29.4 25.4 3.1 1.9 26.2 18.3 ------------------------------------------------------------------------------------------ 389.2 368.2 11.8 24.5 392.0 368.5 ------------------------------------------------------------------------------------------ Unallocated liabilities - - - - (180.3) (114.3) ------------------------------------------------------------------------------------------ 389.2 368.2 11.8 24.5 211.7 254.2 ------------------------------------------------------------------------------------------ b) After goodwill amortisation and exceptionals Analysis by activity Chromium 110.5 121.9 (5.1) 7.4 92.6 90.3 ----------------------------------------------------------------------------------------- Inter-group turnover (5.4) (5.7) - - - - ------------------------------------------------------------------------------------------ 105.1 116.2 (5.1) 7.4 92.6 90.3 ----------------------------------------------------------------------------------------- Specialties & Pigments 238.2 209.3 2.4 3.8 282.3 259.7 ------------------------------------------------------------------------------------------ Specialty Rubber 45.9 42.7 0.2 (0.3) 17.1 18.5 ------------------------------------------------------------------------------------------ 389.2 368.2 (2.5) 10.9 392.0 368.5 ------------------------------------------------------------------------------------------ Geographical analysis by origin ----------------------------------------------------------------------------------------- North America 180.9 198.2 4.5 7.0 237.6 268.9 ----------------------------------------------------------------------------------------- Europe 178.9 144.6 (10.1) 2.0 128.2 81.3 ------------------------------------------------------------------------------------------ Rest of the World 29.4 25.4 3.1 1.9 26.2 18.3 ----------------------------------------------------------------------------------------- 389.2 368.2 (2.5) 10.9 392.0 368.5 ----------------------------------------------------------------------------------------- Unallocated liabilities - - - - (180.3) (114.3) ----------------------------------------------------------------------------------------- 389.2 368.2 (2.5) 10.9 211.7 254.2 ------------------------------------------------------------------------------------------ Notes to the financial statements continued 3. Goodwill amortisation and exceptionals -------------------------------------------------------------------------------- 2004 2003 £million £million -------------------------------------------------------------------------------- Operating: -------------------------------------------------------------------------------- Restructuring costs 2.9 1.7 -------------------------------------------------------------------------------- Chromium insurance recovery - (0.8) -------------------------------------------------------------------------------- Restructuring of Specialty Rubber - 0.3 -------------------------------------------------------------------------------- 2.9 1.2 -------------------------------------------------------------------------------- Goodwill amortisation 11.4 12.4 -------------------------------------------------------------------------------- 14.3 13.6 -------------------------------------------------------------------------------- Non-operating: -------------------------------------------------------------------------------- Profit on disposal of properties - continuing operations (2.6) - -------------------------------------------------------------------------------- Profit on disposal of properties - discontinued operations - (0.8) -------------------------------------------------------------------------------- Loss on termination of business - continuing operations 2.3 - -------------------------------------------------------------------------------- (0.3) (0.8) -------------------------------------------------------------------------------- 14.0 12.8 -------------------------------------------------------------------------------- Tax credit on goodwill amortisation and exceptionals (0.2) (4.2) -------------------------------------------------------------------------------- 13.8 8.6 -------------------------------------------------------------------------------- The restructuring costs comprise £1.3 million in Chromium following an efficiency review at their site in Eaglescliffe, UK and £1.6 million in respect of Sasol Servo B.V. which was acquired on 30 June 2004. The restructuring costs in 2003 related to the introduction of the Group's ERP system. The profit on sale of property of £2.6 million was in respect of the sale and leaseback of Specialty Rubber's Yateley, UK property. The loss on termination of business of £2.3 million arose following a decision by the joint venture partners to close Enenco Inc, in which the Group held a 50 per cent interest. 4 Net interest payable -------------------------------------------------------------------------------- 2004 2003 £million £million -------------------------------------------------------------------------------- a) Net interest payable Interest payable: -------------------------------------------------------------------------------- On bank loans 4.4 3.0 -------------------------------------------------------------------------------- On other loans 0.1 0.2 -------------------------------------------------------------------------------- 4.5 3.2 -------------------------------------------------------------------------------- Interest receivable: -------------------------------------------------------------------------------- On bank deposits (0.3) (0.8) -------------------------------------------------------------------------------- On other loans (0.4) (0.5) -------------------------------------------------------------------------------- Interest receivable in respect of corporation tax refunds (0.2) (0.8) -------------------------------------------------------------------------------- (0.9) (2.1) -------------------------------------------------------------------------------- Net interest payable 3.6 1.1 -------------------------------------------------------------------------------- b) Other finance charges -------------------------------------------------------------------------------- Unwind of discount on provisions 0.9 0.9 -------------------------------------------------------------------------------- Pension and post-retirement liabilities 1.1 4.2 -------------------------------------------------------------------------------- Other finance charges 2.0 5.1 -------------------------------------------------------------------------------- Total interest payable 5.6 6.2 -------------------------------------------------------------------------------- Notes to the financial statements continued 5 Taxation Analysis of tax charge in the year -------------------------------------------------------------------------------- 2004 2003 £million £million ------------------------------------------------------------------------------- Current tax: ------------------------------------------------------------------------------- UK corporation tax at 30.0% - - ------------------------------------------------------------------------------- Overseas corporation tax 0.5 1.8 ------------------------------------------------------------------------------- Adjustments in respect of prior years- overseas (2.2) (1.0) ------------------------------------------------------------------------------- Total current tax (1.7) 0.8 ------------------------------------------------------------------------------- Deferred tax: ------------------------------------------------------------------------------- United Kingdom (2.5) (1.4) ------------------------------------------------------------------------------- Overseas 0.1 (0.5) ------------------------------------------------------------------------------- Adjustments in respect of prior periods 1.3 1.2 ------------------------------------------------------------------------------- Recoverable ACT 2.8 1.0 ------------------------------------------------------------------------------- Total deferred tax 1.7 0.3 ------------------------------------------------------------------------------- Tax charge - 1.1 ------------------------------------------------------------------------------- 6 (Loss)/earnings per ordinary share 2004 2003 (Loss)/ profit Weighted Profit Weighted for the average (Loss)/ for the average financial number of earnings financial number of Earnings year shares per share year shares per share £million million pence £million million pence ------------------------------------------------------------------------------------------------- Basic (loss)/earnings per share (7.8) 431.9 (1.8) 4.3 431.6 1.0 ------------------------------------------------------------------------------------------------- Share options - - - - 6.2 - ------------------------------------------------------------------------------------------------- Diluted(loss)/ earnings per share (7.8) 431.9 (1.8) 4.3 437.8 1.0 ------------------------------------------------------------------------------------------------- Basic (loss)/earnings per share (7.8) 431.9 (1.8) 4.3 431.6 1.0 ------------------------------------------------------------------------------------------------- Goodwill amortisation net of taxation 11.4 - 2.6 8.0 - 1.9 ------------------------------------------------------------------------------------------------- Exceptionals net of taxation 2.4 - 0.6 0.6 - 0.1 ------------------------------------------------------------------------------------------------- Basic earnings per share before goodwill amortisation and exceptionals 6.0 431.9 1.4 12.9 431.6 3.0 ------------------------------------------------------------------------------------------------- Share options - - - - 6.2 - ------------------------------------------------------------------------------------------------- Diluted earnings per share before goodwill amortisation and exceptionals 6.0 431.9 1.4 12.9 437.8 3.0 ------------------------------------------------------------------------------------------------- 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. In accordance with the requirements of FRS14, 6.4 million of share options have not been included in the calculation of the diluted earnings per share in 2004 as the basic calculation is based upon a loss for the financial year. Notes to the financial statements continued 7 Net cash inflow from operating activities --------------------------------------------------------------------------------- 2004 2003 £million £million -------------------------------------------------------------------------------- Operating (loss)/profit (2.5) 10.9 -------------------------------------------------------------------------------- Operating exceptionals 2.9 1.2 -------------------------------------------------------------------------------- Goodwill amortisation 11.4 12.4 -------------------------------------------------------------------------------- Depreciation (less grants credited) 15.4 15.6 -------------------------------------------------------------------------------- Earnings before interest, tax, depreciation, amortisation and exceptionals 27.2 40.1 -------------------------------------------------------------------------------- Share of profits of associated undertakings - (0.1) -------------------------------------------------------------------------------- Cash outflow on exceptionals (2.0) 0.2 -------------------------------------------------------------------------------- (Increase)/decrease in stocks (7.2) 4.8 ------------------------------------------------------------------------------- Increase in debtors (3.4) (2.8) -------------------------------------------------------------------------------- Increase/(decrease) in creditors 5.5 (4.9) -------------------------------------------------------------------------------- Provisions movement (2.4) (8.7) -------------------------------------------------------------------------------- Pension contributions net of current service cost (4.6) (10.3) -------------------------------------------------------------------------------- 13.1 18.3 ------------------------------------------------------------------------------- 8 Contingent liabilities Particulars of Claim were served on the Company on 2 April 2004 alleging breaches of warranties under the contract for the sale of Pauls Malt Limited, relating to the repayment of export refunds to the Department for Environment, Food and Rural Affairs. The claim which amounts to approximately £5.2 million is being vigorously defended. The claim was first notified to the Company in 1998. This information is provided by RNS The company news service from the London Stock Exchange

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