Interim Results
Elementis PLC
31 July 2007
31 July 2007
ELEMENTIS plc
INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2007
Elementis plc, a Global Specialty Chemicals Company, announces its results for
the six months ended 30 June 2007.
HIGHLIGHTS
• Underlying sales up 5 per cent (adjusted for currency and exited plant
capacity).
o Good demand in most key markets.
• Operating profit up 26 per cent.
o Specialty Products operating margin increased to 21 per cent (15 per
cent in 2006).
o Includes one-time energy rebate of £1.4 million in Chromium.
• Earnings per share 4.2 pence, up 31 per cent (22 per cent excluding energy
rebate).
• Net debt reduced by £14.9 million since the end of 2006, to £85.7 million.
• Dividend increased to 1.3 pence (up 8 per cent).
Financial Summary
2007 2006
Sales* £197.7m £210.9m
Operating profit* £22.8m £18.1m
Profit before tax* £19.6m £14.4m
Diluted earnings per share* 4.2p 3.2p
Dividend per share to shareholders 1.3p 1.2p
* Including the results of the Pigments business, classified as
discontinued.
Commenting on the results, Group Chief Executive, David Dutro said:
'We are pleased to report the continued improvement in the Group's performance.
Demand in most of our key markets was positive which enabled us to grow our
underlying sales by 5 per cent, and by maintaining our focus on operating
efficiencies Elementis has increased both earnings and cash flow during the
first half of 2007.
Specialty Products' operating margins increased from 15 to 21 per cent,
reflecting the inherent quality of this business, and underlying sales improved
by 4 per cent with good growth in Oilfield and European and Asia Pacific
coatings sectors.
Chromium experienced robust demand for chromic acid, and chrome oxide sales
benefited from improved demand in North America and Europe following recent
structural tax changes in China. The operating result of £7.5 million included
the benefit of a one-time energy rebate of £1.4 million; otherwise the result
reflected a consistent performance compared to last year.
In May 2007 we signed an agreement with Rockwood Holdings to sell our Pigments
business for US$140 million. The transaction is subject to regulatory approvals,
including a filing under the Hart-Scott-Rodino Act in the United States, and is
expected to close before the end of 2007. In the first half of 2007 the business
delivered a similar result to the previous year in challenging market
conditions.
Our Surfactants business made a slower start but demand improved toward the end
of the first half of the year and should continue into the second half.
Overall market dynamics have been positive for the Group in the first half of
2007 and we expect this trend to continue into the second half of the year. Our
main priorities for the second half will be a continued focus on driving
profitable growth in Specialty Products, stable progress in Chromium and the
successful closing of the Pigments transaction.'
- Ends -
Enquiries
Elementis plc Tel: +44 (0) 20 7408 9300
David Dutro, Group Chief Executive
Brian Taylorson, Finance Director
Financial Dynamics Tel: +44 (0) 20 7831 3113
Andrew Dowler
Greg Quine
Chairman's Statement
I am pleased to report that Elementis has continued to make good progress by
further improving operating performance and reducing debt through positive
operating cash flow. In addition, the Group made an important strategic step in
May this year when it announced that it had agreed to sell its global Pigments
business to Rockwood Holdings for US$140 million. This was the result of an
unsolicited offer from Rockwood that the Board considered to be an appropriate
value for the business, which has made good progress following the successful
completion of its China manufacturing base. The transaction is subject to
regulatory approvals, including a filing under the Hart-Scott-Rodino Act in the
United States, and is expected to close before the end of 2007. Proceeds from
the sale will initially be used to reduce net borrowings, but the Board is
reviewing other potential uses and will provide an update before completion.
Results
Operating profit increased by 26 per cent in the first half of 2007 to £22.8
million. Almost all of the increase was from the Specialty Products business
where operating margins improved to 21 per cent in the current period versus 15
per cent in the first half of 2006. This is particularly pleasing as it
demonstrates the inherent quality of this business, which is being restored
through the efforts of David Dutro and his management team. Consistent with our
strategy of reducing earnings volatility in the Chromium business, operating
profit for the first half of 2007 was £7.5 million compared to £6.0 million in
the same period last year, with the current period benefiting from a one time
energy rebate in the United States of £1.4 million. Operating profit for
Pigments was in line with previous year, while Surfactants started more slowly
than expected but improved towards the end of the first half.
Revenue for the first half of 2007 was £197.7 million which, after adjusting for
currency movements and the effect of closing part of the Chromium manufacturing
facility in 2006, represents an increase of 5 per cent compared to the previous
year. On the same basis, Specialty Products and Chromium showed good growth on
increased volumes, while Pigments' sales were slightly lower than last year due
to the recent slowdown in the US housing market. Surfactants' sales were similar
to last year.
Diluted earnings per share was 4.2 pence for the first half of 2007, an increase
of 31 per cent over the previous year, and the Group's net debt level has fallen
by £14.9 million since the end of 2006 demonstrating the ability that our
businesses have to convert operating profit into cash.
Dividend
The Board is declaring an interim dividend of 1.3 pence per share compared with
1.2 pence at this time last year. The Board intends to progress dividend
payments as earnings performance permits.
The Board
At the Company's Annual General Meeting in April this year Edward Bramson
announced his decision to step down from the Board. As I commented in my
statement in April, we thank Edward for his excellent contribution to the Board
and wish him success in his future endeavours.
Environmental, Health and Safety
Our performance in this area has continued to be of a high standard, with only
one employee incident recorded in the current period under review which required
three days or more away from work. However the Group is not complacent in this
important area of our business and will continue to strive for the highest
standards.
Current trading and outlook
Overall market dynamics have been positive for the Group in the first half of
2007 and we expect this trend to continue into the second half of the year. Our
main priorities for the second half will be a continued focus on driving
profitable growth in Specialty Products, stable progress in Chromium and the
successful closing of the Pigments sale transaction.
Robert Beeston
Chairman
31 July 2007
Business review
for the six months ended 30 June 2007
Revenue Partial
Effect of closure of Increase/
Revenue exchange UK (decrease) Revenue
2006 rates Chromium 2007 2007
£million £million £million £million £million
Specialty Products 76.8 (5.4) - 2.8 74.2
Surfactants 24.7 (1.0) - 0.8 24.5
Chromium 61.9 (5.2) (7.0) 7.5 57.2
Inter-segment (3.2) - - 0.3 (2.9)
______ ______ ______ ______ ______
Continuing operations 160.2 (11.6) (7.0) 11.4 153.0
Pigments 50.7 (3.7) - (2.3) 44.7
______ ______ ______ ______ ______
210.9 (15.3) (7.0) 9.1 197.7
______ ______ ______ ______ ______
Group results
Group revenue from continuing operations was £153.0 million in the first half of
2007 which, after adjusting for currency effects and the closure of part of the
UK Chromium facility in March 2006, represents an increase of 8 per cent over
the previous period. All three businesses showed an increase on this basis.
Market trends were generally positive for the businesses with good demand in
most regions except for the North American coatings and construction markets
which were impacted by the slowdown in US housing. Volumes were higher in
Chromium and Specialty Products but lower in Surfactants due to the product
optimisation program in that business. Pricing was also increased in all three
businesses when compared to the previous period. Revenue including discontinued
operations was £197.7 million (2006: £210.9 million) which is 5 per cent higher
than prior period after making the same adjustments.
Operating profit from continuing operations before exceptional items increased
by 33 per cent to £20.1 million (2006: £15.1 million). Specialty Products was
the main driver of the increase, while Chromium benefited from a one time energy
rebate of £1.4 million. Excluding this, energy costs across the businesses were
relatively flat versus the prior period due to more stable markets and the
impact of hedging approximately 70 per cent of total energy costs. The results
also include the benefit of £2.1 million (2006: £0.6 million) from the currency
hedging program where approximately 80 per cent of the main exposures have been
fixed for 2007, with most of the benefit falling in Specialties and Chromium.
As a result of the hedging program the net effect of currency movements on
operating profit for the first half of 2007 was minimal when compared to the
previous period. Operating profit including discontinued operations increased
by 26 per cent in the first half of 2007 to £22.8 million (2006: £18.1 million).
Net borrowings have reduced by £24.0 million since 30 June 2006 and by £14.9
million in the period.
Elementis Specialty Products
Demand for rheological products in the first half of 2007, which represent
around 70 per cent of total sales, was good in all major sectors with the
exception of North American coatings which felt the impact of the slowdown in
the US housing market. Sales volumes of coatings in Europe and Asia Pacific were
strong, more than offsetting the softer US demand. Sales to construction,
personal care and oilfield segments globally were ahead of 2006 levels. In
addition, the new management team has been working on further improving the
operating performance of the business and new product development. As a result
operating margins have improved from 15 per cent in the first half of 2006 to
around 21 per cent in the current period and new products, including a range of
colourant stability additives, are currently being tested in the market.
Sales for the first half of 2007 were £74.2 million versus £76.8 million in the
previous year, and currency movements reduced sales by £5.4 million. Excluding
these currency effects sales increased by 4 per cent mainly due to improved
volumes but also from improved selling prices. Sales volumes to the coatings
sector increased by 7 per cent, despite slower demand in North America, and
oilfield volumes increased by 8 per cent. In the oilfield sector, the current
high levels of drilling activity are a positive influence, but also new drilling
techniques for adverse conditions are providing opportunities for new
applications of premium organoclays. In other sectors, construction sales
volumes improved by 3 per cent with strong growth in Europe and Asia Pacific
offsetting reduced demand in North America, which is a trend that was also
evident in personal care as both sectors continued to benefit from the unique
properties of hectorite clay. Sales also benefited from improved pricing as a
result of across the board increases at the end of 2006. Relatively higher
coatings sales in Europe and Asia Pacific in the first half of 2007 softened the
impact of these increases as margins are slightly lower in these regions
compared to North America.
Operating profit
for the six months ended 30 June 2007 Adjusted
Operating Exceptional Operating
£million profit items profit
Specialty Products 15.3 - 15.3
Surfactants 0.5 - 0.5
Chromium 7.5 - 7.5
Central costs (3.2) - (3.2)
______ ______ ______
Continuing operations 20.1 - 20.1
Pigments 2.7 - 2.7
______ ______ ______
22.8 - 22.8
______ ______ ______
(continued from table above)
Operating profit
for the six months ended 30 June 2006
Operating Exceptional Adjusted
£million profit items operating profit
Specialty Products 10.7 1.1 11.8
Surfactants 0.1 0.3 0.4
Chromium 6.4 (0.4) 6.0
Central costs (3.1) - (3.1)
______ ______ ______
Continuing operations 14.1 1.0 15.1
Pigments 4.0 (1.0) 3.0
______ ______ ______
18.1 - 18.1
______ ______ ______
Operating profit before exceptional items was £15.3 million in the first half of
2007 compared to £11.8 million in the same period last year, representing an
increase of 30 per cent with no material currency effect year on year.
Approximately half of this improvement came from the increased sales with the
balance coming from structural cost improvements, especially in selling, general
and administration.
Elementis Surfactants
In the first half of 2007 the Surfactants business has continued to focus on
optimising its product mix by exiting low margin business and improving
operating efficiencies. Progress has been made, although sales to the oilfield
sector started the year more slowly than anticipated due to initial delays in
some drilling projects, but improved towards the end of the first half. Sales
for the first half of 2007 were £24.5 million; similar to the same period last
year, but 3 per cent higher after adjusting for currency movements. Volumes were
12 per cent lower than the previous period due to the sales optimisation process
and the slower start to the oilfield sales, but this was more than offset by
positive improvements in pricing as a result of price increases introduced at
the end of 2006.
Operating profit before exceptional items was similar to the same period last
year at £0.5 million, with higher selling prices compensating for increases in
raw materials.
Elementis Chromium
As part of the Chromium business strategy, several steps have been taken to help
reduce earnings volatility. These include more hedging of currency and energy
costs, better optimisation of production capacity and a greater focus on
sustainable sales. These steps have contributed to the operating profit before
exceptional items in the first half of 2007 being at a similar level to the
previous year before taking account of one time items. In addition, after a
slower start, demand for chromium products during the first half of 2007 has
been positive overall. Changes in Chinese tax regulations affecting chrome metal
and other basic materials, since the beginning of the year, have helped create
additional demand for chrome oxide in North America and Europe. This momentum is
likely to continue into the second half of the year resulting in the
announcement of price increases with effect from July.
Sales for the first half of 2007 were £57.2 million versus £61.9 million in the
same period last year. The closure of part of the Eaglescliffe, UK plant in
March 2006 reduced sales by approximately £7.0 million and currency movements by
a further £5.0 million. Excluding these two items sales increased by 16 per cent
with increased volumes being the main contributor. Chromic acid sales volumes
manufactured in the US increased by 46 per cent as product exited due to the
closure of the UK plant was largely replaced with US product, but sales were
also positively impacted by strong demand from Latin America and China. Sales
volumes of chrome oxide increased by 31 per cent largely due to the tax changes
in China. Chrome sulphate sales volumes for leather tanning increased by 5 per
cent as a result of good demand from leather tanneries, while sales volumes of
sodium dichromate were 12 per cent lower as production was optimised to produce
higher margin products in response to the stronger demand. Pricing was flat
overall due to the increased demand coming later in the first half of 2007, but
this is being addressed in the second half of the year.
Operating profit before exceptional items in the first half of 2007 was £7.5
million compared to £6.0 million in the same period last year. Currency had no
net effect versus last year, but the business benefited from a one time rebate
of energy costs in the US as a result of an electricity industry reorganisation
by the State of Texas, and amounted to £1.4 million. Otherwise energy costs were
similar to the previous year and raw material inflation was offset by the
increase in sales. The impact of the UK plant closure on the year on year
comparison of operating profit was largely neutral, with lost sales volumes
being offset by a reduction in fixed costs.
Elementis Pigments
A challenging market environment for Pigments driven by the recent slowdown in
the US housing market impacted sales to both the US coatings and construction
markets, which together account for almost 50 per cent of total sales. Despite
this down turn the business was able to achieve an operating profit similar to
the previous year through disciplined cost management and innovative marketing,
including the launch of a new Ready Mix product into the construction market.
This product offering provides enhanced processing capabilities to our
customers, and established more than ten new accounts during the first half of
2007.
Sales in Pigments were 12 per cent lower in the first half of 2007 at £44.7
million when compared to the same period last year. Currency movements reduced
reported sales by 7 per cent, while volumes were 6 per cent lower. Sales volumes
in coatings and chemical applications were up 15 per cent in Asia Pacific which
partly offset lower volumes in both North America and Europe. Price increases of
between 3 and 5 per cent were implemented at selected accounts. In the
construction sector volumes were lower in most regions. Sales of driers in
Europe made good progress with volumes up 3 per cent over the previous year.
Operating profit before exceptional items was £2.7 million for the first half of
2007, which is £0.3 million lower than the previous year, as cost efficiencies
partly offset the effects of the lower sales volumes.
Net finance costs
Net finance costs on continuing operations were £0.4 million lower than for the
six months ended 30 June 2006. Lower average borrowings, partly offset by
higher interest rates, reduced net finance costs by £0.3 million and the balance
was due to increased finance income on pension funds. Interest cover, the ratio
of operating profit before exceptional items to interest on net borrowings, was
5.2 times (2006: 3.9 times).
Taxation
The Group's tax charge on profit before exceptional items was 5.0 per cent
(2006: 1.3 per cent). This is lower than the standard rate for UK Corporation
tax primarily because the Group benefits from a tax deduction in the US in
respect of goodwill amortisation.
Earnings per share
Basic and diluted earnings per share increased by 31 per cent to 4.2 pence
(2006: 3.2 pence) in the period. This includes 0.3 pence (2006: nil) in respect
of an energy refund to the Chromium business. From continuing operations, basic
earnings per share before exceptional items was 3.7 pence (2006: 2.7 pence) and
the diluted equivalent figure was 3.7 pence (2006: 2.6 pence).
Cash flow
The cash flow is summarised below:
30 June 30 June
2007 2006
£million £million
Earnings before interest, tax, exceptionals,
depreciation and amortisation (Ebitda) 29.9 25.4
Change in working capital (2.7) (16.5)
Pension (1.5) (1.6)
Interest and tax (4.8) (4.2)
Restructuring (1.0) (8.1)
Other 1.6 0.1
Capital expenditure (3.2) (5.0)
______ ______
18.3 (9.9)
Distribution to shareholders (5.3) (4.8)
Currency fluctuations 1.9 4.4
______ ______
14.9 (10.3)
Net borrowings at start of period (100.6) (99.4)
______ ______
Net borrowings at end of period (85.7) (109.7)
______ ______
In the first half of 2007 the Group reduced borrowings by £14.9 million (2006:
increase of £10.3 million) and, at the period end, net borrowings were £24.0
million lower than at 30 June 2006. During the first half, Ebitda increased by
18 per cent above the comparative period, which increased cash flow by £4.5
million. Working capital outflows, which typically increase in the first six
months due to seasonal factors, were £13.8 million lower than 2006. This was
partly due to a strategic build of inventory in the second half of 2006 and as a
result inventory decreased by £1.1 million in the first six months of 2007
(2006: increase of £6.8 million). In addition, cash outflows to suppliers were
£8.1 million better than previous year due to more efficient management of
payments which increased creditors days by 3 days compared to June 2006. The
other main positive variance compared to prior period was a £7.1 million
reduction in restructuring spend as the programmes implemented in 2005 and 2006
are now virtually complete.
Balance sheet
30 June 30 June
2007 2006
£million £million
Tangible fixed assets 96.9 130.4
Other net assets 199.1 166.7
296.0 297.1
Equity 210.3 187.4
Net borrowings 85.7 109.7
296.0 297.1
Gearing1 29% 37%
1 the ratio of net borrowings to equity attributable to parent plus net
borrowings
Tangible fixed assets are £33.5 million lower than 30 June 2006 because the
assets and liabilties of the Pigments division have been reclassified as 'held
for sale'. Other net assets have increased as a consequence. Equity has
increased by £22.9 million since 30 June 2006, primarily due to retained
earnings of £26.1 million. Currency differences on translation of foreign
operations reduced equity by £14.2 million, but this has been partly offset by
actuarial gains on pension schemes of £8.9 million and other credits to equity
of £2.1 million. Gearing was reduced to 29 per cent (2006: 37 per cent) at the
end of June 2007.
The main sterling currency exchange rates in the period were:
2007 2007 2006 2006
30 June Average 30 June Average
US dollar 2.01 1.97 1.85 1.79
Euro 1.45 1.45 1.45 1.45
______ ______ ______ ______
The majority of the Group's assets are denominated in US dollars and the weaker
US dollar has reduced equity by £14.2 million in the last twelve months.
Elementis uses dollar and euro borrowings to mitigate the currency translation
exposure on its assets denominated in foreign currencies, subject to the
provisions of IAS 39 in respect of hedge accounting. Profits of overseas
operations are translated at average rates in each period and the average US
dollar rate has weakened by 9 per cent against sterling in the first half of
2007. Forward contracts taken out in 2005 and 2006 have reduced the impact of
the dollar weakness on the reported results in the period ended 30 June 2007.
David Dutro Brian Taylorson
Chief Executive Officer Finance Director
31 July 2007 31 July 2007
Consolidated income statement
for the six months ended 30 June 2007
Note 2007 2006 2006
Six months Six months Year
ended ended ended
30 June 30 June 31 December
£million £million £million
Continuing operations
Revenue 3 153.0 160.2 302.0
Cost of sales (101.5) (106.9) (203.1)
______ ______ ______
Gross profit 51.5 53.3 98.9
Distribution costs (20.5) (24.3) (43.5)
Administrative expenses (10.9) (13.9) (21.9)
______ ______ ______
Operating profit before exceptional items 20.1 15.1 31.5
Exceptional items - (1.0) 2.0
______ ______ ______
Operating profit 3 20.1 14.1 33.5
Finance income 4 1.2 1.1 1.9
Finance costs 5 (4.1) (4.4) (8.6)
______ ______ ______
Profit before tax and exceptional items 17.2 11.8 24.8
Exceptional items - (1.0) 2.0
______ ______ ______
Profit before income tax 3 17.2 10.8 26.8
Tax 8 (0.9) (0.1) (0.9)
______ ______ ______
Profit from continuing operations 16.3 10.7 25.9
______ ______ ______
Discontinued operation
Post tax profit from discontinued operation 7 2.3 3.5 5.8
______ ______ ______
Profit for the period 18.6 14.2 31.7
______ ______ ______
Attributable to:
Equity holders of the parent 18.6 14.1 31.6
Minority interests - 0.1 0.1
______ ______ ______
18.6 14.2 31.7
______ ______ ______
Earnings per share
From continuing and discontinued operations
Basic (pence) 9 4.2 3.2 7.1
Diluted (pence) 9 4.2 3.2 7.0
From continuing operations
Basic (pence) 9 3.7 2.7 5.9
Diluted (pence) 9 3.7 2.6 5.8
______ ______ ______
Consolidated statement of recognised income and expense
for the six months ended 30 June 2007
2007 2006 2006
Six months Six months Year
ended ended ended
30 June 30 June 31 December
£million £million £million
Exchange differences on translation of foreign operations (2.5) (11.7) (23.0)
Actuarial gain/(loss) on pension and other post retirement
schemes - - 8.6
(Loss)/gain on cash flow hedges (1.3) 0.6 1.9
Net (expense)/income recognised in equity (3.8) (11.1) (12.5)
Profit for the period 18.6 14.2 31.7
______ ______ ______
Total recognised income and expense for the period 14.8 3.1 19.2
______ ______ ______
Attributable to: 14.8 3.0 19.1
Equity holders of the parent
Minority interests - 0.1 0.1
______ ______ ______
14.8 3.1 19.2
______ ______ ______
Consolidated balance sheet
at 30 June 2007
2007 2006 2006
30 June 30 June 31 December
Note £million £million £million
Non-current assets
Goodwill and other intangible assets 146.6 159.8 151.6
Property, plant and equipment 96.9 130.4 126.1
Interests in associates and other investments 0.6 3.2 1.7
Deferred tax assets 6.4 11.2 7.3
______ ______ ______
Total non-current assets 250.5 304.6 286.7
______ ______ ______
Current assets
Inventories 47.2 70.8 67.7
Trade and other receivables 57.1 77.5 73.1
Cash and cash equivalents 17.4 19.1 14.5
______ ______ ______
Current assets 121.7 167.4 155.3
Non-current assets classified as held for sale 7 64.9 - -
______ ______ ______
Total current assets 186.6 167.4 155.3
______ ______ ______
Total assets 437.1 472.0 442.0
______ ______ ______
Current liabilities
Bank overdrafts and loans (0.7) (128.8) (0.7)
Trade and other payables (51.5) (62.7) (61.8)
Current tax liabilities (2.4) (6.7) (3.3)
Provisions (1.6) (5.2) (2.4)
______ ______ ______
Current liabilities (56.2) (203.4) (68.2)
Liabilities associated with non-current assets 7 (14.5) - -
classified as held for sale
______ ______ ______
Total current liabilities (70.7) (203.4) (68.2)
______ ______ ______
Non-current liabilities
Loans and borrowings (102.4) - (114.4)
Retirement benefit obligations (34.3) (55.8) (37.3)
Provisions (16.3) (21.3) (19.0)
Government grants (1.5) (2.4) (2.2)
______ ______ ______
Total non-current liabilities (154.5) (79.5) (172.9)
______ ______ ______
Total liabilities (225.2) (282.9) (241.1)
______ ______ ______
Net assets 211.9 189.1 200.9
______ ______ ______
Equity
Share capital 22.2 22.0 22.1
Share premium 5.0 2.6 3.6
Other reserves 67.8 78.8 71.0
Retained earnings 115.3 84.0 102.6
______ ______ ______
Equity attributable to equity holders of the 12 210.3 187.4 199.3
parent
Minority equity interests 1.6 1.7 1.6
______ ______ ______
Total equity and reserves 211.9 189.1 200.9
______ ______ ______
Consolidated cash flow statement
for the six months ended 30 June 2007
2007 2006 2006
Six months Six months Year
ended ended ended
30 June 30 June 31 December
£million £million £million
Operating activities:
Profit for the period 18.6 14.2 31.7
Adjustments for:
Finance income (1.2) (1.1) (0.2)
Finance costs 4.4 4.8 7.7
Tax 1.0 0.2 1.4
Depreciation and amortisation 7.1 7.3 14.8
Decrease in provisions - (0.5) (2.2)
Pension contributions net of current service cost (1.5) (1.6) (7.8)
Share based payments 0.5 0.4 0.9
Exceptional items charged less cash outflow (1.0) (8.1) (13.8)
______ ______ ______
Operating cash flows before movements in working capital 27.9 15.6 32.5
Decrease/(increase) in inventories 1.1 (6.8) (9.8)
Increase in trade and other receivables (4.7) (2.5) (1.6)
Increase/(decrease) in trade and other payables 0.9 (7.2) (1.6)
______ ______ ______
Cash generated by operations 25.2 (0.9) 19.5
Income taxes paid (1.2) (0.3) (0.7)
Interest paid (3.6) (4.1) (8.3)
______ ______ ______
Net cash flow from operating activities 20.4 (5.3) 10.5
Investing activities:
Interest received 0.1 0.2 0.3
Purchase of property, plant and equipment (3.2) (5.0) (13.2)
Proceeds from sale of property, plant and equipment 0.1 1.2 1.5
Acquisition of business (0.6) - -
Disposal of businesses 0.5 - 1.4
______ ______ ______
Net cash used in investing activities (3.1) (3.6) (10.0)
Financing activities:
Issue of shares 1.6 0.9 2.0
Redemption of B shares - - (2.1)
Purchase of own shares (0.6) (1.9) (2.4)
Dividends paid (5.3) (4.8) (10.1)
(Decrease)/increase in borrowings repayable after one year (9.9) 25.4 17.9
Net cash(used in)/from financing activities (14.2) 19.6 5.3
______ ______ ______
Net increase in cash and cash equivalents 3.1 10.7 5.8
Cash and cash equivalents at beginning of period 13.8 8.4 8.4
Foreign exchange on cash and cash equivalents (0.2) (0.5) (0.4)
______ ______ ______
Cash and cash equivalents at end of period 16.7 18.6 13.8
______ ______ ______
Notes to the interim financial statements
for the six months ended 30 June 2007
1 General Information
Elementis plc ('the Company) and its subsidiaries (together, 'the Group')
manufactures specialty chemicals. The Group has operations in the US, UK, the
Netherlands and China. On 11 May 2007, the Group announced the sale of its
global Pigments business subject to regulatory approvals. This business has
been classified as a discontinued operation and comparatives have been restated
in accordance with IFRS 5. The assets and liabilities of the Pigments have been
classified as a 'held for sale' in the balance sheet at 30 June 2007. Balance
sheet comparatives are not restated under IFRS 5. In addition, the Group has
restated its segment reporting to provide greater clarity of the underlying
performance of its business units and now discloses financial information
separately for Specialty Products and Surfactants. The Company is a limited
liability company incorporated and domiciled in the UK. The Company has its
primary listing on the London Stock Exchange.
The financial information for the first six months of 2007 and 2006, which is
unaudited but has been reviewed by the Company's auditor, does not constitute
statutory accounts within the meaning of section 240 of the Companies Act 1985,
and is presented on the basis of accounting policies set out in the financial
statements of Elementis plc for the year ended 31 December 2006. This interim
financial information was approved for issue on 31 July 2007.
The comparative figures for the year ended 31 December 2006 are not the
Company's statutory accounts for that financial year. Those accounts, which
were prepared and approved by the directors in accordance with International
Financial Reporting Standards as adopted by the EU (adopted IFRS), have been
reported on by the Company's auditor and delivered to the Registrar of
Companies. The auditor's report was unqualified and did not contain statements
under section 237 (2) or (3) of the Companies Act 1985.
2 Accounting estimates and judgements
The preparation of interim financial statements requires management to make
judgements, estimates and assumptions that affect the application of accounting
policies and the reported amounts of income, expense, assets and liabilities.
The significant estimates and judgements made by management were consistent with
those applied to the consolidated financial statements for the year ended 31
December 2006.
3 Segment reporting
For management purposes the Group is currently organised into four operating
divisions - Specialty Products, Surfactants, Chromium, and Pigments (now
classified as a discontinued operation). Principal activities are as follows:
Specialty Products - production of rheological and surface chemistry additives;
Surfactants - production of surface active ingredients;
Chromium - production of chromium chemicals.
Six months ended 30 June 2007
Gross Inter-segment External
£million £million £million
Revenue from continuing operations
Specialty Products 74.2 (0.1) 74.1
Surfactants 24.5 - 24.5
Chromium 57.2 (2.8) 54.4
______ ______ ______
155.9 (2.9) 153.0
All revenues relate to the sale of goods
(continued from table above)
Six months ended 30 June 2006
Gross Inter-segment External
£million £million £million
Revenue from continuing operations
Specialty Products 76.8 (0.2) 76.6
Surfactants 24.7 - 24.7
Chromium 61.9 (3.0) 58.9
______ ______ ______
163.4 (3.2) 160.2
______ ______ ______
All revenues relate to the sale of goods
Six months ended 30 June 2007
Before After
exceptional Exceptional exceptional
items items items
£million £million £million
Result from continuing operations
Specialty Products 15.3 - 15.3
Surfactants 0.5 - 0.5
Chromium 7.5 - 7.5
Central costs (3.2) - (3.2)
______ ______ ______
20.1 - 20.1
Finance income 1.2 - 1.2
Finance costs (4.1) - 4.1
______ ______ ______
Profit before tax 17.2 - 17.2
______ ______ ______
(continued from table above)
Six months ended 30 June 2006
Before After
exceptional Exceptional exceptional
items items items
£million £million £million
Result from continuing operations
Specialty Products 11.8 (1.1) 10.7
Surfactants 0.4 (0.3) 0.1
Chromium 6.0 0.4 6.4
Central costs (3.1) - (3.1)
______ ______ ______
15.1 (1.0) 14.1
Finance income 1.1 - 1.1
Finance costs (4.4) - (4.4)
______ ______ ______
Profit before tax 11.8 (1.0) 10.8
______ ______ ______
Year ended 31 December 2006
Revenue from continuing operations
Gross Inter-segment External
£million £million £million
Specialty Products 144.8 (0.3) 144.5
Surfactants 46.1 - 46.1
Chromium 116.8 (5.4) 111.4
Central costs - - -
______ ______ ______
307.7 (5.7) 302.0
Finance income
Finance costs
Profit before tax
(continued from table above)
Year ended 31 December 2006
Result from continuing operations
Before After
exceptional Exceptional exceptional
items items items
£million £million £million
Specialty Products 25.0 0.9 25.9
Surfactants 0.6 (0.3) 0.3
Chromium 11.9 1.4 13.3
Central costs (6.0) - (6.0)
______ ______ ______
31.5 2.0 33.5
Finance income 1.8 - 1.8
Finance costs (8.5) - (8.5)
______ ______ ______
Profit before tax 24.8 2.0 26.8
______ ______ ______
4 Finance income
2007 2006 2006
Six months Six months Year
ended ended ended
30 June 30 June 31 December
£million £million £million
Continuing operations
Interest on bank deposits 0.1 0.2 0.2
Pension and other post-retirement liabilities
Expected return on pension scheme assets 11.4 13.2 26.2
Interest on pension scheme liabilities (10.3) (12.3) (24.5)
______ ______ ______
1.1 0.9 1.7
______ ______ ______
1.2 1.1 1.9
______ ______ ______
5 Finance costs
2007 2006 2006
Six months Six months Year
ended ended ended
30 June 30 June 31 December
£million £ million £million
Continuing operations
Interest on bank loans 3.7 3.9 7.8
Interest on corporation tax payments - 0.1 -
Unwind of discount on provisions 0.4 0.4 0.8
______ ______ ______
4.1 4.4 8.6
______ ______ ______
6 Exceptional items
2007 2006 2006
Six months Six months Year
ended ended ended
30 June 30 June 31 December
£ million £ million £ million
Continuing operations
Integration at Specialty Products and Surfactants - (1.7) (1.7)
Curtailment gains on pension schemes - 0.7 2.7
Release of prior year restructuring provision - - 1.0
______ ______ ______
- (1.0) 2.0
Tax charge on exceptional items - - (0.9)
______ ______ ______
- (1.0) 1.1
______ ______ ______
7 Discontinued operation
On 11 May 2007, the Group entered into a sale agreement to dispose of its
Pigments division. This transaction, which is expected to complete within six
months, has been classified as a disposal group held for sale and therefore been
presented separately in the balance sheet. The proceeds of disposal are
expected to exceed the book value of the related net assets and accordingly no
impairment losses have been recognised on the classification of this operation
as held for sale. The results of this business are reported within discontinued
operations as follows:
2007 2006 2006
Unaudited Unaudited Unaudited
Six months Six months Year
ended ended ended
30 June 30 June 31 December
£ million £ million £ million
Income statement:
Revenue 44.7 50.7 93.9
Cost of sales (34.3) (39.0) (71.6)
______ ______ ______
Gross profit 10.4 11.7 22.3
Distribution costs (4.5) (4.7) (9.1)
Administrative expenses (3.2) (3.0) (6.1)
______ ______ ______
Operating profit before exceptional items 2.7 3.0 6.1
Exceptional items - 1.0 1.0
Finance costs (0.3) (0.4) (0.8)
______ ______ ______
Profit before tax 2.4 3.6 6.3
Tax (0.1) (0.1) (0.5)
______ ______ ______
Post tax profit for the period from discontinued operation 2.3 3.5 5.8
______ ______ ______
Earnings per share from discontinued operations:
Basic (pence) 0.5 0.8 1.2
Diluted (pence) 0.5 0.8 1.2
______ ______ ______
The major classes of assets and liabilities of the Pigments division classified
as held for sale are as follows:
2007
Unaudited
30 June
£ million
Goodwill and other intangible assets 2.4
Property, plant and equipment 24.4
Investments 0.5
Inventories 18.5
Trade and other receivables 19.1
______
Total assets classified as held for sale 64.9
______
Trade and other payables (10.8)
Provisions (3.7)
______
Total liabilities associated with assets classified as held for sale (14.5)
______
8 Tax
The tax charge on profit before exceptional items from continuing operations of
£0.9 million (2006: £0.1 million) is based on an estimated effective tax rate on
profit before exceptional items for the year to 31 December 2006 of 5.0 per cent
(2006: 1.3 per cent). The rate is lower than the standard UK corporation tax
rate primarily due to the amortisation of goodwill in the US for tax purposes.
The tax charge on profit from the discontinued operation was £0.1 million
(2006: £0.1 million).
9 Earnings per share
2007 2006 2006
Six months Six months Year
ended ended ended
30 June 30 June 31December
£million £million £million
Earnings for the purposes of basic earnings per share 18.6 14.1 31.6
Exceptional items net of tax - - (1.7)
______ ______ ______
Adjusted earnings 18.6 14.1 29.9
______ ______ ______
Number(m) Number(m) Number(m)
Weighted average number of shares for the purposes of basic 442.9 435.5 439.4
earnings per share
Effect of dilutive share options 3.3 11.0 7.4
______ ______ ______
Weighted average number of shares for the purposes of 446.2 446.5 446.8
diluted earnings per share
______ ______ ______
The calculation of the basic and diluted earnings per share from continuing
operations attributable to the ordinary equity holders of the parent is based on
the following:
2007 2006 2006
Six months Six months Year
ended ended ended
30 June 30 June 31 December
£million £million £million
Profit for the period attributable to equity holders of the
parent
18.6 14.1 31.6
Profit for the period from discontinued operations (2.3) (3.5) (5.8)
Profit from continuing operations 16.3 0.6 25.8
Exceptional items from continuing operations before - 1.0 (1.1)
minority interests
Adjusted earnings from continuing operations 16.3 11.6 24.7
2007 2006 2006
Six months Six months Year
ended ended ended
30 June 30 June 31 December
pence pence pence
Earnings per share:
From continuing and discontinuing operations:
Basic 4.2 3.2 7.1
Diluted 4.2 3.2 7.0
Basic before exceptional items 4.2 3.2 6.8
Diluted before exceptional items 4.2 3.2 6.7
From continuing operations:
Basic 3.7 2.4 5.9
Diluted 3.7 2.4 5.8
Basic before exceptional items 3.7 2.7 5.6
Diluted before exceptional items 3.7 2.6 5.5
______ ______ ______
10 Dividends
The following dividends were declared and paid by the Group:
2007 2006 2006
Six months Six months Year
ended ended ended
30 June 30 June 31 December
£million £million £million
Dividends paid on ordinary shares 5.3 4.8 10.1
An interim dividend of 1.3 pence per share (2006: 1.2 pence) has been approved
and will be paid on 5 October 2007 to shareholders on the register at 7
September 2007.
11 Movement in net borrowings
2007 2006 2006
Six months Six months Year
ended ended ended
30 June 30 June 31 December
£million £million £million
Change in net borrowings resulting from cash flows
Increase in cash and cash equivalents 3.1 10.7 5.8
Decrease/(increase) in borrowings 9.9 (25.4) (17.9)
______ ______ ______
13.0 (14.7) (12.1)
Redeemable B shares - - 2.1
Currency translation differences 1.9 4.4 8.8
______ ______ ______
Decrease/(increase) in net borrowings 14.9 (10.3) (1.2)
Net borrowings at beginning of period (100.6) (99.4) (99.4)
______ ______ ______
Net borrowings at end of period (85.7) (109.7) (100.6)
______ ______ ______
12 Changes in equity
2007 2006 2006
Six months Six months Year
ended ended ended
30 June 30 June 31 December
£million £million £million
Total recognised income and expense for the period 14.8 3.0 19.1
Purchase of own shares (0.6) (1.9) (2.4)
Issue of shares 1.6 0.9 2.0
Share based payments 0.5 0.4 0.9
Dividends paid (5.3) (4.8) (10.1)
______ ______ ______
Net increase/(decrease) in equity attributable to the 11.0 (2.4) 9.5
parent
At beginning of period 199.3 189.8 189.8
______ ______ ______
At end of period 210.3 187.4 199.3
______ ______ ______
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