Interim Results
Elementis PLC
28 July 2005
PRESS INFORMATION
28 July 2005
Elementis plc
INTERIM RESULTS FOR THE HALF YEAR ENDED 30 JUNE 2005
• Sales £223.6 million (2004: £176.8 million); $421.5 million (2004: $321.6
million)
• Operating profit before exceptional items £8.1 million (2004: £5.6
million)
• Profit before tax and exceptional items £4.5 million (2004: £3.0 million)
• Earnings per share before exceptional items 1.0 pence (2004: 0.7 pence)
• Net exceptional items £7.6 million (2004: £1.0 million)
• Operating profit £0.5 million (2004: £4.6 million), loss before tax £3.1
million (2004: profit of £2.0 million), loss per share 0.5 pence (2004:
earnings of 0.6 pence)
• 26 per cent sales growth from Servo acquisition and price increases
• 45 per cent higher operating profit before exceptional items
• Chromium prices up 17 per cent on first half 2004 - further increases
announced
• Coatings volume down on soft consumer demand and slowing of Chinese growth
• New TaiCang Pigments plant on stream, East St Louis operations scaling
down
• Servo rationalisation and head office reorganisation - benefits in second
half
Geoff Gaywood, Chief Executive of Elementis plc, said:
'All four Elementis businesses delivered good sales growth in the first half of
2005 compared to last year, despite softer demand for pigments and additives in
the coatings sector. The Servo acquisition added £40.5 million in sales and
£2.0 million in operating profit, while better Chromium pricing, net of strong
ongoing variable cost inflation, generated a £2.4 million operating profit
improvement. Higher volumes in Specialty Rubber delivered a £0.5 million
operating profit uplift.
'Elementis will begin to benefit in the second half from cost reductions related
to the scaling down of the East St Louis pigments plant, the Servo
rationalisation and a Head Office reorganisation, all of which have been
previously announced.
'However, external inflationary cost pressures of the kind that significantly
impacted 2004 performance, particularly energy and raw materials, remain a
concern, and a recovery of demand in the coatings sector is unlikely in the
short term.'
- 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 plc Tel: +44 (0)1784 227 000
Geoff Gaywood Chief Executive
Brian Taylorson Finance Director
Financial Dynamics Tel +44 (0) 20 7831 3113
Deborah Scott
Greg Quine
Chairman's Statement
Overview
Sales for the first half of 2005 rose by £46.8 million compared to the same
period of last year to £223.6 million, due to the acquisition of Sasol Servo on
30 June 2004 and improved pricing, particularly in chromium chemicals. Soft
global demand in the coatings sector and unfavourable currency movements
negatively impacted sales by £8.0 million.
Operating profit for the period, before exceptional items, was £8.1 million, an
improvement of £2.5 million, as a result of the Servo acquisition and prices
moving ahead of raw material and energy cost inflation. There was a net charge
of £7.6 million for exceptional items, which comprised £4.6 million from the
sale of the Hardman adhesives business completed in June, offset by charges of
£7.1 million for the rationalisation of the East St Louis pigments plant, £4.0
million for the rationalisation of the Servo operations, and a £1.1 million head
office restructuring charge.
The newly constructed pigments production facility in TaiCang, China, is now
producing a full range of products, and operations at the East St Louis plant
will be scaled down during the second half of the year as production is
transferred to other manufacturing sites including TaiCang. The Company expects
that these moves will result in an improvement in margins for its pigments
business in 2006 when they will have been implemented fully.
Dividends and issue of redeemable B shares
The Board has not declared an interim ordinary dividend. Instead it will
continue with its programme of issuing and redeeming redeemable B shares. The
Board intends to issue further redeemable B shares to ordinary shareholders on
the register on 27 October 2005, such that they receive redeemable B shares with
a total nominal share value of 1.1 pence for each ordinary share held. The
issue will be coupled with an offer to redeem the new shares for cash at their
nominal value on 2 November 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 the same date. A circular providing full details of the issue and
redemption of redeemable B shares will be posted to all ordinary shareholders on
22 September 2005.
Current trading and outlook
The Board of Elementis, which was reconstituted in June 2005, is reviewing the
Company's strategy and the operations of each of its business units. The
Company will provide an update of the plans resulting from this process during
the second half. Excluding any changes that may result from the Board's review,
the Company's current trading performance is in line with its expectations for
continued improvement in the second half of the year.
Edward Bramson
Chairman
28 July 2005
Chief Executive's Strategic and Operating Review
Strategic progress report
All four Elementis businesses delivered good sales growth in the first half of
2005 compared to the same period last year, with most of the 26 per cent
improvement coming from the Servo acquisition and recovery in the chromium
chemicals business.
A 45 per cent improvement in operating profit before exceptional items was
largely driven by continued progress in the restoration of chromium chemicals
pricing. Inflationary cost pressure has continued, but the effects have been
offset by improved pricing in all businesses. The demand for pigments and
specialty additives in decorative paints was estimated to be 5 - 6 per cent
below prior year due to weaker consumer demand in the US and Europe, and the
effects of Chinese government action to halt speculation in the construction
sector. There was good growth in sales of Servo products and to other targeted
Specialties markets. Specialty Rubber has continued to show good top line
growth, and further improvement in operating profit.
Specialties
Sales net of the Servo acquisition declined by 6 per cent due to soft demand in
the coatings sector. The Servo acquisition, which is now fully integrated,
added £33.0 million of sales and £1.3 million of operating profit, and related
cost rationalisation measures previously announced will begin to take effect in
the second half of 2005. Overall operating profit before exceptional items
declined by 10 per cent due to the coatings volume shortfall and an increased
overhead cost allocation. Growth was good in the oilfield and personal care
markets, and progress in the introduction of new technologies and product
platforms continues in line with expectations.
Pigments
The soft coatings market caused Elementis Pigments sales in this sector to
decline by 5 per cent compared to the prior year. However, improved pricing and
the benefits of the additional sales of driers from the Servo acquisition offset
the downside, so that overall sales rose by 17 per cent, and operating profit
for the period improved. Sales to the construction industry have been flat,
while production of a new range of pigments for the plastics sector has
commenced. Start-up of the new world scale plant at TaiCang, China, has
proceeded as expected, and a full range of pigments is now being manufactured
there in accordance with specifications. Production at the Elementis Pigments
East St Louis plant will be scaled down in the second half of the year, as
production increases at other facilities, including TaiCang.
Chromium
Chromium chemicals pricing in US Dollars rose by 19 per cent compared to the
same period in 2004, and US Dollar sales grew by 21 per cent, which translates
to a 17 per cent increase in Sterling. Global production capacity
rationalisation in the Far East progressed further, while demand remained good
in all market sectors. Prices were increased in January, April and July, and
will be selectively increased again on 1 October. Cost inflation from freight,
energy and raw materials has continued, but the tightening supply/demand
situation is supporting progressive operating profit recovery.
Specialty Rubber
Sales of Linatex brand rubber products to the mining and construction materials
industries have continued to grow strongly in the first half of the year in all
market sectors, and operating profit has risen accordingly. A new joint venture
started up in Chile, further adding to growth momentum. This business is
currently under strategic review.
Safety and environmental
Corporate safety performance, as measured by recordable incidents and lost time
accidents, has continued on a favourable trend, and is now at the level of the
top quartile of the world's chemical companies.
Board changes
I am delighted to welcome Edward Bramson as the new Chairman of Elementis plc,
and his fellow non-executive directors Matthew Peacock, Ken Minton and Ian
Brindle. The new Board is highly experienced and has a fine track record of
delivering shareholder value, which creates a favourable environment for the
enhancement of performance at Elementis.
Geoff Gaywood
Chief Executive
28 July 2005
Financial review of operations
for the six months ended 30 June 2005
2005 2005 2005
Revenue Operating Operating
profit profit/(loss)
before after
exceptional exceptional
items items
£million £million £million
______ ______ ______
Specialties 92.9 6.4 6.6
Pigments 46.6 0.3 (7.0)
Chromium 62.0 1.1 0.7
Specialty Rubber 24.0 0.3 0.2
Inter-group (1.9) - -
______ ______ ______
223.6 8.1 0.5
______ ______ ______
(Continued from table above)
2004 2004 2004
Revenue Operating Operating
profit/(loss) profit/(loss)
before after
exceptional exceptional
items items
£million £million £million
______ ______ ______
Specialties 64.0 7.1 7.1
Pigments 40.0 - -
Chromium 53.1 (1.3) (2.3)
Specialty Rubber 22.7 (0.2) (0.2)
Inter-group (3.0) - -
______ ______ ______
176.8 5.6 4.6
______ ______ ______
IFRS
The consolidated interim financial statements have been prepared in accordance
with International Financial Reporting Standards (IFRS) in issue and expected to
be endorsed by the European Union by 31 December 2005. Comparative results for
2004 have been restated accordingly.
As allowed by IFRS, significant transactions primarily in relation to
restructuring and business disposals have been separately identified in the
financial statements to enable users to understand these items and the business
results excluding these significant items. These significant transactions have
collectively been described as exceptional items.
Financial results
Revenue in the first half of 2005 was £46.8 million higher than the same period
in 2004 at £223.6 million. The acquisition of the Servo business in June 2004
added £40.5 million to revenue, while currency movements reduced sales by 2 per
cent. On a constant currency basis and excluding acquisitions and disposals,
revenue increased by 6 per cent, with Chromium up 19 per cent, Specialty Rubber
up 5 per cent, Specialties lower by 2 per cent and Pigments essentially flat.
Sales volumes were 2 per cent lower with increases in Chromium and Specialty
Rubber offset by declines in Specialties and Pigments. In terms of geography,
volumes in North America were higher than the previous year, with strong sales
in Chromium to the industrial CCA and refractory markets more than offsetting
soft demand in coatings. Volumes in Asia Pacific were generally lower due to a
slowdown in the Chinese construction sector and a softer coatings market,
although volumes sold to Japan by Chromium increased due to plant closures
there. European volumes were more or less flat.
Operating profit before exceptional items was £2.5 million higher than last year
at £8.1 million. The Servo acquisition contributed £2.0 million and price
increases, particularly in Chromium, contributed close to £14.0 million. Energy
costs increased by £3.3 million while other costs, particularly raw materials
and freight, increased by around £9.0 million with much of the inflation in
costs having taken place during the second half of 2004.
Profit before tax and exceptional items was £4.5 million compared to £3.0
million in the first half of 2004. Basic earnings per share before exceptional
items increased to 1.0p (2004: 0.7p) due to the increase in operating profits,
partly offset by higher finance costs and taxation.
Exceptional items were a net charge before tax of £7.6 million giving an overall
loss before tax of £3.1 million (2004: profit of £2.0 million). Earnings per
share after exceptional items was a loss of 0.5p (2004: earnings of 0.6p).
Specialties
Revenue at Specialties was £28.9 million higher than the previous year at £92.9
million. The Servo acquisition added £33.0 million to revenue while currency
movements reduced it by £2.2 million. Excluding the effects of currency and
acquisitions, revenue was 2 per cent lower than the previous year. Prices
improved by 4 per cent versus the first half of 2004, but volumes were around 6
per cent lower due to softer demand in the coatings sector in both Europe and
North America.
Operating profit before exceptional items was £0.7 million lower than the first
half of 2004 at £6.4 million. Lower sales volumes were compensated by higher
prices and the Servo acquisition added £1.3 million to operating profit. In
addition, the revaluation of Hectorite ore at its mine in California contributed
£0.8 million to its result in the first half of 2005. Fixed costs were higher
than the previous year and this will be addressed in the second half of 2005 by
the announced rationalisation at Servo and the reduction in central
administration costs.
2004 2005
Revenue Revenue
Six months Effect of Six months
ended exchange Acquisitions/ Increase/ ended
30 June rates disposals (decrease) 30 June
£million £million £million £million £million
______ ______ ______ ______ ______
Specialties 64.0 (2.2) 32.3 (1.2) 92.9
Pigments 40.0 (0.6) 7.5 (0.3) 46.6
Chromium 53.1 (1.3) - 10.2 62.0
Specialty Rubber 22.7 0.1 - 1.2 24.0
Inter-company (3.0) 0.1 - 1.0 (1.9)
______ ______ ______ ______ ______
176.8 (3.9) 39.8 10.9 223.6
______ ______ ______ ______ ______
Pigments
Revenue at Pigments for the first half of 2005 was £6.6 million higher than the
previous year at £46.6 million. Excluding the Servo acquisition, which added
£7.5 million of sales and the effects of currency, revenue was essentially flat.
Prices improved by around 6 per cent but were offset by lower volumes due to
softer demand in the coatings sector in both Europe and North America.
Operating profit before exceptional items was £0.3 million higher than the first
half of 2004 at £0.3 million. Higher selling prices more than offset the
effects of lower volumes, but energy and raw material cost inflation, which was
particularly evident in the second half of 2004, had a dampening effect. The
Servo acquisition contributed around £0.7 million to operating profit.
Chromium
Revenue at Chromium increased by £8.9 million versus the first half of 2004 to
£62.0 million, largely driven by strong selling price momentum that increased
sales by 17 per cent. Volumes were up 2 per cent with increases in most higher
margin products, offset by reduced volumes in lower margin dichromate and chrome
sulphate. Overall, revenues on a constant currency basis were 19 per cent higher
than the first half of 2004.
Operating profit before exceptional items improved by £2.4 million versus the
first half of 2004 to £1.1 million. Improvements in pricing and volumes were
offset by an increase of £2.4 million in energy costs and other cost increases
of £4.4 million, mostly in raw materials, freight and maintenance.
Specialty Rubber
Revenue at Specialty Rubber increased by £1.3 million versus the first half of
2004 to £24.0 million. The improvement came in equal amounts from increased
volumes and higher prices. Volume increases were particularly prominent in
Europe and also in Chile, where a new joint venture was recently formed to serve
that market.
Operating profit before exceptional items was £0.3 million versus a loss of £0.2
million in the first half of 2004. Improved sales more than offset cost
inflation.
Exceptional items
IFRS requires separate disclosure of material items of income and expense.
These items are considered to be most appropriately described as exceptional.
2005
£million
Rationalisation of East St Louis pigments plant (7.1)
Rationalisation of Servo business (4.0)
Central restructuring costs (1.1)
Sale of Hardman business 4.6
Total (7.6)
______
The Group announced on 30 June 2005 that the majority of its Pigments plant at
East St Louis would cease operation and that production would be transferred to
other sites, including the newly constructed facility at TaiCang. The charge of
£7.1 million comprises an asset impairment of £4.8 million and redundancy and
decommissioning costs of £2.3 million.
The charge of £4.0 million in respect of the Servo business comprises
redundancies and the cost of transferring the Group's Oosterhout plant to the
Servo plant at Delden, Netherlands.
In addition, as part of management's continued focus on cost control and due to
the significant progress that the Group has made in resolving legacy legal
issues, a central restructuring has been implemented at a cost of £1.1 million.
The sale of the Group's Hardman epoxy and urethane products business was
completed on 13 June 2005 for a cash consideration of £7.8 million, which
resulted in a gain on disposal of £4.6 million.
Interest
£million 2005 2004
______ ______
On net borrowings 2.8 1.7
Pension finance charge 0.5 0.4
Discount on provisions 0.3 0.5
Total 3.6 2.6
______ ______
Interest payable on net borrowings was £1.1 million higher than the previous
year due to increased borrowings following the acquisition of Servo in June
2004.
Interest cover (the ratio of operating profit before exceptional items to
interest on net borrowings) was 3.1 times (2004: 7.1 times)
Taxation
Tax (charge)/credit £million Effective rate
______ ______
Before exceptional items (0.1) 2.6%
Exceptional items 1.3 17.1%
Total 1.2 -
______ ______
The Group's tax rate on profit before exceptional items was 2.6 per cent and is
lower than the standard UK corporation tax rate primarily due to the utilisation
of brought forward losses and the resolution of open issues from prior periods.
Earnings per share
Earnings per share before exceptional items was 1.0 pence (2004: 0.7 pence) due
to the £2.5 million increase in operating profit, which was partially offset by
increased finance costs and taxation. Earnings per share after exceptional
items was a loss of 0.5 pence (2004: earnings of 0.6 pence).
Cash flow
Net borrowings increased by £10.9 million in the period to 30 June 2005 to
£101.1 million. This included £2.5 million in relation to B shares which, due
to their preferential rights, have been transferred to net borrowings in
accordance with IAS 39.
Working capital increased by £9.0 million (2004: £18.8 million) reflecting
seasonal trading. The increase is less than the same period last year due to
improvements in working capital following the implementation of the Group's ERP
system in three of the businesses and the creation of Shared Service Centres in
North America and Europe. Currency fluctuations also caused borrowings to
increase by £4.7 million.
The cash flow is summarised below:
2005 2004
£million £million
_______ _______
Earnings before interest, exceptionals,
depreciation and amortisation 16.9 12.6
Change in working capital (9.0) (18.8)
Other (5.8) (4.5)
Capital expenditure (9.0) (9.7)
_______ _______
(6.9) (20.4)
Redemption of B shares (4.6) (4.6)
Acquisitions and disposals 7.8 (34.8)
Reclassification of B shares (2.5) -
Currency translation on net borrowings (4.7) 0.5
_______ _______
(10.9) (59.3)
Net borrowings at start of period (90.2) (46.9)
Net borrowings at end of period (101.1) (106.2)
_______ _______
Capital expenditure
Capital expenditure on fixed assets was £8.7 million (2004: £9.7 million). This
included £1.3 million on the construction of the Pigments plant in TaiCang,
China. Excluding this project capital expenditure was 84 per cent of
depreciation (2004: 84 per cent).
Balance sheet
2005 2004
£million £million
______ ______
Tangible fixed assets 174.2 171.8
Other net assets 151.5 183.5
______ ______
325.7 355.3
______ ______
Equity attributable to parent 224.6 249.1
Net borrowings 101.1 106.2
______ ______
325.7 355.3
______ ______
Gearing1 31% 30%
______ ______
1 the ratio of net borrowings to equity attributable to parent plus net
borrowings
Equity attributable to the parent was lower than at 30 June 2004 due to changes
in deferred tax and actuarial losses associated with pension and other post
retirement schemes of £13.6 million and the redemption of B shares totalling
£9.2 million.
The main sterling currency exchange rates in the period were:
2005 2005 2004 2004
30 June Average 30 June Average
______ ______ ______ ______
US dollar 1.79 1.87 1.81 1.82
Euro 1.48 1.45 1.49 1.48
______ ______ ______ ______
There was no significant impact on the Group's balance sheet as a result of
changes in the period end exchange rates. In terms of average exchange rates
for the first six months of 2005 and the equivalent period last year, the Euro
was 2 per cent stronger against the Pound Sterling in the current period, while
the US Dollar was 3 per cent weaker. Average exchange rate movements in the
first six months of 2005 caused revenue to be £3.9 million lower than last year
and operating profit to be £1.1 million higher than last year.
Working capital
Inventories were £7.6 million higher than at the same time last year. This was
primarily due to a strategic inventory build in the Pigments business in
anticipation of the closure and transfer of production from the East St Louis
plant. Debtor days at the end of the period were 56 compared to 61 days at 30
June 2004 and creditor days had increased by 8 days to 69 (2004: 61).
Pensions and other post retirement benefits
The pension liability was £81.8 million at 30 June 2005 compared to £81.4
million at 31 December 2004. The pension schemes were not revalued at 30 June
2005 and the net liability calculated by the Group's actuaries at 31 December
2004 has been updated for contributions paid and amounts expensed in the six
months ended 30 June 2005.
In the first half £3.4 million (2004: £3.0 million) was charged to the profit
and loss account including £0.5 million (2004: £0.4 million) of finance charges
and £5.1 million (2004: £3.9 million) was paid in contributions.
Brian Taylorson
Finance Director
28 July 2005
Consolidated interim income statement
for the six months ended 30 June 2005
Six months ended 30 June 2005
Before After
exceptional Exceptional exceptional
Note items items* items
£million £million £million
______ ______ ______
Revenue 3 223.6 - 223.6
Cost of sales (154.8) - (154.8)
______ ______ ______
Gross profit 68.8 - 68.8
Other operating income - 4.6 4.6
Distribution costs (35.2) - (35.2)
Administrative expenses (25.4) (12.2) (37.6)
Share of loss of associates (0.1) - (0.1)
______ ______ ______
Operating profit 3 8.1 (7.6) 0.5
Net finance costs 4 (3.6) - (3.6)
______ ______ ______
Profit/(loss) before income tax 4.5 (7.6) (3.1)
Tax 6 (0.1) 1.3 1.2
______ ______ ______
Profit for the period 4.4 (6.3) (1.9)
______ ______ ______
Attributable to:
Equity holders of the parent 4.2 (6.3) (2.1)
Minority interests 0.2 - 0.2
______ ______ ______
4.4 (6.3) (1.9)
______ ______ ______
Earnings per share
Basic and diluted 7 1.0 (0.5)
______ ______
(Continued from table above)
Six months ended
30 June 2004
Before After
exceptional Exceptional exceptional
Note items items* items
£million £million £million
______ ______ ______
Revenue 3 176.8 - 176.8
Cost of sales (117.8) - (117.8)
______ ______ ______
Gross profit 59.0 - 59.0
Other operating income - - -
Distribution costs (30.5) - (30.5)
Administrative expenses (22.9) (1.0) (23.9)
Share of loss of associates - - -
______ ______ ______
Operating profit 3 5.6 (1.0) 4.6
Net finance costs 4 (2.6) - (2.6)
______ ______ ______
Profit/(loss) before income tax 3.0 (1.0) 2.0
Tax 6 0.2 0.2 0.4
Profit for the period 3.2 (0.8) 2.4
______ ______ ______
Attributable to: 2.4
Equity holders of the parent 3.2 (0.8)
Minority interests - - -
3.2 (0.8) 2.4
Earnings per share
Basic and diluted 7 0.7 0.6
* IFRS requires separate disclosure of items of income and expense which are
material by virtue of their nature and amount. These items are considered to be
most appropriately disclosed as exceptional (see note 5).
Consolidated interim income statement (continued)
Year ended 31 December 2004
Before After
Exceptional Exceptional exceptional
Note items items items
£million £million £million
______ ______ ______
Revenue 3 389.2 - 389.2
Cost of sales (264.1) - (264.1)
______ ______ ______
Gross profit 125.1 - 125.1
Other operating income - 2.6 2.6
Distribution costs (66.5) - (66.5)
Administrative expenses (47.1) (5.2) (52.3)
______ ______ ______
Operating profit 3 11.5 (2.6) 8.9
Net finance costs 4 (5.6) - (5.6)
______ ______ ______
Profit before income tax 5.9 (2.6) 3.3
Tax 6 (0.1) 0.2 0.1
______ ______ ______
Profit for the period 5.8 (2.4) 3.4
______ ______ ______
Attributable to:
Equity holders of the parent 5.8 (2.4) 3.4
Minority interests - - -
______ ______ ______
5.8 (2.4) 3.4
______ ______ ______
Earnings per share
Basic and diluted 7 1.3 0.8
______ ______
Consolidated interim statement of recognised income and expense
for the six months ended 30 June 2005
2005 2004 2004
Six months Six months
ended ended Year ended
30 June 30 June 31 December
£million £million £million
______ ______ ______
Exchange differences on translation of foreign
operations 11.6 (1.1) (11.8)
Actuarial loss on pension and other post retirement
schemes - - (4.7)
Deferred tax associated with pension and other post
retirement schemes - - (8.9)
______ ______ ______
Net income/(expense) recognised in equity 11.6 (1.1) (25.4)
(Loss)/profit for the period (2.1) 2.4 3.4
______ ______ ______
Total recognised income and expense for the period 9.5 1.3 (22.0)
______ ______ ______
Attributable to:
Equity holders of the parent 9.3 1.3 (22.0)
Minority interests 0.2 - -
______ ______ ______
9.5 1.3 (22.0)
______ ______ ______
Consolidated interim statement of changes in equity
for the six months ended 30 June 2005
2005 2004 2004
Six months Six months
ended ended Year ended
30 June 30 June 31 December
£million £million £million
______ ______ ______
Total recognised income and expense for the period 9.5 1.3 (22.0)
Transfer of B shares from equity to non-current
liabilities (2.5) - -
Issue of shares 0.6 - -
Recognition of share-based payments 0.3 0.1 0.2
Redemption of redeemable B shares (4.6) (4.6) (9.2)
______ ______ ______
Net increase/(decrease) in equity attributable to
the parent 3.3 (3.2) (31.0)
At beginning of financial period 221.3 252.3 252.3
______ ______ ______
At end of financial period 224.6 249.1 221.3
______ ______ ______
Consolidated interim balance sheet
at 30 June 2005
2005 2004 2004
30 June 30 June 31 December
£million £million £million
______ ______ ______
Non-current assets
Goodwill 164.1 163.2 155.1
Intangible assets 0.5 0.6 0.6
Property, plant and equipment 174.2 171.8 173.0
Interests in associates and other investments 2.2 3.8 1.9
Deferred tax assets 17.6 26.0 16.9
______ ______ ______
Total non-current assets 358.6 365.4 347.5
______ ______ ______
Current assets
Inventories 73.9 66.3 68.3
Trade and other receivables 95.6 91.9 84.0
Cash and cash equivalents 12.6 32.4 11.5
Assets classified as held for sale - 6.7 3.7
______ ______ ______
Total current assets 182.1 197.3 167.5
______ ______ ______
Total assets 540.7 562.7 515.0
______ ______ ______
Current liabilities
Bank overdrafts and loans (6.2) (8.7) (4.4)
Trade and other payables (84.5) (65.4) (79.8)
Provisions (7.6) (1.3) (0.8)
Liabilities classified as held for sale - (1.3) (1.3)
______ ______ ______
Total current liabilities (98.3) (76.7) (86.3)
______ ______ ______
Non-current liabilities
Bank loans (107.5) (129.9) (97.3)
Retirement benefit obligations (81.8) (79.7) (81.4)
Deferred tax liabilities (1.8) (0.9) (2.9)
Provisions (21.9) (22.1) (21.6)
Government grants (2.3) (2.4) (2.4)
______ ______ ______
Total non-current liabilities (215.3) (235.0) (205.6)
______ ______ ______
Total liabilities (313.6) (311.7) (291.9)
______ ______ ______
Net assets 227.1 251.0 223.1
______ ______ ______
Equity
Share capital 22.1 23.6 23.8
Share premium 1.2 1.2 1.2
Other reserves 75.9 65.8 59.7
Retained earnings 125.4 158.5 136.6
______ ______ ______
Equity attributable to equity holders of
the parent 224.6 249.1 221.3
Minority equity interests 2.5 1.9 1.8
______ ______ ______
Total equity and reserves 227.1 251.0 223.1
______ ______ ______
Consolidated interim cash flow statement
for the six months ended 30 June 2005
2005 2004 2004
Six months Six months Year
ended ended ended
30 June 30 June 31 December
Note £million £million £million
______ ______ ______
Cash flow from operating activities 8 1.3 (11.0) 13.5
______ ______ ______
Investing activities
Interest received 0.3 0.3 1.4
Disposal of property, plant and equipment - - 5.8
Purchase of property, plant and equipment (9.0) (9.7) (22.0)
Acquisition of business - (34.8) (36.3)
Disposal of businesses 7.8 - -
______ ______ ______
Net cash used in investing activities (0.9) (44.2) (51.1)
Financing activities
Issue of shares 0.6 - -
Redemption of B shares (4.6) (4.6) (9.2)
(Decrease) in borrowings due within one year (3.0) (0.6) (0.8)
Increase in borrowings repayable after one year 2.7 65.6 35.8
Repayments of obligations under finance leases (0.2) - (0.2)
______ ______ ______
Net cash (used in)/from financing activities (4.5) 60.4 25.6
______ ______ ______
Net (decrease)/increase in cash and cash (4.1) 5.2 (12.0)
equivalents
Cash and cash equivalents at beginning of period 10.3 22.6 22.6
Foreign exchange 0.2 (0.8) (0.3)
______ ______ ______
Cash and cash equivalents at end of period 6.4 27.0 10.3
______ ______ ______
Notes to the interim financial statements
for the six months ended 30 June 2005
1 General Information
The comparative figures for the year ended 31 December 2004 are not the
Company's statutory accounts for that financial year. Those accounts, which
were prepared under UK Generally Accepted Accounting Practices, 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 policies
Statement of compliance The consolidated interim financial statements of the
Company comprise the Company and its subsidiaries (the 'Group') and the Group's
interest in associates. European Union (EU) law requires that the next annual
consolidated financial statements of the Company, for the year ending 31
December 2005, be prepared in accordance with International Financial Reporting
Standards (IFRS) adopted for use in the EU ('adopted IFRS'). This interim
financial information has been prepared on the basis of the recognition and
measurement requirements of IFRS in issue that either are endorsed by the EU and
effective at 30 June 2005 or are expected to be endorsed and effective at 31
December 2005, the Group's first annual reporting date at which it is required
to use adopted IFRSs. Based on these adopted and unadopted IFRSs, the directors
have made assumptions about the accounting policies expected to be applied,
which are as set out below, when the first annual IFRS financial statements are
prepared for the year ending 31 December 2005.
In particular, the directors have assumed that the following IFRS issued by the
International Accounting Standards Board will be adopted by the EU in
sufficient time that it will be available for use in the annual IFRS financial
statements for the year ending 31 December 2005:
Amendment to International Accounting Standard IAS 19 Employee Benefits:
Acturial Gains and Losses, Group Plans and Disclosures
In addition, the adopted IFRSs that will be effective in the annual financial
statements for the year ending 31 December 2005 are still subject to change and
to additional interpretations and therefore cannot be determined with certainty.
Accordingly, the accounting policies for that annual period will be determined
finally only when the annual financial statements are prepared for the year
ending 31 December 2005.
An explanation of how the transition to IFRS has affected the reported financial
position, financial performance and cash flows of the Group was published by the
Company on 31 March 2005 and is available on its website at www.elementis.com.
3 Segment reporting
Segment information is presented in the consolidated interim financial
statements in respect of the business segments that reflect the Group's
management and internal reporting structure.
Six months ended 30 June 2005
External Eliminations Total
£million £million £million
______ ______ ______
Revenue
Specialties 92.9 - 92.9
Pigments 46.6 - 46.6
Chromium 62.0 (1.9) 60.1
Speciality Rubber 24.0 - 24.0
Inter-segment sales (1.9) 1.9 -
______ ______ ______
223.6 - 223.6
______ ______ ______
(Continued from table above)
Six months ended 30 June 2004
External Eliminations Total
£million £million £million
______ ______ ______
Revenue
Specialties 64.0 - 64.0
Pigments 40.0 - 40.0
Chromium 53.1 (3.0) 50.1
Speciality Rubber 22.7 - 22.7
Inter-segment sales (3.0) 3.0 -
______ ______ ______
176.8 - 176.8
______ ______ ______
Six months ended 30 June 2005
Before After
exceptional Exceptional exceptional
items items items
£million £million £million
______ ______ ______
Segment result
Specialties 6.4 0.2 6.6
Pigments 0.3 (7.3) (7.0)
Chromium 1.1 (0.4) 0.7
Speciality Rubber 0.3 (0.1) 0.2
______ ______ ______
8.1 (7.6) 0.5
Net finance costs (3.6)
______
(Loss)/profit before tax (3.1)
______
(Continued from table above)
Six months ended 30 June 2004
Before After
exceptional Exceptional exceptional
items items items
£million £million £million
______ ______ ______
Segment result
Specialties 7.1 - 7.1
Pigments - - -
Chromium (1.3) (1.0) (2.3)
Speciality Rubber (0.2) - (0.2)
______ ______ ______
5.6 (1.0) 4.6
Net finance costs (2.6)
(Loss)/profit before tax 2.0
______
Year ended 31 December 2004
Revenue
External Eliminations Total
£million £million £million
______ ______ ______
Specialties 159.5 - 159.5
Pigments 78.7 - 78.7
Chromium 110.5 (5.4) 105.1
Speciality Rubber 45.9 - 45.9
Inter-segment sales (5.4) 5.4 -
389.2 - 389.2
Net finance costs
Profit before tax
(Continued from table above)
Year ended 31 December 2004
Segment result
Before After
exceptional Exceptional exceptional
items items items
£million £million £million
______ ______ ______
Specialties 14.9 (3.9) 11.0
Pigments 0.1 - 0.1
Chromium (3.8) (1.3) (5.1)
Speciality Rubber 0.3 2.6 2.9
Inter-segment sales - - -
______ ______ ______
11.5 (2.6) 8.9
Net finance costs (5.6)
______
Profit before tax 3.3
______
4 Net finance costs
2005 2004 2004
Six months Six months
ended ended Year ended
30 June 30 June 31 December
£million £ million £million
______ ______ ______
a) Net interest payable:
Interest payable (2.9) (2.0) (4.5)
Interest receivable - bank 0.2 0.3 0.7
Interest on corporation tax refunds/ (0.1) - 0.2
(payments)
______ ______ ______
Net interest payable (2.8) (1.7) (3.6)
b) Other finance charges:
Pension and post-retirement liabilities (0.5) (0.4) (1.1)
Unwind of discount on provisions (0.3) (0.5) (0.9)
______ ______ ______
Other finance charges (0.8) (0.9) (2.0)
______ ______ ______
Total finance costs (3.6) (2.6) (5.6)
______ ______ ______
5 Exceptional items
2005 2004 2004
Six months Six months Year
ended ended ended
30 June 30 June 31 December
£million £million £million
______ ______ ______
Central restructuring charge (1.1) - -
Pigments East St Louis rationalisation (7.1) - -
Restructure of Chromium - (1.0) (1.3)
Rationalisation of Servo business (4.0) - (1.6)
Impairment of joint venture - - (2.3)
Profit on disposal of property - - 2.6
Profit on disposal of business 4.6 - -
______ ______ ______
(7.6) (1.0) (2.6)
Tax credit on exceptional items 1.3 0.2 0.2
______ ______ ______
(6.3) (0.8) (2.4)
______ ______ ______
6 Tax
The tax charge on profit before exceptional items of £0.1 million (2004: credit
of £0.2 million) is based on an estimated effective tax rate on profit before
exceptional items for the year to 31 December 2005 of 2.6 per cent (2004: 21.0
per cent). The rate is lower than the standard UK corporation tax rate
primarily due to the utilisation of losses and the resolution of open issues
from prior periods. Tax on exceptional items was a credit of £1.3 million
(2004: £0.2 million).
7 Earnings per share
2005 2004 2004
Six months Six months Year
ended ended ended
30 June 30 June 31 December
£million £million £million
______ ______ ______
Earnings for the purposes of basic earnings per share (2.1) 2.4 3.4
Exceptional items net of tax 6.3 0.8 2.4
______ ______ ______
Adjusted earnings 4.2 3.2 5.8
______ ______ ______
Number(m) Number(m) Number(m)
Weighted average number of shares for the purposes of
basic earnings per share 433.0 431.8 431.9
Effect of dilutive share options 8.1 6.7 6.4
______ ______ ______
Weighted average number of share for the purposes of 441.1 438.5 438.3
diluted earnings per share
______ ______ ______
Basic and diluted earnings per share Pence Pence Pence
(Loss)/earnings per share (0.5) 0.6 0.8
Earnings per share before exceptional items 1.0 0.7 1.3
8 Net cash flow from operating activities
2005 2004 2004
Six months Six months Year
ended ended ended
30 June 30 June 31 December
£million £million £million
______ ______ ______
Operating profit 0.5 4.6 8.9
Adjustments for:
Depreciation of property, plant and equipment 8.8 6.9 15.4
Amortisation of intangible assets 0.1 - 0.1
Decrease in provisions (1.5) (1.4) (2.4)
Pension contributions net of current service cost (1.8) (0.9) (4.6)
Share-based payments 0.3 0.1 0.2
Exceptional items charged net of cash outflow 7.7 1.0 0.6
______ ______ ______
Operating cash flows before movements in working capital 14.1 10.3 18.2
Increase in inventories (3.7) (4.1) (7.2)
Increase in debtors (12.1) (12.9) (3.4)
Decrease/(increase) in creditors 6.8 (1.8) 5.5
______ ______ ______
Cash generated by operations 5.1 (8.5) 13.1
Income taxes (paid)/received (0.7) (0.5) 4.5
Interest paid (3.1) (2.0) (4.1)
______ ______ ______
Net cash flow from operating activities 1.3 (11.0) 13.5
______ ______ ______
9 Movement in net borrowings
2005 2004 2004
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
(Decrease)/increase in cash and cash equivalents (4.1) 5.2 (12.0)
Decrease/(increase) in borrowings 0.4 (65.0) (34.8)
______ ______ ______
(3.7) (59.8) (46.8)
Transfer of B shares from equity (2.5) - -
Currency translation differences (4.7) 0.5 3.5
Increase in net borrowings (10.9) (59.3) (43.3)
Net borrowings at beginning of period (90.2) (46.9) (46.9)
______ ______ ______
Net borrowings at end of period (101.1) (106.2) (90.2)
______ ______ ______
10 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. Elementis was notified on 20 July 2005 that the
Commercial Court had ruled against the Company on a number of preliminary issues
in relation to the claim. The Company intends to appeal against this ruling and
intends to continue to vigourously defend the claim, which amounts to
approximately £5.2 million.
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