Operating profit before goodwill amortisation and exceptionals was £12.2 million, compared to £31.1 million in 2000, on sales down 3 per cent at £228.0 million. On a constant currency basis, sales reduced by around 6 per cent year on year. Operating profit before goodwill amortisation and exceptionals in the second half of 2001 was £1.7 million, compared to £15.5 million in the second half of 2000 on 7 per cent lower sales.

The ratio of Pigments & Specialties trade working capital to sales decreased from 21 per cent at the end of 2000 to 17 per cent at the end of 2001, primarily as a result of lower inventories at Elementis Pigments and higher trade creditor levels at Elementis Specialties.

Elementis Pigments is a world leading producer of synthetic iron oxide pigments. It also produces catalysts, zinc products and carboxylates.

At Elementis Pigments, sales decreased year on year, the rate of decline being greater in the second half of the year. Demand for iron oxide pigments for coatings, construction and chemical applications was generally weak throughout the year, particularly in North America. Coatings pricing was stable; in contrast, prices for construction grade material declined, particularly in Asia Pacific and Europe. Construction sales in Europe reduced significantly following the loss of a large account. Sales in Asia Pacific grew strongly throughout the year using product sourced from the Shenzhen manufacturing facility in China. Margins were also under pressure as a result of higher US energy costs.

Fixed costs in the second half of the year were adversely impacted by around £1.9 million following a decision to close both US iron oxide particle manufacturing facilities for approximately six weeks to reduce inventories by around £3 million.

Following the installation of additional production equipment in Shenzhen early in the year, a new range of coatings grade iron oxide pigments was successfully commercialised in the second half. Sales of Ferrispec™ granular product grew strongly.

Operating losses were incurred by the zinc and carboxylates part of the business based in Birtley near Durham in the UK. Zinc continues to be impacted by the continuing decline of the UK automotive tyre market. The profitability of the catalysts part of the business also declined year on year. Elementis Pigments has a strong market position but reduced volumes, driven by the North American downturn, have challenged the business’s ability to cover fixed costs. This is being addressed on several fronts including a strategic review of the Birtley operation.

As a result of losses that occurred in the second half, for the reasons explained above, Elementis Pigments made an operating loss for the full year.

Elementis Specialties is a world leading producer of rheological additives. It also produces colourants, other additives and polymers.

At Elementis Specialties, sales were flat year on year as a result of the stronger US dollar. Higher first half sales were offset by lower sales in the second half.

Throughout the year strong growth was achieved in rheological additives sales to the oil exploration market. This was offset by lower sales for coatings applications, particularly in North America, and, in the second half, for ink applications, the latter being impacted by a reduction in print advertising and competition. Total Rheolate™ sales for aqueous coatings applications grew modestly year on year. European trading remained relatively robust when compared to North America and Japan. Pricing in local currency increased marginally.

Operating profit before goodwill amortisation was lower than in 2000 for a number of reasons. The principal factors were unfavourable sales mix, higher energy and quaternary amine costs, other cost inflation not recovered through pricing or productivity gains, and expenditure on upgrading sales and marketing capabilities, including e-commerce. Second half profitability was particularly impacted by these factors.

Thixatrol® Max, a new thixotrope rheological additive, was launched in Europe during the year. This new generation thixatrope provides improved properties to a range of industrial coatings systems. Recently introduced products, Rheolate® 450, a high efficiency associate thickener for vinyl acrylic paints, and Bentone® 42, a drilling mud organoclay for high heat environments, continue to contribute good growth.

Additional management resource is now in place to develop and deliver a high growth strategy based on accelerated organic growth and including the inward licensing of technology, market alliances and acquisitions.