Despite generally flat demand and broad competitive pressure, Elementis has improved its financial performance considerably and installed the key strategic profit growth drivers. The ability to maintain strong cash generation and a healthy balance sheet in an economic downturn has been demonstrated, and Elementis is well positioned to progress the implementation of its growth strategy.

Management overview
Employees at all levels have risen to the challenge of putting Elementis on a growth footing.

The management team, comprising the executive directors, the leader of each business and heads of strategic functions, has a firm grasp of the business and is driving the implementation of the growth strategy. Five of the team's members are new appointments in the last 15 months.

Tight management performance criteria have been applied to cost control and cash conservation throughout the year, but emphasis has also been placed on implementing programmes to generate step change improvements in financial performance in all businesses and to create platforms for long term growth. Profit plan performance discipline has been good.

The ERP programme, which will provide a platform for operational excellence, best practice business processes and knowledge transfer, was authorised and is progressing as planned towards its first business implementation in the second half of 2003. The total investment will be £13.0 million, with annualised cost saving benefits amounting to £3.5 million by the time implementation is complete in all businesses in mid 2004.

The Corporate Finance team, a new strategic resource for Elementis, was formed and has demonstrated first class capabilities. Closure and integration of the acquisition of the chromium chemicals business of OxyChem has been completed in exemplary fashion.

The successful Six Sigma programme has delivered cost savings of over £3.0 million in 2002.

While environmental performance improved substantially, safety performance progressed only moderately and fresh initiatives are now being taken to raise standards to those of the industry leaders.

The global HR function has been co-ordinated, upgraded and aligned with the growth strategy. High standards in resourcing have been set and successfully implemented. Cross-business career progression has become more accessible and retention has been high.

IT activities have been rationalised and upgraded, some non-core processes outsourced and an effective global IT capability has been established.

Internal communication of the Elementis strategic direction and performance has enhanced employee confidence and commitment.

The recently strengthened internal legal function has delivered considerable value.

Risk management has been further upgraded and incorporated in routine management processes.

Strategy
Progress in the implementation of the growth strategy has been made in each of the four businesses.

Elementis Chromium acquired the chromium chemicals business of OxyChem, which includes the world's second largest production plant at Castle Hayne, North Carolina, US. This acquisition facilitated a rationalisation of capacity at our plant at Corpus Christi, Texas, US, made necessary by the likely restrictions on the use of chromated copper arsenate (CCA) in the US as announced by the US Environmental Protection Agency (EPA). The resulting annualised savings are now expected to exceed £13.0 million, of which at least half is expected to be achieved in 2003, and will considerably strengthen our competitive cost position.

Elementis Specialties has outperformed competitors in certain key sectors, strengthened its R&D, licensing, business development and innovation capabilities, and made a small, strategic acquisition of a producer of organoclays in China.

Elementis Pigments is expanding its competitive Asia Pacific cost base to drive growth. The Board authorised an investment of £10.0 million in a world-scale particle manufacturing and finishing facility to be built at a new site at Taicang, near Shanghai, China, to supply growing demand in Asia-Pacific. Elementis Pigments divested its non-core anhydrous aluminium chloride business (AAC) and, on completion of a strategic review of its Birtley, UK site, closed its unprofitable zinc oxide operations there and the site is expected to return to profitability in 2003.

A new Managing Director was appointed for Specialty Rubber. The migration of high labour content product fabrication from the US and Europe to Malaysia has progressed.

Transforming Elementis
The management team is confident of its ability to deliver improved financial performance and profitable growth. Recognising the strong balance sheet and ability to continue to generate cash in a depressed market, the team has raised its sights with conviction and determination. Much remains to be done, but important steps have been taken on the path to transforming Elementis into a leading global specialty chemical company.