Elementis Pigments is a world leading producer of synthetic iron oxide pigments. Elementis Specialties is a leading producer of organoclays and other rheological additives.

£225.0 million Sales

£18.7 million Operating profit**

* before exceptionals
** before goodwill amortisation and exceptionals

Elementis continues to report the financial performance of its Pigments & Specialties businesses combined in order to avoid publishing data of potential value to its major competitors, none of whom report the performance of those businesses separately. Sales in Pigments & Specialties fell by just over 1 per cent to £225.0 million. Currency movements and the exit from non-core businesses reduced sales by around 4 per cent. This offset organic growth of 3 per cent, which was due to modest improvement in the North American coatings sector and strong performance in Asia-Pacific.

Operating profit before goodwill amortisation and exceptionals increased by 73 per cent to £18.7 million as a result of comprehensive management of fixed and variable costs, including £1.0 million from the Six Sigma programme, £1.6 million in reduced energy costs and £4.2 million from operating efficiencies.

Elementis Pigments
Demand for iron oxide pigments in the coatings and construction sectors served by Elementis grew at around 3 per cent in North America and in Asia-Pacific, while the European market was flat. Demand for metal carboxylate driers grew in line with the coatings market, but zinc oxide use in the UK declined as the tyre industry continued to migrate to Eastern Europe.

Elementis Pigments staged a strong recovery from the previous year, raising iron oxide pigment sales volume by 5 per cent by improving its share of higher margin products and showing strong growth in Asia-Pacific, while prices declined by 2 per cent. The plant in Shenzhen, China, achieved record production levels and an investment of £0.6 million was authorised to raise capacity there by an additional 60 per cent. Carboxylate sales grew 13 per cent, while zinc oxide declined by 6 per cent. At constant currencies, sales excluding the anhydrous aluminium chloride (AAC) business, which was sold during the year, increased by 3 per cent.

The operating loss reported last year, which was exacerbated by temporary plant closures, was eliminated. The 2002 result benefited from continued improvement in costs, including Six Sigma benefits, labour productivity, purchasing and energy savings, and a shift in manufacturing mix towards Shenzhen production.

A strategic review of the Birtley, UK facility was completed, resulting in the decision to cease iron oxide milling and commodity zinc oxide production on the site, with the loss of around 65 jobs. An exceptional charge of £4.5 million was taken in 2002, and the closures have been completed. Production of zinc oxide nano-particles and metal carboxylates will continue as will sales, technical services and distribution of iron oxide pigments, and the site is expected to return to profitability in 2003.

In a further move to refine the Elementis Pigments product portfolio, the non-core AAC business was sold in October for £1.7 million and an exceptional loss of £2.1 million was recorded.

An investment of £10.0 million in a worldscale particle manufacturing and finishing facility to be built at a new site in Taicang, near Shanghai, China, was announced in December. The new wholly owned plant will produce technically advanced products for the Asia-Pacific and European markets. Construction will start this year and commissioning is expected in 2004.

Elementis Specialties
Demand for rheological additives in the coatings sectors served by Elementis Specialties grew in line with global GDP, with aqueous based product applications continuing to outgrow non-aqueous. The inks market stabilised after a steep decline in 2001, but continues to move away from organoclays towards aqueous products. Global demand in drilling muds fell, despite firmer oil and gas prices. The drilling rig count, a rough measure of oil field activity, decreased 19 per cent from 2001, but deep water and deep well drilling, which require high performance additives of the type produced by Elementis Specialties, continued to grow. Demand in the personal care sector recovered well, but household products remained flat. In other industrial sectors served by Elementis Specialties, adhesives, sealants, construction and telecommunications markets declined, whereas pressure sensitive adhesives continued to grow.

Elementis Specialties delivered a 3 per cent volume increase in rheological additives overall, outperforming the market in the aqueous coatings, oil field and consumer markets, partially offset by withdrawal from some unprofitable business in inks. At constant currencies, sales excluding the paint business sold during the year, increased by 2 per cent.

Operating profit improved over the previous year mainly due to Six Sigma benefits and tight cost control. Innovation, R&D, licensing and business development resources have been significantly expanded with a view to achieving substantially higher organic growth in the future. The Innovation Board,which comprises external academic and business experts who will identify and drive innovative technologies, is now in place.

A new venture to produce organoclays for the rapidly expanding Chinese and Asian markets has been established in Changxing, near Nanjing, China. The plant, which is being acquired from a local producer of raw materials, is already in production and currently nearing completion of upgrading and expansion work.

The Elementis Specialties portfolio was refined in July by the sale of its small non-core paint business for £0.4 million, resulting in an exceptional loss on sale of £0.8 million.

Among the new products introduced in 2002 were Bentone® 42, a proprietary heat resistant thickener for use in high temperature well sites and Benathix® Plus, a specialty organoclay exhibiting superior sag resistance and ease of dispersion for the polyester laminating resin market. Both products secured commercial sales during the year.