Sales

	Sales		Effect of exchange		Businesses		Inc/(dec)		Sales
	2002 £million		rates million		sold in 2002 £million		2003 £million		2003 £million
Specialties and Pigments	225.0		(7.6	)	(7.8	)	(0.3	)	209.3
Chromium	109.0		(3.4	)	—		16.3		121.9
Specialty Rubber	37.8		2.0		—		2.9		42.7
Inter-company	(6.9	)	—		—		1.2		(5.7	)
	364.9		(9.0	)	(7.8	)	20.1		368.2

Operating profit before goodwill amortisation and exceptionals

	Operating profit* 2002		Effect of exchange rates	Inc/(dec) 2003		Operating profit* 2003
	£million		£million	£million		£million
Specialties and Pigments	18.7		3.2	(4.3	)	17.6
Chromium	3.7		-	3.1		6.8
Specialty Rubber	(2.0	)	1.0	1.0		-
Associates	0.1		-	-		0.1
	20.5		4.2	(0.2	)	24.5

* before goodwill amortisation and exceptionals

Specialty Rubber

£million	2003		2002
Sales	42.7		37.8
Adjusted operating result*	-		(2.0	)
Operating profit/(loss)	(0.3	)	(2.7	)

* before exceptionals

Sales in Specialty Rubber increased by 13 per cent to £42.7 million, driven by strong volume growth across most sectors and positive currency effects as a result of significant sales in Europe, South Africa and Asia Pacific.

Driven by higher sales volumes and positive currency effects, the business achieved a break even operating result before exceptionals for the year versus a loss on the same basis for 2002 of £2.0 million.

Exceptionals
Total exceptional items in the year were £0.4 million (2002: £40.4 million). These comprised:

	£ million
Operating:
Redundancy and restructuring costs	(2.0	)
Insurance proceeds	0.8
	(1.2	)
Non operating:
Profit on disposal of property	0.8
	(0.4	)

The redundancy and restructuring costs arose following the introduction of the new ERP system and the re-organisation of financial and administrative activities into two shared service centres.

Insurance proceeds relate to the partial recovery of costs charged to exceptionals in previous years. A profit on disposal of property arose from the sale of two properties that remained from a business sold in 2001. Net proceeds were £1.1 million

Interest

£ million	2003		2002
On net borrowings	(1.9	)	(1.9	)
Pension finance charge	(4.2	)	0.1
Discount on provisions	(0.9	)	(1.0	)
Other	0.8		2.0
Total	(6.2	)	(0.8	)

Interest payable on net borrowings was unchanged during the year at £1.9 million. The finance charge in respect of pension and post-retirement benefits increased by £4.3 million in the year due to a £38.3 million increase in the net deficit in the schemes at the beginning of 2003 versus the previous year.

Interest cover - the ratio of operating profit before goodwill amortisation and exceptionals to interest on net borrowings - was 12.9 times (2002: 10.8 times).

Taxation

			Effective
Tax (charge)/credit	£million		rate
Before goodwill amortisation
exceptionals	(5.3	)	29	%
Goodwill amortisation	4.4		36	%
Exceptionals	(0.2	)	(41	%)
Total	(1.1	)	21	%

The effective rate of tax on profit before goodwill amortisation and exceptionals was 29 per cent (2002: 25 per cent).

The increase in the rate was due to the overall mix of taxable profits across the countries in which Elementis operates. This mix would have resulted in a higher rate than 29 per cent in 2003 but was offset by the release of provisions against prior years where a number of open issues have been resolved. Potential deferred tax assets of £23.2 million (2002: £23.9 million) have not been recognised.

The effective tax rate on profit before goodwill amortisation and exceptionals in 2004 will again be dependent on the mix of profits primarily between the UK and the US. This effective rate is more volatile since the adoption, in 2002, of FRS19 which requires full provision for deferred taxation. Nevertheless, the effective tax rate in profit before goodwill amortisation and exceptionals in 2004 is expected to be similar to the current year.

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