I am pleased to report an operating profit for the year, before goodwill amortisation and exceptionals, of £24.5 million, an improvement of 20 per cent over the previous year.

I am pleased to report an operating profit for the year, before goodwill amortisation and exceptionals, of £24.5 million, an improvement of 20 per cent over the previous year. This has been achieved despite the difficult economic environment, particularly in North America, and is a result of Elementis strengthening its market positions and improving costs.

Further progress has been made towards transforming the Company's earnings, despite difficult market conditions. The Elementis Specialties business has begun to show early signs of accelerated growth as a result of recent investment in technology development. The chromium chemicals market, in decline since 2000, has shown signs of rationalisation and an end to the sustained price erosion of the last several years. Elementis Pigments has continued to deliver steady operating profit recovery on structural cost improvement, which should be supported by the start-up of the new plant in Taicang, China due to be fully commissioned in late 2004. Finally, the Specialty Rubber business has eliminated previous operating losses on the back of strong sales recovery.

Earnings per share, before goodwill amortisation and exceptionals, is 3.0 pence for the year versus 3.4 pence last year. Earnings per share on this basis were lower than last year, despite the higher operating profit, as a result of higher FRS17 finance charges and a higher tax rate. Basic earnings per share is 1.0 pence (2002: loss of 7.1 pence).

Health, safety and the environment
Environmental performance improved during 2003 and overall safety has also shown a positive trend. Elementis management and employees are acutely conscious of the Company's environmental, social and ethical responsibilities to all its stakeholders. A summary of our position in relation to sustainable development, which encompasses health, safety and the environment, can be found later in this report.

Board change
Richard (Rick) McNeel resigned from the Board as a non-executive director at the end of December 2003, due to his relocation back to the US and the assumption of further business commitments. Rick had served as a member of the Elementis Board since 2000. We thank him for his contribution to the development of the Company during that time and wish him well for the future. We anticipate the appointment of a replacement non-executive director during the course of 2004.

People
In the prevailing difficult economic conditions, the progress we have made towards our growth objectives has been realised thanks to the skill, hard work and commitment of our employees. On behalf of the directors and shareholders I thank everyone for their contribution to the solid growth platform established in 2003.

Distribution to shareholders
Once again, the distribution to shareholders will take the form of an issue of redeemable B shares. Ordinary shareholders on the register on 27 April 2004 will receive redeemable B shares with a total value of 1.1 pence for each ordinary share held. This compares with 1.1 pence for the comparable issue last year.

The total nominal value of redeemable B shares issued to shareholders during 2003 was 2.2 pence per ordinary share.

Outlook
Assuming continued low overall economic growth, the outlook for Elementis in 2004 is likely to be clouded by continued raw material cost pressure, the cost of implementation of the enterprise resource planning (ERP) system ahead of delivery of anticipated savings, start-up costs of the Taicang plant, and a lack of immediate growth prospects for Chromium chemicals. While the key elements of the programme to bring about step change improvements in the financial performance of all Elementis businesses are expected to be implemented in the next 12 months, it is by no means clear at this stage that Elementis will be able to improve operating profit in 2004.

Jonathan Fry
Chairman
26 February 2004