Report of the directors

Report and financial statements
The directors submit their report and the audited financial statements for the year ended 31 December 2004. For the purposes of this report, the expression “Company” means Elementis plc and the expression “Group” means the Company and its subsidiaries.

Results
The Group loss for the year attributable to shareholders amounted to £7.8 million (2003: profit of £4.3 million).

Distribution to Shareholders
At the Annual General Meeting held on 28 April 2000, shareholders conferred authority on the Board to issue redeemable B shares. The total nominal value of redeemable B shares issued to shareholders during the year was 2.2 pence per ordinary share. The Board intends to issue further redeemable B shares to ordinary shareholders on the register on 26 April 2005, such that they receive redeemable B shares with a total nominal value of 1.1 pence for each ordinary share held. This will be coupled with an offer to redeem these new shares for cash at their nominal value on 3 May 2005. A further offer will also be made to existing holders of redeemable B shares to redeem these shares for cash at their nominal value on 3 May 2005. Holders of redeemable B shares are entitled to a non-cumulative preferential dividend at a rate of 75 per cent of six month sterling LIBOR payable six monthly in arrears; the charge to the profit and loss account in 2004 in respect of these dividends was £nil (2003: £nil).

Principal activities, business review and future development
The Chairman's statement and the Chief Executive's review contains a description of the principal activities of the Group during 2004, references to recent events and likely future developments. Companies throughout the Group undertake, on a continuing basis, research and development of new products and improvement of existing products.

Group turnover and profit is analysed by activity and geographically in the notes to the financial statements.

Donations and contributions
During the year, the Group donated £2,694 for charitable purposes in the United Kingdom.

Political donations
Elementis has no affiliation to any political party or group in any country and makes no political donations.

Directors
The present directors of the Company are Keith Hopkins, Geoff Gaywood, Brian Taylorson, Philip Brown, Michael Hartnall, Edward Wilson and Kevin Matthews. With the exception of Keith Hopkins who was appointed to the Board on 1 August 2004 and Kevin Matthews who was appointed on 16 February 2005, all the remaining directors served throughout the financial year. Jonathan Fry resigned as a director on 7 October 2004.

A statement of the directors' interests in the share capital of the Company is set out in the Directors' remuneration report.

Employee communications and involvement
It is Group policy to communicate with all employees on major matters to encourage them to take a wider interest in the affairs of their employing company and the Group. This is done in a variety of ways including in-house newspapers, bulletins and briefing sessions. The Company operates a savings-related share option scheme allowing UK and US employees an opportunity to become shareholders.

Employment policies
The Group is committed to the principle of equal opportunity in employment, regardless of a person's race, creed, colour, nationality, gender, age, marital status, sexual orientation, religion or disability. Employment policies are fair, equitable and consistent with the skills and abilities of the employees and the needs of the Group's businesses.

These policies ensure that everyone is accorded equal opportunity for recruitment, training and promotion. Where an employee becomes disabled whilst employed by a Group company, every effort is made to allow that person to continue in employment.

Purchase by the Company of its own shares
At the Annual General Meeting of the Company held on 22 April 2004, shareholders gave the Company permission, until the conclusion of the Annual General Meeting being held on 28 April 2005, to purchase up to 43,164,082 ordinary shares of the Company. A resolution for permission for the Company to renew its authority to purchase its own shares will be proposed at the Annual General Meeting of the Company to be held on 28 April 2005.

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