Overview and financial results
The 2000 results clearly demonstrate that the Group-wide focus on business re-engineering, launched in 1999, is delivering enhanced financial performance.

Sales growth is being driven through customer focus and innovation. The Group’s lower cost base and improved health and safety performance are direct results of the operational excellence programme.

Overall market conditions improved during the period with a number of Asian economies continuing their recovery, but competition remains aggressive.

In the Group’s Interim Report 2000, concerns were expressed relating to rising energy costs and also the weakness of the euro. Since then, the adverse energy price trend has continued; US gas prices quadrupled over the course of the year. Average exchange rates for the US dollar and sterling, our key manufacturing currencies, strengthened against the euro by 15 per cent and 8 per cent respectively over the course of the year.

Operating profit before goodwill amortisation and exceptionals was £63.5 million, up 12 per cent on 1999. Operating profit on the same basis for the second half of 2000 was £31.3 million, up 7 per cent on the second half of 1999. Energy cost increases adversely impacted operating profit by around £4.5 million compared to 1999. Currency transaction and translation adversely impacted operating profit by around £0.5 million.

Profit before goodwill amortisation, exceptionals and tax was £58.4 million, up 14 per cent on 1999. Basic earnings per share before goodwill amortisation and exceptionals increased by 25 per cent to 11.6 pence.

Net exceptional charges before tax were £3.0 million (1999: £8.7 million). Net cash inflow from operating activities was £58.4 million (1999: £74.1 million). Net borrowings at the year end were £41.7 million (1999: £45.5 million).

Dividends and issue of redeemable B shares
The Board did not declare an interim dividend and, similarly, is not proposing a final dividend. Instead, it will continue with the programme, started in 2000, of issuing and redeeming redeemable B shares. The total nominal value of redeemable B shares issued to shareholders during 2000 was 5.2 pence per ordinary share. The Board intends to issue further redeemable B shares to ordinary shareholders on the register on 26 April 2001, such that they receive redeemable B shares with a total nominal value of 3.3 pence for each ordinary share held. This represents a 6 per cent increase on the comparable issue last year. This will be coupled with an offer to redeem these new shares for cash at their nominal value on 2 May 2001. 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 2 May 2001.

By not paying dividends on ordinary shares during 2000, Elementis will recover £4.6 million of advance corporation tax previously paid. Elementis estimates that it will be able to recover a further £3.6 million of advance corporation tax by not paying a final dividend for 2000.

A circular providing full details of the issue and redemption of redeemable B shares will be posted to all ordinary shareholders on 21 March 2001.

Health, safety and the environment
The focus on health, safety and the environment continues throughout the Group. Compared to 1999, lost time accident frequency reduced by 2 per cent although disappointingly, non-compliance with environmental consents rose by two to 19; this received additional management attention in the second half.

Employees
The Elementis culture continues to develop, driven by open communication and strong leadership. This is delivering operational benefits as well as providing a stimulating and responsive environment for employees.

I would like to take this opportunity to thank everyone throughout Elementis for their commitment and support during a year of continuing change.

The Board
In July, the Board was strengthened by the appointment of Philip Brown, Company Secretary, as an executive director and Rick McNeel as a non-executive director. Philip joined the Group in 1992 and played a major role in the corporate restructuring that created Elementis plc in 1998. Rick, a US citizen based in the UK, is Group Vice President responsible for Intermediaries and Fabrications within the chemical business of BP Amoco p.l.c.

Mike Parker stepped down as an executive director in July; his departure followed the decision to strengthen business development functions within individual operating businesses.

Shareholder information
Since the year end, the Elementis website, www.elementis.com has been significantly upgraded to provide, inter alia, more comprehensive information for shareholders including share price information, press releases and brokers’ forecasts.

Current trading and outlook
Since the year end, sales growth continues to be encouraging, despite concerns over the strength of the US economy.

High energy prices have significantly impacted short-term profitability, particularly in Elementis Chromium.

There is still considerable uncertainty over the future timing and direction of US gas prices. If prices for the remainder of 2001 reflect forward market rates obtainable at the beginning of February, the Board estimates that the Group’s energy costs would increase by around £10.0 million compared to 2000. This should be partially mitigated by selective price increases and substantial benefits from the ongoing business improvement projects.

Corporate update
In December 2000, in response to press speculation, the Board confirmed that it had received a speculative approach from a financial buyer concerning potential interest in making an offer for the Company and that the Board was considering the most appropriate means of maximising value for shareholders.

Since that announcement, the Board, together with its recently appointed advisers, Deutsche Bank, have embarked on an in-depth targeted marketing exercise to determine whether it can obtain an offer for the Company which it believes to be in the best interests of shareholders.

The Board will provide shareholders with further information in due course.

Jonathan Fry
Chairman
28 February 2001