Results for the year
Sales increased by 7 per cent year on year to £573.8 million compared to £535.1 million in 1999. Operating profit, before goodwill amortisation and exceptionals, rose by 12 per cent to £63.5 million.

Profit before goodwill amortisation, exceptionals and tax was £58.4 million, up 14 per cent on 1999.

Further details are given in the Chief Executive’s report.

Exceptionals
Net exceptional charges before tax were £3.0 million, compared to £8.7 million in 1999. For 2000, exceptionals comprised:

• £3.7 million of previously announced restructuring costs at Elementis Pigments and Linatex
• £0.7 million insurance recovery for the settlement of US litigation in 1999

Interest
Net interest payable was £5.1 million, compared to £5.4 million in 1999. Interest cover (the number of times that the net interest charge is covered by operating profit before goodwill amortisation and exceptionals) was 12.5 times (1999: 10.5 times).

Taxation
The effective rate of tax on profit before goodwill amortisation and exceptionals was 14.0 per cent, compared with 22.0 per cent in 1999. This rate is substantially lower than the standard UK corporate tax rate for a number of reasons, including tax relief on purchased US goodwill and the utilisation of surplus advance corporation tax, partially offset by higher overseas tax rates. Tax on exceptional items was a credit of £0.4 million (1999: £0.8 million).

Earnings per share
Basic earnings per share before goodwill amortisation and exceptionals increased by 25 per cent year on year to 11.6 pence. Basic earnings per share, after goodwill and exceptionals,was 7.9 pence (1999: 4.6 pence). The weighted average number of shares in issue during the year was 431.5 million (1999: 431.5 million); the number of shares in issue at the year end was 431.5 million (1999: 431.5 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.

Cash flow and balance sheet
Net cash inflow from operating activities was £58.4 million, compared to £74.1 million in 1999.

Working capital outflow was £12.4 million, compared to a £19.4 million inflow in 1999. Debtors increased by £8.4 million, of which £1.9 million was attributed to increased sales. Trade debtor days increased by two during the year, primarily as a result of increased sales in markets with longer payment terms. The majority of debtor cash outflow is therefore related to a number of other factors, including a delay in receiving a VAT refund in continental Europe and a deposit on the Linatex continuous rubber sheet press. Stock levels continue to be tightly controlled overall.

Cash expenditure on fixed assets totalled £22.1 million (1999: £43.9 million), most of which related to Elementis Chromium, the principal project being the new kiln; this compares with depreciation of £17.5 million (1999: £15.3 million). Looking forward to 2001, capital expenditure is likely to be modestly ahead of depreciation.

Net cash inflow before the use of liquid resources and financing was £32.4 million compared to an inflow of £9.6 million in 1999. Free cash inflow was £33.4 million, compared to £10.3 million in 1999. Net borrowings at the year end were £41.7 million (1999: £45.5 million). Shareholder funds at the year end were £411.2 million, compared to £380.4 million at the end of 1999.

Treasury
Treasury activities are governed by policies and procedures approved and monitored by the Board. The Group operates a central treasury service centre, the principal function of which is to manage and monitor the Group’s external and internal funding requirements and treasury risks, including interest rate and currency management. Group Treasury is subject to periodic internal audit. The Group’s financial instruments, other than derivatives, comprise borrowings, cash and liquid resources. Certain derivative financial instruments (principally interest rate swaps and forward foreign currency contracts) are entered into in order to manage interest rate and currency risks efficiently.

The Group does not hold or issue derivative financial instruments for speculative trading purposes; treasury policy specifically prohibits such activity.

Liquidity risk
Group funding policy is to have committed borrowings in place to cover at least 125 per cent of peak forecast net borrowings for at least a 12 month forward period. At the year end, the Group had £164.0 million of undrawn committed facilities.

Interest rate risk
The Group borrows at both fixed and floating interest rates and then uses interest rate swaps to generate the required interest rate profile. At the year end, 97 per cent of net borrowings were at fixed rates (1999: 86 per cent), fixed for an average of 0.4 years (1999: 1.4 years) after taking account of interest rate swaps.

Currency risk
Businesses are permitted to use forward foreign currency contracts to hedge transaction exposures where deemed appropriate in consultation with Group Treasury. At the beginning of 1999, the Group switched to managing its global businesses on a US dollar basis, including internal performance measurement and reporting, in line with many other global chemical companies. As a result, it does not seek to mitigate the effect of US dollar translation exposure to its sterling reported asset base through dollar borrowings. In 2000, the average sterling exchange rate was $1.52 and 1.64EUR compared with $1.62 and 1.52EUR in 1999. The sterling exchange rate at 31 December 2000 was $1.49 and 1.59EUR, compared with $1.61 and 1.61EUR at 31 December 1999.

Counterparty credit risk
The Group controls counterparty credit risk by entering into cash deposits and financial instruments with authorised counterparties. Credit risk is managed by limiting the aggregate amount and duration of exposure to any one counterparty depending upon their credit rating and by regular review of these ratings. Counterparty positions are monitored on a regular basis.

George Fairweather
Group Finance Director