When measured in US dollars, the operating currency for the Group, sales for Elementis plc increased by 6 per cent to $321.6 million compared to the first half of 2003.
Overview
When measured in US dollars, the operating currency for the Group, sales for Elementis plc increased by 6 per cent to $321.6 million compared to the first half of 2003. On conversion to sterling, the reporting currency for the Group, sales declined by 6 per cent to £176.8 million, reflecting the continued weakness of the US dollar.
Operating profit, before goodwill amortisation and exceptionals, was £5.7 million, down from £14.5 million in the same period last year. Operating profit at Elementis Chromium declined by £6.1 million largely due to price erosion, an unfavourable business mix caused by the de-registration of chromated copper arsenate (CCA) and volumes lost as a result of first round price increases. Inflationary cost pressures and adverse currency movements significantly affected operating profit performance across all four Elementis businesses, offsetting good underlying sales growth in Elementis Specialties, Elementis Pigments and Specialty Rubber.
The Elementis Specialties business has continued to show signs of accelerated organic growth following implementation of its innovation strategy. The acquisition of Sasol Servo B.V., which will add to future revenue and earnings growth in Elementis Specialties, was completed on 30 June 2004.
Currency movements
Exchange rate movements have continued to be a significant factor in the period. The average US dollar rate was 13 per cent weaker against sterling versus the prior year and the euro was 1 per cent weaker. These movements lowered dollar and euro denominated sales reported in sterling, and impacted margins.
For the Group as a whole currency movements reduced operating profit by £2.7 million versus the same period last year.
Dividends and issue of redeemable B shares
The Board has not declared an interim ordinary dividend. Instead, it will continue with the programme, started in 2000, of issuing and redeeming redeemable B shares. The Board intends to issue further redeemable B shares to ordinary shareholders on the register on 27 October 2004, such that they receive redeemable B shares with a total nominal value of 1.1 pence for each ordinary share held. The Board believes that this is appropriate for the business, taking into account our stated strategy to focus on growth.
The issue will be coupled with an offer to redeem the new shares for cash at their nominal value on 2 November 2004. 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 the same date.
A circular providing full details of the issue and redemption of redeemable B shares will be posted to all ordinary shareholders on 24 September 2004.
Board change
It is with great pleasure I welcome Dr Keith Hopkins to the Board. Keith is non-executive Chairman of Scapa Group plc and a non-executive Director of British Vita plc. He was non-executive Chairman of Croda International plc from 1999 to 2001 and Chief Executive of Croda from 1987 to 1999. Keith brings with him a wealth of chemicals industry expertise, particularly in the Specialty Chemicals sector.
It is anticipated that Keith will assume the role of non-executive Chairman of Elementis plc when I retire from the Board in October 2004.
Current trading and outlook
As anticipated first half results for 2004 have shown higher US dollar sales while operating profit has been significantly impacted by inflationary cost pressures, currency effects across all businesses and reduced profitability at Elementis Chromium. Given current market trends the Board continues to anticipate that an improvement in operating profit performance will be evident in the second half.
Jonathan Fry
Chairman
28 July 2004
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