2001 Sales £million	2001 Operating profit* £million	2000 Sales £million	2000 Operating profit* £million
Chromium	68.2	4.2	65.8	12.0
Pigments & Specialties	119.7	10.5	118.7	15.6
Chemical Distribution	87.3	1.9	78.7	3.0
Specialty Rubber	25.3	0.9	28.2	1.6
Inter-group	(3.8)	-	(3.4)	-
	269.7	17.5	288.0	32.2

Chromium
Operating profit was £4.2 million, compared to £12.0 million in the first half of 2000, on sales up 4 per cent to £68.2 million. On a constant currency basis, sales decreased by approximately 2 per cent with volume down by 3 per cent.

Global demand for chromium chemicals is estimated by Elementis to be around the same as in the first half of 2000. Strong demand for chromic oxide, for use in metal alloys, was offset by lower US demand for pigmentary applications and lower demand for chrome sulphate for use in leather tanning, particularly in the UK.

Sales volume of chromic acid continued to grow, based on the success of the superior handling properties of our CA21™ chromic acid product. Sales volume of CA21™ increased by just under 30 per cent compared to the first half of 2000. Sales volumes of other product categories were lower. Average pricing in currency of invoice was also down, reflecting increased competition from Russia.

Higher energy costs adversely impacted operating profit by £5.0 million versus the first half of 2000 on a comparable basis. These costs were also £2.0 million higher than in the second half of last year.

Early in 2001, headcount reduced by more than 10 per cent as a result of a business process re-engineering exercise at Corpus Christi, Texas. The one-off cost of £2.3 million will largely be recouped over the balance of the year.

A new gas cleaning system for the chromic oxide plant at Eaglescliffe, UK was commissioned in the first quarter costing £2.6 million. This will further enhance the business’s environmental performance standards. Some production capacity of chromic oxide for use in metal alloys was unavailable during the period as a result of the project.

Pigments & Specialties
Operating profit before goodwill amortisation and exceptionals was £10.5 million compared to £15.6 million in the first half of 2000, on sales up 1 per cent to £119.7 million. On a constant currency basis sales decreased by approximately 4 per cent.

At Elementis Pigments, sales and operating profit before exceptionals decreased, mainly as a result of slow overall demand for iron oxide pigments for coatings, construction and chemicals applications in North America; profitability of zinc products, carboxylates and catalysts was also lower. Sales of construction grade Ferrispec™ granular product increased significantly.

Margins were under pressure largely as a result of higher US energy costs. Additional production equipment was installed at the Shenzhen facility in China, further enhancing the business’s operating capabilities.

At Elementis Specialties, sales in the first half of 2001 increased as a result of the stronger US dollar. On a constant currency basis, sales were at a similar level. Lower sales for coatings applications, particularly in North America, were offset by very significant growth in rheological additives sales for the oil exploration market, wet process organoclays being particularly successful. Sales into the inks market were unchanged. Overall European trading remained relatively robust compared to North America and Asia. Rheolate™ sales volumes for aqueous coatings applications were maintained at the same level as the first half of last year.

Operating profit before goodwill amortisation and exceptionals was lower than in the first half of 2000, primarily as a result of higher energy and quarternary amine costs not recouped through pricing and expenditure on upgrading sales and marketing capabilities including e-commerce.

Thixatrol® Max, a new thixotrope rheological additive was launched in Europe during the period. This is targeted at solvent based coatings applications.

Chemical Distribution
Operating profit was £1.9 million, compared to £3.0 million in the first half of 2000, on sales up 11 per cent to £87.3 million. On a constant currency basis, sales increased by approximately 3 per cent.

Volume grew by 5 per cent due to strong weather related demand for rock salt in the northeast of America. Excluding rock salt, volume decreased by 5 per cent, primarily as a result of the slow-down in the US economy.

Margins narrowed due to difficulties in recovering increased purchase costs through higher pricing; these increases were primarily energy related. Fixed costs remained tightly controlled.

Specialty Rubber
Operating profit before exceptionals was £0.9 million, compared to £1.6 million in the first half of 2000, on sales down 10 per cent to £25.3 million.

The sales decline occurred primarily in North America. This was due to output reductions by West Coast mining customers because of high energy costs and the exit of unprofitable sales lines. Strong sales growth was achieved in South Africa and Asia. Sales in Europe were impacted by disruption caused by the aircraft crash at the Yateley, UK, facility last December and by the decision taken early in the year not to pursue major new process technology equipment contracts.

Rubber sheet sales recorded double digit growth, reflecting the business’s increased focus on the core Linatex rubber brand. In May, a new product, LinaCrepe™, was launched. This form of uncured rubber can be moulded into shape and is particularly suitable for belting, hoses and roller covering applications.

The programme announced 18 months ago to refocus and simplify the Linatex business was completed in February 2001 with the closure of the final site in Montreal. Over the course of the half year, headcount reduced by 81.

The £4.0 million continuous rubber sheet press is on schedule to be installed in Malaysia by the end of 2001, to reduce operating costs and further enable Linatex sheet to be produced within tighter thickness tolerances for new applications and with enhanced bonding capabilities.

Six Sigma
Six Sigma business improvement methodology has now been launched across the Group. The 13 ‘blackbelt’ team leaders completed their training in July and training for the next level participants is planned for later in the year. The first phase of Six Sigma projects cover manufacturing and logistics and will be completed in the third quarter.

Health, safety and the environment
Compared to the first half of 2000, lost time accident frequency reduced by 42 per cent due to the increased focus on safety and the introduction of a new incident investigation reporting system which identifies the root causes of reportable incidents and ‘near misses’. Non-compliance with environmental consents rose from 11 to 18 in the first half of 2001. Each of these is thoroughly investigated and the Board is committed to reversing this position.

Exceptionals
Exceptional charges before tax were £5.1 million, comprising £4.6 million of costs incurred in preparing and marketing the Company for sale and £0.5 million of additional inventory write downs relating to the Specialty Rubber restructuring completed in the first half of the year. This compared to £2.8 million of net exceptional charges in the first half of 2000.

Cash flow and balance sheet
Net cash inflow from operating activities was £0.4 million, compared to £18.1 million in the first half of 2000, the decrease being largely a result of lower operating profit.

Working capital outflow was £21.0 million, compared to £18.5 million in the first half of 2000. Inventories increased by £5.1 million over the half year. Programmes are now in place to reverse this trend in the second half. Debtors increased by £9.5 million, most of which is the normal seasonal effect with trade debtor days increasing by 3 days. Creditors decreased by £6.4 million, trade creditor days reducing by 5 days partially due to a change in source of a significant raw material.

Cash expenditure on fixed assets totalled £7.5 million (2000: £14.9 million), compared with depreciation of £9.4 million. Major projects were the Elementis Chromium oxide gas cleaning plant and the Linatex continuous sheet press. Capital expenditure for the full year is still likely to be modestly ahead of depreciation.

Net borrowings at the end of June were £72.5 million compared to £41.7 million at the end of December 2000. Shareholders’ funds at the half year were £414.5 million compared to £411.2 million at the end of December 2000.