Overview
I am pleased to report that, when measured in US dollars, the operating currency for the Group, sales increased by 8 per cent to $303.3 million compared to the first half of 2002. However, on conversion to sterling, the reporting currency for the Group, sales declined by 3 per cent to £188.7 million, reflecting the weakening of the US dollar.

The successful integration of the OxyChem chromium acquisition and a recovery in Specialty Rubber sales were the primary contributors to sales growth. All four businesses reported improved sales from continuing businesses in US dollars despite little improvement in overall market demand.

Operating profit, before goodwill amortisation and exceptionals was £14.5 million, showing no change on the first half of 2002. Higher volumes, further cost reductions and a stronger euro offset higher energy costs and lower Chromium chemicals pricing.

Chief Executive Geoff Gaywood and his management team have continued their focus on cost control. Underlying costs have continued to fall, supported by the ongoing Six Sigma programme, which yielded benefits of £0.8 million in the period.

Currency movements
Exchange rate movements were a significant factor in the period. The average US dollar rate was 11 per cent lower against sterling versus the previous period, while the euro was 7 per cent stronger against sterling.

This had the effect of lowering reported sales in sterling because a larger percentage of our sales are in US dollars.

However, the lower reported sales were more than offset by currency benefits from having US and UK based manufacturing facilities. This resulted in an overall improvement in operating profit as a result of currency movements.

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 29 October 2003, 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 the current trading environment and the 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 3 November 2003. 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 26 September 2003.

Current trading and outlook
Market conditions were difficult in North America and little improved overall, and the outlook for the second half of the year suggests a marginal improvement in underlying demand at best.

Progress in strategic programmes to improve financial performance and generate growth has continued. Provided current economic conditions prevail our full year operating profit should be in line with expectations.

Jonathan Fry
Chairman
29 July 2003