Chromium
Elementis Chromium is the world’s largest producer of chromium chemicals.

Sales in US dollars increased by around 17 per cent in the first half of 2003 for Elementis Chromium, when compared to the first half of 2002, mainly as a result of the OxyChem acquisition. This growth was partially offset by market price erosion and contraction of demand in the aerospace and steel industries. In sterling terms sales increased by 5 per cent to £62.4 million.

Operating profit before exceptionals fell to £4.8 million, compared to £5.2 million in the first half of 2002.

Integration of the OxyChem acquisition has been accomplished successfully, with no loss of critical personnel or market position. Incremental sales are around $50 million on an annualised basis.

Global volume demand for chromium chemicals is estimated by Elementis to have declined slightly from the first half of 2002, while competition remained intense.Overall, Elementis estimates that its global market share on a volume basis increased by approximately 7 per cent in the first half of 2003.

The operational rationalisation that followed the OxyChem acquisition led to the transfer of a high proportion of Elementis Chromium's US manufacturing to the oil fuelled OxyChem plant at Castle Hayne, North Carolina. The impact of continuing high US gas prices has therefore largely been avoided. However, energy costs still negatively impacted operating profit by £1.2 million versus the first half of 2002. Otherwise, fixed and variable costs have continued to fall, with Six Sigma projects playing a significant role.

On 20 March 2003 the US Environmental Protection Agency (EPA) confirmed the withdrawal of registration for most residential uses of chromated copper arsenate (CCA) for wood treatment. The EPA had previously announced, in February 2002, that a ban regarding the use of CCA would be effective from 2004. The March 2003 announcement however has reduced the scope of the ban so that agricultural fencing and permanent foundations will not now be affected. Elementis Chromium supplies chromic acid which is used in the manufacture of CCA and acts primarily as a binding agent. As previously stated, it is anticipated that sales of chromium chemicals could be adversely affected by around 12 per cent in 2004, representing approximately 4.5 per cent of total Elementis plc sales.

Elementis Chromium did not experience any adverse impact on sales in the first half of 2003 from this EPA ruling and does not expect its sales in 2003 as a whole to be materially affected.

Specialty Rubber
Linatex is the leading brand of wet abrasion resistant rubber for materials handling.

Sales in US dollars increased by 20 per cent. On conversion to sterling, sales increased by 8 per cent to £21.2 million in the first half of 2003. Increased volumes and the impact of structural cost reductions instigated in 2002 have driven the business to breakeven, compared to an operating loss of £0.9 million in the first half of 2002.

Strong sales growth compared to the first half of 2002 has been seen in all geographic areas, except for South Africa, where the strong rand has disrupted the mining capital equipment market, and Asia, where the SARS outbreak slowed business activity. There has been a modest recovery in the mining and construction markets, but the business improvement has been primarily due to improved focus and organisation. The new manufacturing facility in Malaysia is now producing consistently high quality products, with improved service levels.

Six Sigma
Six Sigma has created a pervasive cost reduction and efficiency improvement culture and forms an integral part of the manufacturing, commercial and supply chain processes in Elementis. Over 80 Six Sigma projects have been either completed or are in progress and have generated net savings totalling in excess of £4.5 million since inception. A total of 9 'blackbelts' and 34 'greenbelts' are currently in place across the organisation.

Health, safety and the environment
Compared to the first half of 2002, lost time accidents (LTAs) for continuing operations increased from 4 to 6. However, the nature of the incidents showed a strongly positive trend in operational safety, and the recordable incident frequency rate decreased by 22 per cent. Management is confident that an increased focus on behavioural safety and near miss incident reporting is leading to performance similar to that of the industry leaders. Non-compliance with environmental consents continued on a downward trend, with only 2 incidents reported in the year to date.

Geoff Gaywood
Chief Executive
29 July 2003