Preliminary results

1
Preliminary results

• 28 February 2002

2
Geoff Gaywood

• Chief Executive

3
Key financials
2001m
2000m
Change
392.9 15.8 14.0 4.0p
413.8 57.5 58.4 11.6p
(5) (73) (76) (66)
Sales1 Operating profit1,2 Profit before
tax2 Earnings per share pence2
1 on continuing operations 2 before goodwill
amortisation and exceptionals
4
Key achievements
2001m
2000m
Change

• Operating cash flow 37.9 58.4 (35)
• Net debt 40.0 41.7

• Headcount reduction of 6
• Sale of Harcros chemical distribution
• Basic strategy formulated
• 4 key strategic appointments
• Action for step-changes in financial performance
  initiated

5
Chromium
Sales
Down
4
million
131.7
126.9
2000
2001
before elimination of inter-group sales
6
Chromium
Operating profit
Down
83
million
23.7
4.0
2000
2001
before exceptionals
7
Chromium

• Global Chromium chemicals market declined
• Demand for chromic oxide remained strong
• Sales volume down
• share loss to FSU producers
• reduced demand
• Average pricing lower
• Sales volume of CA21 increased c.15 year on year

8
Chromium

• Re-organisation of US plant
• 10 headcount reduction
• 2.3 million one-off cost
• Chromic oxide gas cleaning plant commissioned in
  Q1
• Energy cost impact 6.2 million
• Co-generation plant under construction atCorpus
  Christi

9
CCA

• No new scientific evidence that CCA harms health
• Manufacturers voluntarily withdraw licenses for
  residential use
• EPA announced transition from CCA to alternative
  products for residential use
• CCA transition expected to adversely impact
  Chromiums global sales by c.15 by 2004
• Not expecting material impact on sales in 2002

10
Pigments Specialties
Sales
Down
3
million
234.9
228.0
2000
2001
11
Pigments Specialties
Operating profit
Down
61
million
31.1
12.2
2000
2001
before goodwill amortisation and exceptionals
12
Pigments Specialties

• Trade working capital sales
• decrease from 21 to 17 at end of 2001
• Elementis Pigments inventory reductions
• Higher trade creditor levels at Elementis
  Specialties

13
Pigments

• Operating loss
• Weak demand for iron oxide, especially in US
• Pricing stable for coatings
• declined for construction grade, especially in
  Asia Pacificand Europe
• Asia Pacific sales grew strongly using product
  from Shenzhen facility

14
Pigments

• Plant shutdowns impacted fixed costs by c.1.9
  million
• inventory reduced by 3 million
• New range of coatings grade pigments launched in
  North American market in second half
• Granular product FerrispecTM sales grew strongly
• Strategic review of Birtley, UK facility underway

15
Specialties

• Sales flat year on year
• Strong growth in oil exploration drilling
• Lower sales for coatings and inks
• Robust European market versus North Americaand
  Japan
• Profit impacted by
• higher energy
• higher quarternary amine costs
• upgrading marketing capability

16
Specialties

• Thixatrol Max launched for solvent based
  industrial coatings
• Rheolate sales to aqueous architectural coatings
  continues to grow
• Bentone 42 high heat drilling mud organoclay
• Strategic growth capabilities ramped up

17
Specialty Rubber
Sales
Down
15
million
54.1
46.0
2000
2001
18
Specialty Rubber
Operating profit
Down
119
million
2.6
(0.5)
2000
2001
before exceptionals
19
Specialty Rubber

• Sales decline primarily to exit of process
  technologies equipment contracts
• Lower purchases from mining customers
• New product launches
• LinaCrepe
• LinaDek
• Cut-end hose
• 4.0 million continuous press currently being
  commissioned
• Step change improvements in manufacturing
  structure under evaluation

20
George Fairweather

• Group Finance Director

21
Operating profit on continuingoperations
2001m
2000m
23.7 31.1 2.6 0.1 57.5
4.0 12.2 0.1 15.8
Chromium Pigments Specialties Specialty
Rubber Associates
(0.5)
before goodwill amortisation exceptionals
22
Financial summary
2001m
2000m
Operating profit - continuing operations -
discontinued operations Interest Goodwill
amortisation Exceptionals (Loss)/profit before
tax Earnings per share
57.5 6.0 (5.1) 58.4 (13.3) (3.0) 42.1 11
.6p
15.8 2.4 (4.2) 14.0 (14.0) (3.7) (3.7)
4.0p



before goodwill amortisation and exceptionals
23
Tax reconciliation
m

Notional charge - standard UK rate Recoverable
ACT Differences in overseas tax rate Benefit of
US goodwill Overseas tax losses
unrelieved Deferred tax not provided Other
current Prior year adjustments Prior year
exceptionals
30 (32) (5) (46) 103 (45) 10 14
4.2 (4.5) (0.7) (6.5) 14.4 (6.3) 1.4 2.
0 (5.6) (4.9) (8.5)
before goodwill amortisation exceptionals
24
Redeemable B shares

• 2001
• Actual redeemable B share issue 5.4 pence(May
  and November)
• Projected ACT recovery 5.8 million
• 2002
• Proposed redeemable B share issue 1.0 pence(May)
• Projected ACT recovery 1.1 million

25
Post-retirement healthcare pensions

m 2001 total cost 3.3 2000 total
cost 2.1 Year on year increase 1.2
26
UK pension scheme actuarial valuation
30 September 2001 m Gross
assets 388.7 Assets to be transferred
out (68.9) Insured annuities (15.7) Money
purchase benefits (2.2) Balance of assets 301.9
funded 97

27
Profit impact of FRS17
Operating Profit profit Interest before
tax m m m
2001 SSAP 24 charge 3.3 3.3 Adjustment to
FRS17 3.2 (3.7) (0.5) 2001 FRS17
charge/(credit) 6.5 (3.7) 2.8 Year on year
charge 3.1 3.1 2002 FRS estimate 6.5 (0.6) 5.9
-
-
28
Year end balance sheet impact of FRS17
FRS17 net pension liability
m UK pension
schemes 11.2 US pension schemes 15.7 Other US
post retirement benefits 11.6 Other
schemes 0.8 Related deferred tax
asset (14.0) 25.3 Less SSAP24 pension
provision on 31 December 2001 balance
sheet (11.5) Net reduction in shareholders
funds 13.8
29
Operating cash flow
2001m
2000m

63.5 17.3 (1.8) (8.4) (2.2) (12.4) (3.9)
(6.1) 58.4
18.2 18.8 6.6 13.5 (10.3) 9.8 (5.2) (3.7
) 37.9
Operating profit Depreciation Stocks Debtors C
reditors Working capital Exceptionals Other
before goodwill amortisation exceptionals
30
Net cash flow
2000m
2001m
58.4 (22.1) 6.7 (9.6) (20.7) (1.0)
11.7 (7.9)
Operating cash flow Capital expenditure Fixed
asset disposals Interest tax Redemption of B
shares (incl. costs) Disposal of
business Other Net cash inflow Translation

37.9 (16.8) 0.8 (12.0) (23.1) 16.6 (0.2)
3.2 (1.5)
-
3.8
Net decrease in borrowings

1.7
31
Balance sheet
2001m
2000m

228.8 192.1 2.0 96.9 (64.4) (41.7) 413.7
Goodwill Tangible fixed assets Investments Working
capital Provisions/tax/dividends/interest Net
borrowings Capital reserves
219.2 192.0 3.8 70.8 (45.6) (40.0) 400.2
32
Strategy update
33
Review of Elementis

• Strong market positions
• Healthy balance sheet
• Capable management
• Customer focused culture
• Ongoing operational excellence
• stable manufacturing and Six Sigma

34
Review of Elementis
But...

• Organisation distracted by events in 2001
• Gaps in senior management team
• Silo culture in place
• Legacy IT systems
• Limited scope to cut costs
• Inadequate focus on growth

35
Management team
Functional heads
Executive directors
Strategy
Business leaders
36
Priorities
Bifocal approach

• Manage short term performance
• manage trading position
• tight control of revenue
• costs, capex, and inventory

• Activate growth strategy
• resources and capabilities
• growth culture
• step changes in financial performance
• selective acquisitions

37
Manage short-term performance

• Manage economic downturn
• tactical market share management
• tight working capital and capital control ie cash
• contingency plan for further global downturn
• Refresh Elementis culture
• develop and transfer skills across businesses
• increase business development skill level
• relocation of head office out of City
• best in class recruitment
• Address functional duplication
• HR IT - finance and supply chain to follow

38
Manage short-term performance

• Six Sigma
• emphasis on cost savings
• commercial processes and supply chain
• HSE performance
• pro-active, comprehensive, zero incident focus

39
Activate growth strategy

• Resources and capabilities
• analytical skills and data based decisions
• Corporate Finance
• strategic IT HR competence
• business development skills
• Growth culture
• targets
• scope
• rewards

40
Activate growth strategy

• Step changes in financial performance
• sophisticated evaluations
• make tough choices
• ERP
• Selective acquisitions
• selection
• price
• integration

41
Current trading outlook

• Trading conditions remain tough
• Q4 destocking appears to have ended
• Benefit of lower energy costs, reduced inventory
  levels, Six Sigma programme, cost war rooms, IT
  focus, HR focus

42
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