1st Aug 2006 07:01
Elementis PLC01 August 2006 PRESS INFORMATION 1 August 2006 Elementis plc INTERIM RESULTS FOR THE HALF YEAR ENDED 30 JUNE 2006 2006 2005Sales* £210.9m £199.6m +6%Operating profit* £18.1m £7.4m +145%Profit before tax* £14.4m £3.9m +269%Earnings per share before exceptional items* 3.2p 0.8p +300%Earnings per share after exceptional items 3.2p (0.5)pDividend/distribution to shareholders 1.2p 1.1p +9% * from continuing businesses and before exceptional items • Volumes in Specialty Products and Pigments up 10%, driven by coatings and oilfield sectors • Specialty Products operating margin 15.4%, up by 43% • Operating profit up in Pigments and Chromium • £6.8 million of restructuring cost savings achieved in first half of 2006. Commenting on the results, Executive Chairman, Edward Bramson said: "Sales of Pigments and of Speciality Products, principally rheologicaladditives, increased significantly from the prior year. While this is partlyattributable to favourable conditions in the coatings and oilfield markets, webelieve that Elementis also gained market share due to improved customer servicelevels and more effective sales efforts resulting from actions taken as part ofthe strategic review. Operating margins increased in each line of businessexcept surfactants as fixed cost reductions announced in the strategic reviewwere combined with improved pricing in Chromium and higher sales in otherproducts. Speciality Products in particular generated a significant increase insales and operating margins, and we are pleased that this business is nowgenerating returns that compare well with other leading specialty chemicalcompanies." "The Company is continuing its efforts to generate organic sales growth, toincrease new product development and to achieve further operating efficiencies.Current indications are that market conditions in the second half will besimilar to those in the first half which should enable the company to generateearnings that are ahead of full year expectations." - Ends - Enquiries Elementis plc Tel: +44 (0) 7408 9300Edward Bramson , Executive ChairmanBrian Taylorson, Finance Director Financial Dynamics Tel: +44 (0) 20 7831 3113Andrew DowlerGreg Quine Executive Chairman's Statement Overview Sales from continuing operations for the first half of 2006 increased to £210.9million from £199.6 million in the equivalent period of last year. Excludingthe effects of currency and businesses divested in 2005, underlying sales growthwas approximately 4 per cent. In line with the steps previously announced inour strategic review, Chromium sales were essentially the same as in the prioryear. This reflects higher prices which were offset by lower volumes resultingfrom the reduction in chromium capacity in the UK. Sales of Pigments and ofSpecialty Products, principally rheological additives, increased significantlyfrom the prior year. While this is partly attributable to favourable conditionsin the coatings and oilfield markets, we believe that Elementis also gainedmarket share due to improved customer service levels and more effective salesefforts resulting from actions taken as part of the strategic review. Operating profit from continuing operations for the first half of 2006, beforeexceptional items was £18.1 million versus £7.4 million in the previous period.Operating margins increased in each line of business except for Surfactants, asfixed cost reductions implemented as part of the strategic review were combinedwith improved pricing in Chromium and higher sales in other products. SpecialtyProducts in particular generated a significant increase in sales and operatingmargins, and we are pleased that this business is now generating returns thatcompare well with other leading specialty chemical companies. Profit before tax from continuing operations before exceptional items increasedto £14.4 million and earnings increased to 3.2 pence per share, from £3.9million and 0.8 pence per share in the first half of 2005. Exceptional items inthe first half of 2006 had no net effect on earnings whereas in the same periodlast year they contributed a loss before tax of £7.6 million or 1.4 pence pershare. In July we replaced the Company's banking facilities with new arrangements,extending until 2011 on terms more favourable than those previously in place. Environmental, health and safety performance in the first half of the yearcontinues to compare well with industry standards. However, there were a smallnumber of incidents requiring time away from work and our goal continues to beto eliminate such incidents entirely. Dividend The Board has declared an interim dividend of 1.2 pence per share compared withan interim distribution of 1.1 pence in 2005 which took the form of redeemable Bshares. The Board expects to continue to review distributions to shareholders inthe light of future earnings performance. Current trading and outlook The Company is continuing its efforts to generate organic sales growth, toincrease new product development and achieve further operating efficiencies.Current indications are that market conditions in the second half will besimilar to those in the first half which should enable the Company to generateearnings that are ahead of full year expectations. Edward BramsonExecutive Chairman1 August 2006 Operating and financial reviewfor the six months ended 30 June 2006 Revenue Effect of Increase/ Revenue exchange (decrease) Revenue 2005 rates Disposals 2006 2006 £million £million £million £million £millionSpecialties- Specialty Products 69.5 1.7 (4.8) 10.4 76.8- Surfactants 24.8 0.3 - (0.4) 24.7 ______ ______ ______ ______ ______ 94.3 2.0 (4.8) 10.0 101.5Pigments 46.7 2.7 - 1.5 50.9Chromium 62.0 2.9 - (3.0) 61.9Specialty Rubber 24.0 - (24.0) - -Inter-segment (3.4) - - - (3.4) 223.6 7.6 (28.8) 8.5 210.9 ______ ______ ______ ______ ______ Group results Group sales from continuing operations increased by 6 per cent to £210.9 millionin the first half of 2006, compared to £199.6 million in the previous period.Excluding the effects of currency and businesses sold in 2005, underlying saleswere up by 4 per cent. Specialty Products experienced strong volume growth in2006, while volumes were lower in Elementis Chromium due to the effects of the2005 price improvement programme and the rebalancing that is underway in themarket following the UK plant closure in March 2006. Average pricing across theGroup improved by 6 per cent versus the previous year, largely driven byChromium prices which were on average 18 per cent higher than 2005. More modestprice improvement was seen in the other businesses. Operating profit from continuing operations before exceptional items was £18.1million, which is £10.7 million higher than the previous period. All businessesshowed improved operating margins compared to the previous year, except forSurfactants where margins were more or less flat. In addition to the improvementin sales, operating profit also benefited from cost reductions resulting fromthe restructuring undertaken as part of the Board's recent strategy review. InOctober 2005 the Group announced that 2006 would benefit from cost reductions of£11.1 million and approximately £6.8 million of this has been delivered in thefirst half of the year. Energy costs increased by £5.6 million due to priceincreases of over 30 per cent versus the first half of 2005. In the early partof 2006 approximately 40 per cent of the Group's energy requirements were fixedfor the whole year and this has helped stabilise energy costs during the firsthalf. Other variable costs increased by around 5 per cent. Currency exposure for2006 has also been hedged during the first half of 2006, so that approximately80 per cent of the total exposure for 2006 and 2007 has been fixed. During thefirst half of 2006 the effect of this hedging was to improve operating profit by£0.6 million, with most of the benefit accruing to Elementis Specialties andElementis Chromium. As a result, currency movements had no material impact onoperating profit compared to the previous period. Profit before tax and exceptional items from continuing operations for the firsthalf of 2006 was £14.4 million compared to £3.9 million last year as a result ofthe higher operating profit, while net finance costs were at a similar level tothe previous year. Basic and diluted earnings per share from continuing businesses beforeexceptional items, was 3.2p (2005: 0.8p) as a result of the increase inoperating profit. Elementis Specialties Specialty Products The first half performance for Specialty Products was characterised by strongvolume growth and improved margins supported by the initial cost benefits fromthe restructuring announced in October 2005. Operating profit 2006for the six months ended 30 June Operating Exceptional Adjusted profit items* operating profit £millionContinuing operationsSpecialties - Specialty Products 10.7 1.1 11.8 - Surfactants 0.1 0.3 0.4 ______ ______ ______ 10.8 1.4 12.2Pigments 4.0 (1.0) 3.0Chromium 6.4 (0.4) 6.0Central costs (3.1) - (3.1) ______ ______ ______ 18.1 - 18.1Discontinued operationsSpecialty Rubber - - - 18.1 - 18.1 ______ ______ ______ * excluding profit/(loss) on disposal of business (continued from table above) Operating profit 2005for the six months ended 30 June Operating Exceptional Adjusted profit items* operating profit £millionContinuing operationsSpecialties - Specialty Products 7.5 - 7.5 - Surfactants (3.3) 4.0 0.7 ______ ______ ______ 4.2 4.0 8.2Pigments (6.0) 7.1 1.1Chromium 2.9 - 2.9Central costs (5.9) 1.1 (4.8) ______ ______ ______ (4.8) 12.2 7.4Discontinued operationsSpecialty Rubber 0.7 - 0.7 (4.1) 12.2 8.1 ______ ______ ______ * excluding profit/(loss) on disposal of business Sales for the first half of 2006 were 19 per cent higher than the previous yearat £76.8 million after allowing for business disposals, and 16 per cent higherafter excluding currency effects. Improved volumes were the main contributor andincreased by 15 per cent over the previous year. There was stronger demand fromthe coatings sector in the first half of 2006, where volumes were 17 per centhigher, due to a strong cyclical recovery following a year of softer demand in2005 and partly as a result of consolidation in the sector. All regions showedgood volume growth; North America (19 per cent increase) was strong across allcategories, while Europe (13 per cent increase) was strong in decorativecoatings but showed more modest growth in the industrial sector. The commercialteams also made good progress in further penetrating the Asia Pacific markets,where volumes increased by more than 20 per cent. Sales were also notably higher in the oilfield sector, where volumes increasedby 22 per cent. High oil prices and rig count increases of around 20 per cent inboth North America and Europe were the main driver, but Elementis is alsobenefiting from increased drilling in extreme conditions which leads to agreater quantity of additives being used. Sales in Europe were also helped bynew business in the Nordic region. Other sectors also performed well in thefirst half. Pricing in Specialty Products was marginally higher than theprevious year but management believes that this is an area where performance canbe improved, and selective price increases of between 2 and 5 per cent areplanned for the second half of 2006. Operating profit before exceptional items improved by 57 per cent over theprevious year to £11.8 million and the operating margin was 15.4 per cent,compared to 10.8 per cent in 2005. Margins improved due to the leveraging effectof higher sales volumes, but also from reductions in fixed costs following theBoard's strategy review in the second half of 2005. As part of that review itwas identified that selling, general and administrative costs in SpecialtyProducts were out of line with other specialty chemical companies and promptaction has been taken to correct this. Reductions have been made in all costcategories and, as a result, fixed costs are around 10 per cent lower than theywere in the first half of 2005. Raw materials and other variable costs increasedby approximately 6 per cent versus the previous year. Surfactants Surfactant sales for the first half of 2006 were in line with the previous yearat £24.7 million. Sales improved in the oilfield sector due to strong demand,but this was offset by the optimisation process that has been ongoing in thebusiness since it was acquired in 2004. As part of this process, surfactantmanufacturing volumes have been reduced either to eliminate low margin productsor to preferentially utilise plant capacity to produce higher margin additivesfor Specialty Products. Operating profit before exceptional items for the first half was £0.4 millionversus £0.7 million in 2005. Lower volumes and raw material inflation werepartly offset by the positive mix benefits of the optimisation process describedabove, plus fixed cost savings from the restructuring of the Delden siteannounced in 2005. Elementis Pigments The Pigments business has undergone a significant reorganisation of itsmanufacturing base, following the successful start up of the Taicang plant inChina during the second half of 2005. The new facility augments the existingmanufacturing cost model and, following the successful transitioning of keycustomers to the new product, 2006 operating performance is beginning to showthe benefits of this strategic repositioning. Sales in Pigments were £50.9 million in the first half of 2006 compared to £46.7million in the previous year, an increase of 9 per cent, or 3 per cent ifcurrency effects are excluded. Volumes were 3 per cent ahead of the previousyear, but this overall increase masks good growth in coatings and chemicalapplications as well as in construction. In coatings and chemicals volumesincreased by 6 per cent driven by a stronger coatings market this year, andsales were particularly strong in Asia Pacific where volumes increased by almost30 per cent. In the construction sector volumes improved by 10 per cent over the previousyear and the North American market was strong across most sectors, with volumes12 per cent higher. In Europe volumes were somewhat softer as a result of lowerdemand, but also due to some low margin business being exited. Strongconstruction growth is still evident in Asia Pacific and volumes grew by over 50per cent versus the previous year. Overall volumes in Pigments were tempered by a 15 per cent reduction in salesvolumes of driers. This business has undergone significant restructuringfollowing the acquisition of the Servo business in 2004, and towards the end ofthe first half of 2006 the decision was made to exit the North American businessby selling the inventory and customer list to a third party for £0.9 million. Inaddition, sales in Europe were reduced in order to focus on areas where thebusiness was more differentiated. Average prices in coatings and chemical applications increased by 4 per cent dueto increases in some key coatings products in response to escalating natural gasprices. Prices in construction were relatively flat year on year. Operating profit before exceptional items was £3.0 million for the first half of2006 versus £1.1 million in the previous year. Operating margin progressed to5.9 per cent in 2006 versus 2.4 per cent last year, largely due to the highersales and the cost benefits of the new Taicang plant. The sale of the NorthAmerican driers business resulted in a one time charge in the first half of 2006of £0.3 million. Elementis Chromium Sales 2006 2005£millionUS 34.9 31.5UK 27.0 30.5 61.9 62.0 ______ ______Adjusted operating profit/(loss)*US 5.6 4.4UK 0.4 (1.5) 6.0 2.9 ______ ______ * before exceptional items The Chromium business was significantly restructured during the first half of2006 following the Board's strategic review announced in October 2005. Part ofthe plant at Eaglescliffe, UK, was closed in March 2006 reducing the Group'sglobal manufacturing capacity by 25 per cent. In addition, more hedging activityhas taken place in areas such as energy and currency, and contract discussionshave taken place with customers with a view to sharing the effects of some ofthe more volatile cost elements. All of this has been done to reduce thevolatility, and thereby improve the predictability, of Chromium earnings goingforward. Performance in the first half of 2006 has also benefited from theaggressive price improvement programme that was implemented throughout 2005.Consequently average prices in the first half of 2006 are 18 per cent higherthan the previous year, more than offsetting increases of around £4.0 million inboth raw materials and energy, with some key raw materials increasing in priceby up to 20 per cent. The combination of the restructuring of the business andthe significant improvement in pricing has inevitably led to some changes in thesales mix versus last year, and the balance of product sales is still intransition as the market adjusts to the effects of the recent UK plant closure.Pricing has remained stable during the first half of 2006. In the US, sales for the first half of 2006 were 11 per cent higher than theprevious period at £34.9 million and 5 per cent higher after adjusting forcurrency movements. Price was the main driver of the improvement, offset by somechanges in sales mix. Chromic acid volumes were 10 per cent lower than the priorperiod due to a combination of changes in the CCA market for timber treatment atthe beginning of last year, the effects of the price improvement programme andthe loss of sales in the US of the UK product following its withdrawal in Marchthis year. Conversely, sales volumes of sodium dichromate were 7 per cent higherthan the previous year due to additional sales to Japan following plant closuresin that country during 2005. Operating profit before exceptional items for thefirst half of 2006 was £5.6 million, an increase of £1.2 million over theprevious period. Improved pricing contributed approximately £5.5 million whichmore than offset increases in energy and raw materials and changes in sales mix. In the UK, sales for the first half of 2006 were 11 per cent lower than theprior period at £27.0 million. Excluding the effects of currency and the plantclosure, underlying sales were 18 per cent higher, largely due to higher pricesalthough some volume was lost as a result of the price improvement programme.Similar to the US business, higher prices contributed about £5.5 million tooperating profit which more than offset increases in energy and raw materials.The net impact of the plant closure was essentially neutral as the loss of salesvolume was balanced by the associated reduction in fixed costs. Central Costs As disclosed in the 2005 Annual Report, the Group has restated its 2005segmental information to provide a clearer view of the underlying profitperformance of the business units. Consequently central costs, which are notidentifiable as costs of particular segments, are reported separately andcomprise expenditure incurred by the Board of Directors and the corporateoffice. Central costs have continued to fall following the restructuring that took placeduring 2005, in which head office functions were downsized or absorbed by thebusiness units. Consequently, central costs for the first half of 2006 were £1.7million lower than the previous year at £3.1 million. Exceptional items In the first half of 2006, there were two exceptional items which resulted in nonet charge to the income statement (2005: £6.3 million). A curtailment gain of£1.7 million arose due to changes to the US defined benefit pension scheme. Thiswas offset by further restructuring of the general and administrative activitiesin Specialties, resulting in a head count reduction of 34 and a one-time expenseof £1.7 million. Net interest - continuing operations£million 2006 2005 ______ ______Finance income 0.2 0.2Pension finance income 0.9 -Finance cost of borrowings (4.3) (2.9)Pension finance charge - (0.5)Discount on provisions (0.5) (0.3) ______ ______Total (3.7) (3.5) ______ ______ Net interest was £0.2 million higher than previous year at £3.7 million. Pensionand post-retirement benefit finance income was £0.9 million compared to a chargeof £0.5 million in 2005. This was mainly due to a reduction in the assumed costof pension liabilities as well as a reduction in the pension deficit. The costof financing borrowings increased in the period by £1.4 million to £4.3 million.On average, the cost of borrowing was 1.75 per cent higher in 2006 than previousyear. This increased the interest charge by £1.1 million which together withaccelerated amortisation costs and the effects of currency translation, morethan offset the saving due to a reduction in average borrowings. Interest cover (the ratio of operating profit before exceptional items tointerest on net borrowings) was 3.9 times (2005: 3.1 times). Taxation The Group's tax rate on profit before exceptional items was 1.3 per cent and islower than the standard UK corporation tax rate primarily due to theamortisation of goodwill in the US for tax purposes and the resolution of openissues from prior periods. The charge in the first half of 2006 includes acredit of £0.8 in respect of deferred tax and £0.5 million in respect of theresolution of prior period issues. Earnings per share Basic and diluted earnings per share from continuing operations beforeexceptional items was 3.2 pence (2005: 0.8 pence) due to the improved tradingperformance. This includes a benefit of 0.3 pence in the period as a result ofpension finance income of £0.9 million compared to a charge of £0.5 million inthe first of half of 2005. Cash flow Net borrowings increased by £10.3 million in the period to 30 June 2006 to£109.7 million. The majority of the increase was due to cash outflows of £8.1million in respect of exceptional items charged in 2005. Working capitalincreased by £16.5 million (2005: £9.0 million) reflecting seasonal trading andincreased inventory in Chromium to facilitate customer requirements during theUK plant closure and restructuring programme. The increase is also larger thanthe previous period due to favourable timing of supplier payments experienced inJune 2005. Currency fluctuations reduced net borrowings by £4.4 million. The cash flow is summarised below: 30 June 30 June 2006 2005 £million £millionEarnings before interest, tax, exceptionals,depreciation and amortisation 25.4 16.9Change in working capital (16.5) (9.0)Pension (1.6) (1.8)Interest and tax (4.2) (3.5)Restructuring (8.1) -Other 0.1 (0.5)Capital expenditure (5.0) (9.0) ______ ______ (9.9) (6.9)Distribution to shareholders (4.8) (4.6)Acquisitions and disposals - 7.8Reclassification of B shares - (2.2)Currency fluctuations 4.4 (5.0) ______ ______ (10.3) (10.9)Net borrowings at start of period (99.4) (90.2) ______ ______Net borrowings at end of period (109.7) (101.1) ______ ______ The Group refinanced its borrowing facilities on improved terms on 17 July 2006and entered into a £150.0 million, five year, revolving credit facility with asyndicate of lenders. The facility will be used to finance existing workingcapital and debt requirements. At 30 June 2006 loans drawn under the facilitythat was replaced on 17 July 2006 were classified within current liabilities asthey were due for repayment in January 2007. In the previous year these loanswere classfied as non-current liabilities. Capital expenditure Following a number of years of significant investment, capital expenditure was£4.0 million lower than the comparative period at £5.0 million (2005: £9.0million). This represented less than 70 per cent of the depreciation charge(2005: 101 per cent). Balance sheet 30 June 30 June 2006 2005 £million £millionTangible fixed assets 130.4 174.2Other net assets 166.7 151.5 ______ ______ 297.1 325.7 ______ ______Equity 187.4 224.6Net borrowings 109.7 101.1 ______ ______ 297.1 325.7 ______ ______Gearing(1) 37% 31% ______ ______ (1) the ratio of net borrowings to equity attributable to parent plus netborrowings Equity is £37.2 million lower than the value at 30 June 2005 primarily due tothe restructuring charges in the second half of 2005. Equity at 31 December 2005was £189.8 million and the net decrease of £2.4 million in the period is due tocurrency fluctuations, primarily on US Dollar denominated goodwill, which morethan offset the profit for the period. The main sterling currency exchange rates in the period were: 2006 2006 2005 2005 30 June Average 30 June Average ______ ______ ______ ______US dollar 1.85 1.79 1.79 1.87Euro 1.45 1.45 1.48 1.45 ______ ______ ______ ______ Pensions and other post retirement benefits The pension liability was £55.8 million at 30 June 2006 compared to £62.0million at 31 December 2005. The pension schemes were not revalued at 30 June2006 and the net liability calculated by the Group's actuaries at 31 December2005 has been updated for contributions paid and amounts expensed in the sixmonths ended 30 June 2006. In the first half, a net amount of £1.5 million(2005: £3.4 million) was charged to the profit and loss account after a financeincome credit of £0.9 million (2005: charge of £0.5 million). Contributions paidamounted to £4.0 million (2005: £5.1 million), and a curtailment gain in respectof the US defined benefit scheme reduced the pension liability by £1.7 million(2005: nil). Brian TaylorsonFinance Director1 August 2006 Consolidated interim income statementfor the six months ended 30 June 2006 Six months ended 30 June 2005 Note Six months Before Exceptional After ended exceptional Items exceptional 30 June 2006 items (note 6) items £million £million £million £millionContinuing operationsRevenue 3 210.9Cost of sales (145.9) 199.6 - 199.6Gross profit 65.0 (140.9) (8.1) (149.0)Distribution costs (29.0) 58.7 (8.1) 50.6Administrative expenses (17.9) (29.5) (1.3) (30.8)Operating profit/(loss) 3 18.1 (21.8) (2.8) (24.6)Profit on disposal of business - 7.4 (12.2) (4.8)Finance income 4 1.1 - 4.6 4.6Finance costs 5 (4.8) 0.2 - 0.2Profit/(loss) before income tax 3 14.4 (3.7) - (3.7)Tax 7 (0.2) 3.9 (7.6) (3.7)Profit/(loss) from continuing 14.2 (0.1) 1.3 1.2operations ______ ______ ______ ______Discontinued operation 3.8 (6.3) (2.5)Profit from discontinued operation -Profit for the period 14.2 0.6 - 0.6Attributable to: Equity holders of the parent 14.1 4.4 (6.3) (1.9)Minority interests 0.1 (2.1) 4.2 (6.3) 14.2 0.2 - 0.2 ______ ______ ______ ______Earnings/(loss) per share 4.4 (6.3) (1.9)From continuing and discontinuedoperations:Basic and diluted (pence) 8 3.2From continuing operations: 1.0 (0.5)Basic and diluted (pence) 8 3.2 0.8 (0.6) Consolidated interim income statement (continued) Year ended 31 December 2005 Before Exceptional After Note exceptional items exceptional items (note 6) items £million £million £millionContinuing operationsRevenue 3 399.4 - 399.4Cost of sales (280.8) (41.0) (321.8)Gross profit 118.6 (41.0) 77.6Distribution costs (58.5) (2.6) (61.1)Administrative expenses (41.0) (0.9) (41.9)Operating profit/(loss) 3 19.1 (44.5) (25.4)Profit on disposal of business - 4.6 4.6Finance income 4 0.3 - 0.3Finance costs 5 (7.8) - (7.8)Profit/(loss) before income tax 3 11.6 (39.9) (28.3)Tax 7 (0.3) (3.1) (3.4)Profit/(loss) from continuing operations 11.3 (43.0) (31.7)Discontinued operationsProfit/(loss) from discontinued operation 1.1 (7.8) (6.7)Profit/(loss) for the year 12.4 (50.8) (38.4)Attributable to:Equity holders of the parent 12.2 (50.3) (38.1)Minority interests 0.2 (0.5) (0.3) 12.4 (50.8) (38.4) ______ ______ ______Earnings per shareFrom continuing and discontinuing operationsBasic and diluted (pence) 8 2.8 (8.8)From continuing operations:Basic and diluted (pence) 8 2.6 (7.2) Consolidated interim statement of recognised income and expensefor the six months ended 30 June 2006 2006 2005 2005 Six months Six months Year ended ended ended 31 December 30 June 30 June £million £million £millionExchange differences on translation of foreign operations (11.6) 11.5 18.3Actuarial loss on pension and other post retirement schemes - - (1.5)Deferred tax associated with pension and other post retirementschemes - - (0.9)Gains on cash flow hedges 0.6 - 0.7Net income/(expense) recognised in equity (11.0) 11.5 16.6Profit/(loss) for the period 14.1 (2.1) (38.4)Total recognised income and expense for the period 3.1 9.4 (21.8)Effect of change in accounting policyEffect of adoption of IAS 32 and 39 on 1 January 2005 on:Share capital - (2.2) (2.2) 3.1 7.2 (24.0)Attributable to: Equity holders of the parent 3.0 7.0 (23.7)Minority interests 0.1 0.2 (0.3) 3.1 7.2 (24.0) ______ ______ ______ Consolidated interim balance sheetat 30 June 2006 2006 2005 2005 30 June 30 June 31 December £million £million £millionNon-current assetsGoodwill and other intangible assets 159.8 164.6 170.6Property, plant and equipment 130.4 174.2 141.1Interests in associates and other investments 3.2 2.2 3.3Deferred tax assets 11.2 17.6 11.1Total non-current assets 304.6 358.6 326.1 ______ ______ ______ Current assetsInventories 70.8 73.9 63.5Trade and other receivables 77.5 95.6 75.6Cash and cash equivalents 19.1 12.6 13.0Total current assets 167.4 182.1 152.1Total assets 472.0 540.7 478.2 Current liabilitiesBank overdrafts and loans (128.8) (6.2) (4.6)Trade and other payables (62.7) (77.2) (69.5)Current tax liabilities (6.7) (7.3) (5.6)Provisions (5.2) (7.6) (11.8)Total current liabilities (203.4) (98.3) (91.5) Non-current liabilitiesLoans and borrowings - (107.5) (107.8)Retirement benefit obligations (55.8) (81.8) (62.0)Deferred tax liabilities - (1.8) (0.3)Provisions (21.3) (21.9) (22.4)Government grants (2.4) (2.3) (2.3)Total non-current liabilities (79.5) (215.3) (194.8)Total liabilities (282.9) (313.6) (286.3)Net assets 189.1 227.1 191.9 ______ ______ ______ EquityShare capital 22.0 22.1 21.8Share premium 2.6 1.2 1.9Other reserves 78.8 75.9 89.5Retained earnings 84.0 125.4 76.6Equity attributable to equity holders of the parent 187.4 224.6 189.8Minority equity interests 1.7 2.5 2.1Total equity and reserves 189.1 227.1 191.9 ______ ______ ______ Consolidated interim cash flow statementfor the six months ended 30 June 2006 2006 2005 2005 Six months Six months Year ended ended ended 31 December 30 June 30 June £million £million £millionOperating activities:Profit/(loss) for the period 14.2 (1.9) (38.4)Adjustments for:Finance income (1.1) (0.2) (0.3)Finance costs 4.8 3.8 7.9Tax 0.2 (1.2) 3.4Depreciation and amortisation 7.3 8.9 18.2Decrease in provisions (0.5) (1.5) (1.3)Pension contributions net of current service cost (1.6) (1.8) (14.1)Share-based payments 0.4 0.3 0.8Exceptional items charged less cash outflow (8.1) 7.7 35.0Operating cash flows before movements in working capital 15.6 14.1 11.2Increase in inventories (6.8) (3.7) (1.0)Increase in trade and other receivables (2.5) (12.1) 0.3(Decrease)/increase in trade and other payables (7.2) 6.8 2.6Cash generated by operations (0.9) 5.1 13.1Income taxes (paid)/received (0.3) (0.7) (2.6)Interest paid (4.1) (3.1) (7.2) ______ ______ ______Net cash flow from operating activities (5.3) 1.3 3.3Investing activities:Interest received 0.2 0.3 0.4Purchase of property, plant and equipment (5.0) (9.0) (16.8)Proceeds from sale of property, plant and equipment 1.2 - -Disposal of businesses - 7.8 23.7 ______ ______ ______Net cash used in investing activities (3.6) (0.9) 7.3Financing activities:Issue of shares 0.9 0.6 0.9Redemption of B shares - (4.6) (9.7)Purchase of own shares (1.9) - -Dividends paid (4.8) - -Decrease in borrowings repayable within one year - (3.0) (3.0)Increase/(decrease) in borrowings repayable after one year 25.4 2.7 (0.9)Repayments of obligations under finance leases - (0.2) (0.2) ______ ______ ______Net cash (used in)/from financing activities 19.6 (4.5) (12.9) ______ ______ ______Net increase/(decrease) in cash and cash equivalents 10.7 (4.1) (2.3)Cash and cash equivalents at beginning of period 8.4 10.3 10.3Foreign exchange on cash and cash equivalents (0.5) 0.2 0.4 ______ ______ ______Cash and cash equivalents at end of period 18.6 6.4 8.4 ______ ______ ______ Notes to the interim financial statementsfor the six months ended 30 June 2006 1 General Information The financial information for the first six months of 2006 and 2005, which isunaudited but has been reviewed by the Company's auditor, does not constitutestatutory accounts within the meaning of section 240 of the Companies Act 1985,and is presented on the basis of accounting policies set out in the financialstatements of Elementis plc for the year ended 31 December 2005. The comparative figures for the year ended 31 December 2005 are not theCompany's statutory accounts for that financial year. Those accounts, whichwere prepared and approved by the directors in accordance with InternationalFinancial Reporting Standards as adopted by the EU (adopted IFRS), have beenreported on by the Company's auditor and delivered to the Registrar ofCompanies. The auditor's report was unqualified and did not contain statementsunder section 237 (2) or (3) of the Companies Act 1985. 2 Accounting estimates and judgements The preparation of interim financial statements requires management to makejudgements, estimates and assumptions that affect the application of accountingpolicies and the reported amounts of income, expense, assets and liabilities.Other than reassessing its estimates in respect of previously unrecogniseddeferred tax assets, the significant estimates and judgements made by managementwere consistent with those applied to the consolidated financial statements forthe year ended 31 December 2005. 3 Segment reporting For management purposes the Group is currently organised into three operatingdivisions - Specialties, Pigments and Chromium. Principal activities are asfollows: Specialties - production of rheological and surface chemistry additives; Pigments - production of synthetic iron oxides and complementary products; Chromium - production of chromium chemicals. Six months ended 30 June 2006 Gross Inter-segment External £million £million £millionRevenue from continuing operationsSpecialties 101.5 (0.2) 101.3Pigments 50.9 (0.2) 50.7Chromium 61.9 (3.0) 58.9 214.3 (3.4) 210.9 ______ ______ ______ (continued from table above) Six months ended 30 June 2005 Gross Inter-segment External £million £million £millionRevenue from continuing operationsSpecialties 94.3 (1.4) 92.9Pigments 46.7 (0.1) 46.6Chromium 62.0 (1.9) 60.1 203.0 (3.4) 199.6 ______ ______ ______ Six months ended 30 June 2006 Before After exceptional Exceptional exceptional items items items £million £million £millionResult from continuing operationsSpecialties 12.2 (1.4) 10.8Pigments 3.0 1.0 4.0Chromium 6.0 0.4 6.4Central costs (3.1) - (3.1) 18.1 - 18.1Profit on disposal of business - - -Finance income 1.1 - 1.1Finance costs (4.8) - (4.8) ______ ______ ______Profit/ (loss) before tax 14.4 - 14.4 ______ ______ ______ (continued from table above) Six months ended 30 June 2005 Before Exceptional After exceptional exceptional items items items £million £million £millionResult from continuing operationsSpecialties 8.2 (4.0) 4.2Pigments 1.1 (7.1) (6.0)Chromium 2.9 - 2.9Central costs (4.8) (1.1) (5.9) 7.4 (12.2) (4.8)Profit on disposal of business - 4.6 4.6Finance income 0.2 - 0.2Finance costs (3.7) - (3.7) ______ ______ ______Profit/ (loss) before tax 3.9 (7.6) (3.7) ______ ______ ______ Year ended 31 December 2005 Revenue from continuing operations Gross Inter-segment External £million £million £millionSpecialties 185.4 (1.5) 183.9Pigments 90.7 (0.2) 90.5Chromium 129.4 (4.4) 125.0Central costs - - - 405.5 (6.1) 399.4Profit on disposal of businessFinance incomeFinance costsProfit before tax (continued from table above) Year ended 31 December 2005 Result from continuing operations Before After exceptional Exceptional exceptional items items items £million £million £millionSpecialties 17.6 (2.9) 14.7Pigments 1.2 (7.1) (5.9)Chromium 7.8 (29.5) (21.7)Central costs (7.5) (5.0) (12.5) 19.1 (44.5) (25.4)Profit on disposal of business - 4.6 4.6Finance income 0.3 - 0.3Finance costs (7.8) - (7.8)Profit before tax 11.6 (39.9) (28.3) ______ ______ ______ 4 Finance income 2006 2005 2005 Six months Six months Year ended ended ended 30 June 30 June 31 December £million £million £millionContinuing operationsInterest on bank deposits 0.2 0.2 0.3Pension and other post-retirement liabilities Expected return on pension scheme assets 13.2 - - Interest on pension scheme liabilities (12.3) - - 0.9 - - 1.1 0.2 0.3 5 Finance costs 2006 2005 2005 Six months Six months Year ended ended ended 30 June 30 June 31 December £million £ million £millionContinuing operationsInterest on bank loans 4.2 2.8 6.5Interest on other loans - - 0.1Total borrowing costs 4.2 2.8 6.6Interest on corporation tax payments 0.1 0.1 0.1Unwind of discount on provisions 0.5 0.3 0.7Pension and other post-retirement liabilities Expected return on pension scheme assets - (12.2) (24.8) Interest on pension scheme liabilities - 12.7 25.2 - 0.5 0.4 4.8 3.7 7.8 ______ ______ ______ 6 Exceptional items 2006 2005 2005 Six months Six months Year ended ended ended 30 June 30 June 31 December £ million £ million £ millionContinuing operationsCentral restructuring charge - (1.1) (3.4)Pigments East St Louis rationalisation - (7.1) (7.1)Restructure of Chromium - - (31.4)Integration of Servo business - (4.0) (6.5)Integration of Specialties and Pigments (1.7) - (3.3)Insurance recovery - - 1.1Settlement of legal claims - - (2.4)Curtailment gains on pension schemes 1.7 - 8.5Profit on disposal of business - 4.6 4.6 ______ ______ ______ - (7.6) (39.9)Discontinued operationsDisposal of business - - (7.8) ______ ______ ______ - (7.6) (47.7)Tax credit/(charge) on exceptional items - 1.3 (3.1) - (6.3) (50.8) ______ ______ ______ 7 Tax The tax charge on profit before exceptional items of £0.2 million (2005: £0.1million) is based on an estimated effective tax rate on profit beforeexceptional items for the year to 31 December 2006 of 1.3 per cent (2005: 2.6per cent). The rate is lower than the standard UK corporation tax rateprimarily due to the amortisation of goodwill in the US for tax purposes. 8 Earnings per share 2006 2005 2005 Six months Six months Year ended ended ended 30 June 30 June 31 December £million £million £millionEarnings for the purposes of basic earnings per 14.1 (2.1) (38.1)shareExceptional items net of tax - 6.3 50.3 ______ ______ ______Adjusted earnings 14.1 4.2 12.2 ______ ______ ______ Number(m) Number(m) Number(m)Weighted average number of shares for thepurposes of basic earnings per share 435.5 433.0 434.2Effect of dilutive share options 11.0 8.1 7.4 ______ ______ ______Weighted average number of shares for thepurposes of diluted earnings per share 446.5 441.1 441.6 ______ ______ ______ The calculation of the basic and diluted earnings per share from continuingoperations attributable to the ordinary equity holders of the parent is based onthe following: 2006 2005 2005 Six months Six months Year ended ended ended 30 June 30 June 31 December £million £million £millionProfit/(loss) for the period attributable toequity holders of the parent 14.1 (2.1) (38.1)(Profit)/loss for the period from discontinuedoperations - (0.6) 6.7Profit/(loss) from continuing operations 14.1 (2.7) (31.4)Exceptional items from continuing operationsbefore minority interests - 6.3 42.5 ______ ______ ______Adjusted earnings from continuing operations 14.1 3.6 11.1 ______ ______ ______ 2006 2005 2005 Six months Six months Year ended ended ended 30 June 30 June 31 December pence pence penceEarnings per share:From continuing and discontinuing operations:Basic and diluted 3.2 (0.5) (8.8)Basic and diluted before exceptional items 3.2 1.0 2.8From continuing operations:Basic and diluted 3.2 (0.6) (7.2)Basic and diluted before exceptional items 3.2 0.8 2.6 ______ ______ ______ 9 Dividends The following dividends were declared and paid by the Group: 2006 2005 2005 Six months Six months Year ended ended ended 30 June 30 June 31 December £million £million £million1.1 pence per ordinary share (2005: nil) 4.8 - -Preference dividend on B shares - - 0.1 _______ ______ ______ 4.8 - 0.1 ______ ______ ______ An interim dividend of 1.2 pence per share (2005: nil) is proposed and will bepaid on 3 November 2006. 10 Movement in net borrowings 2006 2005 2005 Six months Six months Year ended ended ended 30 June 30 June 31 December £million £million £millionChange in net borrowings resulting from cashflowsIncrease/(decrease) in cash and cash 10.7 (4.1) (2.3)equivalents(Increase)/decrease in borrowings (25.4) 0.4 4.1 (14.7) (3.7) 1.8Transfer of B shares from equity - (2.2) (2.2)Currency translation differences 4.4 (5.0) (8.8)Increase in net borrowings (10.3) (10.9) (9.2)Net borrowings at beginning of period (99.4) (90.2) (90.2)Net borrowings at end of period (109.7) (101.1) (99.4) ______ ______ ______ This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Elementis