31st Oct 2005 07:00
Elementis PLC31 October 2005 31 October 2005 Elementis plc Strategic Review Elementis plc is today announcing the results of the first phase of itspreviously announced Strategic Review, which was undertaken recently followingchanges in the composition of the Board. The Board, having reviewed the businesses and operations of the Company, hasdecided to implement a number of changes in order to achieve three keyobjectives as follows: • Improve the base earnings level of the Company • Reduce the volatility of Chromium earnings • Refocus attention on Specialties, which is the largest and most profitable business. The results of the review of the strategy for Specialties will be reported uponduring the first half of 2006. This first phase of the Review has mainlyaddressed the first two of these objectives and has led to the followingactions: Improvement of base earnings To improve the base level of earnings, there will be a further reduction in HeadOffice personnel, with most corporate functions being absorbed into thebusinesses. When added to reductions announced in the first half of 2005, thecombined effect will have been to reduce Head Office personnel costs byapproximately 80% since the beginning of the year. Further cost improvements will be made by combining the US administrativefunctions of the Specialties and Pigments businesses, although they will stillbe reported separately and each will continue to have its own businessmanagement. Specialties will focus resources on improving efficiency and customer servicewhile reducing costs across several functions. The combined effect of these changes will be to reduce annualized fixed costs byapproximately £8.5 million, which is in addition to savings already announced inthe first half of the year. Implementation of these changes has already begun and it is anticipated that 90per cent of the savings will be achieved during 2006 which, when combined withthe savings already announced, will lead to a year on year improvement in fixedcosts of approximately £11.1 million. Chromium Chromium will close around 50 per cent of capacity at its Eaglescliffe, UKplant, representing 25 per cent of the Company's global capacity, in order toreduce volatility in its earnings and make the overall business more sustainablegoing forward. Although the Group's global Chromium business is currently benefiting fromimproved pricing, the UK business has recorded losses in 2003, 2004 and thefirst half of 2005 due to high energy costs, a strong pound and a lessfavourable product and customer mix when compared to the business in the US.This, in turn has led to a higher degree of volatility in earnings and a lowoverall return on sales. The Eaglescliffe plant will cease production of chromic acid and chromesulphate, and concentrate on chrome oxide and sodium dichromate, resulting in areduction in the workforce and reducing global output by approximately 15%. Asa result of the closure, Chromium fixed costs will be reduced in the UK byapproximately £11.7 million, offset by a reduction in output, leaving operatingprofit essentially unchanged. Going forward the business will look to further reduce earnings volatility byadditional hedging of input costs and restructuring of sales contracts. One off charges As a result of these changes, Elementis will record a one time charge in 2005 of£37.6 million, of which £25.0 million relates to asset write downs in Chromiumand £12.6 million will be paid in cash for severance and other closure costs,with approximately one third being paid in 2005. The cash component will befinanced from a reduction in working capital in Chromium, resulting from thecapacity closure, and net proceeds from the recently announced sale of theSpecialty Rubber business. Current Trading As stated at the time of the interim results, the company's current tradingperformance is in line with its expectations for continued improvement in thesecond half of the year. Commenting on the outcome of the Strategic Review, Edward Bramson, ExecutiveChairman said: "We anticipate that this will leave us with a more profitable and less volatilebusiness going forward, and we look forward to further outlining the strategyfor Specialties in the New Year" - ENDS - Enquiries: Elementis plc Tel: +44 (0)1784 227000Edward Bramson ChairmanBrian Taylorson Finance Director Financial Dynamics Tel: +44 (0)20 7831 3113Andrew DowlerGreg Quine This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Elementis