AR2004

www.elementis.com

Elementis House56 Kingston RoadStainesTW18 4ES, UK

T. +44 (0)1784 22 7000F. +44 (0)1784 46 0731

Printed on Mega Matt paper and board. Mega Matt has a content of 50% totally chlorine free pulp from sustainable forests and 50% recycled fibre.No film or film processing chemicals were used and 95% of the cleaning solvent was recycled. CO2 emissions only 2.8 tonnes per million sheets printed.The electricity was generated from renewable sources and vegetable based inks were used throughout. The printer meets Environmental Agency Standards.All waste and recycling processes are managed by contractors who are ISO 14001 registered. On average over 84% of any waste associated with this product will be recycled. The front cover is laminated with purelam, a biodegradable film lamination made from wood fibres obtained from a sustainable resource.

[ L O W R E Z ]

Elementis plc Annual Report

2004

Elementis a global specialty chemicals company

Elementis p

lc Annual Rep

ort 2004

Elementis is a specialty chemicals companycomprising four separate businesses. Each business Specialties, Pigments, Chromium and Specialty Rubber holds a leading marketposition in its chosen sectors. Elementisemploys more than 2,000 people at over 40 sites in Europe, Asia Pacific, North Americaand Africa.

Elementis plc is listed on the London StockExchange and has its global headquarters in Staines, UK.

1 Highlights2 Elementis at a glance4 Chairmans statement6 Operating review

10 Elementis Specialties12 Elementis Pigments14 Elementis Chromium16 Elementis Specialty Rubber18 Elementis China20 Financial review26 Board of directors27 Management team28 Sustainable development32 Shareholder information32 Global offices 33 Report of the directors35 Board report on corporate governance40 Directors remuneration report

46 Directors responsibilities statement47 Independent auditors report48 Consolidated profit & loss account49 Balance sheets50 Consolidated cash flow statement50 Reconciliation of net cash flow to

movement in net borrowings51 Consolidated statement of total

recognised gains and losses51 Reconciliation of movements in

shareholders funds52 Notes to the financial statements74 Five year record75 Shareholder services76 Financial calendar 200576 Information for calculation of capital

gains tax

Elementis Specialties Elementis Pigments Elementis Chromium Elementis Specialty Rubber

For a full list of Elementis Pigmentsproducts please visitwww.elementispigments.com

For a full list of Elementis Specialtiesproducts please visitwww.elementis-specialties.com

For a full list of Elementis Chromiumproducts please visitwww.elementischromium.com

For a full list of Elementis SpecialtyRubber products please visitwww.linatex.com

Elementis key products

Rheological AdditivesBARAGEL 3000BENATHIX PLUSBENTONE 27 VBENTONE 34BENTONE 38 VBENTONE 42BENTONE GEL ISD VBENTONE 760BENTONE 1000BENTONE SD-1BENTONE SD-2BENTONE DEBENTONE HDM-P-A 4020 BANUVIS FX 2130RHEOLATE 125RHEOLATE 350RHEOLATE 450THIXATROL MAXTHIXCIN RCorrosion InhibitorsNALZIN 2SER-AD FA 179Anti-foaming AgentsDAPRO DF 1161DAPRO DF 4164DAPRO NA 1622SERDAS 7005SERDAS 7540Wetting & Dispersing AgentsDISPERSE-AYD 9100DISPERSE-AYD W-30NUOSPERSE FA 196NUOSPERSE FX 5004NUOSPERSE FX 9085Interfacial Tension ModifiersDAPRO S-65NUOSPERSE 2006Flatting AgentsFLAT-AYD FA NCO-6Surface ConditionersSLIP-AYD SL 50SLIP-AYD SL-508Color Pigment DispersionsTINT-AYD seriesNano Particles for PlasticsNANOX nanozincsBENTONE 108BENTONE 1651

Synthetic Iron OxidesKroma RedCopperas RedUltra YellowFerrispec Fine PowderFerrispec Granular CrystalsFerrispec Premium LiquidFerrispec Mortar ColorFerrispec Power PaksBlack Iron OxidesFerritan Zinc FerriteUmberRaw UmberBurnt UmberChromic OxideUltra GreenCamouflageChromium HydrateDurham, Nuodex & TruCure SingleMetal DriersBariumCalciumCeriumCobaltIronLeadLithiumManganeseStrontiumZincZirconiumMixed DriersVX Range of mixed driersCombi ABPCombi ANYCombi ANZCombi QSWater Based DriersCombi WEB CoCombi WEB MnCalcium WMCobalt WMManganese WMZirconium WMAnti Skinning AgentsExkin 2, 3 & 518Cobalt Free DriersManganese CelerateNuodex FS530 & FS531

Chromic AcidCA21CA UltraChromic OxideG-4099G-5099G-6099G-8599GA-4090GA-6090GA-9869 Chrome HydrateM100Metallurgical A GradeAccrox RAccrox CAmmonium DichromatePotassium DichromateSodium Dichromate69% Sodium Dichromate Solution70% Sodium Dichromate SolutionAnhydrous Sodium DichromateSodium Dichromate DihydrateChrome SulphateChromitan FMChromitan BChrometan 33% S02Chrometan Solution 15%Waynetan 150Waynetan 175Waynetan 250EXSodium Sulphate

Rubber SheetLinatexLinatex HMLinatex OZL Linaplus FGLinard 40Linard 50Linard 60Linard HDSLinacrepeLinatex MasterbatchLinard MasterbatchLinafoam Target Backing Valves Jaco ST pinch valves Jaco RT pinch valves Delta pinch valvesLinaflo valves Adhesives Solufix 14 Solufix 7 Filatex Conveyor AccessoriesLinalag W Pulley laggingLinabed impact bars Linatex EquipmentVelco vibrating screensLinapump IIIr Linaclone cyclonesGenesis cyclones Linatex separators Hydrosizers Flat Bottom classifiers T type classifiers Engineered systems Linatex vibrating screens Screening Products Linadek Modular Screen Panels Linaclad screen panels Flexdek Impact panelsMoulded ProductsFilter press membranesMoulded ProductsFilter press membranesFlotation stators & rotorsPump LinersGrinding discsProfile panels Cyclone Liners Hose Linaflex slurry hoseCut-end slurry hose Flexible sweeper hose Linadust extraction hose

Highlights

Elementis plcAnnual Report 200401

Financial highlightsSales 389.2 million (2003: 368.2 million)

Operating profit before goodwill amortisation andexceptionals 11.8 million (2003: 24.5 million)

Profit before tax, goodwill amortisation andexceptionals 6.2 million (2003: 18.3 million)

Earnings per share before goodwill amortisation andexceptionals 1.4p (2003: 3.0p)

Operating loss 2.5 million (2003: profit of 10.9 million)

Loss before tax 7.8 million (2003: profit of 5.5 million)

Basic loss per share 1.8p (2003: earnings of 1.0p)

Net year end borrowings 90.2 million including 36.3 million for the acquisition of Sasol Servo (2003: 46.9 million)

Net year end gearing 30 per cent* (2003: 16 per cent*)

* ratio of net borrowings to shareholders funds plus net borrowings

Business highlightsBy January 2005 Chromium chemicals prices up 25 per cent from late 2003 low point

Volumes and prices up in Specialties, Pigments and Specialty Rubber

Accelerated sales growth and increased synergyexpectations in Specialties

Chinese Pigments plant complete andcommissioning underway

Specialty Rubber restored to profitability

Elementis at a glance


Elementis

Elementis is a global specialtychemicals company

The Elementis strategy isfocused on growth, boththrough the development of existing businesses andthrough acquisition.

The Elementis strategy is drivenby four key objectives:

1. The achievement of stepchange improvement infinancial performance.

2. Securing sector leadership in our key markets.

3. Capturing inter-businesssynergies to achieve topquartile excellence in alloperations and processes.

4. The expansion of businessplatforms, in particular inElementis Specialties.

Specialties

Elementis Specialties is aleading producer of rheologicaland surface chemistry additives

StrategyWith its high degree of product differentiationand advanced application technologies,Elementis Specialties is the primary growthfocus for Elementis. Organic growth,technology expansion and acquisitions arekey drivers for the Specialties strategy.

During 2004, Elementis Specialtiessuccessfully acquired and began theintegration of Sasol Servo B.V. This acquisitionbrings with it access to new surfacetechnology chemistry and a Europeanmanufacturing centre of excellence forreaction chemistry. The innovation pipelinedelivered two new commercialised producttechnologies. The Specialties innovationprogramme has significant revenuegeneration targets during the current and future years.

Pigments

Elementis Pigments is a world-leading producer ofsynthetic iron oxides andcomplementary products

StrategyElementis Pigments objective is to be theworlds leading supplier for iron oxidepigments in the premium market sector.Elementis Pigments strategy for growth isbased on expansion of their highlycompetitive cost base into the premiumEuropean and Asian markets. Commissioningof a new pigments plant at TaiCang, China,began in 2004 and commercial productionwas initiated in February 2005. Additionalcapacity has also been added to the existingplant at Shenzhen, China. It is anticipatedthese developments will deliver an improvedcost model for Pigments during 2005.

Results for Elementis Specialties andElementis Pigments are reported together. 238.2million

Sales 2004

15.4million*Operating profit 2004* before goodwill amortisation and exceptionals


Global reachChromium

Elementis Chromium is theworlds largest producer ofchromium chemicals

StrategyElementis Chromiums strategic objective is to leverage its global leadership position in the chromium chemicals business. Thisleadership position is sustained through lowcost production, superior quality, the highestenvironmental standards and global marketcoverage. Following a period of falling salesprices in the chromium market, ElementisChromium successfully implemented salesprice increases during the course of 2004.By the end of the year prices of all ElementisChromium products showed significantincreases when compared with the industrylow of November 2003.

Specialty Rubber

Elementis Specialty Rubber is the leading internationalmanufacturer of wet abrasionresistant rubber products andprocess equipment, marketedunder the Linatex brand name

StrategyElementis Specialty Rubber aims to leveragethe Linatex brand and their quality marketleadership position on a global basis.Expansion of partnerships with originalequipment manufacturers and new productintroductions has aided Specialty Rubbersgeographic expansion into rapidly growingmarkets. During the course of 2004 SpecialtyRubber developed a joint venture in Santiago,Chile, which started trading in January 2005.

The performance potential of SpecialtyRubber has been demonstrated andElementis has begun a process of consideringthe strategic options for this business.

110.5millionSales 2004

(3.8) million*Operating loss 2004* before goodwill amortisation and exceptionals

45.9 millionSales 2004

0.2 million*Operating profit 2004* before goodwill amortisation and exceptionals

North AmericaAmarillo, US Belleville, US Castle Hayne, US Charleston, US Colton, US Corpus Christi, US Dakota City, US Easton, US East St Louis, US Hightstown, US Jersey City, US Milwaukee, US Newberry Springs, US Ontario, CAN Sept-Iles, CAN St Louis, US

Asia Pacific and AustraliaBatu Caves, MAL ChangXing, CHI Dandenong, AUS Darwin, AUS Hawthorne, AUS Hong Kong, CHI Kalgoorlie, AUS Mount Isa, AUS Osaka, JAPAN Perth, AUS Selangor, MAL Shanghai, CHI Shenzhen, CHI TaiCang, CHI Townsville, AUS

AfricaAlrode, SA

EuropeBirtley, UK Cologne, GER Delden, NLEaglescliffe, UK Livingston, UK Market Harborough,UK Oosterhout, NL Rotterdam, NL Staines, UK Yateley, UK

South AmericaSantiago, CHILE

KeySpecialties Pigments Chromium Specialty Rubber Head office

Chairmans statement


Turnover for the year was 21.0 million higherthan 2003 at 389.2 million. Our acquisition ofSasol Servo accounted for 34.2 million of theincrease while currency effects reduced turnoverby 24.3 million.

Operating profit for the year, before goodwillamortisation and exceptional items, was 11.8million (2003: 24.5 million). After operatingexceptionals of 2.9 million and goodwillamortisation the operating loss was 2.5 million(2003: profit of 10.9 million).

Our Chromium business had a turbulent yearfollowing the de-registration of CCA (chromatedcopper arsenate) in the US for preserving timberfor residential use. Margins were also affected byincreased energy and freight costs and the weakUS Dollar. During 2004 our average chromiumchemical prices began to recover and bettermargins are expected in 2005 despite increases in input costs.

Elementis Specialties increased underlying salesvolumes by 6 per cent. Profits were 3 per centlower than 2003 mainly due to a planned increase

in innovation spend and the implementation of anew ERP system. The integration of Sasol Servo,acquired on 30 June 2004, is proceeding well,with benefits from the acquisition now expectedto exceed initial estimates. Servo complementsour technology and extends our marketcoverage. Continuing investment in R&D in ourSpecialties business is the key both to growth andgood margins. Our Innovation Strategy continuesto make good progress.

At Elementis Pigments, the commissioning of thenew iron oxide plant at TaiCang, China, is underway and when fully operational will result in asubstantial reduction in manufacturing cost.Sales turnover grew by 8 per cent in SpecialtyRubber and profits increased as a consequence.

After a tax credit following the resolution of anumber of issues, earnings per share for 2004before goodwill amortisation and exceptionals,were 1.4 pence (2003: 3.0 pence). Basic earningsper share were a loss of 1.8 pence (2003: 1.0pence). Capital expenditure for the year was 22.0 million (2003: 21.0 million) compared todepreciation of 15.4 million. With the acquisitionof Servo net debt ended the year at 90.2 milliongiving an interest cover of 3.1 times.

It is clear that the keyelements of the programmeto bring about a step changein financial performance ofthe Group are in place.

Keith HopkinsChairman

Executive of Oxonica Ltd, has joined our Board asa non-executive director. Kevins experience bothof the chemicals industry and of new technologystart ups brings additional strength to the Board.

People The progress we have made towards our objectivesin 2004 has been realised thanks to the skill, hardwork and commitment of our employees. Onbehalf of the directors and shareholders I thankeveryone for their contribution.

OutlookThis is my first statement as Chairman. It is clearthat the key elements of the programme to bringabout a step change in financial performance ofthe Group are in place. After a challenging yearwe expect to see improvements from ourbusinesses in 2005. Signs of the long awaitedrecovery in Chromium are evident but thereremain the continuing challenges of higher input costs and a weak Dollar.

Keith HopkinsChairman

17 February 2005


Distribution to shareholdersOnce again, the distribution to shareholders willtake the form of an issue of redeemable B shares.Ordinary shareholders on the register on 26 April2005 will receive redeemable B shares with a totalnominal value of 1.1 pence for each ordinaryshare held. This compares with 1.1 pence for thecomparable issue last year.

StrategyOur objective is to create shareholder value byimproving the performance of our businessesand drive them towards high margin specialitymarkets for our products. We intend to intensifyour efforts to return our chromium business togood profitability and have strengthened its topmanagement to achieve this end. During thecourse of 2005 we expect further progress inSpecialties led by innovation and cost reductionsin Europe, while the year will be one oftransformation for our Pigments business, withthe new plant at TaiCang substantially impactingPigments cost base. With the improved results at Specialty Rubber confirming its performancepotential we are now considering the strategicoptions for this business.

Health, safety and the environment Environmental and safety performance continuesto improve and is now first class. We are planningfurther initiatives to continue this performance.For the second year, we have published a fullSustainable Development Report. Copies of thedocument can be obtained from our CorporateCommunications department at our head officein Staines, UK.

The Board Our previous Chairman, Jonathan Fry, retiredfrom the Board in October 2004, having served as Chairman of the Group since 1997. Jonathansleadership guided Elementis from its creation and helped establish todays solid platform forgrowth. We wish him every happiness in hisretirement and thank him for his invaluablecontribution to the Group. We announced inFebruary 2005 that Dr Kevin Matthews, Chief

A year in review

ChromiumDe-registration of chromatedcopper arsenate impacted volumesand margins in early 2004

Margins also impacted by increasedraw material, energy and freightcosts and weak US Dollar

Prices in January 2005 highest sinceNovember 2003

SpecialtiesSales volumes up 6 per cent

Acquisition of Sasol Servo extendstechnology and market coverage

PigmentsNew Chinese plant has enteredcommercial production cost baseimprovements going forward

Specialty RubberImproved turnover and profitability

Strategic options under review

Operating review


Sales volumes rose during 2004 in our Specialties,Pigments and Specialty Rubber businesses andwere flat at Elementis Chromium, whereincreased sales to China compensated in volumeterms for the loss of the residential market forCCAs in the US. Prices have risen in all businesses.However these increases were not sufficient tooffset the negative impact on Group profitabilityof rapidly escalating energy, raw material andfreight costs, adverse currency movements andextreme weather conditions in Northern andCentral America.

Although very challenging, 2004 saw thesuccessful implementation of some of the majortransformational steps planned as part of theElementis strategy. The chromium chemicalsmarket has turned and by January 2005 realisedprices were 25 per cent ahead of the low point oflate 2003. Elementis Specialties completed a keyacquisition and growth accelerated. Pigmentsexecuted an investment in China which willtransform its cost base. Profitability was restoredin Specialty Rubber and our company-wide ERPimplementation progressed successfully.

At Elementis Specialties our strategy is to achieve sustainable high growth by expandingour market and technology platforms. Sales at Specialties in 2004 have increased byapproximately 37 per cent in US Dollars, with the acquisition of Sasol Servo, geographicalexpansion and new product introductionscontributing significantly. Potential synergiesfrom the Sasol Servo acquisition are currentlyexpected to exceed our original estimates byapproximately 40 per cent.

The Elementis Pigments strategy is to secureleadership in premium markets whiletransforming our cost base in Asia Pacific to drive growth and profitability. Our new world-scale Pigments plant in China is now completeand commercial operations will begin at the end of February 2005.

Following the streamlining of global operations at Elementis Specialty Rubber, our strategy is to leverage our well-invested, low costmanufacturing cost base, local market presencein key mining areas, product performanceadvantages and brand recognition to drivevolume and continue to improve profitability.

Increased pricing forchromium chemicals

Acquisition of Sasol Servo B.V.

Construction of world-scalepigments plant in China

Performance potentialdemonstrated at Specialty Rubber

Geoff GaywoodChief Executive


Specialty Rubber has maintained high salesgrowth and delivered a correspondingimprovement in margins. The performancepotential of Specialty Rubber has now beendemonstrated and Elementis has thereforebegun a process of considering the strategicoptions for this business.

At Elementis Chromium, our strategy is tostrengthen and leverage our market leadership toachieve superior returns on capital over the cycle.Elementis Chromium successfully led a sustainedrecovery in global prices during 2004, after a fouryear period of decline. Margin recovery was nothowever achieved during the year, due to intensevariable cost pressures and adverse currencytrends, which led to a drop in overall Groupprofitability. Sales at Elementis Chromiumdecreased by 9 per cent to 110.5 million.The operating loss before exceptionals for theyear was 3.8 million compared to a profit of 6.8 million in 2003.

Greg McClatchy, who has led the turn around in performance at Specialty Rubber since hisappointment as Managing Director in 2002,was appointed as Managing Director, ElementisChromium, in February 2005. Neil MacLeod,previously Finance Director, Specialty Rubber,has taken over as acting Managing Director,Specialty Rubber.

Elementis Chromium announced the first in aseries of global price increases at the end of 2003.Early resulting volume losses were recovered andthe prices of all chromium chemicals have risenworld wide since that time. During the course of2004, operations at our plant at Castle Hayne, US,were suspended on two occasions in anticipationof hurricanes, which resulted in lost production.In January 2005, aggregated selling prices forElementis Chromiums products reached thehighest level since December 2001 and weremore than 25 per cent higher than the historiclow levels experienced in November 2003.

The trading outlook for Elementis Chromium isencouraging. Fixed costs have been furtherlowered as a result of a manufacturingrationalisation at the Eaglescliffe, UK, plant. Globalindustry capacity utilisation is now estimated tobe in excess of 90 per cent and it is anticipated thisfigure will continue to rise throughout 2005 asdemand increases and further industry capacityrationalisation occurs. In February 2005, ElementisChromium announced price increases of up to 20per cent effective from 1 April 2005. We anticipatethat selling prices for chromium chemicals willcontinue to increase as the year progresses.

Core valuesObjectives for 2005Objectives reachedin 2004

Our values set guidelines for the way we work andhelp us position ourselvesin the marketplace.

CommittedWe have addressed the root causes ofunderperformance in each of the businesses.Elementis is now positioned for step changeimprovements in financial performance

BoldRecent actions have included strategicacquisitions in Chromium and Specialties, anew, low cost-based Chinese manufacturingplatform for Pigments, a global ERP systemwhich will enable operational costminimisation and a cost effective high growthinnovation programme in Specialties

Specialty chemicalsEach of our businesses has achieved sectorleadership in the performance-differentiated,high-return sector of our targeted markets

ProgressiveElementis has received external recognitionfor leadership in innovation and sustainabledevelopment

Outstanding performanceWe have created a strong platform for growth. External factors and the costs of our transformation have impacted financialperformance in 2004

Mutual growthElementis has built a strong platform ofhuman and technical capabilities to deliversustainable earnings growth

Maximises potentialStrategies are in place to capture maximumpotential value from our businesses

Restore profitability in Chromium

Realise acquisition benefits at Specialties

Transform cost model at Pigments

Completion of strategic review for Specialty Rubber

Price turnaround in Chromium

Acceleration of growth in Elementis Specialties

New Elementis Pigments plant in China

Recovery in Specialty Rubber profitability

ERP implementation

Operating review(continued)


At Elementis Specialties, a recovery in demand in the coatings and construction markets worldwide, increased sales in Asia Pacific and newproduct introductions drove a 6 per cent salesgrowth in volume terms, excluding the impact of the Sasol Servo acquisition. Good growth wasexperienced in the critical coatings andconstruction markets, with European sales inparticular showing significant increases. Ouroilfield business was however impacted by twomonths of hurricane-related oil rig shut downs in the Gulf of Mexico.

The Specialties Innovation Board has generated asignificant number of new technology platformsand the business is targeted with building a newproduct pipeline to deliver sustainable double-digit growth. Innovation spend, despite 2004increases, is trending towards industry averages,and the contribution of new products to sales isnow growing. Production at the ChangXing,China, plant tripled during 2004. The performanceof the Sasol Servo acquisition has fully metexpectations to date. Annualised synergisticbenefits, originally estimated at 2.5 million, arenow expected to be 3.5 million. These benefitswill be fully realisable in 2006. In sterling,operating profit before goodwill amortisation and exceptionals has decreased by 3 per cent,reflecting the impact of planned increases ininnovation spend and ERP implementation costs.

Volumes and turnover continued to improve atElementis Pigments during 2004. While priceincreases and improved volumes had asubstantial favourable impact on profitability, thiswas reversed by rapidly escalating raw materialand freight prices, and pre-start-up costs for thenew Chinese plant. Full-scale production wasrapidly resumed at the plant at Easton, US,

following flash flooding in September. Althoughthe flooding affected performance in 2004,no long term financial or operating impact isanticipated. In addition to the new plant atTaiCang, the Pigments plant at Shenzhen, Chinawas expanded. These activities will substantiallylower the aggregate cost base for this businessand provide a strong platform for further growth.

Elementis Specialty Rubber has once againshown significant growth in 2004, with salesincreasing by over 20 per cent in US Dollars forthe second year in succession and all regionsshowing good volume increases. On conversionto sterling, the sales increase was 8 per cent,again reflecting the impact of the weaker USDollar. In sterling, Specialty Rubbers operatingprofit increased from breakeven in 2003 to 0.2million in 2004. During the course of 2004 a newoperation was established in China to address theneeds of the rapidly modernising Chinese miningindustry, while in January 2005 Specialty Rubberannounced the opening of a new joint venture inSantiago to serve the large, fast growing Chileanmining market.

Health and safetyElementis achieved an outstanding level in itssafety performance in 2004 as evidenced by itslowest ever Recordable Incident Rate of 1.46 per200,000 hours for the year. The performance ofthe Specialties, Chromium and Specialty Rubberbusinesses was below 1.0 per 200,000 hoursworked, which is in line with the top quartile of the worlds chemical companies.

Sustainable DevelopmentOur Sustainable Development programme,which was summarised in our 2003 annual report,won the UK Chemical Industry AssociationsSustainable Development Award. Elementis wascited as an example of industry best practice.

Two Elementis plants in the UK have achievedcertification against the international standardOHSAS 18001

Fixed costs have been lowered at Elementis Chromium


ERPThe ERP system was implemented in ourChromium and Specialty Rubber businessesduring 2004, without any significant disruption tooperations. Francis Lenders joined Elementis asDirector, Global Supply Chain, in December 2004.Francis is a member of the management teamand is charged with bringing operationalexcellence to our supply chain operations andensuring that the full potential benefits of the ERP system are realised.

Six SigmaThe Elementis Six Sigma programme continued to contribute operational savings in 2004. Since its introduction in 2001, the total accumulatedbenefits from the Elementis Six Sigma programmehave passed 9.0 million, with total associatedcosts estimated at 2.6 million. Six Sigma is amethodology widely used in process industries to increase quality and efficiency by reducingprocess variability.

REACHThroughout 2004 senior management atElementis has continued to work alongside theEuropean and UK chemical industry associationsto press for improvements to the workability ofthe proposed European REACH (registration,evaluation and authorisation of chemicals)regulation. While there has been considerableprogress, the proposed regulation still needssubstantial improvement to avoid damaging the competitiveness of the chemical industry,particularly of smaller companies.

OutlookCurrent trading conditions are characterised by good demand in all business sectors,accompanied by a general upward movement in prices. Continued raw material, energy andfreight cost inflation, combined with the impactof the weaker US Dollar are however ongoingconcerns. Variable costs are receiving intensemanagement focus and are being fixed orhedged as considered appropriate.

We anticipate that the benefits of structuralimprovements implemented during 2004 willbecome apparent during 2005. Theseimprovements include progressive priceincreases in chromium chemicals supported byexpanding demand and a tightening of globalsupply; cost savings and sales growth from theSasol Servo acquisition and organic growth atSpecialties; the cost benefits of the new TaiCangplant in Pigments; further strong sales growth atSpecialty Rubber and operational efficiencies as a result of the implementation of the ERP system.


17 February 2005

Total accumulated benefits from the Six Sigmaprogramme have passed 9.0 million

Elementis Specialties


2004 was a further year of achievement ofstrategic goals and of solid growth for ElementisSpecialties. Despite the highly competitive natureof the markets in which we operate, salesincreased by approximately 8 per cent, whenmeasured in our operating currency, the USDollar. Volumes also increased by approximately 6 per cent. Operating profit decreased byapproximately 5 per cent on a constant currencybasis, due to an adverse product mix and plannedincreases in the innovation programme and ERPimplementation costs.

In terms of key markets, strong sales growth wasexperienced in coatings, with new applicationdevelopment and new product introductionsboosting sales of aqueous coatings by over 17 percent. Construction sales growth was also strong, inparticular to markets in Asia Pacific, Eastern Europeand South America, driven by strong local demand.

The acquisition of Sasol Servo B.V. was completedon 30 June 2004. The acquisition is a key part ofSpecialties growth strategy and brings with itaccess to new surface technology chemistry anda European manufacturing centre of excellencefor reaction chemistry. Actions to realise first-round integration benefits are under way, withtight cost control and other alignment measures

already realising significant operating profitimprovement. Annualised synergistic benefits are anticipated to be 3.5 million per annum.

Elementis Specialties continued to invest ininnovation during 2004, with the innovationpipeline delivering two product technologies.Technological product differentiation is a furtherkey element of Specialties growth strategy.The StageGate project management system was upgraded during 2004 and a more stringentbusiness-focused and financial model has beenestablished. The Specialties Innovationprogramme is targeted with achievingsustainable double-digit growth.

The Elementis ERP system was implemented at Elementis Specialties in December 2003.

1,388productsas at December 2004

562 staffas at December 2004

Management teamNeil Carr, PresidentWilliam French, VP Coatings, Inks, Construction,Ceramics, Water TreatmentRoger Chantillon, VP Oilfield Chemicals, ConsumerProducts, Lubrication, Industrial ApplicationsSteve Drew, Director Market DevelopmentZahir Ibrahim, Vice President FinanceMartin Neil, Vice President OperationsKevin Erickson, Vice President Human ResourcesJim Gambino, Vice President and Chief Technology OfficerBarry Brenner, Vice President Global Purchasing

Elementis Specialties is aworld leading producer ofrheological and surfacechemistry additives

Further organic sales growth

Acquisition of Sasol Servo B.V.

Innovation programme delivered two newcommercialised product technologies

2004 highlights Geographical analysis of sales by volume 2004*

1. North America 42%2. Europe 39%3. Asia Pacific 10%4. Rest of world 9%

1

3

4

2

Sales by market sector (volume) 2004*

1. Coatings 54%2. Oil drilling 12%3. Inks 6%4. Consumer 8%5. Others 20%

* excludes Sasol Servo

1

3

4

5

2


Product profile: BENTONE HD

BENTONE HD is a hyperdispersible hectorite clay designed for high performance Industrial and Automotive Waterborne Coatings.Its unique technology and resulting structure allow it to activatequickly and develop highly efficient anti-sag and anti-settlingproperties in many new applications.

BenefitsBENTONE HD fully develops its properties in less than fiveminutes processing time, compared with over an hour forconventional products. This results in time and money savingsfor our customers. The product works exceedingly well indemanding high end waterborne spray applications,providing excellent anti-sag and anti-settling performance.

The increased formulating flexibility delivered by BENTONE HDprovides our customers with increased productivity, improvedFirst Time Quality and higher profitability.

For a full list of Elementis Specialtiesproducts please visitwww.elementis-specialties.com

Management teamDavid Dutro, PresidentSteve Wittenauer, Vice President of FinanceDennis Valentino, Vice President WorldwideOperationsEric Dick, Vice President ConstructionJerry Horton, Vice President Human ResourcesDave Becher, Vice President of MaterialJim Heney, Vice President Coatings and ChemicalsJon Cheele, General Manager VP DriersGodwin Lee, General Manager, China Region

3,100productsas at December 2004



Elementis Pigments

2004 was a year of substantial achievement andgrowth for Elementis Pigments despite testingeconomic and operating conditions.

Sales increased by approximately 12 per cent,when measured in our operating currency, the US Dollar. Volumes rose by approximately 5 percent. Significant increases in raw material costsand start up costs for the TaiCang plant offsetvolume and price improvements.

Sales to the key coatings market showedsignificant growth, particularly in North Americaand Asia Pacific. Strong sales of our uniqueCopperas Reds helped boost sales to thecolorants market and provided pull-throughbenefits for our other iron oxide pigments.In the chemicals sector, sales into the cosmeticsmarket were especially strong.

The withdrawal from supply of a key raw materialfor our Calcium 10 drier product considerablyimpacted short term production. Sterling workwas done by our operations and technical teamsto engineer a replacement.

The Servo driers business was transferred toPigments management on 1 January 2005. Salesto the construction markets in North America and

Asia Pacific increased throughout 2004, withfavourable weather, interest and exchange ratesproviding a favourable market environment.Significant price increases were successfullyimplemented during the course of 2004 in all areas.

Construction activity at the TaiCang facilitycontinued on schedule. Further granular productcapacity has been added to our existing plant atShenzhen, China, to meet increased demand.These activities will considerably improve thePigments cost structure during 2005.

Work has begun to implement the Elementis ERPsystem at Elementis Pigments during the courseof 2006.

Elementis Pigments is aworld-leading producer ofsynthetic iron oxides andcomplementary products

Substantial top line sales growth

Continuation of cost reduction initiatives

New Chinese production plantcommissioning on schedule

Improved safety record

2004 highlights Geographical analysis of sales by volume 2004


Sales by market sector (volume) 2004

1. Coatings 37%2. Construction 33%3. Chemicals 16%4. Driers 14%

1

3

4

2

1

3

4

2


Product profile: Copperas Red

Elementis Pigments Copperas Redproduct offers unique benefits to a wide number of industries. The colourshade, purity and colour reproducibilitymakes Copperas the product of choice in coatings, plastics, regulatory and specialty chemical applications.

BenefitsThe tightly controlled copperasprocess yields particles that are lowin impurities and nearly neutral inpH. As a result Copperas Reds offersuperior compatibility andformulation flexibility. The uniquelyrobust nature of the copperasparticle provides unsurpassed shearstability resulting in predictablecolour consistency.

The low impurity levels of copperasresult in pigments with excellentthermal-stability characteristicsmaking this the product of choice in high-temperature coatingsapplications. The Copperas Redpigments are also high in universaltinting systems due to their stableparticle size.For a full list of Elementis Pigments

products please visitwww.elementispigments.com


Elementis Chromium

Sales volumes at Elementis Chromium remainedapproximately stable year-on-year, with volumesrecovering strongly during the second half of 2004. The expected deregistration by the USEnvironmental Protection Agency of CCA productsfor timber treatment for residential use came intoeffect on 1 January 2004. It is estimated that theglobal market decreased by 5 per cent as a result of this ban. Strong market growth in China andhealthy growth in Western Europe for otherproducts helped balance the decline in the CCA market.

Market supply continued to decline during 2004,including kiln closures in Japan and China. Globalindustry capacity utilisation is now estimated tobe in excess of 90 per cent and it is anticipatedthat this figure will continue to rise during 2005due to ongoing market capacity rationalisationand market growth.

In January 2004 Elementis Chromium announcedthe first price increase in the chromium chemicalsindustry for over five years. By January 2005 the price of Elementis Chromium products was25 per cent higher than the industry low ofNovember 2003.

A new chrome oxide product, refractory gradeAccrox E, was launched during 2004 and is

estimated to have generated incremental sales ofover $1 million.

Operating profit declined by 10.6 million during2004 as a combination of variable cost increases,increased energy costs and sales mix combinedto impact margins. Significant increases wereexperienced in the costs of freight, energy andraw materials, including the costs of a key rawmaterial, sulphuric acid. The weakness of the USDollar also impacted performance.

Cost saving and restructuring initiatives wereinitiated during 2004, with total headcount fallingfrom 464 at the end of 2003 to 412 at the end of2004. The benefits of these activities are expectedto fully impact results during the course of 2005.

Elementis Chromium successfully went live withthe Elementis ERP system in June 2004.

Elementis Chromium achieved its best-everemployee safety performance in 2004. In July2004 the Chromium site at Eaglescliffe, UK, waspresented with the UK Chemical IndustryAssociations Sustainable Development Award in recognition of the sites approach to productstewardship and community contacts.

26 productsas at December 2004


Management teamGreg McClatchy, Managing DirectorRoger Perkins, Finance DirectorJon Dean, Commercial DirectorMark Kenrick, Manufacturing DirectorDavid Raw, Technical DirectorJohn McConnell, Human Resources Director

Elementis Chromium is theworlds largest producer ofchromium chemicals

Successful introduction of sales price increases

Cost reduction initiatives introduced

Improved employee safety record

2004 highlights

Geographical analysis of sales by volume 2003


Geographical analysis of sales by volume 2004


1

3

4

2

1

3

4

2


Product profile: Elementis CA21

Elementis CA21 is a unique proprietaryform of chromic acid with exceptionalproperties. The free-flowing anduniform nature of the crystal productsets a new benchmark in low dustingand ease of handling.

BenefitsElementis CA21 is approximately 2mmin diameter, three times larger thantypical crystal chromic acids, and setsnew standards in low dusting propertiesand safety in handling. It has very lowlevels of impurities, such as sulphatesand insolubles, which are veryimportant both for decorative andfunctional chrome plating applications.

End usesChromium plating is the most visibleapplication using Elementis CA21.Metals and plastics are electroplated to give a durable and attractive finish and to increase wear andcorrosion resistance.

Elementis CA21 is also used informulating industrial woodpreservatives where it binds activebiocides to the wood surface.

For a full list of Elementis Chromiumproducts please visitwww.elementischromium.com


Elementis Specialty Rubber

2004 was a year of significant progress atElementis Specialty Rubber, with sales increasingby over 20 per cent, when measured in ouroperating currency, the US Dollar.

All regions showed an increase in sales, with AsiaPacific and South Africa registering acceleratedgrowth. This was primarily driven by SpecialtyRubber sales initiatives, despite key applicationmarkets, such as mining, showing only moderategrowth. The positive sales trend has beenaugmented by a series of price increases.

Operating profit increased to 0.2 million despitesignificant increases in the costs of latex and ofsteel. Increases in sales, together with increasedselling prices, have primarily driven thisimprovement in profitability. Manufacturingefficiency has continued to improve at ourMalaysian manufacturing site.

During the course of 2004 Specialty Rubberdeveloped a joint venture in Santiago, Chile,which started trading in January 2005. In additionto the existing rubber lining operations, the jointventure will produce and sell moulded productsand hoses to the mining industry. SpecialtyRubbers presence in China was alsostrengthened during 2004.

Specialty Rubber is developing a new compoundwhich addresses the needs of certain customersfor abrasion-resistant rubber in oil-richenvironments. Field trials began during 2004 and it is anticipated that this product will yieldadditional sales from 2005 onwards.

The Specialty Rubber organisation went live withthe Elementis ERP system in late 2004. Benefitsfrom this system are expected to accrue duringthe course of 2005.

The safety performance at Specialty Rubbershowed continued improvement in 2004, with no lost time accidents reported during the yearand a 25 per cent improvement in recordableinjury incidence.

Elementis Specialty Rubber has confirmed its performance potential and a process ofconsidering the strategic options for this business is now under way.

15 facilitiesworldwideas at December 2004


Management teamNeil MacLeod, Acting Managing Director and Finance DirectorJohn Hayes, Supply Chain DirectorBob Stewart, Strategic Development & Technology DirectorJon Woollins, New Business DevelopmentManagerDirk van den Berg, General Manager South AfricaBruce Cooke, General Manager EuropeGreg Caddle, General Manager AmericasHenk van Kruining, General Manager Asia PacificMG Sekeran, General Manager MalaysiaMarc Steigenga, General Manager Bergmann

Elementis Specialty Rubber isthe leading manufacturer ofwet abrasion resistant rubberproducts and processequipment, marketed underthe Linatex brand name

Continued sales growth

Ongoing profit improvement

Geographic expansion programme

Improved safety performance

2004 highlights Geographical analysis of sales by volume 2004


Sales by market sector (volume) 2004

1. Mining andaggregates 72%

2. Belting 4%3. Vehicle 3%4. Others 21%

1

3

4

2

1

34

2


Product profile: Linatex Rubber

For a full list of Elementis SpecialtyRubber products please visitwww.linatex.com

Linatex Rubber is manufactured directlyfrom natural rubber latex, using aninnovative and effluent free continuousprocess based upon microwavetechnology that increases Linatexssuperiority over competitive products in wet abrasion resistance.

BenefitsDeveloped to provide the longestwear life in the harshest, mostabrasive mining and mineralsprocessing environments, Linatexis the benchmark by which allother products are judged and thematerial of choice for the worldsleading mining companies. Linatexis available in both sheet for site re-lining of equipment and inmoulded products, where Linatexsunrivalled experience in themoulding of large, complex partsoffers the customer outstandingperformance in pumps,mills and cyclones.


Elementis China

Following the appointment of Godwin Lee asGeneral Manager, China Region, in 2003, theCorporate Team, China, was established in 2004and now includes Warren Law, Finance Directorand Sharon Liu, Director of Human Resources.

The team provides all four Elementis businesseswith direction and support in project evaluation,financial management, market research, creditcontrol, human resources, tax, customs andinformation technology.

Elementis Trading Shanghai Co. Ltd was registeredin September 2004 and provides the platform forall Elementis business activities in China.

Sales in China for the year rose by 150 per cent toapproximately 13.2 million. The TaiCangPigments plant was completed during 2004 andthe ChangXing Specialties plant achievedprofitability. The Shenzhen Pigments plant wasexpanded and achieved record throughput.


Management teamGodwin Lee, General Manager ChinaWarren Law, Finance DirectorSharon Liu, Director of Human Resources

Elementis China has strategicresponsibility for expandingthe Elementis presence in thisimportant region

New Pigments plant complete andcommissioning underway

Existing Pigments plant expanded

Specialties plant improved performance

Sales increased by approximately 150 per cent

2004 highlights

Shanghai

Hong Kong

TaiCang

ChangXing

Shenzhen

CHINA

Elementis China, Regional Team


Elementis China

For more details about Elementis in China please visitwww.elementis.com

Construction of the new ElementisPigments plant at TaiCang, China, beganin June 2003. Commissioning started in2004 and commercial production beganin February 2005.

The new facility will provide Elementis with a world-classiron oxide manufacturing unit and will substantially lowerthe cost base for the Pigments business. Additional granularproduct capacity has also been added to the existingPigments plant at Shenzhen, China, in order to meetincreased demand.

Financial review


OverviewSales increased by 6 per cent from the previousyear to 389.2 million. This includes Sasol Servowhich was acquired on 30 June 2004 andcontributed 34.2 million to sales in the secondhalf. After adjusting for the acquisition andexchange rates, sales increased by 3 per cent at constant currency.

The sales increase was mainly due to highervolumes at Specialties & Pigments and SpecialtyRubber. Marginally higher average prices for theGroup were offset by adverse mix effects.

In terms of geography, lower volumes in NorthAmerica and Europe, largely due to the loss ofCCA business in the US and the effect of priceincreases in Chromium, were more than offset by increased volumes into Asia Pacific and therest of the world.

Operating profit before goodwill amortisationand exceptionals was 12.7 million belowprevious year at 11.8 million. On a constantcurrency basis the decrease was 9.3 million.

The increase in sales was more than offset byincreases in raw materials, freight costs and

energy particularly in the second half of 2004,and costs associated with the implementation of the ERP system.

The operating loss after goodwill amortisationand exceptionals was 2.5 million (2003: profit of10.9 million) for the year. Goodwill amortisationin the year amounted to 11.4 million (2003:12.4 million) and operating exceptional costswere 2.9 million (2003: 1.2 million).

Specialties & Pigments

million 2004 2003

Sales 238.2 209.3Adjusted operating profit* 15.4 17.7Operating profit 2.4 3.8* before goodwill amortisation and exceptionals

Sales in Specialties & Pigments increased by 14 per cent to 238.2 million. After adjusting forthe business acquired in June 2004, sales inconstant currency were 4 per cent higher thanprevious year. This was primarily due to increasedvolumes while higher prices were offset byadverse mix in the year due to higher sales intolower price geographies, such as Asia Pacific.

Sales increased by 6 per cent,which included 34.2 millionfrom the acquisition of Sasol Servo B.V.

Increases in raw materials,freight and energy costs had a negative impact onoperating profit

Tax rate will remain below 10 per cent going forward

Brian TaylorsonFinance Director


Operating profit before goodwill amortisationand exceptionals was 2.3 million lower than theprevious year at 15.4 million. After adjusting foracquisitions and currency, operating profit was2.7 million lower. Increased volumes were morethan offset by higher raw materials, energy andfixed costs.

Sales in Elementis Specialties on a constantcurrency basis excluding the acquisition were 3 per cent higher than the previous year. Volumeswere up 6 per cent largely due to a strongperformance in the coatings and constructionsectors, and included new business in thegrowing but lower margin markets in Asia, LatinAmerica and the Middle East. Increased sales tosome larger customers, where rebates are moreprominent, had a mitigating effect on realisedsales values and margins. Prices improved insome key sectors, but were on average at similarlevels to the previous year.

Operating profit before goodwill amortisationand exceptionals on a constant currency basiswas 5 per cent lower than the previous year.Higher volumes were offset by adverse mix,planned increases in the innovation programmeand ERP implementation costs.

Sales in Elementis Pigments on a constantcurrency basis increased by 7 per cent due tohigher volumes and improved pricing. Operatingprofit was however lower than the previous yearas higher raw material costs and start up costs inTaiCang, offset volume and price improvements.

Elementis Chromium

2004 2003million million

Sales 110.5 121.9Adjusted operating (loss)/profit* (3.8) 6.8Operating (loss)/profit (5.1) 7.4* before exceptionals

Sales in Elementis Chromium decreased by 9 per cent to 110.5 million and on a constant currency basis decreased by 2 per cent.

Overall volumes which were 3 per cent down in the first half following an initial round of priceincreases, recovered strongly in the second halfto be in line with previous year. The loss of CCAbusiness for residential uses in the US, whichreduced sales by approximately 15.0 million,was

offset by strong demand for chrome oxide and by sales into the Asia Pacific market. Prices wereincreased throughout the year and average USDollar prices were around 10 per cent higher inDecember 2004 than twelve months earlier.However average pricing for the whole year wasstill marginally below that for the previous year,and accounted for most of the decrease inconstant currency sales.

The operating loss before exceptionals for theyear was 3.8 million compared to a profit of6.8 million in the previous year. The increase inenergy costs was 2.2 million while the weaknessof the US Dollar was the main cause of an adversecurrency impact of 2.9 million. Higher rawmaterial and freight costs accounted for most of the remaining reduction.

continued

Sales

Sales Effect of Acquired Increased/ Salesexchange in (decreased)

2003 rates 2004 2004 2004million million million million million

Specialties & Pigments 209.3 (14.4) 34.2 9.1 238.2Chromium 121.9 (9.5) (1.9) 110.5Specialty Rubber 42.7 (0.4) 3.6 45.9Inter-company (5.7) 0.3 (5.4)

368.2 (24.3) 34.2 11.1 389.2

Operating profit before goodwill amortisation and exceptionals

Operating Effect of Acquired Increased/ Operatingprofit* exchange in (decreased) profit*

2003 rates 2004 2004 2004million million million million million

Specialties & Pigments 17.7 (0.5) 0.9 (2.7) 15.4Chromium 6.8 (2.9) (7.7) (3.8)Specialty Rubber 0.2 0.2

24.5 (3.4) 0.9 (10.2) 11.8* before goodwill amortisation and exceptionals

Financial review(continued)


The redundancy and restructuring costs comprise1.3 million of redundancy costs at ChromiumsEaglescliffe site and 1.6 million incurred in thefirst phase of the integration of Sasol Servo BVfollowing its acquisition in June 2004.

The profit on disposal of property of 2.6 million isfrom the sale and leaseback of Specialty RubbersYateley, UK property.

The loss on termination of business of 2.3 millionis to provide for the book value of the Groups 50 per cent interest in Enenco together with anyresidual site clean-up costs. This follows a decisionmade by the joint venture parties during 2004 toclose the business.

Interest


On net borrowings (3.8) (1.9)Pension finance charge (1.1) (4.2)Discount on provisions (0.9) (0.9)Other 0.2 0.8Total (5.6) (6.2)

Interest payable on net borrowings increasedduring the year by 1.9 million due to higherborrowings and a higher cost of borrowing.The finance charge in respect of pension and post-retirement benefits decreased by 3.1 million in the year due to a lower pensiondeficit and an improvement on the expectedreturn on pension scheme assets.

Interest cover the ratio of operating profitbefore goodwill amortisation and exceptionals to interest on net borrowings was 3.1 times (2003: 12.9 times).

Taxation

Effective Tax (charge)/credit million rate

Before goodwill

amortisation and exceptionals (0.2) 2%Goodwill amortisation Exceptionals 0.2 9%Total

The effective rate of tax on profit before goodwillamortisation and exceptionals was 2 per cent(2003: 29 per cent).

389.2 millionTurnover

11.8 millionOperating profit*

90.2 millionNet borrowings

1.4 penceEarnings per share*

400

300

200

100

2002 2003 2004

30

25

20

15

10

5

2002 2003 2004

3.5

3.0

2.5

2.0

1.5

1.0

0.5

2002 2003 2004

100

80

60

40

20

2002 2003 2004

* Before goodwill amortisation and exceptionals

Specialty Rubber


Sales 45.9 42.7Adjusted operating profit* 0.2 Operating profit/(loss) 0.2 (0.3)* before exceptionals

Sales in Specialty Rubber increased by 8 per cent to45.9 million, due to strong volume growth largelyin Asia Pacific, South Africa and Europe. Highersales volumes and improved pricing were partlyoffset by fixed cost increases. The operating profitbefore exceptionals for the year was 0.2 millioncompared to break-even in the previous year.

ExceptionalsTotal exceptional items before taxation in the year were 2.6 million (2003: 0.4 million).These comprised:

million

Operating :

Redundancy and restructuring costs (2.9)Non operating:

Profit on disposal of property 2.6Loss on termination of business (2.3)

(2.6)


Total nominal value of B shares was 2.2 pence in 2004

Further issue at 1.1 pence on 26 April 2005

The decrease in the rate was due to the resolutionof open issues from prior periods and theutilisation of losses. Potential deferred tax assetsof 28.8 million (2003: 23.2 million) have not yetbeen recognised.

The effective tax rate on profit before goodwillamortisation and exceptionals in 2005 willcontinue to be dependent on the mix of profitsprimarily between the UK and overseas.

Earnings per shareEarnings per share for the year was a loss of 1.8pence per share (2003: earnings of 1.0 pence pershare), mainly due to the lower operating profit for the year. Earnings per share before goodwillamortisation and exceptionals was 53 per centlower at 1.4 pence (2003: 3.0 pence) due to thelower operating profit but partly offset by lowerFRS17 pension finance charges and a lower tax rate.

Dividends and issue of redeemable B sharesThe Board did not declare an interim dividendand, similarly, is not proposing a final dividend.The Board instead intends to continue with theprogramme, started in 2000, of issuing andredeeming redeemable B shares.

The total nominal value of redeemable B sharesissued to shareholders during 2004 was 2.2 penceper ordinary share.

The Board intends to issue further redeemable Bshares to ordinary shareholders on the register on26 April 2005, such that they receive redeemableB shares with a total nominal value of 1.1 pencefor each ordinary share held. This compares with1.1 pence for the comparable issue last year. Thiswill be coupled with an offer to redeem these

new shares for cash at their nominal value on 3 May 2005. A further offer will also be made to existing holders of redeemable B shares toredeem these shares for cash at their nominalvalue on 3 May 2005.

Cash flowNet borrowings increased by 43.3 million in the year to 90.2 million. The cash outflow due to changes in working capital increased by 5.1 million as higher stocks and debtors due toincreased volumes and the transitional effects ofthe ERP implementation, were partially offset byhigher creditors. The ratio of working capital tosales increased from 17.5 per cent to 18.3 per centafter adjusting for the acquisition in Specialtieswhich was made part way through the year.

The cash flow is summarised below:


Earnings before

interest, tax, exceptionals,

depreciation and amortisation 27.2 40.1Change in working capital (5.1) (2.9)Other (7.0) (22.0)Capital expenditure (22.0) (21.0)

(6.9) (5.8)Redemption of B shares (9.2) (9.5)Acquisitions and disposals (30.7) 0.8Currency fluctuations 3.5 5.0

(43.3) (9.5)Net borrowings at start of year (46.9) (37.4)Net borrowings at end of year (90.2) (46.9)

Other cash flows decreased by 15.0 million,due to lower contributions to pension schemesand less paid on provisions and net tax refunds of 4.5 million.

continued

Financial review(continued)


The majority of the Groups assets are stated in US Dollars and the weakening of the US Dollar in 2004 reduced shareholders funds by a net 11.8 million. The balance of the reduction wasdue to the current year trading result, the issueand redemption of B shares, and actuarialadjustments to the pension fund valuation and associated deferred taxation.

Pensions and other post-retirement benefitsThe Group provides retirement benefits for themajority of its employees mainly through definedbenefit schemes. A small number of definedcontribution schemes are also provided and an unfunded post-retirement medical benefitscheme is provided in the US.

The net pension liability, which is calculated bythe Groups actuaries and based upon marketvalues of the schemes assets and liabilities,increased by 11.7 million to 64.5 million. Theincrease was primarily due to a change in the rateof deferred tax related to the UK pension schemefrom 30 per cent to 10 per cent to reflect surplusACT. This increased the net pension liability by9.8 million and the balance was due to theacquisition of Sasol Servo B.V.

The total cost of pensions and post-retirementhealth care in the year was 7.2 million (2003:8.5 million). The charge in 2003 included a creditin respect of past service of 1.3 million. Costs werelower in 2004 principally due to a 3.1 million

Capital expenditureCapital expenditure in the year was 143 per centof depreciation (2003: 134 per cent) as the Groupcontinued to invest in the ERP project and largelycompleted the construction of a new Pigmentsplant in TaiCang, China.

Total spend in the year included 2.6 million(2003: 7.7 million) in relation to the ERP projectand 7.3 million (2003: 1.9 million) for thePigments plant in China.

Balance sheet


Intangible fixed assets 144.4 159.3Other net assets 155.7 139.9

300.1 299.2Shareholders funds 209.9 252.3Net borrowings 90.2 46.9

300.1 299.2Gearing1 30% 16%

Currency fluctuations had a significant impact onshareholders funds. The main currency exchangerates relevant to Elementis are set out below:

2004 2003Year end Average Year end Average

US Dollar 1.92 1.83 1.79 1.64Euro 1.41 1.47 1.42 1.45

The majority of the Groupsassets are stated in US Dollars

The weakening of the US Dollar in 2004 reducedshareholders funds by a net 11.8 million

1 the ratio of net borrowings to shareholders funds plusnet borrowings


reduction in finance charges to 1.1 million (2003:4.2 million). Total contributions to pension andpost-retirement schemes in the year amounted to10.7 million (2003: 14.4 million). The estimatedcontribution in 2005 is approximately 12.0 million.

TreasuryTreasury activities are governed by policies andprocedures approved and monitored by theBoard. The Group operates a central treasuryservice centre, the principal function of which is to manage and monitor the Groups external andinternal funding requirements and treasury risks,including interest rate and currency management.

The Groups financial instruments, other thanderivatives, comprise borrowings, cash and liquidresources. Certain derivative financial instruments(principally forward foreign currency contracts)are entered into in order to manage currency risks efficiently.

The Group does not hold or issue derivative financialinstruments for speculative trading purposes.

Interest rate riskThe Groups policy is to borrow at both fixed andfloating interest rates and to use interest rateswaps to generate the required interest rateprofile. The policy does not require that a specificproportion of the Groups borrowings are at fixedrates of interest. Due to the current low interest

rate environment all borrowings are currently atfloating interest rates, with no borrowings at fixedrates (2003: nil).

Currency riskBusinesses use forward foreign currencycontracts to hedge transaction exposures wheredeemed appropriate in consultation with GroupTreasury. Elementis manages its global businesseson a US Dollar basis and does not seek to fullymitigate the effect of US Dollar translationexposure to its Sterling reported asset basethrough US Dollar borrowings.

Liquidity riskGroup funding policy is to have committedborrowings in place to cover at least 125 per centof peak forecast net borrowings for at least a 12month forward period. At the year end, the Grouphad 65.6 million (2003: 109.2 million) ofundrawn committed facilities.

Counterparty credit riskThe Group controls counterparty credit risk by entering into cash deposits and financialinstruments with authorised counterparties.Credit risk is managed by limiting the aggregateamount and duration of exposure to any onecounterparty depending upon their credit ratingand by regular review of these ratings.Counterparty positions are monitored on a regular basis.

International Accounting StandardsAll listed companies are required to presentconsolidated financial information that fullycomplies with International Financing ReportingStandards (IFRS) for accounting periods startingon or after 1 January 2005.

The project to assess the impact of this change of accounting standards is almost complete and a separate announcement will be made in March2005. The current indications are that thecomparative for earnings per share beforegoodwill amortisation and exceptionals under UKGAAP will not be materially different under IFRS.


17 February 2005

Board of directors


Keith HopkinsNon-executive ChairmanKeith Hopkins (aged 60) joined the Board inAugust 2004. He was appointed Chairman ofElementis in October 2004. He is Chairmanof the Companys Nomination Committee.Keith Hopkins was CEO of Croda International plcfrom 1987 to 1999 and Chairman until hisretirement in 2001. He is also Chairman of ScapaGroup plc and a non-executive Director of BritishVita plc. Keith Hopkins holds a PhD in chemistry.

Geoff GaywoodChief ExecutiveGeoff Gaywood (aged 61) was appointed ChiefExecutive in October 2001. He was previouslyManaging Director of the European division ofInternational Specialty Products, Inc and generalmanager of its global acetylenics business. Priorto that, he was with the Dow Chemical Companyfor 24 years in a number of general managementroles in Europe, South Africa and Japan. Mostrecently Geoff Gaywood was Director ofChemicals at Ernst & Young LLP based in the UK. He was born and educated in England andholds a degree in chemical engineering fromLondon University.

Brian TaylorsonFinance DirectorBrian Taylorson (aged 49) was appointed FinanceDirector in April 2002. He was previously Head of European Chemicals M&A at KPMG CorporateFinance. He joined KPMG in 2000 from the DowChemical Company where he held a number of positions in finance. He holds an MA fromCambridge University, is a member of theInstitute of Chartered Accountants in Englandand Wales and a member of the Association ofCorporate Treasurers.

Keith HopkinsNon-executive Chairman



Philip BrownExecutive Director

Michael HartnallNon-executive Director

Edward WilsonNon-executive Director


Philip BrownExecutive DirectorPhilip Brown (aged 56) was appointed an executive director of Elementis in July 2000,with responsibility for company secretarial andlegal affairs; he also chairs the Elementis riskmanagement committee. Philip Brown joinedElementis as Company Secretary from RanksHovis McDougall in 1992. He holds a law degreeand is a Fellow of the Institute of CharteredSecretaries and Administrators.

Michael HartnallNon-executive DirectorMichael Hartnall (aged 62) was appointed a non-executive director of Elementis in 1993.He is the senior non-executive director andChairman of the Audit Committee. He is a non-executive director of BAE SYSTEMS plc andLonmin plc. Michael Hartnall retired as FinanceDirector of Rexam PLC in 2003 after holding thepost for16 years.

Edward WilsonNon-executive DirectorEdward Wilson (aged 60) was appointed a non-executive director of Elementis in July 1999and is Chairman of the Remuneration Committee.He was Chief Executive Officer of Vantico Groupuntil 2001 and prior to that was with KochIndustries International Europe and the DowChemical Company. In 2002 he formed ChemairLimited a consultancy company advisinggovernments, financial institutions and industryin the fields of energy, petrochemicals and plastics.

Kevin Matthews (not pictured)Non-executive DirectorKevin Matthews (aged 41) was appointed a non-executive director of Elementis in February2005. He is Chief Executive Officer of Oxonica Ltd,a UK-based nano technology company, a role hehas held since 2001. Kevin Matthews joinedOxonica from Rhodia Consumer SpecialtiesLimited and previously held roles wih Albright &Wilson UK Limited and ICI Chemicals and Polymers.Kevin Matthews holds a D. Phil in organic chemistry.

Management team

Neil CarrManaging Director Elementis Specialties,age 41Neil Carr was appointed Managing Director of Elementis Specialties in May 2000. He joinedElementis in 1998 as Group Director of HumanResources from SmithKline Beecham, where he was Human Resource Director, WorldwideSupply Operations.

Gary CastellinoChief Information Officer, age 53Gary Castellino was appointed Chief InformationOfficer in January 2002. He joined Elementis fromInterlogix, Inc where he was Vice President andChief Information Officer. He was previously VicePresident and Chief Information Officer with International Specialty Products, Inc. Prior to this he held senior information technologyroles at Unilever.

David DutroManaging Director Elementis Pigments,age 49David Dutro joined Elementis in November 1998as Managing Director of Elementis Pigments.He was previously Vice President General Managerof Universal Foods Dairy and Food Ingredientsbusiness (now Sensient Technologies Corp), priorto which he was with ICI in the colours, polymeradditives and surfactants businesses.

Hilary Reid EvansHead of Investor Relations and CorporateCommunications, age 53Hilary Reid Evans was appointed Head of InvestorRelations in March 2003. She joined Elementisfrom Xenova Group plc, a London and Nasdaqlisted biotechnology company, where she hadbeen Head of Corporate Communications since1996. Prior to this she held senior communicationsroles at TLG plc and Thorn EMI plc.

Godwin LeeManaging Director, China Region, age 42Godwin Lee joined Elementis in July 1999 andwas appointed General Manager, China regionin November 2003. He is also Business Director,Elementis Pigments for the Asia Pacific region.Godwin Lee was previously a Regional GeneralManager with General Electric Plastics, China.

Francis LendersHead of Supply Chain, age 41Francis Lenders was appointed Head of SupplyChain for Elementis plc in December 2004.Prior to joining Elementis, Francis was Director,Supply Chain, Europe, Middle East and Africa forBaxter Healthcare. Previously he held similarsenior supply chain management roles withInternational Specialty Products, Inc. and Quaker Oats.

Greg McClatchyManaging Director Elementis Chromium,age 40Greg McClatchy was appointed ManagingDirector of Elementis Chromium in February2005. He joined Elementis Pigments in 1999 andfollowing a period as Managing Director of itsDurham operations was appointed ManagingDirector of Specialty Rubber in 2002. He waspreviously with Universal Foods' Dairy and FoodIngredients business (now Sensient TechnologiesCorp) and ICI's polymer additives business.

Peter Russell Director of Human Resources, age 58Peter Russell joined Elementis as Director ofHuman Resources in December 2001. Previouslyhe ran his own consultancy company providingcoaching and support to board level executives.Prior to that, he held a number of senior globaland European HR positions in the automotive and IT industries.

Sustainable development


Our commitmentAt Elementis, we are committed to the higheststandards of corporate governance. We strive toconduct our business with integrity and respectfor others, as well as complying with the law in allthe jurisdictions within which we operate. ManyElementis products extend the use of everydayarticles, or make use of readily available rawmaterials. We see sustainable development as a natural and key element of the way in which we aim to develop our business.

We define sustainable development as the abilityto meet the needs of the present, withoutcompromising the ability of future generations to meet their own needs.

The Elementis Health, Safety andEnvironmental PolicyElementis conducts its business worldwide withthe highest concern for the health and safety of its employees, contractors, customers,neighbours and the general public and for theenvironment in which it operates.

Elementis seeks to identify and eliminateoccupational health hazards, is committed toproviding a safe work place for all its employeesand strives for zero injuries.

Elementis aspires to best in class performance in all aspects of environmental management.It views compliance with all applicable legalrequirements and legal codes of practice as itsminimum standard and works pro-actively toreduce emissions and waste from its productsand processes.

Elementis supports the chemical industrysResponsible Care programme and applies theseprinciples in its worldwide operations. Elementisrecognises the importance of communicationswith all interested parties and is committed toinforming its employees, contractors, customers,neighbours and the general public promptly ofany significant hazards that arise from itsoperations.

The Board and senior management of Elementisare committed to this policy and continuallymonitor performance to ensure itsimplementation.

Sustainable development leadershipThe Chief Executive of Elementis plc has Boardlevel responsibility for sustainable development,including health, safety and environmental (HSE) issues.

Our commitment

Launch of communitywell-being programme

22% reduction in lost timeaccidents since 2000

A publication containing further details of theElementis Sustainable Development programmecan be obtained from the Elementis plcCorporate Communications department.

Elementis is committed to the highest standards ofcorporate governance. Westrive to conduct our businesswith integrity and respect for others.

Sustainable Development Pyramid


Responsibilities and authority for implementingthe concept of sustainable development aredeployed throughout the organisation.

Social responsibilityThe health, safety and welfare of our employeesand others affected by our activities are of theutmost importance to us. Our immediate aim in health and safety is to be in the top quartile of chemical companies on HSE performance.In 2004, we have come very close to achievingthat milestone.

Further reduction in lost time accidents (LTAs)The number of LTAs1 has reduced six-fold inrecent years from a rate of over 0.5 to 0.08 per100,000 hours worked. This is well below the CIA2

member average.

A sustained improvement in recordableincidentsWe also monitor our performance globally againstthe OSHA3 definition of recordable injuries andillnesses which is of all incidents that require morethan first aid treatment. Our recordable incidentrate improved significantly (for the fifth yearrunning): to 1.46 per 200,000 hours worked. TheACC4 member rate for similar sized US companiesin 2003 was 1.77 per 200,000 hours.

Human value and employee benefitsElementis aims to maximise human valuethrough enhancing the expertise and knowledgeof employees, providing fair reward and benefitsand extending their career choice.

0.7

0.6

0.5

0.4

0.3

0.2

0.199 00 01 02 03 04 05

targettop25%

LTA Rate (>3 days per 100,000 hours)

CIA rate

6

5

4

3

2

1

00 01 02 03 04 05target

top25%

Recordable incident rate (per 200,000 hours)

ACC Responsible Care Companies

Objectives for 20052004 Highlights

Achieve industry top quartile Health and Safety performance

Improve independent sustainabledevelopment auditing

Lost time accidents 0.08 per 100,000 hours

Recordable incident rate 1.46 per 200,000 hours

In June 2004 the Elementis Specialties facility at Jersey City, US, completed a full year withoutan OSHA recordable incident.

Elementis aims to create a work environment that cares about the physical and mental healthof employees in their communities.

Sustainable development(continued)


Equality of opportunityWe strive to ensure that no existing or potentialElementis employee receives less favourabletreatment than another on the grounds of race,colour, nationality, ethnic origin, gender, sexualorientation, marital or parental status, age,disability, social or economic class, trade unionmembership or non-membership, religion orpolitical beliefs. The Elementis fair employmentpolicies also recognise that employees should be able to conduct their duties free from thethreat of bullying or harassment.

Employee well-beingElementis aims to create a work environment thatcares about the physical and mental health ofemployees in their communities.

In pursuit of this aim we have introduced acomprehensive HIV education awarenessprogramme in South Africa, whilst in the USA we have introduced a disease managementprogramme.

Our commitment to the environmentOur twin goals are zero environmental incidentsand a continual improvement in environmentalperformance.

In recent years we have successfully reduced thenumber of environmental incidents (see chart).In 2004 we had five minor incidents. Even minorspills and leaks are subject to a full incidentinvestigation process, reinforcing our culture of zero tolerance of environmental incidents.

Elementis Tier 3 incidents are those that have asignificant environmental impact or raise otherconcerns. The Tier 3 incident in 2004 involved 10 fish killed following a 19 litre acid spill as aresult of flooding at the Easton, US, facility.Tier 2 are minor with no significant harm to the environment. Tier 1 is an environmental near miss.

Emissions to airOur emissions are closely regulated. Overall,including six months data for the Delden site, our air emissions remained close to those in 2003.

Sulphur and nitrogen oxides (SOx and NOx),which can cause acid rain, carbon dioxide,a greenhouse gas which facilitates globalwarming and Volatile Organic Compounds,which can combine with NOx to form smog,were all similar to 2003 levels.

Discharges to waterWe have made some improvement to waterquality in 2004. Further improvements shouldcome from the new waste water treatment plantat Elementis Specialties, Charleston.

Solid wasteDue to the nature of our business, we generate a certain quantity of hazardous waste. Thevolume of this waste has been dramaticallyreduced since 1999.

Water consumptionElementis does not operate manufacturingfacilities in areas of extreme water shortage,with the exception of the Specialties Hectoritemine in California. We recognise the global need to conserve water and consumption islower than it was in 2000.

30

25

20

15

10

5

01 02 03 04

Environmental incidents (number)

Tier 3Tier 2

1000

750

500

250

02 03 04

Global warming CO2 emission(thousand tonnes)

3000

2000

1000

02 03 04

Water quality (tonnes)

Biological oxygen demandChemical oxygen demandTotal suspended solids

0.4

0.3

0.2

0.1

99 00 01 02 03 04

Hazardous waste generated(tonnes per tonne of production)

1500

1000

500

01 02 03

Acid rain SOx and NOx emissions (tonnes)

Oxides of sulphurOxides of nitrogen


Energy consumptionIn 2004 total energy and energy consumption per tonne of production was affected by achange in product mix. The trend neverthelessshows an improvement over pre-2003 levels.

Responsible CareResponsible Care is an important component of our strategy for sustainable development.Elementis is a member of the CIA and has signedup to their Responsible Care Guiding Principles,which are applied by Elementis worldwide.Additionally, Elementis Specialties in the US is amember of the ACC and complies with the ACCResponsible Care requirements.

Product stewardshipElementis works actively to protect the healthand safety of people who transport or use ourproducts, or who might be affected indirectly.We provide technical advice on waste disposaland environmental protection from the effects of our products throughout their life cycle.

In June 2004 the Elementis Specialties site atDelden won the Dutch VNCI5 Responsible CareAward. The award recognised the developmentof a Product Stewardship management tool forchemical companies in the SME6 sector. In a spiritof collaboration the tool has been made availableto all VNCI members.

EU chemical regulations (REACH)The aim of the EU Chemicals Policy, REACH7 is toincrease the protection of human health and theenvironment, while maintaining and enhancingcompetitiveness and innovation.

As reported previously, Elementis supports theseaims but has reservations about the workability of the regulations. Elementis continues to take an active role in the debate.

The projected cost to Elementis is 30 53 millionover 11 years. This is higher than previousestimates due to the increased size of our productportfolio following from the acquisition of SasolServo B.V. in 2004.

Community well beingLocal communitiesElementis aims to promote the safety and wellbeing of the communities in which we operateand to ensure that we conduct our business in a way that is open and transparent to ourneighbours.

We encourage and facilitate employeesvolunteering or fund raising in support of local community organisations.

External recognition of sustainabledevelopment progressIn July 2004 Elementis Chromium, Eaglescliffe(UK) won the CIA Sustainable Developmentaward. The CIA considered last years SustainableDevelopment report to be best practice for theindustry.

7500

5000

2500

99 00 01 02 03 04

Water consumption (million litres)

30

25

20

15

10

5

GJ per tonne Million GJ used

Group energy usage

2000 total2001 total2002 total2003 total2004 total

1 We use the UK definition: injuries resulting in greaterthan three days lost (not including the day of injury).

2 Chemical Industry Association body representing UK chemical companies.

3 Occupational Health & Safety Administration US regulatory body.

4 American Chemistry Council body representing US chemical companies.

5 Vereniging van de Nederlandse Chemische Industrie(Association of the Dutch Chemical Industry).

6 Small and medium-sized enterprises.7 Registration, Evaluation and Authorisation of Chemicals

In June 2004 the Elementis Specialties site atDelden won the Dutch VNCI5 Responsible Care Award.

In July 2004 Elementis Chromium, Eaglescliffe (UK)won the CIA Sustainable Development award.

Shareholder information

Global offices


Elementis plc

Company SecretaryPhilip Brown LLB FCIS

Registered officeElementis House56 Kingston RoadStainesTW18 4ES, UK

Tel: +44 (0) 1784 22 7000Fax: +44 (0) 1784 46 0731Email: [email protected]: www.elementis.com

Registered number3299608

AuditorsKPMG Audit Plc

StockbrokersCazenove & Co LtdHoare Govett Limited

RegistrarsLloyds TSB Registrars

Elementis plcElementis House56 Kingston RoadStainesTW18 4ES, UK

Tel: +44 (0) 1784 22 7000Fax: +44 (0) 1784 46 0731Email: [email protected]

Elementis Chromium Urlay NookEaglescliffeStockton-on-Tees TS16 0QG, UK


Elementis Pigments2051 Lynch AvenueEast St. Louis, IL 62204USA

Tel: +1 618 646 2110Fax: +1 618 646 2178Email: [email protected]

Elementis Specialties329 Wyckoffs Mill RoadHightstown NJ 08520USA

Tel: +1 609 443 2000Fax: +1 609 443 2422 / 2207Email: [email protected]

Specialty RubberWilkinson HouseGalway RoadBlackbushe Business ParkYateleyHampshire GU46 6GE, UK


Report of the directors


Report and financial statementsThe directors submit their report and the audited financial statements forthe year ended 31 December 2004. For the purposes of this report, theexpression Company means Elementis plc and the expression Groupmeans the Company and its subsidiaries.

ResultsThe Group loss for the year attributable to shareholders amounted to7.8 million (2003: profit of 4.3 million).

Distribution to ShareholdersAt the Annual General Meeting held on 28 April 2000, shareholdersconferred authority on the Board to issue redeemable B shares. The totalnominal value of redeemable B shares issued to shareholders during theyear was 2.2 pence per ordinary share. The Board intends to issue furtherredeemable B shares to ordinary shareholders on the register on 26 April2005, such that they receive redeemable B shares with a total nominal valueof 1.1 pence for each ordinary share held. This will be coupled with an offerto redeem these new shares for cash at their nominal value on 3 May 2005.A further offer will also be made to existing holders of redeemable B sharesto redeem these shares for cash at their nominal value on 3 May 2005.Holders of redeemable B shares are entitled to a non-cumulative preferentialdividend at a rate of 75 per cent of six month sterling LIBOR payable sixmonthly in arrears; the charge to the profit and loss account in 2004 inrespect of these dividends was nil (2003: nil).

Principal activities, business review and future developmentThe Chairmans statement and the Chief Executives review contains adescription of the principal activities of the Group during 2004, references torecent events and likely future developments. Companies throughout theGroup undertake, on a continuing basis, research and development of newproducts and improvement of existing products.

Group turnover and profit is analysed by activity and geographically in thenotes to the financial statements.

Donations and contributionsDuring the year, the Group donated 2,694 for charitable purposes in theUnited Kingdom.

Political donationsElementis has no affiliation to any political party or group in any country andmakes no political donations.

DirectorsThe present directors of the Company are Keith Hopkins, Geoff Gaywood,Brian Taylorson, Philip Brown, Michael Hartnall, Edward Wilson and KevinMatthews. With the exception of Keith Hopkins who was appointed to theBoard on 1 August 2004 and Kevin Matthews who was appointed on 16February 2005, all the remaining directors served throughout the financialyear. Jonathan Fry resigned as a director on 7 October 2004.

A statement of the directors interests in the share capital of the Company isset out in the Directors remuneration report.

Employee communications and involvementIt is Group policy to communicate with all employees on major matters toencourage them to take a wider interest in the affairs of their employingcompany and the Group. This is done in a variety of ways including in-housenewspapers, bulletins and briefing sessions. The Company operates asavings-related share option scheme allowing UK and US employees anopportunity to become shareholders.

Employment policiesThe Group is committed to the principle of equal opportunity inemployment, regardless of a persons race, creed, colour, nationality, gender,age, marital status, sexual orien

AR2004

Documents

Transcript of AR2004