Elementis plc Annual report and accounts

1 Elementis plcAnnual report and accounts2 016 Elementis plc is a global specialty chemicals company with operations worldwide that serve customers in north and Latin America, Europe and Asia in a wide range of markets and sectors. The Company has a premium listing in the UK on the London Stock Exchange and is a member of the FTSE 250 and FTSE4 Good Indices.#1 Market, technology and innovation leader in Rheology$ in Personal Care sales*4%Growth in global Coatings sales*Cautionary statement:The Annual report and accounts for the nancial year ended 31 December 2016, as contained in this document ( Annual report ), contain information which viewers or readers might consider to be forward looking statements relating to or in respect of the nancial condition, results, operations or businesses of Elementis plc. Any such statements involve risk and uncertainty because they relate to future events and circumstances. There are many factors that could cause actual results or developments to differ materially from those expressed or implied by any such forward looking statements.

2 Nothing in this Annual report should be construed as a pro t , 4 0 0 Employees globallyEmployees globallyEmployees globally3 Business segments Specialty Products Chromium Surfactants3* constant currency re ects prior year results translated at current year exchange ratesOur business segmentsSpecialty Products segment sectorsCoatings$ $ Care $ offer a variety of rheology modi ers and specialty additives to decorative and industrial paints and coatings. We have solutions for both waterborne and solvent systems that enhance the performance, look, feel and stability of use rheological modi ers to enable drilling mud performance over a wide range of conditions. Our products provide high viscosity and low shear rates which are valuable in high angle and horizontal wells. They are also designed to withstand both high pressure and extreme temperature. We have a high value niche participation in the personal care market. Hectorite gives us a distinct competitive advantage and our Rheoluxe range of synthetic polymers are popular with our customers due to their ease of use and versatility.

3 Specialty Products$ provide high volume functional additives to the coatings, personal care and energy markets that improve the ow characteristics and performance of our customers products and production facts Based in 13 manufacturing locations in north and Latin America, Europe and Asia. We have ,000 $ 1We are a leading producer of chromium chemicals with a strong position in the north American market. We provide chromium chemicals to customers that make their products more durable and which are used in a wide range of sectors and applications. Key facts Only domestic chromium producer in north America based in ve locations. We have $ 4 3 .1mRevenue 1We manufacture a wide range of surface active ingredients and products that are used as intermediates in the production of chemical compositions. Key facts Share a manufacturing plant in Delden, Netherlands with Elementis Specialty Products. We have revenue includes internal salesOur manufacturing sitesAmericasEuropeAsiaSpecialty ProductsCharleston Jersey City Milwaukee Newberry New Martinsville Palmital St LouisLivingstonAnji Changxing Hsinchu SongjiangChromiumAmarillo Castle Hayne Corpus Christi Dakota City MilwaukeeSurfactantsDelden** Delden site shared with Specialty ProductsPursue best growth opportunitiesPursue supply chain transformationInnovate for distinctiveness and high marginsCreate a culture of high performanceWhy invest in Elementis ?

4 We operate in high margin, segmented markets and emerging economies where products have many applications and diverse end users, and our local market presence is supported by a strong global infrastructure. We have a clear strategy to pursue the best growth opportunities by utilising our strong balance sheet to reinvest in growth and nance returns to shareholders. We are improving the quality of our asset base and operating ef ciency to optimise cash and returns. Our global R&D function has a broad and differentiated product portfolio that is underpinned by proprietary technology, strong customer relationships, technical know how and expertise. We have a culture of high performance with a simple and at organisational structure and we utilise systematic performance management to improve accountability and deliver results. We have strong governance and risk management controls and maintain a high standard of business conduct, ethics and corporate responsibility.

5 CEO s statement see pages 4 to 9 How we will reignite growthStrategic reportCorporate governanceFinancial statementsShareholder informationHighlightsFinancial summaryContentsStrategic report2 Chairman s statement4 CEO s overview6 Our strategic priorities8 2016 in action10 Our business model12 Finance report16 Key performance indicators17 Risk management report22 Corporate responsibility reportCorporate governance30 Board of Directors32 Chairman s letter on governance33 Corporate governance report35 Nomination Committee report36 Audit Committee report39 Directors remuneration report60 Directors report62 Directors responsibility statement63 Independent auditor s reportFinancial statements70 Consolidated income statement70 Consolidated statement of comprehensive income71 Consolidated balance sheet72 Consolidated statement of changes in equity73 Consolidated cash ow statement74 Notes to the Consolidated nancial statements109 Parent company statutory accounts111 Notes to the Company nancial statements of Elementis plcShareholder information115 Glossary116 Five year record117 Shareholder services118 Corporate information118 Financial calendar118 Annual General Meeting118 Principal of ces Group earnings declined due to the negative impact of currency on our Chromium segment and oil prices on our Energy sector within our Specialty Products segment.

6 Progress overall in Specialty Products where constant currency sales were up 3 per cent in 2016 and up 8 per cent in H2 2016 versus the same period last year. Coatings sector up 4 per cent for the year*; 6 per cent growth* in Coatings Asia. Personal Care sector up 14 per cent*, with good momentum in H2 which was up 23 per cent year on year*. Energy down 16 per cent* for the year but H2 2016 sales improved by 15 per cent compared to H1*. Proposed acquisition of SummitReheis, a high quality personal care business, was announced on 10 February 2017 expected to complete mid-year after regulatory requirements are satis ed. Continued strong cash generation net cash position increased to $ million. Total dividends for the year increased by 2 per cent to cents: Final dividend maintained at previous year level. Special dividend increased by 4 per cent; fth consecutive payment.* constant currency re ects prior year results translated at current year exchange rates2015 restated see note 3120162015 Sales$ $ 6 7 7.

7 2 m IFRS pro t for the year$ 6 8 .1m$ Statutory basic earnings per Net cash$ 77. 5 m$ 74. 0 mOperating pro t $ $ Pro t before tax $ $115 . 2 m Diluted earnings per share Operating cash ow $ $ to shareholders: Interim Final Special dividend Total for the after adjusting items see note 5 restated see note 311 Elementis plc Annual report and accounts 2016 Chairman s statementFinancial resultsIn 2016, Group sales were $ million compared to $ million in the previous year and IFRS pro t before tax was $ million compared to $ million . These results were mainly due to the impact of currency on Chromium and oil prices on Energy. Group basic earnings per share was cents compared to cents in addition the Group s results will report a number of adjusting items and these items are discussed more fully in the Finance report . After taking account of these items, Group diluted earnings per share after adjusting items was cents compared to cents last ye a sheetThe Group s balance sheet remains strong after another year of robust cash generation despite lower pro ts and higher dividend payouts.

8 The Group s net cash position at the end of 2016 was $ million, compared to $ million at the end of the previous year. The IAS 19 de cit, on the Group s post retirement bene t plans, changed from $ million at the end of 2015 to $ million. The UK pension plan accounts for the majority of the Group s pension obligations. DividendsUnder the dividend policy introduced in 2012, the Board undertook to pay approximately one third of earnings, after adjusting items, each year in a combination of interim and nal dividends. In addition, a special dividend is paid each year of up to 50 per cent of the net cash balance at the end of the year, provided there are no immediate investment plans for that cash. This year, the Board is recommending a maintained nal dividend, re ecting its con dence in the Group s business model and its medium term prospects. In addition, as the year end net cash balance increased, we will be distributing half of this by way of a special dividend, notwithstanding our investment in the acquisition of SummitReheis.

9 Consequently, proposed total dividends for the year are increased by 2 per cent to cents per share, the components of which are as follows: The Board is recommending a nal dividend for 2016 of cents per share (2015: cents) and a special dividend of cents per share (2015: cents). The Board declared an interim dividend at the time of the Interim Results announcement of cents per share (2015: cents).The markets in which we operate continued to be challenging in 2016, adversely affecting our two principal business segments. In the Chromium segment, although the US business remained structurally advantaged and maintained a consistently high degree of stability, a strengthening US dollar and competitive pressures impacted both volumes and margins on export sales from the US to the rest of the world. As a result, the overall impact on volumes and earnings in 2016 has been material. In the Specialty Products segment, we saw good underlying performance in all our sectors, with a resumption of growth in our Chinese coatings activities and the delivery of good growth in Personal Care.

10 However, lower oil prices reduced demand in our Energy sector by some 16 per cent versus 2015 and the appreciation of the US dollar against most global currencies also impacted results. Our new CEO Paul Waterman joined us in February 2016 and he has, initially with the support of our CFO at the time, Brian Taylorson, set about developing a strategy for the business in order to reignite growth which aligns the management of the Company in the delivery of this strategy, which was presented to analysts and investors in November 2016. Following Brian s decision to step down after his many years of great service we appointed his successor, Ralph Hewins, who took up his role in November 2016. This growth strategy continues to build on the long standing strengths of the Group, improving operational ef ciency through a range of self help initiatives and focusing investment towards our highest growth markets and in our high performing Personal Care sector in particular.