# STRATEGIC REPORT

_Source: `DeepSeekOCR_Ardian_pruned_1k/basic-materials-specialty-chemicals/LSE_ELM.L_2018/LSE_ELM.L_2018.mmd` · pages 1-7_

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STRATEGIC REPORT

1 Elementis Today

8 Chairman's Statement

10 CEO's Strategic Overview

14 Portfolio Transformation

16 Our Market Environment

18 Business Model

20 Our Strategy

30 Measuring Our Performance

32 Non-Financial Information Statement

34 Our Business Segments

36 Finance Report

42 Principal Risks and Uncertainties

49 Resources and Relationships

59 Going Concern and Viability Statement

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Reignite Growth
We have made material
progress against our strategic
priorities and have a strong
platform for growth in 2019

REIGNITE GROWTH
SEE PAGE 20

## FINANCIAL STATEMENTS

106 Consolidated Income Statements

106 Consolidated Statement of Comprehensive Income

107 Consolidated Balance Sheet

108 Consolidated Statement of Changes in Equity

109 Consolidated Cash Flow Statement

110 Notes to the Consolidated Financial Statements

156 Parent Company Statutory Accounts

158 Notes to the Company Financial Statements

164 Unaudited Pro Forma Information

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Financial transparency
We have introduced new
segmental reporting to
improve the transparency of
our financial performance

FINANCIAL REPORT
SEE PAGE 36

## CORPORATE GOVERNANCE

61 Chairman's Introduction

62 Board of Directors

64 Executive Leadership Team

66 Corporate Governance Report

72 Nomination Committee Report

73 Audit Committee Report

78 Directors' Remuneration Report

93 Directors' Report

95 Directors' Responsibilities

96 Independent Auditor's Report

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CHAIRMAN'S INTRODUCTION TO GOVERNANCE
SEE PAGE 61

## SHAREHOLDER INFORMATION

165 Five Year Record

166 Glossary

167 Shareholder Services

168 Corporate Information

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FOR MORE INFORMATION
www.elementisplc.com

## Cautionary statement

The Annual Report and Accounts for the financial year ended 31 December 2018, as contained in this document ("Annual Report"), contains information which views or readers might consider to be forward looking statements relating to or in respect of the financial 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. Nothing in this Annual Report should be construed as a profit forecast.

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## REIGNITE GROWTH
PORTFOLIO TRANSFORMATION

WE ARE A GLOBAL SPECIALTY CHEMICALS COMPANY SERVING CUSTOMERS IN SELECTED MARKETS WORLDWIDE. TO OUR CUSTOMERS WE DELIVER ENHANCED PRODUCT PERFORMANCE THROUGH APPLIED INNOVATION.

IN THE SECOND YEAR OF OUR REIGNITE GROWTH STRATEGY WE HAVE MADE MAJOR PROGRESS IN TRANSFORMING OUR PORTFOLIO, CAPABILITIES AND CUSTOMER SERVICE.

2016: Completed a business wide strategic review
2017: Reignite Growth: Strengthening the foundations
2018: Reignite Growth: Portfolio transformation

<table><tr><td rowspan="3">Sales+\(822m</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>\(617m</td><td>\)783m</td><td>\(822m</td><td></td><td></td></tr><tr><td>2016</td><td>2017</td><td>2018</td><td></td><td></td></tr><tr><td rowspan="3">Adjusted operating profit+^ \)133m</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>\(97m</td><td>\)123m</td><td>\(133m</td><td></td><td></td></tr><tr><td>2016</td><td>2017</td><td>2018</td><td></td><td></td></tr><tr><td rowspan="3">Adjusted operating margin+ 16.1%</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>15.8%</td><td>15.7%</td><td>16.1%</td><td></td><td></td></tr><tr><td>2016</td><td>2017</td><td>2018</td><td></td><td></td></tr><tr><td rowspan="3">Profit before tax+ \)65m</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>\(76m</td><td>\)79m</td><td></td><td></td><td></td></tr><tr><td>2016</td><td>2017</td><td>2018</td><td></td><td></td></tr></table>

<table><tr><td rowspan="3">Net (debt)/cash ($498m)</td><td>\(78m</td><td>2017</td><td>2018</td><td></td></tr><tr><td>2016</td><td>2017</td><td>2018</td><td></td></tr><tr><td>16.1c</td><td>17.0c</td><td>16.9c</td><td></td></tr><tr><td>Adjusted diluted earnings per share+^† 16.9c</td><td>2016</td><td>2017</td><td>2018</td><td></td></tr><tr><td>Ordinary dividends per share† 8.4c</td><td>7.7c</td><td>8.1c</td><td>8.4c</td><td></td></tr><tr><td></td><td>2016</td><td>2017</td><td>2018</td><td></td></tr></table>

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A TRANSFORMED
PORTFOLIO
WITH IMPROVED
FINANCIAL
TRANSPARENCY

## PERSONAL CARE

## Business model

Our Personal Care business supplies rheology modifiers based on natural and synthetic ingredients to personal care manufacturers. We also supply the active ingredient for the production of anti-perspirant deodorants.

Elements' competitive advantage is based on access to rhectorite, a unique raw material, world class global research and development and a passion for delivering enhanced performance for our customers' products.

2018 revenue $210m

2018 adjusted operating profit $52m

## Customers

Our customers include global and local manufacturers of personal care products such as cosmetics and anti-perspirants.

## Competition

We are a leader in organoclay based rheology modifiers and anti-perspirant active ingredients.

Competition is based on formulation capabilities, customer service levels and price.

## Market drivers

Demand for Personal Care products is driven primarily by disposable income levels, product innovation and consumer trends.

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## OUR PRODUCTS
IN ACTION

Bentone \( ^{®} \)  gel is used to create Personal Care products that thin upon the application of force and thicken once the force is removed. This flow behaviour enhances the aesthetics of a cream on the skin and allows flawless application of nail polish. Bentone \( ^{®} \)  gel is based on heterotide, a naturally occurring clay sourced from our mine in California.

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## COATINGS

## Business model

Our Coatings business supplies rheology modifiers and additives to manufacturers of decorative and industrial coatings.
Elements' competitive advantage is based on access to hectorite, world class research and development capabilities and an unparalleled range of rheology solutions for Coatings customers.

2018 revenue $362m

2018 adjusted operating profit $53m

## Customers

Our customers are manufacturers of decorative and industrial coatings.
Competition
We are a leader in the global rheology modifiers and additives segment.

Competition is based on quality of service, technological capabilities and price.

## Market drivers

Demand for decorative coatings is influenced by disposable income, maintenance spend, housing transactions and construction activity. Demand for industrial coatings is driven by general macroeconomic activity levels and sector specific factors such as the level of automotive demand.

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FOR MORE ON THIS TOPIC
SEE PAGE 35

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## OUR PRODUCTS
IN ACTION

Thixatrol \( ^{®} \)  is an additive used by coatings and sealant customers to adhere very heavy objects to a surface via a single spray application. Thixatrol \( ^{®} \)  is predominantly based on renewable raw materials and its usage needs relatively low heat input, making it environmentally friendly.

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## TALC

## Business model

Talc supplies performance minerals with additive characteristics to a wide range of markets including coatings, plastics, life sciences and paper. Small quantities of other minerals, predominantly nickel and cobalt, are created as a byproduct of talc purification.
Talc's competitive advantage is based on access to a distinctive raw material, and the ability to consistently deliver tightly specified, high purity, tailored functional formulation components to customers around the globe.

## 2018 revenue \( ^{*} \)  $ 158m

## 2018 adjusted operating profit \( ^{*} \)  $25m

 \( ^{*} \) Pro forma 12 months - see pro forma calculations on page 164

In the two month period of ownership in 2018, Talc generated $22m of revenue and $4m of adjusted operating profit.

## Customers

Customers are global and regional producers of industrial and decorative coatings, long life plastics, pharmaceuticals, personal care products and paper based items such as magazines. Other minerals are sold to leading battery materials producers.

## Competition

Mondo is the second largest producer of talc based additives globally with a market share of approximately 11%.
Competition is based on product quality, consistency, long term supply security and the degree of technical expertise and support provided.

## Market drivers

Demand for talc is driven by general macro-economic conditions and by structural factors such as the increased penetration of talc in products (e.g. via light weighting of vehicles) and the increased use of talc in high value applications such as pharmaceuticals.

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## OUR PRODUCTS
IN ACTION

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Fintalc is used to strengthen products, without adding unnecessary weight, and is used for long life plastics including automotive parts and household appliances. Fintalc is a natural product made entirely from talc, the softest of all minerals, making it an environmentally friendly solution for our global customers.

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## CHROMIUM

## Business model

We supply a range of chromium chemicals including dichromate, chrome oxide, chromic acid and chrome sulphate. These products are used by customers across a wide range of sectors and applications to make their products more corrosion resistant and durable.
Our competitive advantage is based on being the only domestic producer of chromium chemicals in North America and our unique delivery system that minimises the need for customer interaction with our products, with significant safety benefits.

2018 revenue $184m

2018 adjusted operating profit $33m

## Customers

Our customers span a range of industries including pigments, chrome metal, refractory, metal finishing, timber treatment and leather tanning.

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## Competition

Elements has approximately a 10% share of the global chromium chemicals market.
Competitors range from multinational companies to privately owned businesses.

## Market drivers

Demand drivers vary across our three main product categories. The market for chrome oxide is driven by construction, coatings and aircraft demand, chrome acid by construction and infrastructure demand, and chrome sulphate by beef consumption.

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## OUR PRODUCTS
IN ACTION

Chrome sulphate is used in the tanning of animal hides to make leather goods. Waynetan 180 is a product designed for faster penetration of chrome during hide preparation, resulting in higher quality leather products. Waynetan is produced in an environmentally friendly manner at our zero water discharge facility in Milwaukee.

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## ENERGY

## Business model

Our Energy business supplies rheological modifiers and additives primarily for oil and gas drilling, and stimulation activities. These products are formulated to lubricate the drill bit, control formation pressure and remove cuttings in drilling fluids.
Elementis' competitive advantage is based on offering a range of rheology modifiers, based on natural and synthetic ingredients, to Energy customers on a global basis, supported by world class technical support.

2018 revenue $55m

2018 adjusted operating profit $7m

## Customers

Our customers are typically the global and large regional independent oilfield service companies who use our products in various oil and gas producing regions around the world.

## Competition

We are a leader in organoclay based rheology modifiers for energy applications. Technical capability and supply chain footprint are top of the buyer criteria.

## Market drivers

The oil price and the availability of adequate infrastructure are the primary drivers of drilling rig activity levels as well as the number of wells drilled. However, there are also other important drivers of drilling activity such as well head breakeven cost, the number of wells per rig, the length of lateral drilling and the drilled but uncompleted well count.

FOR MORE ON THIS TOPIC SEE PAGE 35

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## OUR PRODUCTS
IN ACTION

Oil companies are increasingly working in harsh conditions which challenge drilling production rates. Our high purity hectorite-based rheological additives, such as Bentone \( ^{®} \)  38, are extremely efficient in such drilling environments. Bentone \( ^{®} \)  38 is highly resistant to contaminants, can withstand extreme high temperatures and helps to improve oil recovery.