Chemicals slump hits ICI recovery

CHEMICALS giant ICI's attempts to regain some of its lost prestige have been hit by another slump in profits in the first three months of the year. Pre-tax profits fell by £19m, or 22%, to £66m compared with the first quarter of 2001, with the specialty chemicals division hardest hit.

The figures are the first since an emergency £800m rights issue in February that was only grudgingly supported in the City.

Chief executive Brendan O'Neill remains uncertain about the timing of the much forecast global economic recovery. However, he said: 'We are encouraged by the trend in the performance of ICI's international businesses seen during the first quarter. Consequently, and given the actions we are taking in our markets and on our costs and capital effectiveness, prospects for the year remain satisfactory.' The shares rose 1/2p to 320 1/2p, against a peak of 1012p in the late 1990s. Analysts were concerned about a weak performance in the core specialty chemicals.

Profits from this division fell by a third from £21m to £14m in what the company said was a difficult first quarter. But earnings from the international businesses fell by only 3%. Sales were down 9% to £200m.

Group turnover fell to £1.47bn from £1.64bn last time. The rights issue cut debt to £2.4bn. Worldwide trading profit was 2% lower, despite good increases from paints and starch. Quest, the division that provides oral care and personal hygiene products, was in line with the performance in the previous period.

The national starch division delivered its second consecutive quarter of profit growth with comparable trading profit 2% ahead and trading margins up to 12.1%.

Once again earnings from associate companies such as US-owned Huntsman International, in which ICI has a 30% stake, hit the specialty chemicals division. ICI has said it intends to sell this holding in the third quarter of the next financial year.

The recovery in Asia continued for ICI, mainly due to its electronics business sales. However, this was more than offset by the downturn in America, where ICI sources a third of its sales, and Europe. International margins appear to have been reduced by higher raw materials prices.