Chemical costs corrode margins at Courtaulds

The soaring cost of chemicals has bitten deep at Courtaulds, the paint to polymers group. Sipko Huismans, chief executive, revealed yesterday that margins had halved last year in the viscose business, while acrylics had fared even worse after "outrageous" price increases.

Wood pulp and acrylo nitrile, two of the group's key raw materials, had doubled in cost in the past 12 months, he said, with spot prices leaping from $400 to $1,200 a tonne for the former and from $600 to $1,800 for the latter.

The increases were being passed on, but there was a time lag and they raised prices only with misgivings. "Our customers - and their customers - are suffering," he said.

The slimmer margins cut operating profits to pounds 167m in the year to March, from pounds 176m the previous year, before exceptional items.

At the pre-tax level, profits rose from pounds 146m to pounds 151m, with the comparison flattered by certain one-off charges in the comparable period. A final dividend of 11.25p raises the total 4.1 per cent to 15.4p.

The shares put on 14p to 477p yesterday on relief that the figures were not worse. Nonetheless, Jeremy Chantry, chemicals analyst at brokers Kleinwort Benson, warned that although acrylo nitrile prices may now have peaked, pulp prices had further to go. He has lopped his profits forecast for this year by pounds 10m to pounds 175m as a result.

Mr Huismans said he was "very comfortable" with the progress of Tencel, the cotton-like artificial fibre on which Courtaulds has spent pounds 200m so far. Start-up losses were less than pounds 10m last year. Tencel trials have been under way with Marks & Spencer for a year.

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