ECC launches fresh cuts after profits collapse

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The Independent Online
English China Clays, the world's biggest producer of kaolin, is to launch another round of restructuring and could cut its dividend after being hammered by de-stocking in the paper industry, its main customer.

The company yesterday announced that pre-tax profits crashed from pounds 55.3m to just pounds 5.7m in the six months to June as volumes sank by as much as one-fifth.

The interim dividend is being maintained at 5.5p, but Lawrence Urquhart, chairman, warned that a decision on the final payment would not be made until later this year, when trading trends become clearer and a comprehensive strategic review begun early in 1996 was completed.

However, as part of the initial phase of the restructuring plan the group announced its intention to cut another pounds 30m of costs in its kaolin business, which Dennis Rediker, the new chief executive, said would make us "very, very competitive" in the world market.

Shares in the group slid 10p to 216.5p as brokers factored in a possible dividend cut to around 10.5p from last year's figure of 16.7p and criticised management's failure to spell out future strategy in sufficient detail.

One analyst said: "I think its pretty disheartening for investors not to be given a clearer picture. Quite honestly, nobody cared too much about the level of operating profits [in the half year] ... What has disappointed people is that there have been no clear indications as to future strategy and clear indications of future dividend policy."

Mr Rediker only took over at the beginning of the year after his predecessor, Andrew Teare, moved over to take the reins at the Rank leisure and amusements group. He said the collapse in profits was driven by a 21 per cent drop involumes to the European paper industry and an 11 per cent fall in North

America. Profits in Europe crumpled from pounds 33.2m to pounds 21.5m, while in North America they were down from pounds 19.5m to pounds 12.1m.The problem was that the paper industry "wasn't running their machines", he said, after a "false stockbuild" at the end of 1995 and into 1996 in the expectation of a good market which did not come through. "There was just no place to put the paper.... The pipeline was full right back from the printer to the papermaker."

The half year figures bore an pounds 18.6m charge for writing down or writing off underperforming calcium carbonate or kaolin assets in Korea, Continental Europe and Brazil. Mr Rediker warned that, although the operational review was not completed, to give it "some sense of proportion" they could see the need to cut costs in the kaolin business around the world by a further pounds 30m.

The full-year profits would bear a charge for the move, but he could not say how much or how many redundancies would be involved.

The latest figures were also hit by an unprofitable three year contract entered into by previous management at the Calgon speciality chemicals operation to supply the Scott Paper Company in the US. Margins in speciality chemicals fell from 7.8 per cent to 1.1 per cent in the half year, but would have been akin to the 3.4 per cent achieved in the second half of 1995 without the Scott contract, against which a provision has been made, Mr Rediker said. New management at the business had already wrought a "dramatic" turnround in the business, but too late to save these figures, he added.

In addition, ECC has had to cope with problems in its US kaolin manufacturing plant and with start up costs in a new calciner plant making high quality kaolin, also in the US. But analysts say it faces growing competition from new kaolin sources in Brazil and from cheaper calcium carbonate.

Profits forecast at pounds 55m for the full year would leave last year's dividend uncovered