English China Clays faces serious shake-up

A large-scale shake-up at English China Clays, the world's biggest producer of minerals for the paper market, was in prospect yesterday after the group warned that continued destocking in the paper industry had hit first- half trading.

ECC said it was involved in "an intensive review to address the group's strategy and performance improvement". Analysts warned that this could involve a fundamental restructuring of the business and said a cut in the dividend was a serious possibility as profit forecasts were slashed for the fourth time in as many months.

ECC's shares sank 11p to 243p, the lowest level for over five years, on this latest blow to sentiment. Since the preliminary results were announced in March, Dennis Rediker's first since taking over as chief executive from Andrew Teare, City projections of current year profits have nearly halved, tumbling from just short of pounds 100m to as low as pounds 52m or so yesterday. At that level, profits would be insufficient to cover the dividend, which absorbed pounds 51.1m in after-tax profits last year.

ECC is heavily reliant on the paper industry, which is a big customer for the group's kaolin and calcium carbonate products for use in coating and "filling" paper. It has been hit by destocking, which first became evident at the end of last year. In a statement yesterday, the group said low production rates at paper mills had caused "severe" trading conditions in the second quarter of the year.

European mineral volumes had slipped 16 per cent against the first half of last year, while in the US AmPac business, underlying volumes were down 11 per cent, when the effects of last year's acquisition of the Genstar calcium carbonates operation were stripped out.

Margins have been hit in all divisions, with the effects of lower volumes at AmPac exacerbated by product mix and manufacturing efficiency problems. As a result of poor trading, cash flow has fallen from last year and, with higher capital expenditure, net borrowings have climbed from pounds 189m to pounds 213m over the six months to June.

The news prompted analysts to cut forecasts by up to pounds 18m, leaving a wide range of current-year expectations from pounds 52m to pounds 69m.

One analyst said the continuing problems of the market were not a great surprise, but added that the company had problems of its own in North America.

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