Hanson's plans hit by SCM downturn
Friday 02 August 1996
Hanson's demerger plans were dealt another blow yesterday as its chemicals arm warned that prices had weakened at SCM, one of its two main operating businesses.
The conglomerate's shares, which have fallen 26 per cent since the announcement of plans to break the group up into four separately quoted companies, closed 4.5p, or 3 per cent, lower at 155.75p.
Chemical prices have fallen 8 per cent in the US and 10 per cent in Europe since December as demand, which traditionally picks up in the Spring, remained weak. SCM is the world's third-largest maker of titanium dioxide, whose main customers are the paper and paint industries.
Analysts cut forecasts for Hanson by up to 2 per cent this year and 4 per cent next after the unexpected news. "It's obviously contrary to what the company has been expecting," said Nigel Utley, an analyst at Greig Middleton."They've been leading us to hope that prices would have firmed up throughout the summer, but that's obviously not been happening."
SCM is now delaying by six months plans to add 41,000 tons of capacity by 1998. It is also going to postpone the start-up of a plant in Australia which was planned to open in January 1999.
Bill Landuyt, chief executive of the chemicals business - to be called Millennium Chemicals when it is floated off from Hanson in October - said: "We've got a very disciplined approach at Hanson and if the pricing isn't there now, we're going to adjust our plans accordingly and control that spend."
Analysts now believe SCM will make profits of between pounds 95m and pounds 100m compared with previous estimates of about pounds 120m and last year's pounds 107m.
SCM accounted for about 30 per cent of the division's sales in the first half and about 36 per cent of profits. It had planned to expand capacity by 20 per cent by 1998 and by 45 per cent the following year, culminating in the construction of the world's largest titanium dioxide plant in Australia.
Mr Landuyt attempted to play down the significance of the sales decline, blaming poor weather in both the US and Europe which had led to less demand for paint.
SCM plans to raise prices by 8 per cent in October and believes the demand is now in place to sustain the increase.
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