ICI finds the winning formula - Business - News - The Independent

ICI finds the winning formula

The Investment Column

ICI finds the winning formula

After eight years in the chairman's seat, Sir Denys Henderson is leaving ICI in good shape.

The restructuring programme he launched in 1990, which reached its apogee with the Zeneca demerger in 1993 and has continued since, is really starting to deliver the goods. First-quarter figures yesterday showed trading profits accelerating from £108m to £231m and shareholders should soon be able to share the rewards.

Addressing his last annual meeting yesterday, Sir Denys gave a clear hint that a dividend increase could come as early as this year's interim.

Profits are being given a fair wind by ICI's reshaping, which has taken it into higher value-added markets and should be delivering annualised cost savings of about £500m by the end of this year. But the biggest impetus to the figures is the general improvement in the main industrial markets that started in mid-1994. The recovery in volumes has carried over into a 10 per cent improvement in the first quarter, which also saw the first full period of higher prices, up 8 per cent in the three months to March.

The main beneficiary was the core industrial chemicals business, where profits more than tripled from £42m to £143m. Prices were particularly strong in petrochemicals and fertilisers - ironically, commodity areas on which ICI has been reducing its dependence.

ICI's gain in basic chemicals caused problems elsewhere, where higher raw material costs are squeezing margins. Paint profits fell from £17m to £14m and explosives from £12m to £11m, largely because of higher costs, although the weak European market for the likes of Dulux decorative coatings played its part.

The figures caught analysts by surprise, with typical upgrades pushing full-year profit forecasts to £850m-£950m. But the question is how much further the chemical cycle has to run beyond 1995.

ICI has few doubts. Alan Spall, finance director, points out that chemical price recovery is still at an early stage. With D-mark prices languishing 25 to 35 per cent off their peak in 1988, the returns are still insufficient to provide an appropriate return to make it worthwhile for the industry to increase capacity, he says. Despite that, ICI is raising capital expenditure this year to over £500m from a spend that has recently averaged closer to last year's figure of £380m.

Mr Spall is confident that investment will be carefully targeted, but the group is in danger of adding to capacity just as the market peaks in the next couple of years. Such long-term considerations helped turn yesterday's early rise in the shares to a fall of 2p to 756p, where they stand on a forward multiple of between 10 and somewhat over 11 on the updated forecasts.

Shored up by a prospective yield of 5 per cent, assuming a 2p rise in the dividend, they are worth holding.

Life and Style
tech
Arts and Entertainment
Robin Thicke's video for 'Blurred Lines' has been criticised for condoning rape
music
News
Paper trail: the wedding photograph found in the rubble after 9/11 – it took Elizabeth Keefe 13 years to find the people in it
newsWho are the people in this photo? It took Elizabeth Stringer Keefe 13 years to find out
Arts and Entertainment
Matt Damon as Jason Bourne in The Bourne Ultimatum (2007)
filmMatt Damon in talks to return
PROMOTED VIDEO
Arts and Entertainment
Evil eye: Douglas Adams in 'mad genius' pose
booksNew biography sheds light on comic genius of Douglas Adams
News
peopleThe report and photo dedicated to the actress’s decolletage has, unsurprisingly, provoked anger
Life and Style
Bono and Apple CEO Tim Cook announced U2's surprise new album at the iPhone 6 launch
tech(but you can't escape: Bono is always on your iPhone)
Sport
FootballFull debuts don't come much more stylish than those on show here
Arts and Entertainment
While many films were released, few managed to match the success of James Bond blockbuster 'Skyfall'
filmsDaniel Craig is believed to be donning skies as 007 for the first time
Arts and Entertainment
Fringe show: 'Cilla', with Sheridan Smith in the title role and Aneurin Barnard as her future husband Bobby Willis
tvEllen E Jones on ITV's 'Cilla'
News
ebooksAn unforgettable anthology of contemporary reportage
News
i100
Sport
Tim Wiese
sport
Life and Style
Kim Kardashian drawn backlash over her sexy swimsuit selfie, called 'disgusting' and 'nasty'
fashionCritics say magazine only pays attention to fashion trends among rich, white women
Arts and Entertainment
TVShows like Agents of S.H.I.E.L.D are little more than marketing tools
Arts and Entertainment
Hit the roof: hot-tub cinema east London
architectureFrom pools to football pitches, rooftop living is looking up
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Sales Executive

£20 - 24k (Uncapped Commission - £35k Year 1 OTE): Guru Careers: We are seekin...

Payroll & Accounts Assistant

£20 - 24k + Benefits: Guru Careers: This is a great opportunity for an enthusi...

SQL Developer - Watford/NW London - £280 - £320 p/d - 6 months

£280 - £320 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

Senior BA - Insurance **URGENT**

£400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...

Day In a Page

Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam
'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

Exclusive extract from Janis Winehouse's poignant new memoir
Is this the role to win Cumberbatch an Oscar?

Is this the role to win Cumberbatch an Oscar?

The Imitation Game, film review
England and Roy Hodgson take a joint step towards redemption in Basel

England and Hodgson take a joint step towards redemption

Welbeck double puts England on the road to Euro 2016
Relatives fight over Vivian Maier’s rare photos

Relatives fight over Vivian Maier’s rare photos

Pictures removed from public view as courts decide ownership
‘Fashion has to be fun. It’s a big business, not a cure for cancer’

‘Fashion has to be fun. It’s a big business, not a cure for cancer’

Donatella Versace at New York Fashion Week