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.

Start your day with The Independent, sign up for daily news emails
Life and Style
health
Life and Style
Steve Shaw shows Kate how to get wet behind the ears and how to align her neck
healthSteven Shaw - the 'Buddha of Breaststroke' - applies Alexander Technique to the watery sport
Arts and Entertainment
The sight of a bucking bronco in the shape of a pink penis was too much for Hollywood actor and gay rights supporter Martin Sheen, prompting him to boycott a scene in the TV series Grace and Frankie
tv
Arts and Entertainment
Lena Headey as Cersei Lannister
TVSPOILER ALERT: It's all coming together as series returns to form
News
news
Sport
footballShirt then goes on sale on Gumtree
Voices
Terry Sue-Patt as Benny in the BBC children’s soap ‘Grange Hill’
voicesGrace Dent on Grange Hill and Terry Sue-Patt
Arts and Entertainment
Performers drink tea at the Glastonbury festival in 2010
music
Arts and Entertainment
Twin Peaks stars Joan Chen, Michael Ontkean, Kyle Maclachlan and Piper Laurie
tvName confirmed for third series
Sport
Cameron Jerome
footballCanaries beat Boro to gain promotion to the Premier League
News
ebookA unique anthology of reporting and analysis of a crucial period of history
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

Guru Careers: Software Developer / C# Developer

£40-50K: Guru Careers: We are seeking an experienced Software / C# Developer w...

Neil Pavier: Management Accountant

£45,000 - £55,000: Neil Pavier: Are you looking for your next opportunity for ...

Sheridan Maine: Commercial Accountant

£45,000 - £55,000: Sheridan Maine: Are you a newly qualified ACA/ACCA/ACMA qua...

Laura Norton: Project Accountant

£50,000 - £60,000: Laura Norton: Are you looking for an opportunity within a w...

Day In a Page

Abuse - and the hell that came afterwards

Abuse - and the hell that follows

James Rhodes on the extraordinary legal battle to publish his memoir
Why we need a 'tranquility map' of England, according to campaigners

It's oh so quiet!

The case for a 'tranquility map' of England
'Timeless fashion': It may be a paradox, but the industry loves it

'Timeless fashion'

It may be a paradox, but the industry loves it
If the West needs a bridge to the 'moderates' inside Isis, maybe we could have done with Osama bin Laden staying alive after all

Could have done with Osama bin Laden staying alive?

Robert Fisk on the Fountainheads of World Evil in 2011 - and 2015
New exhibition celebrates the evolution of swimwear

Evolution of swimwear

From bathing dresses in the twenties to modern bikinis
Sun, sex and an anthropological study: One British academic's summer of hell in Magaluf

Sun, sex and an anthropological study

One academic’s summer of hell in Magaluf
From Shakespeare to Rising Damp... to Vicious

Frances de la Tour's 50-year triumph

'Rising Damp' brought De la Tour such recognition that she could be forgiven if she'd never been able to move on. But at 70, she continues to flourish - and to beguile
'That Whitsun, I was late getting away...'

Ian McMillan on the Whitsun Weddings

This weekend is Whitsun, and while the festival may no longer resonate, Larkin's best-loved poem, lives on - along with the train journey at the heart of it
Kathryn Williams explores the works and influences of Sylvia Plath in a new light

Songs from the bell jar

Kathryn Williams explores the works and influences of Sylvia Plath
How one man's day in high heels showed him that Cannes must change its 'no flats' policy

One man's day in high heels

...showed him that Cannes must change its 'flats' policy
Is a quiet crusade to reform executive pay bearing fruit?

Is a quiet crusade to reform executive pay bearing fruit?

Dominic Rossi of Fidelity says his pressure on business to control rewards is working. But why aren’t other fund managers helping?
The King David Hotel gives precious work to Palestinians - unless peace talks are on

King David Hotel: Palestinians not included

The King David is special to Jerusalem. Nick Kochan checked in and discovered it has some special arrangements, too
More people moving from Australia to New Zealand than in the other direction for first time in 24 years

End of the Aussie brain drain

More people moving from Australia to New Zealand than in the other direction for first time in 24 years
Meditation is touted as a cure for mental instability but can it actually be bad for you?

Can meditation be bad for you?

Researching a mass murder, Dr Miguel Farias discovered that, far from bringing inner peace, meditation can leave devotees in pieces
Eurovision 2015: Australians will be cheering on their first-ever entrant this Saturday

Australia's first-ever Eurovision entrant

Australia, a nation of kitsch-worshippers, has always loved the Eurovision Song Contest. Maggie Alderson says it'll fit in fine