The company announced the targets yesterday as it shocked the City with a worse-than-expected 28 per cent drop in first half profits. The collapse from pounds 510m to pounds 367m was exacerbated by a pounds 137m exceptional charge to cover the cost of the performance improvement programme, which was first announced in February.
Analysts, who had pencilled in profits of between pounds 387m and pounds 403m, were yesterday busy reducing expectations for the full year to between pounds 650m and pounds 750m. In 1995, ICI's profits more than doubled to pounds 927m.
There was a luke-warm reaction from the City to the news. Jeremy Chantry, an analyst at Kleinwort Benson, said: "The management clearly are intent on looking at the performance and trying to improve it where they see fit." The shares, however, closed 17p lower at 761p, well down on their peak of 954p, achieved in April.
Hardest hit was ICI's industrial chemicals operation, which last year chipped in 60 per cent of group profits. This time the contribution tumbled from pounds 298m to pounds 121m as prices fell by as much as 40 per cent.
Charles Miller Smith, chief executive, described the problems in industrial chemicals as a pause rather than a slump, but he said the group was planning a long-term shift in emphasis away from commodity chemicals towards less volatile materials and paints businesses.
"It has been a tough and demanding year so far and profitability has suffered. Clearly we need to do more to improve the return," he said.
The move could involve asset sales of non-performing businesses and possibly spin-offs of operations and alliances with other manufacturers.
Mr Miller Smith insisted, however, that the group's stated target of a 20 per cent return on net assets was still achievable, despite a fall in the ratio this year from 18 to 14 per cent.
Elsewhere in the group, performances were mixed. Paints profits grew from pounds 47m to pounds 70m despite what the company described as "generally difficult market conditions". Materials, such as polyurethanes and films, were also strong, with profits up from pounds 86m to pounds 115m.
ICI's regional businesses in countries such as Australia and Canada had a poor second quarter which left the profit contribution for the half year down pounds 2m at pounds 71m. The explosives operation was dogged by losses in the US, and saw profits slide from pounds 28m to pounds 12m.
Mr Miller Smith said of the US operation: "Our US operations are in loss and this must stop, so radical restructuring is being implemented. We intend to concentrate on fewer sectors, withdraw from unprofitable sales and cut overhead sharply."
Investment Column, page 21Reuse content