ICI warns of £10m hit after glitch at Dutch food flavourings plant

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ICI, the debt-laden speciality chemicals group, warned yesterday that a production glitch at its flavourings and fragrances unit would knock £10m off its second-half profits.

The company, which has switched its focus from bulk chemicals to consumer-driven products such as paint and fragrances, said the problems at its Dutch site related to the introduction of a computer system designed to simplify supply chain management. "It's taken us until July to put it right [but] we've still got an order backlog to cope with," Brendan O'Neill, the chief executive, said.

The warning overshadowed news that trading conditions for the group, which has been selling its chemicals businesses to pay down debt, had improved. Its shares fell 7 per cent to 280p.

Despite the problems at Quest, which makes the fragrance in Christian Dior's J'Adore perfume, ICI reported better-than-forecast interim profits. Strong sales at its starch and paints divisions, which make up the bulk of the business, compensated for a 38 per cent fall in profits at Quest. Dr O'Neill said that on top of the technical issues at its Naarden flavourings site, which cost ICI £4m in the second quarter, fragrance sales had been weak. Perfume sales globally suffered in the wake of the 11 September attacks as people stopped travelling and shopping at airport duty-free stores.

ICI, which raised £800m from a rights issue in February, said it had pared debt by £640m to £2.3bn. The group received $160m (£106m) in proceeds from the $430m sale of its investments in Huntsman International, its last commodity chemicals business. The remainder is expected before the end of May 2003. ICI said the disposal of its Synetix catalyst unit, which analysts reckon could fetch up to £200m, was "continuing satisfactorily".

Robyn Coombs, an analyst at Merrill Lynch, said the problems at Quest had left ICI with "a very negative mix", relying on strong trading in non-core cyclical units to meet full-year forecasts.

Dr O'Neill said growth had returned to its businesses in North America "for the first time in 18 months". Sales in the region rose by 2 per cent. Overall, pre-tax profit before goodwill and exceptional items for the half-year was flat at £125m, on sales down marginally to £1.62m.