Raw material rises hit Dulux maker ICI

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Britain's biggest chemicals firm ICI shrugged off rising raw material costs and was upbeat about the future yesterday, as it delivered a 14 per cent rise in second-quarter profits.

Chief executive John McAdam said the group's key businesses - National Starch, which makes adhesives and food ingredients; Quest, which produces flavouring for foods and drinks; and Paints - all performed well during the quarter, reflecting improved orders from most of its main markets.

However, gross margins at the maker of Dulux paint and Polyfilla weakened due to higher raw material and freight costs.

ICI expects raw material cost inflation across its businesses to hit 3-5 per cent this year, in line with its previous guidance, despite the rapid rise in the oil price over the past weeks.

Mr McAdam remained optimistic about the future, and predicted all of the core businesses would make further year-on-year progress in coming months. "The trading outlook for the balance of 2006 remains positive and in line with previous expectations," he said.

ICI recently sold its Uniqema division, a supplier of ingredients used in products such as lipsticks and soap, to its smaller rival Croda International for a reported £410m.

The group has been streamlining its operations to shave £170m off annual costs by 2011. In May, it unveiled plans to cut 2,300 jobs from its 32,000-strong global workforce. It is also spending £340m on improving its salesforce and improving some back-office operations like finance and human resources.

A spokesman said the company had already kicked off 38 of the 60 projects in that programme, and expected to have around 80 per cent of it up and running by the end of the year. "We're making progress," he said.

Analysts described ICI's results as "solid" and "in line in a tough environment."