Strong rise in profits fails to halt 7% fall in ICI share price

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The Independent Online

ICI, the chemicals group, saw its shares drop sharply yesterday, despite reporting a steep climb in first-quarter profits.

ICI, the chemicals group, saw its shares drop sharply yesterday, despite reporting a steep climb in first-quarter profits.

The company posted an 84 per cent jump in group profits before tax to £90m, for the first three months of the year. However, ICI said that the results had been flattered by exceptionally poor comparable figures the previous year. Operating profit for the quarter was up by much less - 18 per cent higher at £131m. Turnover in its core business was unchanged at £1.35bn.

Speaking at the company's annual meeting, which attracted a number of environmental protesters, Charles Miller Smith, chairman, said: "The bulk chemical cycle has not been kind to us in the last three years, though we've been getting very good prices for our major disposals."

Analysts said that while they were positive about the company's bid to transform itself from a commodity chemicals maker to higher-margin speciality chemicals group, there were concerns as to whether cashflow was sufficient to meet the cost of servicing debts, restructuring and dividends.

Robyn Coombs, an analyst at Merrill Lynch, which yesterday changed its stance on the stock from "buy" to "neutral", said: "They're leaking cash left, right and centre. There are huge restructuring and pensions costs. ICI is doing the right things but there will be cashflow problems while they get there." The shares closed 7 per cent lower at 550p yesterday.

ICI, which started its corporate transformation in 1997, has so far sold more than 50 businesses, raising over £6bn. Analysts expect its results to be hit by restructuring costs for another three years. Yesterday ICI said that the divestment proceeds meant that interest cover had improved to three times, from 1.6 times in the first quarter last year. Debt now stands at about £2.7bn.

The results of the Industrial Chemicals business, which showed a cut in losses from £25m last time to £4m, were closely watched. ICI has said it wants to sell the division to complete its move away from bulk chemicals. It said the division's large Chlor Chemicals chloride business in the North-east remained in the red due to a depressed market and the strong pound. A spokesman denied that ICI would be forced to cut its dividend payout at the half-year results.

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