Warning as ICI reports bright start to year

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The chemicals and paint group ICI today reported a good start to 2005, but warned of weak markets and further price increases.

The chemicals and paint group ICI today reported a good start to 2005, but warned of weak markets and further price increases.

ICI said group pre-tax profits before exceptionals in the first quarter came in 33 per cent ahead of the same period last year at £84 million.

The Dulux paint company said price rises and savings from its restructuring had contributed to improvements in sales, profits and cash flow. However, it said the outlook for the rest of the year was less certain.

Sales growth had slowed as the first quarter progressed, suggesting weakness in a number of the company's markets.

Further price increases would be necessary to offset continued rises in raw material costs, ICI added.

Chief executive John McAdam said: "That said, ICI's visibility of future demand is always limited and, providing trading conditions are reasonably favourable, we continue to expect to make satisfactory progress in 2005."

ICI has been working to bounce back from a series of disappointments in the past two years after tough economic conditions and problems at key divisions affected its performance.

The company, which employs more than 35,000 people worldwide, cut around 1,400 jobs in 2003 as part of a drive for cost savings worth £70 million.

ICI said group sales in the quarter were about £1.4 billion, 2 per cent above the first quarter in 2004. Excluding the minus 1 per cent impact of foreign currency translation and the minus 4 per cent effect of business disposals, the group's comparable sales rose 7 per cent.

Comparable sales in ICI's international businesses, including National Starch, Quest, Uniqema and Paints, rose 6 per cent against the same quarter last year.

Raw material costs had continued to rise, particularly affecting National Starch and paints, while gross margin percentages were below the first quarter last year, although similar to the fourth quarter, mainly due to price increases.

Restructuring programmes remained on track overall and benefits from them limited the rise in costs below gross profit margins.

ICI said that, with regional and industrial trading profit well ahead of last year and corporate and other costs coming in £2 million higher, comparable group trading profit was 17 per cent ahead of last year. After the effect of exchange rate movements and disposals, quarterly group trading profit rose 8 per cent to £111 million.