Strong sterling knocks Vickers and ICI profits

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The Independent Online
Two of British industry's best-known names yesterday fell victim to the strength of sterling as both Vickers and ICI warned that the rampant pound would hit profits this year.

Vickers unsettled the market by disclosing that first-half profits would be less than the pounds 31.8m achieved last year because of falling export orders and thinner margins. The announcement prompted a 10 per cent slump in its share price from 226p to 202.5p.

Sir Richard Lloyd, chairman, told the annual shareholders' meeting that profit for the first quarter was below that for the corresponding period last year.

"Export orders - and let me remind you that in recent years Vickers has exported on average about 50 per cent of UK turnover - are proving harder to obtain and profit margins on them tend to be thinning," he said.

Meanwhile ICI warned that the pound's rise was likely to wipe something like pounds 120m from profits this year. The company's chairman, Sir Ronnie Hampel told the annual shareholders' meeting: "The strength of sterling is worrying and, if it remains high, can only have a significant and debilitating effect of British industry and exports in particular."

The comments came alongside the announcement of a sharp fall in first quarter-profits from pounds 202m to pounds 65m and helped drive ICI shares down by 20p to 720p in heavy trading.

Analysts are now pencilling in profits of around pounds 500m compared with earlier estimates of pounds 600m-pounds 650m. When ICI announced its full year figures in February, it said that the pound's strength was likely to knock pounds 80m- pounds 90m from this year's profits.

Since then, however, sterling has appreciated still further. In the first quarter the stronger pound reduced profits by about pounds 40m compared with pounds 15m in the final quarter of 1996.

ICI said that exchange rate movements together with weak prices in its Tioxide and polyester divisions had reduced profits by pounds 150m. Rising oil prices also exacerbated the squeeze on margins and depressed exports, it added.

The company refused to comment on reports that it is preparing a pounds 4bn offer for Unilever's speciality chemicals business, which was put up for sale earlier this year. Nor did it have any news to report on the planned flotation of Tioxide.

However, the strength of sterling may force it to accelerate its job- cutting programme this year. ICI intends to shed a further 10,000 jobs over the next two years, taking the workforce down to about 55,000.

In the last four years it has shed a fifth of its workforce. About 7,000 jobs will be direct losses and a further 3,000 will disappear from the payroll when the Tioxide flotation is completed.

Earlier this year British Steel confirmed that it was bringing forward its job reduction programme to shed 5,000 to 10,000 workers over the next five years, mainly as a result of the currency squeeze on profits.

Investment column, page 24