The Investment Column: Steer clear of flabby, unwieldy ICI

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If you are running a tracker fund, you have no choice about being invested in ICI. With a market value, even after spinning off Zeneca, of more than pounds 5bn it is impossible to ignore. For any other investor, however, it is hard to think of a good reason to look twice at the company.

As a destroyer of real shareholder value, ICI has been almost without parallel among Britain's larger companies. Since the beginning of 1994 its shares have moved sideways, underperforming the wider market by 11 per cent. Over five years it has lagged by 20 per cent; over 10 the deficit widens to 33 per cent. Yesterday, the shares closed 13p lower at 765p, down from a peak of 954p in April.

Why this should be the case was made abundantly clear yesterday when an accelerated cost-cutting drive was offered as a palliative for a stock market coming to terms with a 28 per cent collapse in pre-exceptional profits for the six months to June. The picture painted of ICI (as a means of suggesting the scope for improvement) was of an unwieldy, flabby behemoth that has become so large as to be almost unmanageable.

Within individual businesses, the City was told, "there appears to be a hidden manufacturing plant", so inefficient are the workings of ICI's factories. By simply bringing these sites up to world standards, over pounds 500m of stock might be released. That ICI is not already up with the best in the world is a worrying indictment of such a central part of Britain's industrial landscape.

Another example. For the first time in more than 20 years, ICI has assembled a map of all its suppliers. The company spends pounds 7bn a year on everything from raw materials to paper clips, but doesn't know centrally where it all comes from. It is hardly surprising that the process can be improved. What is staggering, or not when you think about the scale of ICI, is that it hasn't been done before.

ICI is planning to rip out pounds 400m of costs by the middle of next year. It seems to have been achieving these sort of gains ever since Hanson's non-bid at the beginning of the 1990s gave the group the fright of its life. That may be a sign of good, if belated, management, but it is certainly evidence of a chronically unfit company.

ICI said yesterday it hoped the collapse in industrial chemical prices was a pause in growth rather than the start of a slump. It has, however, prompted the company to rethink its place in the chemicals industry and to start considering shifting the whole emphasis downstream, towards the lighter, higher-margin, less cyclical end of materials and paints. It will be a painful, costly and risky process.

Analysts were yesterday reining in forecasts for the year to between pounds 650m and pounds 750m, the size of the range indicating the volatility and, therefore, low quality of ICI's earnings. A prospective yield of over 5 per cent gives the shares some support, but they remain as unappealing as ever.