View from City Road: ICI getting the chemistry right

IF THE pounds 950m restructuring charge is anything to go by, Imperial Chemical Industries' demerger should be a roaring success. True, the putative cost savings and job losses - pounds 300m and 9,000 respectively by the end of 1995 - are not as great as those that have flowed from the last restructuring, begun two years ago. But it suggests that the very thought of demerger sparked a more fundamental reassessment of the business, and the conclusion was that there were a lot of assets, staff and activities that it could do without.

The hope for shareholders is that this spirit will continue in the two new companies. Ronnie Hampel, chief executive-elect of the bulk chemicals business, sounds positively enthusiastic when he talks about the scope for a global restructuring of the chemicals industry, which ICI is already leading with its asset swaps with Du Pont and BASF. He is also more realistic than his predecessors about its prospects of bucking the cycle. The pounds 565m of pre-exceptional profits earned in 1992 look poor relative to pounds 259m in 1982, the last trough.

Mr Hampel admits that the group's belief that it could thrive by building strong, regional bulk chemical businesses was wrong. And, while the pursuit of higher added- value has produced some successes - notably paints and pharmaceuticals - he is right that the jam was spread too thin. Mr Hampel's ICI will be far more conscious of costs and global market positions.

David Barnes, who will head Zeneca, will also be thinking globally. His approach is likely to be to look for alliances and joint ventures to give access to new products, rather than acquisitions. But his claim that the current drug pipeline is more exciting than it has been in years has yet to be tested by the market. Growth of more than 30 per cent in three new drugs sounds impressive, but, with average annual sales of less than pounds 170m each, they are hardly blockbusters yet.

That, coupled with ICI's conviction that the recession is close to its trough, means new ICI could have better prospects in the medium-term than Zeneca. In the short-term, it will be hampered by an uncovered dividend this year and probably next - which Zeneca's rights issue will in effect fund - which could inhibit its ability to grow.

With a pounds 1.3bn rights overhanging the market the share price is bound to come under pressure, at least until the terms of the issue are clear. ICI has left itself vulnerable to market movements by delaying the cash call until June.