Chemicals slump hammers ICI profits

Falling bulk chemical prices caused a slump in third-quarter profits at ICI but shares in the company closed 17p higher at 792.5p in relief that things were not even worse. Profits before tax and exceptional items nearly halved to pounds 131m from pounds 248m as prices for industrial chemicals such as polyester continued to fall.

Sir Ronald Hampel, chairman, said: "The pace of economic activity remains uneven and no significant change is expected before the end of the year. There is, however, growing evidence that the widespread destocking which began in mid-1995 has largely come to an end, and sales volumes increased in almost all businesses in the third quarter."

His comments, and a bullish analysts' meeting, reassured the City that the worst of the downturn was over and while most brokers reined in forecasts for the full year by about pounds 40m to pounds 640m, a jump in profits of up to pounds 200m is expected next year.

The important industrial chemicals division only broke even in the three months to September compared with a profit in the same period last year of pounds 124m. That decline was the driving force behind a slump in group profits in the quarter from pounds 260m to pounds 147m.

"They've been badly impacted in industrial chemicals businesses by destocking, particularly in the polyester chain and in other areas like titanium dioxide. Those pressures have been really very severe," said David Ingles, chemicals analyst at HSBC James Capel. "But that's masking good progress in paints, a reasonable performance in materials, explosives which is starting to recover and satisfactory performance in regional businesses."

Part of the forecast increase in profits next year is expected to come from ICI's cost-cutting programme, which it hopes will save pounds 400m a year by 1997. The programme, which involved 950 job cuts in the nine months to September, was on track, the company said.

Among ICI's smaller businesses, paints was the star performer, with profits in the third quarter rising from pounds 32m to pounds 57m.

Investment column, page 25