Profit warning sends ICI shares tumbling to a 28-year low

ICI shares crashed to a 28-year low yesterday after the speciality chemicals group warned on first-quarter profits, ousted one of its top directors and served notice of more cost cuts and job losses to come.

The grim news sent ICI shares down by 39 per cent to 94p ­ their lowest level since 1975 ­ wiping more than £700m from the company's stock market value and putting its place in the FTSE 100 index in jeopardy along with the job of its chief executive, Brendan O'Neill.

The profits warning was sparked by problems in the group's National Starch and Quest divisions, two flavourings and fragrances businesses that were acquired as part of ICI's £5bn purchase of Unilever's speciality chemicals business in 1997. ICI's market capitalisation of £1.1bn is now just a fifth of what it paid Unilever.

Paul Dreschler, the chairman and chief executive of Quest and an ICI man with 25 years' service, was forced to step down with immediate effect. He was on a one-year contract and is expected to receive a pay-off worth about £325,000. He has also built up a pension entitlement of £138,000 a year.

Mr O'Neill, who has seen ICI shares crash from a high of more than £10 since he joined the company from Diageo's Guinness business in January 1998, denied that his own position was under threat. However, he added: "These are strange times in which we live."

ICI shareholders have had an uncomfortable ride since Mr O'Neill arrived. Although he has cut its debts by £4bn and achieved the target of raising £3bn from disposals, the share price has fallen by 90 per cent and last year investors were asked to fork out £800m in a rights issue. In addition, ICI has halved its dividend in each of the past two years under its new policy of paying out a third of after-tax profits.

The profits warning prompted the credit rating agency Moody's to cut its outlook on ICI from stable to negative. ICI has cut is debt from £5.6bn at the time of the Unilever deal to £1.7bn but Moody's said there were now concerns about the group's ability to make further reductions.

For the three months to the end of March, ICI expects profits to be down by 24 per cent from £66m last year to £50m. The fall was blamed on higher raw material costs at National Starch and lower sales by Quest to European food companies. Together, the two setbacks will slice £36m off profits.

At National Starch, ICI has suffered from a 35 per cent increase in the price of vinyl acetate monomer, a petrochemical-based feedstock for adhesives and speciality polymers. Although ICI intends to pass the price rises on to customers, there will be a time lag.

The problem at Quest is a hangover from supply glitches the company suffered last year at its Naarden facility in the Netherlands that makes additives for products such as yogurt and soft drinks.

A number of customers have deserted Quest for other suppliers or else cut their orders with the result that sales for the current quarter will be 20 per cent lower than last year.

ICI said that it was initiating cost reduction programmes National Starch and Quest. But it also said that it planned further cost reductions across the company as a whole. ICI also owns Dulux paints and the health and personal care products business Uniqema.

Mr O'Neill said this would result in further job losses on top of the 1,300 already achieved and the 150 in train but it was not yet possible to put a figure on them.