ICI sees 11% fall in 2001 pre-tax profits to £401m

31 January 2002 12:47  [Source: ICIS news]

LONDON (CNI)--ICI revealed on Thursday an estimated 11% decline in group pre-tax profits to £401m ($565m/Euro654m) for 2001, and said sales from the core businesses remained stable.

The UK specialty chemicals company said the core, so-called international businesses - National Starch, Quest, performance specialties and paints - "continued to deliver resilient performance during the fourth quarter".

Last year's estimated figures compare with group pre-tax profits, before goodwill and exceptional items of £450m in 2000 on sales of £6.42bn.

ICI revealed its 2001 profits estimate in a statement announcing plans selling its Synetix catalyst business and raise £800m through a rights issue. It said both moves will reduce debt, from levels at the end of last year of £2.9bn.

Credit rating agencies suggested to ICI at the end of last year that they would downgrade the company's credit rating if action were not taken, ICI said. The board believes the moves announced today will secure ICI's BBB/Baa2 rating, it added.

In September, Standard & Poor's (S&P) cut ICI's long-term credit ratings because it believed current industry conditions were unlikely to support the UK company's efforts to reduce its high debt levels. The global ratings agency explained that ICI's debt stemmed mainly from the acquisition of Unilever's specialty chemicals business in 1997.

The Unilever businesses were "high quality assets", said one analyst - "but were not designed to carry that level of debt".

Simon Bown, a chemicals analysts at Credit Suisse First Boston (CSFB), commented that the pressure from credit ratings agencies on ICI to launch the rights issue was unlikely to lead to other highly indebted groups such as Rhodia or Clariant having to issue new paper.

"In our opinion the debt rating agencies would have been particularly concerned with ICI's ability to generate free cash until 2003," he said.

While neither Rhodia nor Clariant have strong balance sheets, both are expected to generate free cash flow in 2002, Bown continued. "We believe this fundamental difference will avoid the need for such moves."

Further details of ICI's rights issue will be released on Monday, when the group publishes its 2001 financial results in full.

ICI said Synetix was not core to ICI's specialty chemicals operations. The business has some 800 employees worldwide, of which 400 are located at the headquarters in Billingham, northeast England. It generated sales of £125m in 2000 and, according to CSFB, current sales are approximately £170m. In Q3-2001 Synetix's Q3 sales were up 21%.

The Synetix sale is likely to attract a lot of interest, although analysts' expectations for how much it will fetch vary widely, from £100m-£340m.

Martin Evans, head of European research at Credit Lyonnais Securities (CLS), said that unlike commodity chemicals activities "there will be a ready list of buyers for this asset".

Bown said Synetix was "a quality business, and hence likely to be quite saleable", and could fetch two times sales. However, he cautioned that it is too early to model the disposal given past difficulties in selling chemical assets.

(Additional reporting by Will Beacham of European Chemical News.)

By: Anna Jagger
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