25 March 2003 09:42 [Source: ICIS news]
LONDON (CNI)--Shares in ICI plunged by 43% in early trading on the London Stock Exchange (LSE) on Tuesday after the UK specialty chemicals company warned that first quarter group pre-tax profits before exceptional items and amortisation would total only £50m ($78m/Euro74m) compared with £66m in Q1 of 2002.
ICI said group trading performance so far this year had been hit by significant raw material cost increases in National Starch and weakness in Quest food sales in Europe.
Paul Drechsler, chairman and chief executive officer (CEO) of the Quest fragrances and flavours business, has resigned with immediate effect and will be leaving the company, said ICI. His successor is expected to be announced in the next few days.
The profits warning sent ICI shares down by 65.5 pence or 43% to just 88 pence and a new record low for the restructured company .
ICI explained that National Starch has been affected by rapidly rising prices of petrochemical-based raw material prices. It said the division has implemented and is continuing to implement price increases across its adhesive and specialty polymer businesses.
However, ICI added: "Given the inevitable lag in pricing to offset raw material cost increases, the benefit of improved pricing will be limited in Q1. Consequently, Q1 trading profit [in National Starch] is expected to be around £39m (Q1 2002: £55m)." The firm said cost reduction programmes are being initiated in the division. They will include job losses but no further details were immediately available.
As for Quest , Q1 trading profits are now expected to be only £9m compared with £29m in 2001. Reported sales in Q1 are expected to be some 10% below 2002, with revenues for the European food business estimated at 20% lower, mainly as a result of business lost following the customer service problems in 2002.
These production problems at Quest's Naarden, Netherlands facility, were caused largely by computer system changes.
ICI maintained that a series of actions were initiated to tackle these production problems and restore customer service levels. "Customer service levels in Q1 are now better than prior year comparators."
It has stuck by the full year 2002 results forecast of a one-off cost impact of less than £5m in the current year relating to these problems.
ICI said further action is being taken to sustain the improvements in customer service, restore market position and reduce costs at Quest. These include:
Notwithstanding, the problems at National Starch and Quest, ICI said group sales and cash flow for the first quarter are both expected to be satisfactory, despite continuing challenging trading conditions. It said paints was performing in line with its expectations and Uniqema continues to experience difficult conditions, as in Q4.
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