INSIGHT: ICI paints attractive picture for investors

03 November 2006 14:28  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS news)--If investors are more concerned about growth and the execution of strategy than anything else then ICI should be doing well.

The company on Thursday (2 November) released third quarter numbers which demonstrated steady progress this year.

Divestment of the oleochemicals and surfactants business Uniqema in Septemebr has helped the UK based specialty chemicals maker pay down debt and reduce its pension liabilities.

ICI is investing in China and other high growth markets. There is talk again of bolt-on acquisitions to help lift growth.

Given the company’s difficult if not troubled recent past, this period of steady growth and delivery on strategic objective is welcome.

ICI may not be catching the headlines but chief executive John McAdam and his team are keeping the pressure on costs and trying to drive the growth businesses harder.

McAdam has set some clear strategic objectives. The company appears focused on delivery. Financial analysts like ICI for the quality of its businesses, the way it has positioned itself in growth markets, and its strengthened balance sheet.

Maintaining the momentum is important now. In a typical muted outlook statement on 2 November McAdam said ICI’s restructuring initiatives were progressing “satisfactorily” and that the Group was “well positioned to make further progress in line with its strategic objectives”.

The third quarter showed that the company is faced with lower demand for paint in North America – paint sales were down 4% in the quarter and sales into US retail down 12%. Unsurprisingly, the company continues to experience raw material cost inflation despite falling oil prices.

Sales volumes were up 3% in the quarter and prices up 3%. ICI said comparable group sales, which exclude exchange rate and portfolio impacts, were 5% higher at £1.39bn ($2.64bn/€2.08bn).

Paints profits growth at a healthy 6% was driven by Asia and Latin America. Marketing in the UK and Republic of Ireland paid off in higher profits although continental Europe profits were lower. Strong sales growth for adhesives and specialty starches helped drive improved profits for national Starch.

The Quest flavours business did better on 9% higher sales and what ICI called good progress with key accounts. Fragrances profits were hit by higher raw material costs.

The Uniqema divestment handed ICI more than £400m to use to pay down debt and helped lighten the burden of it pension obligations. Coupled with increased cash generation net debt was reduced to below £500m for the quarter from more than £1bn after the similar period of 2005.

The current 2006 cost control programme involves some 60 individual projects. A new set of cost targets are expected to be revealed after ICI releases its fourth quarter and annual 2006 results in February next year.

ICI’s share price eased back a little on Thursday (2 November) following the results announcement but the market still seems to take a positive view of what is being achieved by the firm.

The shares are up 28% since the beginning of November 2005. Continued management focus on clearly set strategic objectives could mean that there is more upside potential.

By: Nigel Davis
+44 20 8652 3214

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