London- Britain”s Imperial Chemical Industries Plc beat the average market forecast for its second-quarter profits on Thursday, sending its stock to a three-year high as its restructuring programme gathers pace, Reuters reported today.
ICI kept its forecast for satisfactory progress this year despite a tepid demand environment. It said it would cut 300 more jobs.
"The outlook for the second half of the year remains as it was at the end of first quarter … Provided there is no further deterioration in overall market conditions we continue to expect to make satisfactory progress in 2005," Chief Executive John McAdam said in a statement.
Analysts said ICI”s outlook looked better than what it said at the end of the first quarter as it saw improved trading conditions towards the end of the second quarter.
The maker of Dulux paints said that while trading improved in June compared with April and May, overall demand remained subdued and much of its 6 percent underlying revenue growth in the quarter came from price increases rather than volume growth. "As far as we can see, and our foresight is very limited, we don”t see any great signs of change," Finance Director Tim Scott told Reuters in an interview.
That caution did not dampen demand for its stock, with the shares rising to levels last seen in August 2002. They were up 8.8 percent at 294p by 1045 GMT, off highs of 297p, making them the top gainer among London blue-chip companies.
Merrill Lynch upgraded ICI to "buy" from "neutral", and set a price target of 325p. The investment bank said ICI was coping with slower demand growth and higher raw material better than it had expected.
Analysts at Morgan Stanley said ICI”s stock, which had lagged the DJ Stoxx European chemical sector index by around 12 percent over the past year ahead of the results, was cheap at 9.8 times 2006 earnings.
ICI reported profit before tax and special items of 123 million pounds ($219 million) for the quarter, unchanged from last year, but above the average market forecast of 118 million. Predictions ranged from 108 million pounds to 127 million.
ICI raised its interim dividend by 10 percent to 3.75 pence.
Britain”s largest chemicals company battled an economic downturn in 2003 that hit demand and led to a profit warning, sending its shares to a 20-year low. It announced over 2,000 job cuts and replaced Chief Executive Brendan O”Neill with McAdam.
More recently, like other specialty chemicals companies, ICI has had to counter a string of problems including cheap Asian competition and slowing demand that makes it tough to counter high raw materials prices.
Finance Director Scott said high oil prices were not a major concern as yet. "The biggest single factor in terms of what happens to our input costs in the next 6 months will be what happens to our demand rather than what happens to oil."
On Thursday, ICI said a restructuring programme under way since 2003 would now achieve the desired benefits at a cost lower than forecast, and it would further extend the programme with the loss of 300 additional jobs.
The extended programme, which will see the company shed 2,534 jobs, will now deliver 140 million pounds in savings in 2007 against 127 million previously estimated.
ICI said underlying sales were higher across most of its businesses, with paints up 8 percent, its National Starch adhesives business up 6 percent and its Quest flavourings and fragrances unit up 4 percent.
Merrill Lynch said ICI”s paints business had performed better than forecast, with even Europe and North America performing better than expectations despite consumer worries in the two regions.
Regionally, comparable sales for ICI”s international businesses grew the strongest in Asia and Latin America, where growth rates of 13 and 17 percent outpaced the 4 percent growth in North America and Europe”s 3 percent.