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Britain's ICI plunges on warning
LONDON, England (Reuters) -- Imperial Chemical Industries said on Tuesday poor trading in food flavourings and rising raw material costs would hit first quarter profit hard, crushing its shares and sending tremors through European chemical stocks. The maker of Dulux paints said Paul Drechsler, head of problem food flavourings business Quest, had quit. The company also announced it would cut jobs and take a knife to spending. Shares in Britain's biggest chemicals firm and one of the country's proudest corporate names tumbled 47 percent to its lowest level in more than a decade. Its woes were felt across Europe, and the DJ Stoxx European chemicals index fell four percent, making the sector the biggest European loser. ICI has been battling in recent times against an economic downturn, which has led to lower demand from customers. It made a 808 million pound ($1.3 billion) rights issue last year to cut a debt burden that has concerned some shareholders. ICI said it had suffered from higher raw material prices at its National Starch business, which makes adhesives and food thickeners, and on lower sales at Quest, which has been beset by production problems in the past. ICI, whose fragrances are used in scents like Armani's Mania for Men and a Jennifer Lopez signature perfume, said pre-tax profit in the first quarter would fall to around 50 million pounds from 66 million pounds last year. Shares were trading at 83-1/4 pence, down 46 percent, by 0945 GMT, the biggest loser in the FTSE 100 index, which was down 1.6 percent. "Their trading statement has been taken as a disguised profits warning,'' said Freddie Tulloch, a market analyst at IG Index. Brokerage ETrade cut ICI to a "sell'' recommendation from a previous "neutral.'' It slashed its price target to 100 pence from 250p. JOB CUTS LOOMICI said first-quarter sales at Quest would be well below 2002, with its trading profit dropping to around nine million pounds from 29 million in the same period a year ago. The company also announced it would cut jobs. "Inevitably there will be some job cuts,'' ICI Chief Executive Brendan O'Neill told Reuters in an interview, adding there were no precise details yet on the numbers of any job losses. ICI employs over 35,000 people in total. ICI's woes dealt a sharp blow to the economically sensitive chemicals industry which had received a boost only last week from stronger-than-expected first quarter results from BASF AG, Europe's biggest chemicals concern. Swiss firms felt the brunt of the pain, with shares in Clariant AG off eight percent and those in Ciba Specialty Chemicals down three percent. Dutch group Akzo Nobel was down seven percent. JP Morgan chemicals analyst Colin Isaac said ICI's credibility had been undermined by the problems at Quest and added it had some negative implications for the European sector. "Anyone who is buying bulk or intermediate chemicals and is trying to pass through the inflation to end customers is going to be having a problem at the moment,'' said Isaac, who has a "neutral'' rating on ICI. ICI said overall group sales for the first quarter were expected to be satisfactory, in spite of continuing challenging trading conditions. It added its paints business was performing in line with expectations. It said National Starch was pushing through price increases to counter rising raw material costs, but it added: "Given the inevitable lag in pricing to offset raw material cost increases, the benefit of improved pricing will be limited in the first quarter.'' O'Neill said it was hard to assess the impact on ICI from the war in Iraq, but added that higher oil prices could hurt the company by raising its production costs. Copyright 2003 Reuters. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
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