This excerpt taken from the ICI 6-K filed Aug 11, 2005.
Review of business results
Petrochemical-based raw material costs, which had increased significantly during 2004, continued to escalate in the first half of 2005, impacting the Adhesives and Specialty Synthetic Polymers businesses in particular.
In addition, drought conditions in Thailand increased tapioca costs for the Specialty Starch business. The impact of these cost increases was offset in absolute monetary terms by increased selling prices, but overall gross margin percentages were lower than last year. With modest increases in costs below gross margin, trading profit was 4% ahead of the first half last year on a comparable basis.
On an as reported basis, sales were in line with last year and trading profit was 2% lower than 2004, with the adverse effects of business divestments largely accounting for the difference with the comparable performance.
The following commentaries on the four business groupings within National Starch refer to performance measured on a comparable basis.
Adhesives sales for the half year were 12% ahead of 2004. All regions were up, with particularly good growth in North America, Asia and Latin America. Gross margin percentages were below last year due to higher raw material costs, but despite this, trading profit was well ahead of the first half 2004.
Specialty Starch sales were 1% below 2004 for the half year, with growth for food starch offset by lower sales of industrial starches. Asia and Latin America delivered good growth, particularly in the first quarter; Europe delivered more modest growth, but sales in North America were below
last year. Despite higher tapioca costs, gross margin percentages were slightly ahead. However, costs below gross margin were higher than 2004 and trading profit was consequently below last year.
Sales for Specialty Synthetic Polymers were 14% above last year, with double-digit growth in Europe, North America and Asia. Gross margin percentages were impacted by the higher raw material costs, partly offset by increased prices. However, despite this, trading profit was ahead of last year.
After good growth in the first quarter, sales for Electronic and Engineering Materials were impacted in the second quarter by a slowdown in the cathode ray tube market, and for the half year, sales growth was 3%. Sales growth for Ablestik and Emerson & Cuming was partly offset by lower Acheson sales. Trading profit was slightly ahead of last year.
Including the prior year results of the Food Ingredients business, which was divested in the second quarter of 2004, and the adverse effects of foreign exchange translation, as reported sales were 11% lower than last year but as reported trading profit was 8% ahead.
The following commentaries on Quests two businesses refer to performance measured on a comparable basis.
Fragrance sales were 9% ahead for the half year, with strong growth in the Fabrics and Personal Care sectors. Regionally, growth in Europe and
Latin America more than offset lower sales in North America. Although gross margin percentages were below last year, reflecting higher raw material costs, with lower costs below gross margin, trading profit was substantially ahead.
Flavour sales were 1% higher than last year, with good growth in Asia and Latin America offsetting lower sales in Europe and North America, where sales prices were lower due to declining vanilla costs. Improved product mix in the second quarter contributed to gross margin percentages being ahead of last year, and trading profit was significantly ahead of the first half of 2004.
Including the effects from foreign exchange translation, sales were 3% ahead of last year and trading profit was 32% higher than 2004, both on an as reported basis.
As reported sales were 5% above 2004, with the impact of business divestments accounting for the difference from the comparable performance.
The following commentaries on the four geographical regions where Decorative Paints operates and on the Packaging Coatings business refer to performance measured on a comparable basis.
Decorative Europe sales for the first half were slightly below last year, with lower volumes due to weakness in retail markets offsetting the benefits of increased selling prices. As a result of higher raw material and transport costs, and weaker product mix in the second quarter, gross margin percentages were below last year. Despite good control of costs below gross margin, trading profit was slightly below 2004.
For Decorative North America, sales were 4% above the first half of last year, with growth in the USA, Canada and Puerto Rico. Higher raw material and transport costs were only partially offset by increased sales prices, and in combination with a weaker product mix, gross margin percentages were below last year. Despite costs below gross margin being less than 2004, trading profit was well below last year.
Decorative Asia continued to deliver strong sales growth and was 22% ahead of the first half of 2004. Growth in China, India and Pakistan was particularly notable. Trading profit was significantly ahead.
Decorative Latin America also delivered good growth. Sales were 13% ahead of the first half of last year, with sales volumes in Argentina and Uruguay well ahead, and a positive impact from price increases to recover increased raw material costs. Trading profit was significantly ahead.
Sales for the Packaging Coatings business were 13% above the first half of 2004. There was strong growth in all regions, with increased selling prices offsetting higher raw material costs. With costs below gross margin less than the first half of 2004, trading profit was well ahead of last year.