Quest and raw material prices weigh heavily on ICI

Related tags Cent Revenue Material

Flavours and fragrance company Quest continues the battle to
restore lost business as UK parent company Imperial Chemical
Industries (ICI) reports a continuing drop in earnings for the
flavours house.

Food sales for the fourth quarter at Quest came in at ?69 million, 4 per cent below last year's ?74 million, with decent growth in North America hit by a considerable 10 per cent fall in sales in Europe.

'Trading profit was well below 2002, impacted by business lost earlier in the year, and higher fixed costs during the first half,?/I> said ICI chief executive John McAdam, steering the chemicals group through difficult times that cut 2000 jobs last year.

Quest has yet to recuperate business lost in 2002 when the company revealed that a knock on effect of software problems at its Naarden flavouring plant in the Netherlands had left Quest's sales ?which in 2002 contributed 12 per cent of ICI group sales - about 20 per cent down.

The results for Quest released this week suggest that the company has yet to win back lost customers.

Rumours circulating last year pitched Swiss flavours giant Givaudan as a possible contender to purchase ICI's flavour company. Both companies declined to comment at the time.

Lost sales at Quest are not the only challenge for ICI. Parent of starch ingredients company National Starch, the group is vulnerable to the higher price of raw materials pressing the ingredients industry today. According to ICI, the lift in raw material prices added $30m (?7.8m) to costs in 2003, only $25m of which was passed on to customers through price rises.

For the quarter, sales at New-Jersey based National Starch came in at ?77million, up 4 per cent on the same quarter a year ago, with 41 per cent from North America and 27 per cent from Europe.

But the impact of higher raw material costs, higher utility costs in the US, and other fixed cost increases resulted in 10 per cent lower trading profit for the year, said ICI's chief executive.

Squeezed margins hit revenue growth for speciality starch sales ?a segment that has the potential to provide stronger financial gains for the company - that showed a 7 per cent lead on the quarter, and up 6 per cent on the year.

'Gross margin percentages for the quarter were below last year, largely due to higher freight costs. Trading profit was well below last year for both the quarter and full year,?/I> said the parent company.

Looking ahead to 2004, ICI warned that high raw material prices could continue to depress margins.

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