ICI makes Dulux paint

The company said pre-tax profit for the first quarter would fall to around �50m, compared to �66m in the same period last year.

The market was shocked by the statement as investors scrambled to dump ICI shares after the news, sending the stock to close 39% lower at 94p.

ICI chief executive Brendan O'Neill said that although it was hard to asses the impact of the war in Iraq, higher oil prices could result in higher production costs.

ICI uses oil products as a feedstock for many of the chemicals it makes.

Raw material

Mr O'Neill said job cuts were inevitable although he would not say how high the numbers would be.

IG index' Freddie Tulloch called ICI's statement to the market "a badly-disguised profit warning."

ICI said it was hurt in the first quarter by weak sales in Europe at its Quest Food unit, which makes food flavourings.

It also blamed rising raw material costs at its National Starch unit, which makes adhesives and food thickeners, for the fall in profits.

More bad news was to follow as ICI also announced the head of its Quest unit, Paul Drechsler, had resigned from the board and would be leaving the company.