UK chemicals giant Imperial Chemical Industries is confident about its prospects for the rest of the year after it unveiled a 14 per cent increase in second quarter profits.

Pretax profit on a continuing basis rose to £133 million from £117 million, as against a forecast range of £125 million and £131 million, and a consensus figure of £128 million.

Turnover rose ten per cent to £1.422 billion. Excluding foreign currency effects and acquisitions, it was seven per cent ahead.

Chief executive John McAdam said the group's key businesses National Starch - which produces ingredients used in the likes of shampoo, headlights and nappies - Paints and food flavour business Quest performed well during the quarter, reflecting improved orders from most of its main markets.

Gross margins, however, weakened due to increased raw material and freight costs, which largely hit its Paints and National Starch units.

ICI expects raw material cost inflation across its businesses to reach three to five per cent for the year, in line with its previous guidance, despite the rapid increase in oil prices over the past weeks.

Chief financial officer Alan Brown said that raw material cost inflation has started to ease despite the rapid increase in oil prices.

He said the rise in the cost of raw inputs, which account for 40 per cent of the group's cost base, had peaked, with the average in the first half reaching around three per cent.

"The worst of the raw material cost hike in 2004 and 2005 is over," Mr Brown added.

But Mr McAdam remained upbeat about the future as he predicted Paints, National Starch and Quest to deliver "further year-on-year progress" in the coming months.

"Trading outlook for the balance of 2006 remains positive and in line with previous expectations," he said. The group raised dividends for the first half to 4.15 pence per share from 3.75 pence last time.