Arjo Wiggins dividend cut angers investors

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The Independent Online
ARJO WIGGINS Appleton and Saint Louis, its French 39 per cent shareholder, provoked anger in the City when the paper and pulp group made a surprise cut in its interim dividend.

The company said the payout has been cut by 20 per cent to 2.65p in response to difficult trading conditions and warned of a similar reduction in the final.

The move provoked fury among City investors who accused Saint Louis of increasing influence over Arjo, which was formed by the merger of the UK-based Wiggins Teape Appleton with Arjomari of France two years ago.

City concern over French influence at the group has been growing since Stephen Walls unexpectedly resigned as chief executive last May. Since then he has been replaced by Alain Soulas, formerly with Saint-Gobain, the French glass manufacturer.

One dealer said: 'Arjo's management is out of touch with the City. The market was already worried about Saint Louis' influence. 'They are thought to be more cautious about paying dividends and the fact that Arjo has now taken a totally unexpected decision to cut the dividend will confirm that impression.'

The cut, accompanied by a 27 per cent fall in pre-tax profits to pounds 99m, led to a 53p drop in the shares to 129p amid heavy selling from UK investors. A total of 10 million shares changed hands by the close of trading yesterday.

Earnings per share slumped from 10.7p to 7.5p.

Arjo said the cut was in line with its policy of maintaining a dividend cover of between 2 and 2.5 times net profits. It is also concerned that market conditions could be deteriorating due to weakening demand and a squeeze on profit margins.

'The UK investment community is not happy at all. Other companies in the same conditions would pay the dividend,' Mike Murphy, an analyst with Warburg Securities, said.

His comments were echoed by others. Chris Munro at Hoare Govett said: 'This is a rather strange decision. It has a strong balance sheet and could afford to hold the dividend.'

The gloomy trading outlook prompted savage downgrading of profit estimates by analysts. Tim Rothwell at Barclays de Zoete Wedd has slashed his full-year estimate from pounds 205m to pounds 185m. Next year's forecast has been trimmed from pounds 235m to pounds 198m.

Net borrowings amounted to pounds 285m at the end of 30 June, representing about a quarter of net assets.