BTR urged to cut dividend

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The Independent Online
Leading institutions are to urge BTR to cut its dividend and invest more heavily in its businesses amid worries that the pounds 10bn industrial conglomerate has run out of steam.

Recently appointed BTR chief executive Ian Strachan will come under pressure to speed up the company's disposal programme at a series of meetings with analysts, which begin tomorrow.

It is thought unlikely, however, that the company will propose a Hanson- style demerger to realise shareholder value.

There is concern over BTR's high dividend levels, which some institutions view as unsustainable. Leslie Robb, head of UK equity investments for Scottish Widows, applauded Mr Strachan's desire to take a long-term view of the business but noted that there were no clear answers for the company. "Part of our thinking is that the dividend is too high," he said.

Other institutions are more critical. "BTR has a pretty motley collection of businesses that aren't going anywhere," said one fund manager. "They need to sell a lot of them off, invest more in the remaining businesses, and accept that lower margins are going to be a fact of life."

Investor worries have been heightened by a steep fall in the company's share price from 325p, before it issued a profits warning in May, to 256p on Friday. At that level, the company may have to forgo the pounds 220m it was expecting from warrant holders who can exercise their right to buy BTR shares at 258p in September.

In the last eight months, the company has completed the pounds 2bn purchase of the outstanding 37 per cent of BTR Nylex, its quoted Australian subsidiary. In that time it also completed pounds 410m of disposals, including a buyout of its Dunlop Slazenger sportswear division. The net effect was to raise BTR's debt levels to 127 per cent of shareholders' funds.

Despite the increased debt, the company raised its final dividend by 10 per cent in March. At this level, the shares are yielding 7.5 per cent, but its generosity has not won much favour with the City. In a surprising role reversal, institutions have criticised the company's desire to give its profits to shareholders. "If trading continues to be sluggish, there are real worries over the dividend cover," said one fund manager.

In recent years, BTR has come under more pressure to streamline its far- flung and diverse empire, which was built up through a long series of acquisitions in the 1980s under its legendary chairman, Sir Owen Green. It bought Hawker Siddeley in in 1991. The group's complexity has meant a struggle for investors to come to terms with the stream of provisions and restatements appearing in the company's accounts.

But analysts are convinced that a Hanson-style break-up would not be a viable solution. "The Hanson experience hasn't exactly produced shareholder value," says one. "With BTR's structure, it would not make any sense for it to demerge."