Dividends to rise at Lloyds Chemists: Shift in payout policy marks a move away from acquisitions

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The Independent Online
LLOYDS Chemists, the pharmaceuticals and healthfood wholesaler and retailer, distanced itself from its acquisitive past yesterday by signalling a shift in dividend policy.

Lloyds lifted its interim payment to shareholders by 35 per cent. Allen Lloyd, the founder chairman, said payments would be progressively increased until dividend cover coincided with the market average.

Quoted stores companies average a dividend that is covered 2.2 times by earnings. Last year Lloyds' dividend was covered nearly four times.

The dividend for the six months to 31 December was increased to 2.7p from 2p. If the annual dividend is raised in line, the gross yield will be 3.5 per cent.

The decision to enhance its status as a high-income stock comes as the company tries to shake off a reputation for chasing unsustainably high growth. Two acquisitions in quick succession in 1991 and 1992 increased the size of the company fourfold, measured by turnover. It became the second-largest chain of prescription chemists after Boots.

But yesterday Mr Lloyd said: 'From here on we are going to grow the business organically.'

Profits for the first half increased by 16 per cent to pounds 26.2m. Turnover rose 17 per cent to pounds 460m and earnings per share expanded by 13 per cent to reach 14p.

Lloyds makes most of its money by retailing through its own pharmacies and Holland & Barrett healthfood shops. Operating profits in retailing increased from pounds 21.7m to pounds 24.6m and operating profit margins rose from 7.6 to 8 per cent.

Mr Lloyd said the group was not managing to increase prices but had avoided price-cutting policies engaged in by some rival retailers.

Lloyds is also a pharmaceuticals wholesaler, supplying its own shops and an increasing number of independents. Wholesaling profits advanced by 25 per cent to pounds 5.4m.

The market reaction was subdued. Shares rose 1p to 346p.

In an attempt to allay fears that it used aggressive accounting techniques to inflate profits, Lloyds also published full details of provisions set up to cover the cost of its acquisitions. In the 1991 financial year it provided pounds 11.6m and in 1992 it set aside another pounds 16m. Dick Steele, finance director, said provisions were expended on non-operating costs. In the last half year pounds 1.5m was spent, leaving provision reserves at pounds 1.1m.

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