First Choice cuts dividend by a quarter

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The Independent Online
First Choice, Britain's third-largest tour operator behind Thomson and Airtours, completed a turbulent year yesterday by cutting its dividend by more than a quarter. Despite the fall, the company's depressed shares closed 4.5p higher at 63p as the City banked on new chief executive Peter Long reversing its recent fortunes.

Mr Long was catapulted into his new job just a month after joining First Choice earlier this year when a boardroom coup unseated his predecessor, Francis Baron. Yesterday he spelled out a strategy for returning First Choice to a level of profitability that would compare with the rest of the holiday industry.

Profits in the year to October of pounds 10m showed a marked improvement on the pounds 1.3m achieved in 1995, when the whole industry was hit by overcapacity and slumping prices. Mr Long said, however, that those profits represented an unacceptable return on sales, which topped pounds 1bn for the first time.

Commenting on the decision to reduce the full-year dividend from 3.85p to 2.8p, executive deputy chairman Ian Clubb said the move was a step towards achieving a "more appropriate level of dividend cover this year". Earnings per share were 2.1p, failing to match the dividend payout.

Mr Long said current trading was strong, with early bookings for next summer 42 per cent higher than last year, compared with an industry average increase of 31 per cent. By the end of March, the company hopes to have sold 60 per cent of its holidays, a performance that would minimise the risk of a repeat of the summer of 1995 when unsold holidays had to be sold at bargain basement prices.

Analysts welcomed Mr Long's focus on managing capacity and reducing costs. He has a strong reputation within the industry, which has been a graveyard for all but the most experienced specialist operators.

The UK tour operation performed much better than in the previous year but remained in the red with a pounds 200,000 loss compared with an pounds 11.1m shortfall. Skibound, a new winter sports arm, chipped in pounds 3.1m.

The worst performance was Canada, where First Choice's Signature subsidiary slumped from a profit of pounds 7.9m to pounds 4.7m. Despite the fall, Mr Clubb said there was no intention of selling the business to Airtours, which has expressed an interest.

Investment column, page 20