ICI halves dividend to unlock £200m-a-year for war chest

Imperial Chemical Industries yesterday grasped the nettle and announced plans to cut its dividend for the first time in 19 years, saying the move would increase its scope to invest in profitable growth businesses.

Imperial Chemical Industries yesterday grasped the nettle and announced plans to cut its dividend for the first time in 19 years, saying the move would increase its scope to invest in profitable growth businesses.

Unlike the last ICI dividend cut in 1981 - which sent shivers through the whole of British industry - the market barely flinched. ICI shares were marked down fractionally before rallying late to close up 10p, or 2.4 per cent.

Charles Miller Smith, ICI's chairman, said that the dividend for the 2001 financial year would be halved, and thereafter ICI would pay out about one-third of its net profits before exceptional items and amortisation in dividends. The payout for this year will be maintained at 32p.

The move will increase ICI's dividend cover to around three times, putting the company on a par with other speciality chemicals producers in Europe and the US. Together with a £90m a year saving on pension-fund contributions, the dividend cut will give ICI an extra £200m a year to invest in bolt-on acquisitions.

Brendan O'Neill, ICI's chief executive, said the overwhelming feedback from institutional shareholders had been that ICI should rebase its dividend. "This increases our financial flexibility overall," he added. "We are going to grow organically, pay down some debt and make bolt-on acquisitions when we find them."

ICI also announced further progress in the programme to dispose of its remaining industrial chemicals businesses. The group is selling its 30 per cent stake in Huntsman ICI to Huntsman Speciality Chemicals Corporation for £250m. It has held the stake since selling its Tioxide, polyurethanes and some petrochemicals businesses to Huntsman of the US last year.

Together with income from the sale of bonds ICI holds in Huntsman ICI, the net proceeds will be £330m, although these are not expected to flow through until the second quarter of next year. The proceeds will be used to pay down ICI's debts, which stood at £2.9bn on 30 September.

However, ICI appeared more cautious about the prospects of pulling off the sale of its remaining UK bulk chemicals businesses to the privately-owned Belgian group Ineos. "It remains unclear whether or not these discussions will be successfully concluded," ICI said.

The dividend cut was accompanied by a better-than-expected set of third-quarter results. Trading profits were up by 4 per cent in its core businesses to £163m for the three months. ICI said its Quest fragrances division and paints and industrial specialities divisions had all done well with profit growth of 10 to 11 per cent.

However, profits were flat in its National Starch division, one of the speciality chemicals businesses it bought from Unilever in 1997.

Profits were affected by weak food and paper-making markets in North America and higher raw material costs, particularly in its speciality synthetic polymers business, which is still vulnerable to oil price movements.

Analysts gave the results and dividend cut a mixed reception. UBS Warburg raised its share price target to 600p and reiterated its "strong buy" recommendation, but the US broker PaineWebber said it expected the stock to come under pressure in New York in the coming weeks as investors digested the news.