Pegged dividend dampens strong advance by ICI

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The Independent Online
Sir Denys Henderson signed off his final year as chairman of ICI with a flourish, announcing an 84 per cent jump in profits before exceptional items. The result, which followed a 72 per cent rise the previous year, disappointed the market, however, as the dividend was pegged at the level it reached at the peak of the last cycle.

The company, traditionally seen as a bellwether of British industry, gained from rising demand and prices, but Sir Denys cautioned that the bulk of the improvement still reflected self-help. Since 1990, when ICI embarked on the first of two cost-cutting programmes, overheads have fallen by £475m a year.

The markets in which ICI operates only started to improve towards the end of the year and Sir Ronnie Hampel, Sir Denys's successor, said growth would continue throughout 1995. He said ICI was a long way off the peak of the economic cycle.

Profits before tax and exceptional items were £514m, compared with £280m in 1993. The result, still only half the profits achieved in 1989, was struck from a 9 per cent rise in sales, reflecting volumes up 7 per cent and a 2 per cent overall price increase.

The shares closed 8p lower at 714p as the market readjusted its expectations for ICI's dividend, which has been 27.5p since the company's profits peaked. Earnings per share of 37.3p covered the payout for the first time since 1990.

Analysts had hoped for an increase of up to 1p in the dividend, but Alan Spall, finance director, warned that ICI planned to restore dividend cover to ensure that the payout was safe throughout the business cycle.

Although cash flow was strong, reducing gearing to only 3 per cent, no major acquisitions were likely.

Sir Denys admitted that a return on capital of 11 per cent was still a long way off the company's target of 20 per cent. Partly that reflected a margin squeeze on ICI's consumer-oriented businesses where rises in raw material prices could not be passed on to customers.

The cost-cutting programmes, which had resulted in the loss of more than 30,000 jobs from 1990's 100,000 workforce, had, however, improved productivity, with sales per employee 55 per cent higher than four years ago.

The best-performing division was industrial chemicals, which increased trading profits from £103m to £265m. More than £60m of the improvement came in the final quarter when prices for ICI's main products rose by 11 per cent.

Results from paints and materials and the international divisions all improved. The only disappointing operation was explosives, where profits slipped from £51m to £45m.