BP delivers unexpected rewards with 20% dividend rise: Oil giant bounces back from the dark days of 1992 by hitting its targets, lifting quarterly payout and boosting profits

BRITISH Petroleum signalled a faster improvement in its financial health than expected by announcing a surprise 20 per cent increase in its first quarterly dividend along with a 32 per cent increase in profits.

News of the robust profits performance and the dividend rise, which was larger and sooner than most oil company analysts had been predicting, sent BP shares 16.5p higher to 399.5p.

This compares with a price of 184p to which BP shares sank in August 1992. It marked one of the most difficult periods in the company's history after a boardroom shake-out was followed by a halved quarterly dividend and news of a pounds 1bn restructuring programme involving the loss of 11,500 jobs.

David Simon, chief executive, who took over when Bob Horton, former chairman and chief executive, was ousted two years ago, said the decision to lift the first quarterly dividend from 2.1p to 2.5p reflected BP's success in hitting its targets for disposals, profits and capital expenditure restraint, together with good cash generation.

'It is the right time to share with our shareholders the benefits that are now coming through. We intend to grow the dividend progressively to more appropriate levels as further performance improvements are delivered.'

At BP's annual meeting last month shareholders, led by the UK Shareholders Association, were vociferous in their criticism of the company's executive incentive schemes, which were rewarding management at a time when the dividend had been frozen since mid-1992.

Lord Ashburton, chairman, told the meeting that the dividend would be increased when trading conditions and prudence allowed.

Mr Simon denied yesterday that there had been any pressure from BP's institutional shareholders to speed up plans to embark on a policy of dividend increases. Most analysts had not expected BP to consider the subject until later this year.

On the back of strong cash generation from its continuing activities, BP was able to pay off pounds 398m of debts in the quarter, reducing its total borrowings to pounds 7.9bn, equivalent to 78 per cent of shareholders' funds.

BP has cut its debts from a peak pounds 11m in 1992 with the help of pounds 3.3m of disposals. It plans to raise a further pounds 1bn from asset and business sales this year, reducing gearing to 66 per cent.

Thanks largely to cost savings, along with higher volumes and lower petroleum revenue tax in the UK, BP was able to increase its first-quarter replacement cost profits from pounds 231m to pounds 305m, before exceptional items, despite a dollars 4 fall in average oil prices to dollars 14 per barrel. Profits were only slightly below the pounds 315m earned in the fourth quarter of 1993 although oil prices were dollars 1.50 lower.

Mr Simon said that although oil prices, which had firmed in recent weeks, were likely to remain volatile in the short term, longer-term supply and demand were more balanced. Seasonal stock-building and resurgent economic activity could support stronger demand in the second half of 1994.

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