Caradon hands back pounds 174m to shareholders as profits surge

Caradon is to hand pounds 174m back to its shareholders, in effect passing on the proceeds of last December's disposal of the building materials group's European engineering and distribution business.

News of the capital refund accompanied an 18 per cent rise in underlying profits last year to pounds 178.2m which lifted the shares 3.5p to 257p despite a warning that trading so far in 1997 had been below expectations.

Peter Jansen, chief executive, said difficult conditions for its plumbing, electrical and joinery businesses in 1995 continued into last year with the improvement in profits driven by cost reduction programmes that had offset volume reductions and lower prices.

But he added that strong cashflow meant the group could hand money back to shareholders without straining its balance sheet, which had pounds 96m of net cash at the year-end.

Even if the cash had already been handed back to shareholders by the balance sheet date, group gearing would have been a comfortable 19 per cent, the company said.

Caradon said it would effect the return by issuing a new class of "B" shares to existing ordinary and preference shareholders in return for replacing every 10 shares held with nine new ones. The "B" shares can be redeemed for cash between 20 May and 17 June.

Mr Jansen said Caradon had made cost savings of pounds 66m through a reorganisation plan - ahead of its initial target of pounds 50m. "That underpinned the strength of our performance in markets that were less good than we expected." Caradon expects to cut costs by an additional pounds 25m-pounds 40m in 1997.

Mr Jansen said giving money back to shareholders still left Caradon with substantial firepower to make acquisitions and he singled out Germany, where the company already owns 80 per cent of Weru, the country's largest window and door maker.

Continued sluggishness in European markets remained a problem. "1997 has started slowly, with trading in the early months generally below expectations," Mr Jansen noted.

In plumbing, Caradon reported flat operating profits of pounds 37.4m after strong growth in UK radiator and boiler sales were offset by difficult trading on the Continent. The electrical division, where Caradon owns the MK plugs brand, saw a 14 per cent decline in profits to pounds 35.2m, while profits from the structural and engineering arm were little improved at pounds 22.3m.

The best performances came from security printing, where volume growth and cost reductions helped profits rise 13 per cent to pounds 42.8m, and doors and windows, which swung into pounds 4.7m profits from a pounds 15m loss.