BICC payout cut by third

Gains in US push profits up as higher costs pressure margins

BY TOM STEVENSON

Deputy City Editor

Sharply rising raw material prices and still dire prospects for Britain's construction industry forced BICC, the cables and contracting company, to abandon paying an uncovered dividend yesterday.

After three years of paying more to shareholders than the company earned, it cut its final payout by 35 per cent and warned that next year's full- year dividend would be sliced by a similar margin.

The market, which had half expected the cut either this year or next, remained unfazed by the announcement.

The shares closed 7p higher at 317p as the market instead focused on a 28 per cent increase in pre-tax profits to £131m for the 12 months to December. On next year's proposed payout of 12.5p, the shares yield 4.9 per cent.

Sir Robin Biggam, chairman, said the price of copper and aluminium, two of BICC's biggest costs, had risen by more than 70 per cent in 1994.

Polyethylene, another important raw material for the company, had increased in price by up to 30 per cent.Some of the cost had been passed on to customers but the increased value of BICC's working capital and higher financing costs meant gearing rose to 46 per cent.

Rationalisation costs in Germany and Spain contributed to the rise in debt.

Sir Robin said demand for cables was rising around the world, especially for the new generation of fibre optic cables that were rapidly taking over from traditional copper wires.

But he warned that the benefit of higher volumes would not be felt unless prices stabilised.

With the exception of North America, where last year's £7m cables loss was reversed into an £18m profit, cables in other markets and Balfour Beatty, the construction arm, reported only small rises in profits.

Thanks to the improved American performance, pre-tax profits increased from £102m to £131m.

Earnings per share increased 27 per cent to 19.6p (15.4p) and the final dividend of 8.6p made a total of 14.6p (19.25p). Construction remained profitable despite the overcapacity which Sir Robin said continued to dog the industry.

He said that the sector's problems had been exacerbated by cuts in public spending and warned that the compensating rise in spending as part of the private finance initiative would not show through to financial results for some time.

The proportion of construction spending accounted for by the public sector has fallen from more than 50 per cent in 1975 to 36 per cent currently and could be as low as 30 per cent by the year 2000.

A trend for staged payments, rather than up-front fees, had worsened the impact of the decline.

Like many of its peers, Balfour Beatty is increasingly having to look overseas for contracts. As a result, foreign work as a proportion of the total increased from 9 per cent to 22 per cent.