DIVIDEND payments to shareholders in James Crean will be more than halved as part of a policy of retaining a far higher proportion of profits to fund expansion in the businesses it has decided to retain.
The group has also decided to retain a large proportion of its paper, print and packaging business, a change from the original strategy that envisaged the sale of this division in its entirety.
Crean now has three divisions, as opposed to two as previously announced. It seems likely the electrical wholesaling business in Britain will be sold as soon as it is put into the sort of shape that might attract a buyer.
Crean also announced the sale of its Kartoncraft business to a Kleinwort Benson-backed management buyout for £9.4 million, bringing its disposals to date to just under £29 million. These proceeds are likely to rise to around £50 million when the group's florists' supplies and paper conversion businesses in Britain are sold in the next three months.
When the disposals are complete Crean will have net debt of around £36 million, giving the group a much healthier balance sheet with gearing closer to 30 per cent. Crean says it is considering a number of, acquisitions in its print and packaging and food divisions.
Crean has traditionally paid a very high dividend compared to, other industrial companies in the order of 8 per cent compared to an industrial average of around 4 per cent.
"It seemed to us that when our dividend yield was higher than our p/e [price/earnings ratio] something, was askew," said chief operations officer, Mr Martin Delaney.
"We have historically been a high yielding company but that hasn't done much for our share price in recent years. We looked at the average yield for industrial companies and decided to bring our yield down to that level. It's simply not appropriate to be a development company with a yield of 9 per cent," he added.
Crean is to retain this half year's dividend at last year's level but the final dividend will be based on dividend cover (earnings per share divided by the net dividend) of four times and maintain dividend cover at that level in future. Current forecasts for analysts are for dividend cover of 1.8 times and this indicates `that shareholders are facing a cut of more than 50 per cent in their dividend.
On the decision to retain a large portion of its print and packaging business, Mr Delaney said: "As we went through the sale process we got indications of value. It seemed to us a more attractive proposition to slim down the division rather than sell at all. The bits being kept are more focused on attractive niche markets' and we think it is the right decision to sell the bits we can't develop quickly.
"We intended to have two divisions but we are now left with three, divisions. The main focus will be on print and packaging and food in the US. Electrical wholesaling in Britain continues to be a weak market but we have taken initiatives to increase profitability. When we have done that, we will consider its future" within Crean," he said.
But Crean has warned that trading in the first half of the year is difficult and that the half-year profits will be down on last year's half-year profits, of £9.5 million. The outlook for the second half is more encouraging, says Mr Delaney.
In addition, the various disposals in recent months will lead to a loss of profits which will not be recovered until the funds received are reinvested in core business. This will hit earnings per share in the second half. As a result, analysts are lowering the full-year forecasts for Crean from 30p to around 24p. Crean shares were unchanged yesterday on 235p.
