FINANCE AND INVESTMENT
By CUSTOS
FOR a reasoned defence, if that be judged necessary, of the Imperial Chemical Industries board's decision not to increase the to per cent. dividend, Ordinary stockholders will have to wait for Lord McGowan's review at the annual meeting on May 31st. Meanwhile, the full accounts seem to me to underline the- justification for a conservative distribution policy. It is now disclosed that capital plans involving the expenditure over the coming years of a further £61 million have been sanctioned by the I.C.I. board. Following last year's capital outlay of £21 million on capital projects, these further expenditures are bound to make heavy inroads on the group's substantial liquid resources. In 1948 the total absorption of cash by way of investments in fixed assets and interests in subsidiaries and associated companies, and as additional cash employed in working capital, amounted to nearly £30 million. Much of this capital programme is being financed by ploughing back profits into the business, although liquid resources were replenished last year to the extent of over £20 million by the issue of new Ordinary shares. In consequence, net liquid assets at £32,245,863 were nearly £m million higher at the end of 1948 than at the end of 1947.
I.C.I. CAPITAL NEEDS These large resources, supplemented as they will undoubtedly be by further allocations out of earnings, should prove ample for the group's requirements for some time ahead, but it seems clear enough that at some later stage the company will need to make another share issue to raise a substantial sum.
If one could exclude the assets replacement problem there would be an unanswerable case for raising the Ordinary dividend, since all the other evidence in the report is of expanding turnover and increasing earnings. Last year was in fact a period of spectacular achievement for the IC.!. group. Gross income rose from £14o,400,000 to £167 million, consolidated net income, before tax, was up from £17,208,225 to £22,955,579, and net income, after tax, was £11,897,056, against £8,290,859. Net earnings on the Ordinary capital were the equivalent of over 30 per cent. compared with the to per cent. actually paid in dividend, and total reserves amounted at December 31st to £37,303,411 or over 6o per cent. of the issued Ordinary capital.
An impressive feature of the report is the contribution, which it reveals, of the I.C.I. group to the export drive. The value of direct exports rose from £27,730,000 in 1947 to a new record of £34,477,000. These exports accounted for nearly 30 per cent, of total sales, and by volume showed an increase of 58 per cent. over 1938. Even this performance is not a full measure of the contribution to the export drive, in that the group is a large-scale supplier of raw materials to home industries which make finished products for overseas markets. All in all, it is hard to escape the impression that, given another term of office, the nationalisers will be strongly tempted to get their hands on this prosperous industrial enterprise.
FORD BONUS CHANCES
Since the issue of the 1948 accounts, showing a sharp increase in profits, the £t Ordinary units of the Ford Motor Company have slipped back from 52s. 3d. to 5os. 6d. This reaction in the market has been due mainly to the absence of any reference in the report to the possibility of a capital bonus distribution. This is a company whose to per cent, dividend is covered by an unusually large margin of earnings and which has built up an immensely strong financial position. An asset of great potential value from the British stock- holders' point of view is the holding of the Ford Motor Company in the Ford Investment Company. There seems to be little doubt that some day this holding will prove the means of giving a scrip bonus in one form or another to the Ordinary stockholders of Ford Motor. Meantime, the LI units at 5os. 6d., although they offer a return of just under 4 per cent, on the to per cent dividend, look an attractive purchase for capital appreciation. The earnings yield, which is approximately 25 per cent., is the real criterion of the value of the equity of the company and, in my view, will make its influence felt.
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