19 MAY 1950, Page 36

FINANCE AND INVESTMENT

By CUSTOS

THE 1949 report of Imperial Chemical Industries, Britain's largest industrial company, is a massive and impressive document. In the accounts there is full confirmation of the view expressed here on May 5th that the change from sellers' market to buyers' market conditions was mainly responsible for last year's fall in trading profits from £29,237,348 to £25,316,047. The directors call attention. to keen competition in overseas markets and to the contractio t of selling prices abroad, particularly of the alkali and general chemicals divisions. The fact also emerges that the fall in trading profits took place despite a further increase in total turnover from £164 million to a new record of £174,600,000. In the alkali section export sales fell last year by 12 per cent. The directors record that the world sellers' market in alkalis which had prevailed since the end of the war collapsed in the later part of 1948, after which the principal markets were flooded and drastic limitation of import licences was imposed in a number of countries. Devaluation has, of course, been a helpful influence to the I.C.I. group in dollar markets and has improved the group's competitive position in all markets where American competition has to be faced. On the debit side must be set the clear warning given in the report that there are signs that German and Japanese competition will become a problem in the near future.

Heavy Capital Needs I referred on May 5th to the group's heavy capital requirements, and this point is strongly emphasised in the directors' report. In the detailed accounts it emerges that the progress of the large capital construction programme, along with the steady increase in require- ments of working capital to finance raw material purchases at higher prices, is steadily reducing the excess of current assets over current liabilities. At December 31st, 1949, this surplus had been reduced to £23,921,610, against £32,245,863 at the end of 1948. Expenditure of the group on physical assets last year amounted to £21 million and even so commitments for further capital expenditure and oh additional shares in an associated company amounted at December 31st to £22 million. These figures tell their own story. In spite of the group's conservative financial policy of ploughing back a large proportion of earnings into the business, capital outlays are making rapid inroads into liquid resources. Following the issue of the full accounts I.C.I. £1 Ordinary units have fallen back slightly to 41s., at which they yield nearly 5 per cent. on the 10 per cent. dividend. They are a sound but not, in present circumstances, an exciting industrial holding. While they would doubtless participate in any general upward movement, they have temporarily lost their dynamic quality. The possibility can no longer be ignored that new financing will be required on a fairly substantial scale to complete the group's modernisztion and extension programme.

Odhams Press Surprise One comes across some curious contrasts in dividend policy in these days. On the one hand, we find many of the sturdiest champions of free enterprise adhering to the most rigid interpreta- tion of dividend limitation and merely maintaining rates of distribution, even when profits would have covered higher payments with an ample margin in hand. On the other, we have companies headed by members of the Socialist Party declaring increased dividends without any obviouskstification. An interesting dividend announcement this week, whi'W has taken the City by surprise, is that of Odhams Press. This company, which holds a controlling interest in the Daily Herald, is raising its Ordinary dividend from 171 per cent., the rate which has been in force for four years, to 20 per cent. Gross revenue of the group rose last year from £13,188,674 to £15,678,329, and although production costs and other expenditure were up from £11,322,549 to £13,474,036, trading profit was £2,204,293, against £1,866,125. Net profit, before tax, rose from £1,612,268 to £1,939,831, and the net figure, after tax, was slightly higher at £1,041,521, against £908,770. The higher Ordinary dividend is covered by a large margin of earnings, so that nobody can accuse the Odhams board of infringing the canons of prudent company finance. What is a little surprising is that this liberal view of dividend limitation should be taken by the directors of a company so closely associated, in the financial sense, with the official organ of the Socialist Party. Perhaps some of the more timid boards of capitalist enterprises will now take a leaf out of the Odhams book and summon up their courage to give a more generous reward to the Ordinary shareholder.

Eagle Star Investments There is plenty of evidence in the full report of the Eagle Star Insurance Company of sound solid progress in 1949. In the Life Department the net new sums assured reached a new record of £40,500,000, over £2,000,000 higher than in 1948. Net interest at £399,873 exceeds the dividends by over £89,300, and the maintenance of the previous year's dividend rate is consistent with an increase of £176,621 in the profit and loss carry forward which now stands at £1,403,693. In his statement accompanying the accounts Sir Brian Mountain follows the commendable course of dealing at some length with the company's large investments in the Odeon Theatres group. He makes the point that the holding of Ordinary shares in Odeon Theatres is included in the balance-sheet at a purely nominal figure and that the whole of the company's investments in the Odeon group included in the Shareholders' Fund stands in the balance-sheet in the aggregate well below market prices at December 31st, 1949. As to the funds of the Life Department, which now amount to £35,701,286, he discloses that the depreciation which has taken place since the last quinquennial valuation at December 31st, 1946, is covered by reserves and surplus.

British Drug Houses Preliminary figures for 1949 announced by British Drug Houses, the manufacturing and wholesale chemists, show a surprisingly sharp increase in earnings. Group profit, after all charges, including taxation, was up last year from £69,571 to £119,871. Even that improvement affords only a partial measure of the increase in gross earnings, since the taxation charge rose from £83,909 to £172,021. It is clear, therefore, that earnings, before taxation, rose from £153,480 to £291,892. For the explanation of this remarkable change stockholders will have to await the full report, but it seems a fair inference that the group is benefiting from the National Health Scheme and probably from an expansion of its overseas sales. On the strength of the earnings position the board could easily have restored the dividend to the 8 per cent. rate from which it was reduced to 6 per cent. in 1947, but they have chosen to maintain the 6 per cent. payment and to increase the -allocations to reserves. Quoted at one time last year as high as 9s. 3d., the 5s. Ordinary units now stand at 6s. 9d. At this level the yield on dividend is only 44 per cent. but on earnings the yield is nearly 30 per cent. As a long-term investment the units look to me an attractive holding. The company has a strong balance-sheet and enterprising management.

A Cheap Tin Share It is surprising that in the recent recovery in the commodity share groups in which rubber and copper shares have so far scored the sharpest gains, little attention has been paid to tin shares. Tin is, admittedly, a commodity of which there is no longer a shortage, but it is holding its price and should continue to do so while American, business activity remains at full stretch. The point in favour of tin shares is that at present levels, which are substantially below those of 1947-1949, they offer unusually high yields. A high return is, of course, a warning that risks are involved but there are times when the risk is being over-rated in the market. A case in point seems to be Selayang Tin Dredging 5s. shares now quoted around 8s. 3d: This company paid 25 per cent. for the year to September 30th, 1948, and 30 per cent. for the year to September 30th, 1949. The shares are there for offering a yield of over 18 per cent. Results for the first half of the current financial year have been welt maintained and, the chairman reviews in encouraging terms the state of the property in Malaya and the progress of the rehabilitation programme. The company has a healthy balance-sheet. In-1949 the shares touched 10s. and in 1948 were quoted as high as 12s. 6d.