Ispat Iscor crushes dividend hopes
Carli Lourens
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Trade and Industry Editor
EXPECTATIONS of big dividends from Ispat Iscor were crushed yesterday when it announced it would pay a final dividend of only 100c a share despite an 183% surge in earnings to a record R4,5bn.
The share fell 6,4% yesterday morning as investors expressed their discontent with the dividend. Also, headline earnings of 1019c lagged behind the I-Net Bridge forecast of 1026c.
The steel maker’s operating profit more than doubled to R7,4bn and revenue rose 25% to R23bn on the back of record global steel prices driven by fixed investment in China, strong domestic demand and the containment of rising input costs.
CEO Davinder Chugh said yesterday the company would maintain its dividend policy of distributing one-third of headline earnings.
This is after major expectations arose last year when Ispat Iscor said it would review its distribution policy in view of stronger cash flow.
Some analysts expected a final dividend of at least 200c a share following a 300c interim dividend.
“Ispat Iscor has a lot of cash — they can follow a more liberal dividend policy,” said Dirk Kotze of Coronation Fund Managers.
Finance director Vaidya Sethuraman said the decision was based partly on capital expenditure decisions made after the announcement in August to review the dividend policy. Nine capital projects to the value of more than R1,5bn were under way across Ispat Iscor’s operations, in an attempt to raise capacity by 2-million tons from the 7-million tons of liquid steel currently produced. In addition, the group was spending R964m on five environmental projects.
Ronnie Klipin of South African Stockbrokers supported the dividend decision against the backdrop of major spending to raise capacity, improve efficiency and reduce costs. “Why should Ispat Iscor pay out big dividends if the money can be used more effectively?”
Klipin said return on equity had increased from 18% in 2003 to 31% in the period under review, illustrating the company’s record in creating shareholder value.
Klipin said the move could also be seen as building a war chest for consolidation opportunities. Chugh said there were no immediate plans.
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