Argo Investments has completed the flow of results from major listed investment companies with a set of figures typical of the sector this June 30 reporting period.
A result hit by the market downturn, dividend cuts and big paper accounting losses.
But as well as experiencing lower dividend inflows, dividend has been cut by Argo itself by 10%, from an annual 30 cents a share to 27 cents.
Argo said yesterday that operating profit fell 10.4% to $163.4 million as dividend payments were cut by some of the companies it invests in, such as Macquarie Group.
But including the impact of impairment charges, the group reported a full-year loss on paper of $64.4 million for the 12 months to June 30 compared with a profit of $294.1 million in the 2008 year.
The operating profit of $163.4 million (which excludes one offs such as the unrealised losses from the decline in share values), reported yesterday was, however, the second-highest in Argo’s 63-year history.
Argo will pay a final dividend of 13 cents per share, down from 16 cents in the last half of 2008. With the steady 14 cent interim, that takes the annual to 27 cents.
Argo said the total distribution of $157.1 million also was the second highest ever.
The company took an unrealised impairment charge after tax of $205.6 million, as the All Ordinaries index slumped more than 20% during the 2009 financial year.
Argo managing director Rob Patterson said "Income from dividends fell in the second half of the year as some companies reduced or cancelled their dividends due to either lower earnings or to preserve cash to see them through the extremely difficult credit environment and the challenging economic situation.
"Interest income also fell significantly due to lower interest rates earned on our cash during the year and through having reduced cash as we selectively supported a number of the multitude of capital raisings by companies in our extensive investment portfolio," Mr Patterson said.
He said the net loss figure did not really reflect the company’s position because it held its investment assets for the long term.
"Our auditor has acknowledged that (the current accounting standards) makes no allowance for long-term investing in equity securities and it is very likely that there will be changes to this accounting standard for the next reporting period," he said.
Mr Patterson said the company was taking a cautious approach in the current environment after four consecutive years of strong dividend growth.
The investment fund made significant investments in issues by Rio Tinto, Wesfarmers, National Australia Bank and Commonwealth Bank of Australia.
"A number of investments which were affected by the adverse change in economic conditions were sold during the year. Macquarie Communications Infrastructure Group, MYOB Ltd., Queensland Gas Company Ltd. and St. George Bank Ltd. were taken over," he said.
Argo’s chairman Chris Harris said the world economy was still in a deep recession, although there were early indicators pointing to a subdued recovery over the remainder of the calendar year.
"We expect continued downward pressure on company profits and dividends in the period ahead, before a modest improvement in the first half of calendar 2010," Mr Harris said.
"Following the worst two consecutive financial years performance for at least 73 years, the Australian sharemarket has rebounded strongly since the lowpoint reached early in March 2009.
"This occurred due to some improvement in global credit markets and economic growth resuming in China.
"It has also happened despite a flood of equity capital raisings from companies seeking to recapitalise their balance sheets.
"Despite these early positive signs for the Australian economy and sharemarket, we expect continued downward pressure on company profits and dividends in the period ahead, before a modest improvement in the first half of calendar 2010."
Argo said it was also considering offering a share purchase plan.
Argo shares closed up 30 cents, or 4.7% at $6.63.
