Sedgwick writes down property values by 40%

SEDGWICK, the insurance broking group, has written down the value of its properties by pounds 87m, or nearly 40 per cent, but this still leaves them in the books at prices above their current market valuations.

The move leaves Sedgwick with borrowings greater than shareholders' funds. Some analysts fear the company may have to consider another dividend cut by the end of this year if trading conditions do not improve substantially.

Sedgwick's 1991 accounts showed pounds 220m of property at 1988 values which, said Stuart Tarrant, finance director, 'looks very toppy at the moment'.

After reviewing the valuations of the properties, Sedgwick is to write them down, not to current value but to historic cost, which is slightly higher. Most of Sedgwick's properties were bought within the past eight years.

Mr Tarrant said: 'In view of the difficulty of valuing properties at the moment because of quite a bit of empty space in the City and potential volatility in future, we decided to change our accounting policy and to reflect properties at historical cost. That's totally in line with US standards.'

He said the current valuation considered by the directors was less than 5 per cent lower.

After adjusting for the tax benefit, the write-down reduces Sedgwick's shareholders' funds by pounds 73.2m to pounds 152.4m. The group has borrowings of pounds 172.3m, giving it gearing of 113 per cent.

Sedgwick reported pre-tax profits of pounds 58.2m for 1992, a 29 per cent fall on 1991's pounds 82.4m. As signalled when it cut its interim dividend last August, the company is paying a reduced final of 3p, thus halving the total to 6p a share.

The downturn in profits was blamed on problems in the London reinsurance market, a pounds 6m loss from River Thames Insurance, a 49 per cent associate, and lower interest rates.

EW Payne, the group's reinsurance broker, suffered an 8 per cent decline in income as it struggled with the market's sharply reduced underwriting capacity. 'There's lots of risks out there to place but not enough capacity to place them,' Mr Tarrant said.

Lower UK and US interest rates reduced income by pounds 10.2m. However, Sedgwick's interest rate-hedging activities limited the reduction to 17 per cent.

Sedgwick James, the main retail broking business, achieved modest increases in brokerage from pounds 255m to pounds 258.9m in North America and from pounds 141.7m to pounds 147m in the rest of the world. The group's total brokerage income rose 1 per cent to pounds 631.9m against 2 per cent expense growth.

Sax Riley, chief executive, said Sedgwick had to focus on increasing revenue and had set itself 'demanding business targets for 1993 against a background of an insurance market which, in general, is not expected to show a significant improvement'.