RCG Holdings slashes its dividend, stock down 15% news story imageRCG Holdings Ltd (LON:RCG) , the AIM and Hong Kong listed biometric and RFID solutions company today announced slowing growth and a complete cut in its dividend to send the shares down almost 15% by afternoon trading.  Investors remain concerned over corporate governance, working capital requirements and the costs of doing business in China as reflected in its comparatively low p/e ratio, trading at under 3 times earnings. Sales increased by 22% to HK$2,450.2 million (GBP201.8m) and pre tax profit  rose by 5.1% to HK$644.9million (GBP53.1 million).  Profits attributable to shareholders (earnings per share) rose by only 1.8% to 25.8 pence.

RCG was a flying star on AIM back in 2007 before a series of scandals rocked investor sentiment and the company has struggled since to return to a fair valuation.   Nina Wang, an eccentric Hong Kong billionaire bequeathed a large stake in RCG in her will to Tony Chan, one of the founders bypassing family claims.  A lengthy court battle ensued that was resolved in February 2010 when the Hong Kong court judged against Tony Chan's claim on her assets.  This uncertainty over the ownership of 27% of the company's stock caused investor flight during a time of global economic stress. The dividend has been a point of controversy for investors in RCG ever since the first was originally announced back in 2007 at a time of extremely fast growth and working capital commitments.  Many investors questioned whether it was wise for such an early stage company to be giving cash back to investors. But as growth slowed in 2009,  the management appeared to backtrack replacing it with a scrip dividend causing further concern.  The news today that the dividend has been scrapped brings the saga full circle and arguably completes a case study in poor investor signalling.

During 2009, the company has continued its expansion into China, growing sales there by 53% to become 27% of the group total.  Helped by the PRC government's RMB 4 trillion stimulus programme consumer and project based work there boomed, although working capital requirements grew as debtor and inventory days lengthened. The company weathered the macro storm in 2009 fairly well primarily due to government stimulus plans across the Asian regions and while the consumer business contracted across the group…

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