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Companies scramble to postpone, cancel dividends

But the real impact will be seen later this year.
Investors would be smart not to expect normal dividend declarations for many of the companies reporting results in the coming weeks. Image: Shutterstock

As the impact of a largely shuttered economy due to the Covid-19 pandemic became clearer and the country entered an unprecedented lockdown, at least 11 JSE companies elected to either postpone already-declared dividends or cancel them altogether.

The deferred or cancelled dividends to shareholders – including withholding tax due to the South African Revenue Service (Sars) – total R3.65 billion. It must be noted that this includes only changes to dividends that were due to be paid in recent weeks. It does not include results reported of late where directors elected not to declare any dividend.

All but three of the companies have elected to postpone their dividends, mostly to the next reporting period, and will make a decision on payment at that stage. However, African property counter Grit Real Estate elected to postpone its payment by just four weeks, to April 30.

It says the board “has taken into account the potential for disruptions caused by Covid-19 in the domestic African financial markets in which Grit operates, a lack of dollar liquidity in Mozambique, the uncertain impact of the pandemic and the expectations of longer time frames associated with central bank processes and moving cash balances to Mauritius”. It notes that it expects no further postponement.

 

Announced Dividend (cents) Total New date
Hyprop Mar 23 308.7 R790m Postponed Oct 5
EPP Mar 23 5.82 euro c R1 090m Postponed Jun 29
Motus Holdings Mar 24 240 R471m Cancelled
Texton Property Mar 24 16.09 R61m Cancelled
Trellidor Holdings Mar 24 8 R8m Postponed Sep 7
WBHO Mar 25 80 R48m Cancelled
AECI Mar 27 414 R448m Postponed Jul 29
Spur Corporation Mar 30 78 R71m Postponed Oct 5
Metair Investments Mar 30 120 R239m Postponed Aug 19
Grit Real Estate Mar 31 79.5 R251m Postponed Apr 30
Libstar Apr 2 25 R170.5m Postponed Sep 2
R3 647.5m

 

Other property funds EPP and Hyprop have postponed their distribution payments totalling nearly R2 billion to later in the year. Texton Property Fund cancelled its outright.

Redefine Properties, which will report its interim results on May 4, announced preemptively on March 23 that its board had “resolved to defer its decision on a dividend payment for [that period] until the release of its results for the year ending August 31 2020, which is expected to be on or about November 2 2020″. Redefine has been especially hard hit this year – its share price is down 71% since early January.

 

Redefine Properties

 

By contrast, Growthpoint on March 20 confirmed that it would pay its interim dividend of 106c per share on Monday, April 6. But, like most property counters, it has withdrawn its previously-provided dividend guidance for the full year.

Motus, unbundled from Imperial in 2018, was the first industrial company to announce an impact on its already-declared dividend. On March 24, it said: “Given the uncertainty as to the duration and extent of the impact the Covid-19 virus is having and will continue to have on commercial activities in South Africa and internationally, the board considers it prudent and in the best interests of the company and all its stakeholders to preserve the company’s financial liquidity.”

‘Precautionary measure’

It noted that it “continues to maintain its ability to meet its current solvency and liquidity obligations”. However, “as a precautionary measure to provide Motus with additional financial flexibility and bolster its liquidity in an extraordinary time of uncertainty, the board has resolved to cancel the payment of the interim dividend”.

Construction group WBHO said a day later that it would “withdraw” its dividend declared earlier in the month: “In these uncertain conditions the protection of cash reserves is deemed necessary by the board.” But it says it “remains committed to consider the continuation of the dividend history in future financial periods, once circumstances permit”.

Chemicals and explosives group AECI said on March 27 that it had “stress-tested multiple solvency and liquidity scenarios” and that “no loan covenants were breached in any of those scenarios”.

But it said the board considered “it prudent and in the best interests of the company and all its stakeholders to postpone the payment of the dividend that was scheduled for Monday, April 6″.

“The board believes that the postponement of the dividend payment, amounting to R448 million, together with the company’s undrawn committed banking facilities of approximately R2 400 million, will position AECI to remain well capitalised through these uncertain times.”

Metair Investments made reference to “these abnormal times” in its decision to postpone the dividend declared just two weeks earlier. It has already cautioned the market to expect a decrease in earnings of at least 20% for the six months to end-June, given the impact of Covid-19.

Restaurant franchisor Spur Corporation put its dividend, totalling R71 million, on ice last week. It says: “This precautionary act will give the company greater balance sheet flexibility as the situation develops over the coming weeks and months.” It also confirmed last week that it was not charging its franchisees any franchise fees for the second half of March and the whole of April due to the nationwide lockdown.

Read: Spur suspends franchise fees amid Covid-19 closures

Franchise and marketing revenue in South Africa for the six months to end-December was R310 million. Thus, the monthly income from these streams would be around R50 million. Across the one-and-a-half month period that it is supporting franchisees, this lost revenue is almost the amount originally declared as a dividend.

Investors should surely not expect this to be simply “deferred” to October, as the company states. This will certainly be reviewed once the impact from Covid-19 can be quantified.

Despite many of its divisions remaining trading during the lockdown, food producer Libstar said on Thursday it would postpone its dividend until the next reporting period “in light of the uncertainty as to the duration and extent of the impact that Covid-19 may have on the operations within the markets in which [it] operates”.

The ‘food service channel’ comprises about 18% of its revenue and the shutdown of restaurants and fast food outlets has impacted demand. This is partially offset by its ‘retail sales channel’ (60% of revenue), where it has “experienced increased demand from its customers, especially in the week preceding the lockdown”. However, the group “expects demand to reduce as government’s preventative measures take effect in the coming weeks”.

Thus far, the impact of Covid-19 has mostly been seen in share prices across the board, as investors panic and rush to safety (cash). Markets have been badly rattled.

The decisions by these 11 companies to cancel or postpone dividends that had already been declared is highly unusual, but not unexpected given these unprecedented times.

Investors would be smart not to expect normal dividend declarations for several if not most of the companies reporting results in the coming weeks.

Still, the real damage to dividend flow will be seen later this year. That’s if many listed companies actually make it through this crisis in one piece.

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COMMENTS   17

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Lockdown measures will not cure the disease or prevent the spread of the disease. It will only slow down the spread of the disease. The Minister of Health admits that 80% of people will eventually be infected, it is only a matter of time.

That means that over a period of years, about 1.5 to 2 million South Africans will die with the COVID virus, not necessarily because of it. They implemented lockdown measures to slow the spread of the disease, but at the same time these measures increase the spread of the economic disease. Which is worse?

They came up with the description of “non-essential” services, but there are no non-essential services in a free-market economy. Non-essential services disappear naturally, through bankruptcy. They do not exist, or like SAA and Eskom, they are not supposed to exist. Each and every successful business model forms an essential cog in the big machine. When a politician, health professional, scientist or government official discards one small sprocket and calls it non-essential, the entire machine grinds to a halt.

Let’s look at what happens when the economic machine strips its gearbox. We have the nasty and messy examples in the wrecks of Zimbabwe and Venezuela. The shops run empty, municipal services implode, the financial system crashes, agricultural production stops and individuals go back to subsistence farming.

It gets much worse though. Medication like anti-retroviral drugs, anti-biotics and insulin become unavailable as the intricate and fragile supply network is destroyed. Now we can apply this practical example to South Africa.

When a politician decides that a business that forms part of a free-market economy is non-essential, then he sets in motion a chain of events that will have logical, unavoidable consequences. In South Africa, with our demographics of AIDS cases, TB cases and diabetic cases, this implies that between 15 million to 20 million people will die within 12 months.

So, we have to make a call basically. Life is full of choices you know. You cannot put reality into lockdown merely because you are too scared to make up your mind. The choice is between 2 million COVID deaths over 24 months or 20 million AIDS, TB and diabetic deaths over a 12 month period.

Make up your mind. And please hurry. TB and Aids patients and people with diabetes are waiting for your decision.

Well thought out reasoning, greatcto hear some logic in this era of unbridled fear mongering!

Great explanation and worldview and understanding but you lost me at the end. Thank you, though.

I had the person with decision-making powers in mind, and also those lovely people among us who so easily enforce their constrained view on others. I am addressing the guy who thinks he is saving humanity when he reports it to the police if his neighbour is walking with his dog, while he himself is walking with a shopping bag. I want to create a sense of urgency because businesses are going bankrupt as we speak.

Well said. This is very similar to our discussion in our household from the start of lockdown.Unfortunately we are going to see poverty and hunger on an unimagined scale and with that the dying etc
Suddenly the government starts talking about improving housing etc – where were they previously?

Jannie, I fear the possibility that the implementation of lockdown measures will be the modern-day version of the catastrophe that was caused by Xhosa prophet, Nongqawuse. She advised that they kill all their cattle and destroy all their crops(end all economic activity) to ward off the “virus” of that time, the colonial forces. 70% of the population died of starvation as a result of the 1841 “lockdown”.

Yep, Sensei. Members of government have long forgotten that lesson. My wife went on a guided tour of Alexandria 3yrs ago and returned in shock. What the inhabitants told them is they only see politicians and councillors at election time. Long forgotten their past except when they use it for political reasons.

“That means that over a period of years, about 1.5 to 2 million South Africans will die with the COVID virus, not necessarily because of it. ”

You’d agree this statement is pointless. No?

oh…dear, some with a lack of literature reading…

I expect the banks next to pause divis and therby be allowed to pause pref share payments too. Non cumulative I might add.

Why be a REIT if you are going to go against REIT rules.

Companies like L2D, self proclaim that they have been hoarding cash. Then just distribute the cash.

Can Mike Schussler and the experts please help:

The people in the economy has been shut down but not the debt and obligations payments, which does not make sense. You cannot service the debt if you are not allowed to work. This might cause the liquidation of many businesses, with the resultant loss of jobs.

Why not call a two month debt and obligation freeze – that means nobody pays salaries, rent, rates and taxes, debit orders and accounts, etc, for two months. After two months the economy is “switched on” again.

The poor and vulnerable can get say R1 000 a month from the State.

By suspending debt and obligation many businesses might be saved. A further issue is whether the debts and obligations over those two months should be suspended or written off, as everyone is in the situation.

This approach might be much simpler and cleaner than upending the economy and then try with a piece-meal approach to salvage a complex economy.

The problem with an instalment freeze is this – like any product in a free-market economy, it is competitively priced. There is no margin to accommodate for non-payment or even a temporary freeze. Anything that interferes with the strict adherence to the contractual obligations destroys the profitability of the agreement.

One person’s debt is another’s asset. A payment freeze for one individual is an income freeze for another and a default for the intermediary.

The margins in the financial industry are not priced to accommodate payment freezes.

Beware the laws of unexpected consequences. The lockdown was too soon and too long. If they had made it 2 weeks with an option to increase it to 3 weeks and started at the Easter weekend, ther would have been less disruption to the economy.I fear it is a case of the “cure” being worse than the sickness! I fear the outcome of this decision is as you say Sensei.

I mostly agree and am very concerned that about the possibility of extending the lock down. Simply put the economy cannot take it and while it may save lives from the corona virus it may cause more people to die from starvation or violence. If I was hungry I might be persuaded by my peers to go and loot businesses etc. for food.

Also I am concerned that there was not a curve to flatten and a few weeks after the end of the lock down corona virus cases will simple start to grow at an exponential rate so the lock down will only have delayed the start of the growth and not flattened the growth. This would result in the hospitals will still be overwhelmed.

The current economic restrictions (note I do not use the term lockdown) if continued in the present form will become so restrictive and so damaging beyond the present 21 days lockdown, that many, many more lives wil;l be lost in the long term, and this situation will become unrecoverable. Ever.

The economy must be given the opportunity to recover and build. Unfortunately it seems that the imperative of the makers of the rules (not laws) in this country to satisfy their egos is greater than their vision of the damage that is being wrought. They will not see it until too late.

I fear that the lockdown will be extended till the end of April, or even further. I have friends who were forced to take unpaid leave, some have gone into negative with regards to their leave days as they were forced to take them now.

I think about all the cooks, waiters and cashiers at our favorite take-out restaurants, mom-and-pop shops etc. Many of them wont be returning if this lockdown ever gets lifted.

Looting has already begun in some areas. Mainly liquor stores for the booze, and cigarettes. Residential estate whatsapp groups have turned into barter platforms – where cigarettes are traded for alcohol and vice versa.

Would it not be possible to let the economy have some wiggle room if we all had to return to work by making it mandatory to wear gloves and masks? China is already up and running again, and workers have these items on.

My area was quiet last week. Hardly any cars. Restlessness has surely creeped in and I can hear alot more cars on the road. This lockdown should be relaxed a bit. The economic ramifications will far outweigh the health ramifications. Are we headed for a depression?

Unemployment will surely jump to over 40%. Pension fund portfolios are down even more than that. I think the President needs to think long and hard about the next steps, otherwise it could take 10 years to recover from this, if ever.

End of comments.

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