One company heading down the same route as Fairfax Media in looking at cutting payouts to shareholders as a way of conserving cash and trying to ride out the slump in 2009 is Pacific Brands, the big knickers, bras and socks group.
It has revealed (in an answer to an ASX query, which is hardly good enough) that it is being forced to review its dividend.
The ASX asked the shoes, clothing and bed-linen manufacturer on Friday for an explanation for a near 22% drop in the group’s share price last week.
Pacific Brands shares dropped from 75.5c at the close of trade on December 1 to as low as 59c during trade on Friday, before closing the week at 60.5c.
The shares edged up a touch yesterday after the reply, but then eased back to end at a new all time low of 58.5c at the close. That’s hardly a vote of confidence.
In its response to the ASX, Pacific Brands said on Monday it was not aware of any unannounced company information that might be behind the share price fall, and said there was no reason to change its profit guidance for the half year ending December 31.
Fairfax will decide at this Wednesday’s board meeting just how deep a cut in its 20c a share payout will be made. Pacific isn’t that far along: its still looking at its 17c a share payout, but the decision will come rapidly.
Pac Brands has been hit hard by the rising apprehension about the retailing slump and the impact of the 30% drop in the value of the Aussie dollar on its import costs of its products from China.
Its shares have crashed Fairfax-like to an all time low of 59c last Friday, from a high of $3.30, which prompted the query from the ASX.
In its reply today the company said it knew of no reason why the slump had happened.
It said however that it was reviewing its dividend policy because of the deteriorating economic and retail conditions.
It ruled out an equity raising at this time.
Pacific Brands said its shares had been hit by concerns about the impact of the Australian dollar’s volatility and the weaker economic outlook.
But with existing chairman, Pat Handley due to step down shortly, current board member James McKenzie will takeover. It is a rapid rise for a director only appointed in May of this year.
Investors know that McKenzie has form at Mirvac, where he and the board waited far too long to react to the slump in property and highly geared companies which swept through the sector after the Centro group got into trouble a year ago this week.
So is this the curse of the slowdown or is there a deeper reason with a new chairman in the offing? Given that Mirvac has seen payouts to security holders slashed, some in the market would say yes.
Others would say its all about being realistic with the economic slump deepening
Now Mirvac, which survived the fate of Centro and its collapse, and its peers have gone down the conservative route by cutting gearing and making distributions from earnings, which has seen Mirvac chop its payments to security holders by two third for its 2009 forecast.
In that respect it’s not much different to Fairfax Media (which has vastly more debt at $2.5 billion): falling revenues and earnings and a tightening headroom between earnings and cashflow per share and payout.
Pacific Brands is a different sort of business: it’s a more conservatively run company. Its debt is only around $A850 million, but revenues and earnings are under pressure from the retailing slump
