Corporate Australia: Alert, not alarmed
Economic & Financial Trends

Corporate Australia & COVID-19: CommSec has assessed earnings announcements of 155 of Australia’s largest companies to gauge the reaction to this year’s COVID-19 crisis. While a third of companies
withdrew earnings guidance, only 10 per cent deferred dividends and around 5 per cent of companies
cancelled dividends. In addition, around 24 companies or 15 per cent of the sample raised equity or debt funding, commonly through institutional placements and share purchase plans.

Dividends: As CommSec reported on March 17, dividends of ASX 200 companies with June and December
balance dates fell $2 billion between March 2019 and 2020. The survey of ASX 200 companies and their responses to the COVID-19 crisis is useful in gauging the strength of corporate balance sheets and impact on the economy.

What does it all mean?

When confronted with a major crisis like COVID-19, investors would rightly fear for their dividends. And that is understandable. When a company faces a major shock, a key consideration is maintaining business strength or business survival in preference to paying out dividends.


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The good news for investors is that companies haven’t rushed to defer or cancel dividends. There has been a range of responses to the crisis.

That is the conclusion of CommSec assessment of responses to the COVID-19 crisis by 155 of Australia’s largest companies.

Of course, there will never be one ‘right’ response by a company. However the fact that many companies have sought to raise funds through means like institutional placements and share purchase plans highlights some confidence by companies about their balance sheet strength.

While dividend payouts by ASX 200 companies (June/December balance dates) fell by around $2 billion over the past year, this largely reflects the tougher business environment over 2019. Shareholders haven’t been overtly affected by COVID-19 – but further effects are still to come through.

Positively, shareholders have had access to a range of share purchase plans, giving them access to discounted securities. Still, the deferral, cutbacks and cancellations of dividends by three of the major banks have served to trim payouts to shareholders by $7.2 billion.

What do the figures show?

CommSec assessed earnings announcements of 155 of Australia’s largest companies to gauge the response to the COVID-19 virus crisis.

In the early days of the crisis during March, many companies announced that they weren’t in a position to provide accurate guidance to investors about earnings, future performance or dividend/distribution payments.

Overall 51 of the 155 companies withdrew guidance or indicated that they weren’t in a position to accurately update investors about the impact of COVID-19 on trading or operational performance. The majority of companies withdrew guidance in March (40 companies) with the key period being March 17-27.

In terms of dividends, 16 of the 155 companies announced that dividend payments would be deferred to later in 2020. A further eight companies cancelled dividends.

The three major banks that reported earnings in late April/early May decided on different approaches on dividends. Importantly the NZ Government banned banks from paying dividends, many European governments made similar decisions. And regulator APRA stated its preference for banks to cancel or defer dividends – to preserve capital.

National Australia Bank reduced its dividend payment but also raised $4.25 billion from an institutional placement and share purchase plan. ANZ deferred a decision on its dividend to August. Westpac cancelled its dividend but left open dividend options over the year.

To get some sense of the impact of bank dividend announcements, a year ago, ANZ paid out dividends
estimated at $2.3 billion and Westpac paid out $3.4 billion. In May 2020 NAB paid out dividends estimated at $884 million, down from $2.4 billion a year ago.

So shareholders may end up missing out on $7.2 billion in payouts – although the door stays open to new decisions by some of the banks.

A total of 24 companies (15.5 per cent of the sample) raised $15 billion in funds through institutional placements, share purchase plans or a combination of the two methods. Generally companies made institutional placements with the announcements on the final size of the equity or debt raising made the following day. Results of the share purchase plans (largely to retail investors) have typically been announced around a month after the offers were made.

Bloomberg and the ASX maintain data on capital raisings but methodology differs. Data from Bloomberg indicates that Corporate Australia had raised over $25 billion from investors from March-June with the peak month being April ($14.5 billion).

ASX data on capital raisings only extends to May. But in the twelve months to May, ASX estimates that secondary capital raisings alone totalled $61.3 billion – not surprisingly this is the highest twelve month total in a decade.

In addition companies outlined various strategies to respond to the crisis. Typically this involved cost reductions, scaling back or deferral of capital expenditure (includes Oil Search, Santos, Sydney Airport), staff reductions or layoffs (Star Entertainment). In some cases companies announced that staff, executives and/or directors had agreed to remuneration reductions or a reduction in the work week to assist with meeting the challenges posed by trading during the COVID-19 economic shutdown (Reliance Worldwide, Monadelphous).

What are the implications for investors?

Corporate Australia has certainly not panicked. And there hasn’t been a uniformity of approaches to the COVID19 crisis. Listed companies have taken decisions that have been appropriate for their own circumstances – as investors would hope.

While a third of companies withdrew guidance, the companies tended to be in those sectors most adversely affected by the crisis such as education, travel, hospitality, property and retailing.

A number of companies sought to raise capital. There was no uniformity in terms of the institutional or retail response. Some issues were well over-subscribed, others under-subscribed, depending on issues like pricing, market conditions, strength of the company’s financials and the industry sector of the company.

The upcoming earnings season will be one of the most interesting reporting periods in the past decade. While companies generally sought to support shareholders over March and April by going through with planned dividend payouts, future payments are much less assured as companies assess the right strategies for their circumstances. Certainly analysts and investors expect a similar drop off in dividend payments to that of the global financial crisis as shown by the 12-month forward estimated dividend per share for ASX 200 companies.

Companies have proved to be alert, not alarmed. Investors need to adopt the same approach through late July and August.

Published by Craig James, Chief Economist, CommSec