H&M drops dividend reinvestment plan
STOCKHOLM: Hennes & Mauritz AB has abandoned a plan to try to get shareholders to reinvest their dividends in new stock.
The Swedish fashion retailer said on Monday that the project proved too difficult, after the company encountered technical issues and ran up against time constraints.
An “investigation” into the plan showed it wasn’t really feasible, H&M said.
Shares initially jumped on the news, to trade as much as 1.9% higher, but fell back slightly before closing up 1.2%.
H&M said last month it was looking into asking shareholders to convert their dividends into new shares, in a move that was expected to strengthen the control of chairman Stefan Persson and his family.
Instead, the board will now propose that an unchanged dividend of 9.75 kronor per share be paid for the financial year 2016-17.
The payout will be made in two installments, one in the spring and one in the autumn.
Analysts said the idea to reinvest dividends into new shares would have provided H&M with the cash it needs to fix some of the issues it faces, both in its physical shops and online.
Over the past decade, the company has relied increasingly on borrowed funds. In 2017, H&M had net debt of 500 million kronor. That compares with net cash of about 25 billion kronor in 2010.
But from the perspective of smaller investors, the proposal held limited appeal, given the challenges H&M faces.
The world’s second-largest fashion retailer by sales is trying to recover from a slump in sales and profitability as onlineonly marketplaces such as Zalando SE and budget retailers such as Primark Stores Ltd grow more dominant.
H&M chief executive Karl-Johan Persson said on Jan 31 the Persson family had intended to reinvest its portion if the proposal moved forward.
If other owners don’t do the same, the family’s stake will increase.
Persson has already spent the past few years raising his position in H&M, leading to speculation that he may seek to take it private.
He’s repeatedly said that’s not his aim.