H&M drops dividend spending plan after hitting too many hurdles

[STOCKHOLM] Hennes & Mauritz (H&M) 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 per cent higher, but fell back slightly before closing up 1.2 per cent.

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 Swedish 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 (S$82.33 million). 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 retailer by sales is trying to recover from a slump in sales and profitability as online-only marketplaces such as Zalando and budget retailers such as Primark Stores Ltd. grow more dominant.

H&M chief executive officer Karl-Johan Persson said on Jan 31 the Persson family had intended to reinvest its portion if the proposal moved forward.

BLOOMBERG