Precision and hydraulic engineer IMI (IMI) has scrapped its dividend and pulled forecast guidance as the coronavirus pandemic forces companies and analysts to rip up previous expectations.
The decision to axe the dividend would save the company £71m in cash, so it looks like a sensible measure given the state of uncertainty facing the FTSE 250 company.
IMI also outlined other cost saving measures in its attempt to preserve cash in anticipation of tougher conditions ahead. These included a hiring freeze in all but exceptional circumstances, reduced discretionary spending, and cuts to capital expenditure budgets.
SUPPORTIVE INVESTORS
Shares in IMI stayed reasonably firm despite the payout disappointment, nudging just 3.6p lower (0.5%) to 720.4p. The stock had been changing hands at over £11 before the virus sell-off kicked in.
Interestingly, the board and executive team have also agreed to swallow a 20% salary reduction from 1 May. That pay cut will run until at least July, and perhaps longer, the company said.
But management had reassuring words on trading for shareholders, saying that the ‘impact on our trading to date has been relatively modest,’ although IMI did go on to spell out the ‘significant volatility within our market environment,’ which it believes makes today’s actions prudent.
‘The disruption from Coronavirus to our businesses in the first two months of the year has been relatively modest - with sales and orders being slightly ahead of our earlier guidance. Margins and cash flow remained strong,’ the company said.
ROBUST FINANCES
IMI also reported being in a ‘strong financial position’, news that will come as a relief to shareholders.
‘As at the end of February, the group had immediately available liquidity of £393m, comprising £19m of available cash, £293m of undrawn committed bank facilities with our six core relationship banks, and an additional £81m of undrawn uncommitted facilities,’ IMI said.
The company also said that long-term debt of £363m is at fixed rates and, aside from £11m due in 2022, matures in 2025 and beyond.
IMI will next update investors on 7 May when it has an interim management statement pencilled in.
