Profits expected to drop by 20pc


ALL economies globally have seen significant contractions in economic activity which has resulted in a reduction of profits and dividends by businesses, according to Bank South Pacific (BSP).
A report showed that global firms dividend payments were expected to drop by 17.5 to 20 per cent this year.
BSP chief executive officer Robin Fleming told The National when responding to questions that the contraction is a result of the travel and movement restrictions imposed in many countries to reduce the risk of transmission of the Covid-19.
“As a consequence, the profits generated by many companies worldwide have reduced in comparison to previous years,” Fleming said.
“Given that dividend distributions is a function of profit generation and capital management, many companies are likely to pay lower dividends in 2021 than would have been the case this year.
“PNG is no different to other countries and many businesses will be reporting lower profits this year due to the difficult trading conditions.
“Some businesses will take a decision to preserve capital until the economy picks up and may not pay dividends for cash management and capital management purposes.
“Other businesses may take a different approach and maintain their dividend payout ratios at similar levels then previous years but as the profit generated will be lower the actual amount of the dividend will be less than previous years as well.”
Fleming said BSP paid a dividend of K0.96 per share in June on its 2019 audited profit, which when including the interim dividend, paid in October 2019, represented a payout ratio of 70 per cent, compared to a payout ratio of 75 per cent in 2019.
“We paid an interim dividend of K0.25 per share in October 2020, which was lower than the interim dividend of K0.38 per share in October 2019, due to a combination of a lower reported profit due to the reduction in our indicator lending rate of one per cent on April 1 and increased lending provisions in consideration of the impact of the Covid-19 on our customers’ businesses.”