FTSE slips back, and the latest trend after dividend suspension and fund raisings is cutting director pay

“It’s a quiet end to the week with ‘only’ a 1% decline in the FTSE 100 to 5,424. Companies are continuing to adapt to the crisis and find ways to cut costs and strengthen their balance sheets as they shift to survival mode,” says Russ Mould, Investment Director at AJ Bell.

“Oil producers Royal Dutch Shell and BP gave back some of yesterday’s gains, while insurers were among the biggest fallers on the London market amid increasing pressure for them to cut their dividends.

“Among smaller companies, Clipper Logistics won a contract to provide a new supply chain for NHS personal protective equipment.

“Brent Crude oil held steady just under $30 a barrel following yesterday’s surge in the commodity price. Gold was also firm at $1,607 per ounce."

Executive Remuneration

“There are some distinct trends forming in the market at a rapid pace.

“The trend to suspend dividend payments has only taken a few weeks to spread across all sizes of listed companies in the UK including more than a fifth of the FTSE 100 pausing the cash payment to shareholders.

“The next trend to emerge has been companies issuing new shares to shore up their balance sheet. The likes of SSP, Joules, Auto Trader and Hays are among the businesses now receiving very large sums of cash to tide them over during difficult times, and potentially put them in a stronger position to act on strategic opportunities once the crisis has abated.

“Now we’re seeing company directors accept pay cuts temporarily to help their business, the latest of which is Primark owner Associated British Foods. Its board believes taking a pay cut is appropriate given that the business has considerably lowered its earnings expectations for the year.

“Directors taking a pay cut is the right thing to do, particularly if there are staff furloughed and receiving less than they normally would. It sends the message that everyone is in it together rather than just some of the workforce suffering the pain.

WPP, Taylor Wimpey, Ryanair, Frasers, Chapel Down and Rentokil are among the businesses where some directors are either taking pay cuts or bonuses have been slashed. One should expect this list to be considerably longer in a week’s time.”

These articles are for information purposes only and are not a personal recommendation or advice.

The daily market update is written by Russ Mould, AJ Bell’s Investment Director and his team. The article highlights the movement in the main index, winners and losers on the day and any macro-economic announcements.