BAE pension deficit raises disclosure fear

Analysts are calling for greater disclosure of pension deficits after BAE
Systems’ interim results revealed a pension fund deficit that had risen to

Under IAS19 accounting rules, BAE’s group share of the retirement benefit
scheme deficit rose to £4.1bn from £3.2bn, surprising analysts and hitting the
share price.

BAE remained unfazed. ‘You can reduce that by a billion immediately because
that is split between the joint venture companies – 20% of Airbus, 37.5% of
MBPA, 20% of SAAB etc,’ said a BAE spokesman.

The company’s reported £2.4bn deficit on its main scheme was blamed on
discount rates, which contributed £1.6bn, and a decrease in the mortality rate
of pensioners, contributing half a billion.

‘Investment returns of the year were 21% offsetting £1.1bn of those increases
with the net of all other movements contributing a further £0.1bn,’ the BAE
spokesman said.

BAE has a reduction plan in place to take down the deficit by about 50% in
the next 12 months, including a one-off injection of £350m into the pension

Analysts were confident that BAE could dig itself out of the hole, but were
less confident about other listed companies being able to deal with serious
rises in pension deficits.

‘There is a huge gulf between companies like BAE that generate very large
amounts of cash flow and have a reasonable proportion of active members, and
companies that are not on the scale they want to work, like ICI and Aventis,
which have a lot of deferred members or retirees,’ Harry Breach, an analyst at
JP Morgan, said.

Breach said the problem was compounded by the IASB failing to force companies
into providing adequate pension disclosure. ‘That is the real market issue. We
need better disclosure because this is a significant claim against shareholder
equity companies, and we just don’t have enough information about it,’ he said.

Breach is particularly concerned that IAS19, which is based on FRS17
retirement benefits, has not had enough of an impact. ‘It has been nowhere near
the step change we saw with FRS17 SAP24, which took a big theoretical leap in
the way companies disclosed and valued pension funding for financial reporting

A spokesman for BAE played down the impact of the standard, saying: ‘In the
context of the actuality of paying the pensions, IAS19 is not what matters, it
is merely a snapshot.’


Britain’s Hilton Group has decided to sell its hotel division, but has
been unsuccessful in its attempt to return the cash to shareholders, without
leaving some of them facing a hefty income tax bill.

Hilton will pay a special dividend of up to £4.2bn – the biggest in UK
corporate history – as a result of the group’s £3.3bn sale of its hotel wing to
American cousin Hilton Hotels Corporation. This means it will begin trading as a
stand-alone gambling business, Ladbrokes, run by chief executive Chris Bell.

Rosemary Thorne, Ladbroke’s new finance director, said she tried to find a
way for the shareholders to receive the payment as capital, but because of the
size, it would be unlikely to be nodded through by HM Revenue & Customs.

Padraic Fallon, the chairman of Euromoney Institutional Investor, was
the best-rewarded director on the Daily Mail & General Trust board last
year, with emoluments of £2.36m.

On top of his £221,000 salary and benefits, he received £2.14m from a share
in Euromoney’s pre-tax profit, under a scheme linking executive directors’ pay
to the publisher’s profits.

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