UK: Pub groups face pension deficit risk
UK pub companies face an increase in pension fund liabilities, analysts have warned, adding to pressure on the sector.
The under-funding of corporate pension schemes combined with the disappointing performance of equities over the past few years means that cash contributions will have to increase, according to analysts.
"This will need to happen at a time when company cash flows remain under pressure and could impact their ability, near term, to reinstate dividends or return to expansionary mode", Altium Securities said in a note today (24 April).
For those companies that have already curtailed or temporarily halted dividend payments, increased pension contributions could signal delay to a timely return to previous dividend payment levels, the analyst group said.
"Alternatively, companies could place assets such as unsecuritised freehold pubs into the pension schemes to provide greater asset support. Whilst this would alleviate pressures on cash flow, it would reduce the NAV of the business and equally impinge on shareholder value."
On a more positive note, Altium said Fuller Smith & Turner, which as recently acquired a batch of pubs, is one of the few pub companies that has the financial flexibility take advantage acquisitions.
"However, this capital expense in addition to the potential increase in pension payments could curtail its aims of acquiring further attractive assets. That said it's pension plan is not of a large size, is sensibly invested and is based on prudent assumptions and hence any potential increase in contributions may not be material."
Figures from the British Beer and Pub Association (BBPA) show that an average 39 pubs are closing every week and beer sales are at their lowest for 70 years in the UK. A decline in spending power during the recession has also hastened a shift from the on-trade to drinking at home, the BBPA has said.
Sectors: Beer & cider
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