Of all the NZX listed companies that have in house pension plans, I don't know of one in a worse position than the PGG Wrightson plan. It has been underwater for the entire existence of PGG Wrightson. The ten year picture is shown below.
In the table below, I am effectively looking at the pension schemes as a 'black box' and observing the cashflow that comes in and out. The information in this table can be found in the respective annual reports under the header "Defined Benefit Asset/Liability" (e.g. Note 20 in AR2017).
PGW Pension Plan(s) External Cashflows
Financial Year |
Pension Plan Deficit EOFY |
PGW Contribution {A} |
Members Contribution {B} |
Total Contribution {A}+{B} |
Benefit Paid {C} |
Net Cash Movement {A}+{B}-{C} |
2009 |
-$13.680m |
$1.709m |
$1.556m |
$3.265m |
($11.111m) |
($7.846m) |
2010 |
-$18.206m |
$3.127m |
$1.651m |
$4.778m |
($5.631m) |
($0.853m) |
2011 |
-$16.970m |
$3.622m |
$1.378m |
$5.000m |
($4.980m) |
$1.398m |
2012 |
-$26.264m |
$2.727m |
$1.363m |
$4.090m |
($3.819m) |
$0.271m |
2013 |
-$20.819m |
$1.402m |
$1.364m |
$2.766m |
($6.412m) |
($3.646m) |
2014 |
-$13.528m |
$1.427m |
$1.337m |
$2.764m |
($4.709m) |
($1.945m) |
2015 |
-$14.665m |
$1.301m |
$1.300m |
$2.601m |
($5.304m) |
($2.703m) |
2016 |
-$20.715m |
$1.204m |
$1.254m |
$2.458m |
($3.482m) |
($1.024m) |
2017 |
-$12.271m |
$5.920m |
$1.199m |
$7.119m |
($6.010m) |
$1.109m |
2018 |
-$7.722m |
$3.011m |
$1.170m |
$4.181m |
($8.914m) |
($4.773m) |
2019 |
-$5.883m |
$8.455m |
$1.268m |
$9.723m |
($14.044m) |
($4.321m) |
Bold Total |
|
$17.386m |
|
|
|
|
Why have I highlighted the contributions of PGW to the pension plan over the last three years only? In the FY2017 report, PGW states:
"Previous expensing of the return on plan assets for the 2014 through to the 2016 year (Snoopy note: if this 'expense' ends up being negative then profits increase) have now been recognised through other comprehensive income."
So for the years 2016 and older, the money that PGW have pushed into supporting the pension plan has been taken out of the headline profits. To show what has happened, 'Basic Earnings Per Share (Continuing Operations)' was listed as 5.3cps in the AR2016 'Statement of Profit & Loss'. Yet the equivalent comparative figure, also relating to FY2016 in AR2017 was 5.8cps. This difference was solely due to the removal of a $5.835m 'Remeasurement of Profit and Loss' (offset by a $1.634m 'Deferred tax on remeasurements of defined benefit liability') making a net -$4.201m 'item that will never be classified to profit and loss'. [see my post 4135 on this thread for more detail]
Yet this $4.201m pension plan propping is 'real cash' that otherwise would have been available to shareholders to pay higher dividends, or shore up the capital position of the company. If we study the cashflow statements for the last three years, the actual cash required to prop up the pension plan is more than finds its way into the pension plan:
|
Cashflow Lump Sum Contribution to Plan {A} |
Contributions paid into Plan {B} |
{A}-{B} |
({A}-{B})/{A} |
2017 |
$7.551m |
$5.920m |
$1.631m |
21.6% |
2018 |
$2.842m |
$3.011m |
-$0.169m |
-5.9% |
2019 |
$10.274m |
$8.455m |
$1.819m |
17.7% |
Total |
$20.667m |
$17.386m |
|
|
I do not understand why the 'cash flow attributed to propping up the pension plan' is not the same as the 'contributions paid into the plan'. Anyone know? But whether the cash lost by shareholders doing this is $20.667m or $17.386m, it is still a lot of money. The lions share of PGWs base bank debt of $30m going forwards in fact.
Still, at least this hidden cash drain behind the scenes has shored up the pension plan at long last -right?
Unfortunately not, because the ten year government bond rate, a key driver in calculating the required pension fund asset position since the balance date of 30th June has declined further from 1.69% to 1.23% as I write this. Also the earnings capacity of the company has approximately halved due to the sale of the seeds division. That means the record low pension scheme deficit of $5.883m (approximately $6m) will still require an equivalent percentage of profits to be raked off as the $12m deficit at EOFY2017. And that means, after approximately $20m has been spent propping up the pension plan, the effective position of the pension plan for PGW shareholders now is no better than it was at EOFY2017!