Charles Jillings, CEO of Utilico, energized by strong economic momentum across Latin America. Watch the video here.
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Some facts about BTPS for those who are interested
https://www.btpensions.net/assets/uploads/documents/BTPS207_Report_Accounts_30Sep2020-V11.pdf
As of 30/6/20
Assets £57.5b
Members 280004
Funding level. 88%
Investment return year end 30/6/20. 9.9%
Benefits payed out year up to 30/6/20. £2.5b
Also people who are not familiar with BTs pensions, this relates to the DB sections that were closed to new membership on 31/3/2001 and closed in 2018 staff being then moved into other products. So in effect the BTPS has not had any new members since 2001.
Hope this assists those who either wish to understand it more, and informs those who simply see it as a general stick to hit BT with when they do not know the full facts...
Additionally let me know please what business that has circa gbp2bln profit with now fwd looking growth outlook and valued less than gbp10bln ie 5 times pe. Dividend being brought back in a year time with yield of 7.7 per cent as starting point, debt reducing slowly.
Govt int rates zero to negative.
Am I missing something apart from pension conspiracy theories vs other equity valuations which are also cheap at moment outside tech?
I don’t think they can get worse if you understand the make up of the portfolio and how the liabilities are valued.
Ie most of bt pension is in govt bonds which offsets about 50/60 per cent of liability risk. Rest is in corporate bonds Property and equities.
Same time if Traditional economy absolutely gets trounced further causing equities to go lower, the pound will take an absolute hammering too, due to its debt mountain that it now has, which reduces the liability in Sterling terms.
The risk reward from here in pension deficit improving is majorly in favour of improving by a long shot. As long as by trustees don’t play around with their investment balance too much as to me they have the correct balanced risk profile vs liabilities. However, they currently are being valued at the worst time, especially with global equity dividend yields low at this current time
,If I could I would get out of this Share.But would have to take a big loss.It is the worst share I have ever got into.The best thing that could happen is a Takeover.Maybe that is the way it's been manipulated for such an event.This should not have entered the realms of a Penny Share after the results and dropping from 1.11 to 0.99. I would also say that the Stock Market is as corrupt as the rest of the goings on in this country.The ex boss of the Mafia has said that the UK is one of the most corrupt countries in the world.I wouldn't argue with that .Where to now with SP, you give up thinking.
The pension fund deficit can get an awful lot worse. I think this is part of the reason the shares are valued so low.
The pension deficit almost cannot get any worse as the liabilities are based on global yields and therefore are valued like cost of an annuity. Ie no one in their right mind would currently buy an annuity as to get inflation linked pension of just gbp2k pa would currently cost you gbp130k in cash from your pot.
Therefore the pension valuation going forward can only get better. So to have so little deficit on a gbp55bln pension pot is not going to hinder bt in medium / long term
"With pensions, you want to know how quickly the pensioners die off, or mortality rate.
In normal times, you look at the ages of the already retired, and future annuitants,
and come up with a cashflow plan. Note that COVID-19 tends to accelerate the deaths.
A good thing if you want to reduce the pension deficit."
Unfortunately I think COVID will have little impact on reducing the deficit. These days DB schemes take out Longevity insurance which aims to minimise any fluctuations in mortality rates (the pension fund gets payouts from the insurance if members live longer or pays the insurer if members don't live as long ). Remember the fund is trying to fix as many variables as it can to cost out future liabilities accurately.
"International Accounting Standards (IASs) dictates that you have to work out your figure the same way as everybody else."
I don't think this is correct. My understanding is the discount rate used to calculate the pension fund liabilities is based off of AA corporate bonds which leaves a lot of scope for which figures are used as the yields on AA bonds vary significantly.
Fortunately BT uses a very conservative figure vs other DB schemes and is more likely to be true picture of what is going on.
Generally speaking all DB schemes are a ticking time bomb right now and I feel one should be wary investing in any company associated with them. Rest assured these will be making the wrong kind of headlines over the next few years.
"Now can someone explain to my layman brain in simple terms why pension deficit shot up x4 since March? Did they find some dirt under the carpet?"
International Accounting Standards (IASs) dictates that you have to work out your figure the same way as everybody else.
If Donald Trump was to give you a figure, you know he did not do it by IAS (=IFRS) rules.
He will say the pension deficit is peanuts, because that's what you want to hear.
With pensions, you want to know how quickly the pensioners die off, or mortality rate.
In normal times, you look at the ages of the already retired, and future annuitants,
and come up with a cashflow plan. Note that COVID-19 tends to accelerate the deaths.
A good thing if you want to reduce the pension deficit.
Now, is £100 in 40 years time the same as £100 today?
If your cashflow plan says you have to pay out £1m in 40 years time,
it's not a liability of £1m today. They have to consider the compound interest effect over the 40 years.
The discount rate works by assuming you can get 5% (say) return. so if you invest £142,046 today,
you will have £1m in year 40 to pay out to all those malingering pesky pensioners.
You then work out what the pay out in year 39, 38, 37, etc, and the sum of their present day values can be considered the pension liability.
A good conscientious accountant doesn't do all this and more because he wants to do a thorough job,
but because if he doesn't he will lose his professional accreditation.
I assume IAS conformance is a lot more annoying than the two paragraphs above.
For example, you have to pay all the salaries of the pension department, which also has rent, computers etc.
I also find it amazing how accountants don't gnaw their own feet off, and jump out of the nearest window.
Ah, so that's why those high rise buildings have glass walls you can't open.
lagarde and the bull**** ecb statement
Did ofcom just say something? I thought these results were amazingly good, much better than I’d hoped for. Can’t believe my eyes it’s now in the red. Is what it is I suppose
This mightn’t help but basically the objective is to match cash flows and ‘immunise’ the investment portfolio against inflation. So in year 28 for example the cash from investments - through dividends, coupons and redemptions - match the payouts from the plan as closely as possible. This works best with government bonds because when inflation increases the value of the bonds decrease but so does the pension liability. And vice versa. It is ‘immunised’. Importantly the assumption here is that the gov bond is risk free and the shape of the yield curve stays the same.
But with the property, corporate debt, equities - there is more to it than inflation because default risk or corporate risk is also a factor. This will have risen. So although some of the corporate debt will be worth more because yields have decreased, the rise won’t be enough to offset the rise in liabilities which will have occurred similarly from lower interest rates.
This fake example may help;
Before Covid:
Liability - 100
Assets - 100
Deficit - 0
Interest rates - 10%
Risk of default - 5%
Now
Liability - 200
Assets - 195
Deficit - 5
Interest rates - 5%
Risk of default -10%
The halving of interest rates doubles the value of the assets and liabilities all else being equal...but it’s not all equal sadly cause the cash flows of those assets are now riskier given corporate profits, commercial property tanking etc etc.
Sorry if that’s not very clear.
I don’t think the pension deficit is anywhere near as important as headcount going down by 5% or churn being low or OFCOMs review fwiw
"A bit disappointing to see the share price fall back from such a strong start first thing this morning."
Doesn't surprise me to be honest. BT wont climb until certain vested interest market players decide to allow it too, imo. I suspect MM's and big players are the ones setting prices of individual stocks these days. Many will say that's impossible with a large cap stock, but would it be that difficult with algorithmic trading? Probably as easy as entering a figure on a keyboard and letting the algo's work their magic and still make money off the trades.
Nacho2.......... "Now can someone explain to my layman brain in simple terms why pension deficit shot up x4 since March? Did they find some dirt under the carpet?"
I'm no pension expert, far from it. BT have 22% of their pension in equities, I would think that there must be more to it than that. Perhaps someone more knowledgeable than me would like to explain as to why such a large increase. From memory I think that EmmJane did speculate that she thought that the deficit may well increase to £5 Billon, this looks like a very good shout a few weeks ago.
This is a reminder of what BT pension looks like.
Government bonds 29%
Equities 22%
Investment grade credit 27%
Other growth assets 13%
Property 9%
Fleccy......... "On the Bright side it's nowhere near the £9 Billion forecast in many articles."
Too true mate, some articles were saying as high as £11 Billion. I wonder if these future news articles will admit that they got it wrong, and now start and print more favourable news on BT? I won't hold my breath on that one. A bit disappointing to see the share price fall back from such a strong start first thing this morning.
Great work NigeCo, thanks.
Now can someone explain to my layman brain in simple terms why pension deficit shot up x4 since March? Did they find some dirt under the carpet?
The pension deficit is higher than I expected. I was hoping lower than 2 Billion, but expected no more than just over £3 Billion. On the Bright side it's nowhere near the £9 Billion forecast in many articles. The completion of the Triennial review, next year, is the really important news imo. The Triennial review will give a clearer picture of liabilities, assets and the level of required top-ups going forward.
Now found it.
"Pensions (Note 7 to the condensed consolidated financial statements)
The IAS 19 pension position at 30 September 2020 was a deficit of £4.0bn net of tax (£4.9bn gross of tax), compared
with £1.0bn net of tax (£1.1bn gross of tax) at 31 March 2020. The increase in the gross deficit of £3.8bn since 31
March 2020 mainly reflects a fall in the real discount rate, partially offset by higher than expected asset returns,
deficit contributions over the period, and a change of methodology used in the discount rate model."
Now found it.
"Pensions (Note 7 to the condensed consolidated financial statements)
The IAS 19 pension position at 30 September 2020 was a deficit of £4.0bn net of tax (£4.9bn gross of tax), compared
with £1.0bn net of tax (£1.1bn gross of tax) at 31 March 2020. The increase in the gross deficit of £3.8bn since 31
March 2020 mainly reflects a fall in the real discount rate, partially offset by higher than expected asset returns,
deficit contributions over the period, and a change of methodology used in the discount rate model."
*debt
The results presentation slides say IAS 19 deficit of £4.0bn net of tax at 30 Sep - up £3.0bn since 31 March 2020.
They also say Net financial dept of £11.3bn which I presume is the part of the debt not related to leasing of buildings etc.???
"Pension deficit increased (as expected) due to very low base interest rates (BOE 0.1%)
Increased by £3.8bln from £1.1 to £4.9bn gross.
Various options being considered to resolve the pension deficit ....."
I enclose above a comment taken from a poster on ADVFN BT discussion board regarding the BT pension deficit. I've looked through the H1 results and not come across any figures regarding the update regarding the pension deficit. With the pension deficit currently under review and not expected with the findings until 2021, I very much doubt the validity of the comment above.