Member Info for Hounddog10

Notified to the company on 21 June …….

The 50% reduction is just on distribution costs - about £400k last year. It was artificially high because post covid shipping was very expensive as everyone was chasing scarce shipping and the ports had not got back to normal to efficiently unload meaning slow turnaround times. These kinks in the system have now gone. Also for their Middle East business they used to manufacture in the Far East and ship but now have a local factory. So trucking costs only.

Mainly the Eurobond market.

IPR

Yes I agree that it is very difficult to know the next election. However, Labour are way ahead in the polls, look highly likely to reclaim needed Scottish seats and I think many people will be economically hurting soon. So my guess would still be Labour. The Conservatives have simply not pursued any Conservative policies - which is the problem Labour has in distinguishing itself. However, I am not sure they will last very long. I think the gilts market will do for them.

Stagecoach

You cannot rule anything out but the North Sea tax has not gone very well and a windfall tax on the banks will not raise much money so it will not make a difference to Tory short term fortunes. It would also be a slightly strange thing to dent the banks’ capital bases when the countercyclical buffer is shortly to be hiked by 1% CET 1.

As with IPF I am somewhat resigned to a windfall tax (by Labour). Although the Conservatives could go for an early election we are probably on for the more conventional timetable of autumn next year. So Labour will have a first budget in 2025.

One factor that may help is that the City is doing badly at the moment with listed companies going private/taken over and a dearth of IPOs. HSBC and Stanchart in particular have no real reason to be in London (HSBC I think has its HQ location under review every five years) and any upping of tax may cause them to depart. Personally, I think they will go eventually whatever. It would be a bad look for Labour (and a loss of regular tax flows) if they triggered that.

The banks already moan that they are taxed (at 28% plus banking levy) more heavily than anywhere else in the world but I can see Labour doing a windfall tax as a performative gesture as, so far, they don’t seem to be able to settle on any major policies.

In any event the market will worry about it. I don’t think the markets, particularly the gilts market, has really put its mind to what a Labour government might mean for the UK economy.

This is going on in the background. They are trying to get a global treaty by 2024. Huge amount of disagreement. There is the usual eco mob trying to ban plastic and those thinking that recycling is the answer.

Note the countries in the article that don’t want global rules imposed on them. It includes Saudi Arabia and India. There must be some hope that they will defend their position by saying we require a d2w type additive in our plastic. I just cannot see the oil rich countries or poor countries adopting anything other than the cheapest, most expedient measures. It will take decades to build meaningful recycling capacity in these countries and engender a culture of recycling (even if you think recycling is the answer). However, the chances of anything much sensible coming out of such a treaty are quite low.

https://www.politico.eu/article/un-global-plastic-treaty-talks-limp-despite-blockade-oil-rich-countries/

I did some work in India in the past so I know a little of the culture. Implementation of this type of legislation (plus enforcement) is what India is extremely bad at and is something that could quite easily take years. There is a tendency to get a rule out and then try and get consensus (always difficult in such a big country) rather than the other way around. So I am not that hopeful.

Although India would be a big leg up for SYM in terms of profile it is not that important near term financially - as it is aJV with SYM having only 46% and any profits in India get taxed at around 30%. I suspect margins also would be lower than the normal c40%. Every Rupee counts in India.

I think rather more important to SYM currently is the Middle East which seems to be going rather well and they anticipate to grow strongly this year. Whether the strong growth is more Laurier flannel we will have to see. They have also said that revenue in the Far East and South America showed more signs of stability.

They have been in the Middle East for a long time and in quite a few ways it has many of the difficult characteristics of doing business as India. It has taken time. However, it seems they may now have secured a decent footing.

I think now is a very favourable time for a predator to move in:

- Singida in commercial production but yet to see it in the figures (and really won’t until full year);

- CEO in transition. Also new CFO;

- Mine plan for WK not yet publicised but has been substantially worked upon. Financing unclear. So WK, although an exceptional asset, yet to contribute much, if anything, to the share price;

- Likely favourable drilling results to come out for WK and others;

- Major shareholder in turmoil.

I hope they don’t get us too cheap.

What sunk the DB schemes was Mr G Brown’s raid on pension funds in his first budget in 1997. He abolished the dividend tax credit for pensions. He had seen that the DB schemes (overwhelmingly in the private sector, as most of public sector pensions are unfunded) had built up substantial surpluses on the back of strong stock markets and he wanted to get his paws on in it by stealth (the impact of abolishing the credit would gradually accumulate over time and so would not be immediately apparent). He was strongly warned at the time that it would lead to pension fund deficits and the eventual closure of DB schemes.

The effect was not noticed at first because stock markets continued to rise on the back of the internet boom, leading to rising pension fund assets. However, when inevitably the boom ended in bust deficits emerged. RM went from a £2.6bn surplus in 2002 to a £4.3bn deficit in 2003. From 2004 chunky deficit reduction payments were made until 1 April 2012 when the government took over the outstanding £3.7bn deficit. The deficit reduction payments might have sorted out the deficit if it was not for near zero interest rates sending pension fund liabilities skyward. That was the final mail in the coffin for DB schemes.

I myself was in a DB scheme until around 2010 when it went DC and had very similar views around closing the scheme after a pension holiday. However, I was told by those negotiating with management (and much more knowledgeable than myself) that the pension holiday was not the main cause of the deficit. They managed to get us a couple of years of enhanced contributions at the start of the DC scheme.

@Isle

The pensions holiday would have been in relation to the scheme that was taken into government hands on privatisation so you have suffered no loss there (up to the ever suffering taxpayer to fund the deficit).

It is really inconceivable that the RMPP scheme (which is what we have been discussing) will ever suffer a deficit again. It has on a very cautious actuarial basis a surplus of £1.1bn on liabilities of £3bn. It is almost entirely hedged ie if assets go up or down liabilities go in the other direction. The only basis on which the Trustees would have allowed the release of the c£190m collateral is if it was uber safe. It is their necks on the line.

Where you have lost out is RM being privatised otherwise you would have cantered on with a defined benefit (career average) scheme in the public sector. It is a quite disgraceful difference between the private and public sector and public sector pensions have the capability to bankrupt the country. They will have to go defined contribution at some stage.

Looking at the relevant accounts the c£190m escrow cash was generated through operating cash flow from operating profit. For comparison shareholders in that year only got a dividend of slightly over £200m.

Some points:

- The escrow arrangements are outside the RMPP pension fund. Best thought of as additional cash collateral for the fund;

- The cash has become available because the recent sharp rise in interest rates will have dramatically reduced the RMPP’s pension liabilities so securing the existing surplus;

- The c£190m escrow cash is hiding in plain sight on the face of IDS’s balance sheet and has been fully disclosed;

- The £70m is not going into the RMPP, which is fully funded, but into the latest, newest pension fund which has not been fully constituted yet.

Overall it seems a fairly sensible use of dead money. It was only available for “fund members” (per the accounts) and not RM. Goldfinger raises a good point as to the fact that some non members will benefit from the £900. My guess is that technically the escrow cash was only available to members to the extent it was needed to repair any deficit. If there is no deficit the Trustees could agree to its release but it would have been politically and otherwise difficult to release it for general RM corporate purposes rather than to largely benefit members.

There is also about (from memory) £20m of escrow cash against the executive pension scheme. This has now been bought out - taken on by a buyout fund. Posties will be glad to know that the £20m is going into RM for general corporate purposes and not benefiting any of those pension scheme members.

I wrote about this in more detail in a 20 May post when the pension idea was being floated. I had guessed they would likely go for the escrow cash because getting a surplus out of a pension fund is very difficult and you get a hefty tax charge.

It is largely forgotten now but the trigger for pension funds going into deficit was a certain Mr G Brown’s abolition of the dividend tax credit that pension funds received. Classic Brown/Labour - short term money grab, long term consequences. There is a certain irony that after two decades of painful deficit repair with things now largely fixed Labour are limbering up for another raid on pensions. They know they cannot borrow more (viz Truss) or tax more given sky high taxation so it is no surprise they have alighted on DB schemes to fund their only economic policy which is to spend. The problem is that they have a terrible record on the results of their spending.

However, broadly I would be in favour of more equity investment by DB funds - but not forced upon them by govt dictat, which usually ends up with unintended consequences. It has always puzzled me that such a risk averse approach was taken, but I guess management tends to be only there for the short term and cannot afford a longer term view. However, one thing to remember is the DB funds are almost entirely closed and the bulk of the liabilities of these funds are only over the next twenty years or so. So the assets in the funds will also run down quite steadily.

The other aspect of this is what happens to very large DB schemes such as BT, Lloyds. I think many smaller schemes which are in surplus will be/are being bought out. They are too much hassle for CFOs. However, for much larger schemes it could be worth hanging on to them. There is a lot of actuarial caution in the numbers and as pensioners pass away or get older there is greater certainty on the liability side and that caution can be released. This, of course, is the business model of the buyout funds. Also, once a bit of a surplus is built up the scheme can afford to go into higher yielding more risky investments.

An announcement imminent?

Perhaps the two most important figures in the last financial release was that the elimination of 10,000 FTEs would save RM £300m per year but that the new pay deal, which the posties hate, will cost RM £350m per year. Staff costs are still going up.

There was a block listing of 525m shares (for staff remuneration) announced on 22 May which was to become effective on 24 May. I think websites like this are a bit slow to adjust the share count and have only done it in the last few days. It does not seem to be a priority.

Asperger. On distribution of surplus profit it is a little more complicated than simply looking at surplus profit. They also have to “spend” on stuff outside the p&l. So taking your figure of £6.5bn surplus which I am inclined to agree with (although I think analyst consensus is a fair bit lower - what do they know?) Lloyds will, before shareholders get any of it, have this year to put money into:

-£800m curing the pension deficit. They are hoping that is it on the deficit;

- several hundred million (can’t remember exactly how much) because the final bit of regulatory capital relief on loan loss accounting has gone;

- £1.5 -2.0bn on extra 1% CET 1 on building up the counter cyclical buffer. That has to be done by early July.

So say £3bn in total (but they had surplus capital coming into this year - can’t remember how much, say a billion or so - so knock it down to £2bn)

So this is a very, very rough analysis of where some of the surplus capital has to go this year. The good news is that this should be it and after from early July onwards you can (more or less) look at the p&l surplus capital as being what is available to distribute to shareholders.

It should be much clearer at the half year. I am hoping that they will give a pro forma figure of what surplus capital they have taking account of the need to increase the counter cyclical buffer just a few days after the 30June half year end.

Wrong link - try this.

https://youtu.be/2GEgcYiYH_s

New webinar. Make of it what you will (this is SYM after all). Some points:

- Laurier says that the Middle East will never move to compostables/cardboard to solve the plastic problem. I am sure that is right - they are oil based.

- Waiting for Indian regulatory approval on products for the JV. He seems optimistic. I have done work in India and know the bureaucracy can be very difficult but maybe this is something they will move on (but most regulation is state by state)

- Eranova, the algae product. He seems (surprisingly) rather bullish on that. I had seen that in the prelims and was rather surprised. I think Eranova are looking to open up a new plant in Indonesia.

https://www.proactiveinvestors.co.uk/LON:SYM/Symphony-Environmental-Technologies-PLC

Might they slip something out at the end of today? They are running out of time. Even if they announce some d2p contracts shortly no product will be shipped by 30June (the date by which they are forecast to get to a £14m annual run rate). So why are they not updating the market that their forecast no longer stands? Is it that they have got there with existing d2p customers and d2w? Or is that they just don’t want to get the bad news out? The Nomad should be doing something if they are already massively adrift of forecasts.

To add, they can of course during a bid period increase their offer to get the necessary acceptances but once it is put to shareholders and rejected the offer lapses.