Member Info for Hounddog10

The hearing is first half of next year. A ruling will probably take six months. Then there is the possibility of appeals and, if won, a separate hearing to determine damages. I would not hold your breath on this. Although it seems SYM has a good case (and a simple one) I would not trust the EU court to be apolitical to a UK company in a post-Brexit world. They are an arm of the EU and have recently stiffed the remaining British judge on it. If they win and get decent damages it is a bonus.

The current investment case for SYM is uptake of their additives - particularly in bread bags. We wait hopefully for contract news.

Probably this.
https://youtu.be/tL1TNFWdM_c

Longtimeinvestor. Thanks for the summary. I am an outsider so added up the figures in the disclosures of the three relevant pension schemes and before I saw your post got to the same numbers. So we are going from £800m (2020) and £1,300m (2021) in the old deficit reduction plan up to (potentially) £2,000m in the new one.

However, there is a bigger point which, to try to keep it simple, I did not elaborate on previously. That is that the accounting figures which appear in the accounts can be radically different from the actuarial figures. At the moment the accounts are starting to show a pension asset even though actuarially the schemes are in deficit. This is the whacky world of pension accounting.

Previously if Lloyds moved cash (an asset) to reduce what was then a pension liability there was no effect on CET1 - just shuffling cash around. Prior to the beginning of this year the pension schemes were a net liability but they are now a small asset. So now if Lloyds shifts cash into a pension asset (thereby increasing it) there is a regulatory capital detriment because pension assets are deducted for the purposes of arriving at CET1.

So it is all getting a bit technical but in the current Lloyds world they are now in the situation where putting money into the pension schemes dents CET1 capital. Not the case before. As we all know regulatory capital is the constraint on distributions.

I stand to be corrected.

Longtimeinvestor. Not sure if you meant £1.3bn over 2021-24 or for each of those years. Without going back to the detail the previous deficit reduction plan seems to have been to have regular pension contributions increasing per year with a very sharp hike in 2021 (particularly for Lloyds No. 1 Scheme) and beyond. That was changed this April such that regular contributions were a good less but any distribution required 30p in the pound into the pension funds. In practice an acceleration.

So it seems that around £2bn could be going into the schemes per year (£800m regular, up to £1,200m re distributions).

At the half year they had already put in £900m (I think under the previous deficit reduction plan).

Whatever the exact maths the pension funds are going to soak up quite a bit of capital for the next three years.

Brixton. Honestly I don’t know. I do have a look at NatWest from time to time but do not follow it closely. I am mainly in Lloyds for the dividend and am long term. I think the bull points on Lloyds are:
- I think the worst on remediation is now behind Lloyds. They still have a tax case that might cost them £500m, more on HBOS Reading (say £400m) and they are likely to have to refund the sale proceeds on their share of Visa/MasterCard (say £300m). All probably over two years. NatWest by contrast has pages and pages of litigation/remediation issues in their annual report that might hit them.
- Lloyds has a much bigger branch network that can be cut (their strategy has been to have the biggest branch network in the UK - wrong in my view) and they have been less aggressive than NatWest in cutting branches and roles. Cash and cheques are disappearing very rapidly.
- Big scope for digitisation. They are just starting to move over their antiquated core systems to modern IT
- Obviously also higher interest rates and more wealth management fees on the revenue side.

Most of this plays out over the next three years but unless there is another black swan event Lloyds should throw off some decent distributions and probably is a much clearer business model than NatWest.

I see a lot of the potential value in Lloyds on cost reduction.

Hardup. I think the pension deficit is not nearly as bad as BT (I am not an expert on pension matters but as you might guess I am financially qualified). However, I think the Pensions regulator looks for deficits to be plugged the moment companies have the resources to do so. So here I think the logic is that now Lloyds has sorted out HBOS’s balance sheet, PPI, other remediation matters the Pensions regulator wants the pension schemes fixed. Lloyds does not really have any other call on it’s capital (except to give it to shareholders). BT has heavy capital commitments to fibre up to keep its business going so it is not so much under the cosh by the Regulator to fix things quickly.

I don’t think plugging the pension deficit is a huge issue for Lloyds but I was rather annoyed to stumble across (by accident) that it was much bigger than I thought.

Lloyds has three main defined benefit pension schemes (Lloyds No.1, Lloyds No.2, Halifax). All are in actuarial deficit requiring additional funding. The pre-existing plan, as agreed with the Pensions regulator, was to cure this deficit by 2024. Employer pension contributions in the scheme were to be very substantially hiked from 2021 onwards. I guess it was assumed that from 2021 Lloyds would have sorted out a lot of its legacy remediation issues -PPI etc, and so could afford more to fix the pension schemes.

This plan has now changed after the latest triennial review - concluded in April of this year. The regular contributions have gone down somewhat but there is now a new requirement that for every £1 distributed to shareholders (presumably either dividends or buybacks) 30p has to go into the pension schemes. This is up to a limit of £1.2bn per year. So if, as I expect, Lloyds has about £4bn of excess capital to distribute per year it will probably constrain it to around a £3bn distribution (the remainder going into the pension scheme). Still given m/cap attractive.

The regular contributions are £800m per year now - so overall I would expect about £2bn to be going into the pension schemes per year until the deficit is fixed - which will be once £7bn has gone in.

Sorry very difficult to explain adequately in a post (and very summarised) but it seems a good deal of capital will now go into the pension schemes for the next three years or so. I cannot see that Lloyds has explained this to shareholders (but perhaps the analysts know). It might, partly, account for the lower than expected interim dividend.

At 30 June 2021 Lloyds had 15.5% CET1 ratio (ignoring software and IFRS 9 transitional relief both of which will go fairly shortly). They say they aim for 12.5% plus 1% management buffer - -13.5%. So they have 2% leeway. Given current uncertainties I doubt they will use much of this leeway to distribute.

In H2 2021 I expect they will generate about £2bn of excess CET1 capital - about 3p per share. So if they already have a comfortable capital position they are likely to distribute most of that. My guess - over 1p and up to 1.5 p a share for the normal year end dividend and the rest a special dividend or more likely buybacks (which makes sense at the current share price). However, there is another area which will take capital. That is another post.

Thanks for that Trojan. I think one interesting part of the interview was that Laurier said that they seem to be getting much more traction on their d2w business. He also reiterated that they can sell d2p for much more than d2w (and I guess given recent FDA approval for triple loading of d2p loading rates can be much higher).

I think this 5m of shares/warrants is a “replacement” for the 5m extended warrants that lapsed in July. So it seems very much that Vincel wants in. At 25p strike the July warrants were only then slightly out of the money. Vincel would have been better off exercising them.

So we have two groups close to the business reckoning they can buy at value for 30p (Vincel shares), 35p over the next few months (Meditech can call on shares at that price) and 40p in six months (Vincel warrants). Seems to be establishing a trajectory.

“Recent drilling at both sites has added numerous high-grade intervals, both within and outside of previously modelled zones, indicating that there are other gold bearing structures which will be included in the next model and resource update.”

Fair point. Been in SYM for over 15 years and it has tested my patience and money. Only recovered my position buying at 2p/3p when the market thought it might go bust. Meant d2p (rather than d2w) where products only developed around three years ago and so they have been largely trying to sell them through the pandemic. Not easy when companies in hunker down mode.

Even on d2w where they have had huge problems with the (very unrealistic) Green lobby plus the bio (starch) plastics lobby they seem rather more optimistic.

Yes, got that as well. Investor Meet Company 10.30am. Must be the resource update going out tomorrow.

I understand there is a good deal of impatience here for contracts but Clavel (Chairman) has said that commercialisation of the bread bag additive and other d2p additives is expected in “the very near term”. That is a bold statement which I would hope has been suitably vetted by the Nomad and the non-execs. One of the non-execs is Bob Wigley, a very senior ex-Morgan Grenfell/Merills banker. One of his other roles is as a member of the FCA’s practitioner committee so I would imagine he would not be wanting to be involved in anything that tarnishes his reputation.

These contracts take a bit of time - trials, regulatory approval, going up the corporate chain for board approval, sorting out production, price negotiation, legals etc. In addition I would imagine the bread makers are having to get on board THEIR customers, being the retailers who can be very picky.

In my mind the very near term is in the next few weeks.

Not much new but seems all very positive for future substantial sales. I am inclined to believe them. Commercialisation activities seem to be moving ahead on a number of fronts. Court case hearing next year now that nearly all the initial written pleadings are in.

Yes, it is clearly creeping up. In the past this has been, as with many other AIM stocks, because of leaks about good news. I don’t know whether that is the case this time. It may simply be because some are betting ahead of disclosure in the interims. They are going to have to say something about the 100 trials which they have indicated should be coming to closure around now.

Redhill. I also had a number of around $20m in mind but it is $37m per the 5 year plan. It includes around $10m of pre-stripping costs which is shown separately. However, I don’t think that justifies the difference - that is a cost of the mine.

The 5 year plan is worth a read. It certainly reset my expectations on costs. However, I don’t think the higher costs are a big problem. I am sure they can get some short term debt if needed - but it may well be the case that, at the moment, Eric is banking on getting the past VAT back to fund Tanzania.

Once into 2023 they should be throwing off cash from the Tanzanian operations.

The capex of $15.4m was obviously in relation to 2023 rather than 2013. Apologies for the typo. Also to say that none of the calculations takes into account reclamation of past VAT which is looking somewhat more likely. With some juggling on cash that will probably assist a higher dividend payout if it happens.

CD, thanks for the post and the challenge.

I was rather of your view until I looked at the 5 year plan recently issued. For that NGLM has capex of $9.6m (H2 2021) and $13.8m (2022) (see page 12). So total $23.4m. (I would also note capex of $15.4m in 2013).

On Singida the total cost is said (page 19) to be $36.8m of which (per interims) $3.8m was spent in the first half of this year. I cannot immediately see what Shanta has said has been spent in total to date but your figure of $6m was what I had in mind. So $30m to go.

So almost $55m capex until start 2023. This is a different assumption to yourself and does not include WK drilling or (I think) drilling at NGLM or Singida. I believe most of the current $25m cash balance is reserved for drilling - especially WK.

Where my memory failed me is on operating cash flow for H1 2021 which was not $8m (being profit before tax) but $16m (cash flow before w/cap movements). I would anticipate this would increase - probably quite substantially.

Left out of this is the w/cap to get Singida going plus dividends (now $3m per year).

So I think we are still in a game of relatively tightish cash flows although aside from set backs I think Eric will raise the dividend next year - perhaps by 50%.

I am not trying to talk Shanta down - I am fully invested and probably) going for more. Just trying to get clarity on the numbers.

I had rather the same thoughts. I think Singida will be the driver in the near term and possibly a good WK resource update/3Q production in the immediate term. However, it seems as much as Eric applies his investment banking skills to managing news flow we get only a brief spike up followed by a fade down. I think that will change as time elapses and Singida hoves into view along with the completion of the Drilling campaigns (especially WK). Barring left of field events (always possible) I doubt Shanta will be much cheaper than now.

On cash I think they may be a tightish in the next year or so until Singida is up and running. I think they need about $55-60m for further Singida construction plus NLGM capex and in H1 generated only about $8m of operating cash flow (all numbers from memory so stand to be corrected). I expect operating cash flow to be considerably higher if NLGM production gets back on track. Plus of course they have c$25m of cash but I think most of that is reserved for WK drilling (couldn’t find the numbers in the latest couple of presentations but sure Eric has said them somewhere).

This means cash is tight in the Tanzanian operations and In many ways I think that is helpful for getting back all this unpaid VAT. The argument can be that it will go into Singida/extending NLGM mine life rather than to shareholders or WK. I assume the cash for funding WK is coming from Holdco and the fund raising last year. Like many that caught me totally by surprise but looks now a very surefooted move.