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Politics : Dutch Central Bank Sale Announcement Imminent? -- Ignore unavailable to you. Want to Upgrade?

To: sea_urchin who wrote (17119)	2/4/2003 2:06:02 PM
From: Alan Whirlwind	Read Replies (1) \| Respond to of 81177

European firms start walk across pension minefield By Mark Bendeich LONDON, Feb 4 (Reuters) - The world's second-biggest spirits group, Allied Domecq, showed on Tuesday that tumbling stock markets and guaranteed pension schemes make a fiery cocktail that is leaving companies worldwide with a burning headache. Allied Domecq told investors in a trading update not to expect much profit growth in its current financial year, partly blaming an estimated 40 million pound ($66 million) charge to help fund pension obligations to its workforce. Allied Domecq said a sharp fall in share markets was forcing it to take the charge against profits for the year to end-August. Barely a year ago, in its 2001/02 accounts, the firm took a credit to profits from its pension funds. This reversal of fortune is not unique to the drinks firm. Many other companies across Europe are likely soon to be nursing increasingly painful pensions hangovers. In the London market alone, the 100 biggest listed firms are estimated by investment bank Morgan Stanley to carry a combined pension deficit of more than 65 billion pounds at end-2002. A year earlier, they were just 200 million pounds in the red. Firms which have admitted large pension deficits in their company reports include former telecoms monopoly BT Group Plc, with a shortfall of 1.83 billion pounds at end-March 2002. Aerospace firm BAE Systems Plc put its end-2001 deficit at 704 million pounds, while sector-mate Rolls-Royce Plc reported a figure of 406 million for its UK funds for the same period. Insurer Royal & Sun Alliance Insurance Group Plc had a shortfall of 195 million pounds at end-2001, while British Airways Plc, sometimes called a "pension fund with wings" because of the size of its retirement funds, had a deficit of 488 million pounds at end-March 2002. RED INK The UK deficits are all measured, before tax, under a new UK accounting rule. In the rest of Europe, different yardsticks are used but there is plenty of red ink there too. German car-maker DaimlerChrysler AG said last month its pension costs would rise by 700 million euros ($761 million) in 2003 due to recent stock market falls. Last year, it estimated that it faced an overall funding shortfall of 3.5 billion to four billion euros by end-2002. Across Europe, companies that carried pension deficits into 2003 and were still heavily exposed to shares, will be in even worse shape in their next set of accounts. And, like Allied Domecq, they may have to use profits to shore up their funds. In January alone, the FTSE Eurotop 300 index fell 6.8 percent and the UK's FTSE 100 index 9.5 percent. And it is not just falling equity markets that threaten to put dents in already-battered company profits. Firms are also finding that their assumptions about long-term investment returns on pension funds will have to be trimmed. Global miner Rio Tinto Plc booked another $70 million in costs in its profit statement last week because it cut its assumed real rate of return on equities closer to five percent from between 8.5 percent and nine percent. But other major European firms still assume that shares will give them real returns approaching 10 percent. The growing realisation that they will fall short looks set to hurt their bottom lines. 2/04/03 13:20 ET Copyright 2003 Reuters Limited.