Reach (RCH) will seek to take advantage of new emergency pensions rules and defer its contributions into its pension funds, as the media group battles to conserve its cash during the coronavirus pandemic.
Last month, the Pensions Regulator issued new guidance permitting employers to delay or suspend scheme contributions. The watchdog said that any reduction or suspension of contributions should not last more than three months, while the sponsoring employer should not pay dividends or conduct other forms of shareholder return during this time. Clothing group Arcadia, which pays £25m annually into its scheme, has since paused its contributions.
Reach has six defined benefit pension schemes, and its accounting pension deficit stood at £295.9m as of 29 December. The group paid £48.9m into its DB schemes last year, agreeing to pay the same amount in 2020, before increasing its contributions to annual payments of £56.1m for 2021 to 2023, £55.3m for 2024 to 2026 and £53.3m in 2027.
Reach said that “the board has agreed that all stakeholder groups should be asked to contribute to ensuring the company is in as strong a position as it can be,” prompting the request to defer contributions.
The decision to temporarily cease pension payments will prove tempting for companies with sizable pension commitments. International Consolidated Airlines Group (IAG), expects to pay €491m in employer contributions and deficit payments to its two significant post-retirement benefit plans this year, according to its 2019 annual report. BT (BT.A) was scheduled to contribute £900m for its year running to 31 March 2021, £400m of which is due by 30 June 2020. Neither company has indicated an intention to defer pension payments.
Reach has also scrapped its 4.05p final dividend, which was due for shareholder approval in May and payment in June, in a move that will save Reach £12m. It will look to furlough 20 per cent of its employees and seek pay reductions among its workforce, while company bonus schemes have been suspended.
Reach has suspended its financial guidance for 2020. In 2019, its prior year net debt position swung into net cash of £20.4m, while Reach also agreed a new £65m four-year revolving banking facility.
