Philip Green, does anyone care what the truth is?
Discussion
longblackcoat said:
A lot of it is the fact that people are living longer; longevity has increased around 4 years between 2000 and 2016. Don't pick me apart on the figures, by the way, it's just illustrating the point, which is that 4 years may not sound like a lot, but it's a large percentage of a retirement. As a result, all the people in the final salary scheme who would have been expected to die at (say) 75 (drawing a pension for 10 years), would live until 79, an increase of 40%.
Longevity has been a factor, but not to the extent that you suggest - the bulk of the change has been due to interest rates (and future inflation expectations, to a much lesser extent).While you are correct that longevity has increased, a significant part of this was already anticipated by pension funds in their reserving basis. Recent changes have been around 2 years increase per decade, consistent with what you've outlined, but the typical life expectancy is around 19 years (for males) and 22 years (for females) so this would 'only' be a 20% increase.
Interestingly, recent experience has suggested a slight decrease in mortality expectations (compared to a couple of years ago) so the trend (already incorporated into the value of liabilities) might not continue!
Edited by sidicks on Friday 21st October 11:45
Trophy Husband said:
OK. I get it now. So we are saying that the size of the fund may not have changed in principal but what can be drawn off it in interest to service pension payments is non-existent or much reduced. Is that right?
The value of the scheme's assets have probably increased a bit but the value of the scheme's liabilities has increased a lot!!r11co said:
The problem for BHS wasn't 'high street demise', it was failing to compete with Primark (which now has a flagship store in Oxford Street).
Fair.But don't forget they had a fairly large homewares department - destroyed by Amazon.
Plus Zara, H&M took their pound of flesh too.
And of course, if people are no longer visiting HMV or heading to outlet villages rather than a high street then the one-stop-shop department store is going to have a catastrophic drop in footfall no matter what is on offer!
Jockman said:
sidicks said:
Recent changes have been around 2 years increase per decade, consistent with what you've outlined, but the typical life expectancy is around 19 years (for males) and 22 years (for females) so this would 'only' be a 20% increase.
You've lost me matey.The 4 years increase in life expectancy (outlined by the previous poster) would only be a 20% increase (from a 20 year base), rather than 40% (from a 10 year base)!
walm said:
No.
He took the dividends ages ago when there was a pension surplus and the business was puking boat-loads of cash and highly profitable.
Since then the high street has turned dramatically south, yields have collapsed (raising the value of the pension liabilities), and PG disposed of the once highly valuable business for £1.
There is absolutely nothing wrong with failing to predict the demise of the high street.
There is also absolutely nothing wrong with taking profits when a business is going well and has no need of extra investment.
Do you think shareholders in Tescos in 2010 should be helping to plug their current pension deficit?
Of course, not.
That is the current owners responsibility.
What if BHS hadn't EVER made a profit but PG had plenty of cash from say Arcadia - should he be forced to bail out the pensioners with THAT cash? Seems odd.
However, what is wrong with what he did is 100% the SALE OF BHS TO A MORON.
PG must have known that BHS was an absolute basket case.
He also clearly knew that Dominic Chappell was completely unqualified. Goldman told him even if it wasn't obvious from a skim-read of his appalling CV.
And rather than saying "sorry you bought a lemon, caveat emptor" there is a HUGE moral responsibility to that lemon as it contains thousands of pensioners who need to eat.
That's the problem.
The whole dividend thing is a complete side-issue for the politics of envy. Although it does offer hope that he does actually have the cash to make good on his promise to help those pensioners.
I agree with some of what you're saying but in the early years of his ownership Green took out more in dividends than the profit BHS was generating (so in effect part of those payments were funded by retained profits from prior years and didn't all relate to current performance); legally nothing wrong with doing that but it hardly smacks of competent management adopting a prudent (or sustainable) dividend policy! Had those funds not been removed from the business the company would have been better placed financially to cope with things like the deteriorating position on its pension scheme; however, the impression I have is of a man who had his own financial self-interest very much at the top of the agenda and wasn't too bothered about anyone else (certainly not the employees or pensioners of BHS if his actions are anything to go by). Does that make him a crook? No it doesn't but in my book it makes him a Grade-A slime ball and certainly not someone fit hold a knighthood; the fact there may be other individuals or companies who behave as badly or worse than PG isn't really a defence IMO!He took the dividends ages ago when there was a pension surplus and the business was puking boat-loads of cash and highly profitable.
Since then the high street has turned dramatically south, yields have collapsed (raising the value of the pension liabilities), and PG disposed of the once highly valuable business for £1.
There is absolutely nothing wrong with failing to predict the demise of the high street.
There is also absolutely nothing wrong with taking profits when a business is going well and has no need of extra investment.
Do you think shareholders in Tescos in 2010 should be helping to plug their current pension deficit?
Of course, not.
That is the current owners responsibility.
What if BHS hadn't EVER made a profit but PG had plenty of cash from say Arcadia - should he be forced to bail out the pensioners with THAT cash? Seems odd.
However, what is wrong with what he did is 100% the SALE OF BHS TO A MORON.
PG must have known that BHS was an absolute basket case.
He also clearly knew that Dominic Chappell was completely unqualified. Goldman told him even if it wasn't obvious from a skim-read of his appalling CV.
And rather than saying "sorry you bought a lemon, caveat emptor" there is a HUGE moral responsibility to that lemon as it contains thousands of pensioners who need to eat.
That's the problem.
The whole dividend thing is a complete side-issue for the politics of envy. Although it does offer hope that he does actually have the cash to make good on his promise to help those pensioners.
sidicks said:
Jockman said:
sidicks said:
Recent changes have been around 2 years increase per decade, consistent with what you've outlined, but the typical life expectancy is around 19 years (for males) and 22 years (for females) so this would 'only' be a 20% increase.
You've lost me matey.The 4 years increase in life expectancy (outlined by the previous poster) would only be a 20% increase (from a 20 year base), rather than 40% (from a 10 year base)!
JNW1 said:
I agree with some of what you're saying but in the early years of his ownership Green took out more in dividends than the profit BHS was generating (so in effect part of those payments were funded by retained profits from prior years and didn't all relate to current performance); legally nothing wrong with doing that but it hardly smacks of competent management adopting a prudent (or sustainable) dividend policy!
Remember this was a private company though.Public companies tend to offer sustainable div policies in order to help investors evaluate the value of a shareholding in the company.
For a private company there is no valuation that the owner really cares about.
So owners tend to take divs out on an ad-hoc basis.
walm said:
JNW1 said:
I agree with some of what you're saying but in the early years of his ownership Green took out more in dividends than the profit BHS was generating (so in effect part of those payments were funded by retained profits from prior years and didn't all relate to current performance); legally nothing wrong with doing that but it hardly smacks of competent management adopting a prudent (or sustainable) dividend policy!
Remember this was a private company though.Public companies tend to offer sustainable div policies in order to help investors evaluate the value of a shareholding in the company.
For a private company there is no valuation that the owner really cares about.
So owners tend to take divs out on an ad-hoc basis.
As a private company of course Green didn't have to answer to anyone on the level of dividends paid but that doesn't make the policy adopted a sensible one; a different and more prudent approach would have left BHS better placed to address any future economic difficulties but sadly lining the Green family's pockets looks to have been the main priority. As the owner it was of course his absolute right to pursue that policy but when you behave in that way - and further down the line others suffer partly as a consequence of that behaviour - don't be surprised to be criticised!
r11co said:
Clothing and household goods are very different markets to brown/white goods and entertainment content though. People don't need to 'try on' fridges, and it didn't take an idiot to work out that stocking and flogging silver discs was never going to last in the face of on-line content.
The problem for BHS wasn't 'high street demise', it was failing to compete with Primark (which now has a flagship store in Oxford Street).
It would have been nigh on impossible to compete with Primark and not imo the correct approach for BHS to take.The problem for BHS wasn't 'high street demise', it was failing to compete with Primark (which now has a flagship store in Oxford Street).
Edited by r11co on Friday 21st October 11:28
It's long been the case that the "middle market" in retailing has become the most difficult area in which to trade.
The Internet is destroying the profitable pricing of most middle market Brands which make it extremely difficult to get a decent profit on them especially when in an expensive High Street property.
As for the clothing I would have developed the strategy of Sports Direct either by buying known Brands that were in administration or financial difficulties and then sourcing and expanding the ranges getting stock from China and Asia.
He could also have worked with "designers" to obtain "exclusive" garments with that designer's Kudos.
What he was doing was selling Primark quality at double the price.
But clothing was only part of the problem.
Perhaps more importantly,he should have built on his successful lighting department introducing more homeware and furniture again where possible buying distressed brands.
The strategy of buying distressed Brands I believe was and is the most important factor of the success of Sports Direct.
I really do not understand why he didn't make a better job of it and why he took his eye off the ball.
You only have to look at a company like Tiger Tiger to understand how with clever marketing and packaging an item that sells in Poundland for a £1 can be £5 when blinged up a bit.
Edited by avinalarf on Friday 21st October 13:56
JNW1 said:
Perhaps but what sensible business distributes more than 100% of its retained profit in dividends?
Is that permissable? What other capital and reserves did he have on the Balance Sheet?JNW1 said:
As a private company of course Green didn't have to answer to anyone on the level of dividends paid....
He is answerable to HMRC rules, as we all are.What HMRC rules would they be?
HMRC doesn't place limits on dividends. What HMRC does is charge penalty tax on excessive dividends - which they will later refund once the situation is addressed and corrected.
Company Law and stock market regulations are where the legal aspect of dividends are centered.
HMRC doesn't place limits on dividends. What HMRC does is charge penalty tax on excessive dividends - which they will later refund once the situation is addressed and corrected.
Company Law and stock market regulations are where the legal aspect of dividends are centered.
I find it laughable that the defence is I took advice from (insert posh lawyer/consultant firm in here) and then shrug your shoulders saying "who knew?" anyone of his stature and business experience could see Chappell was a chancer and not fit to own BHS.
I've had experience working for a Green family business and the aftermath of its sale to another business, they are barracudas and know exactly what they are doing and do not get hoodwinked by 3rd rate chancers and expensive lawyers and it's ridiculous that he's trying to hide behind that.
I've had experience working for a Green family business and the aftermath of its sale to another business, they are barracudas and know exactly what they are doing and do not get hoodwinked by 3rd rate chancers and expensive lawyers and it's ridiculous that he's trying to hide behind that.
Eric Mc said:
What HMRC rules would they be?
HMRC doesn't place limits on dividends. What HMRC does is charge penalty tax on excessive dividends - which they will later refund once the situation is addressed and corrected.
Company Law and stock market regulations are where the legal aspect of dividends are centered.
Apologies. He is answerable to Company Law rules, like the rest of us.HMRC doesn't place limits on dividends. What HMRC does is charge penalty tax on excessive dividends - which they will later refund once the situation is addressed and corrected.
Company Law and stock market regulations are where the legal aspect of dividends are centered.
JNW1 said:
Perhaps but what sensible business distributes more than 100% of its retained profit in dividends? You surely wouldn't do that unless you were either very confident the funds would be replenished quickly (presumably through future profits) or that there was still enough in the kitty to weather a future storm; doesn't look like either applied in the case of BHS though.
I honestly don't really understand this obsession with retained earnings or "replenishing funds" whatever that means.(And as part of my job loosely requires some forensic accounting knowledge I probably should understand it!!!)
As a business analyst what I care about in terms of the robustness of the balance sheet is really cashflow and the level of debt relative to a company's ability to service that debt.
I haven't looked at the BHS balance sheet from the period that Green took divs in a while but from memory it was fairly solid.
Some debt but way below the lease-adjusted net debt / EBITDAR of say 4x which is about where I reach comfort levels on a retailer. (Sainsburys is about this level, for example. So was Home Retail (Argos) pre-acquisition.)
Once you are comfortable there, you just need to check that either EBITDAR is growing (which it was at the time of the div) and/or that the free cash flow (EBITDA less capex, interest and tax) was positive - which it was.
Whatever anyone says, he took the last dividends in 2004 and the pension fund was in surplus all the way through 2008 - FOUR YEARS LATER.
Honestly, the divs are a side-show.
walm said:
r11co said:
The problem for BHS wasn't 'high street demise', it was failing to compete with Primark (which now has a flagship store in Oxford Street).
Fair.But don't forget they had a fairly large homewares department - destroyed by Amazon.
Plus Zara, H&M took their pound of flesh too.
avinalarf said:
It would have been nigh on impossible to compete with Primark and not imo the correct approach for BHS to take. <snip>
What he was doing was selling Primark quality at double the price.
...but essentially what I meant was that BHS didn't have to go under had it been managed properly. The brand had strength and was part of a group that had massive purchasing power and connections to designer and celebrity endorsements.What he was doing was selling Primark quality at double the price.
Phil Green simply took his eye off the ball with BHS because at the time he was concentrating on his (somewhat disastrous) attempt to launch Arcadia brands in the USA.
walm said:
JNW1 said:
Perhaps but what sensible business distributes more than 100% of its retained profit in dividends? You surely wouldn't do that unless you were either very confident the funds would be replenished quickly (presumably through future profits) or that there was still enough in the kitty to weather a future storm; doesn't look like either applied in the case of BHS though.
I honestly don't really understand this obsession with retained earnings or "replenishing funds" whatever that means.(And as part of my job loosely requires some forensic accounting knowledge I probably should understand it!!!)
As a business analyst what I care about in terms of the robustness of the balance sheet is really cashflow and the level of debt relative to a company's ability to service that debt.
I haven't looked at the BHS balance sheet from the period that Green took divs in a while but from memory it was fairly solid.
Some debt but way below the lease-adjusted net debt / EBITDAR of say 4x which is about where I reach comfort levels on a retailer. (Sainsburys is about this level, for example. So was Home Retail (Argos) pre-acquisition.)
Once you are comfortable there, you just need to check that either EBITDAR is growing (which it was at the time of the div) and/or that the free cash flow (EBITDA less capex, interest and tax) was positive - which it was.
Whatever anyone says, he took the last dividends in 2004 and the pension fund was in surplus all the way through 2008 - FOUR YEARS LATER.
Honestly, the divs are a side-show.
I haven't looked at the BHS balance sheet in any detail for the period concerned either; however, contrary to what you say the pension scheme was in deficit well before 2008 (by the end of 2004 if the FT article below is to be believed) and the point I'm making is BHS would have had more funds available to help plug the gap had hundreds of millions not been paid in dividends in the period 2002 to 2004. That's not to say I'm accusing Green of doing anything illegal (I'm not) but I do think the dividend policy lacked prudence and contributed to problems further down the line; put another way, there could have easily been several hundred million pounds more in the BHS coffers at the start of 2005 and surely that would have helped them address at least some of the initial problems that became evident with the funding of the pension scheme?
So in that context I'm not sure I agree the dividends are a complete side-show; of course they didn't cause the deficit in the pension scheme but their payment must have left BHS less well equipped to deal with it?
https://www.ft.com/content/0e291562-0d52-11e6-b41f...
JNW1 said:
I haven't looked at the BHS balance sheet in any detail for the period concerned either; however, contrary to what you say the pension scheme was in deficit well before 2008 (by the end of 2004 if the FT article below is to be believed) and the point I'm making is BHS would have had more funds available to help plug the gap had hundreds of millions not been paid in dividends in the period 2002 to 2004. That's not to say I'm accusing Green of doing anything illegal (I'm not) but I do think the dividend policy lacked prudence and contributed to problems further down the line; put another way, there could have easily been several hundred million pounds more in the BHS coffers at the start of 2005 and surely that would have helped them address at least some of the initial problems that became evident with the funding of the pension scheme?
So in that context I'm not sure I agree the dividends are a complete side-show; of course they didn't cause the deficit in the pension scheme but their payment must have left BHS less well equipped to deal with it?
https://www.ft.com/content/0e291562-0d52-11e6-b41f...
I was going off this one - but FT is probably right.So in that context I'm not sure I agree the dividends are a complete side-show; of course they didn't cause the deficit in the pension scheme but their payment must have left BHS less well equipped to deal with it?
https://www.ft.com/content/0e291562-0d52-11e6-b41f...
https://www.theguardian.com/business/2016/apr/25/b...
The way the regulator/pension trustee plugs a pensions gap is very relevant here.
You usually have a triennial review and agree an amount to add in to plug any hole.
The trustees agreed £7.5m a year from 2012, I believe.
And PG sold it in early 2015 so IN THEORY - if there was say £1bn of excess cash lying around (or whatever the figure would be if PG hadn't taken the divs in the first place) then DC would have paid him that amount rather than the £1 he did pay.
(Since the only difference is the dividend.)
In other words, SOMEONE thought that BHS was a going concern and was generating enough cash on an ongoing basis to cover that annual cash top-up of £7.5m so the deficit should have been fixed eventually.
No harm no foul.
Sadly two things then happened.
Yields were depressed further, which exploded the liabilities.
And BHS proved not to be a going concern.
And some might argue that neither of those are PGs fault.
Although personally I believe he just sold BHS to a patsy so he bears a huge responsibility.
Again though, if BHS was truly worth just £1 as it stood in 2015, PG would have ended up with that huge windfall one way or the other, not the pensioners.
JNW1 said:
walm said:
JNW1 said:
Perhaps but what sensible business distributes more than 100% of its retained profit in dividends? You surely wouldn't do that unless you were either very confident the funds would be replenished quickly (presumably through future profits) or that there was still enough in the kitty to weather a future storm; doesn't look like either applied in the case of BHS though.
I honestly don't really understand this obsession with retained earnings or "replenishing funds" whatever that means.(And as part of my job loosely requires some forensic accounting knowledge I probably should understand it!!!)
As a business analyst what I care about in terms of the robustness of the balance sheet is really cashflow and the level of debt relative to a company's ability to service that debt.
I haven't looked at the BHS balance sheet from the period that Green took divs in a while but from memory it was fairly solid.
Some debt but way below the lease-adjusted net debt / EBITDAR of say 4x which is about where I reach comfort levels on a retailer. (Sainsburys is about this level, for example. So was Home Retail (Argos) pre-acquisition.)
Once you are comfortable there, you just need to check that either EBITDAR is growing (which it was at the time of the div) and/or that the free cash flow (EBITDA less capex, interest and tax) was positive - which it was.
Whatever anyone says, he took the last dividends in 2004 and the pension fund was in surplus all the way through 2008 - FOUR YEARS LATER.
Honestly, the divs are a side-show.
I haven't looked at the BHS balance sheet in any detail for the period concerned either; however, contrary to what you say the pension scheme was in deficit well before 2008 (by the end of 2004 if the FT article below is to be believed) and the point I'm making is BHS would have had more funds available to help plug the gap had hundreds of millions not been paid in dividends in the period 2002 to 2004. That's not to say I'm accusing Green of doing anything illegal (I'm not) but I do think the dividend policy lacked prudence and contributed to problems further down the line; put another way, there could have easily been several hundred million pounds more in the BHS coffers at the start of 2005 and surely that would have helped them address at least some of the initial problems that became evident with the funding of the pension scheme?
So in that context I'm not sure I agree the dividends are a complete side-show; of course they didn't cause the deficit in the pension scheme but their payment must have left BHS less well equipped to deal with it?
https://www.ft.com/content/0e291562-0d52-11e6-b41f...
I also haven't seen much discussion regarding either the outright sale or sale and lease back of several valuable BHS buildings.
It has been said that the Green family that purchased the buildings paid market prices and gave BHS market rents,anyone know if that was the case ?
walm said:
I was going off this one - but FT is probably right.
https://www.theguardian.com/business/2016/apr/25/b...
The way the regulator/pension trustee plugs a pensions gap is very relevant here.
You usually have a triennial review and agree an amount to add in to plug any hole.
The trustees agreed £7.5m a year from 2012, I believe.
And PG sold it in early 2015 so IN THEORY - if there was say £1bn of excess cash lying around (or whatever the figure would be if PG hadn't taken the divs in the first place) then DC would have paid him that amount rather than the £1 he did pay.
(Since the only difference is the dividend.)
In other words, SOMEONE thought that BHS was a going concern and was generating enough cash on an ongoing basis to cover that annual cash top-up of £7.5m so the deficit should have been fixed eventually.
No harm no foul.
Sadly two things then happened.
Yields were depressed further, which exploded the liabilities.
And BHS proved not to be a going concern.
And some might argue that neither of those are PGs fault.
Although personally I believe he just sold BHS to a patsy so he bears a huge responsibility.
Again though, if BHS was truly worth just £1 as it stood in 2015, PG would have ended up with that huge windfall one way or the other, not the pensioners.
When finally Green knew the game was up ,and he had taken out of BHS all he could,it was a goner.https://www.theguardian.com/business/2016/apr/25/b...
The way the regulator/pension trustee plugs a pensions gap is very relevant here.
You usually have a triennial review and agree an amount to add in to plug any hole.
The trustees agreed £7.5m a year from 2012, I believe.
And PG sold it in early 2015 so IN THEORY - if there was say £1bn of excess cash lying around (or whatever the figure would be if PG hadn't taken the divs in the first place) then DC would have paid him that amount rather than the £1 he did pay.
(Since the only difference is the dividend.)
In other words, SOMEONE thought that BHS was a going concern and was generating enough cash on an ongoing basis to cover that annual cash top-up of £7.5m so the deficit should have been fixed eventually.
No harm no foul.
Sadly two things then happened.
Yields were depressed further, which exploded the liabilities.
And BHS proved not to be a going concern.
And some might argue that neither of those are PGs fault.
Although personally I believe he just sold BHS to a patsy so he bears a huge responsibility.
Again though, if BHS was truly worth just £1 as it stood in 2015, PG would have ended up with that huge windfall one way or the other, not the pensioners.
This patsy was on a win win,he could take out the last dregs,as he chose to do,or maybe he was so deluded he really thought that he could turn it round,which I doubt was the case.
I refuse to believe that PG didn't know the pasty was a chancer and that in normal circumstances he wouldn't have said to him "feck off sonny boy".
We all know that ,certainly PG knew it,he may be many things but he isn't stupid,just to bleedin' greedy.
Many years ago I moved in the same social circles as PG and his cronies,most of them,all wheeler dealers ,some of them sailed very close and sometimes into the wind.
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