British consulting group Lane Clark & Peacock said that the pension deficits for Britain's top 100 companies by market value totaled more than $66 billion as of July, and could affect the way businesses using the new International Financial Reporting Standards are run.
More than 7,000 European companies are in the process of adopting IFRS, a uniform method of accounting designed to align U.S. and European standards and enhance transparency for public companies.
In the results from its annual "Accounting for Pensions" survey, Lane Clark & Peacock said that six companies reported deficits greater than 30 percent of their market capitalization at the end of the 2003-04 fiscal year under IFRS No. 17, and only three companies in the FTSE 100 did not have a deficit, even as company pension contributions have increased to record levels.
According to the survey, the total pension deficit would take eight years to be wiped out if current contribution levels were maintained. However, the survey found that nearly half of the 100 companies declared shareholder dividends in 2004 greater than their deficits, and the total of dividends paid out to shareholders last year was actually about $3.6 billion more than the cumulative pension deficit.
"Pension fund deficits continue to have a major impact on the way many FTSE 100 companies operate," said Lane Clark & Peacock partner Bob Scott, in a statement. "Those companies with significant IFRS17 deficits on their balance sheets may well find themselves restricted in terms of the dividends they are able to pay to shareholders and capital they can raise for refinancing. Pension deficits will also play a significant role in M&A activity and are already curtailing potential deals."
Direct comparisons between European companies remains difficult because of the 12 different sets of accounting rules being used by different companies.
The consulting group also said that the top 100 companies may have more than $1.8 billion trimmed from their profits this year because of new accounting rules governing employee share plans. Companies using IFRS were required to deduct the cost of issuing share options from earnings.
