Communisis plans capital reduction

Communisis is proposing a capital reduction so it can continue to pay dividends in the face of a ballooning pension deficit.

Falling corporate bond yields have resulted in the accounting deficit on the group’s pension scheme increasing by £13m, or nearly 30%, to £57m since 30 June.

“This increase in accounting deficit has the effect of reducing the level of the company’s distributable reserves,” Communisis said.

It is asking shareholders to approve a capital reduction that will create additional distributable reserves of £22m.

The proposals include capitalising just under £6m held in the company’s share premium account, £15m held in the Communisis merger reserve and almost £1.4m in its capital redemption reserve.

Communisis chief executive Andy Blundell told PrintWeek: "We are very serious about our obligations to the pension scheme, and the triennial valuation is coming up next year. It's reasonably contained but we thought it prudent to launch this reduction exercise.

"It's purely to create more distributable reserves, one of the uses of which is dividends. It doesn't affect any other investments we might make," he explained. 

Shareholders need to cast their vote on the proposals by 7 November, or at a General Meeting scheduled for 9 November. If all the necessary approvals are in place the capital reduction will become effective on 7 December.  

The proposal will not reduce the underlying net assets of the company.

In a statement explaining the process, Communisis directors stated that they had undertaken a thorough review of the group’s current, prospective and contingent liabilities, and were satisfied that creditors would not be prejudiced by the move.

At the half-year Communisis increased its interim dividend by 10% to 0.81p per share.

Blundell added: "The business is in good shape and we are confident of meeting expectations for the year as a whole."

The record lows in corporate bond yields are affecting many companies that have defined benefit pension schemes on their books. The recent Mercer’s Pensions Risk Survey stated that the accounting deficit of defined benefit pension schemes for the UK’s 350 largest listed companies jumped from £139bn at the end of July to £189bn on 31 August.

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