IFRS 19 pensions “Voodoo accounting” – ThyssenKrupp edition
ThyssenKrupp issued their quarterly earnings today. Together with Lufthansa, Thyssen has one of the largest “pension holes” in the DAX index.
As we all know, from 2013, IFRS 19 requires to fully reflect pension liabilities “on balance”. Interestingly, in their Investor presentation, IFRS equity is not mentioned at all.
So one really has to go into the interim report to look what happened.
And again, at a first glance it doesn’t look so spectacular:
Shareholders Equity end of March is around 2.8 bn EUR, 0.77 bn less than stated for September 2012, in line with the losses. However when we look into the developement of the equity position of page 32 of the report, we can see that closing shareholders equity has actually been 7.6 bn in September 2012.
In contrast to Lufthansa, they hide their restatement in an “insignificant drop” of retained earning from March 2012 to September 2012 in an amount of ~4.2 bn EUR. Lufthansa had spread their restatement over 2 years. So there seems to be quite some leeway how to do this.
So to sum it up: Thyssen Krupp has lost ~ 4.8 bn of equity or -63% and management doesn’t even bother to disclose this to shareholders in their presentation. Well, who cares about equity anyway ?
One final remark: Thyssenkrupp uses 3,6% to discount the liabilities, which is quite high. Many other companies use 3.2% for EUR or less. As a proxy, one would multiply the difference times 15-20 in order to see what to add in percentage points to the pension liabilities.
So to scale this, we would for instance multiply 0.4%*15= 6%. With total pension liabilities of 8 bn EUR, we would need to deduct a further 500 mn EUR from equity in order to compare them with more conservative companies.
In any case, I think Thyssen will need to raise some equity capital pretty soon.
value and opportunity 
I also see a mistake in your Interpretation. Thyssen did show all actuarial gains and losses in the Balance already which Lufthansa did not do (they now show them because of IAS 19 revised which has to be applied for annual periods beginning January 2013). I see the bigger Problem with Thyssen Pensions, that their plan assets do not cover much of the liability. Just about 21% which is pretty low (average in the Dax is 61%).
Now that I have taken a look at the statements of Thyssen, it seems to me that Ulkbaer is correct with the suggestion that pension liabilities are not the reason for the equity decrease. The decrease in equity does seem to stem, mainly, from losses from discontinued operations (US operations) of almost 5 bio, not from pension adjustments. Pension liabilities are there for years now, the amount of these do not change dramatically over the years.
Nontheless, pension liabilities are high in relation to total assets, equity or any other kind of measure.
Have a nice weekend,
tom
Addon:
Wording LH:
Die ab 1. Januar 2013 anzuwendenden Änderungen des Bilanzierungsstandards
IAS 19, Leistungen an Arbeitnehmer, führen im
Zusammenhang mit den leistungsorientierten Pensionsplänen insbesondere
zur sofortigen Erfassung der versicherungsmathematischen
Gewinne und Verluste aus Umbewertungen der Pensionsverpflichtungen
sowie des zugehörigen Fondsvermögens in voller Höhe
und erfolgsneutral innerhalb des Eigenkapitals.
Ein wesentlicher Effekt aus der rückwirkenden Anwendung des
Standards wird sein, dass der Saldo der bislang außerhalb der
Konzernbilanz geführten versicherungsmathematischen Verluste
zum 1. Januar 2013 einmalig mit dem Eigenkapital zu verrechnen
ist. Hierdurch wird sich das Konzerneigenkapital nach Berücksichtigung
von Steuern um 3,5 Mrd. EUR vermindern.
Wording TK:
Im November 2009 hat das IASB eine Änderung von IFRIC 14, der eine
Interpretation des IAS 19 „Employee Benefits“ ist, mit dem Titel „Prepayments
of a Minimum Funding Requirement“ veröffentlicht. Die Änderung
ist in den seltenen Fällen relevant, in denen ein Unternehmen Mindestdotierungsverpflichtungen
unterliegt und Beitragsvorauszahlungen
leistet, um diese Mindestdotierungsverpflichtungen zu erfüllen. Die Änderung
erlaubt dem Unternehmen in diesem Fall, den Vorteil einer solchen
Vorauszahlung als Vermögenswert zu bilanzieren. Die Änderung der Interpretation
ist verpflichtend anzuwenden auf Geschäftsjahre, die am oder
nach dem 01. Januar 2011 beginnen. Die Erstanwendung der Interpretation
hatte keinen wesentlichen Einfluss auf die Darstellung der Abschlüsse.
Ulkbaer,
korrekt, ich hatte vergessen. dass Thyssen 30.0.2012 GJ Ende hatte. Der “sprung” erfolgte im 1. Quartal, das am 31.12. endete.
Hey MMI,
I think you are mixing up things with Thyssen-Krupp. They had already all pension liabilities within their balance sheet, as far as I can see. You can see that as well, if you check the discussions of the regulatory chances within the financial reports of Lufthansa and Thyssen-Krupp. While LH points out, that the chances have an significant influence on the equity, TK sees no material influences on their accounting.
two very good articles on both, thyssen and lufthansa. that drives me to looking into the pension footnotes of other companies too. until now, i always thought of these issues as being “negligible” – what an error.
do you know of other companies, that have pension problems? just answer if you know by heart, i will look up for myself anyway.
thanks for drawing my attention to this.
tom
you’re welcome….no, I don’t have a list of companies with large pension liabilities. There is some bank research on the topic, but Lufthansa and Thyssen are the most critical companies.
That was quick:
http://www.wallstreetjournal.de/article/SB10001424127887324767004578484782421257520.html
Den Aktionären von Thyssen-Krupp TKA.XE -1,69% droht eine Kapitalerhöhung: Konzernchef Heinrich Hiesinger selbst hat einen solchen Schritt jetzt als Möglichkeit bezeichnet. In einer Telefonkonferenz mit Analysten sagte er, es sei “nicht völlig auszuschließen”, dass Thyssen-Krupp in den nächsten 6 bis 9 Monaten neue Aktien ausgebe.
Wrong:
Hauptverantwortlich dafür ist der wohl teuerste Fehlschlag in der Konzerngeschichte: Thyssen-Krupps Stahlwerke im US-Bundesstaat Alabama und in Brasilien kosten das Unternehmen immer mehr.
“Hauptverantwortlich” are the pension liabilities,
http://www.thyssenkrupp.com/financial-reports/11_12/de/statements/notes/notes_cs_balance_sheet.html#Anhang15
Erwarteter Kapitalertrag auf das Planvermögen zum 30.09.2012 war sogar 6%. Der Diskontierungssatz aber 3,6%. Wie passt das zusammen?
Under IFRS, the discount rate is independent from the assumed rates for investments.