View from City Road: Courtaulds' balancing act

COURTAULDS Textiles has braved post- Maxwell sensitivities to transfer pounds 19m of its pension fund surplus to its own coffers. The risk of bad publicity, coupled with a 40 per cent tax penalty, suggests it was keen to get hold of the cash. Are the risks justified?

Far from thieving from its pension fund, Courtaulds is making a legitimate payment, approved by its 11 trustees, five of whom are elected by employees. It reckons, rightly, it is in the clear, not just on legal but moral grounds, too. Its first defence is that it is sharing the benefits with members of the scheme.

Of the pounds 74m surplus - the figure used by the trustees, rather than accountants or the Government - pounds 16m is being carried forward as a cushion, pounds 15m will be used to bolster benefits to members, pensioners and deferred pensioners, pounds 19m goes to the company and pounds 12m to the Inland Revenue. The remaining pounds 12m is a ragbag of items.

By leaving the fund comfortably off and sharing the benefits in this way Courtaulds is balancing the employees' claim that pensions are a form of deferred pay with the traditional employers' argument that they have a right to a surplus because they are responsible for any deficit.

In Courtaulds' case, the company had to increase its contributions massively to make up a shortfall in the Seventies, since when an unusually good investment performance, coupled with cautious actuarial assumptions, have contributed to the surplus. It was already enjoying a holiday from making contributions.

Once the cheques have been dispatched to their relevant quarters, Courtaulds' balance sheet, already healthy, will look ready for expansion. Net debt of pounds 35m on shareholders' funds of pounds 255m at the end of 1991, was already likely to fall further by the end of this year.

It is not as if the company was hard- pressed for cash - Lucas Industries, which transferred cash from its pension fund earlier this year, had far more pressing needs - so it looks as if Courtaulds is preparing for an acquisition.

Dealing with the pension issue has also lessened the attractions for a predator. The shares which rose 10p to 554p look attractive.