Tandem Share Discussion Threads

[davidosh] 31/7/2019 17:37

It surely begs the question of why were we not selected in the first place...Was it put out to tender and Tandem did not get it or were the local council clueless and did not consider Tandem or we did not bid for it as margins not there at the price they wanted?

[hatfullofsky] 31/7/2019 01:39

FX concerns

[deanowls] 26/7/2019 22:17

Yup get them brought from China.

[castleford tiger] 26/7/2019 17:42

i have sent to Jim Shears

[poco a poco] 26/7/2019 17:31

Article in Birmingham Mail.

hxxps://www.birminghammail.co.uk/news/midlands-news/mayor-andy-streets-boris-bike-16645039

Birmingham ordered 5000 'Boris Bikes' from German firm nextbike but the company have only managed to deliver 25.
Birmingham have cancelled the contract and are looking for a new supplier.

I have written (below) to the Birmingham Mail, the local MP & the Mayor (who's idea this was)
---------------------------------

Most readers will have been shocked to see that only 25 out of 5000 Boris bikes have been delivered.
What is even more shocking is that this contract went to a German firm in the first place when Birmingham has its own bicycle manufacturer, The Tandem Group, in Castle Bromwich, just a few minutes walk from the Jaguar Land Rover site.
Now that the German contract has been cancelled, surely this presents one of those serendipitous opportunities to do the right thing by all concerned.
Like Britain building its own ships or using our own steel instead of sending our money and expertise abroad.
It can't be beyond the owners of Tandem and Birmingham Council to sit around a table and do whatever it takes to hammer out a deal to have these bikes provided by a Birmingham firm ?

[davidosh] 19/7/2019 11:09

The next results will be in September for the H1 to 30th June. Are any of you interested in attending a results presentation?

[davidosh] 05/7/2019 16:55

The irony is that even before this apparent change last year....the company never made a dividend payment that was anywhere near to matching the pension payment anyway !!

If you have capacity from previous years can you then pay a higher dividend in future years until the matching hits capacity ?

[profdoc] 05/7/2019 16:34

Jim Shears Finance Director, has been in touch to explain the situation with the pension fund. I thought you might like to read the email (it seems the regulator tightened up the rules last year):
There is a written agreement between Company and Trustees that the dividend payment will not exceed the deficit contribution payment. The Trustees took professional advice and based this on guidance from The Pension Regulator (tPR). Agreeing a schedule of contributions between Company and Trustees takes months of negotiation. The Trustees demand a short recovery period and the actuary is required to use prudent actuarial assumptions which would result in significantly larger deficit contributions. The Company however wants a longer recovery period with more realistic assumptions and therefore lower deficit contributions.

Below is a link to a document that may be of interest, in particular page 19. Note our agreed recovery period was 13 years at the last valuation and by “short” tPR means less than the average of 7 years.

[amt] 05/7/2019 07:20

JakNife
Loads of articles but it is clear the regulator is clamping down on Dividends being paid when there is a pension deficit.

hxxps://www.ashurst.com/en/news-and-insights/legal-updates/the-pensions-regulators-annual-funding-statement---a-firmer-stance-on-dividend-payments/

That's a really odd argument you make. It doesn't make sense to me. The amount of dividend and pension fund reduction are both limited by how much cash available a company has and future prospects. The regulator is simply stating that the reduction in pension deficit should be at least as much of a priority as dividend payments. Basically the pension regular guarantees up to a point a minimum level of pension should a scheme fail. Therefore they are effectively protecting public money.

[castleford tiger] 03/7/2019 22:25

Strange movement in price again today.
Still no news on the 1.5% that were traded in one day last week
Tiger

[davidosh] 03/7/2019 00:45

MRF.....We are investors and after nearly 15 years I think I deserve a return on my investment. Why should I sell at this point?? It has nothing to do with where I buy my bicycles either.

Jaknife......A very good point and totally agree that a limit like that works counter intuitively. We need a proper explanation. The auditor was at the meeting but did not say anything on the issue.

Profdoc.....If there is such a need for retaining cash why have the company been paying bonuses and salary increases far in excess of the total dividend paid to the owners each year? Also clearly far more into the pension pot too?

It makes us, the shareholders, feel like we come right at the bottom of the pile

[my retirement fund] 02/7/2019 18:00

Like little birds pecking at the crumbs on the table. Shameful !! Vote with your feet and sell and buy your bicycles and other related stuff from someone else imo

[effortless cool] 02/7/2019 14:38

This pensions deficit "constraint" is clearly nonsense, in that the business has more than enough cash to pay a higher dividend and to fund higher deficit repayments. The regulator and the trustees would obviously have no issue with that approach.

[profdoc] 02/7/2019 14:28

Thanks AMT. I've sent a copy to Chairman Mervyn Keene - it'll be good to get a discussion going. Glen

[amt] 02/7/2019 13:43

Prof doc. Very very good post. I largely agree with your views. On the timescale you mention we should also have a good idea about how much Brexit is damaging consumer sentiment making decisions easier.

[profdoc] 02/7/2019 09:10

I listened to the discussion at the AGM. I've jotted down some thoughts on dividend policy (sorry it's so long)- I'm interested to hear what you think.

At the AGM a question was raised on the logic of paying a mere 4.31p dividend when the company has produced EPS north of 30p and is expected to do so again this coming year.
Investors who have been with the company for 10-15 years have seen little capital gain (unless they luckily bought during one of the price cliff-falls) and they have grimaced at the low dividend yield year after year. It’s no wonder they are disappointed with the investment they made.
So, given that directors have benefitted through salaries over the last decade, is it now the turn of shareholders to receive significant pay-outs?
Chairman, Mervyn Keene, replied that while the pension scheme is in deficit the pension regulator will not permit annual dividends payments to be greater than the deficit reduction payments made to the pension scheme.
Dividends are £216,000 and pension contributions are £336,000. Clearly, there is a constraint of sorts here, at least there is when the £336,000 limit is reached. However, that on its own doesn’t explain why dividends can’t rise by 20% for a few years before bumping up to the pension contribution limit.
Both pension schemes closed to new members years ago. On the underfunded scheme, liabilities are £9.4m and assets £6.6m plus a tax asset of £0.5m leaving a deficit of £2.3m.
(I got the impression that the directors are disappointed that the pensions regulator estimates the pension liabilities as high as it does – many pensioners are now well past average life expectancy so the numbers receiving pension drop each year.

The directors then put forward a different argument: they needed to strengthen the balance sheet before significantly raising the dividend.
I was somewhat confused on this point because the cash balance in December was about £5m and the dividend costs £216,600 per year. Surely, there is potential to raise the dividend?
I was told that the 31 December snapshot of the balance sheet flatters the finance picture. There are points during the year when the company is forced to rely on an overdraft in the region of £3m.
To get some feel for this I’ve looked at the half year reports as well as the annual reports
It would seem during the summer the combined valued of inventory and receivables is higher than in December by about £3m - £6m. Some of this is financed by the rise in payables, of the order of £1.5m - £3m. But I would imagine that Tandem must pay these suppliers during the summer and autumn. We were told at the AGM, some customers push for 120 days credit.
Even by June, let alone by September-November when stock levels are high in the lead up to Christmas, Tandem’s cash balance is down to around £1m while its debt (including invoice discounting debt) is around £5m - £7m.
I can see from those numbers that when Argos and other customers are insisting on availability of product in the second half of the year, but not paying for it until say December, that the company could come under a temporary cash flow strain and therefore need access an overdraft.
This dependence on bank borrowing and invoice discounting is a small weakness I failed to spot in my earlier analysis and I’m grateful to the directors for pointing me in the right direction.
I agree that it would be more comfortable if our company had a larger cash buffer to support the rise in inventory and receivables during the second half of the year rather relying on banks. It’ll be better to avoid interest charges and it’ll almost eliminate financial distress risk.
But what of the medium term?
For now I’m content to leave the dividend at a low level. But this comes with the proviso that when the amounts of finance sourced from banks is down to less than £1m at the worst time of the year, that the dividend is raised substantially.
This conclusion assumes that the company does not have value-enhancing projects in which to invest that cash within the firm. That is, projects generating 8% - 10% per annum returns on capital (an acquisition spree or investing in projects yielding only 1% -5% is not acceptable).
Once the balance sheet is on a firm foundation, any money that cannot generate 8-% - 10% pa should be handed back to shareholders to invest elsewhere.
As well as the lowering of financial risk, there is a logic to holding onto cash generated by current high profits for a 2-3 years (cumulating to say £3m - £4m in retained earnings). This will allow a reduction in the overdraft and in the use of invoicing financing, thus at least £100,000 of interest each year can be avoided, adding to profits.
A third reason for being cautious with the dividend and building up the balance sheet is that Tandem must appear soundly financed to gain business from the likes of Disney – they receive a percentage of Tandem’s sales of licensed product and therefore need to be assured that Tandem is (a) going to be around in a 18 months from now (b) has sufficient money to actively promote and distribute goods.
A suggested dividend policy for the next five years:
My working assumption – just for thinking it through (it can be tweaked) - for earnings and cash flow after paying interest and tax is £1.30m in each of the next five years.
For three years continue with a dividend policy of paying out about £0.25m.
Over these three years the balance sheet is strengthened by £3.15m.
In the fourth and subsequent years, if the company does not have projects expected to yield at least 8% - 10% per annum after tax, then all £1.30m earnings that year could be paid as dividends. This is 26p per share.
However, there are two constraints:
Constraint 1
If the pension deficit is still high the regulator will insist that large amounts are put into the scheme if dividends exceed £336,000 – this money would then be locked-in to the pension fund.
Even with that constraint the company could move the dividend up to the £336,000 limit, which is 6.7p per share.
Also, the deficit gap may be closed by 2023 as many pensioners leave the scheme.
Constraint 2
Signalling to financial markets is an important aspect of dividend policy. Investors become jittery if the dividend jumps about from one year to the next – a sharp drop may be taken as management signalling that bad times are just around the corner.
If the dividend is raised each year to equal earnings then drops will occur from time to time because profits can be lumpy.
The solution adopted by most companies is to have a fairly high dividend (if they lack value-enhancing projects and are shareholder-value oriented) and then, from time to time add in a special dividend.
The regular dividend can be raised on a nice steady path, say 5% - 10% per year signalling to their investors that directors are confident in the future, but also indicating they are aware that downturns happen and so they’ve retained a buffer between EPS and the dividend level.
I would suggest that in the fourth year the dividend is raised to £0.65m or 13p per share. This will be combined with clear messages by the directors in the annual reports that they anticipate providing a “progressive dividend”.
In year 5 it might then be possible to raise the regular dividend by 5% - 10% as well as pay a special dividend of say £0.5m or 10p per share. The special dividends could be handed out most years.

[my retirement fund] 02/7/2019 08:17

I have about £70 worth of shares on a certificate registered to an old address. I remember getting cheques worth less than the cost of the stamp. I can't be bothered to even dig it out to update the registrar.The FCA did compensate me for a few thousand on my original purchase of shares. It was when the company was in cahoots with a city bucket shop and kept placing and selling shares in a scam fashion!The practices of this company have always been questionable.The

[amt] 02/7/2019 07:33

simso. Not sure what your point you are making. Are you saying the pension regulator is wrong?
I have just read a couple of articles by googling this issue and the articles confirm that such restrictions are in line with current practice. So I doubt its worth challenging the decision.
Of course if the deficits were reduced then such restrictions would also be changed.
However as I mentioned before now is the time to build a Brexit war chest.

[castleford tiger] 02/7/2019 05:57

My own sources both Directors and non ex listed company directors also find this questionable .
If the P and L allows it can be done.( increasing the Divi )
I don’t think any of us wanted anything silly but 8/10p should be manageable.
10 p would equate to 500 k
Maybe we need to write to clarify and the other question I would ask is how much of last years dividend cheques remains uncashed?
This would help establish how many lost holders we have my guess is lose to 15% of the shares.
Tiger

[deanowls] 02/7/2019 05:02

If there were a large dominating shareholder and I was a pensions trustee I would also be worried if cash was stepped out of the business particularly with brexit and the product being discretionary. Their role is to protect the fund.

[simso] 01/7/2019 18:47

Hi JackNife,
I also attended the AGM last week, and can confirm that the Chairman did indeed say that the Pension Regulator would require that any Dividend had to be matched "One to One" by Pension Deficit Recovery Payments.

I have been Finance Director of a business with a nasty pension deficit over a 10 year period between 2006 and 2016, and regularly dealt with Trustee and Regulator. I had never heard of the Pension Regulator imposing such a specific "one for one" restriction during that time.

There is always the possibility of this being a "brand new ruling" whcih came in since 2016. However, I met the Directors of Norcross (NXR) recently for a presentation. They have a huge deficit which on the surface looks more onerous than TND's. The cashflow statement for Prelims to March 19 shows a Dividend Payment costing £6.4m and a Deficit Recovery payment of £2.6m. Perhaps TND have been advised differently somehow...but as you say Jaknife, its worth asking the Chairman again to confirm the point in writing. It was a point we discussed extensively in the AGM.

[davidosh] 01/7/2019 09:49

It was a long Agm and the board engaged fully in answering all the questions.

There were seven private investors that attended and all the board were present. The main thrust of the questions from the floor related to the dividend and why it could not be substantially higher. The largest shareholder felt that a four times covered dividend would be reasonable and allow investors a satisfactory return whilst being patient as the company delivers growth.

The chairman then pointed out that the board could not increase the dividend by much more than they do as they are limited by the pension regulator and the pension trustees who would want a matched payment towards the pension defecit. This was followed by a long debate and there was discussion about buybacks and other ways to distribute to shareholders and also tidy up the share register as we have 3480 shareholders.

Rather strange that so few of the 3480 take an interest in the company and maybe by offering the results and Agm presentations that I have suggested to the company then some of these 'lost' shareholders will re engage with their investment. I thought the Agm update was very detailed and that is an excellent basis for Q&A which the seven of us had the benefit of.

The chairman advised us that he is setting up a new initiative of a 'Shareholder/Investor relations committee' which will include just one shareholder and will as I understand it then report to the wider investor community. This idea seemed very strange to me and who would the one shareholder with all this added responsibility be? Furthermore will they be taken inside or just briefed more fully?

I simply want more engagement with those who are keen to have it and on a regular basis. I also want a much higher dividend as only companies with a huge need to reinvest the cash or about to hit the buffers tend to want to pay out a tiny percentage of the profits each year. I think the low dividend puts investors off as they read into it that there is a negative outlook for the company. It also means as an income stock it does not really tick the box either as well below the average even though the earnings are there for all to see.

[amt] 28/6/2019 06:05

Brexit means we will need to be patient for 6 months or so. By the end of the year we will know the second half trading and have an idea of how Brexit is impacting consumer demand. If there is a miracle and some kind of Brexit deal is put together or possibly abandoned altogether there would be a big rise in the pound vs USD. Fortunately the USD is weak at the moment so some cushioning of the pounds fall is occurring. Of course Brexit could be a disaster but in those circumstances it's going to be difficult to avoid loosing money anyway. A satisfactory outcome and the pound could rise 15% vs USD very rapidly. That could work through to GM in 2020 and add over 1 million to Gross Profit in my opinion.
Actually I forgot the other elephant in the room likely to impact the value of the pound. The outcome of the PM election. So Borris probably worse and Hunt better for pound vs USD.