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Profit before protection?

The impact of BHS’s administration on its defined benefit pension schemes has been front page news. Martin Hunter looks at some of the lessons from a very messy story.

Sir Philip Green acquired BHS for £200m in 2000. Subsequently, the business performed very well – profit before tax peaked at £102m in March 2004. However, profitability then declined. By August 2014, cumulative losses before tax of £416m had been generated over six financial years.

In March 2015 BHS was sold to Retail Acquisitions Limited for £1. The BHS Pension Scheme and the BHS Senior Management Scheme (collectively the BHS Schemes) had a modest surplus of £17m on the FRS 17 accounting basis at March 2002.

However, changes in market conditions led to a deficit of £77m the following year. Although there had been some improvement by 2008, the economic downturn contributed to a substantially larger deficit from 2009 onwards.

On 25 April 2016 the administrators were called in at BHS, putting the jobs of its 11,000 staff at risk. The company had been struggling for some time prior to administration, with it last recording a profit in the year to 29 March 2008. Deficits recorded on its balance sheet in respect of the BHS Schemes had increased significantly in recent years.

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