Manufacturing sector to be hit with £200m increase in finance cost

Barnett Waddingham, the independent firm of actuaries and consultants which conducted the survey of manufacturing companies in the FTSE350, says the increase in finance costs is due to the revised the International Accounting Standards rule IAS19 which will take effect for accounting periods beginning on or after 1 January 2013. The new standard is intended to simplify and improve the quality of disclosures made about employee benefits plans but will also have a real impact on the disclosed profits of companies with defined benefit plans, say the actuaries. In particular, companies will no longer be able to set the expected return on a scheme's assets according to the assets actually held by the plan. The calculation will, from 2013, effectively assume all assets are invested in AA-rated corporate bonds which are generally expected to produce lower returns than a typical scheme's investment strategy. Barnett Waddingham's Nick Griggs (pictured) commented: "The survey of FTSE350 companies with defined benefit schemes indicated that profits for the latest available accounting periods would have been around £2bn lower had the new standard been in force. To put this into context, the total disclosed profits for these companies was in the region of £50bn."