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04

Dairy Crest uses cheese to address pension funding concerns

Open-access content Friday 19th April 2013 — updated 5.13pm, Wednesday 29th April 2020

Dairy Crest has used the multi-million pound value of its maturing cheese reserves to back its pension scheme liabilities.

The 'floating charge' arrangement announced by the dairy food company yesterday aims to address scheme trustees' concerns over its commitment to protect the scheme and its members following the £341m sale of its French spreads business St Hubert in August 2012.

As of the end of last month, Dairy Crest had inventories of maturing cheese worth an estimated £150m, and up to £60m worth of this can now be used to improve the pension fund's position in the event of the company entering insolvency.

Dairy Crest also committed to making an immediate one-off payment into the pension fund of £40m, in addition to its monthly deficit contributions which together amount to £20m a year.

'The proceeds of the sale of St Hubert provide Dairy Crest with a further opportunity to strengthen the Pension Fund's financial position and reduce overall risk,' the company said in a statement. 'It also allows the company to address the trustee's concerns about the employer covenant following the St Hubert disposal and the associated repayment of long-term debt.'

As of the end of September, the company's pension scheme deficit stood at £83.8m on an accounting basis. In yesterday's statement, it noted that it had already taken steps to reduce the company's exposure to the fund, including the purchase of a £300m bulk annuity for pensions in payment, as well as closing the scheme to future accrual.

The new plans for the pension fund are part of a wider capital restructuring using proceeds from the sale of St Hubert. Mark Allen, chief executive of Dairy Crest, commented: 'Following the successful sale of St Hubert, we have now restructured our balance sheet, putting in place a more appropriate capital structure.  This will reduce interest costs going forward and underpin the dividend and still gives us scope to invest to grow the business. 

'We are also pleased to have reached agreement with the trustee of the pension fund to improve its financial position at an acceptable cash cost to the company.'

This article appeared in our April 2013 issue of The Actuary .
Click here to view this issue

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