Dairy Crest is to plug its defined benefit (DB) pension scheme deficit with cheese.
The dairy products manufacturer, which produces brands such as Cathedral City, Clover, Country Life and Yoplait, has granted the scheme a floating charge over maturing cheese inventories with a maximum realisable value of £60 million.
This is aimed at improving the pension scheme’s position in the event of an insolvency, while retaining funds within Dairy Crest.
Inventories of maturing cheese are estimated at £150 million as of 31 March 2013.
Dairy Crest has also agreed to pay a one-off cash contribution of £40 million to the pension scheme. This is in addition to its on-going annual deficit contributions of £20 million, which are paid in monthly installments.
The DB scheme closed to new members since 2006 and to future accrual since 2010.
Over the years, Dairy Crest has taken steps to reduce the risk of the pension fund, including a £300-million purchase of a bulk annuity for pensions in payment and an enhanced transfer exercise, which Employee Benefits reported exclusively in November 2011.
The organisation sold its French spreads business St Hubert in August 2012 for £341 million in cash, the proceeds of which will provide Dairy Crest with a further opportunity to strengthen the pension scheme’s financial position and reduce overall risk.
Mark Allen, chief executive of Dairy Crest, said: “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.”
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