17th Dec 2008 07:00
17 December, 2008
Dairy Crest takes steps to decrease risk in its pension scheme and to reduce its net debt
exposure to currency movements.
Dairy Crest is today announcing two initiatives to provide greater certainty regarding its pension scheme and net debt position.
Firstly, the Dairy Crest Group Pension Fund has purchased a £150 million bulk annuity policy from Legal & General Assurance Society Limited. This policy will insure approximately half the Fund's liability for pensions in payment.
Secondly, Dairy Crest has taken steps to more closely align the currency profile of its borrowings with its geographical profile of profits. This action will benefit the Group by substantially reducing the extent to which borrowings will increase in the event that sterling weakens further from today's levels.
Neither of these initiatives will have a material effect on current-year earnings.
Dairy Crest Group Pension Fund agrees £150 million bulk annuity policy with Legal & General
Dairy Crest Group plc and the Trustee of the Dairy Crest Group Pension Fund have agreed a £150 million transaction that sees Legal & General Assurance Society Limited, a fully owned subsidiary of Legal & General Group plc, insuring part of the Fund's pension liabilities.
The policy covers around half of the Fund's liability for pensions in payment, providing flexibility for Dairy Crest and the Trustee to explore further similar arrangements in the future.
For the liabilities insured, the deal will provide protection to the Fund and employer against both financial and demographic pension risks, in particular members living longer than expected. The Fund will continue to pay pensions and members will not be impacted directly as the policy is an investment of the Fund. Dairy Crest remains committed to working together with the Trustee to meet its pension obligations, through a combination of cash funding and strategic investment of the Fund's assets.
As at 30 September 2008, the Fund had total liabilities of £658 million on an IAS19 basis.
David Felder, Chairman of the Trustee, said: "'This buy-in is a key step towards reducing the overall investment and actuarial volatility faced by the Fund and is part of an ongoing programme of seeking routes which will reduce our overall pension risk. We are pleased to be working with Legal & General, as a well-established leader in the provision of pensions."
The lead adviser to Dairy Crest and the Trustee on the transaction was KPMG, with further advice provided by Aon, Mercer and Clifford Chance.
Exchange Rate Risk Reduction
As a further step in managing risk, Dairy Crest has entered into arrangements that will reduce the effect of future currency movements on the group's net debt. The effect of these transactions is to change €200 million of euro denominated debt into sterling denominated debt, leaving a balance of €170 million denominated in euros. This brings the debt structure more in line with the profile of the Group's operating profit, about 25% of which arises in France and Eire.
The Group's net debt at 31st March 2009, assuming no further changes in the sterling/euro exchange rate, is expected to be approximately £500 million. As a result, calculated on a basis that is consistent with the group's banking arrangements, the net debt to EBITDA ratio on this date is expected to be approximately 3.25. This gives acceptable headroom against the covenant limit of 3.50. Movements in the sterling/dollar exchange rate do not affect the Group's net debt.
Alastair Murray, Dairy Crest Group Finance Director, said: "Reducing risk, and more specifically exposure to financial markets, is a priority for the Group given current levels of volatility. The two initiatives being announced today are an important step in achieving this aim."
For further information, please contact:
Dairy Crest Group plc
Arthur Reeves 01372 472236
Brunswick
Simon Sporborg 020 7404 5959
Jayne Rosefield
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