• 2016 actuarial valuation for the Dairy Crest Group Pension Fund (the “Fund”) now agreed and incorporates a change in indexation from RPI to CPI
• Cash contributions reduced by £12 million over the next two financial years
• Actuarial deficit reduced to £100 million at March 2016 (from £145 million in 2013); to be addressed by recovery plan to March 2022

In March 2013 the Fund’s actuarial valuation disclosed a deficit of £145 million. In the three years to the March 2016 actuarial valuation, falling gilt yields increased Fund liabilities by over £200 million which more than offset improved asset performance. However, the March 2016 actuarial valuation has been agreed with the trustee of the Fund (the “Trustee”) resulting in a reduced deficit of £100 million.

The March 2016 deficit reflects an agreed change to the indexation of pensions in payment. Following detailed negotiations with the Trustee, in future annual increases will be linked to CPI rather than RPI. CPI is already used by the Fund for increases in deferred pensions and is becoming more widely used across the UK including for the calculation of increases in public sector pensions. This change was agreed as part of a broader package to put the Fund on a stronger foundation for the future. This package includes continuing to move to lower-risk investments over time.

CPI is generally lower than RPI and therefore changing to CPI reduces the estimate of future benefit costs. The value of this future reduction in costs is estimated to be £75 million on an actuarial basis. On an accounting basis the estimated benefit is approximately £125 million and this will be reported as an exceptional gain in the year ended 31 March 2018.

Alongside the March 2016 actuarial valuation, we have also agreed a revised schedule of cash contributions. The new schedule provides for contributions of £10 million in 2017/18 and £15 million in 2018/19; a reduction of £12 million over two years compared to contributions payable under the previous schedule of contributions.

After 2018/19, deficit reduction contributions will revert to £20 million per annum until March 2022. These contributions, along with gradual de-risking of interest rate exposure and risk-asset exposure, should result in a self-funding position for the Fund by that date. Another Actuarial Valuation will take place in March 2019 following which a new contribution schedule will be agreed.

Dairy Crest expects to issue its pre-trading statement for the six months ending 30 September 2017 on 18 September 2017.

For further information:

Investors/Analysts
Tom Atherton  Group Finance Director, Dairy Crest 
01372 472264

Media
Tim Danaher / Oliver Hughes  Brunswick
 020 7404 5959