Revised capital structure and pension scheme funding agreed


Following last year’s successful sale of its French spreads business, St Hubert, Dairy Crest, the leading UK-owned dairy foods company, is today announcing a reorganisation of its capital structure and an agreement to provide additional funding to the Dairy Crest Group Pension Fund (“the Pension Fund”).

Key points are as follows:

  • Early repayment of £100 million of loan notes at an exceptional cost of £8.8 million
  • Revolving Credit Facility reduced by €60 million (£51 million) to £247 million
  • One off cash contribution of £40 million to the Pension Fund
  • Pension Fund granted a floating charge over maturing cheese inventories with a maximum realisable value of £60 million

Earlier this month Dairy Crest made a scheduled repayment of a further £60 million of loan notes.

Together, these actions mean that Dairy Crest has a more appropriate capital structure with lower interest charges of approximately £7 million in the year ending 31 March 2014 leading to an improved dividend cover. The company has also strengthened the long-term funding position of the Pension Fund.

Although we have no immediate plans to make major acquisitions the company retains its ability to make smaller acquisitions and invest in internal capital projects which will generate attractive returns for shareholders.


In August 2012 Dairy Crest sold its French spreads business St Hubert for £341 million in cash and recorded a pre-tax profit of £51.4 million on the transaction. Since that time Dairy Crest has been holding substantial amounts of cash on short term deposit in order to retain flexibility while the Board evaluated the full range of options for the use of proceeds from the sale. However these deposits have been delivering very low returns and the Board has now decided that shareholders' interests are best served by the implementation of a more appropriate capital structure.

At the time of the disposal Dairy Crest had £337 million of loan notes on which it was paying around 5% interest. £7 million of notes were voluntarily redeemed at par by investors in November 2012.

On 4 April 2013 a further £60 million of loan notes from the 2006 series which had reached their maturity date were repaid.

Voluntary Loan Note Repayment

Dairy Crest is today voluntarily repaying £100 million of loan notes from the 2007 series, which were used to finance the original purchase of St Hubert. Of these, the majority (£69 million) were due for repayment in April 2014 with the balance due in April 2017. In order to repay these notes, and hence avoid future interest payments, Dairy Crest is exercising its contractual right to early redemption on payment of a make-whole premium of £8.8 million. This make-whole premium is intended to compensate investors for their expected losses as a result of the early repayment, and is the subject of a contractual formula in Dairy Crest's note purchase agreement. This is standard market practice, and the size of the premium reflects primarily the material difference between current interest rates and those applying when the notes were issued in 2007.

Following this repayment Dairy Crest will have £170 million of loan notes outstanding which mature between 2014 and 2021.

The make-whole premium will be reported as an exceptional cost in the year to 31 March 2013 in view of its size and nature.

Revolving Credit Facility ("RCF")

Following the sale of St Hubert, Dairy Crest has also agreed with its lending banks to reduce its RCF by €60 million (£51 million) to £247 million as the larger facility is no longer required.

Pension Fund

Over recent years Dairy Crest has been proactive in seeking ways to reduce exposure to the
Pension Fund. Examples of risk reduction projects include the £300 million purchase of a bulk annuity for pensions in payment, closure of the scheme to future accrual and an enhanced transfer value exercise.

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. 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.

After detailed discussions with the Trustee, Dairy Crest has agreed to make an immediate one-off payment into the Pension Fund of £40 million. This is in addition to the on-going annual deficit contributions of £20 million which are paid monthly.

Dairy Crest has also provided the Trustee of the Pension Fund with a floating charge over its maturing cheese inventories to a maximum realisable value of £60 million. This will improve the Pension Fund's position in the event of an insolvency while retaining funds within Dairy Crest.

Inventories of maturing cheese as of 31 March 2013 are estimated at £150 million.

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."

For further information, please contact:

Dairy Crest Group plc
Arthur Reeves 01372 472236

Simon Sporborg 020 7404 5959
Sophie Brand