Cheesy solution to Dairy Crest’s pension challenge

The processor unveiled plans last week to transfer 20Mkg of its Cathedral City cheese to back its pension fund. About 20,000 pallets of cheese – representing half the firm’s stock – have been pledged to the pension fund.

Julian Wild, food group director at legal firm Rollits, told FoodManufacture.co.uk that the move was an “eminently sensible way forward”.​

“Long-standing food companies have had a final salary pension scheme of one sort or another, with the result that they have some pretty massive pension liabilities,”​ he said. “Those liabilities are getting bigger not smaller, generally, and some are pretty eye-watering.” ​

Wild added: “In the absence of any significant acquisitions activity, and because it has received some pretty substantial proceeds from the sale of its French business, it is sitting on quite a lot of money. In the absence of something to spend it on, it has pretty sensibly decided to restructure its borrowing and liabilities.”​

£20M a year​

“It is paying down a substantial amount of debt and reducing its financing costs. And, because they have a commitment to their pension funds, which is £20M a year, it has made a one-off contribution over and above the annual payment​ [£40M].”

Wild said it was the nature of the commodity – cheese – that had attracted attention. “If we were talking Rolls Royces, nobody would bat an eyelid. Essentially, the pension fund is being granted a floating charge over their stock. Being Dairy Crest, that stock happens to be cheese and it has a realisable value of about £60M. It used to be a lot higher than that, but I suspect they’ve taken a prudent view over the realisable value of the stock.”​

‘Diageo did something similar’​

A spokeswoman agreed that the move had been interpreted as novel but added Diageo did something similar with its whisky. “It provided the necessary reassurance for the pension fund and it’s an alternative to piling a lot of cash into the fund,” ​she said.

Arthur Reeves, Dairy Crest corporate affairs director, confirmed: “Diageo did it with Scotch whisky, and cheese, whisky and wine have quite a lot in common – they’re maturing products. So the more we looked at it, the better it looked as an option.​

“You have to remember it only kicks in if Dairy Crest becomes insolvent, which is very, very unlikely. But what it lets us do is give the trustees of the pension fund some comfort about the funding, but still lets us use the cash. So it’s a neat way of doing it.” ​

Reeves added that the move should reassure the people in the pension fund that their pension is safe.

But adopting a similar solution would not suit all food manufacturers, such as the debt-laden Premier Foods.

“I don’t think it would​ [suit Premier Foods] because, of course, as bread gets older it becomes worthless – it goes off. Whereas with cheese, it becomes more valuable as it matures. It’s the sort of thing you could perhaps do with frozen food,”​ said Reeves.