The updated pension scheme, confirmed on Tuesday (March 28), would come from a reduced deficit contribution from the manufacturer, Premier Foods said. The 2017/2018 financial year would see a £16M drop in deficit contribution to pensions.
The food manufacturer pledged to add “limited further cash contributions” to the pension scheme, should it outperform its agreed targets.
What are reduced deficit contributions?
Total contributions (with no adjustment made for investment returns), minus:
- special contributions to buy an investment in an asset-backed contribution arrangement or coupon payments
- the cost of accrual of scheme benefits
- scheme expenses between valuations
- the cost of growth since the previous valuation
- benefits paid out of the scheme before the last valuation, but not reflected in the corresponding asset value.
Source: Pension Protection Fund
Shares rose 1.4%
Premier Foods’s share price rose 1.4% to 44.93p in early trading on Tuesday, following the announcement.
Premier Foods chief financial officer Alastair Murray said: “We are pleased to have agreed a reduction in our pension scheme obligations with the scheme trustees as we continue to focus on maximising the company’s free cash flow generation and debt reduction.
“While this has been a challenging negotiation, we appreciate the open and constructive dialogue which has taken place with all pension scheme trustees in arriving at this revised agreement.”
After the £32M reduced costs in the short-term, Premier Foods said costs would increase by £13M over the following three years from 2020/2021.
Future deficit payments – outstanding payments to balance the books – remained at between £300M and £320M, the manufacturer added.
The pension scheme update came after Premier Foods revealed it had launched a £10M cost-saving plan in January, as a response to its 10% drop in annual expected profit. The cost-saving scheme would support Premier Foods’s goals of improving profit and free cash flow, while also investing in innovation and consumer marketing, it said.
The launch was revealed in Premier Foods’s third-quarter trading update, where it reported a 1% fall in group sales. Branded sales were down 3.8%, while grocery sales fell 1.9%.
Premier Foods updated pension scheme
- Costs cut by £32M over three years
- Costs to increase £13M from 2020/2021
- Share price up 1.4%