Dairy Crest Group Pension Fund's liabilities have been backed by £60m worth of the company's maturing cheese, it has been revealed.

By doing this, Dairy Crest said that if it became insolvent, the pension fund could pay its pensioners an income by selling the cheese stock, which as of 31 March 2013 was estimated at £150m.

The company will also make a one-off £40m cash contribution to fund its pension fund deficit in addition to its on-going annual deficit contributions of £20m, which are paid monthly.

Some of the proceeds from Dairy Crest's £341m sale of St Hulbert, its French spreads business, in 2012 will go towards the cash payment of the pension fund.

The move also allows the company to address the trustees' concerns about the employer covenant following the sale of St Hulbert.

Mark Allen, Dairy Crest chief executive, said: "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."

First published 19.04.2013

monique_simpson@wilmington.co.uk