UK/IRELAND - Dairy Crest has reported a £171m (€194m) decline in the combined value of its two defined benefit (DB) schemes, resulting in an aggregate deficit of £63.3m.

Figures from the food company's final results for the year to 31 March 2009 showed the combined assets of the UK-based Dairy Crest Group Pension Fund and the Irish Wexford Creamery Pension Fund were £513m on an IAS19 basis compared with £684.8m in 2008.

As a result, the aggregate funding position for the two schemes moved from a £31.6m surplus to a £63.3m deficit over the year, although £60m of this is attributable to the £505.2m Dairy Crest Scheme, with the £7.8m Wexford scheme recording a small £3.3m shortfall.

Dairy Crest Group blamed the decline in the funding position on the "unprecedented weak performance of equity and bond markets during the year partly mitigated by increased AA corporate bond yields".

The latest triennial valuation of the UK scheme was in March 2007, however following the latest figures the Group confirmed it had paid an additional £12m into the UK scheme in 2008/09 and planned to "resume deficit funding contributions at a rate of £20m per annum from October 2009".

Mark Allen, chief executive of Dairy Crest Group, stated "in light of additional cash contributions to the pension fund" and the impact of the disposal of a subsidiary on 2009/10 earnings the Board had reviewed the group's dividend policy.

Allen confirmed: "The Board has concluded that it is sensible to conserve cash and ensure that the business is well funded to protect investment in its brands and into efficiency-driven capital projects. Accordingly, it has decided to rebase this and future dividends by 25%."

Meanwhile, the figures showed the value of the combined equity portfolio of the two schemes declined from £389.6m over the year to £264.9m, while the market value of the bonds and cash holdings fell from £266.3m to £106.9m and property and other investments slipped to £27.2m from £28.9m.

The decline in the funding position of the DB schemes follows a £150m buy-in of UK scheme with Legal & General in December 2008, which aimed to insure around half of the scheme's liabilities of pensions in payment.

In the results statement, the Group claimed this structure "provides flexibility for Dairy Crest and the trustee to explore further similar arrangements in the future", as it provides protection for the fund against financial and demographic risks including members living longer than expected.

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