Diageo Forms Pension Funding Partnership

1st Jul 2010 07:15

LONDON (Dow Jones)--Diageo PLC (DGE.LN), the drinks company, Thursday announced that agreement has been reached with the Trustee of the U.K. Diageo Pension Scheme on a 10 year funding plan. MAIN FACTS: -At the time of the triennial actuarial valuation at 1 April 2009 the deficit of the U.K. Scheme was GBP862 million. -This triggered a requirement to put in place the 10 year funding plan which has been announced Thursday. -Key points of the agreement include: -GBP197 million which was agreed under the 2006 funding plan has been transferred to the U.K. Scheme. -A pension funding partnership will be formed (the PFP), which will hold maturing whisky spirit as assets. -This structure will generate an income to the U.K. Scheme which is expected to total GBP25 million each year over the term of the PFP. -The PFP is expected to be in place for 15 years after which time the Trustee will be able to sell its PFP interests to the company for an amount expected to be no greater than the deficit at that time, up to a maximum of GBP430 million. -The company will further underwrite the reduction of the U.K. Scheme deficit through an agreement to make conditional cash contributions into escrow totaling GBP338 million if an equivalent reduction in the deficit is not achieved over the 10 year term. -It is expected that the annual payments to the U.K. Scheme of GBP25 million together with payments which are anticipated under the agreement currently being negotiated in respect of the Guinness Ireland Group Pension Scheme will be broadly cash flow neutral against the GBP50 million per annum which has been paid in respect of the U.K. Scheme since 2007. -These arrangements will have no impact on the value of Diageo's net assets. -Diageo and the Trustee will establish a pension funding partnership. -Diageo will contribute at least GBP430 million to the PFP, GBP367 million of which will be paid to the U.K. Scheme which the Trustee has decided to invest in the PFP, with the balance paid directly into the PFP by Diageo companies. -These capital contributions will be used to invest in maturing whisky spirit. -The PFP will generate an annual income to the Trustee anticipated to be GBP25 million. -The PFP will be consolidated in the Diageo group accounts and is intended to remain in place for 15 years, after which time the Trustee may sell its investment in the PFP back to Diageo for an amount expected to be no greater than the remaining deficit in the U.K. Scheme, up to a maximum of GBP430 million. -Diageo will continue to make annual contributions in respect of its employees' future pensions benefits under the U.K. Scheme, of GBP50 million annually. -Shares closed Wednesday at 1060.0 pence. -By Iain Packham, Dow Jones Newswires; 44-20-7842-9269; [email protected] (END) Dow Jones Newswires July 01, 2010 02:15 ET (06:15 GMT)