Whitbread DB pension swings into £222m surplus following Costa sale

The Whitbread defined benefit pension scheme funding level swung into a surplus of £222m after a one-off contribution of £381m following the sale of Costa Coffee.

Whitbread agreed to make the contribution which allowed Costa to be released from its obligations to the pension scheme and enabled the trustee to reduce its investment risk.

As of 30 August 2019, the Whitbread Group Pension Fund posted a surplus of £222m, an increase of £383.5m from the same time last year, when it registered a deficit of £161.5m.

It’s deficit six months ago (28 February 2019) stood at £119.6m.

The one-off contribution agreement replaced the previous protection and agreed deficit recovery plan, which would have required Whitbread to make total payments of £326m to the scheme over the next four years.

Its interim results report explained that additional contributions of around £10m per year will continue to be paid into the scheme through the Scottish Partnership arrangements.

Of the £381m one-off payment, £107m was paid in the first half of 2019, with the remaining £274m being paid in the first half of 2020.

The firm’s adjusted net finance costs were £15m lower in H1 2019 than in H1 2018, partially due to the elimination of the pension finance cost.

In the first half of 2019, employer contributions totalled £276.9m, while return on plan assets was £64.3m and net interest totalled £2.1m.

However, its liabilities were £119.6m and administrative expenses totalled £1.4m, resulting in a surplus of £222.3m.

Commenting on the report, Whitbread chief executive officer, Alison Brittain, said: "We have delivered a resilient first half profit performance despite challenging market conditions in the UK.

“Shorter-term trading conditions in the UK regional market have been difficult, particularly in the business segment where we have a higher proportion of our revenue, whilst trading in London remained strong.

“Whilst the near-term market conditions in the UK remain uncertain, we have confidence in the long-term structural opportunities available in the domestic budget travel markets in the UK and Germany.

“Following successful completion of our return of surplus capital programme, we still have a strong balance sheet, providing support for ongoing disciplined deployment of capital, which will deliver growth over the longer term."

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