Diageo Expects To Increase Contributions to Post Employment Plans
23 August 2012 (PLANSPONSOREurope.com) - Drinks group Diageo expects to increase contributions to its post-employment plans to £140m in 2013 from £133m made in the year ended 30 June 2012.
Preliminary results for the year reveal the deficit of post-employment plans before tax increased by £247 million from £838 million at 30 June 2011 to £1,085m at 30 June 2012 which the group attributes to a decrease in the discount rate assumptions used to calculate the liabilities of the plans partly offset by a decrease in the inflation assumptions and changes in the calculation of future pension increases.
Meanwhile cash contributions to the group's UK and Irish pension plans in the year ended 30 June 2012 were £133m (2011 - £151m and are expected to be roughly £140m for the year ending 30 June 2013.
The group says it also expects that the adoption of the revised accounting standard IAS 19 would result in an additional charge to the income statement in the year ended 30 June 2012 of approximately £65m.
Diageo says: “Diageo has significant pension funds. These funds may be affected by, among other things, the performance of assets owned by these plans, the underlying actuarial assumptions used to calculate the surplus or deficit in the plans, in particular the discount rate and long term inflation rates used to calculate the liabilities of the pension funds, and any changes in applicable laws and regulations. If there are significant declines in financial markets and/or deterioration in the value of fund assets or changes in discount rates or inflation rates, Diageo may need to make significant contributions to the pension funds in the future. Furthermore, if the market values of the assets held by Diageo's pension funds decline, or if the valuations of those assets by the pension trustees decline, pension expenses may increase and, as a result, could materially adversely affect Diageo's financial position.
"There is no assurance that interest rates or inflation rates will remain constant or that pension fund assets can earn the assumed rate of return annually, and Diageo's actual experience may be significantly more negative.”