Dairy Crest is to use the proceeds from the sale of its French spreads business to reduce debt and make a £40m payment to its pension fund.

The dairy giant sold St Hubert for £341m in August last year, making a pre-tax profit of £51.4m.

It will make an early repayment of £100m of loan notes at an exceptional cost of £8.8m, leaving £170m of notes outstanding (due to mature between 2014 and 2021).

A one-off cash contribution of £40m to the company’s pension fund will be made, to strengthen the fund’s position and reduce overall risk. In addition, Dairy Crest has granted a floating charge – with a maximum realisable value of £60m – over its maturing cheese inventories, valued at £150m at 31 March 2013. It would improve the fund’s position in the event of insolvency while at the same time retaining funds within Dairy Crest, the company said in a statement. 

Dairy Crest had restructured its balance sheet and put in place a more appropriate capital structure, said chief executive Mark Allen. “This will reduce interest costs going forward and underpin the dividend and still gives us scope to invest to grow the business.”

The company said it had no immediate plans to make any major acquisitions but it retained its ability to make smaller acquisitions and invest in internal capital projects that would generate attractive returns for shareholders.

As part of the revisions to its capital structure, Dairy Crest has reduced its revolving credit facility by £51m, to £247m.

In August last year, Dairy Crest had £337m of loan notes outstanding (but has since made a scheduled repayment of £60m and another payment of £7m).