Vesuvius plc Prospectus

As at 31 December 2011, the estimated funding position showed an improved funding ratio
of 97 per cent. on a scheme specific funding basis and, calculated on an IAS 19 basis, the
funding ratio was 116 per cent. (i.e. a funding surplus). As at 30 June 2012, there was a net
surplus of £46.2 million in relation to the UK Plan (calculated on an IAS 19 basis).
The next formal triennial valuation is due as at 31 December 2012. The Directors expect
that the valuation will show further improvements to the funding position of the UK Plan,
although this may be impacted by investment performance and actuarial assumptions in the
period to 31 December 2012. Contributing to the expected improvement of the funding
position compared to the position as at 31 December 2009 are the following: (i) the deficit
recovery contributions paid under the current schedule of contributions agreed following the
December 2009 valuation, (ii) the mitigation payment to be made to the UK Plan in respect
of the Demerger (see below for more information), (iii) the change, with effect from
1 January 2011, to the revaluation of deferred member benefits in 2011 so they are
henceforward calculated based on CPI increases rather than RPI increases, (iv) the
implementation of a successful enhanced transfer value exercise which has reduced the
number of deferred members remaining in the UK Plan by some 550 members and has
eliminated the inflation, interest rate, investment and longevity risk in respect of £50 million
of liabilities under the UK Plan and (v) the de-risking of the UK Plan’s investment strategy
by “matching” a large part of the pension liabilities with an insurance policy. On 19 July
2012, the Trustee of the UK Plan announced that it had entered into a pension insurance
buy-in agreement with Pension Insurance Corporation to insure approximately 60 per cent.
of the UK Plan’s total liabilities, covering all current pensioner members. This arrangement
has further significantly reduced the inflation, interest rate, investment and longevity risk
for the UK Plan in respect of these liabilities.
9.1.2 Impact of the Demerger on the Cookson Group Pension Plan
Following the Demerger, Cookson Group intends that the UK Plan will remain with
Vesuvius and the Alent employers who participate in the UK Plan (Alpha Fry Limited and
Enthone Limited) will cease to participate with effect from the Demerger. In order to ensure
there is a “clean break” in respect of the Alent employers, their pension liabilities in respect
of the UK Plan will be discharged in full. This will be achieved by apportioning the pension
liabilities of the Alent participating employers to Cookson Group plc and combining this
with a mitigation payment into the UK Plan.
Cookson has agreed with the Trustee of the UK Plan a mitigation package in light of the
loss of support from the Alent participating employers which will reduce the financial
covenant of the employers supporting the UK Plan. Cookson has agreed to make a
mitigation payment equal to approximately 25 per cent. of the UK Plan’s Section 75 deficit
calculated as at Completion of the Demerger. This is estimated at approximately equivalent
to a £32 million payment to the UK Plan. The mitigation will be payable in the form of two
cash lump sums. The first lump sum will be paid to the Trustee on 14 December 2012 and
will be calculated as 90 per cent. of the sum that would otherwise have been due had
Completion occurred on 31 October 2012. The second lump sum will be the difference
required to bring the total mitigation payment to the mitigation figure calculated as at
Completion, and will be paid within three working days of the Trustee notifying Cookson of
the relevant amount.
9.1.3 Clearance from the Pensions Regulator
Clearance from the Pensions Regulator has been obtained in respect of the impact of the
Demerger on the UK Plan. The purpose of seeking clearance from the Pensions Regulator is
to obtain confirmation that it would not be reasonable in the circumstances for the Regulator
to impose any liability on the applicants (which includes the two Alent participating
employers who will cease to participate in the UK Plan as a result of the Demerger) under a
contribution notice or financial support direction in respect of the UK Plan. The clearance
therefore confirms that these employers have no further liability in relation to the UK Plan
in respect of the matters covered by the clearance application.
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