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