Invensys agrees future funding plan for UK Pension Scheme and cancels further Term Loan B debt

Invensys agrees future funding plan for UK Pension Scheme and cancels further Term Loan B debt

Invensys plc (“the Company”) is pleased to announce that it has signed an agreement with the Trustee of its main UK pension fund, the Invensys Pension Scheme (“the Scheme”). This agreement sets out a definitive future funding plan for the Scheme and increases clarity and certainty for both the Company and the Scheme’s members.

As previously announced, the triennial valuation of the Scheme has been conducted by the Scheme’s actuary under the requirements of the Pensions Act 2004 with a valuation date of 30 September 2005. This valuation has resulted in an actuarial funding deficit of £325 million for the Scheme, compared with the IAS19 accounting deficit on the same date of £315 million.

The Company has agreed to fund this actuarial deficit over nine years, commencing with a contribution of £105 million on or before 31 March 2006, contributions of £20 million in each of the years ending 31 March 2007 and 31 March 2008, and then contributions of £35 million per annum in today’s money, but uplifted for inflation, until the deficit is eliminated. The Company intends to make the first three years’ payments out of the escrow account which was put in place for legacy liabilities at the time of the refinancing in March 2004.

These payments replace the current deficit reduction contributions of £30 million per annum being made into the Scheme. The Company will also continue to meet the annual service cost of the Scheme. In the current financial year, this is estimated to be around £16 million.

Following the payment of £105 million on or before 31 March 2006, the Scheme is expected to be in excess of 104% funded on a Pension Protection Fund (“PPF”) basis. As a consequence, the Scheme is expected to pay only a small risk-based PPF levy and therefore, under the agreement reached with the Trustee, no specific contributions for PPF levies will be made to the Scheme by Invensys plc.

The Scheme liabilities have been calculated using in particular the following actuarial assumptions, as agreed between the Company and the Trustee:

• Discount Rate – 5.2% (gilts plus 0.9%)
• Life Expectancy – PA 92 Tables with a loading of 126% and medium cohort effect
• Inflation – 2.8% with average expected future pension increases of 3.3%

It is intended that the technical assumptions used in this valuation will be carried forward into the calculation of UK liabilities for disclosure under IAS 19 with the principal exception of the discount rate. As required under IAS 19, the discount rate will be set having regard to the yields on AA rated bonds. At 30 September 2005, the IAS 19 discount rate was 5.0%.

It is expected that the accounting deficit for the Scheme calculated under IAS 19 at the Company’s next balance sheet date, 31 March 2006, will be higher than the agreed actuarial funding deficit (and also the IAS 19 deficit) at 30 September 2005 mainly as a result of the difference in discount rate. This movement in the IAS 19 accounting deficit does not affect the Scheme’s cash funding which will be undertaken in accordance with the payment schedule described above.

The Group’s worldwide IAS 19 pension deficit, which stood at £609 million at 30 September 2005, is likely to be increased at 31 March 2006. It will be increased by around £170 million due to changes in technical assumptions, principally in respect of mortality, mainly in the UK Scheme but also including adoption of the latest mortality tables in the USA. The deficit will be reduced by the £105 million payment to be made on or before 31 March 2006. On the basis of current market valuations, the deficit will also have increased due to falls in UK AA corporate bond yields, offset by increases in asset values. The precise change due to market valuations will not be calculated until the AA corporate bond rate at 31 March 2006 is known and the investment reports for the period are received from the asset managers.

This agreement has been reached after extensive negotiations with the Trustee. Under the new pension rules in the UK, the Pensions Regulator has the right to review any funding agreement reached between a Trustee and a company sponsor. Invensys and the Trustee believe that this agreement meets the criteria set out in the Pension Regulator’s draft guidance.

The Company and the Trustee have also resolved the questions surrounding the Trustee’s investment powers. It will not now be necessary to seek the Court’s guidance on this matter.

Ulf Henriksson, Chief Executive of Invensys plc, commented:

“We believe that this is a good deal for the members of the Scheme and the Company which balances their respective interests. It brings clarity and certainty and meets the criteria set out in the Pension Regulator’s draft guidance.”

Finally, as signalled in February, the Company will on or before 31 March 2006 take a further step in improving the efficiency of its balance sheet by voluntarily repaying and cancelling a further £105 million of its Term Loan B facility.