Material change in pension funding structure
News Release
London, 17 November 2015
For immediate release
SMITHS ANNOUNCES MATERIAL CHANGE IN PENSION FUNDING STRUCTURE
Agreement increases company's free cash flow by £36 million per year
Smiths Group plc is pleased to announce the finalisation of the triennial valuation of the Smiths Industries Pension Scheme (SIPS) at 31 March 2015, under which the actuarial deficit for the scheme is £285 million, £250 million lower than the previous triennial valuation in 2012.
The Company has agreed with the Trustee a material reduction in the level of annual cash contributions into the scheme. The Company will also formally contribute the pension escrow account1 to SIPS, resulting in a net effective actuarial deficit at 31 March 2015 of £145 million. As a result, the SIPS scheme would have shown a surplus on an accounting basis of £117 million at 31 July 2015.
As a result of this agreement, which takes effect in December 2015, the total annual contribution to SIPS will fall from £60 million to £24 million, resulting in a £36 million increase in free cash flow. The contributions under the recovery plan, which is expected to result in SIPS being fully funded in June 2020, are shown below:
|
SIPS contributions (£m) Year to 31 July |
2015 |
2016 |
2017 |
2018 |
2019 |
2020 |
|
Annual cash contributions |
36 |
29 |
24 |
24 |
24 |
22 |
|
Escrow |
24 |
10 |
0 |
0 |
0 |
0 |
|
Total |
60 |
39 |
24 |
24 |
24 |
22 |
The improved funding position has allowed the SIPS Trustee to reduce risk in its investment strategy, which should result in lower volatility in the plan.
This agreement with SIPS follows the partial buy-out of the US pension scheme in August 2015 under which $527 million of liabilities, representing all 5,500 current pensioners, were transferred to Voya Retirement Insurance and Annuity Company. This transaction has resulted in around 60% of the gross liabilities of the US scheme being insured.
As previously disclosed, contributions to non UK schemes in the year to 31 July 2016 will total approximately £74 million, including a large one off contribution to help fund the US buyout. Ongoing contributions to non-UK plans, primarily in the USA, are shown below. The US scheme is expected to be fully funded in 2020.
|
US contributions (£m) |
2015 |
2016 |
2017 |
2018 |
2019 |
2020 |
|
Annual cash contributions |
27 |
74 |
23 |
23 |
23 |
23 |
As a result of these actions, the combined funding status of the SIPS and US schemes are summarised as follows:
|
Surplus / (Deficit) (£m) |
|
Actuarial Basis |
|
Accounting Basis |
||
|
|
|
31 July 2015 |
31 October 2015 |
|
31 July 2015 |
31 October 2015 |
|
SIPS |
|
(279) |
(104) |
|
(30) |
143 |
|
US Scheme |
|
(123) |
(85) |
|
(123) |
(85) |
|
Total |
|
(402) |
(189) |
|
(153) |
58 |
Chris O'Shea, Chief Financial Officer, said:
"I am pleased that we have reached agreement with the SIPS Trustee on both the level of the deficit and contributions. Increasing free cash flow by £36 million per annum will underpin the Group's ability to invest in attractive opportunities and to continue to grow dividends in line with the long term growth in underlying earnings. Both the SIPS derisking initiative, which will reduce substantially future volatility and value at risk in the scheme, and the US buy-out, are significant steps in our journey to minimise the impact of legacy pension liabilities on the Group."
Notes
In addition to SIPS, Smiths Group also operates the TI Group Pension Scheme (TIGPS) in the UK, a defined benefit pension plan in the US and other small schemes elsewhere. These plans are all closed to both new entrants and further benefit accrual. Current contributions to the TIGPS are £16 million per annum; this is subject to ongoing discussion with the TIGPS Trustee as part of agreeing the triennial valuation as at 5 April 2015.
_________________
1 In 2009, the Company established an escrow account into which it made annual contributions of £24 million. The balance in this escrow account at 31 March 2015 was c.£140 million.
ENDS
Investor Relations
Andrew Lappin: +44 (0)20 7808 5557 / +44 7805 007035
Media Relations
Colin McSeveny: +44 (0)20 7808 5534
Anthony Cardew - Cardew Group: +44 (0)20 7930 0777 / +44 (0)7770 720389
Smiths Group
Smiths is a global technology company listed on the London Stock Exchange (SMIN) and operates a sponsored level one ADR programme (SMGZY). A world leader in the practical application of advanced technologies, Smiths Group delivers products and services for the threat & contraband detection, medical devices, energy and communications markets worldwide. Our products and services make the world safer, healthier and more productive. Smiths Group employs around 23,000 people in over 50 countries. For more information visit www.smiths.com.
This information is provided by RNS
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