Annual Report for the Year to 30 September 2007 Contents Page Report of Trustee 1 Independent Auditors Report 11 Fund Account 12 Net Assets Statement 13 Notes to Accounts 14 Independent Auditors Statement 24 Trustee s Summary of Contributions 25 Actuarial Certificate 26 Actuarial Statement 27 Schedule of Contributions 30 The Scheme is registered with the Pensions Regulator under Registration Number 10261369
Report of the Trustee Trustee: O2 Pension Trustee Limited Directors of the Trustee Company: Andrew Harley, Chairman Cheryl Black Jeannie Drake Ronan Dunne Arvind Ladwa Gordon Millar Secretary: Robert Harwood Principal Employer: Telefonica O2 Europe plc Wellington Street Slough SL1 1YP Investment Managers: Hermes Assured Limited (until November 2007) Lloyds Chambers 1 Portsoken Street London E1 8HZ BlackRock Investment Management (UK) Ltd 33 King William Street London EC4R 9AS UBS Global Asset Management (UK) Ltd 21 Lombard Street London EC3V 9AH The Equitable Life Assurance Society Walton Street Aylesbury Buckinghamshire HP21 1YE HSBC (UK) Investments Limited 78 St James Street London SW1A 1EJ Legal & General Investment Management (from October 2007) One Coleman Street London EC2R 5AA Investment Advisers: KPMG LLP 1 Puddle Dock London EC4V 3PD 1
Report of the Trustee Investment Performance Measurement: Russell Mellon Europe Limited Albion Tower 11 Albion Street Leeds LS1 5ES Custodians of Assets: The Bank of New York Europe Limited One Canada Square London E14 5AL JP Morgan Chase 60 Victoria Embankment London EC4Y 0JP Actuary: Bart Huby FIA Lane Clark & Peacock LLP 30 Old Burlington Street London W1S 3NN Auditors: Deloitte & Touche LLP Stonecutter Court 1 Stonecutter Street London EC4A 4TR Bankers: The Royal Bank of Scotland PLC PO Box 51 36 St Andrews Square Edinburgh EH2 2YB Solicitors: Allen & Overy One New Change London EC4M 9QQ Administrator & address for enquiries: Accenture HR Services O2 Administration Services Venture House Venture Way Chesterfield S41 8NR 2
Report of the Trustee Introduction The Directors of the Trustee Company present their annual report to O2 Pension Plan ( the Plan ) members, together with the audited financial statements of the O2 Pension Plan, the summary of contributions and the actuarial certificate and statement, for the year to 30 September 2007. The Plan The Plan provides pension or lump sum benefits payable to members on retirement from their employment or to their dependants on death before or after retirement. There are four distinct Sections comprising the O2 Pension Plan: Section 1 A defined contribution section of the Plan open to all employees joining the Principal Employer on or after the 1 April 2001. Section 2 A defined benefit section of the Plan which is currently closed to new entrants but was open to new employees between March 1986 and April 2001. Section 3 A defined benefit section of the Plan which is currently closed to new entrants but was open to new employees before March 1986. Life Assurance Only non-pension members are covered for life assurance only through the Plan. In the financial statements on pages 12 to 23 Sections 2 and 3 have been combined under the heading Defined Benefit Section. Sale of Participating Employer Airwave O2 Limited was sold to companies within the Macquarie group on the 20 April 2007. As part of the sale Airwave O2 Limited remained a participating employer in the Plan and members were able to continue service for 6 months. At 19 October 2007 service came to an end for Airwave O2 Limited (at that date known as Airwave Solutions Limited) members and the Trustee began their duty to calculate a section 75 debt which is a legal debt that the Trustee of a pension scheme must calculate on a participating employer ceasing to participate in the scheme. The debt will be broadly equivalent to the buy-out deficit relating to the Airwave members of the Plan. Trustee The Trustee of the Plan is O2 Pension Trustee Limited and the directors are listed on page 1. Under the Definitive Trust Deed, the Trustee Directors, are appointed and removed by the Principal Employer. Until 28 November 2007, the Principal Employer has, with the agreement of members, opted out of statutory provisions for the appointment of Member Nominated Trustees. From that date a new structure was put in place with a board of six Trustee Directors, three of whom are elected by the active and pensioner members of the Plan. The Directors meet at quarterly intervals to conduct normal business and on such other occasions as are deemed to be necessary. The Directors have appointed committees in circumstances where it is felt that the conduct of its affairs would be facilitated by a committee structure. From 9 November 2006 Philip Bramwell resigned as Trustee Director and Chairman. Dominic Mahony replaced Philip as Trustee Director and Andrew Harley became the Chairman of the Trustee Board. On the 21 May 2007 Dominic Mahony resigned as Trustee Director. From 28 November 2007 Gordon Millar, Jeannie Drake and Arvind Ladwa were appointed to the Trustee Board as elected in the member nominated election. Jeannie and Arvind were existing Trustees at the date of the elections. Cheryl Black was appointed as Trustee Director from the 28 November 2007 by the Principal Employer. 3
Report of the Trustee Actuary Tony Cunningham resigned as Plan actuary with effect from 29th June 2007 and Bart Huby was appointed from 9th July 2007. Tony Cunningham s resignation letter confirmed that he knew of no circumstances connected with his resignation which, in his opinion, might significantly affect the interests of the Plan members, prospective members or beneficiaries. Custody The Custodians are listed on page 2 and are responsible for the security of the Trustee s investments and title thereto. Equities are held in the name of the Custodians on behalf of the Plan. The Trustee is responsible for ensuring that appropriate custody and investment arrangements are in place and reviews the custody arrangements from time to time. The Trustee made the decision to appoint ABN AMRO Mellon Global Securities Services B.V. ( Mellon ) as Global Custodian in the Trustee Meeting of 28 November 2007. The transition from the existing custodians to Mellon is currently in progress. Membership The change in the membership of the Plan over the year to 30 September 2007 is as detailed below: 30 September 2006 (as reported in last year s report) Section 1* 1 Section 2 Section 3 Active Preserved Active Preserved Pensioner Active Preserved Pensioner 2,083 290 2,602 1,204 74 607 86 58 Adjustment to previous year* 2 - (18) - - - - - - New Joiners 617 - - - - - - - Leaver refunds (98) - - - - - - - Leaver decision pending (26) - - - - - - - Leaver transfers (12) (18) - (2) - - - - Leaver preserved (115) 115 (136) 136 - (10) 10 - Retirement (1) (3) (11) (5) 16 (13) (5) 18 Death - - - (2) (1) - - - Child pension - - - - - - - - New child pension - - - - 3 - - - 30 September 2007 2,448 366 2,455 1,331 92 584 91 76 * 1 Note that under Section 1 there are no pensioners as benefits are bought out with insurance companies on retirement. 2 Due to late notifications * Pension Increases All pensions in payment in excess of GMPs were increased by 3.6% per cent in accordance with the Rules of the Plan with effect from 1 April 2007. GMPs were increased in accordance with legislative requirements. 4
Report of the Trustee Cash Equivalents All transfer values paid out of the Plan have been of an amount recommended by the Actuary in accordance with the Rules of the O2 Pension Plan and included the full cash equivalent of early leavers non-discretionary rights in the Plan. Actuarial Valuation The latest Actuarial Valuation was carried out as at the 30 September 2005. The purpose of the valuation is to assess the current financial position of the Plan and to determine what contributions need to be paid to provide for the benefits set out under the Rules of the Plan. The results of the valuation showed the Plan s ongoing funding level to be 81 million in deficit mainly as a result of a strengthening of the actuarial basis. Following the Valuation the Principal Employer committed to increase its ongoing contributions in respect of Section 2 and 3 members to 20.1% of Plan Salaries from 1 October 2005 and also paid a single deficit funding contribution of 81 million. This was paid and invested by the Plan on 15 December 2005. Contributions continue to be paid in accordance with the recommendations of the Actuary. A further valuation is due as at 30 September 2008. Plan Changes as at 1 July 2007 Amendments to the Plan Trust Deed and Rules were made during the year to enable the Principal Employer to put in place a Salary Sacrifice arrangement for contributions. The Deed of Alteration of Scheme Rules was dated 14 June 2007. Financial Developments of the Plan The accounts enclosed within the annual report have been prepared and audited in accordance with regulations made under section 41(1) and (6) of the Pensions Act 1995. The Plan s net assets increased from 616m to 719m over the year to 30 September 2007 attributable to net additions from dealings with members of 37m and net returns on investments of 66m. 5
Report of the Trustee STATEMENT OF TRUSTEE S RESPONSIBILITIES The financial statements are the responsibility of the Trustee. Pension scheme regulations require the Trustee to make available to Plan members, beneficiaries and certain other parties, audited financial statements for each Plan year which :- show a true and fair view of the financial transactions of the Plan during the Plan year and of the amount and disposition at the end of that year of the assets and liabilities, other than liabilities to pay pension and benefits after the end of the Plan year, in accordance with applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice, and contain the information specified in the Schedule to the Occupational Pension Schemes (Requirement to obtain Audited Accounts and a Statement from the Auditor) Regulations 1996, including a statement whether the financial statements have been prepared in accordance with the Statement of Recommended Practice Financial Reports of Pension Schemes (Revised May 2007). The Trustee has supervised the preparation of the financial statements and has agreed suitable accounting policies, to be applied consistently, making any estimates and judgements on a prudent and reasonable basis. The Trustee is also responsible for making available certain other information about the Plan in the form of an Annual Report. The Trustee is responsible under pensions legislation for ensuring that there is prepared, maintained and from time to time revised a schedule of contributions showing the rates of contributions payable towards the Plan by or on behalf of the employer and the active members of the Plan and the dates on or before which such contributions are to be paid. The Trustee is also responsible under pensions legislation for keeping records in respect of contributions received in respect of any active member of the Plan and for monitoring whether contributions are made to the Plan by the employer in accordance with the schedule of contributions. Where breaches of the schedule occur. The Trustee is required by the Pensions Acts 1995 and 2004 to consider making reports to the Pensions Regulator and the members. Under Trust Law, the Trustee has general responsibility for ensuring that adequate accounting records are kept and for taking such steps as are reasonably open to it to safeguard the assets of the Plan, for the system of internal control and to prevent and detect fraud and other irregularities. 6
Report of the Trustee INVESTMENT REPORT The investments of the Plan are reviewed quarterly and the returns are presented to the Trustee on a regular basis. Russell Mellon Europe Limited provides an independent performance measurement of the investment managers. General investment background The index returns from the major investment groupings over the 12-month period to 30 September 2007 are shown in the table below: The best performance was by Overseas Equities over the last 12 months to 30 September 2007. UK Equities also produced solid returns although saw some volatility during the year. Bond markets throughout the globe were depressed and this was reflected in investment performance during the course of the year. Investment Report Defined Benefit (Sections 2 and 3) The Trustee retains three investment managers to manage the assets of the Defined Benefit Sections of the Plan: BlackRock UK Equities UBS Global Asset Management Limited (UBS) Overseas Equities Hermes Investment Management Limited (HIM) UK Equities and Bonds Blackrock and UBS manage their assets on an active basis, which means that they try to achieve better returns than the stockmarket index. The general investment aim of the active managers is to maximise investment returns and capital gains on Plan assets without exposing them to undue risks. HIM manage their assets on a passive basis, which means that they try to achieve returns in line with a specified stockmarket index. The use of index tracking funds, whilst losing the scope for out-performance, adds stability, which is of vital importance. 7
Report of the Trustee The investment managers objectives are laid down in the customer agreements between the Trustee and the investment managers. The terms of appointment of the managers include safeguards for the custody of holdings and cash deposits. The Plan's actual and target asset allocation at 30 September 2007 was: Asset class Asset Allocation (actual) % Asset Allocation (target) % UK Equities 48.4 45 FTSE All Share Benchmark index Overseas Equities 43.9 45 FTSE All World Developed (ex UK ) Index UK Corporate bonds 3.6 5 Merrill Lynch Sterling Non-Government All Stock Over 5 Year Index UK Index Linked Gilts 3.8 5 FTSE A Over 5 Year Index-Linked Gilt Index Cash 0.6 N/A Total 100.0 100.0 The equity component of the benchmark continues to be transitioned so that the equities are evenly distributed between UK and overseas equities. New contributions into the Plan are being used to effect this change but the strong performance of the equity element of the portfolio means that the benchmark asset allocation has not yet been reached. The table below shows the market values of the assets of each fund manager as at 30 September 2007 and the performance versus benchmarks. Investment Manager Performance (1 year) Performance (3 year) Total Assets Investment Manager Fund m Objective % Benchmark % Fund % Benchmark % BlackRock 20.5 12.2 25.6 17.1 To outperform the index by 2% annualised over 3 year periods Hermes 11.3 10.9 14.5 14.2 To perform in line with the benchmark index UBS 5.1 11.5 11.1 13.9 To outperform the index by 2% annualised over 3 year periods 178.27 289.93 199.19 Total Assets 11.7 11.4 16.4 15.0 667.39 Investment Changes The Trustee undertook a review of the Defined Benefit investment strategy during the year and decided to change the asset allocation and a number of the managers. The strategy will be implemented in the Plan year beginning 1 October 2007. Hermes gave notice to the Trustee that it was ceasing to provide passive management services and assets were switched from Hermes to Legal & General on the 17 October 2007 (Defined Benefits) and 13 November 2007 (Defined Contributions). 8
Report of the Trustee Investment Report Defined Contribution (Section 1) The Trustee has appointed three investment managers to manage the assets of the Defined Contribution Section of Plan: UBS Global Asset Management Limited (UBS) UK and Overseas Equities Hermes Investment Management Limited (HIM) UK Equities, Overseas Equities, Bonds, Gilts and Cash. (see page 8 for change after year end) HSBC (UK) Investments Limited (HSBC) Amanah Fund The investment options with Hermes and HSBC are managed on a passive basis. UBS manage their assets on an active basis. The performance targets, benchmarks and performance statistics for the last year and the last 3 years are below: Investment fund Hermes UK Equity Hermes Global Equity Hermes UK Fixed Interest Hermes UK Index-linked Gilts Hermes Cash UBS UK Equity UBS Global Equity Ex-UK HSBC Amanah Fund Performance target To track the benchmark To track the benchmark To track the benchmark To track the benchmark To track the benchmark To outperform the benchmark by 1% pa over rolling 3 year periods. To out perform the benchmark by 2% pa over rolling 3 year periods. To track the benchmark Performance (1 year) Performance (3 years) Benchmark Actual Benchmark Actual Benchmark FTSE All Share 12.3 12.2 17.1 17.1 50% UK equities/50% Overseas equities 13.2 12.7 17.1 16.8 FTSE A Over 15-3.6-3.6 4.0 4.0 Year Gilt Index FTSE A Over 5 2.7 2.6 6.0 6.0 Year Index-Linked Gilt Index LIBID 5.6 5.5 5.0 4.9 FTSE All Share 8.0 12.2 14.0 17.1 FTSE All World Developed (ex UK) Index Dow Jones Islamic Market Titans Index 5.4 11.5 11.2 13.9 14.5 14.5 * * * These investments have not yet been held for 3 years. 9
Report of the Trustee The Trustee monitors the suitability of the fund options and investment managers on a periodic basis. In assessing each fund option or manager, the Trustee will have regard to a number of criteria including the investment process and historic performance track record. The full Statement of Investment Principles (SIP) has been prepared in accordance with Section 35 of the Pensions Act 1995 by the Trustee. The SIP is available from the Secretary (see page 1). On behalf of O2 Pension Trustee Limited as Trustee of the O2 Pension Plan. Andrew Harley Chairman, O2 Pension Trustee Limited 3 March 2008 10
Independent Auditors Report to the Trustee of the O2 Pension Plan We have audited the financial statements of the O2 Pension Plan for the year ended 30 September 2007 which comprise the fund account, net assets statement and the related notes 1 to 14. These financial statements have been prepared on the basis of the accounting policies set out therein. This report is made solely to the Trustee, as a body, in accordance with regulation 3 of the Occupational Pension Schemes (Requirement to obtain Audited Accounts and a Statement from the Auditor) Regulations 1996 made under the Pensions Act 1995. Our audit has been undertaken so that we might state to the Trustee those matters we are required to state to it in an auditors report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Trustee as a body for our audit, for this report or for the opinion we have formed. Respective responsibilities of Trustee and auditors The Trustee s responsibilities for obtaining audited financial statements prepared in accordance with applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice) are set out in the Statement of Trustee s Responsibilities Our responsibility is to audit the financial statements in accordance with United Kingdom legal and regulatory requirements and International Standards on Auditing (UK and Ireland). We report to you our opinion as to whether the financial statements show a true and fair view in accordance with the relevant financial reporting framework and contain the information specified in the Schedule to the Occupational Pension Schemes (Requirement to obtain Audited Accounts and a Statement from the Auditor) Regulations 1996 made under the Pensions Act 1995. We report to you if, in our opinion, we have not received all the information and explanations that we require for our audit, or if information specified by law is not disclosed. We read the other information presented with the financial statements and consider whether it is consistent with the financial statements. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Basis of audit opinion We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the Trustee in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Plan s circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of the information in the financial statements. Opinion In our opinion: the financial statements show a true and fair view, in accordance with United Kingdom Generally Accepted Accounting Practice, of the financial transactions of the Plan during the Plan year ended 30 September 2007, and of the amount and disposition at that date of the assets and liabilities, other than liabilities to pay pensions and benefits after the Plan year end; and the financial statements contain the information specified in regulation 3 and the Schedule to the Occupational Pension Schemes (Requirement to obtain Audited Accounts and a Statement from the Auditor) Regulations 1996. Deloitte & Touche LLP Chartered Accountants and Registered Auditors London, United Kingdom 3 March 2008 11
Fund Account 30 September 2007 Contributions and Benefits Contributions Transfers in Other income Year ended 30 September 2006 Section 1 Section 2/3 Total Total Note 3 4 5 12,652,704 629,760 159,139 31,369,941 14,377 28,757 44,022,645 644,137 187,896 120,952,416 404,703 131,521 13,441,603 31,413,075 44,854,678 121,488,640 Benefits Leavers Other payments Administrative expenses 6 7 8 9 228,974 980,282 212,500 242,923 4,022,072 43,578 317,192 1,393,882 4,251,046 1,023,860 529,692 1,636,805 2,521,587 406,438 758,128 1,345,440 1,664,679 5,776,724 7,441,403 5,031,593 Net additions from dealings with members 11,776,924 25,636,351 37,413,275 116,457,047 Returns on investments Investment income Investment management expenses Change in market value of investments 10 11 12 - (52,120) 4,000,355 7,261,091 (5,280,294) 59,376,746 7,261,091 (5,332,414) 63,377,101 5,809,405 (1,832,153) 62,905,908 Net returns on investments 3,948,235 61,357,543 65,305,778 66,883,160 Net increase in the fund during the year 15,725,159 86,993,894 102,719,053 183,340,207 Net Assets of the Plan At 1 October 2006 32,404,694 583,413,710 615,818,404 432,478,197 At 30 September 2007 48,129,853 670,407,604 718,537,457 615,818,404 The notes on pages 14 to 23 form part of these financial statements. 12
Net Assets Statement 30 September 2007 Defined Contribution Section 1 2007 2006 Note Investments 12 46,939,813 31,380,362 Current Assets 13 1,664,093 1,238,817 Current Liabilities 13 (474,053) (214,485) Net Current Assets 1,190,040 1,024,332 48,129,853 32,404,694 Defined Benefit Section 2/3 Investments 12 674,522,596 582,886,549 Current Assets 13 3,488,594 2,608,173 Current Liabilities 13 (7,603,586) (2,081,012) Net Current (Liabilities)/Assets (4,114,992) 527,161 670,407,604 583,413,710 Net Assets of the Plan at 30 September 2007 718,537,457 615,818,404 The financial statements summarise the transactions of the Plan and deal with the net assets at the disposal of the Trustee. They do not take account of obligations to pay pensions and benefits, which fall due after the end of the Plan year. The actuarial position of the Plan, which does take account of such obligations, is dealt with in the actuarial statement included in the annual report and these financial statements should be read in conjunction with it. The notes on pages 14 to 23 form part of these financial statements. The financial statements on pages 12 to 23 were approved by the Trustee on 3 March 2008 and signed on behalf of O2 Pension Trustee Limited. Andrew Harley Chairman, O2 Pension Trustee Limited 13
Notes to Accounts 1. Basis of preparation These financial statements have been prepared in accordance with the Occupational Pension Schemes (Requirement to obtain Audited Accounts and a Statement from the Auditor) Regulations 1996, and with the guidelines set out in the Statement of Recommended Practice, Financial Reports of Pension Schemes (Revised May 2007). The revised SORP has been applied early in order to comply with best practice. The financial statements summarise the transactions of the Plan and deal with the net assets at the disposal of the Trustee. They do not take account of obligations to pay pensions and benefits, which fall due after the end of the Plan year. 2. Accounting policies The principal accounting policies are set out below. 2.1 Accruals concept The financial statements have been prepared on an accruals basis. 2.2 Valuation of investments All investments are valued at their market value at 30 September 2007 determined as follows. (a) (b) (c) Listed securities are valued at market value ruling at the Plan year end date. Market value is based upon closing prices, being last trade price or bid price depending on market convention. The market value of pooled investment vehicles is taken as the bid price at the accounting date, as advised by the Investment Managers. Investments held in foreign currencies have been valued on the relevant basis and translated into sterling at the rate ruling at the Plan year end date. Exchange gains and losses arising on translation are included as part of the change of market value in the investments. In previous years investments have been valued at mid-market prices. The change reflects the requirements of the revised SORP. Had the year end investments been valued in accordance with the previous policy, their overall value would have been 759,987 higher. Comparative figures have not been restated as the information is not readily available and the Trustee does not consider the difference to be material. 2.3 Contributions and benefits Contributions and benefits are accounted for in the year in which they fall due. Employee normal contributions are recognised when they are deducted by the employer from payroll falling due in the year. Employer normal contributions are based on rates of earnings and accounted for on the same basis of employee contributions. Employer special contributions, including augmentations and single payment deficit contributions, are accounted for in accordance with the agreement under which they are being paid or, in the absence of such agreement, on a receipts basis. Benefits payable include all valid benefit claims notified to the Trustee during the financial year. 14
Notes to Accounts (continued) 2.4 Transfers Individual transfer values to and from other pension arrangements are accounted for when received or paid. Group transfers are accounted for on the accruals basis where the Trustee has agreed to accept the liability for members benefits. 2.5 Investment income Interest and dividends are accounted for on an accruals basis. Dividends from quoted securities are accrued when the underlying security is quoted ex-dividend. The pooled investment vehicle units do not generate income as income arising on the underlying assets is reinvested to enhance unit values. Overseas income is translated into sterling at the rate ruling at the date of the transaction. Income due at the year end is translated at the rate ruling at 30 September 2007 and any differences on receipt are included in the fund account. 15
Notes to Accounts (continued) 3. Contributions Contributions from employer: Normal Special Contributions from members: Normal Additional Voluntary Contributions Year ended Year ended 30 September 2007 30 September 2006 Section 1 Section 2/3 Total Total 7,943,633 24,527,597 32,471,230 26,145,316 15,370 718,200 733,570 82,905,300 7,959,003 25,245,797 33,204,800 109,050,616 2,593,588 5,411,695 8,005,283 9,322,933 2,100,113 712,449 2,812,562 2,578,867 4,693,701 6,124,144 10,817,845 11,901,800 12,652,70 4 31,369,941 44,022,645 120,952,416 The employer has been reimbursed part of the costs of life assurance premiums payable for section 1 members from the general assets of the plan (see note 8). 4. Transfers in Year ended 30 September 2007 Year ended 30 September 2006 Section 1 Section 2/3 Total Total Individual transfers in from other pension arrangements 629,760 14,377 644,137 404,703 5. Other income Claims on term insurance policies Interest on cash deposits held by the Trustee Other income Year ended Year ended 30 September 2007 30 September 2006 Section 1 Section 2/3 Total Total 159,018-159,018 110,640-26,759 26,759 20,881 121 1,998 2,119-159,139 28,757 187,896 131,521 16
Notes to Accounts (continued) 6. Benefits Year ended Year ended 30 September 2007 30 September 2006 Section 1 Section 2/3 Total Total Pensions - 1,796,410 1,796,410 1,553,457 Commutations and lump sum retirement benefits 11,546 2,225,662 2,237,208 745,042 Commutations and lump sums on death in service 159,018-159,018 124,888 Purchase of annuities 58,410-58,410 98,200 228,974 4,022,072 4,251,046 2,521,587 7. Leavers Year ended 30 September 2007 Year ended 30September 2006 Section 1 Section 2/3 Total Total Refunds to members leaving service 176,753 (5,120) 171,633 134,701 Refunds to individuals opting out of the Plan 77,895-77,895 9,225 Individual transfers out to other pension arrangements 725,634 48,698 774,332 232,512 980,282 43,578 1,023,860 406,438 8. Other payments Year ended 30 September 2007 Year ended 30 September 2006 Section 1 Section 2/3 Total Total Premiums on group life insurance policies 212,500 317,192 529,692 758,128 Group life insurance policies were provided by policies underwritten by Norwich Union. 17
Notes to Accounts (continued) 9. Administrative expenses Year ended 30 September Year ended 30 September 2007 2006 Section 1 Section 2/3 Total Total Administration and processing 242,923 544,391 787,314 372,287 Actuarial fees - 215,912 215,912 406,967 Audit fee - 45,910 45,910 32,720 Legal and other professional - 475,238 475,238 409,400 fees Communications expenses - 112,323 112,323 86,171 Other - 108 108 37,895 242,923 1,393,882 1,636,805 1,345,440 Except as noted above, costs of the administration of the Plan are borne by the employing company. 10. Investment income Year ended 30 September 2007 Year ended 30 September 2006 Section 1 Section 2/3 Total Total Dividends from equities - 7,752,323 7,752,323 6,236,914 Interest on cash deposits - 177,313 177,313 88,597 Other, including currency losses - (123,824) (123,824) 6,652 Irrecoverable tax - - 7,805,812 (544,721) 7,805,812 (544,721) 6,332,163 (522,758) - 7,261,091 7,261,091 5,809,405 18
Notes to Accounts (continued) 11. Investment management expenses Year ended 30 September 2006 Year ended 30 September 2007 Section 1 Section 2/3 Total Total Administration, management and custody 52,120 5,269,860 5,321,980 1,825,718 Performance measurement fees - 10,434 10,434 6,435 52,120 5,280,294 5,332,414 1,832,153 12. Investments The movements in total investments for the year were as follows: Market Value at 1 October 2006 Purchases and payments under futures contract Sales and receipts under futures contracts Change in market value Market Value at 30 September 2007 Section 1 Pooled Investment Vehicles 31,380,362 13,215,033 (1,655,937) 4,000,355 46,939,813 Section 2/3 UK Equities 147,624,630 40,631,551 (38,725,400) 26,878,275 176,409,056 Overseas equities 174,509,563 78,754,149 (63,066,838) 4,318,907 194,515,781 Futures (10,108) (10,108) Pooled Investment Vehicles 252,806,381 9,803,583-27,554,337 290,164,301 Cash Instruments 100,671 19,217,875 (19,065,997) 49,950 302,499 AVC investments 4,947,334 1,092,787 (231,562) 585,385 6,393,944 579,988,579 149,499,945 (121,089,797) 59,376,746 667,775,473 Cash deposits 1,884,128 9,582,112 Investment debtors 3,109,565 4,737,638 Investment creditors (2,095,723) (7,572,627) 582,886,549 674,522,596 Total Investments 614,266,911 721,462,409 The change in market value of investments during the year comprised all increases and decreases in the market value of investments held at any time during the year, including profits and losses realised on sales of investments during the year. 19
Notes to Accounts (continued) Transaction costs are included in the cost of purchases and sale proceeds. Transaction costs charged directly to the Plan include costs such as commissions and stamp duty. Transaction costs incurred during the year cannot be separately identified and so have not been disclosed, a departure from the requirements of the SORP. Comparative information is also not available and so is not disclosed. In addition to transaction costs on direct holdings, indirect costs are incurred through the bid-offer spread on investments within the pooled investment vehicles. The amount of indirect costs is not separately provided to the Plan. The UK and overseas equities are quoted. The futures contracts are as follows: Type of future Expiration Economic exposure value SPI 200 Index 20 December 2007 143,470 Nikkei 225 (OSE) Index 13 December 2007 359,115 S&P 500 Index 20 December 2007 2,642,326 DJ Euro Stoxx 50 Index 21 December 2007 923,715 4,068,626 The Plan s objectives in entering these contracts is to facilitate efficient portfolio management within the constraints of the investment management mandate. 20
Notes to Accounts (continued) 12. Investments (continued) Market value at 30 September 2007 Designated to members Not designated to members Year ended 30 September 2006 Year ended 30 September 2007 Section 1 Section 2/3 Total Total 46,873,017 6,393,944 53,266,961 6,296,206 66,796 668,128,652 668,195,448 577,970,705 46,939,813 674,522,596 721,462,409 614,266,911 The Pooled Investment Vehicles are held under managed fund policies in the name of the Plan. Income generated by these units is not distributed, but retained within the managed fund and reflected in the market value of the units. The companies managing the Pooled Investment Vehicles are registered in the United Kingdom. Employer-related investment The Plan has no employer-related investments as defined in the Pensions Act 1995. Concentration of investments There were no investments representing more than 5% of the Plan s net assets other than the investments in the pooled investment vehicles with Hermes Assured Limited, which amounted to 47% of the assets. By the nature of these investments, the underlying assets are in a wide range of investment types. There are no significant individual investments. AVC investments The Trustee holds assets within the main fund, in the form of individual AVC accounts. These secure additional benefits, on a money purchase basis, for those members who have elected to pay additional voluntary contributions. Members participating in this arrangement receive an annual statement made up to 30 September each year, confirming the amounts held to their account and the movements during the year. AVC investments are held by: 2007 2006 Hermes 6,139,082 4,778,244 UBS 212,972 129,033 Equitable Life 41,890 40,057 6,393,944 4,947,334 21
Notes to Accounts (continued) 13. Current assets and liabilities Current assets Designated to members 30September 30 September 2007 2006 Section 1 Section 2/3 Total Total Contributions receivable 1,045,899 50,907 1,096,806 897,612 Cash at bank 150,097-150,097 29,152 Other debtors 9,087-9,087 543 1,205,083 50,907 1,255,990 927,307 Not designated to members Contributions receivable Cash at bank Other debtors - 345,206 113,804 2,729,141 542,217 166,329 2,729,141 887,423 280,133 2,474,236 203,990 241,457 459,010 3,437,687 3,896,697 2,919,683 1,664,09 3 3,488,594 5,152,687 3,846,990 22
Notes to Accounts (continued) 13. Current assets and liabilities continued Current liabilities Designated to members 30 September 30 September 2007 2006 Section 1 Section 2/3 Total Total Tax due to HMRC in respect of refunds of contributions 13,931-13,931 8,423 Benefits payable 37,322 445,924 483,246 292,644 Refunds of contributions 122,047 11,668 133,715 67,133 Not designated to members 173,300 457,592 630,892 368,200 Group Life premiums Income tax Other creditors Investment management expenses payable Administrative expenses payable 62,500-149,600 15,792 72,861-31,087 16 5,493,528 1,621,363 62,500 31,087 149,616 5,509,320 1,694,224 87,432 26,707 27,456 1,163,793 621,909 300,753 7,145,994 7,446,747 1,927,297 474,053 7,603,586 8,077,63 9 2,295,497 14. Related party transactions Certain administration and secretarial activities are carried out on behalf of the Trustee by the sponsoring employer. The costs, which cannot be identified, are borne by the sponsoring employer. All other costs are paid by the sponsoring employer and recharged to the Plan and are shown in notes 9 and 11. Certain of the trustee directors are members of the Plan on the same terms as other members. 23
Independent Auditors Statement about Contributions to the Trustee of the O2 Pension Plan We have examined the summary of contributions to the O2 Pension Plan for the Plan year ended 30 September 2007 to which this statement is attached. This statement is made solely to the Trustee, as a body, in accordance with regulation 4 of the Occupational Pension Schemes (Requirement to obtain Audited Accounts and a Statement from the Auditor) Regulations 1996 made under the Pensions Act 1995. Our work has been undertaken so that we might state to the Trustee those matters we are required to state to it in an auditors statement about contributions and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Trustee as a body for our work, for this statement, or for the opinion we have formed. Respective responsibilities of Trustee and auditors As described in the statement of Trustee s responsibilities, the Plan s Trustee is responsible for ensuring that there is prepared, maintained and from time to time revised a schedule of contributions which sets out the rates and due dates of certain contributions payable towards the Plan by or on behalf of the employer and the active members of the Plan. The Trustee is also responsible for keeping records in respect of contributions received in respect of active members of the Plan and for monitoring whether contributions are made to the Plan by the employer in accordance with the schedule of contributions It is our responsibility to provide a statement about contributions paid under the schedule of contributions certified by the actuary and to report our opinion to you. Basis of statement about contributions We planned and performed our work so as to obtain the information and explanations which we considered necessary in order to give reasonable assurance that contributions reported in the summary of contributions have in all material respects been paid at least in accordance with the schedule of contributions. For this purpose the work that we carried out included examination, on a test basis, of evidence relevant to the amounts of contributions payable to the Plan and the timing of those payments under the schedule of contributions. Our statement about contributions is required to refer to those material breaches of the schedule of contributions which come to our attention in the course of our work. Statement about contributions In our opinion contributions for the Plan year ended 30 September 2007 as reported in the summary of contributions have in all material respects been paid at least in accordance with the schedule of contributions certified by the actuary on 23 December 2005. Deloitte & Touche LLP Chartered Accountants and Registered Auditors London, United Kingdom 3 March 2008 24
Trustee s Summary of Contributions Payable in the Year During the year the contributions payable to the Plan by the employer under the schedule of contributions were as follows: Notes Section 1 Sections 2/3 Total Employer normal contributions 1 7,943,633 24,527,597 32,471,230 Employer special contributions 2 15,370 718,200 733,570 7,959,003 25,245,797 33,204,800 Members normal contributions 2,593,588 5,411,695 8,005,283 Total contributions payable under the schedule of contributions 10,552,591 30,657,492 41,210,083 Members Additional Voluntary Contributions 3 2,100,113 712,449 2,812,562 Total contributions included in the financial statements 12,652,704 31,369,941 44,022,645 Notes: 1. The Schedule of Contributions was certified by the actuary on 23 December 2005. From 31 December 2005 the employer normal contributions in respect of Sections 2/3 rose to 20.1%. 2. The employer special contributions were amounts to fund augmented benefits for specific members. 3. Members additional voluntary contributions are not covered by the schedule of contributions. Approved on 3 March 2008 and signed on behalf of O2 Pension Trustee Limited. Andrew Harley Chairman, O2 Pension Trustee Limited 25
Actuarial Certificate 26
Actuarial Statement 27
Actuarial Statement 28
Actuarial Statement 29
Schedule of Contributions 30
Schedule of Contributions 31
Schedule of Contributions 32
33