trustee’s annual report and financial statements for the ... · for the year ended 31 march 2016...

The Bayer Group Pension Plan Plan Registration Number: 101826552

Trustee’s Annual Report and Financial Statements

For the Year Ended 31 March 2016

CONFIDENTIAL

Bayer Group Pension Plan Confidential

This report has been prepared by Capita Employee Benefits on the behalf of 1 Bayer Group Pension Plan

Contents Trustee and Advisors ........................................................................................................................................... 2

Trustee’s Report .................................................................................................................................................. 4

Plan Management ............................................................................................................................................ 4

Investment Matters ......................................................................................................................................... 17

Report on Actuarial Liabilities ......................................................................................................................... 23

DC Governance Statement ............................................................................................................................... 25

Independent Auditor’s Report ............................................................................................................................ 28

Independent Auditor’s Statement about Contributions ...................................................................................... 29

Fund Account ..................................................................................................................................................... 30

Statement of Net Assets available for benefits .................................................................................................. 31

Notes to the Financial Statements ..................................................................................................................... 32

Appendix 1: Summary Funding Statements ...................................................................................................... 54

SHCL Section .................................................................................................................................................. 54

BCSPF Section ............................................................................................................................................... 56

Group DB Section ........................................................................................................................................... 58

Appendix 2: Actuary's Certification of the Schedule of Contributions ............................................................... 60

SHCL Section .................................................................................................................................................. 60 BCSPF Section ............................................................................................................................................... 61 Group DB Section ........................................................................................................................................... 62

Appendix 3: DC Section Statement of Investment Principles............................................................................ 63


2

Trustee and Advisors

Principal Employer

Bayer plc, Bayer House, Strawberry Hill, Newbury, Berkshire, RG14 1JA.

Participating Employers

Bayer CropScience UK Limited

Trustee

Silver Birch Trustees Limited

Trustee Directors

Please note: The names of the Trustee Directors have been removed for information security reasons.

Secretary to the Trustee

Please note: The name of the Secretary to the Trustee has been removed for information security reasons.

Plan Administrator

Capita Employee Benefits – Group DB Section, BCSPF Section and SHCL Section

Fidelity Investments Life Insurance Limited – Defined Contribution Section (until 5 July 2016)

Plan Consultants

Lane Clark & Peacock LLP

Plan Actuary

Michelle Wright (from 28 June 2016)

Bob Scott (until 28 June 2016)


Investment Advisor


Communications Advisor

SHILLING


3

Trustee and Advisors (continued)

Investment Managers

Legal & General Investment Management Limited – Group DB Section, BCSPF Section and SHCL Section

Fidelity Investments Life Insurance Limited – Defined Contribution Section (until 5 July 2016)

CB Richard Ellis (“CBRE”) – Group DB Section, BCSPF Section and SHCL Section

BlackRock Advisors – Group DB Section, BCSPF Section and SHCL Section (until August 2015)

Additional Voluntary Contribution Providers

Friends Life (Group DB Section and BCSPF Section)

The Equitable Life Assurance Society (closed to new investments)

Phoenix Life Limited (Group DB Section only – closed to new investments)

Fidelity Investments Life Insurance Limited (available to all sections) (until 5 July 2016)

Investment Custodians

The Bank of New York Mellon Asset Servicing

Auditor

RSM UK Audit LLP (formerly known as Baker Tilly UK Audit LLP)

Legal Advisers

CMS Cameron McKenna LLP

Bankers

National Westminster Plc

Life Assurance Company

Canada Life Limited


4

Trustee’s Report

The Trustee (Silver Birch Trustees Limited) of the Bayer Group Pension Plan (the Plan) is pleased to present its

annual report together with the financial statements for the year ended 31 March 2016. The first part of this

report is a summary of the key aspects. Detailed reports are subsequently provided for each section.

Plan Management

Composition of the Trustee Board

A list of Board Directors is provided on page 2. There have been no changes to the Trustee Directors during the

year. There has been one resignation since the year end.

Company Designated Directors are appointed by the Principal Employer, serve on the Trustee Board for an

indefinite period and can be removed from office at any time by the Principal Employer. The board currently has

5 Company Designated Directors.

Member Nominated Directors (MNDs) are elected by the active and pensioner members, in accordance with the

Plan’s MND arrangements. The board currently has 3 MNDs.

There is one Independent Trustee Director on the Board, a role filled by BESTrustees (a firm of professional

trustees). The Independent Trustee Director is appointed by the Principal Employer and its term of office is for

the duration of its contract with the Principal Employer.

Key activities during the past 12 months

The Trustee Directors met four times during the period from 1 April 2015 to 31 March 2016. At the start of each

calendar year, the Trustee approves a Business Plan of activities it wishes to undertake to meet its objectives (in

addition to its statutory and regulatory obligations). The Trustee devoted particular time to reviewing its advisers,

the future of the Plan (see page 5) and its communication strategy.

The Trustee also delegates certain tasks to four Sub-Committees, in accordance with individual terms of

reference. The Sub-Committees are:

the Asset and Liability Sub-Committee (ALC) (previously the Investment Sub-Committee (ISC))

the Governance and Funding Sub-Committee (GFSC)

the Defined Contribution Sub-Committee (DCSC)

the Communications Sub-Committee (CSC)

Current membership of the Sub-Committees is listed below:

Trustee Director ALC GFSC DCSC CSC

X

X

X

X

X

X

X

X

X


5

Trustee’s Report (continued)

Plan Management (continued)

Pension Plan Structure

The Plan contains three Defined Benefit sections (Bayer Group Pension Scheme (Group DB), Bayer CropScience Pension Fund (BCSPF) and the SHCL Pension Scheme (SHCL)), which are all closed to new members, and a Defined Contribution section which remains open to new membership from employees of any participating company and is used as the participating employers’ vehicle for auto-enrolment.

At 31 March 2016 the Plan numbers were as follows:

ACTIVE MEMBERS PENSIONERS DEFERRED MEMBERS ALL

DB only

DC switch

DC only

DB only

DC switch

DB only

DC switch

DC only

TOTAL

SHCL 3 47 - 218 16 331 41 - 656

BCSPF 9 35 - 2,014 19 1,190 161 - 3,428

Group DB 28 124 - 1,432 11 1,596 75 - 3,266

DC only - - 681 - - - - 655 1,336

Total 40 206 681 3,664 46 3,117 277 655 8,686

Taxation Status

The Plan, established on 21 November 1959, is currently governed by a Trust Deed, dated 20 April 2009. The Plan is a registered pension scheme under Chapter 2 of Part 4 of the Finance Act 2004. The Trustee knows of no reason why this status may be prejudiced or withdrawn.

Prior to its cessation on 6 April 2016, members of the DB category were contracted-out of the State Second Pension Scheme (S2P). DC members participate fully in the State Scheme.

Changes to the Plan during the year

During the year a Deed of Amendment was signed to update the Trust Deed and Rules to reflect the abolition of short-service refunds.

Parent Company Guarantee

As part of the valuation of the Plan as at 31 March 2011, the Trustee agreed the terms of a legally binding

guarantee with Bayer AG, under which the German parent company will be responsible in certain circumstances

for making payments to the Plan should Bayer plc and Bayer CropScience Ltd not be able to do so. The

guarantee is dated 26 June 2012 and provides members with significant additional protection. There were no

changes to the guarantee following the 31 March 2014 valuation.


6



The financial statements and reference terms within them

The financial statements on pages 30 to 53 have been prepared and audited in accordance with the regulations

made under Sections 41(1) and (6) of the Pensions Act 1995. They show that the value of the Plan decreased

from £1,452,605,000 at 31 March 2015 to £1,407,563,000 at 31 March 2016.

Reference to "the Company" throughout this document refers to the relevant Employer. For the BCSPF Section

this is Bayer CropScience Limited, for the SHCL and Group DB Sections this is Bayer PLC. For the DC Section

reference can be to either Bayer CropScience Limited or Bayer PLC, depending on the legal employing entity of

the relevant member(s).

Statement of Trustee’s Responsibilities

The financial statements, which are prepared in accordance with United Kingdom Generally Accepted

Accounting Practice, 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 the Plan year of its assets and liabilities, other than liabilities to pay

pensions and benefits after the end of the Plan year, 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’, and

contain the information specified in Regulations 3 and 3A of the Occupational Pension Schemes

(Requirement to obtain Audited Accounts and a Statement from the Auditor) Regulations 1996.

The Trustee is responsible for supervising the preparation of the financial statements and for agreeing 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 pension legislation for preparing, and from time to time reviewing and if

necessary revising, 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 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 to members.

The Trustee also has a 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 and to prevent and detect

fraud and other irregularities, including the maintenance of an appropriate system of internal control.


7



Change of Plan Actuary

Bob Scott resigned as Actuary to the Plan and was replaced by Michelle Wright, also of LCP. The resignation

statement provided by Bob Scott states ‘I know of no circumstances connected with my resignation that, in my

opinion, might significantly affect the interests of the Plan’s members, prospective members, or beneficiaries’.

The resignation of Bob Scott, and subsequent appointment of Michelle Wright, took place on 28 June 2016.

SHCL Section

Pension Increases

Pensions in payment, including Guaranteed Minimum Pensions (GMP), were reviewed in accordance with the

Rules of the Plan relating to the SHCL section. No discretionary increases were made.

The following increases were granted with effect from April 2015:

Pre-88 GMP Nil (Nil)

Post-88 GMP 1.2% (Statutory)

Pre-April 97 3.0% (Fixed 3.0% pa)

April 97 to April 03 3.0% (RPI, minimum 3%, maximum 5%)

Post-April 03 1.6% (RPI up to 5%)

Statutory increases on post-1988 GMPs are determined in accordance with Section 109 of the Pension

Schemes Act 1993 and are set out in a Statutory Instrument, which is usually issued in March. The increase is

determined as the increases in “prices” over the year to September, up to a maximum of 3%.

RPI Increases for non-GMP pensions are based on December RPI, which was 1.6% for the year to December

2014.

Transfer Values

Transfer values paid during the year were calculated and verified in the manner required by the regulations

made under section 97 of the Pension Schemes Act 1993. None of the transfer values paid were less than the

amount provided by the Regulations. No discretionary benefits were included in the calculations of transfer

values.

Financial Development and Actuarial Position

The funding position as at 31 March 2015 showed a surplus of £1m based on methods and assumptions agreed

between the Trustee and the Company contained in the Statement of Funding Principles.

Following the latest valuation of the Plan as at 31 March 2014 it was agreed that the Company would not be

required to pay deficit contributions in respect of the SHCL Section.


8



SHCL Section (continued)

Membership

Details of the current membership of the SHCL section are given below:

Proportion of Total Membership 31/3/16 31/3/15

Total membership at the start of the year 664

Active members

Active members at the start of the year 51 8%

Adjustment to the b/fwd figure for late notification -

Retirements -

Left service with deferred benefits (1)

Active members at the end of the year 50 7%

Pensioners

Pensioners at the start of the year 228 34%

Adjustment to the b/fwd figure for late notifications 1

Members retiring during the period 10

Deaths (5)

Pensions in suspense (2)

Reinstatements 1

New spouse and dependant pensions 1

Pensioners at the end of the year 234 36%

Members with deferred benefits

Deferred members at the start of the year 385 58%

Adjustment to the b/fwd figure for late notifications -

New deferred members 1

Transfers out (3)

Deferred members becoming pensioners

(10)

Deaths (1)

Deferred members at the end of the year 372 57%

Total membership at the end of the year 656 100% 100%

The above figures include 104 members who are also members of the Defined Contribution Section.

Included within the pensioner numbers are 30 spouses and dependants (2015: 29).


9



BCSPF Section

Pension Increases


Rules of the Plan relating to the BCSPF section. No discretionary increases were made.

The following increases were granted with effect from April 2015 and January 2016:

Agrevo Category



Pre-April 04 3.0% (RPI, minimum 3%, maximum 5%)

April 04 to April 05 1.6% (RPI up to 5%)

Post-April 05 1.6% (RPI up to 2.5%)

CropScience Category



Pre-April 97 3.0% (Fixed)

Pre-April 04 0.7% (RPI up to 5%)

April 04 to April 05 0.7% (RPI up to 5%)

Post-April 05 0.7% (RPI up to 2.5%)



determined as the increase in “prices” over the year to September, up to a maximum of 3%.

RPI Increases for non-GMP pensions are based on December RPI (for the Agrevo Category), which was 1.6%

for the year to December 2014.

RPI Increases for non-GMP pensions are based on October RPI (for the CropScience Category), which was

0.7% for the year to October 2015.

Transfer Values




values.


10



BCSPF Section (continued)


The funding position as at 31 March 2015 showed a deficit of £79m based on methods and assumptions agreed


Following the latest valuation of the Plan as at 31 March 2014 it was agreed that the Company would pay the

following deficit contributions in respect of the BCSPF Section of the Plan as follows:-

Amount Date

£19.7m 31 March 2016*

£11.0 m 31 March 2017

£11.0m 31 March 2018

£11.0m 31 March 2019

In accordance with this agreement, £19.7m* of deficit contributions were paid into the Plan by the Company

during the financial year.


11



BCSPF Section (continued)

Membership

Details of the current membership of the BCSPF section are given below:


Total membership at the start of the year 3,473

Active members


Adjustment to the b/fwd figure for late notification -


Retirements (4)


Pensioners

Pensioners at the start of the year 2,013 58%

Adjustment to b/fwd figure for late notifications 3



Full commutations -


Reinstatements 4

Deaths (54)

Pensioners at the end of the year 2,033 59%


Deferred members at the start of the year 1,411 41%

Adjustment to b/fwd figure for late notifications (2)

Transfers out (10)


Deferred members becoming pensioners (47)

Deaths (2)

Full commutations -

Deferred members at the end of the year 1,351 40%

Total membership at the end of the year 3,428 100% 100%

The above figures include 215 members who are also members of the Defined Contribution Section.



12



Group DB Section

Pension Increases


Rules of the Plan relating to the Group DB section. No discretionary increases were made.

The following increases were granted with effect from April 2015:



Section To April 1997 April 97 – April 04 April 04 – April 05 After April 05

Old Bayer Plan RPI, minimum

2.5%, maximum 5%

RPI, minimum

2.5%, maximum 5%

RPI, maximum 5% RPI, maximum

2.5%

Technicon RPI, minimum 4%,

maximum 5%

RPI, minimum 4%,

maximum 5%

RPI, maximum 5% RPI, maximum

2.5%

Miles (including

Senior Executives)

RPI up to 5% RPI up to 5% RPI up to 5% RPI up to 2.5%

All other DB Section

Members

RPI, minimum 3%,

maximum 5%

RPI, minimum 3%,

maximum 5%

RPI maximum 5% RPI maximum

2.5%

Section To April 1997 April 97 – April 04 April 04 – April 05 After April 05

Old Bayer Plan 2.5% 2.5% 2.3% 2.3%

Technicon 4.0% 4.0% 2.3% 2.3%

Miles (including

Senior Executives)

2.3% 2.3% 2.3% 2.3%

All other DB Section

Members

3.0% 3.0% 2.3% 2.3%



determined as the increases in “prices” over the year to September, up to a maximum of 3%.

RPI Increases for non-GMP pensions are based on September RPI, which was 2.3% for the year to September

2014.

Transfer Values




values.


13



Group DB Section (continued)


The funding position as at 31 March 2015 showed a deficit of £40m based on methods and assumptions agreed


Following the latest valuation of the Plan as at 31 March 2014 it was agreed that the Company would pay the

following deficit contributions in respect of the Group DB Section of the Plan as follows:-

Amount Date

£1.3m 31 March 2016*

£4.7m 31 March 2017

£4.7m 31 March 2018

£4.7m 31 March 2019

In accordance with this agreement, £1.3m* of deficit contributions were paid into the Plan by the Company

during the financial year.


14



Group DB Section (continued)

Membership

Details of the current membership of the Plan are given below:


Total membership at the start of the year 3,313

Active members


Adjustment to the b/fwd figure for late notifications -

Retirements (6)



Pensioners

Pensioners at the start of the year 1,436 43%

Adjustment to the b/fwd figure for late notifications 5




Deaths (57)

Full Commutations (5)

Reinstatements 7

Pensioners at the end of the year 1,443 44%


Deferred members at the start of the year 1,716 52%

Adjustment to the b/fwd figure for late notifications (4)


Transfers out (4)

Deferred members becoming pensioners (32)

Full commutations (4)

Deaths (4)

Deferred members at the end of the year 1,671 51%

Total membership at the end of the year 3,266 100% 100%

The above figures include 210 members who are also members of the defined contribution section.



15



DC Section

Membership

Details of the current membership of the DC section are given below:

Active Deferred

Total membership at the start of the period 877 826

Adjustment to the b/fwd figure for late notifications - 1

New entrants

160 -

Members leaving without vested benefits

(2) (5)

Members leaving with deferred benefits

(142) 142

Normal retirements

- -

Members taking early retirement

- (7)

Members taking late retirement

- -

Deaths (1) (1)

Transfers out - (26)

Opt outs (3) -

Other* (2) 2

Members at the end of the period 887 932

* The ‘other’ adjustments above in the deferred member category includes a number of non-vested leavers who

were reinstated during the year.


16



Summary of Contributions

During the year, the contributions paid to the Plan by the Employers participating under the Schedules of

Contributions were as follows:

£’000 £’000

Contributions payable under the Schedules of Contributions

- Employer Normal 9,534

- Employer Deficit Funding 21,000

- Member Normal 166

30,700

Contributions payable not included in the Schedules of

Contributions

- Members’ Additional Voluntary 848

- Employer Augmentations 661

- Employer Other 205

1,714

Contributions receivable per Fund Account (Note 5) 32,414

With the exception of two additional employer contributions due for November 2015 (received late in January

2016), and two contributions to cover administrative expenses for the quarters ended 31 December 2015 and 31

March 2016 that were received late in July 2016, all other contributions were received in accordance with the

Schedules of Contributions. The Plan Actuary was made aware of all instances of late contributions and

determined there was no further action or reports to the regulator required.


17


Investment Matters

Overview

The Trustee, with the assistance of its appointed investment adviser, determines the overall investment strategy

for the Plan and sets out the broad policy to be adopted by each of the appointed fund managers.

Investment managers

The names of those who have managed the Plan’s investments during the year are listed on page 3. The Trustee

has delegated the day-to-day management of investment to its appointed fund managers. A written agreement

between the Trustee and each manager sets out the terms on which the manager will act.

The managers’ duties include the consideration of social, environmental or ethical issues in the selection,

retention and realisation of investments as well as voting and corporate governance in relation to the Plan’s

assets. The Trustee has reviewed each of the investment managers’ policies on these issues. The Trustee

believes that the policies adopted by the managers are consistent with their own views.

Investment principles

In accordance with Section 35 of the Pensions Act 1995, the Trustee has prepared a Statement of Investment

Principles which includes the Trustee’s policy relating to ethical investment and the exercise of the rights

attaching to investments. Any member may request a copy. This Statement may change from time to time

according to advice received from the investment manager or consultants.

Departures from investment principles

As at 31 March 2016 the Plan’s investments are not entirely in line with the current SIP. The Trustee is currently

in the process of drafting a new SIP.

Market Commentary

We include below a commentary on markets over the year to 31 March 2016.

Economic and market background

Over the twelve month period to 31 March 2016, global economic growth was positive but differed across the

major regions. As a consequence, global central banks’ monetary policies began to diverge during the year. In

December 2015, the Federal Reserve raised interest rates for the first time since 2006, albeit by a modest

amount. In contrast other central banks maintained or strengthened their monetary easing policies in order to

attempt to stimulate economic growth:

though the UK economy performed well over the twelve month period, the Bank of England reiterated its

commitment to keeping interest rates at low levels for longer;

facing deflation in the Eurozone, the European Central Bank (“ECB”) expanded its monetary policy

measures in February 2016 to include purchases of non-financial corporate bonds; and

in Japan, economic growth remained weak with inflation far below target levels. In January 2016, the Bank

of Japan adopted a negative interest rates policy for deposits, following the path of the ECB, the Swiss

National Bank and the Swedish Riksbank.


18


Investment Matters (continued)

Market Commentary (continued)

Economic and market background (continued)

The Chinese economy slowed over the twelve month period as it continued to transition from an export and

investment driven economy to an economy driven by domestic consumption. Measures taken by the Chinese

authorities to counter weaker growth included the devaluation of the yuan, a cut in interest rates and the

lowering of reserve requirements for banks.

Emerging markets experienced a particularly turbulent time, hit by the weakening of Chinese growth, lower and

volatile oil prices (which particularly impacted oil exporting nations) and a stronger US dollar against local

exchange rates. The Brazilian economy fell into recession, while Russia’s economy suffered due to the fall in

energy prices and western sanctions. By the end of the year there was a stark contrast between the growth

prospects of individual emerging markets.

Equity market performance

Equity markets experienced bouts of high volatility over the year, recording heavy losses during the third quarter

of 2015 and the opening weeks of 2016 but largely bouncing back in the subsequent periods as investors

reacted to economic data and company earnings releases. In aggregate over the twelve month period, the

Plan’s DB global equity portfolio fell by 8.5%.

US equities produced muted returns of 0.9% over the year in US dollar terms. Currency movements bolstered

returns for Sterling investors, as the dollar strengthened on the back of the US interest rate increase in

December and expectations of future increases. Whilst over this relatively short period the Plan’s 100% currency

hedge dampened returns, over the longer term the currency hedging is expected to reduce the volatility of the

Plan’s funding position.

UK equity returns were disappointing at -3.9% over the year, with particular weakness coming from the energy

and mining sectors. UK large-cap stocks also underperformed more domestically focused mid and small-cap

companies.

European equity markets suffered as concerns over the economic outlook and the potential impacts of deflation

outweighed the impact of ECB quantitative easing measures. Japanese equities were the worst performing

region over the last year returning -12.2% in local terms, as the strength of the yen raised concerns over the

earnings prospects for the country’s export led companies, despite unexpected rate cuts from the Bank of Japan.

Other Asia Pacific markets also fell heavily as the slowdown in the Chinese economy preoccupied investors.

Yields on government bonds continued their downward trend over the year to 31 March 2016 as investor

demand for safe haven government bonds remained high in a low growth and volatile environment for

investment markets. In general, this led to government bond assets increasing in value over the year (as seen in

the fixed interest gilt fund), but the Plan’s investments in index-linked gilts experienced a broadly flat return as

inflation was kept low. These portfolios are held for their liability matching, rather than return characteristics

however, so this is not a significant concern for the Trustee.

Returns on corporate bonds were muted over the period. Spreads on corporate bonds increased from record low

levels due to a decrease in investor demand: a combination of reduced future economic growth expectations

and volatility in growth asset markets. Against this backdrop, the L&G corporate bond portfolio returned -0.7%

over the year.


19



Market Commentary (continued)

Property

Property performed strongly over the year, as the Plan’s DB portfolio returned around 6.3% with UK property

producing the strongest performance. Though the strength of returns began to moderate towards the end of the

year, property’s perceived “safe haven” status continued to attract investors in the volatile and uncertain

environment.

Rental income and capital growth contributed broadly equal amounts to overall property returns over the year,

with rent growing fastest in the office and industrials sectors.

Asset allocation

The day to day management of the Plan’s Defined Benefit sections’ investments has been delegated by the

Trustee to the investment managers.

Details of the Defined Benefit sections’ asset allocation benchmarks are provided in the table on the following

page.

Manager Asset Class Benchmark

SHCL

Section

Benchmark

(%)

BCSPF

Section

Benchmark

(%)

Group DB

Section

Benchmark

(%)

LGIM

Global Equities

(Hedged)

FTSE AW-World Index – GBP

Hedged 45.0 45.0 45.0

Corporate

bonds

iBoxx £ Non-Gilt (ex-BBB) over 15

Year Index 0.0 33.7 11.3

UK Gilts FTSE >15 year Index 22.5 0.0 0.0

UK Index-

Linked Gilts FTSE ILG >15 year Index 22.5 11.3 33.7

Property -

REITS

FTSE EPRA/NAREIT Global

Developed Real Estate Index

10.0 10.0 10.0

CBREI

Property - UK

segregated IPD All Balanced Property Fund Index

Property -

Global Alpha 10% per annum

Property -

Osiris IPD All Balanced Property Fund Index

The allocations shown in the table above are taken from the latest version of the Statement of Investment Principles, which was signed in June 2016. Within the global equity portfolio, the Trustee reduced currency risk by increasing the level of overseas currency hedging over the year. The Trustee also consolidated the Plan’s global equity arrangements to be invested entirely with LGIM.


20



Details of the Defined Benefit sections’ actual asset allocation are provided in the table below.

SHCL Section BCSPF Section Group DB Section

Manager Asset Class 31 March

2015 (%)

31 March

2016 (%)

31 March

2015 (%)

31 March

2016 (%)

31 March

2015 (%)

31 March

2016 (%)

BlackRock Global Equities 45.0 - 41.4 - 44.0 -

LGIM

Global Equities 0.0 43.0 1.4 42.4 0.0 43.3

Corporate bonds - - 32.7 33.0 11.0 11.7

UK Gilts 21.8 23.5 - - - -

UK Index-

Linked Gilts 22.4 23.0 11.2 11.4 34.1 34.0

Property -

REITS 6.4 5.8 5.6 4.9 5.3 4.5

CBREI

Property - UK

segregated 0.0 0.0 0.7 0.0 0.3 0.3

Property -

Global Alpha 3.9 4.0 1.6 2.8 2.4 2.5

Property - Osiris - - 1.7 1.9 2.1 2.5

Cash 0.6 0.8 3.5 3.6 0.8 1.2

Source: Investment Managers. Table may be subject to rounding differences. The BlackRock equity funds were transferred

to the LGIM All World Equity (GBP Hedged) Fund over July 2015.

Review of investment performance

Given the long-term nature of a pension fund’s liabilities, the investment objective has been to maximise the

overall return from capital appreciation and income without a high-risk profile. The Trustee’s strategy is

contained in their Statement of Investment Principles and is continually monitored.

One Year

(% pa)

Three Year

(% pa)

Five Year

(% pa)

SHCL Pension Scheme -0.8 7.5 9.7

Bayer CropScience Pension Fund -2.2 6.9 8.7

Bayer Group Pension Plan -1.5 7.7 9.6

LGIM has successfully tracked the benchmark for each of the funds in which the Plan invests within reasonable tolerance

ranges over the year to 31 March 2016. The CBRE assets are actively managed and have generally lagged their

performance objectives over the year to 31 March 2016. However, over the longer term, the CBRE funds have broadly met

their target returns.


21



Charges or lien

The Legal & General assets are held free from charge or lien except for the provision of a positive floating

charge and liens put in place by counterparties or custodians (please note this is normal practice within the

industry). The floating charge was put in place for the benefit of all policyholders. All clients were notified of the

change. This change was also discussed with the former Financial Services Authority, now known as the

Financial Conduct Authority and the Prudential Regulation Authority and it confirmed that it had no objections to

it. Legal & General believe that this method is similar to that adopted by most providers of insured pooled funds.

Defined Contribution Section

The day to day management of the section’s investments has been delegated by the Trustee to third party

investment managers.

The following DC funds were available to DC members during the financial year ended 31 March 2016: the

Bayer Long-Dated Gilt Fund, the Bayer Global Equity Fund, the Bayer Emerging Markets Equity Fund, the Bayer

Inflation Protection Fund, the Bayer UK Equity Fund, the Fidelity BlackRock Cash Fund, the Bayer Target Return

Fund, the Bayer Corporate Bond Fund and the Bayer Property Fund.

The availability of these funds enables members to make their own investment choices. In addition, for those

members who don’t want to choose which funds they invest in, but appreciate the importance of making active

investment decisions, the Plan also offers three life style options (5 years, 10 years and 15 years).

The aim of the lifestyle option is to provide the Members Retirement Account with a balance between good long-

term growth whilst smoothing out some of the highs and lows that come with investing solely in equities.

The lifestyle option uses a mix of diversified investments to provide increased pension certainty as the member

approaches retirement. All three options use the same seven funds – Bayer Group Equity, Bayer Target Return,

Bayer Inflation Protection, Bayer Corporate Bond, Bayer Long-Dated Gilt, Bayer Emerging Markets Equity Fund

and Fidelity BlackRock Cash Fund.

Investment Options

There are three lifestyle options for members to choose from which offer a five, ten or fifteen year switching

strategy. For the year to 31 March 2016, new contributions were invested in the nine investment choices

available.

The Trustee monitors the performance of the underlying funds on a quarterly basis through the DC Sub-

Committee and will continue to review the range of funds available to ensure that the Plan continues to meet the

needs of the membership as a whole.

For the year ended 31 March 2016, the investment assets of the DC section were valued at £91.9 million,

compared to £86.5 million as at 31 March 2015.


22



The asset value and one year performance for the individual funds are provided below:

Value of Plan Investments

Fund Name

As at

31 March 2016

£’000

As at

31 March 2015

£’000

Bayer Long-Dated Gilt Fund 2,472 1,976

Bayer Global Equity Fund 39,794 39,233

Bayer Inflation Protection Fund 4,397 3,463

Bayer UK Equity Fund 6,023 6,135

Fidelity BlackRock Cash Fund 1,841 1,391

Bayer Target Return Fund 30,411 28,853

Bayer Corporate Bond Fund 2,045 1,606

Bayer Property Fund 1,408 674

Bayer Emerging Markets Equity Fund 3,513 3,171

Total 91,904 86,502

Note: The figures in the table are subject to rounding differences.

Defined Contribution Section investment performance

Fund Performance 1 Year Actual (%)

1 Year Benchmark (%)

3 Year annualised Actual (%)

3 Year annualised Benchmark (%)

5 Year annualised Actual (%)

5 Year annualised Benchmark (%)

Bayer Long-Dated Gilt Fund 4.0 4.0 8.5 8.6 11.0 11.1

Bayer Global Equity Fund (3.0) (2.7) 5.5 5.8 6.5 6.8

Bayer Inflation Protection Fund 1.8 1.9 5.5 5.6 9.6 9.8

Bayer UK Equity Fund (4.2) (3.9) 3.5 3.7 5.4 5.7

Fidelity BlackRock Cash Fund 0.4 0.4 0.3 0.4 0.4 0.4

Bayer Target Return Fund (2.0) 4.6 2.5 4.5 3.6 4.1

Bayer Corporate Bond Fund 0.3 0.4 4.6 4.9 6.8 7.0

Bayer Property Fund 11.5 10.6 13.6 13.0 9.2 8.8

Bayer Emerging Market Equity

Fund

(10.0)

(9.6)

(3.5)

(3.1)

N/A

N/A

Note: N/A means data for this period is not available. Figures above reflect the return on investment after the fund’s charges

have been deducted.


23


Report on Actuarial Liabilities

Under Section 222 of the Pensions Act 2004, every scheme is subject to the Statutory Funding Objective, which

is to have sufficient and appropriate assets to cover its technical provisions. The technical provisions represent

the present value of the benefits members are entitled to based on pensionable service to the valuation date,

assessed using the assumptions agreed between the Trustee and the Employer and set out in the Statement of

Funding Principles, which is available to Scheme members on request.

The most recent full actuarial valuation of the Scheme was carried out as at 31 March 2014. This showed that on

that date:

The value of the Technical Provisions was: £1,246 million

The value of the assets at that date was: £1,152 million

The method and significant actuarial assumptions used to determine the technical provisions are as follows (all

assumptions adopted are set out in the Appendix to the Statement of Funding Principles):

Method

The actuarial method to be used in the calculation of the technical provisions is the Projected Unit Method.

Significant actuarial assumptions

Discount interest rate: term dependent rates set by reference to the fixed interest gilt curve (as derived from

Bank or England data) at the valuation date plus an addition of 0.5% per annum.

Future Retail Price inflation: term dependent rates derived from the Bank of England fixed interest and index-

linked gilt curves at the valuation date.

Future Consumer Price inflation: term dependent rates derived from the assumption for future retail price

inflation less an adjustment equal to 0.9% per annum.

Pension increases: derived from the term dependent rates for future consumer price inflation allowing for the

caps and floors on pension increases according to the provisions in the Scheme’s rules.

Pay increases: general pay increases of 1.5% per annum above term dependent rates for the future retail price

inflation (NB not a significant assumption if few active members).

Mortality: for the period in retirement, standard tables SIPMA with a scaling factor of 98% for male active

members, 103% for male deferred members and 99% for male pensioner members and S1PFA with a scaling

factor of 103% for female active members, 107% for female deferred members and 111% for female pensioner

members.


24


Contact for Further Information

Members and trades unions recognised for the purposes of collective bargaining in relation to members are

entitled to inspect copies of documents giving information about the Plan. In some circumstances, copies of the

documents can be provided but a charge may be made for copies of the trust documents (Deed and Rules), the

Summary Funding Statement and the Actuary’s report.

Any complaints or enquiries about the Plan, including requests from individuals for information about their

benefits, should be addressed to:

C/o Secretary to the Bayer Group Pension Plan

Bayer House

Strawberry Hill

Newbury

Berkshire

RG14 1JA

Alternatively, Capita can be contacted via email at [email protected].

Signed for and on behalf of Silver Birch Trustees Limited:

Director

Director

Date:

mailto:[email protected]


25

DC Governance Statement

Introduction

This statement has been prepared by the Trustee of the Bayer Group Pension Plan (“the Plan”) to describe how

the Trustee has met the new governance standards in relation to:

the default arrangement;

the requirements for processing core financial transactions;

charges and transaction costs borne by members; and

Trustee knowledge and understanding.

This statement covers the period from 6 April 2015 to 31 March 2016.

Default arrangement

Details of the objectives and the Trustee‘s policies in regards to the default arrangement are set out in the Plan’s

Statement of Investment Principles (“SIP”). The SIP is appended to the Trustee’s Annual Report and Financial

Statements.

The default arrangement was not reviewed during the period covered by this statement. It was last reviewed in

February 2015. The Trustee regularly monitors the performance of the default arrangement, and will formally

review it at least every three years or without delay following any significant change in legislation or the

demographic profile of the relevant members.

Requirements for processing core financial transactions

Processing of core financial transactions (eg investment of contributions, transfers within and into/out of the

Plan, and payments to/from members) is carried out by the administrators of the Plan, Fidelity International.

The Trustee is comfortable that the administrators have in place adequate internal controls to ensure that core

financial transactions relating to the Plan are processed promptly and accurately.

The Trustee regularly monitors the administrators’ performance, and based on information provided by the

administrators, is satisfied that over the period covered by this statement:

there have been no material administration errors in relation to processing core financial transactions; and

the requirements of regulation 24 of the Regulations have been met and all core financial transactions have

been processed within a reasonable timeframe.

Charges and transaction costs

For the purpose of this section “charges” are defined as the ongoing charges figures, which are the annual fund

management charges plus additional fund expenses (e.g. for custody, but excluding transaction costs). The

stated charges also include administration costs since members incur these costs.

The charges have been supplied by the Plan’s platform provider, Fidelity International.

Default arrangement

The default arrangement has been set up as a lifestyle approach, whereby members’ assets are

automatically moved between different investment funds as they approach their retirement date. Therefore,

the level of charges and transaction costs vary according to each member’s proximity to retirement and the

underlying funds they are invested in.


26

DC Governance Statement (continued)

Charges and transaction costs (continued)

Over the period from 6 April 2015 to 31 March 2016, the level of charges within the default arrangement

varied between 0.21% and 0.65% pa.

Self-select funds

The level of charges for each self-select fund (including those used in the default arrangement) over the

period from 6 April 2015 to 31 March 2016 are set out in the table below. The funds that are used within the

default arrangement are highlighted in bold.

Fund charges – 1 year to 31 March 2016

Manager – Fund name: Charge (% pa)

Bayer Global Equity Fund 0.31

Bayer Emerging Markets Equity Fund 0.61

Bayer Target Return Fund 0.97

Bayer UK Equity Fund 0.30

Bayer Property Fund 0.99

Bayer Corporate Bond Fund 0.25

Bayer Long Dated Gilt Fund 0.20

Bayer Inflation Protection Fund 0.20

Bayer Cash Fund 0.20

As mentioned previously, the total annual charges do not include transaction costs. Transaction costs are those

incurred as a result of trading by the investment managers within each fund (e.g. buying and selling of

securities). The transaction costs do not include the costs to members of investing into and switching between

funds.

The Trustee has sought to obtain details on the transaction costs from the Plan’s investment managers; however

at the date of this statement all of the respective managers are unable to provide a detailed breakdown.

The Trustee will continue to monitor the position and work with the investment managers to obtain information on

transaction costs.

Value for money assessment

The general policy of the Trustee in relation to value for money considerations is set out below:

It is the Trustee’s policy to review all member borne charges on a regular basis and to aim to ensure that

members are obtaining value for money given the circumstances of the Plan. The Trustee’s note that value for

money does not necessarily mean the lowest fee, and the overall quality of the service received has been taken

into account in the value for money assessment.

The Trustee‘s assessment included a review of the performance of the Plan’s investment funds (after all

charges) in the context of their investment objectives, and consideration of the benefits of the Plan, for example

the quality of the administration and investment range, member communications, and Plan design.


27

DC Governance Statement (continued)

Value for money assessment (continued)

Overall, the Trustee believes that members of the Plan are receiving good value for money. However, the

Trustee is currently working with the Company to consider if the trust based arrangement currently used by

members provides the best value for money and if alternative structures could better suit the Plan.

Trustee knowledge and understanding

The Plan’s Trustee is required to maintain appropriate levels of knowledge and understanding. During the period

covered by this statement, the Trustee has ensured its knowledge and understanding is up to date by:

Receiving and reviewing regular topical issues and legislative update bulletins;

Receiving training on items of business as required at Trustee and Committee meetings;

Providing details of any other training undertaken to be added to the Trustee training log;

Completing an annual knowledge and understanding assessment, which was used to identify any areas

where Trustees felt more training or support was required; and

New Trustees are also required to complete the Pensions Regulator’s Trustee Toolkit upon being

appointed.

Taking the knowledge of the Trustee, with the specialist advice received from the appointed professional

advisors (e.g. investment consultants, legal advisors), the Trustee believes it is well placed to properly exercise

its functions as Trustee of the Plan.

______________________________________________

Signed for and on behalf of the Trustee of the Bayer Group Pension Plan


28

Independent Auditor’s Report to the Trustee of the Bayer Group

Pension Plan

We have audited the financial statements of the Bayer Group Pension Plan for the year ended 31 March 2016

on pages 30 to 53. The financial reporting framework that has been applied in their preparation is applicable law

and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice), including

FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland”.

This report is made solely to the Plan’s Trustee as a body, in accordance with the Pensions Act 1995. Our audit

work has been undertaken so that we might state to the Plan’s Trustee those matters we are required to state to

it in an auditor’s 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 Plan and the Plan’s Trustee as a body, for our audit work, for this

report, or for the opinions we have formed.

Respective responsibilities of the trustee and auditor

As explained more fully in the Statement of Trustee Responsibilities set out on page 6, the Plan’s Trustee is

responsible for the preparation of financial statements which show a true and fair view. Our responsibility is to

audit and express an opinion on the financial statements in accordance with applicable law and International

Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices

Board’s Ethical Standards for Auditors.

Scope of the audit of the financial statements

A description of the scope of an audit of financial statements is provided on the Financial Reporting Council’s

website at: http://www.frc.org.uk/auditscopeukprivate.

Opinion on financial statements

In our opinion the financial statements:

- show a true and fair view of the financial transactions of the Plan during the year ended 31 March 2016,

and of the amount and disposition at that date of its assets and liabilities, other than the liabilities to pay

pensions and benefits after the end of the year;

- have been properly prepared in accordance with United Kingdom Generally Accepted Accounting

Practice; and

- contain the information specified in 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.

RSM UK AUDIT LLP (formerly known as Baker Tilly UK Audit LLP)

Statutory Auditor

Chartered Accountants

25 Farringdon Street London

EC4A 4AB Date:

http://www.frc.org.uk/auditscopeukprivate


29

Independent Auditor’s Statement about Contributions under

Regulation 4 of the Occupational Pension Schemes (Requirement to

obtain Audited Accounts and a Statement from the Auditor)

Regulations 1996, to the Trustee of the Bayer Group Pension Plan

We have examined the Summary of Contributions payable to the Bayer Group Pension Plan on page 16, in

respect of the Plan year ended 31 March 2016.

This statement is made solely to the Plan’s Trustee as a body, in accordance with the Pensions Act 1995. Our

audit work has been undertaken so that we might state to the Plan’s Trustee those matters we are required to

state to it in an auditor’s statement and for no other purpose. To the fullest extent permitted by law, we do not

accept or assume responsibility to anyone other than the Plan and the Plan’s Trustee as a body, for our audit

work, for this statement, or for the opinions we have formed.

Respective responsibilities of trustee and auditor

As explained more fully on page 6 in the Statement of Trustee’s Responsibilities, the Plan’s Trustee is

responsible for ensuring that there are prepared, maintained and from time to time revised Schedules of

Contributions showing 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 Schedules of Contributions.

It is our responsibility to provide a statement about contributions paid under the Schedules of Contributions and

to report our opinion to you.

Scope of work on statement about contributions

Our examination involves obtaining evidence sufficient to give reasonable assurance that contributions reported

on page 16 have in all material respects been paid at least in accordance with the Schedules of Contributions.

This includes an 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 Schedules of Contributions.

Statement about contributions payable under schedule of contributions

In our opinion the contributions for the Plan year ended 31 March 2016 as reported in the summary of

contributions on page 16 and payable under the Schedules of Contributions have in all material respects been

paid at least in accordance with the Schedules of Contributions certified by the actuary on 26 June 2012 and 30

June 2015.

RSM UK AUDIT LLP (formerly known as Baker Tilly UK Audit LLP)

Statutory Auditor

Chartered Accountants

25 Farringdon Street

London

EC4A 4AB Date:


30

Fund Account

Defined benefit sections

Note

SHCL

2016

£’000

BCSPF

2016

£’000

Group DB

2016

£’000

Defined

contribution

section

2016

£’000

Total

2016

£’000

Total

2015

£’000

Contributions and benefits

Employer contributions 103 20,806 2,145 8,346 31,400 32,843

Employee contributions 15 10 8 981 1,014 819

Total contributions 5 118 20,816 2,153 9,327 32,414 33,662

Transfers in 6 - - - 586 586 623

Other income 7 - - 643 125 768 354

118 20,816 2,796 10,038 33,768 34,639

Benefits paid or payable 8 (2,752) (25,552) (17,094) (629) (46,027) (45,711)

Payments to and on account of

leavers 9 (159) (1,913) (1,408) (1,267) (4,747) (2,978)

Administrative expenses 10 (29) (118) (140) (4) (291) (887)

Other payments 11 - (1) (463) - (464) (677)

(2,940) (27,584) (19,105) (1,900) (51,529) (50,253)

Net (withdrawals)/additions from

dealings with Members

(2,822)

(6,768)

(16,309)

8,138

(17,761)

(15,614)

Returns on investments

Investment income 12 59 372 637 - 1,068 2,206

Change in market value of

investments

13

(1,030)

(14,670)

(9,251)

(2,478)

(27,429)

242,927

Investment management expenses 16 (85) (451) (384) - (920) (783)

Net returns on investments (1,056) (14,749) (8,998) (2,478) (27,281) 244,350

Net (decrease)/increase in the Plan

during the year

(3,878) (21,517) (25,307) 5,660 (45,042) 228,736

Net assets of the Plan at 1 April 24 111,685 684,559 569,998 86,363 1,452,605 1,223,869

Net assets of the Plan at 31 March 107,807 663,042 544,691 92,023 1,407,563 1,452,605

The accompanying notes on pages 32 to 53 are an integral part of these financial statements. These contain

details of the comparative figures for each of the sections.


31

Statement of Net Assets (available for Benefits) As at 31 March 2016 Defined benefit sections

Note

SHCL

2016

£’000

BCSPF

2016

£’000

Group DB

2016

£’000

Defined

contribution

section

2016

£’000

Total

2016

£’000

Total

2015

£’000

Investment assets: 13

Pooled investment vehicles 17 107,496 640,921 539,536 91,904 1,379,857 1,420,056

AVC investments 19 - 425 1,687 - 2,112 2,339

Cash 175 749 558 - 1,482 7,065

Other investment balances - - - - - 280

Total investments 107,671 642,095 541,781 91,904 1,383,451 1,429,740

Current assets 22 205 21,423 3,664 140 25,432 23,939

Current liabilities 23 (69) (476) (754) (21) (1,320) (1,074)

Net assets of the Plan at 31

March

107,807 663,042 544,691 92,023 1,407,563 1,452,605

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 into account 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 Report on Actuarial Liabilities included in the annual report on page 23 and these financial statements should

be read in conjunction with this.

The notes on pages 32 to 53 form an integral part of these financial statements. These contain details of the

comparative figures for each of the sections.

Signed and authorised for issue for and on behalf of Silver Birch Trustees Limited on:

2016

Director

Director


32

Notes to the Financial Statements

1. General information

The Plan is an occupational pension scheme established under trust on 21 November 1959 to provide

retirement benefits to employees of Bayer plc and Bayer Crop Science UK Limited. The address of the

Plan’s principal office is Bayer House, Strawberry Hill, Newbury, Berkshire, RG14 1JA.

The Plan has three defined benefit sections and a defined contribution section. Members of the DB

sections are contracted-out of the State Second Pension Scheme (S2P). DC members participate fully

in the state scheme.

The Plan is a registered pension scheme under Chapter 2 Part 4 of the finance Act 2004. The Trustee

knows of no reason why this status may be prejudiced or withdrawn.

2. Basis of preparation

The 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, Financial

Reporting Standard 102 – The Financial Reporting Standard applicable in the UK and Republic of

Ireland issued by the Financial Reporting Council and with guidance set out in the Statement of

Recommended Practice (2015) with the exception of the valuation of annuity policies. This is the first

year FRS 102 and the Revised SORP have applied to the Scheme’s financial statements. The Trustee

has elected to early-adopt the changes proposed by the FRC in Amendments to FRS 102 – Fair Value

Hierarchy Disclosures to align the reporting standards more consistently with International Financial

Reporting Standards (IFRS).

3. Transition to FRS 102

Annuity policies were previously included in the Statement of Net Assets at nil value as permitted by the

Audited Accounts Regulations and the previous SORP. Under FRS 102 annuity policies are reported at

the value of the related obligation to pay future benefits funded by the annuity policy. The Trustees have

taken advice from their professional advisers and determined the annuity policies held by the Plan are

immaterial. The Trustees have therefore opted not to value these policies.

4. Accounting policies

The principal accounting policies of the Plan are as follows:

Contributions

Employee contributions, including AVCs, are accounted for by the Trustee when they are deducted from

pay by the Employer, except for the first contribution due where the employee has been auto-enrolled by

the Employer in which case it is accounted for when received by the Plan.

Employer normal contributions that are expressed as a rate of salary are accounted for on the same

basis as the employees’ contributions, in accordance with the Schedule of Contributions in force during

the year.

Employer augmentation contributions are accounted for in accordance with the agreement under which

they are payable.

Employer deficit funding contributions are accounted for on the due dates on which they are payable

under the Schedule of Contributions or on receipt if earlier with the agreement of the employer and

Trustee.


33

Notes to the Financial Statements (continued) 4. Accounting policies (continued)

Contributions (continued)

Employer other contributions are accounted for in accordance with the agreement under which they are

payable.

Payments to members

Benefits are accounted for in the period in which the member notifies the Trustees of his decision on the

type or amount of benefit to be taken, or if there is no member choice, on the date of retiring or leaving.

Pensions in payment are accounted for in the period to which they relate.

Opt-outs are accounted for when the Plan is notified of the opt-out.

Individual transfers in or out of the Plan are accounted for when member liability is accepted or,

discharged which is normally when the transfer amount is paid or received.

Expenses

Expenses are accounted for on an accruals basis

Investment income

Income from cash and short term deposits is accounted for on an accruals basis.

Income from pooled investment vehicles is accounted for when declared by the fund manager.

Receipts from annuity policies are accounted for as investment income on an accruals basis.

Investments

The change in market value of investments during the year comprises 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.

Investments are included at fair value as described below:

Unitised pooled investment vehicles have been valued at the latest available bid price or single price

provided by the pooled investment manager. Shares in other pooled arrangements have been valued at

the latest available net asset value (NAV), determined in accordance with fair value principles, provided

by the pooled investment manager.

With profit insurance policies (held as AVCs) are reported at the policy value provided by the insurance

company based on the cumulative reversionary bonuses declared and the current terminal bonus.

Presentation currency

The Plan functional and presentation currency is pounds sterling. Monetary items denominated in

foreign currency are translated into sterling using the closing exchange rates at the Plan year end.

Foreign currency transactions are recorded in sterling at the spot exchange rate at the date of the

transaction.


34

Notes to the Financial Statements (continued)

5. Contributions

Contributions from members received during the year were paid in accordance with the Schedules of

Contributions agreed with the Employer and certified by the Actuary.

Defined benefit sections Defined

contribution section

2016 £’000

Total

2016 £’000

SHCL

2016 £’000

BCSPF

2016 £’000

Group DB

2016 £’000

Employer contributions

Normal 77 336 779 8,342 9,534

Deficit funding - 19,700 1,300 - 21,000

Augmentation - 639 22 - 661

Other 26 131 44 4 205

103 20,806 2,145 8,346 31,400

Employee contributions

Normal 5 1 2 158 166

Additional voluntary contributions 10 9 6 823 848

15 10 8 981 1,014

118 20,816 2,153 9,327 32,414

Defined benefit sections Defined contribution

section 2015

£’000

Total

2015 £’000

SHCL

2015 £’000

BCSPF

2015 £’000

Group DB

2015 £’000

Employer contributions

Normal 86 289 741 7,957 9,073

Deficit funding - 19,700 1,300 - 21,000

Augmentation - 754 679 - 1,433

Other 87 466 508 276 1,337

173 21,209 3,228 8,233 32,843

Employee contributions

Normal 5 1 5 145 156

Additional voluntary contributions 16 9 181 457 663

21 10 186 602 819

194 21,219 3,414 8,835 33,662


35


5. Contributions (continued)

Additional contributions from members include Additional Voluntary Contributions (AVCs) and added

years contributions whereby additional years of service are purchased for extra DB section benefits.

Augmentations relate to amounts paid by the sponsoring employers to cover the cost of early

retirements.

Other contributions relate to amounts paid by the sponsoring employers to cover the Plan’s

administrative expenses and PPF levies.

Life assurance expenses are now met directly by the employer. In previous years these expenses

have been paid by the Plan and reimbursed by the employer.

Following the finalisation of the actuarial valuation as at 31 March 2014, under a revised Schedule of

Contributions dated 25 June 2015, the company agreed to eliminate the Plan deficit over five years

with two payments of £21m on 31 March 2015 and 31 March 2016 and a further three payments of

£15.7m on 31 March 2017, 31 March 2018 and 31 March 2019. The instalment due on 31 March

2016 of £21m was paid into the Plan in accordance with the Schedule of Contributions. Deficit

funding relates to past service accrual.

6. Transfers in



2016 £’000

Total

2016 £’000

SHCL

2016 £’000

BCSPF

2016 £’000

Group DB

2016 £’000

Individual transfers in - - - 586 586


section 2015

£’000

Total

2015 £’000

SHCL

2015 £’000

BCSPF

2015 £’000

Group DB

2015 £’000

Individual transfers in - - - 623 623


36


7. Other income


section 2016

£’000

Total

2016 £’000

SHCL

2016 £’000

BCSPF

2016 £’000

Group DB

2016 £’000

Miscellaneous income - - 37 - 37

Claims on death in service insurance - - 606 125 731

- - 643 125 768


section 2015

£’000

Total

2015 £’000

SHCL

2015 £’000

BCSPF

2015 £’000

Group DB

2015 £’000

Miscellaneous income - - - - -

Claims on death in service insurance - - - - -

Baysense members reinstatements - - - 354 354

- - - 354 354

The Baysense members reinstatement receipt in the prior year relates to an amount transferred from

the Group DB Section to the DC Section to purchase benefits for those members. This exercise was

completed during 2015.


37


8. Benefits paid or payable



2016 £’000

Total

2016 £’000

SHCL

2016 £’000

BCSPF

2016 £’000

Group DB

2016 £’000

Pensions 2,490 23,207 14,839 - 40,536

Lump sums on retirement 262 2,285 1,890 491 4,928

Death benefits - 60 260 112 432

Purchase of annuities - - 105 - 105

Taxation where annual/lifetime allowance exceeded

- - - 26 26

2,752 25,552 17,094 629 46,027


section 2015

£’000

Total

2015 £’000

SHCL

2015 £’000

BCSPF

2015 £’000

Group DB

2015 £’000

Pensions 2,390 22,626 14,179 - 39,195

Lump sums on retirement 259 2,519 1,818 500 5,096

Death benefits - 1,150 47 141 1,338

Purchase of annuities - - - - -

Taxation where annual/lifetime allowance exceeded - - 82 - 82

2,649 26,295 16,126 641 45,711

Taxation arising on benefits paid or payable is in respect of members whose benefits exceeded the

lifetime or annual allowance and who elected to take lower benefits from the Plan in exchange for the

Plan settling their tax liability.


38


9. Payments to and on account of leavers


section 2016

£’000

Total

2016 £’000

SHCL

2016 £’000

BCSPF

2016 £’000

Group DB

2016 £’000

Refunds to members leaving service

- - - 5 5

Individual transfers out 159 1,913 1,408 1,262 4,742

159 1,913 1,408 1,267 4,747


section 2015

£’000

Total

2015 £’000

SHCL

2015 £’000

BCSPF

2015 £’000

Group DB

2015 £’000

Refunds to members leaving service - - - 1 1

Individual transfers out - 1,381 609 987 2,977

- 1,381 609 988 2,978

10. Administrative expenses



2016 £’000

Total

2016 £’000

SHCL

2016 £’000

BCSPF

2016 £’000

Group DB

2016 £’000

Independent trustee’s fees 1 3 26 1 31

Trustee Director expenses 1 3 10 1 15

Scheme administration levies 27 111 96 2 236

Other expenses - 1 8 - 9

29 118 140 4 291

Other than the expenses detailed above, all expenses are borne by Bayer plc and Bayer

CropScience Ltd. In previous years these costs have been borne by the Plan.


39


10. Administrative expenses (continued)


section 2015

£’000

Total

2015 £’000

SHCL

2015 £’000

BCSPF

2015 £’000

Group DB

2015 £’000

Administrators’ fees 5 24 23 1 53

Employer administration recharge 13 70 67 20 170

Independent trustee’s fees 3 15 14 1 33

Trustee Director expenses 1 8 7 2 18

Audit fees (3) (15) (14) (1) (33)

Actuarial fees 3 17 16 - 36

Legal and professional fees 3 19 18 19 59

Scheme administration levies 53 283 181 2 519

Member communication costs 1 5 5 7 18

Other expenses 1 1 4 8 14

80 427 321 59 887

11. Other payments


section 2016

£’000

Total

2016 £’000

SHCL

2016 £’000

BCSPF

2016 £’000

Group DB

2016 £’000

Life assurance premiums - 1 463 - 464


section 2015

£’000

Total

2015 £’000

SHCL

2015 £’000

BCSPF

2015 £’000

Group DB

2015 £’000

Life assurance premiums - 1 322 - 323

Baysense members reinstatement - - 354 - 354

- 1 676 - 677

For the ease of administration premiums for the Group life assurance policy are paid through the Group DB

Section of the Plan. This policy covers all members (including life-only members) of the Plan.

The Baysense members reinstatement receipt in the prior year relates to an amount transferred from the Group

DB Section to the DC Section to purchase benefits for those members. This exercise was completed during

2015.


40


12. Investment income


section 2016

£’000

Total

2016 £’000

SHCL

2016 £’000

BCSPF

2016 £’000

Group DB

2016 £’000

Pooled investment vehicles 57 361 441 - 859

Interest on cash deposits 1 11 4 - 16

Income from annuities 1 - 192 - 193

Gain on foreign exchange - - - - -

59 372 637 - 1,068


section 2015

£’000

Total

2015 £’000

SHCL

2015 £’000

BCSPF

2015 £’000

Group DB

2015 £’000

Pooled investment vehicles 163 960 738 - 1,861

Interest on cash deposits 1 24 4 - 29

Income from annuities 2 - 188 - 190

Gain on foreign exchange 30 2 94 - 126

196 986 1,024 - 2,206

Income generated by the DC investments is not distributed, but is instead retained within the

investment fund and rolled into the unit price.

13. Reconciliation of net investments

SHCL Section

Value at 1 April

2015 £’000

Purchases at cost

£’000

Sales proceeds

£’000

Change in market

value £’000

Value at 31 March

2016 £’000

Pooled investment vehicles:

Quoted unit trusts 107,303 105,051

X

(107,973) (994) 103,387

Property unit trusts 3,966 2,653 (2,474) (36) 4,109

111,269 107,704 (110,447) (1,030) 107,496

Cash 296 175

111,565 107,671


41


13. Reconciliation of net investments (continued)

BCSPF Section

Value at

1 April 2015

£’000

Purchases at cost

£’000

Sales proceeds

£’000

Change in market

value £’000

Value at 31 March

2016 £’000


Quoted unit trusts 636,344 644,937

X

(653,039) (17,515) 610,727

Property unit trusts 21,880 16,102 (10,603) 2,815 30,194

AVC investments 490 - (95) 30 425

658,714 661,039 (663,737) (14,670) 641,346

Cash 5,732 749

Other 152 -

664,598 642,095

Group DB Section

Value at

1 April 2015

£’000

Purchases at cost

£’000

Sales proceeds

£’000

Change in market

value £’000

Value at 31 March

2016 £’000


Quoted unit trusts 537,944 529,275 (545,594) (10,215) 511,410

Property unit trusts 26,099 8,955 (7,906) 973 28,121

UK unquoted unit trusts 18 - - (13) 5

AVC investments 1,849 6 (172) 4 1,687

565,910 538,236 (553,672) (9,251) 541,223

Cash 1,037 558

Other 128 -

567,075 541,781

Property unit trusts totaling £62,424k (2015: £51,945k) representing 4.4% (2015: 3.6%) of Plan net

assets are considered a long term investment by the Trustee. The funds held by the Plan are

considered illiquid in the short term as it may be difficult to sell the funds before the full investment

term. The Trustee has considered the valuation and concluded it appropriate to use the investment

manager’s valuation which reflects the current market conditions.


42


13. Reconciliation of net investments (continued)

DC Section

Value at 1 April

2015 £’000

Purchases at cost

£’000

Sales proceeds

£’000

Change in market

value £’000

Value at 31 March

2016 £’000


Quoted unit trusts 84,438 14,004 (7,186) (2,601) 88,655

Property unit trusts 674 736 (120) 118 1,408

Cash fund 1,390 1,116 (670) 5 1,841

86,502 15,856 (7,976) (2,478) 91,904

DC Section split of Fidelity investments 2016 £’000

2015 £’000

Designated investment funds 90,189 85,170

AVC funds 1,715 1,332

91,904 86,502

The change in market value of investments during the year comprises profits and losses realised on

sales of investments during the year together with gains and losses arising from the revaluation in the

market value of investments held at the year-end.


For the Defined Contribution section, investments purchased by the Plan are allocated to provide

benefits to the individuals on whose behalf corresponding contributions are paid. The investment

manager holds the investment units on a pooled basis for the Trustee. The Plan administrator

allocates investment units to members. The Trustee may hold investment units representing the value

of employer contributions that have been retained by the Plan that relate to members leaving the Plan

prior to vesting.

AVCs received for DC members are invested alongside the Fidelity investments above and are

allocated to members. Allocated money purchase assets do not form a common pool of assets

available to members generally.


43


14. Concentration of Investments

The following funds exceed 5% of the Plan’s net assets:

2016 2016 2015 2015

£’000 % £’000 %

Legal & General all World Equity Index GBP Hedged

563,175

40.02

-

-

Legal & General over 15y Index-Linked Gilts 285,135 20.26 295,084 20.31

Legal & General AAA AA A Bonds over 15y Index

282,450 20.07 286,626 19.73

Legal & General Global Real Estate Equity Index

62,964

4.47

75,896

5.22

BlackRock Aquila Life US Equity Index - - 212,101 14.60

BlackRock Aquila Life European Equity Index - - 87,781 6.04

BlackRock Market Weighted GBP Currency Hedging Fund

- - 68,128 4.69

15. Transaction costs

Transaction costs are incurred in the cost of purchases and sale proceeds. Direct transaction costs

include costs charged to the plan such as fees, commissions and stamp duty.

Indirect costs are incurred through the bid-offer spread as investments within pooled investment

vehicles and charges made within those vehicles.

The Plan has incurred costs of £624k during the year as a result of the transfer of assets from

BlackRock to Legal & General, see Note 16 below.

16. Investment management expenses


section 2016

£’000

Total

2016 £’000

SHCL

2016 £’000

BCSPF

2016 £’000

Group DB

2016 £’000

LGIM 11 82 59 - 152

Bank of New York 12 13 13 - 38

CBRE - - 5 - 5

BlackRock 9 49 43 - 101

Transition expenses:

LGIM 24 144 127 - 295

BlackRock 29 163 137 - 329

85 451 384 - 920


44


16. Investment management expenses (continued)


section 2015

£’000

Total

2015 £’000

SHCL

2015 £’000

BCSPF

2015 £’000

Group DB

2015 £’000

LGIM 27 216 132 - 375

Bank of New York 1 2 1 - 4

CBRE - 12 2 - 14

BlackRock 33 191 166 - 390

61 421 301 - 783

Investment management expenses relate to the costs incurred in the administration, management and

custody of the assets of the Plan.

Investment management expenses incurred by the DC Section are not charged separately, but instead

are included in the unit price of each investment fund.

Transition expenses in the current year were incurred as a result of the bulk transfer of investment

assets from BlackRock to Legal & General between June and August 2015.

17. Pooled investment vehicles

The Plan’s investments in pooled investment vehicles at the year end comprised:



2016 £’000

Total

2016 £’000

SHCL

2016 £’000

BCSPF

2016 £’000

Group DB

2016 £’000

Equity 46,355 281,350 235,476 49,331 612,512

Bonds 50,096 294,311 248,474 4,517 597,398

Cash 663 2,777 3,064 1,841 8,345

Diversified growth

- - - 34,807 34,807

Property 10,382 62,483 52,522 1,408 126,795

107,496 640,921 539,536 91,904 1,379,857


45


17. Pooled investment vehicles (continued)


section 2015

£’000

Total

2015 £’000

SHCL

2015 £’000

BCSPF

2015 £’000

Group DB

2015 £’000

Equity 50,264 293,334 249,987 48,540 642,125

Bonds 49,417 300,801 255,896 3,582 609,696

Cash 495 3,672 1,848 1,390 7,405

Diversified growth - - - 32,316 32,316

Property 11,093 60,417 56,330 674 128,514

111,269 658,224 564,061 86,502 1,420,056

18. Insurance policies

The legacy annuity policies relate to 39 individuals (2015: 42). The Trustees no longer purchase

annuities to meet Plan liabilities. Annuities are issued by Canada Life, Legal & General, Generali and

ReAssure. These are valued by the Plan Actuary. No collateral is held in relation to these assets.

The Trustee has determined these annuity policies are immaterial to the plan and have therefore

opted to not value the policies.

19. AVC investments - Defined Benefit Sections

Members are entitled to make additional voluntary contributions that are invested separately from the

Plan in the form of insurance policies, with-profits pension policies, and building society accounts, for

details of open AVC providers please refer to page 3. Members participating in this arrangement each

receive an annual statement made up to 5 April in each year, confirming the amounts held in their

account and the movements in the year. The aggregate amounts of AVC funds are as follows:

BCSPF

2016 £’000

Group DB 2016

£’000

Total 2016

£’000

Total 2015

£’000

Friends Life 36 771 807 892

The Equitable Life Assurance Society 389 916 1,305 1,447

425 1,687 2,112 2,339

AVC funds held with Fidelity are included in the DC Section of the Plan.


46


20. Fair value determination

The fair value of financial instruments has been determined using the following fair value hierarchy:

Level 1: The unadjusted quoted price in an active market for identical assets or liabilities that the entity can access at the measurement date.

Level 2: Inputs other than quoted prices included within Level 1 that are observable (i.e. developed using market data) for the asset or liability, either directly or indirectly.

Level 3: Inputs are unobservable (i.e. for which market data is unavailable) for the asset or liability.

The Scheme’s investment assets and liabilities have been fair valued using the above hierarchy levels as follows:

As at 31 March 2016 Level 1 £’000

Level 2 £’000

Level 3 £’000

Total £’000

SHCL Section

Pooled investment vehicles - 103,387 4,109 107,496

Cash 175 - - 175

175 103,387 4,109 107,671

BCSPF Section


AVC investments - 36 389 425

Cash 749 - - 749

Other investment balances - - - -

749 610,763 30,583 642,095

Group DB Section


AVC investments - 771 916 1,687

Cash 558 - - 558

Other investment balances - - - -

558 512,181 29,042 541,781


Pooled investment vehicles - 91,904 - 91,904

- 91,904 - 91,904


47


20. Fair value determination (continued)

As at 31 March 2015 Level 1 £’000

Level 2 £’000

Level 3 £’000

Total £’000

SHCL Section


Cash 296 - - 296

296 107,303 3,966 111,565

BCSPF Section


AVC investments - 46 444 490

Cash 5,732 - - 5,732

Other investment balances 152 - - 152

5,884 636,390 22,324 664,598

Group DB Section


AVC investments - 846 1,003 1,849

Cash 1,037 - - 1,037

Other investment balances 128 - - 128

1,165 538,790 27,120 567,075


Pooled investment vehicles - 86,502 - 86,502

- 86,502 - 86,507

21. Investment risk disclosures

When deciding how to invest the Plan’s assets, the Trustee considers a wide range of risks, including

credit risk and market risk, as defined below.

Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other

party by failing to meet an obligation.

Market risk comprises currency risk, interest rate risk and other price risk, defined as follows:

Currency risk is the risk that the fair value or future cash flows of a financial asset will fluctuate

because of changes in foreign exchange rates.

Interest rate risk is the risk that the fair value or future cash flows of a financial asset will fluctuate

because of changes in market interest rates.


48


21. Investment risk disclosures (continued)

Other price risk is the risk that the fair value or future cash flows of a financial asset will fluctuate

because of changes in market prices (other than those arising from interest rate risk or currency

risk), whether those changes are caused by factors specific to the individual financial instrument

or its issuer, or factors affecting all similar financial instruments traded in the market.

The Trustee determined the Plan’s investment strategy after taking advice from its investment adviser.

The Plan has exposure to the aforementioned risks via the investments held to implement the

investment strategy. The Trustee manages investment risks, including credit risk and market risk,

considering the Plan’s investment objectives and strategy, and the advice of its investment advisers.

Within each investment portfolio, investment objectives and restrictions to manage risk are

implemented through the legal agreements in place with the Plan’s investment managers. The Trustee

monitors the performance of the strategy and associated risks, and each investment manager against

its objectives and restrictions, on a regular basis.

Further information on these risks and the Trustee’s approach to risk management is set out below.

This does not include AVC investments, as these are not considered significant in relation to the overall

investments of the Plan. However, it does reflect the Trustee’s approach to risk management within

both the DB and DC Sections.

Credit risk

The Plan invests mostly in pooled funds and is therefore directly exposed to credit risk in relation to the

solvency of the custodians of those funds. For the DB Section, the main investment manager is Legal

and General Investment Management (“L&G”).

Direct credit risk arising from pooled funds is mitigated by the underlying assets of the pooled funds

being ring-fenced from the investment managers, the regulatory environment in which the pooled fund

managers operate and diversification of the Plan’s investments across a number of pooled funds. The

Trustee carries out due diligence checks prior to the appointment of any new investment manager or

fund, and on an on-going basis monitor for changes to the operating environment of the existing pooled

funds.

The Plan increased the concentration of its credit risk exposure when a decision was taken by the

Trustee to transfer its holding in equities from BlackRock to L&G in June 2015, which increased the

amount of assets with L&G by £571m. The Trustee carried out due diligence on the protections in place

under investment with L&G before completing this transfer. The conclusion was that the Trustee was

comfortable to make this change.

The Plan is indirectly exposed to credit risks arising from the underlying investments held by the pooled

funds, where they invest in bonds. The indirect exposure to credit risk within the DB Section arises from

the Plan’s investments in the L&G corporate bond fund. The amount invested in this mandate is shown

in the Statement of Net Assets. The DB Section also invests in government bond funds, but the Trustee

does not view these as having material credit risk.

The bond funds of both the DB and DC Sections are passively managed. Therefore, in these funds

credit risk is managed by replicating a bond index that includes a diversified exposure to bond issuers,

restricted to bonds rated A or above. As such, indirect credit risk through exposure to the underlying

investments is managed by the managers avoiding exposure to those bonds that have a high risk of

defaulting.


49



Currency risk

As the Plan’s liabilities are denominated in Sterling, any non-Sterling currency exposure within the

assets presents additional currency risk.

Whilst the majority of the currency exposure of the Plan’s assets is to Sterling, the Plan is subject to

indirect currency risk because some of the Plan’s pooled investments are held in overseas markets.

The Trustee considers the overseas currency exposure in the context of the overall investment

strategy, and believes that the currency exposure that exists diversifies the strategy and is appropriate.

All of the Plan’s pooled funds are accessed via a Sterling share class. The Plan’s DB assets that are

invested in overseas markets are the L&G All World Equities Fund (£563.2m) and the CBRE Global

Alpha Fund (£34.8m). The DC Section assets that are exposed to indirect currency risk are the Global

Equity Fund, Emerging Markets Equity Fund and the Target Return Fund. The amount invested in each

of these funds is shown on page 22.

At the start of the year, the Trustee conducted a 50% currency hedge on the global equities held within

the DB Section. However, when these assets were switched to L&G in June 2015, the currency hedge

was increased to 100%, eliminating the currency risk associated with this portfolio.

The exposure to foreign currencies within the actively managed pooled funds (CBRE Global Alpha

Fund and Bayer Target Return Fund) will vary over time as the managers change the underlying

investments, but is not expected to be a material driver of returns over the longer term. Decisions about

the exposure to foreign currencies within these actively managed pooled funds are at the discretion of

the appointed fund managers. Foreign currency exposure within passive equity funds held by the DC

Section will vary over time according to the composition of each market index.

Interest rate risk

As the Plan invests predominantly in pooled funds, there is no direct exposure to interest rate risk. The

Plan’s assets that are invested in bond funds, totalling £597m, are subject to indirect interest rate risk.

However, for the DB Section, the interest rate exposure of the Plan’s assets hedges part of the

corresponding risks associated with the Plan’s liabilities. The net effect will be to reduce the volatility of

the funding level, and so the Trustee believes that it is appropriate to have exposures to these risks in

this manner.

Within the DB Section, the assets the Plan invests in with material exposure to changes in interest rates

are the L&G corporate bond, fixed interest gilt and index-linked gilt funds.

During the year, the Trustee agreed to put a trigger in place so that if the Plan’s funding level improves

sufficiently, it will switch assets from equity to bond portfolios. This will have the effect of increasing

interest rate risk of the Plan’s assets but also provide a higher level of matching to the corresponding

liability risk.

Within the DC Section, the investments in bond funds are intended to broadly reflect the movements in

annuity prices, so serve a similar purpose to those holdings in the DB Section.


50



Other price risk

As the Plan invests predominantly in pooled funds, there is no direct exposure to other price risk.

The Plan’s assets are exposed indirectly to risks of market prices other than currencies and interest

rates, such as the L&G equity pooled fund holdings being subject to movements in equity prices and

the CBRE property portfolio being subject to movements in property prices and currency risk for the

CBRE Global Alpha Fund totalling £598m. For the DB Section, most of the other price risk is indirectly

within the equity pooled fund. For the DC Section, exposure to other price risk is mainly indirect through

the Target Return Fund which is a combination of diversified growth funds. The Trustee believes that

the Plan’s assets are adequately diversified between different asset classes and within each asset

class to manage this risk.

The Plan’s exposure to these risks will vary over time depending on how the manager changes the

underlying asset allocation to reflect their market views.

The table below summarises the Plan’s exposure to these risks at the end of the year:

Defined Benefit Section

Credit risk Currency risk

Interest risk

Other price risk

L&G All World Equity Index Fund (GBP hedged)

● ● ○ ●

L&G Over 15 Year Gilts Index Fund ● ○ ● ○ L&G Over 15 Year Index-Linked Gilts Fund ● ○ ● ◐ L&G Corporate Bond Over 15 Year Index Fund ● ○ ● ○ L&G Liquidity Fund ● ○ ● ●

L&G Global Real estate Equity Index Fund ● ● ○ ●

CBRE UK Osiris Property Fund ● ○ ○ ●

CBRE Global Alpha Fund ● ● ○ ●


Credit risk Currency risk

Interest risk

Other price risk

Bayer Global Equity Fund ● ● ○ ●

Bayer UK Equity Fund ● ○ ○ ●

Bayer Inflation Protection Fund ● ○ ● ◐ Bayer Emerging Markets Equity Fund ● ● ○ ●

Bayer Corporate Bond Fund ● ○ ● ○

Bayer Long Dated Gilt Fund ● ○ ● ○

Bayer Property Fund ● ○ ○ ●

Bayer Target Return Fund ● ● ◐ ●

Fidelity BlackRock Cash Fund ● ○ ● ○

In the above tables, the risk noted affects the asset [●] significantly [◐] partially or [○] hardly/not at all.


51


22. Current assets



2016 £’000

Total

2016 £’000

SHCL

2016 £’000

BCSPF

2016 £’000

Group DB

2016 £’000

Contributions receivable - - 29 - 29

Cash at bank 205 21,422 3,294 140 25,061

Due from other sections - - - - -

Prepaid life assurance premiums - - 80 - 80

Death in service insurance receivable - - 257 - 257

Other debtors - 1 4 - 5

205 21,423 3,664 140 25,432


section 2015

£’000

Total

2015 £’000

SHCL

2015 £’000

BCSPF

2015 £’000

Group DB

2015 £’000

Contributions receivable 2 14 334 - 350

Cash at bank 184 20,555 2,797 2 23,538

Due from other sections - - 10 - 10

Prepaid life assurance premiums - - - - -

Death in service insurance receivable - - - - -

Other debtors - 2 39 - 41

186 20,571 3,180 2 23,939

The cash at bank asset under the DC section of the Plan, includes unallocated funds of £118,993

(2015: £1,650), being the portion of the fund that is not specifically allocated to members. All other

DC current assets and current liabilities are allocated to members.

Contributions receivable have subsequently been paid to the Plan by the due dates required by the

Schedules of Contributions.


52


23. Current liabilities


section 2016

£’000

Total

2016 £’000

SHCL

2016 £’000

BCSPF

2016 £’000

Group DB

2016 £’000

Retirement benefits 14 136 397 - 547

Death benefits - 1 257 - 258

CEPs due to HMRC 13 19 85 - 117

Accrued expenses 4 4 15 - 23

Taxation 38 316 - 21 375

Due to other sections - - - - -

69 476 754 21 1,320


section 2015

£’000

Total

2015 £’000

SHCL

2015 £’000

BCSPF

2015 £’000

Group DB

2015 £’000

Retirement benefits - 149 - - 149

Death benefits - 3 2 141 146

CEPs due to HMRC 13 19 85 - 117

Accrued expenses 18 119 88 - 225

Taxation 35 310 82 - 427

Due to other sections - 10 - - 10

66 610 257 141 1,074

24. Primary Statement Comparatives


section 2015

£’000

Total

2015 £’000

SHCL

2015 £’000

BCSPF

2015 £’000

Group DB

2015 £’000

Net (withdrawals)/additions

from dealings with members (2,535)

(6,885) (14,318) 8,124 (15,614)

Net returns on investments 20,236 113,742 101,806 8,566 244,350

Net increase in the Plan 17,701 106,857 87,488 16,690 228,736

Net assets of the Plan at start 93,984 577,702 482,510 69,673 1,223,869

Net assets of the Plan at end 111,685 684,559 569,998 86,363 1,452,605


53


25. Related party transactions

During the year four Trustee Directors were contributing members of the Plan. Employer’s

contributions are paid by the Employer in accordance with the rules of the Plan and the

recommendations of the Actuary. At the year end there were six Trustee Directors contributing to the

Plan.

During the year two Trustee Directors were in receipt of a pension from the Plan. Benefits are paid in

accordance with the rules of the Plan. At the end of the year two Trustee Directors were in receipt of a

pension from the Plan.

Fees of £30,247 (2015: £33,058) were paid in the year to BESTrustees, by the Plan, in respect of the

Independent Trustee Director. See Note 10 (page 38) for admin expenses payable for the year.

Fees and expenses paid to the Trustee Directors, as listed on page 2, are disclosed in Note 10 (page

38).

26. Post balance sheet events

During the year, the Trustee was made aware of the Company’s intention to make certain changes to

the pension (and associated) benefits it provides to its employees from 1 June 2016. During July 2016,

the Company closed the DC Section of the Plan to future contributions and instead offered employees

the opportunity to contribute to a new Master Trust arrangement. During July 2016, as part of the

changes, the members’ Retirement Accounts in the DC Section of the Plan were transferred to the

Master Trust arrangement.

The Trustee continues to work with its advisers on the transfer following the end of the Plan year,

including taking advice where necessary. Further information will be included in next year’s report.


54

Appendix 1: Summary Funding Statements SHCL Section of the Bayer Group Pension Plan

Valuation Results

The Trustee carries out an in-depth look at the Plan’s finances every three years (as a minimum). This is known

as a valuation. In years where a formal valuation is not carried out, an approximate review is carried out (which

is called an interim assessment).

This statement summarises the results of the valuation carried out as at 31 March 2014, and provides an

update to 31 March 2015.

To check the Plan’s funding position, the Actuary compares the amount needed to provide benefits due (the

technical provisions) against the assets (e.g. shares, bonds, property) it holds to pay them. If the value of the

assets is less than the value of the technical provisions, the Plan is in deficit. If the value of the assets is more

than the value of the technical provisions, the Plan is in surplus. The latest assessment of the Plan showed that,

on 31 March 2015, the funding positions of the SHCL Section, and the Plan as a whole, were as follows:

Change in the Funding Position

Although the funding position has fluctuated over the past two years, the surplus of £1m and funding level of

101% at 31 March 2015 is the same as it was at March 2013 (the date of the last Summary Funding Statement).


55

Appendix 1: Summary Funding Statements (continued) SHCL Section of the Bayer Group Pension Plan (continued)

What action is being taken to tackle the deficit?

The Trustee and Bayer are required to review and agree the contributions payable to the Plan at each formal

valuation. As part of the 2014 valuation, the Trustee agreed a revised ‘Recovery Plan’ with Bayer to make up

the deficit. However, no deficit contributions are payable to the SHCL Section as there was a surplus in the

Section at the 2014 valuation.

How is this Valuation Calculated?

To establish the value of the technical provisions and, in turn the assets and contributions the Plan will need, our

Actuary (Bob Scott of Lane Clark & Peacock) has to make a number of assumptions about the future. These

include:

• Future investment returns,

• Life expectancy rates,

• Future inflation expectations, and

• The demographics of the Membership.

A full set of assumptions is set out in the statement of funding principles which is available on request.

How is the amount the plan needs worked out?

The Trustee has agreed a funding policy with Bayer which is intended to provide enough money to pay benefits

as they are due. The amount of money which Bayer pays into the SHCL Section may go up or down following

the regular valuations by the Plan’s Actuary.

So long as the Plan continues and Bayer is willing and able to pay the necessary contributions, we expect to be

able to pay benefits in full, even though we currently have a deficit.


56

Appendix 1: Summary Funding Statements (continued) BCSPF Section of the Bayer Group Pension Plan (continued)

Valuation Results




This statement summarises the results of the valuation carried out as at 31 March 2014, and provides an update

to 31 March 2015.





on 31 March 2015, the funding positions of the BCSPF Section, and the Plan as a whole, were as follows:


Since March 2013 (the date of the last Summary Funding Statement), the deficit has reduced from £124m to

£79m. This means the funding level has improved from 82% to 90%. This reflects a positive return on the Plan’s

assets and the contributions paid by Bayer: these have more than offset the impact of falls in the returns

available on government bonds in the last year, and the corresponding increase in the technical provisions.


57

Appendix 1: Summary Funding Statements (continued) BCSPF Section of the Bayer Group Pension Plan (continued)

What action is being taken to tackle the Deficit?


valuation. As part of the 2014 valuation, the Trustee agreed a revised ‘Recovery Plan’ with Bayer to make up

the deficit. In March 2015, Bayer made a payment of £19.7m to the BCSPF Section and has committed to further

payments of £19.7m in 2016 and £11.0m each year from 2017 until 2019.

How is this Valuation calculated?



include:








as they are due. The amount of money which Bayer pays into the BCSPF Section may go up or down following

the regular valuations by the Plan’s Actuary.




58

Appendix 1: Summary Funding Statements (continued) For the Group DB Section of the Bayer Group Pension Plan (continued)

Valuation Results




This statement summarises the results of the valuation carried out as at 31 March 2014, and provides an update

to 31 March 2015.





on 31 March 2015, the funding positions of the Group DB Section, and the Plan as a whole, were as follows:


Since March 2013 (the date of the last Summary Funding Statement), the deficit has reduced from £52m to

£40m. This means the funding level has improved from 90% to 93%. This reflects a positive return on the Plan’s

assets and the contributions paid by Bayer: these have more than offset the impact of falls in the returns

available on government bonds in the last year, and the corresponding increase in the technical provisions.


59

Appendix 1: Summary Funding Statements (continued) For the Group DB Section of the Bayer Group Pension Plan (continued)

What Action is being taken to tackle the Deficit?


valuation.

As part of the 2014 valuation, the Trustee agreed a revised ‘Recovery Plan’ with Bayer to make up the deficit. In

March 2015, Bayer made a payment of £1.3m to the Group DB Section and has committed to further payments

of £1.3m in 2016 and £4.7m each year from 2017 until 2019.

How is this Valuation calculated?



include:








as they are due. The amount of money which Bayer pays into the Group DB Section may go up or down

following the regular valuations by the Plan’s Actuary.




60

Appendix 2: Actuary’s Certification of the Schedule of

Contributions

This certificate is provided for the purposes of Section 227(5) of the Pensions Act 2004 and Regulation

10(6) of the Occupational Pension Schemes (Scheme Funding) Regulations 2005.

Name of Scheme: Bayer Group Pension Plan - SHCL Section

Adequacy of rates of contributions

1. I certify that, in my opinion, the rate of contributions shown in this schedule of contributions are such that the

statutory funding objective can be expected to be met for the period for which the Schedule if to be in force.

Adherence to statement of funding principles

2. I hereby certify that, in my opinion, this schedule of contributions is consistent with the Statement of Funding

Principles dated 25th June 2015.

The certification of the adequacy of the rates of contributions for the purpose of securing that the statutory

funding objective can be expected to be met is not a certification of their adequacy for the purpose of

securing the Plan’s liabilities by the purchase of annuities, if the Plan were to be wound–up.

Signature: I R H Scott

Name: IRH Scott

Qualification: Fellow of the Institute of Actuaries

Date of signing: 30th June 2015

Address: Lane Clark & Peacock LLP

95 Wigmore Street

London

W1U 1DQ

In giving the above opinion I have interpreted the phrase “can be expected to continue to be met” as being

satisfied by consideration of the proposed contributions under the economic and demographic scenario implied

by the trustee’s funding assumptions as set out in their Statement of Funding Principles dated 25 th June 2015

and without any further allowance for adverse contingencies that may arise in the future. My opinion does not

necessarily hold in any other scenarios.


61

Actuary’s Certification of the Schedule of Contributions (continued)



Name of Scheme: Bayer Group Pension Plan – BCSPF Section


I certify that, in my opinion, the rate of contributions shown in this schedule of contributions are such that the

statutory funding objective can be expected on 31 March 2014 to be met by the end of the period specified in the

recovery plan dated 25th June 2015.


I hereby certify that, in my opinion, this schedule of contributions is consistent with the Statement of Funding



funding objective can be expected to be met is not a certification of their adequacy for the purpose of securing

the Plan’s liabilities by the purchase of annuities, if the Plan were to be wound–up.


Name: IRH Scott




95 Wigmore Street

London

W1U 1DQ



by the trustee’s funding assumptions as set out in their Statement of Funding Principles dated 25 th June 2015



Furthermore, I have taken no account of either adverse of beneficial outcomes that have become known to me

since the effective date of the valuation. However, I have taken account of contributions that are payable to the

Section between the effective date of the valuation and the date that I have certified as documented in the

Schedule of Contributions.


62

Actuary’s Certification of the Schedule of Contributions (continued)



Name of Scheme: Bayer Group Pension Plan – Group DB Section


I certify that, in my opinion, the rates of contributions shown in this schedule of contributions are such that the

statutory funding objective can be expected on 31 March 2014 to be met by the end of the period specified in the

recovery plan dated 25th June 2015.


I hereby certify that, in my opinion, this schedule of contributions is consistent with the Statement of Funding



funding objective can be expected to be met is not a certification of their adequacy for the purpose of securing

the Plan’s liabilities by the purchase of annuities, if the Plan were to be wound–up.


Name: IRH Scott




95 Wigmore Street

London

W1U 1DQ



by the trustee’s funding assumptions as set out in their Statement of Funding Principles dated 25th June 2015



Furthermore, I have taken no account of either adverse of beneficial outcomes that have become known to me

since the effective date of the valuation. However, I have taken account of contributions that are payable to the

Section between the effective date of the valuation and the date that I have certified as documented in the

Schedule of Contributions.


63

Appendix 3: DC Section Statement of Investment Principles

1. Introduction

The Silver Birch Trustee Limited (“the Trustee”) of the Bayer Group Pension Plan (the ‘Plan’) has adopted

this Statement of Investment Principles (the ‘Statement’) in order to fulfil its obligations under the

Pensions Act 1995 as amended by the Pensions Act 2004 (“the Act”). The Plan consists of the following

four sections:

Group DB Section

SHCL Section

BCSPF Section

DC Section

This document deals solely with the DC Section.

Under the current arrangements the assets of each section are ring fenced to reflect the fact that liabilities

of each underlying section are different in nature.

The Trustee has sole responsibility for decisions regarding the Plan’s investment arrangements. The

Trustee’s investment responsibilities are governed by the Plan’s Trust Deed, of which this Statement

takes full regard.

Investments in the DC section of the Plan are administered and delivered via an Investment Platform

currently hosted by Fidelity.

The Trustee has consulted with Bayer Plc (“the Company”) in its capacity as the Sponsoring

Employer, regarding the investment policy set out in this document.

In establishing the DC Sections’ investment arrangements, the Trustee has:

had regard to the requirements of the Act, in particular those concerning diversification and suitability

of investments; and

sought advice from the Investment Consultant.

In preparing this Statement, the Trustee has:

complied with the requirements of the Act regarding the content of Statements of Investment

Principles;

incorporated (where applicable) the recommendations in the Myners Review regarding the content of

Statements of Investment Principles; and

received written advice from the Investment Consultant, who the Trustee believe to be suitably qualified

and experienced to provide such advice. The advice takes into account the suitability of investments

and the need for diversification, given the circumstances of the Plan and the principles contained in this

SIP.

In accordance with the Financial Services and Markets Act 2000, the Trustee will set general investment

policy, but will delegate the responsibility for selection of specific investments to an appointed investment

manager or managers. The investment manager(s) shall provide the skill and expertise necessary to

manage the investments of the DC Section competently.

Copies of this document have been given to the Company, the Investment Consultant and the Investment

Managers. Copies are available to members of the Plan on request.


64

Appendix 2: DC Section Statement of Investment Principles (continued)

1. Introduction (continued)

The Trustee has considered and agrees with the Institutional Shareholders Committee Statement of

Principles on the responsibility of shareholders but the application of the Principles are at the discretion of

the investment manager with the aim to adhere to the best possible financial return for the DC Section.

The Trustee will obtain advice on retained investments (eg pooled funds) of the DC Section from the

Investment consultant.

The Trustee will, from time to time, review the appropriateness of this SIP with the help of its advisers, and

will amend the SIP as appropriate. These reviews will take place as soon as practicable after any

significant change in investment policy, and at least once every three years.

2. Governance

The Trustee has ultimate responsibility for decision-making on investment matters. In order to ensure that

investment decisions are taken only by persons or organisations with the skills, information and

resources necessary to take them effectively, the Trustee delegates some of these responsibilities.

Responsibility for all day-to-day investment decisions is delegated to the Investment Managers. The

Trustee retain direct responsibility for other investment matters including:

establishing appropriate governance arrangements;

determining the DC Section’s investment objectives and strategy;

determining the DC Section’s investment options and any asset allocation benchmarks required in those

options;

reviewing the content of this Statement of Investment Principles and modifying it if deemed

appropriate, in consultation with the Investment Consultant and the Company; and

reviewing investment policy in light of advice received from the investment consultant and/or the

DC subcommittee.

A list of the Trustee’s current advisers and Investment Managers etc is provided in Appendix A. A

summary of the responsibilities of the Investment Consultant, Investment Managers, Platform Provider and

Administrator is provided in Appendix B.

DC Sub Committee (“DCSC”)

The Trustee of the Plan has appointed a DC Sub-Committee (“DCSC”). The responsibilities of the DCSC

are set out in the DCSC’s Terms of Reference, which, in regard to investment, are summarised below:

determining the DC Section’s investment management structure according to the investment options

and strategies set by the Trustee;

determining the mandates for the DC Section’s investment managers;

appointing (and dismissing) investment managers, platform provider, administrators and

consultants; and

monitoring the DC Section’s investment arrangements on a regular basis.


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3. Investment objectives of the DC Section

Introduction

The Trustee recognises that different investment policies are appropriate in respect of Defined Benefit

and Defined Contribution entitlements.

Objectives of the Defined Contribution Section

The Trustee’s investment objectives are as follows:

the provision of a range of self-select investment funds to accommodate the needs of different

members. The Trustee is satisfied that the investment options available are wide enough to satisfy

the reasonable return and risk combinations appropriate for most members. The objective of each self-

select investment funds are set out in the Funds’ Investment Policy in Appendix C.

the provision of lifestyle strategies for members who do not wish to make their own investment

decisions.

The Trustee has set the following investment objectives for the Growth phase of the lifestyle strategies:

To aim to achieve growth in excess of price inflation over the long term.

To aim to provide long-term equity-like growth but with less fluctuations that global equity markets.

The Trustee has set the following investment objectives for the De-risking phase of the lifestyle strategies:

To aim to provide some protection from falling capital values.

To aim to provide some alignment with movements in annuity rates.

To aim to provide some protection from price inflation.

AVCs

The Plan provides a facility for a closed group of members to pay AVCs into the Plan to enhance the

benefits at retirement. The AVC’s are invested on a DC basis. In keeping with their policy for the main

Plan, the Trustee policy is to seek to achieve the objective through investing in a suitable mixture of real

and monetary assets.

4. Manager structure and investment strategy

The Trustee has considered the use of both passive and active investment management when developing

and reviewing the DC Section’s strategy. The resultant allocation to active and passive management

is formed following consideration of the efficiency, liquidity and level of transactions costs likely to prevail

within each market as well as the impact of the investment manager fees on future expected returns net of

fees.

The Defined Contribution Section currently provides a range of funds through Fidelity, a platform provider

who also provides the Plan’s administration. The Trustee contracts with Fidelity via an insurance policy.

The expectation is that the Investment Managers should achieve their objectives in the majority of three

year periods under consideration. The managers should demonstrate that the skill they exercise in

managing the portfolio and the process they follow are both consistent with these objectives given the

level of risk adopted.


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4. Manager structure and investment strategy (continued)

The Investment Managers also notify the Trustee in advance of any new investment categories in which

they are proposing to invest.

The investment managers have discretion over the timing of realisation of investments of the Plan and in

considerations relating to the liquidity of investments. When appropriate, the Trustee, on the administrators’

recommendation, decides on the amount of cash required for benefit payments and other outgoings and

informs the investment manager of any liquidity requirements.

The Investment Managers are paid a fee for their services. For all the managers, the fee is paid on the

basis of assets under management.

The Trustee, with the help of its advisers and in consultation with the employer, undertake a review of

investment strategy from time to time, particularly after any changes significant to the Plan, taking into

account the objectives described in Section 3 above.

In setting the strategy, the Trustee considered:

The suitability of the offering for the membership;

a wide range of asset classes;

the risks and rewards of different strategies;

the suitability of each asset class within each strategy, both across asset classes and within asset

classes;

the need for appropriate diversification between different asset classes; and

the views of the sponsoring employer.

The Trustee currently offers three lifestyle strategies: these strategies switch from growth assets to lower

risk assets over periods of five, ten and fifteen years before the member’s target retirement age. The ten

year lifestyle strategy is the default investment strategy for members who do not wish to make an

investment choice.

The Trustee is satisfied that the investment options available are of appropriate liquidity and diversification

to be reasonably expected to generate income and capital growth that, together with new contributions from

members and the Company, will provide a fund at retirement from which members can draw their benefits.

5. Other matters

Social, environmental and ethical issues

The Trustee has delegated responsibility for the selection, retention and realisation of investments to the

Investment Managers. The Trustee’s policy is that the extent to which social, environmental or ethical

considerations are taken into account in these decisions is left to the discretion of the Investment

Managers.

The Trustee expects that the extent to which social, environmental or ethical issues may have a

financial impact on the portfolio will be taken into account by the Investment Managers in the exercise of

their delegated duties. It is not, however, expected that the passive Investment Manager employed by

the DC Section will take such matters into account.


67


5. Other matters

Rights attaching to investments

The Trustee’s policy is to delegate responsibility for the exercising of rights (including voting rights)

attaching to investments to the Investment Managers.

The Trustee is satisfied that the Investment Managers have an explicit strategy elucidating the

circumstances in which they will intervene in a company, the approach they will use in doing so and how

they will measure the effectiveness of this strategy.

6. Monitoring

The Trustee recognises the importance of monitoring the DC Section’s investment arrangements. The

Trustee therefore:

reviews the investment policy for the DC Section following significant changes to the DC sections (for

example changes to the contribution structure) or any significant changes to the membership of the Plan;

assesses the quality of the performance and processes of the Investment Managers and platform

provider by reviewing the investment results and other information;

monitors the DC Section’s custodial arrangements;

monitors compliance of the investment arrangements with this Statement;

reviews this Statement at least tri-annually; and

consults with the Company before amending this Statement.

The Trustee has agreed performance objectives with each manager, and timescales over which these

are measured. These are detailed in Appendix C.

The Trustee, following advice from the Investment Consultant, has identified the criteria by which managers

should be selected (or de-selected). These include (in no specific order of importance):

Past performance: acceptable variability in relation to Investment Manager’s style.

Business:

• supportive ownership from a parent committed to investment management.

• evidence of clear strategic direction.

People:

• high calibre, experienced professionals.

• relatively low staff turnover.

• evidence of clear commitment to house culture.

• strong recruitment/training plans.


68


6. Monitoring (continued)

Process:

• effective approach to accessing/interpreting research.

• robust, repeatable process.

• process consistent with the stated philosophy.

Role suitability:

• level of fees.

• reputation of the manager.

• familiarity with the mandate.

• internal objectives and restrictions of any pooled funds

Services:

• reporting.

• administration.

The Trustee employs an independent agency (Fidelity) to measure the Investment Managers’

performance against these objectives. They provide a quarterly review of the investment performance of

the DC Section’s Investment Managers.

7. Risk management

The Trustee recognises a number of risks involved in the investment of the assets of the DC Section:

Solvency risk and mismatching risk –

• are measured through a qualitative and quantitative assessment of the expected development of

the assets relative to the amount of pension a member could reasonability expect to receive under

current and alternative investment policies. Addressed for the DC Section through the choice of the

benchmark and asset classes set out in appendix C

• are managed through assessing the progress of the actual growth of the assets relative to annuity

prices under current and alternative investment policies

Manager risk –

• is measured by the expected deviation of the prospective risk and return, as set out in the

manager’s objectives, relative to the investment policy

• is managed through the diversification of the DC Section’s assets between active and passive

managers, the performance objectives set out in Appendix C, the ongoing monitoring of the

managers and the negotiation of suitable Investment Management Agreements as well as a

number of qualitative factors supporting the manager’s investment process.


69


7. Risk management

Investment risk close to retirement –

• is measured by the level of investment value stability required by the member in the period prior to

purchasing an annuity and the liquidity of investment classes during the same period

• is managed by the use of Lifestyle investment strategies and member education for those using the

self select investment option.

Political risk –

• is measured by the level of concentration of any one market leading to the risk of an adverse

influence on investment values arising from political intervention

• is managed by regular reviews of the actual investments relative to policy and through regular

assessment of the levels of diversification within the existing policy.

Custodial risk –

• is measured by assessing the credit-worthiness of the investment managers and platform

administrator and the ability of these organisations to settle trades on time and provide secure

safekeeping of the assets under custody

• is managed by monitoring the platform administrator’s activities and discussing the performance of

the Platform Administrator with the investment managers when appropriate. In addition, restrictions

are applied as to who can authorise transfers of cash and the accounts to which transfers can be

made.

Cash risk – addressed for the DC Section through the guidelines with the managers with respect

to the managers’ policy on diversification of cash deposits.

Inappropriate investments – constraints on derivatives, stock-lending, gearing specific assets, and

illiquid assets ensure that the funds are not overly exposed to a single investment management style.

Currency risk

• is measured by the level of overseas investment and the translation effect of currencies leading to

the risk of an adverse influence on investment values.

Sponsor/Employer risk

• is measured by the level of ability and willingness of the Company to support the continuation of

employer contributions.

• is managed by assessing the interaction between the DC Section and the Company’s business, as

measured by the number of factors, including the creditworthiness of the Company.

Inflation risk –

• is the risk that assets does not provide a return at least in line with inflation, such that purchasing

power is not maintained. This is managed through the Lifestyle strategy and is also a matter for

members to consider when purchasing an annuity at retirement.

• is managed by strategy modelling in consultation with the Investment Consultant.


70


7. Risk management

The Trustee/DCSC continues to monitor these risks and any other risks that may arise with the assistance

of the Investment Consultant. It may add to this list any new significant risk categories.

These measures do not render the investment policy free of risk. Rather, the measures endeavour to

balance the need for risk management and the need to allow the Investment Managers sufficient flexibility

to manage the assets in such a way as to achieve the required performance target.


71

Current Advisers and Investment Managers Appendix A

Investment Consultant: Lane Clark & Peacock LLP

Investment Managers: See Appendix C

Investment Platform Provider: Fidelity

Administrator: Fidelity

Solicitors: CMS Casmeron McKenna


72

Division of Responsibilities Appendix B

Investment Managers

The Investment Managers’ principal responsibilities are:

At their discretion, but within any guidelines given by the Trustee, implementing changes in the asset mix,

selecting securities and buying and selling investments.

Informing the Trustee of any changes in the internal performance objective and guidelines of any pooled

fund used by the DC Section as soon as practicable.

Having regard to the need for diversification of investments and to thesuitability of investments.

Giving effect to the principles contained in the Statement.

Platform provider and Administrator

The Platform Administrator’s responsibilities include:

Ensuring the manager’s safekeeping of assets.

Processing the settlement of transactions and investment changes.

Providing the Trustee with statements of the assets and the cashflows.

Undertaking all appropriate administration of the investment funds.

Provision of an investment platform.

Provision of a platform whereby members can check the performance of their individual portfolio against

target.

Provision of a help desk facility.

Dealing with corporate actions.

Providing a quarterly review of investment performance of the Investment Managers.

Investment consultant

The Investment Consultant’s principal responsibilities are:

Participating with the Trustee in tri-annual reviews of this Statement of Investment Policy in consultation

with the Scheme Actuary.

Provision of performance measurement services in conjunction with the performance measurer.

Undertaking project work as required including reviews of investment policy and investment managers.

Advising on the termination of incumbent managers and the selection of new managers.

Advising the Trustee on retained investments of the DC Section (eg pooled funds).


73

Division of Responsibilities (continued)

Members

The Members’s responsibilities with regard to investment are:

Selection of which lifestyle strategy or self select option they wish to adopt.

Monitoring Investment Performance (i.e. through Fidelity’s plan viewer) against personal investment return

targets.

Self Selection of their Investment Strategy on the Investment Platform.

Deciding on the level of personal contribution and planned retirement age.

At retirement using the pot accumulated in the Plan to provide income in retirement.

Informing the Administrator of any changes in personal details.


74

Investment Manager Arrangements Appendix C

Defined Contributions Section

Self Select Options

The following self select funds are available to members:

Fund Name Underlying Fund(s) Investment Policy

Bayer Target

Return Fund

50% Standard Life

GARS Fund and 50%

Newton Real Return

Fund

The underlying funds invest in a wide range of assets classes including

equities, bonds, commodities, cash and derivatives. Based on the underlying

funds’ objectives, the fund broadly aims to achieve a return of 4% pa over

cash (as measured by 1 month LIBOR) over rolling 5 year periods.

Bayer Global Equity

Fund

BlackRock Global

Equity 50/50 Fund

The fund invests 50% in UK equities and 50% in overseas equities. The

overseas equities are split equally between the US, Europe (ex UK), and the

Far East. The Fund aims to achieve a return consisted with a weighted

combination of the relevant FTSE World Indices.

Bayer UK Equity

Fund

BlackRock UK Equity

Index Fund

The fund invests in UK equity and aims to achieve returns in-line with FTSE

All-Share Index

Bayer Emerging

Markets Fund

BlackRock Emerging

Market Equity Index

Fund

The fund invests in the equities of emerging market economies. It aims to

track the MSCI Global Emerging Market Index.

Bayer Property Fund Threadneedle

Property Fund

The fund invests primarily in UK property, including retail and office buildings,

and industrial property. The fund aims to achieve returns that are 1-1.5% or

more above those of the average property fund as calculated by

Russell/Mellon CAPS over rolling three-year periods.

Bayer Corporate

Bond Fund

BlackRock Corporate

Bond Index Fund All

Stocks

This fund invests in investment grade corporate bonds denominated in

sterling. The fund aims to achieve a return consistent with the iBoxx £ Non-

Gilts Index. This index covers the broad spectrum of investment grade

corporate bonds in issue.

Bayer Long Dated

Gilt Fund

BlackRock Over 15

Years UK Gilt Index

Fund

The fund invests in fixed interest gilts with more than 15 years to maturity.

The fund aims to achieve a return consistent with the FTSE UK Gilts Over 15

years Index.

Bayer Inflation

Protection Fund

BlackRock Over 5

Years Index Linked

Gilt Index Fund

The fund invests in index-linked gilts with more than 5 years to maturity. The

fund aims to achieve a return consistent with the FTSE UK Gilts Index-Linked

Over 5 Years Index.

Fidelity BlackRock

Cash Fund

BlackRock Cash

Fund

The fund aims to achieve returns in line with the 7day LIBID by investing in a

diversified portfolio of money market instruments.


75

Investment Manager Arrangements (continued)

Defined Contributions Section (continued)

Lifestyle Strategies

The three “Lifestyle” strategies have switching periods of five, ten and fifteen years respectively.

The key features of the Lifestyle strategies are:

In the Growth phase, the assets are invested in 50% in Bayer Target Return Fund, 5% in the Bayer

Emerging market equity Fund and 45% in the Bayer Global Equity Fund (50/50).

In the De-risking phase (that is the switching period leading up to the member’s selected retirement age),

the assets are switched into bonds (split between inflation linked gilts (Bayer Inflation Protection Fund),

corporate bonds (Bayer Corporate Bond Fund) and fixed interest gilts (Bayer Long Dated Gilt Fund)), and

cash (BlackRock (formerly BGI) Cash Fund).

The 10 year Lifestyle is the default strategy.

trustee’s annual report and financial statements for the ... · for the year ended 31 march 2016...

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